The crypto venture capital market tells a tale of two trajectories. While digital asset prices staged an impressive recovery in 2024, VC investment in blockchain startups remained surprisingly sluggish, according to a new report from Mike Novogratz’s crypto merchant bank Galaxy Digital.
In a research note published Wednesday, Galaxy analysts highlighted the stark disconnect between surging cryptocurrency values and persistently depressed venture funding levels over the past two years. It’s a trend that has industry insiders scratching their heads and debating the underlying causes.
Venture Funding Lags Crypto Asset Rally
The topline numbers paint a clear picture. Total capital allocated to crypto VC funds in 2024 amounted to $11.5 billion, falling short of the prior year’s tally. This continued a pattern of stagnant VC activity stretching back to 2023, even as digital asset prices embarked on a fresh bull run.
Drilling down, Q4 2024 saw $3.5 billion invested across 416 deals—a 46% uptick quarter-over-quarter but still muted compared to the fundraising frenzy of previous crypto market spikes. As Galaxy’s analysts note, venture funding levels were tightly correlated to crypto prices during the bull runs of 2017 and 2021.
“For the last two years activity has remained depressed while cryptos have rallied,”
– Galaxy Digital Research
Theories for the VC-Price Divergence
So what explains this puzzling detachment between crypto asset prices and VC deal-making? Galaxy’s report outlines a few possible factors:
- Barbell market dynamics: With Bitcoin and its newly launched spot ETFs dominating on one end and speculative memecoins garnering attention on the other, the market has bifurcated, sidelining venture investments.
- Substitution effect: Some major investors may be opting to gain crypto exposure via spot Bitcoin ETF products rather than higher-risk, early-stage VC bets.
- Regulatory overhang: Uncertainty around the future regulatory treatment of key sectors like stablecoins and DeFi is giving VCs pause and delaying allocation decisions.
Green Shoots in AI and Regulation
The report did highlight some potential bright spots on the horizon. Galaxy noted budding enthusiasm for new projects at the intersection of artificial intelligence and crypto—a trend to watch in 2025. Additionally, pending regulatory clarity in the U.S. and Europe could open up fresh opportunities in areas like stablecoins, decentralized finance, and asset tokenization.
On a geographic basis, the United States accounted for the lion’s share of deals and capital invested in Q4. Early-stage rounds made up 60% of total funding for the quarter, with stablecoin issuers attracting the largest share of invested capital.
Waiting for the VC Rebound
With total venture funding coming in at $11.5 billion for 2024, the crypto VC space finds itself in a holding pattern. A realm once known for its ebullience and risk-taking has turned cautious, even as the tides of digital asset markets have shifted back to bullish territory.
As ever in the mercurial crypto industry, change is the only constant. Galaxy’s analysts are eyeing developments in AI, regulation, and institutional investor appetite as potential catalysts to jolt venture funding out of its current malaise. Until then, the crypto VC boom times remain elusive, an anomaly in a space known for its exuberance and resilience.
