2024 Encryption Venture Capital Market Panorama Analysis

In 2024, the encryption market experienced significant growth. The launch of spot Bitcoin ETFs and a supportive political environment for encryption were driving factors. The market capitalization of liquid cryptocurrencies reached $3.4 trillion by the end of the year, an 88% increase year-on-year. Bitcoin's market capitalization approached $2 trillion, contributing 62% to the total increase. The memecoin and AI token craze also played a role, particularly on the Solana chain.

Despite the market recovery, the encryption venture capital sector still faces challenges. Mainstream trends such as Bitcoin, memecoins, and AI tokens offer limited investment opportunities. The allure of once-popular areas like DeFi, gaming, and the metaverse has declined. Established infrastructure companies are facing competition from traditional financial institutions. Emerging trends like stablecoins, tokenization, and the fusion of DeFi and TradFi hold promise but are still in the early stages. Macroeconomic pressures are also hindering high-risk investments.

In the fourth quarter of 2024, venture capital invested $3.5 billion in encryption startups, a quarter-on-quarter increase of 46%, but the number of transactions fell by 13% to 416. The total investment for the year reached $11.5 billion, with 2,153 transactions. The market is expected to rebound in 2025, with annual investments possibly exceeding $18 billion. The institutionalization of Bitcoin, the development of stablecoins, and regulatory progress will be the focus of innovation.

The infrastructure sector dominated crypto venture capital in 2024, attracting over 610 deals and $5.5 billion in funding. Key areas include L2 scaling solutions, modular technology, and more. NFT and gaming financing reached $2.5 billion, slightly higher than in 2023. Web3 financing totaled $3.3 billion, driven by emerging trends such as SocialFi, encryption AI, and DePIN. The revival of DeFi is evident, with the number of financing deals increasing by 85% year-on-year.

The most active investors include Animoca Brands, OKX Ventures, and others. Among the angel investors, Sandeep Nailwal, the founder of Polygon, is the most active.

In 2024, fundraising for encryption risk funds is sluggish, with 79 new funds raising $5.1 billion, hitting a new low since 2020. The trend for medium-sized funds of $1 billion to $5 billion is evident. Paradigm's Fund III is the largest closed-end fund of the year.

Investment projects worth paying attention to include Monad, Farcaster, Berachain, etc. AI integration, Bitcoin DeFi, and dedicated blockchains are key trends for the future.

Overall, the venture capital landscape for encryption in 2024 is cautiously optimistic, showing a rebound in fundraising activities and growing institutional interest. The shift towards medium-sized funds and the dominance of emerging funds indicate that the industry is maturing. Although there has been a short-term decline, the continued focus on early-stage investments and emerging trends highlight the resilience of the ecosystem, suggesting that new momentum may be on the horizon.