Key Takeaways:
- Crypto venture capital investment jumped 290% quarter-over-quarter, reaching $4.65 billion in Q3.
- Established companies and blockchain infrastructure are attracting the most investment.
- The United States accounts for the largest share of crypto venture capital activity.
Crypto Venture Capital Investment Rebounds in Q3
Crypto-focused venture capital investment witnessed a substantial surge in the third quarter, reaching $4.65 billion. This figure represents the second-highest level of activity since the collapse of the crypto exchange FTX in late 2022, which decimated venture bets on crypto.
Galaxy Digital’s head of research, Alex Thorn, stated in a report released on Monday that Q3’s venture bets represent a 290% quarter-over-quarter jump and the largest quarter since Q1, which saw $4.8 billion in investments.
“Despite remaining below 2021-2022 bull market levels, venture activity remains active and healthy overall,” Thorn commented. “Sectors like stablecoins, AI, blockchain infrastructure, and trading continue to attract deals and dollars, and pre-seed activity remains consistent.” This growing investment activity emerges amidst a lull period for crypto venture capital, which largely pulled back from the industry following the uncovering of FTX’s massive fraud in November 2022, leading to the exchange's bankruptcy.
Small Number of Deals Attracted Most Funding
Q3 saw 414 venture deals, with seven of them accounting for half of the capital raised over the quarter. These included financial technology company Revolut, which attracted $1 billion, crypto exchange Kraken with $500 million, and crypto-focused US bank Erebor with $250 million.
Meanwhile, established companies, those founded in 2018, accounted for most of the capital raised, while companies founded in 2024 accounted for the highest number of deals.
“Pre-seed deal count as a percentage has trended down consistently as the overall industry has matured,” Thorn explained. “With crypto being adopted by established traditional players, and a large cohort of venture-backed firms having found market fit, it’s increasingly likely that the golden era of pre-seed crypto venture investing has passed.”
VC Capital Stagnates as ETFs & Crypto Treasuries Take Focus
Prior bull runs in 2017 and 2021 featured a high correlation between VC activity and liquid crypto asset prices, but Thorn noted that for the last two years, activity has been more subdued while prices have risen. “The venture stagnation is due to a number of factors, such as waning interest in previously hot crypto VC sectors like gaming, NFTs, and Web3; competition from AI startups for investment capital; and higher interest rates, which disincentivize venture allocators broadly,” he added.
Spot exchange-traded products (ETPs) and digital asset treasury companies (DATs) could be competing with investor interest in crypto. High-profile investments in spot-based Bitcoin ETPs by large investors like pension funds and hedge funds suggest some “may be gaining exposure to the sector via these large, liquid vehicles rather than turning to early-stage VC investing,” Thorn said.
US Saw Most Crypto VC Activity
During the quarter, 47% of the capital invested went to companies headquartered in the United States, compared to 28% in the United Kingdom and 3.8% in Singapore. The US also accounted for 40% of deals completed, followed by Singapore with 7.3%, and the UK with 6.8%.
Thorn stated that despite a previously hostile regulatory environment, the US has historically accounted for the most deals and capital invested, and he anticipates that trend to continue under a more crypto-friendly administration. “We expect US dominance to increase, particularly now that the GENIUS Act is law and especially if Congress can pass a crypto market structure bill, which would further entice traditional US financial services firms to enter the space in earnest.”
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