Cryptocurrency-focused venture investment surged to $4.65 billion in the third quarter, marking the second-strongest period since the collapse of FTX in late 2022, which had severely dampened investor appetite for the sector. Galaxy Digital’s research head, Alex Thorn, noted in a Monday report that funding volumes jumped 290% from the previous quarter, making Q3 the busiest period since Q1’s $4.8 billion.

As he put it, “Despite remaining below 2021-2022 bull market levels, venture activity remains active and healthy overall. Sectors like stablecoins, AI, blockchain infrastructure, and trading continue to draw deals and dollars, and pre-seed activity remains consistent.” The spike in activity comes after a prolonged slowdown in cryptocurrency venture allocations following the exposure of FTX’s large-scale fraud and subsequent bankruptcy.

Capital concentrated in a few major deals

Across the quarter, 414 venture deals were recorded, although only seven accounted for half of all capital raised. These included a $1 billion raise by fintech firm Revolut, $500 million for Kraken, and $250 million for crypto-focused U.S. bank Erebor.

More mature firms founded around 2018 captured the bulk of total funding, while the highest number of deals went to companies launched in 2024. Thorn highlighted the shift in early-stage dynamics, stating, “Pre-seed deal count as a percentage has trended down consistently as the overall industry has matured.” With traditional firms adopting crypto and many funded startups finding market fit, he said it is increasingly likely “that the golden era of pre-seed crypto venture investing has passed.”

ETFs and treasuries compete with VC allocations

Historically, venture activity moved in close alignment with crypto asset prices, particularly during the 2017 and 2021 bull cycles. Thorn noted that this relationship has weakened in the past two years, with prices rising while venture deployment stayed muted. He attributed the stagnation to several factors: fading enthusiasm for once-trendy areas like gaming, NFTs, and Web3; intense competition from AI startups; and higher interest rates reducing appetite for early-stage investment.

Another factor may be the rise of spot cryptocurrency ETFs and digital asset treasuries. Large institutions—pension funds, hedge funds, and other allocators—are increasingly using these liquid vehicles to gain exposure instead of investing in early-stage companies. As Thorn said, some institutions “may be gaining exposure to the sector via these large, liquid vehicles rather than turning to early-stage VC investing.”

Macro conditions continue to constrain allocators, but Thorn believes upcoming regulatory shifts could revive interest in crypto venture opportunities.

United States leads global VC activity

Nearly half (47%) of all capital deployed in Q3 went to U.S.-based companies, with the U.K. following at 28% and Singapore at 3.8%. The U.S. also led in number of deals, representing 40% of the total, with Singapore and the U.K. trailing.

Despite regulatory challenges in recent years, the U.S. has historically dominated crypto venture activity, and Thorn expects that position to strengthen under the more crypto-supportive Trump administration. He noted, “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.”

Sources:

https://cointelegraph.com/news/blockchain-venture-funding-rebounds-q3-crypto-startups-2024

https://www.galaxy.com/insights/research/crypto-blockchain-venture-capital-q3