In 2024, crypto venture capital (VC) fundraising is showing signs of recovery, with fund raised so far this year on pace to exceed 2023’s total of US$2.6 billion for 49 funds, new data released by PitchBook show.

As of July 30, 2024, US$2.2 billion had been secured across 24 funds and numerous large funds are still actively being raised. This will contribute to larger fundraising totals in the next 12-18 months and reveals a positive outlook for VC fundraising for the rest of the year, the PitchBook report says.

Crypto VC fundraising had a tough year 2023 after reaching an all-time high of US$23.7 billion raised in 2022. The sum was almost double the US$14.8 billion amassed in 2021 and surpassed the aggregate sum of the previous eight years, which totaled US$22.7 billion.

However, the spike in fundraising in 2022 was followed by a steep decline in 2023, with fundraising volumes plummeting by a staggering 88.9%.

In 2024, the market began to rebound, owing to a number of factors. First, the total crypto market cap recovered, reaching 93% of its previous cycle’s high in March 2024. Second, a number of projects funded during the 2020-2022 boom matured and are now entering more advanced stages of development, offering more attractive investment opportunities.

In addition, negative sentiment within the crypto industry has subsided this year, driven by the adoption of digital assets by trusted, traditional financial institutions such as BlackRock, Fidelity Investments, and Franklin Templeton.

In January 2024, the US Securities and Exchange Commission (SEC) approved 11 spot bitcoin ETFs from asset managers including BlackRock, Invesco and Fidelity Investments, marking a significant milestone for the broader crypto industry. These regulated investment funds, now traded on traditional securities exchanges, allow investors to gain exposure to bitcoin without directly owning the cryptocurrency, thereby broadening access for everyday investors and further integrating digital assets into mainstream finance.

Fund sizes increase though megafunds lack

Highlighting trends in crypto VC fundraising, PitchBook notes that the size of investment funds in the crypto industry has evolved throughout the years. Initially, smaller funds dominated the young and nascent market. After 2020, as the market developed, larger funds started emerging with midsized funds worth US$100 million to US$500 million beginning to increase in number.

Between 2022 and 2023, fund sizes declined because of the market slump, PitchBook data show. They rebounded between 2023 and July 2024, growing by a remarkable 76% from a median fund size of US$25 million to US$41.3 million.

The report notes that while the trend of creating megafunds worth US$1 billion or more has slowed since 2023, large funds are still entering the market. These include the Pantera Fund V, which seeks to raise more than US$1 billion to offer investors exposure across a wide spectrum of blockchain-based assets.

PitchBook expects that a number of these new funds will have broader investment mandates beyond crypto, blockchain, and Web3 in order to deploy their capital more effectively and mitigate the risk of over concentration in a still nascent sector. For example, crypto-native manager Paradigm, closed in June the largest fund so far this cycle, securing US$850 million to invest in early-stage crypto projects but also artificial intelligence (AI).

PitchBook also highlights the sustained dominance of emerging managers in the crypto VC fundraising landscape. In 2024, emerging managers, which are defined as firms that have launched fewer than four funds, continue to lead in terms of the number of funds raised.

Since 2016, these managers have raised between 77% to 87% of the crypto VC funds annually, a dominance which stems from the fact that many crypto-focused firms are relatively new.

2022 and 2023 trends

Crypto VC fundraising surged in 2022 to record-breaking levels. Several key factors contributed to this growth. First, the prolonged low-interest-rate environment punctuated by pandemic era federal stimulus led to a fundraising spike in the broader VC markets. This, combined with the extraordinary growth in the tech sector during the pandemic, fueled strong interest in emerging technologies, including blockchain and crypto.

But in 2023, crypto VC fundraising declined substantially, owing to the lack of liquidity events, particularly the slowdown in token launches in the second half of 2022 and much of 2023, as well as the significant devaluation of tokens distributed during the 2021-2022 token-launch boom.

Another contributing factor was the heightened regulatory scrutiny following the collapse of high-profile projects and platforms such as FTX, Celsius, and BlockFi, which led to a risk-off sentiment among

investors. Additionally, the global macroeconomic environment began to shift, with rising interest rates and inflation concerns making capital more expensive and harder to raise.

Market capitalization of cryptocurrencies peaked at approximatively US$3 trillion in November 2021, but by December 2022, it had dropped to a two-year low of under US$800 billion, data from Coinmarketcap show. Since then, the market has rebounded and now stands at around US$2 trillion.

Featured image credit: edited from freepik