Venture capital investment in the crypto sector declined in the third quarter of 2024, following a persistent downtrend that began earlier this year. However, while overall numbers were down, early-stage startups in AI and blockchain infrastructure got most of the investments.

According to a report by Galaxy, the total venture capital investment in crypto and blockchain-focused startups reached $2.4 billion in Q3 2024, a 20% decline from the previous quarter. Similarly, the number of deals fell by 17%, with 478 deals completed.

Venture Capital Investments

This dip in activity is partly due to the ongoing sluggishness in the broader crypto market, which has been focussing on two extremes, Bitcoin on one end and meme coins on the other, but little interest from institutional investors.

Despite this decline, 2024 is still on track to match or slightly exceed 2023’s total VC investments in crypto, signaling that interest remains, albeit selectively. Early-stage companies attracted 85% of the funding this quarter, a notable figure that demonstrates investor confidence in the long-term potential of new projects even as late-stage funding dried up.

The longstanding correlation between Bitcoin’s price and venture capital activity has notably broken down in 2024. Although Bitcoin has risen substantially since the start of 2023, venture capital investments into crypto startups have not followed the same upward trajectory.

The divergence has led to a slower venture capital market overall, but the data shows that there are still pockets of growth—particularly in the early stages of crypto development.

US Still Leads

Amid the broader venture capital slowdown, projects integrating AI technologies have seen a significant surge in funding. AI-focused crypto startups witnessed a fivefold increase in venture capital in Q3 2024 compared to the previous quarter.

The US continued to dominate the crypto venture capital landscape, accounting for 56% of total capital invested and 44% of deals in Q3 2024. While Singapore, the UK, and the UAE also showed signs of activity, their deal volumes and capital investments were significantly lower, reinforcing the US’s position as the primary hub for crypto innovation and venture capital.

Interestingly, while US-based companies pulled in the most capital, companies founded in 2021 captured the largest share of that investment. Those established in 2022, however, closed the most deals, suggesting a balance between seasoned and fresh startups competing for capital.