- VCs are returning to blockchain as crypto prices surge. In Q3 2024, over 6% of US VC deals are going to crypto companies, up from 4% at the low point last fall.
- US crypto VC investment is up 133% from the recent low and climbing faster than other sectors.
- More VC deals are happening on the East Coast. New York is quickly gaining ground on California as the center of crypto activity in the US.
It’s been quite a year in crypto. From high-profile exchange-traded fund (ETF) launches and the bitcoin halving to the resurgence of decentralized finance (DeFi) development, a new growth cycle is well underway. With all this market activity, we wanted to zoom in on the venture ecosystem, where founders are catalyzing the next wave of products and platforms driving crypto adoption. Here are some of the trends we’re watching:
1. VC investment in crypto bounces back
US VC investment into crypto companies has doubled from its recent low point last fall to reach $1.5B for the three months ending in May. That may be well off the peak of 2022, but it’s higher than the funding levels we saw before the boom, which means we’re starting this cycle from a higher floor than we started the last. Investors are growing more confident, in part because of the success of recent Bitcoin ETF launches, which were approved by the SEC earlier this year. BlackRock’s iShares Bitcoin Trust — one of 11 funds directly tracking bitcoin — has $20B in assets under management. Any boost in regulatory clarity helps push more institutions into crypto, which leads to mainstream adoption. In the span of six years, stablecoin volumes have ascended from near zero to near parity with VISA transactions. While a majority of those transactions are likely automated, the activity is spurring demand for new tools and platforms to add value in the space.
Source: PitchBook Data, Inc. and SVB analysis
2. Crypto captures larger share of VC deals
After two years of slow growth, the pace of deployments is up as crypto becomes a higher priority again for VCs. With tech sectors like enterprise software and consumer delivering more measured returns, some see the potential for greater multiples in the next phase of crypto’s development. Large deals such as the Andreesen Horowitz-led $100M investment into re-staking platform EigenLayer have helped to spur more activity and fundraising this year. In June, Paradigm announced a fresh $850M dedicated crypto fund — the largest crypto-specific fund in two years.
Source: PitchBook Data, Inc. and SVB analysis
3. Charting a path to recovery
While funding is returning to crypto at a faster rate than nearly every other tech sector, challenges in the overall VC space will likely make the recovery slower than it was following the last “crypto winter” in 2018. High interest rates are keeping overall VC deployments down, with muted Limited Partner (LP) interest for future fundraises. But there are unique tailwinds pushing crypto forward. Venture dollars are only one way to fund growth in the crypto space.
Increased liquidity from institutional and retail investors is creating a flywheel effect that is contributing more on-chain capital and funding innovation in the crypto space.
Source: PitchBook Data, Inc. and SVB analysis
4. Crypto rising in the East
Already the world’s finance capital, New York is quickly rising as a global hub of crypto activity. The Empire State accounted for 25% of crypto VC deals so far this year. The East Coast has peeled away crypto deals from the West Coast over the last few years — with the West Coast accounting for 47% of deals in 2021 but 37% in 2024. That largest crypto deal of the year, a $225M investment, went to New York-based Monad Labs. Underscoring the trend, notable VCs are moving to solidify their New York presence. Blockchain Capital recently opened an office in Williamsburg, while a16z crypto opened an office in SoHo and selected New York as the location of their 2024 Crypto Startup Accelerator (CSX).
5. Emerging manager funds in crypto
When it comes to raising funds that target crypto companies, emerging managers have mostly stayed the course over the last few years. Even when crypto’s share of overall VC deals fell to 4% in 2023, the share of emerging funds seeking to back crypto companies was double that level at 8%. And it’s bumped up to 10% this year. Of course, it’s a much more difficult time for managers to emerge. Only $1.1B in new EM funds have closed so far this year — that’s about half the pace of 2021. With fewer LPs up for grabs in venture these days, it’s possible that a focus on crypto during this current bull market could give EMs an edge in fundraising.
Source: Preqin and SVB analysis
Now that we’ve shared our viewpoint, we’d love to hear yours. What data points are you tracking in the crypto VC space? Send us your thoughts at crypto@svb.com.
