A recent set of reports highlights significant shifts in the global cryptocurrency landscape, with both venture capital funding trends and private wealth investment patterns evolving. Crypto venture capital funding saw a 20% drop in Q3 2024, driven by heightened focus on Bitcoin and memecoins, leaving many mid-sized projects overlooked, according to Galaxy Digital. Meanwhile, Aspen Digital's latest findings reveal that 76% of private wealth in Asia has already ventured into digital assets, signaling growing interest in blockchain technology and decentralized finance.
Crypto Venture Capital Funding Drops 20% in Q3, Driven by Bitcoin and Memecoins, Says Galaxy Digital
Crypto venture capital (VC) funding took a notable hit in the third quarter of 2024, with a 20% decline to $2.4 billion, according to a recent report by Galaxy Digital. The report, authored by the firm’s head of research Alex Thorn and research analyst Gabe Parker, attributes this decline to a “barbell market” effect, where Bitcoin and speculative memecoins have dominated investor attention, leaving mid-tier projects in need of funding largely ignored.
This downward trend in funding was accompanied by a 17% drop in the number of deals, with 478 deals completed during Q3. While the decline is significant, the report points out that the $2.4 billion raised during this quarter represents a 21.5% increase from the $2 billion raised during the same period in 2023.
A key reason for this stagnation in crypto venture capital, as explained in the Galaxy Digital report, is the emergence of a “barbell market.” This market dynamic is characterized by strong interest in two extremes: high-value, large-market-cap cryptocurrencies like Bitcoin and speculative tokens such as memecoins. This focus has left many mid-sized projects, especially those requiring venture capital funding, overlooked and underfunded.
“The venture stagnation is due to a number of factors, including a ‘barbell market’ that has seen Bitcoin (and its new ETFs) in center stage and marginal net new activity coming from memecoins, which are difficult to fund and have questionable longevity,” the report stated.
Galaxy Digital noted that demand for Bitcoin exchange-traded funds (ETFs), particularly from institutional investors such as pension and hedge funds, has been one of the driving forces behind this shift in focus. As a result, many of these large allocators have shifted away from early-stage crypto investments, contributing to the decline in venture capital funding across the crypto sector.
One of the more striking observations from Galaxy Digital's report is the breakdown of the long-standing correlation between Bitcoin's price and crypto VC funding. Historically, Bitcoin’s price movement has been a reliable indicator of the overall health of the cryptocurrency venture market, with higher prices typically driving more investment into early-stage projects.
However, Thorn and Parker argue that this correlation has now “broken down” due to weak allocator interest in crypto venture funding and a shift in market narratives that favor Bitcoin, leaving many of the exciting narratives from the 2021 bull market behind.
“Weak allocator interest in crypto venture, and venture broadly, combined with market narratives that favor Bitcoin and have left out many of the hot narratives from 2021 can partially explain the divergence,” the pair wrote.
While the demand for Bitcoin ETFs has been robust, the same cannot be said for Ether ETFs, which have garnered minimal attention so far. Galaxy Digital suggests that this lack of interest could further drive venture capital investment away from decentralized finance (DeFi) and Web3-native projects, which were once hot topics in the crypto VC space.
This shift in focus away from DeFi and Web3 projects could have long-term implications for the development of these sectors, as early-stage funding dries up and innovation is stifled.
Early-Stage Deals Still Dominate
Despite the overall decline in funding, early-stage deals captured the lion’s share of capital investment in Q3, accounting for 85% of total funding. Most of this investment went to crypto exchanges, trading firms, and companies behind layer 1 blockchains.
Artificial intelligence (AI)-integrated crypto firms also saw a surge in investment, with VC funding for these firms increasing five-fold quarter-on-quarter. Notable companies such as Sentient, CeTi, and Sahara AI raised $85 million, $60 million, and $43 million, respectively, highlighting the growing intersection between AI and blockchain technology.
The United States remains the dominant player in the global crypto venture capital landscape, accounting for 56% of the total VC funding in Q3. Of the 478 deals made during the quarter, 43.5% involved US-based firms. Singapore and the United Kingdom followed, accounting for 8.7% and 6.8% of the funding, respectively. The United Arab Emirates and Switzerland rounded out the top five regions for crypto VC funding.
Looking ahead, Galaxy Digital is cautiously optimistic about a potential rebound in venture capital funding for the crypto sector. The report suggests that falling interest rates and the possibility of a more relaxed regulatory environment could pave the way for an acceleration in VC funding in the fourth quarter of 2024 and the first quarter of 2025.
However, the extent of this rebound will largely depend on broader market conditions and investor sentiment. If Bitcoin and its associated ETFs continue to dominate the narrative, it’s possible that many mid-tier crypto projects may continue to struggle to attract the funding they need to grow and innovate.
76% of Asia’s Private Wealth Has Invested in Digital Assets, Aspen Digital Report Reveals
Meanwhile, a new report from Aspen Digital has highlighted a growing trend among Asia’s private wealth sector towards investing in digital assets. According to the report, an impressive 76% of private wealth in the region has already ventured into digital assets, and an additional 18% of high-net-worth individuals plan to do so in the near future. This marks a significant leap from Aspen Digital’s previous survey conducted in 2022, where only 58% of respondents had any exposure to digital assets.
The report, which surveyed 80 family offices and high-net-worth individuals across Asia—most of whom manage assets ranging from $10 million to $500 million—shows that the interest in digital assets is increasing rapidly. These high-net-worth individuals (HNWIs) and family offices are increasingly seeing blockchain technology and digital assets as a viable investment option. The report suggests that the region’s wealthy are more inclined to explore new technologies, given the potential for significant profit and the growing ecosystem surrounding decentralized finance (DeFi) and blockchain applications.
Notably, 70% of the respondents who have invested in digital assets have allocated less than 5% of their portfolios to the sector. However, some have significantly increased their exposure, with more than 10% of their portfolios now dedicated to digital assets as of 2024.
The surge in interest reflects a broader trend of blockchain adoption across Asia’s private wealth sector. Family offices and HNWIs are not only investing in cryptocurrencies but are also keenly aware of the potential applications of blockchain technology beyond digital currencies. According to the Aspen Digital report, a significant portion of respondents expressed interest in decentralized finance (DeFi), with two-thirds indicating that DeFi presents exciting opportunities.
Furthermore, 61% of those surveyed showed interest in emerging technologies like artificial intelligence (AI) and decentralized physical infrastructure networks (DePIN). DePIN, which enables decentralized ownership and control of physical assets through blockchain networks, has emerged as a particularly attractive area for investors seeking to diversify their portfolios while maintaining exposure to cutting-edge technologies.
Despite the volatility often associated with cryptocurrencies, Asia’s private wealth remains optimistic about Bitcoin’s future prospects. According to the Aspen Digital survey, 31% of respondents believe that Bitcoin could reach a price of $100,000 by the end of 2024. This optimism is buoyed by the approval of spot Bitcoin exchange-traded funds (ETFs) in major markets such as the United States and Hong Kong, which has provided institutional and private investors with an easier, more regulated way to gain exposure to digital assets.
The introduction of these ETFs has significantly boosted demand among Asian investors, with 53% of respondents indicating that they have gained exposure to digital assets through funds or ETFs. This trend mirrors global developments, as a recent report by the Alternative Investment Management Association (AIMA) and PwC showed a significant rise in crypto exposure among hedge funds globally.
Spot Bitcoin ETFs have been a game-changer for digital asset investments. In January 2024, the US saw the launch of its first spot Bitcoin ETFs, followed by the debut of both Bitcoin and Ether ETFs in Hong Kong in April 2024. These investment vehicles allow traditional investors to access Bitcoin and Ether without directly holding the assets, offering a more secure and familiar way for institutional investors and HNWIs to participate in the digital asset space.
The AIMA and PwC Global Crypto Hedge Fund Report revealed that global hedge fund exposure to crypto assets surged from 29% in 2023 to 47% in 2024, largely due to regulatory clarity and the availability of these ETFs. This global trend is being reflected in Asia, where regulatory developments have fostered a more welcoming environment for institutional crypto investments.
DeFi continues to be a focal point for investors in Asia’s private wealth sector. The allure of decentralized financial systems, which eliminate intermediaries and allow users to transact directly on blockchain platforms, has captivated investors seeking to capitalize on the next wave of financial innovation.
DePIN, in particular, has piqued the interest of Asia’s wealthy investors. This decentralized infrastructure offers an entirely new way to manage and invest in physical assets by utilizing blockchain technology. Investors can own and control assets without the need for traditional intermediaries, making it an attractive option for those looking to diversify their portfolios into physical assets like real estate, energy systems, and telecommunications.
Regional Crypto Investments Continue to Thrive
Geographically, the report highlights that the majority of digital asset investments are concentrated in the United States, where 56% of the total crypto venture capital funding comes from. However, Asian markets like Hong Kong and Singapore are catching up quickly. Singapore accounted for 8.7% of the deals, while the United Kingdom captured 6.8%, demonstrating that the appetite for digital asset investments is spreading beyond the US borders. The United Arab Emirates and Switzerland also made the top five, reflecting their increasing prominence as global crypto hubs.
With falling interest rates and regulatory clarity continuing to improve, Aspen Digital predicts that the trend of increased investment into digital assets will accelerate in the coming quarters. The approval of more ETFs and favorable regulations could further fuel interest in Bitcoin, Ether, and other digital assets, especially among institutional investors and family offices looking to diversify their portfolios and hedge against inflationary pressures in traditional markets.
The intersection of blockchain with artificial intelligence and DePIN is expected to further drive innovation and investment, particularly as investors seek out new opportunities in the digital asset ecosystem. As the regulatory environment becomes more conducive to innovation, Asia’s wealthy are likely to continue expanding their digital asset allocations, making the region a crucial player in the global adoption of blockchain technology.
