The cryptocurrency funding landscape suffered from serious challenges in 2023, with total investments plummeting 68% to $10.6 billion. This sharp decline contrasts sharply with the total investment of $33.2 billion recorded in 2022 and represented the lowest level since 2020.
Several factors have contributed to this decline, including historically high interest rates, the rapid expansion of artificial intelligence diverting attention away from cryptocurrencies, regulatory crackdowns, and the aftermath of high-profile cryptocurrency meltdowns involving FTX, Celsius, and BlockFi.
What is the outlook for cryptocurrency financing in 2024? The Block reached out to some of the top 20 most active cryptocurrency venture capital firms of all time, and the prevailing sentiment leans towards optimism.
Coinbase Ventures: ‘Bright 2024’
Cryptocurrency exchange Coinbase’s venture arm has continued to invest through a difficult 2023 and is “increasingly optimistic” about the future.
“Our view is that 1) increased regulatory clarity (mainly outside the US), 2) maturation of protocol infrastructure, 3) institutional participation, and 4) innovation in how users engage with on-chain products set the stage for convergence. “2024 is bright,” a Coinbase Ventures spokesperson told The Block. “Our commitment remains steadfast globally, and we expect our activity to grow even further in 2024.”
Coinbase Ventures will continue to invest in areas that will accelerate bringing the next billion users on-chain, including cryptocurrency infrastructure and consumer applications such as social and gaming, and also sees opportunities at the intersection of AI and cryptocurrency. no see.
The company will also seek to expand support for the teams building Base through the Base Ecosystem Fund.
Galaxy Ventures: A challenging and quiet environment
Galaxy’s venture arm, led by billionaire investor Mike Novogratz, is committed to investing in early-stage projects while remaining vigilant.
“We expect the cryptocurrency VC environment to remain challenging,” Mike Giampapa, general partner at Galaxy Ventures, told The Block. “Even successful companies and startups will likely need to raise funding in flat or downward rounds.”
Giampapa said new capital entering the venture space is “more limited” as the limited partner community “continues to be overindexed on illiquid investments,” and “the funding environment is expected to remain muted as interest rates continue to rise.” “It will happen,” he said.
But according to Giampapa, more consolidation could occur in the industry as larger companies engage in merger and acquisition deals with smaller companies.
Meanwhile, startups with sustainable business models and proven product-market fit, such as blockspace and stablecoins, will receive more investment in 2024, according to Giampapa.
“Blockspace is an attractive, still relatively new product that has reached product-market fit,” Giampapa said. “Consumers are willing to pay more per transaction when there is a network effect around the seller’s block space due to the combination of application, developer talent, capital and users.”
According to Giampapa, in the stablecoin space, the market is at the “tip of the iceberg” in terms of the long-term transition to on-chain asset tokenization.
“We see an opportunity to bring many new asset classes on-chain, embed these new financial products into existing services through B2B and B2C applications, and enable a new set of infrastructure players to enable developers to drive adoption. It will facilitate,” Giampapa said.
Animoca Brand: ‘Very Optimistic’
Hong Kong-based Animoca Brands is “very optimistic” and expects a “substantially healthier” cryptocurrency funding environment in 2024, said Yat Siu, the company’s co-founder and chairman. He told The Block.
As the cryptocurrency market rebounds, “we are seeing a shift in momentum, which could signal the start of a new bull cycle in the cryptocurrency market,” Siu said.
According to Siu, gaming and AI with web3 components could attract more investment in 2024. “Web3 gaming is poised to accelerate, particularly in Asia and the Middle East, with Europe also seeing significant interest,” he said. “AI in games, on the other hand, will create more engaging and responsive experiences, including adding complexity and depth to non-player characters and improving content creation and asset creation.”
Cima Capital: ‘Cryptocurrency is still in its infancy’
Early-stage investor Shima Capital is “cautiously optimistic” about cryptocurrency funding in 2024, the company’s head of gaming, Alex Wettermann, told The Block. He expects to see more investments in the infrastructure, gaming and tokenization sectors in the coming year.
“We continue to be very active in this space, collaborating with portfolio companies, engaging deeply with research and talking to new companies,” Wettermann said. “This is business as usual for us as we follow our beliefs in an increasingly digital, gamified and tokenized world. We are still in the early stages of the cryptocurrency space.”
HashKey Capital: ‘Bull’ markets are ahead
Xiao Xiao, investment partner at HashKey Capital, told The Block that the Asia-based cryptocurrency venture capital firm expects a “bull market” next year.
HashKey will actively seek new investment opportunities, including “liquid investments,” Xiao said. Additionally, we plan to expand our asset management business into new markets and launch a variety of funds suited to different investment preferences.
Multicoin Capital: A ‘huge opportunity’ for AI cryptocurrencies
Kyle Samani and Tushar Jain, managing partners at Multicoin Capital, remain optimistic about 2024, especially for the Solana ecosystem, given recent movements in the blockchain ecosystem. Samani also sees a “big opportunity” for cryptocurrencies in the AI revolution. “Specifically, there is a massive shortage of GPUs (graphics processing units) today, and competition for these resources will increase exponentially,” he said, adding that there is an opportunity for the cryptocurrency computing market and specialized cloud providers to step in. Fill in the gaps.
“Token-incentivized enhanced learning products are another big opportunity,” Samani added. “Models need to be trained by humans to transfer knowledge. Crypto networks are a fantastic tool to organize and motivate people around the world to contribute to a common model.”
Jain expects 2024 to see the emergence of “whole new neobanks, DeFi primitives, payment apps, on-ramps and off-ramps, and decentralized exchanges (DEXs)” to fill the void left by centralized lending desks and exchanges. “These products are far superior to previous generations of DeFi projects and will compete with the user experience of hosting providers,” Jain said.
Polygon Ventures: ‘Optimistic about innovation and adoption of web3’
“Web3 funding is likely bottoming out,” Abhishek Saxena, senior director at Polygon Ventures, told The Block, adding that the new year could see more investments attracted. “A positive indicator is the resilient developer activity we have seen even in bear markets, which highlights that foundation building continues,” Saxena said.
According to Saxena, he expects to secure funding to support consumer-facing use cases such as social, financial services and entertainment, where new category leaders could emerge. He also said that the tokenization sector will attract stronger institutional investment next year. “While 2023 will be about behind-the-scenes deployments, we are optimistic that innovation and adoption of web3 will accelerate again in 2024,” Saxena said.
NGC Ventures: “The bull market will begin in earnest.”
Three general partners at Asia-based NGC Ventures remain optimistic about the cryptocurrency market and VC funding in 2024.
NGC’s Roger Lim said he favors areas such as AI and cryptocurrency, the Bitcoin Layer 2 network, and modular and zero-knowledge technologies.
On the other hand, the company’s Wayne Zhu is eyeing “intent-based protocols” for their potential to improve user experience, better manage gas fees and slippage, and improve composability to onboard more users. .
Meanwhile, NGC’s Tony Gu said his focus is on two areas: Decentralized Physical Infrastructure Networks (DePIN) and Decentralized Science (DeSci). “DePIN has the potential to drive mass adoption as a consumer-facing application layer,” Gu said. “With DeSci, we’ve seen some interesting DAOs (decentralized autonomous organizations) emerge, but one specific area that is still untapped to our knowledge is decentralized efforts to fund open source projects.” “I think there’s a lot to the idea: combining it with AI, for example with distributed machine learning models, has great potential.”
Overall, NGC Ventures expects “the bull market to begin in earnest” in 2024, but the company said it is “not sure how long it will last.”
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