Welcome to the September edition of the COSIMO Verbatim newsletter! This month we’re bringing you the latest industry news, portfolio updates, and an examination of the crypto venture capital (VC) landscape in 2024. 

September Insights

SEC Approves Options Trading for BlackRock’s Spot Bitcoin ETF

Crypto Activity in 2024 Exceeds 2021 Levels, Driven by Bitcoin ETFs

Google Cloud Launches Ethereum-Compatible RPC Service

US Lawmakers Press SEC Leaders for Clarity on Crypto Regulations

Global Overview of Central Bank Rate Decisions

 

Crypto VC in 2024: Navigating Recovery and Recalibration

2024 has seen a remarkable resurgence in venture capital (VC) activity in the crypto space, signaling renewed confidence among investors despite a challenging 2022 and 2023. By the end of H1 2024, crypto VC investments reached $2.4 billion, reversing a long period of decline. This influx of capital has sparked excitement in the industry, particularly as market dynamics shift and projects mature in the evolving digital asset landscape.

Institutional Interest and Market Catalysts

Much of the renewed interest in crypto VC has been driven by institutional investors re-entering the space. The bullish sentiment surrounding developments like Bitcoin ETFs, as well as the increasing tokenization of real-world assets, have spurred significant optimism. Projects focusing on decentralized finance (DeFi), Web3 infrastructure, and blockchain scalability are attracting substantial attention, with DeFi emerging as one of the top-funded sectors in 2024. Analysts believe that the combination of maturing blockchain protocols and clearer regulatory frameworks has set the stage for sustained growth.

The Shift Toward Midsized Funds

Another key to understanding this resurgence lies in the evolution of fund sizes and strategies. The median fund size has increased by 65% in 2024, now standing at $41.3 million, signaling a shift toward midsized funds. These funds, ranging from $100 million to $500 million, have become critical players in the ecosystem. Unlike megafunds, which face challenges in deploying large amounts of capital in a volatile market, midsized funds are better positioned to adapt to emerging opportunities without the risk of overextension. This strategic calibration reflects the industry’s growing focus on maintaining a balance between ambitious growth and practical, risk-adjusted investments.

Emerging Managers and the Barbell Effect

Emerging managers continue to dominate the crypto VC scene, though the share of first-time funds has decreased since 2020. New entrants with deep crypto expertise remain well-positioned for success, as their specialized knowledge of tokenomics and governance allows them to navigate the complexities of the market. However, the industry is also seeing the rise of a “barbell effect,” with both first-time managers and experienced crypto-native firms leading fundraising efforts. This trend highlights the need for specialized skills, which are increasingly viewed as essential in a sector where technological innovation outpaces traditional investment models.

Key Winners in Crypto VC Funding

The crypto VC scene in 2024 is no longer driven by the speculative highs and lows of token prices. Instead, investors are focused on building the infrastructure necessary for a decentralized future. In Q1 2024, blockchain infrastructure claimed the largest share of VC investment, attracting 24% of the total capital. Close behind were the Web3 and trading sectors, securing 21% and 17%, respectively, with 80% of these funds allocated to early-stage startups. By Q2 2024, the Web3 gaming and social media sectors saw a surge in investments, pulling in $758 million. Infrastructure, trading, and Layer 1 companies continued to attract attention, each accounting for roughly 12-15% of total capital. Notably, most of these investments went to startups founded between 2021 and 2023, demonstrating strong confidence in new ventures shaping the future of blockchain.

Global Trends and Regional Growth Hotspots

The United States has remained the dominant hub for crypto VC investment throughout 2024, accounting for the largest share of both deals and capital flow. In Q1, the U.S. secured 37.3% of all deals and attracted 42.9% of the total capital, with this momentum growing in Q2, where over 40% of the deals and 53% of the capital flowed to U.S.-based companies. Meanwhile, Singapore and the UK also emerged as significant players, with 10.8% and 10.2% of Q1 deals, respectively, while Switzerland and Hong Kong contributed more modest shares. In Q2, the UK secured 10% of global deals and 12.78% of the capital, followed by Singapore and the UAE, both attracting notable portions of the remaining investment, reflecting the expanding global interest despite a reduced total pool of capital.

2024 marks a pivotal year for crypto VC, as the industry navigates recovery and recalibration. With a focus on infrastructure and early-stage projects, VCs are driving innovation that promises to bring blockchain closer to mainstream adoption. The growth of midsized funds and the dominance of specialized managers reflect a more calculated, strategic approach to investment. While global funding has decreased from its 2021 peak, the renewed interest in key regions such as the U.S., UK, and Singapore underscores the industry's resilience. 

 

Portfolio Updates

Archax, the only FCA-regulated digital asset platform, has announced a strategic partnership with Anemoy, the asset management arm of Centrifuge. This partnership will add the Liquid Treasury Fund (LTF) to Archax’s Primary Platform, allowing users to access tokenized US Treasury bills directly through the platform. More here.

Dusk Network, a privacy-oriented blockchain platform for financial applications, had its mainnet launch on September 20, 2024. This marks a significant milestone in the network’s roadmap and journey toward full decentralization and scalability. More here. 

Hedera, a leading Proof of Stake (POS) blockchain platform, has joined Ripple and Aptos Labs to launch the MiCA Crypto Alliance. The move aims to enhance coordination among industry members and help them to navigate the regulatory landscape in the EU. More here.