Crypto VC Activity Rebounds: $4.6B Invested in Q3 Post-FTX

Crypto-focused venture capital investment surged to four point six five billion dollars in the third quarter of 2023, marking the second-highest level of investment since the collapse of the FTX exchange in late 2022.

According to a report by Alex Thorn, head of research at Galaxy Digital, this quarter's venture bets reflect a two hundred ninety percent increase compared to the previous quarter and are only slightly below the four point eight billion dollars invested in Q1 of this year.

While venture activity remains below the peak levels seen during the 2021-2022 bull market, it indicates a healthy and active interest in the sector, particularly in areas such as stablecoins, artificial intelligence, blockchain infrastructure, and trading.

Notably, the number of venture deals reached four hundred fourteen, but a small group of seven deals accounted for half of the total capital raised during Q3. Among these high-profile investments were the financial technology company Revolut, which raised one billion dollars, the crypto exchange Kraken with five hundred million dollars, and Erebor, a crypto-focused U.S. bank, securing two hundred fifty million dollars.

Established companies founded prior to 2018 attracted most of the capital raised, while newer startups founded in 2024 had the highest number of deals. Thorn indicated that the trend in pre-seed deal counts has been consistently declining as the industry matures, suggesting that the golden era of pre-seed crypto venture investing may be over.

Furthermore, the report highlights a stagnation in VC capital as interest from investors has shifted focus to exchange-traded products and digital asset treasury companies, rather than early-stage investments in crypto.

High-profile investments from large investors like pension funds and hedge funds in spot-based Bitcoin exchange-traded products signal that some investors prefer to gain exposure to the sector through more liquid vehicles.

The report notes a shift in the macroeconomic landscape, with rising interest rates and increased competition from AI startups affecting traditional venture capital allocations. Despite a once-hostile regulatory environment, the U.S. continues to dominate crypto VC activity, accounting for forty-seven percent of the capital invested and forty percent of the deals completed in Q3.

The U.S. outperformed the U.K. and Singapore, which accounted for twenty-eight percent and three point eight percent of the capital, respectively. Thorn predicts continued U.S. dominance, especially with the passing of the GENIUS Act and potential for new crypto market structure legislation, which could further attract traditional financial firms into the space.

The resurgence in venture capital investment suggests a renewed confidence in the cryptocurrency market, potentially leading to further advancements in blockchain technology.