Which sectors do crypto VCs have the most confidence in for 2024?

Author: Yogita Khatri, The Block

Compiled by: Sharon, BlockBeats

Editor’s Note: The Block interviewed 8 crypto VCs about their outlook for investment in 2024, including Coinbase Ventures, Galaxy Ventures, Animoca Brands, Shima Capital, HashKey Capital, Multicoin Capital, Polygon Ventures, and NGC Ventures. Among these 8 VCs, 6 hold a firmly optimistic view on the investment outlook for 2024, believing that areas such as DePIN, DeSci, and the intersection of artificial intelligence and cryptocurrency will attract more funding. Block Beats compiles the original text as follows:

In 2023, the amount of funding in the cryptocurrency sector decreased by 68% compared to the previous year, totaling only $10.6 billion. However, top cryptocurrency venture capitalists are mainly optimistic about the prospects for 2024.

In 2023, the cryptocurrency funding sector faced significant challenges, with total investment plummeting by 68% to $10.6 billion. This sharp decline starkly contrasts with the record $33.2 billion total investment in 2022 and marks the lowest point since 2020.

Several factors contributed to this decline, including historically high interest rates, the rapid expansion of artificial intelligence diverting attention from cryptocurrency, regulatory crackdowns, and the fallout from the collapses of well-known cryptocurrency platforms like FTX, Celsius, and BlockFi.

What does the funding outlook for cryptocurrency in 2024 look like? We reached out to the 20 most active cryptocurrency venture capital firms and found that the current sentiment is generally optimistic.

Coinbase Ventures: A Bright 2024 Ahead

The venture capital arm of cryptocurrency exchange Coinbase continued to invest during the challenging times of 2023 and is becoming "increasingly optimistic" about the future.

A spokesperson for Coinbase Ventures stated, "We believe that the convergence of clearer regulations (primarily outside the U.S.), the maturation of protocol infrastructure, institutional participation, and innovation in user engagement with on-chain products sets the stage for a bright outlook in 2024."

"Our commitment is global, and we remain steadfast, while we expect to ramp up our activities in 2024."

Coinbase Ventures will continue to invest in accelerating the onboarding of the next billion users to on-chain, including crypto infrastructure and consumer applications such as social and gaming, while also seeing opportunities at the intersection of artificial intelligence and cryptocurrency.

The company will also seek to expand support for teams building on Base through the Base ecosystem fund.

Galaxy Ventures: 2024 Will Be Challenging and Flat

Billionaire investor Mike Novogratz's Galaxy venture capital arm remains cautious but is committed to investing in early-stage projects.

Mike Giampapa, a general partner at Galaxy Ventures, believes, "We expect the cryptocurrency venture capital environment to remain challenging. Even successful businesses and startups may have to raise funds at flat or discounted valuations."

Giampapa noted that the limited partner community "continues to be overly focused on illiquid investments," making new capital entering the venture capital space "more constrained," and the funding environment is expected to "remain flat as interest rates stay elevated." However, he also pointed out that as the likelihood of industry consolidation increases, larger companies may engage in mergers and acquisitions with smaller firms.

Meanwhile, Giampapa stated that startups with sustainable business models and proven product-market fit, such as blockspace and stablecoins, will attract more investment in 2024: "Blockspace is an intriguing and relatively new product that has achieved product-market fit. Due to the combined effects of applications, development talent, capital, and users, consumers are willing to pay more for each transaction."

He also noted that in terms of stablecoins, the market is only at the "tip of the iceberg" regarding the long-term shift towards tokenization of on-chain assets: "We see many new asset classes being introduced on-chain, providing opportunities for B2B and B2C applications to embed these new financial products into their existing offerings and creating opportunities for a new set of infrastructure companies to drive adoption."

Animoca Brands: Very Optimistic

Yat Siu, co-founder and executive chairman of Hong Kong-based Animoca Brands, stated that the company is "very optimistic" about the cryptocurrency funding environment in 2024 and expects a "healthier" development.

Siu mentioned that with the rebound of the crypto market, "momentum has shifted, which may signal the beginning of a new bull market cycle for cryptocurrency."

According to Siu, games with web3 components and artificial intelligence may attract more investment in 2024: "Web3 gaming is about to accelerate, especially in Asia and the Middle East, while Europe has also shown considerable interest. On the other hand, artificial intelligence in gaming will create more engaging and responsive experiences, such as increasing the complexity and depth of NPCs and enhancing content creation and asset generation."

Shima Capital: The Crypto Space is Still in Its Early Stages

Alex Wettermann, head of gaming at early-stage investment firm Shima Capital, noted a "cautiously optimistic" attitude toward cryptocurrency funding in 2024. He expects infrastructure, gaming, and digital verticals to receive more investment in the coming year.

Wettermann stated, "We maintain an extremely active attitude in this space—we work closely with portfolio companies, dive deep into research, and engage with new companies. This is business as usual for us, as we firmly believe we are still in the early stages of the crypto space in an increasingly digitalized, gamified, and tokenized world."

HashKey Capital: A Bullish Outlook for the Crypto Market

Xiao Xiao, an investment partner at Asia-based crypto venture capital firm HashKey Capital, stated that a "bull market" is expected next year.

Xiao indicated that HashKey will actively seek new investment opportunities, including "liquid investments." The firm also plans to expand its asset management business into new markets and launch diversified funds to cater to different investment preferences.

Multicoin Capital: Huge Opportunities in AI for the Crypto Industry

Kyle Samani and Tushar Jain, managing partners at Multicoin Capital, remain optimistic about 2024, especially considering the recent momentum in the Solana ecosystem. Samani also believes there are "huge opportunities" for the crypto industry in the AI revolution: "Specifically, there is a severe shortage of GPUs (graphics processing units) now, and the competition for these resources will grow exponentially." He further added that the computing markets and specialized cloud service providers enabled by the crypto industry have the opportunity to fill this gap.

Samani stated, "Token-incentivized reinforcement learning products are another huge opportunity. Models need to be trained by humans to pass on knowledge. Crypto networks are an excellent tool for organizing and incentivizing people around the world to contribute to a common model."

As for Tushar Jain, he expects "entirely new neobanks, DeFi primitives, payment applications, on/off applications, and DEXs" to emerge in 2024 to fill the void left by centralized lending platforms and exchanges that were wiped out in 2023. Jain stated, "These products will outperform previous DeFi projects and will rival the user experience of custodial providers."

Polygon Ventures: Optimistic About Web3 Innovation and Adoption

Abhishek Saxena, head of Polygon Ventures, stated, "Web3 funding may have bottomed out, and the new year will attract more investment. A positive sign is that we are still seeing strong developer activity even during the bear market, indicating that foundational building is still ongoing."

He expects funding to flow back into consumer-facing use cases, including social, financial services, and entertainment, with new track leaders likely to emerge. He also mentioned that tokenized verticals should attract stronger institutional investment in the coming year: "While 2023 was a year of building behind the scenes, I am optimistic that innovation and adoption in Web3 will accelerate again in 2024."

NGC Ventures: A Full Bull Market Will Begin

The three general partners at Asia-based NGC Ventures remain optimistic about the crypto market and venture capital in 2024.

Roger Lim from NGC stated that he prefers verticals such as artificial intelligence and cryptocurrency, Bitcoin L2, modularization, and zero-knowledge technology.

Wayne Zhu from the firm indicated that he is focusing on "intent-based protocols," as they are expected to enhance user experience, manage gas fees and slippage more effectively, and improve composability to attract more users.

Meanwhile, Tony Gu from NGC expressed his focus on two verticals: DePIN (Decentralized Physical Infrastructure Networks) and DeSci (Decentralized Science). Gu stated, "DePIN has the potential to drive mass adoption as a consumer-facing application layer."

He noted, "We have already seen some interesting DAOs emerge, but as far as we know, the area that remains undeveloped is the effort to decentralize funding for open-source projects. I believe there is significant potential in this area, especially when combined with artificial intelligence, such as decentralized machine learning models."

Overall, NGC Ventures expects that "the bull market will fully commence in 2024," but they are "unsure how long it may last."