Cryptocurrency Game Investment Review: Emerging from the Bear Market Shadow, the Primary Market is Cautiously Optimistic

Written by: Zen, PANews

In the recently concluded first quarter, as cryptocurrency prices rose, the primary market gradually warmed up. According to PitchBook statistics, the cryptocurrency and blockchain sector raised a total of $2.52 billion in the first quarter of 2024, a quarter-on-quarter increase of 25%. Investments mainly focused on L1/L2, DeFi, AI, DePIN, and Web3 games. However, according to the blockchain gaming report jointly released by DappRadar and BGA, investments in the vertical field of Web3 games actually showed a downward trend. This trend is a correction following the investment boom in the metaverse and gaming during the pandemic, affecting not only Web3 games but also the traditional gaming industry.

Early Bull Market in the Primary Market: Cautious and Optimistic

The first quarter blockchain gaming report indicated that the investment outlook in the Web3 and blockchain gaming sector is characterized by caution and optimism, with the blockchain gaming industry securing $288 million in financing, showing a significant decline compared to previous quarters. The analysis attributed this cautious attitude to a challenging year, with many companies waiting for the results of early investments. Furthermore, the focus of these investments is primarily on Web3 games and infrastructure, indicating that the industry is in a phase aimed at enriching the Web3 gaming ecosystem.

Considering that Bitkraft Ventures announced the launch of a $275 million gaming fund in early April, and according to PANews' column "Financing Weekly," nearly $40 million was raised in the first week of this month in the blockchain gaming sector, overall, the Web3 gaming industry has maintained a level in the primary market similar to the second half of last year since the beginning of the year, with an explosive trend emerging in the past month.

In March, the large-scale financing of the NFT card game Parallel and AAA game developer Gunzilla Games was impressive. Parallel completed a new round of financing of $35 million at the end of the month, with participation from Solana Ventures, Amber Group, and others. In the previous funding cycle, Parallel raised $50 million from Paradigm at a valuation of $500 million in October 2021; the studio's current strategy focuses on expanding its player base, with specific measures including the implementation of the Parallel Ambassador Program and leveraging influential partnerships. Notably, several well-known Hearthstone streamers, represented by Thijs, recently endorsed Parallel, leading to conflicts within the community. Crypto media Decrypt commented: "Much of the animosity from the traditional gaming community seems to stem from crypto games trying to compete with their favorite 'Web2' games and the skepticism that follows."

Gunzilla Games also raised $30 million at the end of the month in a round led by the Avalanche Blizzard Fund and CoinFund. It had previously completed $46 million in financing in August 2022, led by Republic Capital, with participation from Griffin Gaming Partners, Animoca Brands, Jump Crypto, CoinFund, Shima Capital, and others. Additionally, Gunzilla had raised $25 million at its founding in 2020, bringing its total funding to over $100 million. Gunzilla Games is set to launch the battle royale game Off the Grid, a free third-person shooter that will be released on Sony PlayStation, Microsoft Xbox, and PC platforms.

These investments emphasize a strategic shift towards creating immersive, player-centric experiences in the blockchain gaming world. As the industry continues to recover from challenges, building and enhancing Web3 games and infrastructure remains a top priority, laying the groundwork for future growth and innovation.

However, project bankruptcies and failures are quite common in the gaming industry. According to a survey by gaming service company SuperScale involving over 500 mobile game developers, 83% of mobile game projects will fail within three years, with nearly half of the projects (47%) dying within 12 months of launch, and 17% of games having a lifecycle of less than six months. The Web3 gaming niche market is no exception; according to CoinGecko, of the 2,817 Web3 games launched between 2018 and 2023, 2,127 have already declared failure, accounting for 75.5%.

Post-Pandemic Investment Correction: The Gaming Industry's Investment and Financing Market Enters a Low Tide

In 2023, the entire gaming industry's investment and financing market showed significant sluggishness. According to Crunchbase data, investments from seed to growth stages reached a multi-year low. No digital gaming company secured over $100 million in late-stage venture capital throughout the entire last year, and large-scale financing before IPOs has disappeared, with early financing remaining tepid. According to Crunchbase's statistics on global gaming market investments over the past six years, the total funds raised by the industry in 2023 decreased by 79% year-on-year. By country and region, the U.S. market saw an even steeper decline of 86%.

In specific figures, according to gaming investment data analysis company Investgame, venture capital and private investments totaled $2.7 billion in 2023, involving 403 financing events. This represents a significant decrease of 75% compared to the annual financing total of $10.7 billion in 2022. Notably, the number of financing events did not decrease as much, "only" dropping by 21% from 551 events. This led to an average financing scale that was reduced by two-thirds, from $19.4 million in 2022 to $6.7 million in 2023. InvestGame described this sluggish market as a correction of the inflated financing activities during the COVID-19 pandemic. The number of financing events in the industry remains above pre-pandemic levels, but the reduced number of late-stage financings has prevented an increase in the total funds raised.

Joanna Glasner, a business and technology columnist for Crunchbase News, believes that the coolness of the primary market may be due to changes in consumer habits. During the peak of the global COVID-19 pandemic, homebound consumers spent more time and money on video games, but now spending is increasingly shifting to activities outside the home. She noted that the decline in adjacent categories like Web3 and the Metaverse has also impacted the gaming sector. The integration of NFT and other plug-in products in gaming or metaverse games was very popular in 2021 and 2022, but is now less so.

Josh Chapman, co-founder and managing partner of gaming venture capital firm Konvoy Ventures, believes that the gaming boom triggered by the pandemic attracted increased activity from tourist investors and predicts that the industry will return to normal growth in 2024. Chapman also stated that the decline of the Web3 gaming industry in 2023 is a reason for the overall drop in transaction volume, "Many of the crypto technologies in Web3 and gaming disappeared last year, and the lack of Web3 gaming companies entering the market led to an overall decline in transaction traffic. This is a sub-industry of gaming, while other sectors have maintained relatively strong momentum."

It is worth mentioning that Konvoy Ventures announced the launch of a new $150 million fund in July 2022, stating that part of the funds would be invested in blockchain and crypto-related games. Prior to this, Konvoy Ventures had invested in Axie Infinity developer Sky Mavis, NFT sports game Genopets, and NFT pet game Ready Player Me. As Web3 games entered a bear market along with the crypto industry, star projects like Axie Infinity inevitably fell to the bottom, and Konvoy Ventures seems to have refrained from injecting more funds into this sector.

Web3 Game Investment and Financing "Back to Square One"

Against the backdrop of a weak overall gaming market and a cold crypto market, investment and financing in the Web3 gaming sector also showed significant sluggishness in 2023. According to decentralized organization game7, which focuses on blockchain games, the Web3 gaming industry continued to decline in the first three quarters of 2023, dropping from $344 million in the first quarter to $160 million in the third quarter, with quarterly financing scales halving and stabilizing below the levels seen before the 2021 bull market.

Additionally, after categorizing game types, game7 found that in recent years, sports, MMO (massively multiplayer online games), and RPG (role-playing games) blockchain game types raised the most funds, ranking in the top three and significantly ahead of other categories. It is noteworthy that the football game Sorare completed a $680 million Series B financing at a valuation of $4.3 billion in 2021, accounting for nearly 70% of the total funds in the same category. Furthermore, action, management, and strategy games have also received some market attention.

Although there are some discrepancies in the data, the report jointly released by DappRadar and the Blockchain Game Alliance (BGA) also reflects the primary market's sluggishness last year. This report includes funds raised by VCs focused on the gaming sector and intending to invest in Web3 games. According to its statistics, a total of $2.9 billion flowed into the Web3 gaming and metaverse industry in 2023, a decrease of 61% compared to the $7.6 billion invested in 2022, and also lower than the $3.7 billion in 2021.

The report pointed out that among the funds flowing into the Web3 gaming and metaverse industry, game infrastructure, games and the metaverse, and game investment companies are basically in a three-way split. This distribution shows a strong focus on the core aspects of blockchain game and metaverse development, particularly in terms of gaming experience and supporting infrastructure. It interprets this as a positive signal for the industry, indicating that the industry is concentrating on providing top-tier games. This strategy of focusing on quality rather than quantity aims to elevate the standards and public perception of blockchain games to promote broader adoption and long-term market success.