20-24 Year Web3 Game Investment Observation: A Fleeting Past, A Reborn Future
How do Bitcoin price fluctuations affect investment activities in the crypto gaming sector?Author: Vladimir Sergeevih
Compiled by: Shenchao TechFlow
The year 2020 was not only a pivotal year for the gaming industry but also for the cryptocurrency market. The price of Bitcoin skyrocketed from around $7,200 at the beginning of the year to $29,000 by the end, sparking widespread interest in blockchain projects. With the convergence of the gaming and crypto industries, the Web3 gaming market emerged, and many projects thrived under the "play-to-earn" model.
Although we have been focusing on the gaming aspect of Web3 games since then, we have yet to delve into the close relationship between cryptocurrency dynamics and investment activities in this field. In this research, we explore several key questions:
How do Bitcoin price fluctuations affect investment activities in the crypto gaming sector?
What differences are there in investor interest between content-oriented and platform-oriented crypto gaming startups?
Which startups have received the most significant investments, and what is their exit potential?
The Impact of Bitcoin Prices on Crypto Gaming Investments
Our data traces back to 2020. At the beginning of the year, investment activities in the crypto gaming sector were relatively sluggish, primarily due to a general lack of interest in cryptocurrencies, market volatility triggered by the COVID-19 pandemic, and a lack of effective projects that combined gaming with crypto. However, as the bull market cycle began at the end of 2020 and peaked in early 2021, the situation changed significantly.
The surge in Bitcoin prices not only reignited widespread interest in the crypto market but also attracted new creators and investors, driving new trends in the crypto gaming sector. In the first quarter of 2022, a total of 85 transactions raised up to $1.6 billion. Our analysis only covers private investments, excluding crypto public listings and token sales.
2022 marked the beginning of a winter for the crypto market. In March, the blockchain service Ronin, associated with Axie Infinity, was hacked, resulting in approximately $625 million in assets being stolen. In May, the collapse of LUNA further exacerbated the market's woes. By the end of the year, shocking news emerged regarding the collapse of the major cryptocurrency exchange FTX. Despite these events occurring in succession, the decline in investment activities did not become immediately apparent; the downward trend only gradually became evident after several quarters, related to the lag in transaction announcements and delayed market reactions.
By 2023, trading activity remained weak, hitting a low in the third quarter, coinciding with the initial signs of recovery in Bitcoin. Notably, the growth in investment activities did not completely align with Bitcoin price fluctuations. Although a new bull market has begun, with Bitcoin surpassing previous highs in the first half of 2024, investment activities in the crypto gaming sector have yet to return to previous levels. This is partly due to many projects shutting down and the development of Web3 games still being in its infancy, as they explore their customer base and business models.
Investment Activities in the Crypto Gaming Sector
Before diving into the analysis of transactions, we need to understand some basic background. Crypto gaming startups can be broadly divided into two main categories:
--- Content: Companies that develop games and interactive experiences utilizing blockchain technology.
--- Platforms and Technology: Companies that provide the infrastructure, tools, and technology necessary for crypto gaming, such as blockchain infrastructure for games, development tools, and community platforms.
In 2020, the concept of NFTs—the core of most Web3 games—was still relatively niche. That year, there were a total of 9 announced transactions, raising $46 million (4 in the content sector and 5 in the platform and technology sector). Such a low level of activity reflects that the industry was in its early stages, with limited mainstream awareness at the time. However, this situation changed dramatically in 2021.
As the concepts of NFTs and the metaverse gradually entered the mainstream and received increasing media attention, investment activities saw a significant increase. In 2021, we observed 79 transactions in the content sector and 46 in the platform and technology sector, with a total transaction amount reaching $2.9 billion, a substantial increase compared to the previous year. This growth was partly attributed to the popularity of "play-to-earn" games and the success of early pioneers like Axie Infinity, which quickly became the focus of crypto enthusiasts and investors.
Note: To present more clearly, projects that mix content and platform have been excluded.
Investment in content creators initially accounted for 40% of total funding rounds in 2020, and in recent years, it has significantly surpassed platform and technology startups, accounting for over 60% of the total fundraising amount and transaction volume in the Web3 sector. This may be because game development studios have greater scaling potential and/or faster return speeds compared to other participants in the gaming ecosystem. In the first half of 2022, the investment boom peaked, with content startups completing 96 funding rounds, while platform and technology companies completed 62 rounds.
During this period, some of the most notable venture capital-led investments included Forte, Sorare, Yugalabs, and Mysten Labs. These four startups collectively attracted nearly $2.4 billion, accounting for nearly 30% of the total investment in crypto gaming from 2020 to 2024 to date.
Among the most active investors, Hong Kong's Animoca Brands (ASX: AB1) stands out, having participated in nearly all significant transactions. Animoca Brands was involved in 109 funding rounds, totaling $2.3 billion, making it a leader in the field. Another key investor is Andreessen Horowitz (a16z), a fund frequently seen in our venture capital rankings, which invested $2.7 billion through 28 transactions. Griffin Gaming Partners and BITKRAFT are also involved in both Web3 and gaming, while Polygon, Merit Circle, and Spartan Group primarily focus on the crypto sector. Today, the market is no longer dominated solely by crypto companies; mainstream venture capital firms are increasingly eager to discover and invest in emerging technologies, seeking outsized returns.
Exits for Web3 Gaming Startups
However, the situation in the mergers and acquisitions market is different. This market is still in its early stages, and many startups have not yet developed to the point of becoming acquisition targets. While the P2E and metaverse trends have attracted investor attention, the implementation of these concepts has often been less than ideal.
Although there are some acquirers in the market, such transactions remain relatively rare. For example, Wemade acquired SundayToz for $115 million, which is the largest acquisition in the field. Meanwhile, Animoca Brands has participated in at least six M&A transactions, but the financial details of most transactions have not been disclosed.
Compared to the more common M&A activities in the traditional gaming industry, exit cases in the crypto gaming market are fewer. For instance, NFT Tech acquired Run It Wild for $6 million or Pioneer acquired Bark Ventures for $4 million, both of which are common small-scale acquisitions in the field. We have recorded 33 M&A transactions from 2020 to 2024 to date, with a total disclosed amount of $146 million.
The stark contrast between high investments and limited exits highlights that the crypto gaming industry is still in its early stages. While M&A activities are expected to increase, the industry first needs to demonstrate its maturity.
Key Takeaways
Surge in Bitcoin-related Investments: The bull markets of 2021 and 2022 significantly boosted investment activities. However, the current bull market has not sparked investor interest and confidence as in the past.
Effects of the Crypto Market Winter: Although the decline in Bitcoin prices did not directly impact investment activities, a series of negative news stories exacerbated this trend, undermining the trust of crypto enthusiasts and investors.
Content-focused Investment Advantage: Content creators continue to attract more funding than platform and technology companies, achieving the largest exits in the Web3 sector.
Contrast Between High Investment and Limited M&A: Despite high investment amounts, M&A activities remain low, indicating that the market is still in its early stages. As the crypto gaming market matures, we expect the frequency and scale of M&A activities to increase, gradually approaching those of the traditional gaming industry.
There is no one-size-fits-all path to success. Investors and developers recognize that as emerging technologies integrate into daily life, new opportunities are continuously arising. However, there is currently no widely accepted business strategy in the market to create unique gaming experiences; most current approaches are largely speculative by investors. Various studios are experimenting with different business models: some focus on "play-to-earn" mechanisms, while others primarily rely on one-time NFT resales or token listings for revenue.
In the first half of 2024, financing activities related to Web3 games began to gradually warm up. Will this trend continue, or will it become a thing of the past? Will we see top games leveraging blockchain technology to enhance player engagement? These questions remain unresolved, and they will influence the future direction of the market and the price of Bitcoin.
