In Q1 2025, VC firms have increased their funding to $4.8 billion for crypto startups, indicating a new wave of investment activity in the industry. Galaxy, a digital assets company, published this information in its reports, stating that this number indicates a 40% growth from the previous quarter of 2024.
Increase in Both Deal Count and Volume
As highlighted in the report, there was a surge in the overall funds allocated, but it was not limited only to that. The total number of deals also increased in the first quarter of 2025, as 446 deals were executed within the quarter. This indicates a 7.5% quarter-on-quarter (QoQ) increase in the investment transaction volume.
Impact of the Binance Deal
The first quarter in 2025 experienced a significant spike due to an isolated transaction. The investment made by Emirates MGX into Binance for $2 billion almost singlehandedly made 2025 the peak investment period for crypto and blockchain startups since Q3 of 2022. The deal was substantial enough to boost the region’s performance during the first quarter of 2025, which was historically weak without these investments. The report, however, assesses that the scenario would, indeed, look more favorable with the MGX investment into Binance. The crypto space, when excluding that deal, showed an investment figure of $2.8 billion in the first quarter, which is a 20% decline compared to the previous quarter (Q4 2024).
Changing Deal Stages
The Binance deal is also understood to have set the tone for the kind of deals the other investors preferred in the quarter. Investments into later-stage deals exceeded earlier-stage ones as they consist of more established firms and accounted for 65% of the total investment. Early-stage deals accounted for only 35%. The report noted that this is the first time later-stage firms have controlled a bigger proportion of investment relative to other stages since Q1 2021. At the same time, the report claims that pre-seed deals decreased only very slightly and there were more deals overall, suggesting that the market is indeed growing even if crypto innovation is still stalling.
Investments by Subsector
The Binance deal also reported changes on which subsectors within crypto received the greatest focus. The trades/exchanges/investing/lending category received the most funds, amounting to 47.9% of the total investment, equating to $2.55 billion. These figures mark an increase of $763 million for DeFi as it leads the interest of VC alongside infrastructure. DeFi has dominated VC target sectors over the past two quarters, claim investment reports. It has received greater focus than gaming/Web3. Reportedly the gaming sector has fallen from fourth to fifth place in rank, behind not only DeFi but also infrastructure and payments.
Deal Count per Subsector
Although gaming had the lowest infusion of capital, it represented the highest proportion of deal count at 16% out of all deals. This indicates that companies in that particular vertical tend to get smaller investments. Trading came in second with 62 deals in the quarter, while infrastructure and AI both surpassed 40 deals each. Even though DeFi received a large capital influx in monetary value, the number of deals was below 40.
Deal Location
Focusing on deal count, companies based in the US received the highest attention. Reportedly, 38.6% of all deals in Q1 2025 were with a US-headquartered firm. The UK came in second with 8.6% of the total, while Singapore and UAE had 6.4% and 4.4% respectively.
Geographic Distribution of Amount Invested
The capital distribution by geographies was significantly altered due to the Binance deal. With the large MGX investment into Binance, which is located in Malta, the US was not leading in the total amount of the funds invested. Malta led with 36.8% of the total amount set aside for spending. Nevertheless, the US region had a considerable portion with 24.7%. They were followed by Hong Kong (13.4%), the UK (6.6%) and Singapore (3.2%) in terms of the amount of capital set aside.
Comparison to Peak Levels
Even when alluding to peak levels, venture capital (VC) investments during the first quarter of 2025 exhibit an annual and quarterly increase, which is notable compared to previous years. Even with the investments VCs put into crypto firms, the figure is substantially less than the euphoric phase in 2021. The document indicates an increase in the value of bitcoin versus the investment going into crypto startups. As quoted, BTC seems to be reaching record highs, but the gauge of money available for investment in crypto seems to be substantially lower than the periods of euphoria.
Decreased Commitment Explanations
Galaxy analysts suspect that the historical events are responsible for the level of commitment being lower than previous peak levels. They analyze that the collapse in the crypto market in 2022 and 2023, along with the turmoil, has continued to dampen some investors’ appetite to commit significant capital to crypto ventures as they did in early 2021 and early 2022. Also cited is the growth of AI as other competing factors that would draw investment funds. It was reported that Galaxy analysts have been quoted saying, “The macro environment and turmoil in the crypto market from 2022 to 2023 have continued to dissuade some allocators from making the same level of commitments to venture capital in crypto that they did in 2021 and 2022.”
Spot ETPs Function
Investment behavior expectations are also shaped by the introduction of crypto-focused spot exchange-traded products (ETPs), in addition to the listed macroeconomic drivers and historical market changes. The report claims that investors who would have already committed to a venture fund or a startup in crypto would instead seek to fulfill their investment objectives via the purchase of publicly listed ETPs.
Impact of Regulatory Clarity
While there are bounding reasons restricting peak-level commitments, it has been reported that analysts think increased clarity around regulations could help in bringing back investors. This could explain, at least in part, the claimed predominance of the United States within the crypto-startup ecosystem in terms of the number of deals, with the new administration reportedly already de-regulating the sector. There are plans in the country to strengthen its dominance when better-defined pro-crypto regulations are put in place.
