Bitcoin Price (BTC) and Its Impact on the Crypto Gaming Investments

Our data goes back to 2020. The beginning of the year was notably subdued in terms of investment activity within the crypto-gaming sector. Such low activity was primarily driven by a general lack of interest in cryptocurrencies, heightened market volatility due to the COVID-19 pandemic, and the absence of projects that effectively combined gaming with crypto. However, the landscape shifted dramatically with the onset of the bull cycle, which began in late 2020 and peaked at the beginning of 2021.

The surge in Bitcoin’s price not only reignited widespread interest in the crypto market but also attracted new creators and investors, sparking a burgeoning trend in crypto gaming. A whopping $1.6B was raised across 85 deals in Q1’22. Our analysis covers only private investment, excluding crypto public listings and token sales.

2022 marked the beginning of the crypto winter. In March 2022, Ronin, a blockchain service run by the owners of Axie Infinity, was hacked, and assets worth about $625m were stolen. The situation was worsened by the LUNA crash in May 2022. The end of the year was marked with another shocking news — the collapse of one of the biggest crypto exchanges, FTX. Despite those events, the decline in investment activity was not immediate, with the downward trend becoming apparent only after a few quarters, which can be connected to time lag in deal announcements and delayed market reaction.

In 2023, dealmaking activity continued to struggle, reaching its lowest point by Q3’23, coinciding with Bitcoin’s initial signs of recovery. Notably, the surge in investment activity doesn’t perfectly align with Bitcoin’s price dynamics. While one might expect investment activity to peak alongside Bitcoin’s price, the data tells a different story. Although a new bull run has emerged, with Bitcoin surpassing its previous highs in the first half of 2024, investment activity in the crypto-gaming sector has not returned to earlier numbers. This can be partly attributed to the closure of numerous projects and the nascent nature of web3 gaming, which is still searching for its customer base and format.

Investment Activity in the Crypto Gaming Sector

Before getting into further deal analysis, it is essential to establish some foundational context. Crypto gaming startups can be broadly divided into two primary segments:

— Content: includes companies that develop games and interactive experiences utilizing blockchain technologies.

— Platforms & Tech: encompasses companies that provide the underlying infrastructure, tools, and technologies that enable crypto gaming, such as blockchain infrastructure for games, development tools, and community platforms.

In 2020, the concept of NFTs — central to most web3 games — was still relatively niche, with $46m raised across 9 announced deals (4 in Content and 5 in Platforms & Tech). Such a low level of activity reflects the early stage of the industry and limited mainstream awareness at the time. However, this dynamic changed dramatically in 2021.

With the explosion of NFTs and Metaverse concepts into the mainstream, fueled by their growing media coverage, investment activity surged. In 2021, we witnessed 79 deals in Content and 46 in Platforms & Tech, with a total deal value of $2.9B, a drastic increase compared to the previous year. This growth was partially attributable to the rising popularity of play-to-earn gaming and the success of early pioneers like Axie Infinity, which quickly became a focal point for both crypto enthusiasts and investors.

Note: Projects that are a mix of content and platform have been excluded for clearer visualization.

Investments in Content creators, initially representing 40% of total rounds in 2020, have notably outpaced Platforms & Tech startups by both the number of fundraising and total capital deployed in recent years, constituting over 60% of the total amount raised and deals closed in web3 space. This is likely explained by greater scale potential and/or relatively quicker returns in game development studios vs. gaming ecosystem players. The peak of the investment frenzy occurred in H1’22, with 96 rounds closed with Content startups and 62 in Platforms & Tech.

Some of the most notable VC-led investments during this period include Forte, Sorare, Yugalabs, and Mysten Labs. These four startups collectively attracted almost $2.4B — almost 30% of the total capital invested in crypto gaming over 2020-2024 YTD.

When examining the most active investors, Hong Kong-based Animoca Brands (ASX: AB1) stands out as a key player among the most active investors, participating in nearly all major deals across the areas mentioned. Being involved in 109 rounds totaling $2.3B, Animoca Brands has established itself as a leader in the sector. Another significant player is Andreessen Horowitz (a16z), a regular fund in our VC rankings, with $2.7B invested across 28 deals. Griffin Gaming Partners and BITKRAFT invest in both the web3 and gaming sectors, while Polygon, Merit Circle, and Spartan Group focus primarily on the crypto space. The market is no longer dominated solely by crypto companies; major VC firms are also increasingly eager to identify and invest in emerging technologies and look for outsized returns.

Exits among Web3 Gaming Startups

However, the picture is different when it comes to the M&A landscape. This market is still early; many startups don’t make it far enough to become acquisition targets. P2E and Metaverse trends managed to attack investors’ attention, but the implementation of those concepts was, in most cases, broken.

While some acquirers are in the market, such transactions remain relatively rare. For example, Wemade made the largest acquisition in the sector with its $115m purchase of SundayToz. Meanwhile, Animoca Brands has been involved in at least six M&A deals, although the financial details for most of these transactions weren’t disclosed.

Сompared to the traditional gaming sector, where mergers and acquisitions are more commonplace, the crypto gaming market has seen fewer exits. Deals like NFT Tech’s $6m acquisition of Run It Wild, or Pioneer’s $4m acquisition of Bark Ventures are examples of small-scale M&As common in this space. We have tracked 33 M&A deals for the period from 2020 till 2024YTD with a total disclosed value of $146M.

The contrast between high investment volume and limited exits highlights the early stage of the crypto gaming industry. We might expect an increase in the M&A activity but the sector should first prove its maturity.

Key Takeaways

1. Bitcoin-related investment spikes: The bullish trend in Bitcoin significantly increased investment activity during 2021 and 2022. However, the current bull run has not generated the same level of investor interest and confidence as observed in previous cycles.
2. Crypto winter effect: The decline of BTC’s price has not directly affected investment activity. However, the downward trend was boosted by a series of negative news stories that undermined the trust of crypto enthusiasts and investors.
3. Content-centric investment dominance: Content creators consistently attract more funding than Platforms & Tech companies and stand among the largest exits in the web3 space.
4. The disparity between high investment volumes and limited M&A activity: Despite substantial investment levels, M&A deals remain relatively infrequent, underscoring the market’s early stage of development. As the crypto gaming market matures, we anticipate increasing the frequency and scale of M&A activity, bringing it closer to the traditional gaming industry.

There is no universally accepted path to success. Investors and developers acknowledge new opportunities arise as emerging technologies integrate into daily routines. However, no proven business strategy has yet been widely adopted by the market to deliver a novel gaming experience, with current approaches being primarily investor speculations. Studios continue experimenting with various business models: some focus on play-to-earn mechanisms, while others generate revenue primarily from one-off NFT resales or token listings.

The H1’24 marked a gradual recovery in new web3 gaming-related fundraising announcements. Will this trend prevail, or is it a thing of the past? Will we see top-chart games utilizing blockchain technology to drive healthy player engagement? These questions remain open, and they will define the market’s future — along with the price of Bitcoin.

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