Web3 Gaming Investment Trends from 2020 to 2024

The year 2020 was pivotal not only for the gaming industry but also for the cryptocurrency market. Bitcoin’s price skyrocketed from around $7,200 at the beginning of the year to $29,000 by the end, sparking widespread interest in blockchain projects. As the gaming and crypto industries intersected, the Web3 gaming market emerged, with many projects thriving under the “play-to-earn” model.

While we’ve focused on the gaming aspects of Web3, we have yet to dive deeply into how cryptocurrency dynamics closely tie into investment activity in this sector. In this study, we explore several key questions:

• How does Bitcoin price volatility affect investment activity in the crypto gaming sector?
• What differences can we observe between investor interest in content-focused versus platform-focused crypto gaming startups?
• Which startups have garnered the most significant investment, and what is their potential for exits?

Bitcoin’s Influence on Crypto Gaming Investments

Our data goes back to 2020. At the start of that year, investment activity in the crypto gaming sector was relatively low, primarily due to a general lack of interest in cryptocurrencies and the market volatility caused by the COVID-19 pandemic.

Additionally, there were few successful projects that effectively combined gaming with crypto. However, the landscape shifted dramatically by the end of 2020 as the bull market cycle kicked in and reached its peak in early 2021.

Bitcoin’s price surge not only reignited interest in the broader crypto market but also drew new creators and investors into the space, spurring new trends in crypto gaming. In the first quarter of 2022, 85 deals were made, raising as much as $1.6 billion. Our analysis focuses solely on private investments, excluding public crypto listings and token sales.

However, 2022 marked the beginning of the crypto market’s downturn. In March, blockchain service Ronin, which powered Axie Infinity, was hacked, resulting in $625 million in stolen assets. In May, the collapse of LUNA further deepened market challenges.

By the end of the year, the collapse of major crypto exchange FTX sent shockwaves throughout the industry. Despite these cascading events, a decline in investment activity was not immediately apparent, only gradually becoming evident in subsequent quarters. This lag is attributed to the time delay between deal announcements and market reactions.

By 2023, investment activity remained sluggish, reaching its lowest point in Q3, which coincided with Bitcoin showing signs of recovery. Notably, the growth in investment activity has not kept pace with Bitcoin’s price movements.

While a new bull market has begun and Bitcoin surpassed previous highs in the first half of 2024, investment activity in the crypto gaming sector has yet to return to previous levels. This lag can be attributed to many project closures and the fact that Web3 gaming is still in its infancy, with developers continuing to explore viable business models and customer bases.

Investment Activity in the Crypto Gaming Sector

Before delving into the specifics of deals, it’s essential to understand the broader landscape. Crypto gaming startups can generally be categorized into two primary groups:

1. Content: Companies developing games and interactive experiences utilizing blockchain technology.
2. Platforms and Technology: Companies providing the infrastructure, tools, and technology necessary for crypto games, such as blockchain infrastructure, development tools, and community platforms.

In 2020, NFTs—a core component of most Web3 games—were still relatively niche. Only nine deals were announced that year, raising $46 million (four in the content space and five in platform and technology). This low level of activity reflected the early stage of the industry and the limited mainstream awareness at the time. However, this changed dramatically in 2021.

As NFTs and the metaverse became increasingly mainstream and garnered more media attention, investment activity surged. In 2021, there were 79 content deals and 46 platform and technology deals, with total transaction amounts reaching $2.9 billion—a significant increase from the previous year.

This growth was partly fueled by the popularity of play-to-earn games and the success of early pioneers like Axie Infinity, which quickly became a focal point for both crypto enthusiasts and investors.

Note: Projects blending both content and platform elements have been excluded for clarity.

Investment in content creators initially accounted for 40% of total funding rounds in 2020, but in recent years, it has significantly outpaced platform and technology startups, representing over 60% of the total capital raised and the number of deals in the Web3 sector.

This shift likely reflects the greater scalability potential and/or quicker returns from game development studios compared to other participants in the gaming ecosystem. In the first half of 2022, investment activity peaked, with content startups completing 96 funding rounds, while platform and technology companies closed 62 rounds.

During this period, some of the most prominent venture-backed investments included Forte, Sorare, Yuga Labs, and Mysten Labs. These four startups collectively attracted nearly $2.4 billion, accounting for almost 30% of the total investment in crypto gaming from 2020 to 2024.

Among the most active investors, Hong Kong-based Animoca Brands (ASX: AB1) stands out, having participated in nearly every significant deal. Animoca Brands was involved in 109 funding rounds, totaling $2.3 billion, solidifying its leadership in the sector.

Another notable investor is Andreessen Horowitz (a16z), a frequent name in venture capital rankings, which invested $2.7 billion across 28 deals. Griffin Gaming Partners and BITKRAFT straddle both the Web3 and gaming sectors, while Polygon, Merit Circle, and Spartan Group focus primarily on the crypto space.

Today, the market is no longer dominated solely by crypto companies, as mainstream VCs are increasingly eager to explore and invest in emerging technologies in search of outsized returns.

Exits for Web3 Gaming Startups

However, the merger and acquisition (M&A) market paints a different picture. This space is still in its early stages, with many startups not yet developed enough to become acquisition targets. While the play-to-earn and metaverse trends have attracted investor attention, their implementation has often fallen short.

Although there are some acquirers in the market, such deals remain relatively rare. For example, Wemade’s $115 million acquisition of SundayToz is one of the largest in this field. At the same time, Animoca Brands has participated in at least six M&A transactions, though the financial details of most deals were not disclosed.

In contrast to the more frequent M&A activity in the traditional gaming industry, exit cases in the crypto gaming market are fewer. For instance, NFT Tech’s $6 million acquisition of Run It Wild or Pioneer’s $4 million purchase of Bark Ventures are examples of smaller-scale acquisitions common in this space. From 2020 to 2024, we recorded 33 M&A deals in total, with a disclosed value of $146 million.

The stark contrast between high investment and limited exits highlights that the crypto gaming industry is still in its early stages. While M&A activity is expected to increase, the sector needs to first demonstrate its maturity.

Key Takeaways

• Bitcoin-Driven Investment Surge: The bull markets in 2021 and 2022 significantly boosted investment activity. However, the current bull market has failed to reignite the same level of investor interest and confidence.
• Crypto Winter Effect: Although Bitcoin’s price decline did not directly impact investment activity, a series of negative news events exacerbated the trend, undermining trust among crypto enthusiasts and investors.
• Content Investment Advantage: Content creators have consistently attracted more funding than platform and technology companies, realizing the most significant exits in the Web3 space.
• High Investment vs. Limited M&A: Despite large investments, M&A activity remains limited, indicating that the market is still in its early stages. As the crypto gaming market matures, we expect an increase in both the frequency and scale of M&A transactions, bringing it closer to the traditional gaming industry.

There is no single path to success. Investors and developers alike recognize that new opportunities continue to emerge as emerging technologies integrate into everyday life. However, no universally accepted commercial strategy exists for creating unique gaming experiences, and current approaches often represent speculative bets by investors. Various studios are experimenting with different business models, some focusing on play-to-earn mechanics, while others rely primarily on one-off NFT resales or token listings for revenue.

As of the first half of 2024, Web3 gaming-related fundraising has begun to pick up. Will this trend continue, or will it be a fleeting moment? Will we see top-tier games leveraging blockchain technology to enhance player engagement? These questions remain unanswered, and they will shape the future trajectory of the market and Bitcoin’s price.