Crypto VC investments continue to improve by quarter despite general market decline: Galaxy Digital

Crypto VC investment in Q2 2024 has shown some degree of resilience, despite the general market lull.

Crypto VC investments continue to improve by quarter despite general market decline: Galaxy Digital

Key Takeaways

  • Crypto venture capital investments slightly increased to $3.19 billion in Q2 2024.
  • The median deal size and pre-money valuations in crypto ventures rose, reflecting a competitive investment environment.

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Crypto venture capital investment demonstrated resilience in the second quarter of 2024, according to a recent report by Galaxy Digital. Despite a lull in the broader crypto market, venture capital sentiment continued to improve, with investment levels and deal counts showing modest growth compared to the previous quarter.

Galaxy Digital’s research analysts Alex Thorn and Gabe Parker reported that venture capitalists invested $3.19 billion into crypto and blockchain-focused companies in Q2, a slight increase from $3.16 billion in Q1. The total number of crypto venture deals rose 8% from 682 in Q1 to 739 in Q2, approaching the record of 775 deals set in Q2 2022.

Median deal size increased at a modest rate, going from $3 million to $3.2 million, while median pre-money valuation jumped significantly from $19 million to $37 million, nearing all-time highs.

Web3 led the investment categories with $495.5 million invested, boosted by a $150 million raise for Farcaster. Layer 1 projects secured $371 million, including major deals for Monad ($225 million) and Berachain ($100 million). Bitcoin Layer 2 projects saw a 174% quarter-over-quarter increase, raising $94.6 million. Early-stage deals also dominated, accounting for 78% of total investment capital, while pre-seed deals represented 13%.

Despite the ongoing growth in VC investment, the report highlights a notable divergence between venture capital trends and cryptocurrency market performance.

Bitcoin traded around $60,117, up 43% year-to-date but down 12% in Q2. This break in the previously observed correlation between Bitcoin price and venture capital investments suggests a more complex investment landscape, at least for 2024. A previous report from Galaxy Digital indicates roughly the same trends for Q1.

With generalist VCs largely on the sidelines, crypto-focused venture capitalists are facing increased competition, potentially giving founders more leverage in negotiations. While the US continues to dominate in terms of deals and capital invested, regulatory headwinds could force more companies to look abroad for funding and operations.

Galaxy Digital estimates that if the current pace holds, 2024 is on track to see the third-highest investment capital and deal count, behind only the peak years of 2021 and 2022. The report suggests that allocators may be preparing to return to the market in earnest due to the resurgence of liquid crypto, potentially leading to increased venture capital activity in the latter half of the year.

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