May 14, 2024
Venture Capital Invests $2.4B in Crypto Startups
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Venture Capital Invests $2.4B in Crypto Startups

After three consecutive quarters of decline, venture capital investment in crypto startups has witnessed a significant uptick. According to data compiled by Galaxy Research, investors injected $2.49 billion across 603 deals in the first quarter of 2024, representing a 29% increase in funding and a 68% rise in deal count from the previous quarter.

“This was the first rise in both capital invested and deal count in 3 quarters, perhaps signaling that Q4 2023 was the “bottom,” although a continuation of QoQ increases – and a more meaningful increase – would confirm that over the coming quarters.”

Capital Invested and Deal Count in 1Q24. Source: Galaxy Research

Factors Driving Investment Dynamics

A sustained recovery must be confirmed by subsequent quarters of growth, the report states. Several factors influenced this quarter’s investment dynamics, including the introduction of Bitcoin exchange-traded funds (ETFs), innovations in areas such as restacking, modularity, and Bitcoin layer-2 solutions, as well as macroeconomic factors such as interest rates.

Capital invested by category and stage. Source: Galaxy Research

Trends in Investment Allocation and Industry Focus

Investment activity within the industry was dominated by the infrastructure sector, which accounted for 24% of total capital raised in the quarter, including EigenLayer’s $100 million funding round. Moreover, the Web3 and trading sectors captured 21% and 17% of the total capital, respectively. Furthermore, 80% of the invested capital in the quarter was allocated to early-stage startups.

Geographically, the United States remained a dominant force in the crypto venture space, with American startups involved in 37.3% of all deals and capturing 42.9% of the invested capital. Singapore followed with 10.8% of the total deal count, while the United Kingdom had 10.2%, Switzerland had 3.5%, and Hong Kong had 3.2%.

Challenges and Uncertainties

Galaxy acknowledges tough fundraising conditions due to macroeconomic factors and regulatory uncertainties impacting the industry. Additionally, later-stage companies faced tougher conditions, as many larger, generalist venture capital firms have either left the sector or substantially cut back their investments. Despite the rebound in funding, investment levels are still not comparable to those reached when Bitcoin previously exceeded $60,000.

Image by freepik

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