Crypto startups managed to raise more capital in the second quarter of 2024, even as the number of deals closed saw a decline, reflecting a broader slowdown in the digital asset market. According to data from PitchBook, venture capital investment in crypto companies totalled $2.7 billion in the quarter ending June 2024.
This represents a 2.5% increase from the first quarter, but a 9.8% decrease compared to the same period a year earlier. However, the number of deals closed dropped by 12.5% from the first quarter, indicating a selective investment approach by venture capitalists.
Launch of ETFs Played a Big Role
The broader crypto market has faced challenges after reaching all-time highs in the first quarter. It was driven by excitement over the introduction of US exchange-traded funds (ETFs) holding Bitcoin for the first time.
Nevertheless, investor interest subsided, as inflows into these ETFs sharply decreased to $2.8 billion in the second quarter, down 80% from $13.7 billion in the prior quarter, based on estimates from Bloomberg.
Although venture capital investment in cryptocurrency increased in March and April, it decreased as the market dropped in late April and early May, according to Rob Hadick, general partner at cryptocurrency venture fund Dragonfly. The total investment value increased for the third quarter in a row, but it is still far lower than its peak in 2021 and the first part of 2022.
Senior analyst Robert Le of PitchBook stated that founders seeking to profit from an upswing in the secondary market was the primary cause of the increase in project valuations in the second quarter. Despite the downturn, there is optimism that more funding may come from a wider recovery in token values and ongoing institutional acceptance of digital assets.
Wider Blockchain Acceptance in the Market
Venture funders continued to place less emphasis on consumer-focused applications in favour of infrastructure projects like new blockchains. A blockchain business called MegaETH is one example.
In June, it raised $20 million in a seed fundraising round. The market is still “hungry” for high-performance blockchains, according to co-founder Shuyao Kong, suggesting that there is still demand for basic infrastructure projects.
However, the only notable cryptocurrency funding round was for the May $150 million raised by the social media platform Farcaster. This demonstrates a change in investor focus as they look for promising applications in addition to getting weary of investing in infrastructure. Robot Ventures partner Tarun Chitra noted that the present market dynamics are reflected in this rebalance away from infrastructure and towards apps.
Exit Activities Climb Up Significantly
Bloomberg also mentioned in its report that the amount of exit activities, which is the selling of investments by investors to realise returns did rise to a level not seen since the first quarter of 2022. Robinhood Market’s acquisition of Bitstamp is one of the noteworthy departures from the second quarter.
As the cryptocurrency market develops and smaller businesses look to strategically exit, especially among exchanges, custodians, and infrastructure providers, PitchBook anticipates that this trend of consolidation will continue.
In conclusion, the market is seeing a change in emphasis and a decline in the number of finalized deals, even if venture capital investment in cryptocurrency businesses has surged in terms of dollar value.
More market consolidation and a persistent focus on high-potential infrastructure projects and applications are probably in store as the industry gets older.