Venture capital investments in crypto continued to rebound in the second quarter, with a total $3.2 billion invested during the period — up 28% compared to $2.5 billion in the previous quarter, according to Galaxy Digital latest research report.
The report also identified a 94% quarterly surge in median pre-money valuation, which rose to $37 million from $19 million in the first quarter.
Galaxy noted the second quarter’s median pre-money valuation is the highest since the fourth quarter of 2021 and represents an almost all-time high. It attributed the surge to a more competitive market, giving companies greater negotiation leverage in deals.
Meanwhile, the second quarter median deal size grew to $3.2 million from $3 million, up 7% after remaining largely steady for five quarters. Deal count fell to 577 in the second quarter, down from 603 in the first quarter but up from less than 400 in the fourth quarter of 2023.
According to the report:
“Despite a lack of available investment capital compared to previous peaks, the resurgence of the crypto market… is leading to significant competition and [FOMO] among investors.”
The report highlighted a positive shift in crypto venture capital sentiment, buoyed by a nearly 50% year-to-date rise in Bitcoin and Ethereum prices. If the trend continues, 2024 will have the third-highest investment capital and deal count numbers after the bull markets of 2021 and 2022.
However, the report also noted that despite Bitcoin experiencing a significant rise since January 2023, venture capital activity has not kept pace, trading well below the levels seen when the flagship crypto last traded above $60,000 in 2021 and 2022.
The divergence is attributed to several factors, including crypto-native catalysts like Bitcoin ETFs and emerging areas such as restaking and Bitcoin Layer 2 solutions. Additionally, pressures from crypto startup bankruptcies, regulatory challenges, and macroeconomic headwinds, particularly interest rates, have collectively contributed to the breakdown.
Other data and trends
Specific project categories led fundraising — including Web3, which brought in $758 million or 24% of all capital. Infrastructure brought in over $450 million (15%), trading and exchanges brought in under $400 million (12%), and Layer 1 brought in under $400 million (12%).
Bitcoin Layer 2 networks continued to see significant investments of $94.6 million, up 174% on a quarterly basis. Galaxy said “investor excitement remains high” around the possibility of composable blockspace attracting DeFi and NFT projects to Bitcoin.
US companies dominated VC investment, attracting 53% of all capital and 40% of deals. Galaxy said US dominance exists despite regulatory change that could cause companies to leave the country and warned policymakers to be aware of their impact.
Early-stage firms received about 78% of capital, while late-stage companies received 20% of all capital. Galaxy said that larger general VC firms have left the sector or scaled down their activity, reducing the ability of later-stage startups to raise money.
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