Crypto News Report:
Authors: Alex Thorn and Gabe Parker, Analysts at Galaxy Digital
Translated by: Yangz, Techub News
Compared to the strong performance of Bitcoin and liquid cryptocurrencies in Q1, the market cooled slightly in Q2 but still showed significant growth compared to the same period last year. The rebound trend in cryptocurrency venture capital seen in Q1 appears to be continuing. The performance of industry founders and investors in Q2 suggests a more active funding environment compared to previous quarters. However, as of July 1st, data performance slightly lagged behind general market sentiment.
The number of venture capital transactions in the crypto industry decreased slightly quarter-over-quarter from 603 in Q1 to 577 in Q2, while investment capital increased from $2.5 billion in Q1 to $3.2 billion in Q2. The median transaction size increased slightly from $3 million to $3.2 million, but the median pre-money valuation surged from $19 million to $37 million, nearing historical highs. These data indicate that despite a relative scarcity of available investment capital compared to previous peaks, the crypto market’s recovery over the past few quarters has intensified competition among investors and fueled FOMO.
In Q2 2024, venture capital invested $3.194 billion in cryptocurrency and blockchain companies, marking a 28% increase quarter-over-quarter, across 577 transactions, a 4% decline.
The correlation between Bitcoin prices and capital invested in crypto startups has broken in recent years. Despite Bitcoin’s significant rise this year, and an increase in capital invested, it remains well below levels seen when Bitcoin surpassed $60,000 in 2021-2022. Pressure from native crypto catalysts like Bitcoin ETFs and emerging areas (e.g., re-staking, modularization, Bitcoin L2), along with challenges from crypto startup bankruptcies and regulatory hurdles, compounded by macroeconomic headwinds (interest rates), has led to this clear divergence. With the recovery of liquid cryptocurrencies now underway, venture capitalists are preparing to return, and activity is expected to increase in the latter half of this year.
In Q2 2024, 78% of funds were allocated to early-stage companies, with 20% allocated to late-stage companies. Although early-stage venture capital funds focused on cryptocurrencies remain very active and hold reserves from 2021 and 2022, large integrated venture capital firms have largely exited the industry or significantly reduced activities, making it more difficult for late-stage startups to raise funds.
In terms of transaction volume, Pre-Seed round transactions saw a slight decrease but remained higher compared to the previous market cycle.
In 2023, valuations of venture-backed cryptocurrency companies plummeted, reaching their lowest median pre-money valuation since Q4 2020. However, by Q1 2024, valuations had rebounded, soaring to $37 million in Q2, a 94% increase quarter-over-quarter, reaching the highest level since Q4 2021. It’s important to note that the delay in reporting and lack of publicly available valuation data may lead to significant fluctuations in these figures. Despite modest growth in investment capital, the rise in valuations reflects improved market sentiment, as founders capitalize on existing investor interest and competition.
In Q2 2024, the “Web3/NFT/DAO/Metaverse/Gaming” category of cryptocurrency companies and projects raised $758 million in venture capital, representing the largest share (24%) across all categories. The two largest transactions in this category were Farcaster and Zentry, raising $150 million and $140 million, respectively.
Following closely behind are companies/projects related to infrastructure, transactions, and L1, accounting for 15%, 12%, and 12% of investments, respectively. Notably, due to transactions like Monad and Berachain, which raised $225 million and $100 million, respectively, investment capital in the L1 category grew more than sixfold. Additionally, Bitcoin L2 raised $94.6 million in Q2 2024, a 174% increase compared to Q1 2024 ($34.7 million).
In terms of transaction volume, the “Web3/NFT/DAO/Metaverse/Gaming” category leads with a 19% share, largely driven by decentralized social media and gaming-related transactions. Although the number of financing rounds for crypto startups related to re-staking decreased in Q2 2024, transactions in the infrastructure category ranked second this quarter, accounting for 15%.
Following closely behind are cryptocurrency companies/projects related to transactions and DeFi, accounting for 11% and 9% of total transactions completed in Q2 2024.
By segmenting investment capital and transaction volume by stage and category, a clearer understanding emerges of which types of companies are raising funds within each category. In Q2 2024, the majority of capital in the Web3, L1, and infrastructure categories was allocated to early-stage companies and projects, while transactional venture capital in the category was more directed towards late-stage companies.
Analyzing the share of capital invested in each category by stage provides deeper insights into the maturity of investable capital within each category.
Additionally, transaction volume reflects a similar situation. Nearly all categories completed a considerable portion of their transactions involving early-stage companies and projects.
By studying the share of transactions completed in each category by stage, insights into the various stages of investable categories emerge.
By geographical distribution of investment, in Q2 2024, over 40% of venture capital was invested in companies headquartered in the United States. The UK accounted for 10%, Singapore 8.7%, UAE 3.13%, and Hong Kong 2.78%.
In terms of investment amount, companies headquartered in the United States attracted 53% of venture capital, a 23.5% increase quarter-over-quarter. The UK accounted for 12.78%, Singapore 4.6%, and UAE 4.39%.
By grouping investments, the majority of venture capital in Q2 2024 was directed towards companies established between 2021 and 2023.
Summary:
Sentiment in crypto venture capital continues to improve but remains significantly below the bull market of 2021-2022. With Bitcoin and Ethereum rising approximately 50% this year, investment capital increased by 28% quarter-over-quarter, while transaction volume remained relatively stable. If this growth continues through the year-end, investment capital and transaction volume in 2024 will rank third, following 2021 and 2022.
Investments in Web3 and L1 categories are notable. Led by transactions like Farcaster ($150 million) and Zentry ($140 million), the Web3 category leads with approximately $750 million in total financing. Boosted by transactions like Monad ($225 million) and Berachain ($100 million), the L1 category achieved $371 million, placing fourth.
Median valuations for venture-backed cryptocurrency enterprises have surged to the highest level since Q4 2021 (the peak of the last bull market). Despite adverse factors from the 2022 bear market and macroeconomic conditions, most mainstream venture capital firms remain cautious, while those focused on cryptocurrency face intensified competition, providing founders with more negotiation leverage. Note that the median is based on available data as of July 1st, and with more Q2 transaction information, the median may be updated, potentially adjusted downwards.
Bitcoin L2 continues to attract significant investment, with companies and projects collectively raising $94.6 million in Q2 2024, a 174% increase. Investors’ enthusiasm for more composable block space in the Bitcoin ecosystem, attracting DeFi and NFT patterns, remains high. Internal research indicates at least 65 projects self-identifying as “Bitcoin L2.”
Early-stage transactions dominated in Q2, capturing nearly 80% of investment capital, with Pre-Seed round transactions accounting for 13% of all transactions. Continued focus on early-stage transactions signals long-term health for a broader cryptocurrency ecosystem. While late-stage companies face fundraising challenges, entrepreneurs are actively seeking investors for new innovative ideas.
The United States continues to dominate the cryptocurrency entrepreneurial ecosystem. While maintaining a significant lead in transactions and capital, adverse regulatory factors may compel more companies to move to other countries and regions. For the US to sustain its position as a center for technological and financial innovation, policymakers must recognize how their actions or inactions could impact the cryptocurrency and blockchain ecosystem.
