Cryptocurrency Venture Capital rebounds in the second quarter
After a strong first quarter for Bitcoin and liquid cryptocurrencies, the market cooled off, but still showed significant year-over-year growth. The rebound observed in the cryptocurrency venture capital market in the first quarter seems to be continuing. However, as of July 1, the data still seems slightly below the general sentiment. Founders and investors generally express that the financing environment is more active than in the previous quarters.
Although the number of transactions dropped slightly from 603 in the first quarter to 577 in the second quarter, investment capital increased from $25 billion in the first quarter to $32 billion in the second quarter. The median transaction size increased slightly from $3 million to $3.2 million, but the median pre-money valuation increased significantly to nearly a historical high, from $19 million to $37 million. This indicates that despite the lack of available investment capital compared to previous peaks, the recovery in the cryptocurrency market in the past few quarters is leading to fierce competition and FOMO (fear of missing out) among investors.
In the second quarter of 2024, venture capitalists invested $31.94 billion in companies focused on cryptocurrencies and blockchain, completing 577 transactions, a 28% increase compared to the previous period.
The majority of the funding went to early-stage companies. The activity of early-stage funds focused on cryptocurrencies is ongoing, and these funds still had capital in 2021 and 2022. However, larger generalist venture capital firms have either exited the industry or significantly reduced their activities, making it more difficult for late-stage startups to raise funds.
In terms of valuation and transaction size, the valuation of cryptocurrency companies supported by venture capital plummeted in 2023 but rebounded slightly in the first quarter of 2024, then surged to $37 million in the second quarter, a 94% increase from the previous quarter.
“Web3/NFT/DAO/Metaverse/Gaming” companies and projects raised the largest share of cryptocurrency venture capital funds in the second quarter of 2024, accounting for 24%, with a total of $7.58 billion in venture capital financing. The infrastructure, trade, and Layer 1 companies followed closely, with 15%, 12%, and 12% of investment capital, respectively.
The majority of transactions and funds raised in the second quarter of 2024 involved companies established between 2021 and 2023.
In summary, the sentiment of cryptocurrency venture capital continues to improve, but it remains significantly lower than the bull market of 2021-2022. With BTC and ETH rising by about 50% since the beginning of the year, investment capital increased by 28% compared to the previous period, while the number of transactions remained stable. Web3 and Layer 1 received significant investments, with Farcaster and Zentry leading the way in the Web3 category. The median valuation has surged significantly to the highest level since the peak of the bull market in the fourth quarter of 2021. Bitcoin Layer 2 companies and projects also continued to attract large investments, with a 174% increase in the second quarter of 2024. Early-stage transactions are leading, indicating continued interest in early-stage ventures. The United States continues to dominate the cryptocurrency startup ecosystem, attracting over 40% of transactions and over 53% of investment capital in the second quarter of 2024.