Coin World Report:
Written by: Alex Thorn and Gabe Parker, Galaxy Digital Research Analysts
Translated by: Yangz, Techub News
Compared to the strong performance of Bitcoin and liquid cryptocurrencies in the first quarter, the market cooled slightly in the second quarter, but still showed significant growth compared to the same period last year. The rebound in cryptocurrency venture capital trends seen in the first quarter appears to be continuing. The performance of industry founders and investors in the second quarter indicates a more active financing environment compared to the previous few quarters. However, as of July 1st, the data performance is slightly lower than the general market sentiment.
The number of venture capital transactions in the industry in the second quarter decreased slightly from 603 in the first quarter to 577 in the second quarter, while investment capital increased from $2.5 billion in the first quarter to $3.2 billion in the second quarter. The median transaction size increased slightly from $3 million to $3.2 million, but the median pre-valuation increased from $19 million to $37 million, close to its historical peak. These data indicate that although available investment capital is insufficient compared to previous peak periods, the recovery of the cryptocurrency market in the past few quarters has brought fierce competition to investors and triggered their fear of missing out (FOMO).
Number of transactions and investment capital
In the second quarter of 2024, venture capital invested $3.194 billion in cryptocurrency and blockchain companies, an increase of 28% compared to the previous quarter, involving 577 transactions, a decrease of 4% compared to the previous quarter.
Investment capital and Bitcoin price
The long-term correlation between Bitcoin price and capital invested in cryptocurrency startups has been broken. Since January 2023, Bitcoin has risen sharply, while venture capital activity has not kept up. Although Bitcoin has risen significantly this year and investment capital has also increased, it is still far below the level when Bitcoin exceeded $60,000 in 2021-2022. Factors such as cryptocurrency-native catalysts like Bitcoin ETFs and emerging areas (such as re-staking, modularity, Bitcoin L2), as well as the pressures of cryptocurrency startup bankruptcies and regulatory challenges, combined with macroeconomic headwinds (interest rates), have led to this apparent divergence. Now, as liquidity cryptocurrencies recover, venture capitalists are preparing to return, and venture capital activity in the second half of this year is expected to increase.
Venture capital stage breakdown
In the second quarter of 2024, 78% of the funds were allocated to early-stage companies, while 20% were allocated to late-stage companies. Although venture capital funds focused on cryptocurrencies are very active and hold reserves from 2021 and 2022, large integrated venture capital firms seem to have exited the industry or significantly reduced their activities, making it more difficult for late-stage startups to raise funds.
In terms of the number of transactions, the share of Pre-Seed round transactions has decreased slightly but is still higher than the previous market cycle.
Valuation and transaction size
In 2023, the valuation of cryptocurrency companies supported by venture capital plummeted, reaching its lowest median pre-valuation since the fourth quarter of 2020. However, in the first quarter of 2024, the valuation of cryptocurrency companies supported by venture capital began to rebound, soaring to $37 million in the second quarter, an increase of 94% compared to the previous quarter, reaching the highest level since the fourth quarter of 2021. It should be noted that the lag in reporting and the lack of publicly available valuation data can lead to significant fluctuations in the above data. We strive to provide this information in a timely manner after the end of each quarter, so the data may be revised, but this peak is still a signal. In addition, the median transaction size has increased slightly (+7%) to $3.2 million, which is basically consistent with the past five quarters. The increase in valuation is due to the improvement in market sentiment; although investment capital has not increased significantly, founders have seized the interest and competition of existing investor groups.
Investment categories
In the second quarter of 2024, the total amount of cryptocurrency companies and projects raised by the “Web3/NFT/DAO/Metaverse/Gaming” category reached $758 million, accounting for the largest proportion (24%) among all categories. The two largest transactions in this category were Farcaster and Zentry, raising $150 million and $140 million respectively.
The next largest categories were companies/projects related to infrastructure, trading, and L1, accounting for 15%, 12%, and 12% of investments respectively. It is worth noting that due to the transactions of Monad and Berachain raising $225 million and $100 million respectively, the market share of L1 category investment capital has increased more than six times. In addition, Bitcoin L2 raised $94.6 million in the second quarter of 2024, an increase of 174% compared to the first quarter ($34.7 million).
Category breakdown of transaction volume
In terms of transaction volume, the “Web3/NFT/DAO/Metaverse/Gaming” category leads by 19%, mainly due to the increase in decentralized social media and gaming-related transactions. Although the number of financing rounds related to re-staking cryptocurrency startups decreased in the second quarter of 2024, the infrastructure category ranked second with a 15% share of transactions.
The next largest categories were cryptocurrency companies/projects related to trading and DeFi, accounting for 11% and 9% of the total number of transactions completed in the second quarter of 2024 respectively.
Venture capital stage and category breakdown
By breaking down investment capital and transaction volume by stage and category, we can gain a clearer understanding of which types of companies are raising funds in each category. In the second quarter of 2024, the majority of funds in the Web3, L1, and infrastructure categories were allocated to early-stage companies and projects, while venture capital in the transaction category was more focused on late-stage companies.
By studying the share of capital allocated to each category at each stage, we can gain an in-depth understanding of the maturity of each investable category.
Similarly, the number of transactions also reflects a similar situation. A considerable portion of transactions completed in almost all categories involve early-stage companies and projects.
By studying the share of transactions completed in each stage within each category, we can gain an in-depth understanding of each investable category at each stage.
Investment breakdown by geography
In terms of the number of investments, in the second quarter of 2024, over 40% of venture capital was invested in companies headquartered in the United States. The United Kingdom accounted for 10%, Singapore accounted for 8.7%, the United Arab Emirates accounted for 3.13%, and Hong Kong accounted for 2.78%.
In terms of investment amount, companies headquartered in the United States attracted 53% of venture capital, an increase of 23.5% compared to the previous quarter. The United Kingdom accounted for 12.78%, Singapore accounted for 4.6%, and the United Arab Emirates accounted for 4.39%.
Investment breakdown by vintage
The majority of venture capital in the second quarter of 2024 was invested in companies established between 2021 and 2023.
Summary
The sentiment of cryptocurrency venture capital continues to improve but is still significantly lower than the bull market of 2021-2022. With Bitcoin and Ethereum rising by about 50% this year, investment capital has increased by 28%, while the number of transactions has remained stable. If this growth rate continues until the end of the year, the investment capital and number of transactions in 2024 will be second only to 2021 and 2022, ranking third.
Investment in the Web3 and L1 categories is noteworthy. With the push of Farcaster ($150 million) and Zentry ($140 million), the Web3 category leads with a total financing amount of approximately $750 million. With the transactions of Monad ($225 million) and Berachain ($100 million), L1 ranks fourth with a score of $371 million.
The median valuation of cryptocurrency companies receiving venture capital has soared, reaching its highest level since the peak of the last bull market in the fourth quarter of 2021. Due to the adverse factors of the bear market in 2022 and macroeconomic conditions, most general venture capital institutions are still in a wait-and-see state, while venture capital institutions focused on cryptocurrencies are facing intensified competition, providing project founders with more negotiation chips. It should be noted that this median is based on available data as of July 1st, and as more second-quarter transaction information becomes available, the median may be updated and may be adjusted downward.
Bitcoin L2 continues to receive a large amount of investment, with related companies and projects raising $94.6 million, an increase of 174% compared to the previous quarter. Investors’ enthusiasm for the Bitcoin ecosystem to see more composable block spaces and the return of patterns such as DeFi and NFT remains high. Our internal research shows that at least 65 projects claim to be “Bitcoin L2”.
Early-stage transactions dominated the second quarter, accounting for nearly 80% of investment capital, with Pre-Seed round transactions accounting for 13% of all transactions. Continued attention to early-stage transactions indicates the long-term healthy development of the broader cryptocurrency ecosystem. Although companies in the later stages are struggling to raise funds, entrepreneurs are looking for investors willing to invest in new innovative ideas.
The United States continues to dominate the cryptocurrency startup ecosystem. Although the United States maintains a clear advantage in transactions and capital, unfavorable regulatory factors may force more companies to move to other countries and regions. If the United States wants to maintain its position as a long-term center of technological and financial innovation, policymakers need to be aware of how their actions or inaction will affect the cryptocurrency and blockchain ecosystem.
