Cryptocurrency Venture Capital Rebounds in Q2 2024
Following a robust first quarter for Bitcoin and liquid cryptocurrencies, the market cooled off slightly but still showed significant year-on-year growth. The rebound observed in the cryptocurrency venture capital market from the first quarter appears to be continuing. However, as of July 1st, data suggests it’s slightly subdued compared to general sentiment. Founders and investors generally indicate a more active funding environment compared to previous quarters.
Transaction volume saw a slight decrease from 603 deals in Q1 to 577 in Q2, while investment capital increased from $25 billion to $32 billion. The median transaction size edged up from $3 million to $3.2 million, whereas the median pre-money valuation surged significantly from $19 million to $37 million, nearing historic highs. This indicates a competitive environment among investors and fear of missing out (FOMO) despite a lack of available investment capital compared to previous peaks.
In Q2 2024, venture capitalists invested $31.94 billion in companies focused on cryptocurrencies and blockchain, marking a 28% increase quarter-on-quarter, with a total of 577 transactions completed, down by 4% compared to the previous quarter.
The correlation between Bitcoin prices and investment capital in cryptocurrency startups has broken in recent years. While BTC has significantly risen since January 2023, venture capital has struggled to keep pace. The surge in valuations is attributed to factors like Bitcoin ETFs, staking, modularization, Bitcoin L2, as well as pressures from bankruptcies and regulatory challenges among cryptocurrency startups.
Early-stage companies received 78% of the funding in Q2 2024, while late-stage companies received 20%. Early-stage cryptocurrency risk funds remain active, although larger generalist venture capital firms have reduced their activities in the industry, making it harder for late-stage startups to raise funds.
Valuations for venture-backed cryptocurrency companies spiked to $37 million in Q2 2024, a 94% increase quarter-on-quarter, reaching the highest levels since Q4 2021. Transaction sizes also saw a modest 7% increase to $3.2 million quarter-on-quarter.
Web3/NFT/DAO/Metaverse/Gaming categories attracted the largest share of venture capital in Q2 2024, totaling $758 million, with notable transactions including Farcaster and Zentry raising $150 million and $140 million respectively.
Infrastructure, trading, and Layer 1 companies followed closely, each receiving 15%, 12%, and 12% of the investment capital respectively. Notably, investments in Layer 1 companies saw a six-fold increase in market share due to transactions like Monad and Berachain raising $225 million and $100 million respectively.
The United States dominated with over 40% of transactions in Q2 2024, followed by the UK (10%), Singapore (8.7%), UAE (3.13%), and Hong Kong (2.78%).
Most transactions and funding in Q2 2024 involved companies established between 2021 and 2023.
Overall, while sentiment in cryptocurrency venture capital continues to improve, it remains significantly below the bull market levels of 2021-2022. With BTC and ETH up approximately 50% year-to-date, and investment capital up 28% quarter-on-quarter, 2024 could see the third-highest levels of investment and transaction volume, trailing only behind 2021 and 2022.
Web3 and Layer 1 sectors received significant investments, with Web3 leading with approximately $750 million raised, driven by transactions like Farcaster and Zentry. Layer 1 followed with $371 million, propelled by transactions like Monad and Berachain.
Bitcoin L2 companies and projects raised $94.6 million in Q2 2024, a 174% increase quarter-on-quarter, indicating continued excitement and potential for composability in the Bitcoin ecosystem.
Early-stage transactions remained prominent, comprising nearly 80% of investment capital, with seed-stage deals accounting for 13% of all transactions.
The US continued to dominate the cryptocurrency startup ecosystem, despite regulatory pressures that may push more companies to relocate overseas.
Preferences for fundraising skewed towards companies founded between 2021 and 2023 in Q2 2024.
In summary, while the mood in cryptocurrency venture capital continues to improve, it remains tempered compared to the highs of the 2021-2022 bull market.
