Galaxy Digital Q2 Cryptocurrency Venture Report Shows Continued Rebound with a Gap from the Previous Bull Market

CoinWorld Report:
Authors: Alex Thorn and Gabe Parker, Research Analysts at Galaxy Digital
Translation: Yangz, Techub News
Compared to the strong performance of Bitcoin and liquid cryptocurrencies in the first quarter, the market slightly cooled off in the second quarter, but still showed significant growth compared to the same period last year. The rebound trend in cryptocurrency venture capital that appeared in the first quarter seems to be continuing. The performance of industry founders and investors in the second quarter suggests a more active funding environment compared to the previous quarters. However, as of July 1st, the data performance is slightly below the general market sentiment.
In the second quarter, the number of industry venture capital transactions decreased slightly from 603 in the first quarter to 577 in the second quarter, while the 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 from $19 million to $37 million, approaching historical highs. These data indicate that despite insufficient available investment capital compared to previous peak periods, the recovery of the cryptocurrency market in the past few quarters has brought intense competition for investors and triggered their FOMO.
Venture Capital and Investment Capital
In the second quarter of 2024, venture capital invested $31.94 billion in cryptocurrency and blockchain companies (a 28% increase from the previous quarter), involving 577 transactions (a 4% decrease).
Investment Capital and Bitcoin Price
The long-standing correlation between Bitcoin price and capital invested in cryptocurrency startups has been broken. Since January 2023, Bitcoin has risen significantly, while venture capital activity has not kept pace. Although Bitcoin has risen significantly this year and investment capital has increased, it is still far below the levels when Bitcoin broke $60,000 in 2021-2022. Factors such as cryptocurrency catalysts like Bitcoin ETF and emerging areas (such as re-collateralization, modularity, Bitcoin L2), pressure from bankruptcies of cryptocurrency startups and regulatory challenges, as well as macroeconomic headwinds (interest rates), have led to this notable divergence. Now, with the recovery of liquid cryptocurrencies, venture capitalists are preparing to return, and venture capital activity in the second half of this year will also increase.
Venture Capital Stage Allocation
In the second quarter of 2024, 78% of the funds were allocated to early-stage companies, and 20% were allocated to late-stage companies. Although early-stage venture capital funds focused on cryptocurrencies are very active and hold reserve funds left over from 2021 and 2022, large comprehensive venture capital companies seem to have exited the industry or significantly reduced activities, making it more difficult for late-stage startups to raise funds.
Early-stage Pre-Seed round transactions saw a slight decrease in share but still higher than the previous market cycle.
Valuation and Transaction Size
In 2023, venture capital-supported cryptocurrency company valuations saw a significant decline, dropping to the lowest median pre-money valuation since the fourth quarter of 2020. However, by the first quarter of 2024, valuations of venture capital-supported cryptocurrency companies began to rebound, skyrocketing to $37 million in the second quarter (a 94% increase from the previous quarter), reaching the highest level since the fourth quarter of 2021. It is important to note that with more data emerging, 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 promptly after the end of the quarter, so the data may be revised, but this peak is still a signal. In addition, the median transaction size saw a slight increase (+7%) to $3.2 million, remaining relatively stable over the past five quarters. The increase in valuation stems from improved market sentiment; although investment capital has not increased significantly, founders have captured the interest and competition of existing investor groups.
Investment Categories
In the second quarter of 2024, the “Web3/NFT/DAO/Metaverse/Gaming” category of cryptocurrency companies and projects raised a total of $7.58 billion in venture capital, accounting for the largest share (24%) among all categories. The two largest transactions in this category were Farcaster and Zentry, raising $1.5 billion and $1.4 billion, respectively.
Following closely are companies/projects related to infrastructure, trading, and L1, with investment amounts accounting for 15%, 12%, and 12% respectively. It is worth noting that due to Monad and Berachain raising $225 million and $100 million respectively, the market share of L1 category investment capital increased more than sixfold. Additionally, Bitcoin L2 raised $94.6 million in the second quarter of 2024, a 174% increase from the first quarter ($34.7 million).
Category Division of Transaction Numbers
In terms of transaction numbers, the “Web3/NFT/DAO/Metaverse/Gaming” category leads by 19%, mainly due to the increase in transactions related to decentralized social media and gaming. While the number of transactions in the second quarter of 2024 related to re-collateralization cryptocurrency startups decreased, the infrastructure category ranked second in transaction numbers, accounting for 15% in this quarter.
Following closely are cryptocurrency companies/projects related to trading and DeFi, accounting for 11% and 9% of the total transactions completed in the second quarter of 2024.
Venture Capital Stage and Category Division
By segmenting investment capital and transaction numbers by stage and category, it is possible to gain a clearer understanding of which types of companies are raising funds in each category. In the second quarter of 2024, the vast majority of funds in the Web3, L1, and infrastructure categories were invested in early-stage companies and projects, while risk investments in the transaction category were more directed towards late-stage companies.
By studying the capital share allocated to each category at each stage, a deeper understanding of the maturity of each investable category can be obtained.
In addition, the transaction numbers also indicate a similar situation. Almost all completed transactions in each category involve a significant portion of early-stage companies and projects.
By studying the transaction shares completed in each category at each stage, a deeper understanding of each investable category at each stage can be gained.
Investment Division by Geographical Location
In terms of the number of investments, over 40% of venture capital in the second quarter of 2024 was directed towards companies headquartered in the United States. The UK accounted for 10%, Singapore 8.7%, the 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 from the previous quarter. The UK accounted for 12.78%, Singapore 4.6%, the UAE 4.39%.
Investment Division by Group
The vast majority of venture capital in the second quarter of 2024 was directed towards companies founded between 2021 and 2023.
Summary
The sentiment of cryptocurrency venture capital continues to improve, but at levels significantly lower than the bull market of 2021-2022. With Bitcoin and Ethereum rising by about 50% this year, investment capital increased by 28% quarter-on-quarter, while transaction numbers remained stable. If this growth rate continues until the end of the year, investment capital and transaction numbers in 2024 will only be surpassed by 2021 and 2022, ranking third.
Investments in the Web3 and L1 categories are remarkable. Led by Farcaster ($1.5 billion) and Zentry ($1.4 billion), the Web3 category leads by raising approximately $7.5 billion in total funding. With transactions like Monad ($225 million) and Berachain ($100 million), the L1 category ranks fourth with $3.71 billion.
The median valuation of cryptocurrency companies receiving venture capital has soared to its highest level since the fourth quarter of 2021 (the peak of the last bull market). Due to the adverse effects of the bear market in 2022 and macroeconomic factors, most mainstream venture capital institutions are still on the sidelines, while venture capital firms focused on cryptocurrencies are in a competitive environment, providing founders with more negotiation leverage. It is important to note that the median is based on available data as of July 1st, and with more second-quarter transaction information, the median may be updated and possibly revised downward.
Bitcoin L2 continues to attract significant investments, with related companies and projects raising $94.6 million, a 174% increase. Investors’ enthusiasm for the Bitcoin ecosystem to see more composable block space, attracting the return of DeFi and NFT patterns, remains high. Our internal research shows that at least 65 projects claim to be “Bitcoin L2”.
Early transactions dominated in the second quarter, attracting nearly 80% of investment capital, with Pre-Seed round transactions accounting for 13% of all transactions. Continued focus on early transactions indicates long-term healthy development of the broader cryptocurrency ecosystem. While some late-stage companies struggle to raise funds, entrepreneurs are looking for investors willing to invest in new innovative ideas.
The United States continues to lead the cryptocurrency entrepreneurial ecosystem. While the United States maintains a significant 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 realize how their actions or inactions will affect the cryptocurrency and blockchain ecosystem.