Crypto venture capital investment saw a significant increase in the second quarter, reaching a total of $3.2 billion, according to the latest research report from Galaxy Digital. This marks a 28% rise from the previous quarter, where $2.5 billion was invested. Additionally, there was a notable 94% surge in median pre-money valuation, which rose to $37 million from $19 million in the first quarter.
The report highlighted that the second quarter’s median pre-money valuation is the highest since the fourth quarter of 2021, signaling a competitive market that gives companies more negotiating power in deals. The median deal size also grew to $3.2 million, up 7% from the previous quarter, after remaining relatively steady for five quarters. Despite a slight decrease in deal count to 577 in the second quarter, down from 603 in the first quarter, it is still a significant increase from less than 400 in the fourth quarter of 2023.
Investor sentiment in crypto venture capital has seen a positive shift, driven by the nearly 50% year-to-date rise in Bitcoin and Ethereum prices. If this trend continues, 2024 could potentially see the third-highest investment capital and deal count numbers after the bull markets of 2021 and 2022. However, despite the surge in Bitcoin prices since January 2023, venture capital activity has not kept pace, remaining below levels seen during previous peaks when Bitcoin was trading above $60,000.
The report attributed this divergence to various factors, including the introduction of Bitcoin ETFs, emerging areas like restaking and Bitcoin Layer 2 solutions, as well as challenges from crypto startup bankruptcies, regulatory issues, and macroeconomic conditions such as interest rates.
In terms of specific project categories, Web3 led fundraising with $758 million, followed by infrastructure with over $450 million, trading and exchanges with under $400 million, and Layer 1 with under $400 million. Bitcoin Layer 2 networks also saw significant investments of $94.6 million, up 174% quarter-over-quarter. Galaxy highlighted the excitement around composable blockspace attracting DeFi and NFT projects to Bitcoin.
US companies dominated VC investment, attracting 53% of all capital and 40% of deals. Despite regulatory changes that could potentially drive companies away, US dominance in the sector remains strong. Early-stage firms received the majority of capital at 78%, while late-stage companies received 20% of all capital. Larger general VC firms have either exited the sector or reduced their activity, impacting the ability of later-stage startups to raise funds.
Overall, the crypto venture capital landscape in the second quarter of 2024 has shown significant growth and positive sentiment, driven by market dynamics, investor interest, and evolving project categories. As the year progresses, it will be interesting to see how these trends continue to unfold and shape the future of crypto investments.