The cryptocurrency venture capital market continued its rebound in the second quarter of the year, according to a report by Galaxy (GLXY) Research. Founders and investors have reported a more active fundraising environment compared to previous quarters, indicating a positive trend in the market.
Although the data still appears slightly less robust than the prevailing sentiment, analysts Alex Thorn and Gabe Parker noted that the deal count decreased to 577 from 603 in the first quarter. However, the capital invested grew to $3.2 billion in the second quarter from $2.5 billion. The median deal size also increased slightly to $3.2 million, with the median pre-money valuation surging to near all-time highs of $37 million. This suggests that the resurgence of the cryptocurrency market has led to significant competition among investors, driven by the fear of missing out (FOMO).
Interestingly, Galaxy pointed out that the correlation between the bitcoin price and capital invested in crypto startups has broken down. While the price of bitcoin has been on the rise since the beginning of last year, venture capital activity has struggled to keep up. Factors such as the successful introduction of spot bitcoin exchange-traded funds (ETFs) in January and the emergence of Bitcoin layer 2s, along with regulatory challenges and macro headwinds, have contributed to this divergence.
Despite the increase in capital invested year-to-date, the levels remain below those seen when bitcoin was trading above $60,000 between 2021-2022. In the second quarter, 78% of the capital went to early-stage companies, while 20% was allocated to later-stage firms. Larger venture capital firms have either exited the sector or significantly reduced their activity, making it more challenging for later-stage startups to raise funds.
Galaxy suggests that the resurgence of liquid crypto may prompt allocators to return to the market, potentially leading to increased venture capital activity in the second half of the year. This optimism indicates a positive outlook for the cryptocurrency venture capital market in the coming months.
As the market dynamics continue to evolve, it will be interesting to see how investors and founders navigate the changing landscape of the crypto venture capital space. The increasing competition and FOMO among investors highlight the need for strategic decision-making and a deep understanding of market trends to succeed in this rapidly evolving industry.
