Venture capital will invest $2.4B into crypto startups by early 2024

After three consecutive quarters of decline, crypto and blockchain startups have seen a significant increase in venture capital investment.

According to data compiled by Galaxy Research, investors invested $2.49 billion in 603 deals in the first quarter of 2024, representing a 29 percent increase in funding and a 68 percent increase over the previous quarter. Continued recovery should be ensured by growth in the coming quarters, the report said:

“This was the first increase in both capital invested and deal count in 3 quarters, possibly indicating that Q4 2023 is “down”, although QoQ continuity – and more meaningful increases – will be confirmed in the following quarters.

A number of factors influenced investment activity this quarter, including the introduction of Bitcoin Exchange Traded Funds (ETFs), innovations in areas such as restaking, modularity, and Bitcoin Layer-2 solutions, as well as macroeconomic factors such as interest rates.

The historical correlation between Bitcoin prices and venture capital investments in crypto has weakened over the past year. The report notes that while Bitcoin has seen a significant price increase, venture capital activity has remained stagnant until recently in early 2024. However, investment levels are still not comparable to Bitcoin's previous high of over $60,000.

In addition, during the quarter, 80% of investment capital was allocated to early-stage startups. In contrast, later-stage companies have faced tougher conditions, as many large and general venture capital firms have left the sector or significantly reduced their investments, Galaxy said.

Investment activity in the industry was dominated by the infrastructure sector, which accounted for 24 percent of total capital raised in the quarter, including EigenLayer's $100 million funding round. Moreover, the Web3 and Marketing sectors accounted for 21% and 17% of the total capital.

Geographically speaking, the United States remains the dominant force in the crypto venture space, with US startups accounting for 37.3% of all deals and 42.9% of investment capital. Singapore followed with 10.8% of the total agreement count, followed by the UK at 10.2%, Switzerland at 3.5% and Hong Kong at 3.2%.

Additionally, Galaxy noted that fundraising conditions remain challenging, with macroeconomic conditions and regulatory uncertainty weighing on the industry.

At the beginning of 2024, investors widely believed that rates would be cut significantly in 2024, but in Q1, strong inflation data kept expectations for a modest rate cut this year, helping to create a difficult fundraising environment for venture capitalists. “

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