New developments in restaking, modularity, Bitcoin layer-2 solutions, and general economic conditions affected first-quarter investments.
Crypto and blockchain firms have seen a substantial increase in venture capital funding after three straight quarters of a decrease.
Galaxy Research reports that investment capital reached $2.49 billion in 603 agreements during the first quarter of 2024, up 29% from the previous quarter and 68% from the previous quarter overall. Subsequent quarters of increase are necessary to show a sustainable recovery, according to the research. It adds:
“We may have hit rock bottom in Q4 2023, but if our QoQ rises continue—and if they’re any indication, they’ll be more substantial—in the future quarters, we’ll know for sure.”
The debut of Bitcoin ETFs, advancements in restaking, modularity, and Bitcoin layer-2 solutions, and macroeconomic considerations like interest rates were some of the elements that impacted the investing dynamics of this quarter.
This past year has seen a weakening of the formerly strong link between Bitcoin prices and venture capital investments in cryptocurrency. Despite Bitcoin’s meteoric rise in value, the research says that venture capital activity remained flat until the current upsurge in early 2024. Nonetheless, the amount of investment is still much lower than when Bitcoin was worth more than $60,000.
Furthermore, early-stage firms received 80% of the invested cash during the quarter. However, Galaxy pointed out that later-stage startups faced more challenging circumstances due to the fact that many bigger, generalist venture capital firms had either abandoned the industry altogether or significantly reduced their investments.
The infrastructure sector was the most active investor in the industry during the quarter, gathering 24% of the total funds, including EigenLayer’s $100 million fundraising round. The trade industry received 17% of the total capital, while the Web3 sector received 21%.
U.S. businesses continued to dominate the crypto venture industry from a geographical standpoint, participating in 37.3% of all transactions and receiving 42.9% of the invested funds. After that came Singapore with 10.8% of all deals, then the UK with 10.2%, Switzerland with 3.5%, and Hong Kong with 3.2%.
Regulatory concerns and macroeconomic factors continue to burden the business, which poses a challenge to financing, as pointed out by Galaxy:
“The fundraising climate for venture capitalists has remained challenging despite investors’ initial optimism that rates would fall sharply in 2024 due to strong inflation statistics that reduced expectations for rate reduction this year.”
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