AI and Crypto funding up in Q1 even as VC Funding plunges

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As an analyst with a background in technology and economics, I have closely followed the trends in venture capital funding and the global tech market. The recent reports of a significant decline in global venture capital funding, particularly in the tech sector, are concerning. However, the performance of the AI and crypto markets has been a beacon of hope in these challenging times.

During economic downturns for venture capital investment, the sectors of Artificial Intelligence and Cryptocurrency have provided a glimmer of hope and optimism by performing well.

According to the most recent Gartner forecast, it’s projected that worldwide IT spending will reach an astounding $5 trillion by the close of 2024. This represents a significant jump of 8% compared to the previous estimation.

Similarly, the global economy has displayed a promising development during the first three months of the year 2024 when considering macroeconomic indicators.

Based on the economic data from the Organization for Economic Cooperation and Development (OECD), I observe that the global economy is exhibiting a modest enhancement compared to past years. The forecasted global Gross Domestic Product (GDP) expansion is estimated at 3.1%.

As a researcher studying global venture capital funding trends, I’ve observed that contrary to the robust growth of Gross Domestic Product (GDP), venture capital funding has experienced a significant decrease in the past year.

Based on recent findings, I’ve discovered that global venture capital funding experienced a significant decrease of approximately 30% in the first quarter of 2024. This trend mirrors last year’s unfortunate scenario where global VC funding was limited to around $285 billion – marking a 38% decrease compared to the impressive $462 billion raised in 2022.

In the realm of the international technology sector, there have been significant upheavals as major companies like Google, Microsoft, and Amazon, among others, have recently implemented large-scale job cuts. Furthermore, the decline in venture capital financing has added to the pressure these tech firms are experiencing during this period of uncertainty.

Despite a dismal appearance on one front, the crypto and AI market sectors have seen substantial financial investments over the past twelve months.

According to Gartner’s analysis, the IT industry has experienced a noteworthy 8% growth. A significant portion of this uptick can be attributed to the emergence of GenAI technology and the resulting influx of investor interest in this sector.

The cryptocurrency market is valued at approximately $51.5 billion, which equates to just over 1% of the total value of the technology sector.

Is Crypto Market an exception to macroeconomics?

As a crypto investor, I’ve noticed an intriguing trend in the market that sets it apart from traditional venture capital sectors. Over the past two years, the crypto market has experienced exponential growth, with record-breaking funding in March and April 2024, amounting to $1.09 Billion and $1.02 Billion respectively. Despite its reputation as a highly volatile asset without backing from any fiat currency, the cryptomarket continues to attract vibrant funding.

During March and April 2024, the crypto market experienced significant investments. Notably, blockchain infrastructure companies received a substantial boost with a total of $1.7 billion in funding. Following closely were decentralized finance protocols, which secured $626 million in investments. Additionally, Monad received $225 million in funding, and Securitize gained an investment of $47 million.

As a researcher studying the trends in venture capital investments, I can tell you that with approximately $3.67 billion having been invested across 604 funding rounds so far, the industry is on track to surpass the record-breaking $9.3 billion raised in the previous year by 2024.

According to DeFiLlama’s data, the total amount of money poured into the blockchain industry has exceeded $100 billion through more than 5,195 funding rounds since June 2014.

Over the past few years, Javier Castro Acuña, the Head of Crypto and Web3 at Bitnovo, noted that surviving crypto businesses have thrived and introduced innovative new offerings, while fresh endeavors have come to light.

As a researcher studying the financial market trends post-ETF approval in the US, I’ve observed a surge in interest towards this sector. With the uncertainty surrounding ETFs now alleviated, numerous finance projects have emerged. Established players, in particular, have seized this opportunity to expand their offerings. By investing in an already operational platform, one benefits from its extensive experience, fully-deployed technology, well-developed products, and a solid customer base. Starting from scratch, on the other hand, carries additional risks and time commitments.

After the Bitcoin Halving has taken place recently, market analysts are optimistic about Bitcoin’s price surge. The significant rise in Bitcoin’s value could attract more investment into the cryptocurrency market.

What micro-level factors are driving the growth on a macro scale of the crypto industry?

International occurrences have left a favorable imprint on the cryptocurrency market.

In January, the Securities and Exchange Commission (SEC) gave its approval for the first Bitcoin Exchange-Traded Fund (ETF), signifying a significant positive development for the cryptocurrency market.

As a researcher examining trends in the cryptocurrency market, I can tell you that according to Statista’s data, this sector is experiencing consistent growth. Specifically, it’s projected to expand at an annual rate of 8.62% through 2028, resulting in estimated earnings of $71.7 billion by then.

As a financial analyst, I’ve observed that several elements have significantly contributed to the surge in funding within the cryptocurrency sector. These factors include:

Some experts hold the view that an uptick in cryptocurrency funding is likely in the short term if governments ease their regulatory grip.

Pavel Zavadskii, the founder of Biqutex, noted that despite a larger inflow of venture capital funding than in the previous year, investments in cryptocurrencies remain significantly lower than during the bullish market conditions of 2021. The primary reason for this discrepancy is the persistently tight monetary policy adopted by the Federal Reserve and the prevailing doubt among investors regarding when the next reduction in interest rates will commence.

In larger contexts, the latest Bitcoin halving, the inauguration of the first cryptocurrency Exchange-Traded Funds (ETFs) in Asia, and the speculation that the Federal Reserve may hold off on increasing interest rates, are influencing the crypto market significantly by boosting investment inflows.

From the perspective of macroeconomics, the crypto market may seem like an aberration compared to the tech market as a whole. However, it’s important to remember that the behavior of this market is influenced by numerous small-scale events at the individual level. These events are fueling a sense of optimism and growth within the global crypto community.

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2024-05-09 15:49