Crypto VC funding hits $2.7b despite 12.5% drop in deal volume

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As a seasoned crypto investor with over a decade of experience in this volatile yet exciting market, I find myself cautiously optimistic about the Q2 crypto VC deals. The third consecutive quarterly increase in total investments is indeed a positive sign, but the 10% decline compared to Q2 2023 and the drop in the number of deals closed are concerns that cannot be ignored.

In the realm of crypto investing, I’ve noticed an interesting trend: For three quarters now, including Q2, we’ve seen a continuous climb in the overall value of our investments. Despite being below the peaks reached early this year, it’s reassuring to see this steady growth.

As an analyst, I observed a persistent expansion in venture capital investments within the cryptocurrency sector during Q2, representing the third successive quarter of growth. This trend suggests a gradual recuperation of the market.

As a seasoned investor with over two decades of experience in the financial markets, I have witnessed numerous cycles of growth and decline in various asset classes. The latest report from Bloomberg about the crypto venture capital deals reaching $2.7 billion over the past three months seems to indicate a promising rebound for the digital currency sector. However, upon closer inspection, it appears that this figure represents only a 2.5% rise compared to the first quarter of this year and a nearly 10% decline from Q2 2023.

Investors specializing in venture capital, as reported by Bloomberg, hint that the cryptocurrency investment market is currently below its past peak levels. However, they note a possible slowdown, or cooling phase, as the value of these digital assets appears to be more influenced by wider economic conditions.

According to Rob Hadick, Dragonfly’s general partner, investments in cryptocurrency by venture capitalists are currently significantly lower than they were during the peak periods of 2021 and early 2022. He pointed out that there was a notable surge in crypto VC investing around March and April this year, which he described as a “fever pitch.” However, Hadick also mentioned that later-stage investments have remained soft, and with the market downturn from late April into May, the pace of venture capital investment has slowed once more.

Crypto VC deals in Q2 appear to be more conservative

In cooling financial conditions, investors appear to be shifting their preferences away from high-risk investments and toward more broad-based solutions over specialized applications. Notably, Robert Le, a senior analyst at PitchBook, highlighted that investors persistently supported infrastructure projects, collectively garnering hundreds of millions of dollars in the second quarter.

In my recent exploration as a researcher, I stumbled upon intriguing findings from a Galaxy Research study published in Q1 2024. It appears that an astounding 80% of venture capital investments during this period were directed towards early-stage companies, while the remaining 20% was allotted to mature, later-stage firms.

Although major venture capital firms have scaled back or left the cryptocurrency sector, many specialized early-stage venture funds remain active. These funds, who raised capital in 2021 and 2022, continue to back promising new crypto companies. However, later-stage startups find it harder to secure funding because of the reduced participation from larger VC firms.

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2024-08-12 10:12