Crypto startups have managed to raise more venture capital (VC) funding during a period marked by a broader slowdown in the digital-asset market. However, the increase in funding was accompanied by a decrease in the number of deals closed, reflecting the cautious approach of investors in the face of market volatility.
According to data from PitchBook, venture capital investment in crypto companies reached $2.7 billion in the second quarter of 2024, representing a 2.5% increase from the first quarter. However, this figure also marked a 9.8% decline compared to the same period last year. The number of deals closed in the quarter fell by 12.5% from the previous quarter, highlighting the growing hesitation among investors as the market experienced turbulence.
The crypto market faced significant challenges following a period of exuberance in the first quarter, which saw prices surge to all-time highs. This excitement was largely driven by the introduction of U.S. exchange-traded funds (ETFs) that were allowed to hold Bitcoin for the first time. However, investor inflows into these ETFs slowed dramatically in the second quarter, plummeting to $2.8 billion—a staggering 80% drop from the $13.7 billion recorded in the first quarter, according to Bloomberg’s estimates.
“While still far below the 2021 and early 2022 highs, VC investing in crypto reached somewhat of a fever pitch in March and April,” said Rob Hadick, a general partner at crypto venture fund Dragonfly. “Later stages have continued to be soft, and as the market turned in late April and into May, the VC market slowed again.”
Hadick’s comments underscore the cautious optimism that characterized the market earlier in the year, as investors poured funds into promising crypto ventures. However, as market conditions deteriorated in the latter part of the quarter, the pace of VC investments slowed once more.
Despite the downturn, the continued interest in crypto startups indicates that the sector remains a key area of focus for venture capitalists, even in uncertain times. The reduction in deal closures suggests that investors are becoming more selective, likely opting to back companies with stronger fundamentals and long-term potential rather than chasing short-term gains.
The shift in investor sentiment and the broader market conditions will be crucial in shaping the future landscape of the crypto industry. As the market continues to evolve, the ability of crypto startups to secure funding will likely depend on their ability to demonstrate resilience and adaptability in the face of ongoing challenges.
Crypto startups raise more venture capital in Q2 2024 despite a market slowdown, reflecting selective investor interest amid volatility. Learn more about the latest trends in crypto VC funding.
