Crypto startups have witnessed a significant influx of venture capital (VC) investment, despite a broader market slowdown in the digital asset sector. According to recent data from PitchBook, VC investment in crypto companies reached $2.7 billion in the second quarter of 2024, marking a 2.5% increase from the previous quarter, although reflecting a 9.8% decline compared to the same period last year. However, the number of deals closed saw a 12.5% drop from the first quarter, highlighting a cautious approach by investors.
The crypto market, which had previously surged to new heights, faced a challenging period following the first quarter’s exuberance. The introduction of US exchange-traded funds (ETFs) holding Bitcoin initially fueled investor enthusiasm, but inflows into these ETFs slowed dramatically, plummeting to $2.8 billion in the second quarter—a sharp decline of 80% from the previous quarter’s $13.7 billion, as estimated by Bloomberg.
Rob Hadick, a general partner at Dragonfly, a prominent crypto venture fund, commented on the fluctuating VC landscape, stating, “While still far below the 2021 and early 2022 highs, VC investing in crypto reached somewhat of a fever pitch in March and April. Later stages have continued to be soft and as the market turned in late April and into May, the VC market slowed again.”
Bitcoin, often regarded as the bellwether of the crypto market, experienced a 13% decline in value during the second quarter. So far, it has shown little movement in the current quarter, indicating ongoing market uncertainty.
Despite these challenges, the second quarter marked the third consecutive quarterly increase in the total value of investments in the crypto sector. This resurgence in funding aligns with a broader recovery in token prices and a sustained push for institutional adoption of digital assets. Robert Le, a senior analyst at PitchBook, emphasized this trend, noting in a report published on Monday, “The broader recovery this year in token prices and continued institutional adoption of digital assets suggests that fund raising will grow.”
As valuations of crypto projects rose in the second quarter, driven by founders’ attempts to capitalize on a more optimistic secondary market, infrastructure projects, such as new blockchains, remained a focal point for investors. However, consumer-focused applications continued to face skepticism from venture capitalists. Shuyao Kong, cofounder of blockchain startup MegaETH, successfully raised $20 million in a seed funding round in June, attributing the successful fundraising to a market that remains “hungry” for high-performance blockchains.
Interestingly, the only significant funding round closed in the past quarter for a crypto application was for Farcaster, a social media platform that secured $150 million in May. Tarun Chitra, a partner at Robot Ventures, shed light on the shifting focus within the investment community, stating, “It is a rebalancing of private investments away from infrastructure to applications. People are looking for applications and there are just fewer of those that are private market investable at the moment.”
At the same time, exit activities—where investors realize returns by selling stakes in companies—reached their highest level since the first quarter of 2022, with 26 exits recorded in the second quarter. Notable among these was Robinhood Markets, Inc.’s acquisition of Bitstamp. PitchBook anticipates that this trend could continue throughout the remainder of the year.
“We expect more consolidation among crypto exchanges, custodians, and infrastructure providers as the market matures and smaller players seek strategic exits,” concluded the PitchBook report.
Crypto startups saw increased venture capital investment in Q2 2024 despite a market slowdown, with VC funding totaling $2.7 billion, marking a 2.5% rise from the previous quarter.
