According to a research report published by Galaxy Digital, the cryptocurrency sector is showing signs of vigor in the venture capital investment arena.
In the report Crypto & Blockchain Venture Capital – Q2 2024 It is observed that, in the second quarter of the year, venture capital investment in this sector experienced a 28% increase, a fact that reflects growing confidence in the crypto market, despite the challenges and regulatory uncertainty it currently faces.
The company highlighted that venture capital investment in cryptocurrencies during this period was $3.200 billion, showing a notable growth in relation to the $2.500 billion recorded in the first quarter.
Source: Galaxy Digital
The data suggests that investors are more willing to allocate to emerging projects and companies in the industry. Galaxy Digital also highlighted that there was a notable increase in the average allocation size, indicating a stabilisation in the amount of capital that investors are willing to commit and a significant evolution of the market that is becoming more and more mature, attracting investor interest.
Web3 and FOMO in cryptocurrencies
Galaxy Digital's report suggests that the focus on Web3 and the FOMO among cryptocurrency investors have been the main drivers of the increase in venture capital investment in the second quarter. The uptick in VC investment comes amid an overall market improvement, with Bitcoin and Ethereum up nearly 50% year-to-date.
In addition to this, Galaxy Digital highlighted that the growing competition among investors and the focus on Web3 projects, such as Farcaster y Zentry, have also been driving venture capital allocations higher in the crypto market.
A significant fact in the company's report is the 94% increase in the average rating. pre-money, which reached $37 million in the second quarter. This represents its highest level since the end of 2021 and is attributed to a more competitive market that gives companies greater negotiating power.
The valuation pre-money is a crucial concept in the world of startups and venture capital investment. It is an estimate of a company’s value before it obtains external funding. This valuation is negotiated between founders and potential investors, and can significantly influence ownership and control of the company after investment.
Factors considered in determining this valuation include, but are not limited to, the experience and skills of the founding team, the uniqueness and protection of intellectual property, the traction the company has generated in the market, and future financial projections.
Although it is a subjective measure, establishing a realistic pre-money valuation is essential to attract investors and ensure the long-term growth of a startup.
Resurgence of the cryptocurrency market
Galaxy Digital highlighted the remarkable resurgence that the cryptocurrency market is experiencing, despite the current challenges and the price correction of major cryptoassets.
According to Alex Thorn, head of research at Galaxy Digital, the Introduction of Bitcoin Exchange Traded Funds (ETFs), Ethereum ETF approval and the growing development of the Layer2 ecosystem, which raised over $94 million, are contributing to increased institutional acceptance and adoption of cryptocurrencies in general and, consequently, to the increase in venture capital allocation. This is despite the fact that the number of VC investments made in the industry decreased slightly compared to the previous quarter.
The data shows that in the first quarter, cryptocurrency projects captured 603 investment deals. In the second quarter, the number of investment deals was 577. Despite this decrease in the number of investments, as mentioned above, the amount of VC capital invested in cryptocurrency projects increased by 28%, from $2.500 billion in the first quarter to $3.200 billion in the second quarter.
This growth in invested VC capital is reflecting a more active investment environment and increased confidence in the long-term potential of cryptocurrencies, the report said.
An evolving market dynamic
The historical correlation between cryptocurrency prices and venture capital investment appears to have weakened, suggesting changing market dynamics and the possibility that investors are taking more strategic and selective approaches when making investment decisions.
Currently, the most popular cryptocurrencies in 2024 continue to be Bitcoin, which continues to lead the crypto market for its capitalization and performance, and Ethereum, known for its pioneering smart contract platform and decentralized applications.
Other cryptocurrencies that have gained popularity are Solana, noted for its speed and efficiency in transactions; chainlink, which provides external data to blockchains through blockchain oracles; and Cardano, which has been recognized for its focus on sustainability, security, efficiency and decentralization.
Memecoins as Pepe, Bonk y DogWifHat They have also captured the attention of general investors with their playful approach and short-term ROI potential.
These trends reflect the diversity and constant innovation in the cryptocurrency space, where both established cryptocurrencies and new projects continue to evolve and adapt to market needs.
On the other hand, Web3 projects have been leading the fundraising efforts this year, highlighting the marked interest of investors in the development and creation of a decentralized and more autonomous internet.
This dynamism in the crypto market suggests an evolution towards greater integration of digital assets and Web3 into the global financial system, which could transform finance and open up new possibilities for the use of cryptoassets.
