rounded Written by: Alex Thorn and Gabe Parker, Galaxy Digital Research Analysts Compiled by: Yangz, Techub News Compared with the strong performance of Bitcoin and liquid cryptocurrencies in the first quarter, the market in the second quarter cooled slightly, but compared with the same period last year There is still significant growth. The crypto VC rally seen in the first quarter appears to be continuing. The performance of industry founders and investors in the second quarter means that the financing environment is more active than in previous quarters. However, as of July 1, the data performed slightly worse than the prevailing market sentiment. The number of industry venture capital deals declined slightly in the second quarter, from 603 in the first quarter to 577 in the second quarter, while investment capital increased from US$2.5 billion in the first quarter to US$3.2 billion in the second quarter. . The median deal size increased slightly from $3 million to $3.2 million, but the median pre-money valuation increased from $19 million to $37 million, near all-time highs. The data suggests that the cryptocurrency market’s recovery over the past few quarters has created intense competition and FOMO among investors, despite a lack of available investment capital compared to previous peaks. Number of deals and invested capital In the second quarter of 2024, venture capital invested $3.194 billion in cryptocurrency and blockchain companies (up 28% quarter-on-quarter), involving 577 transactions (down 4% quarter-on-quarter). ​Invested Capital & Bitcoin Price   The multi-year correlation between Bitcoin’s price and capital invested in crypto startups has broken. Bitcoin has rallied significantly since January 2023, while VC activity has not kept pace. While Bitcoin has rallied significantly this year, and invested capital has risen as well, it remains well below the levels seen when Bitcoin broke through $60k in 2021-2022. Crypto-native catalysts like a Bitcoin ETF and emerging sectors like rehypothesis, modularity, Bitcoin L2, as well as pressure from crypto startup bankruptcies and regulatory challenges, coupled with macroeconomic headwinds (interest rates), have led to this stark divergence. Now, VCs are preparing to return as liquid cryptocurrencies recover, and VC activity is set to increase in the second half of this year.Venture Capital by Stage   In Q2 2024, 78% of funding was allocated to early-stage companies, while 20% was allocated to later-stage companies. While early-stage cryptocurrency-focused venture capital funds are active and have reserves left over from 2021 and 2022, large, integrated venture capital firms appear to have exited the industry or significantly scaled back their activities, making it more difficult for late-stage startups to raise funds.In terms of transaction quantity, the share of Pre-Seed round transactions has slightly decreased, but is still higher than the previous market cycle. Valuation and deal size Venture capital-backed cryptocurrency company valuations fell sharply in 2023, falling to the lowest median pre-money valuation since the fourth quarter of 2020 in the fourth quarter. However, by the first quarter of 2024, valuations of venture-backed cryptocurrency companies began to rebound, surging to $37 million in the second quarter (a 94% quarter-over-quarter increase), reaching their highest level since the fourth quarter of 2021. It's important to note that reporting delays and a lack of public valuation data can cause these numbers to fluctuate significantly as more data becomes available. We strive to provide this information in a timely manner after the quarter ends, so the data is subject to revision, but this spike is still a signal. Additionally, the median deal size increased slightly sequentially (+7%) to $3.2 million, which was essentially the same as the past five quarters. The increase in valuations stems from improving market sentiment; although there has been no significant increase in investment capital, founders have captured interest and competition from the existing investor base. ​Investment Categories In Q2 2024, cryptocurrency companies and projects in the “Web3/NFT/DAO/Metaverse/Gaming” category raised a total of $758 million in crypto VC funding, accounting for the largest share (24%) of all categories. The two largest deals in this category were Farcaster and Zentry, which raised $150 million and $140 million, respectively.Following closely behind are companies/projects related to infrastructure, exchanges, and L1, which accounted for 15%, 12%, and 12% of investment respectively. Notably, the L1 category saw its market share of investment capital grow more than 6x, as Monad and Berachain raised $225M and $100M, respectively. Additionally, Bitcoin L2 raised $94.6M in Q2 2024, up 174% QoQ ($34.7M in Q1).Category breakdown of transaction numbers In terms of transaction number, the “Web3/NFT/DAO/Metaverse/Game” category is far ahead with 19%, mainly due to the increase in decentralized social media and game-related transactions. Although the number of financings for crypto startups related to re-staking decreased in the second quarter of 2024, the number of transactions in the infrastructure category ranked second in this quarter, accounting for 15%.Closely following are cryptocurrency companies/projects related to trading and DeFi, accounting for 11% and 9% of the total number of completed transactions in Q2 2024, respectively.VC Investment by Stage and Category Breaking down investment capital and deal count by stage and category provides a clearer picture of what types of companies in each category are raising capital. In Q2 2024, the vast majority of funding in the Web3, L1, and Infrastructure categories went to early-stage companies and projects, while venture capital in the Deals category went more to companies in later stages of funding.By studying the share of capital invested in each category at each stage, we can gain insight into the maturity of each type of investable capital.Furthermore, the number of deals tells a similar story. A significant portion of completed deals in almost all categories involved early-stage companies and projects.By examining the share of deals completed at each stage within each category, insight can be gained into the various stages of each investable category.Investment by Geography   In terms of investment volume, more than 40% of venture capital went to companies headquartered in the United States in the second quarter of 2024. The United Kingdom accounted for 10%, Singapore accounted for 8.7%, the United Arab Emirates accounted for 3.13%, and Hong Kong accounted for 2.78%.In terms of investment amount, companies headquartered in the United States attracted 53% of venture capital, an increase of 23.5% month-on-month. The United Kingdom accounted for 12.78%, Singapore accounted for 4.6%, and the United Arab Emirates accounted for 4.39%.Investments by Cohort The vast majority of venture capital in Q2 2024 went to companies founded between 2021 and 2023.Conclusion Crypto VC sentiment continues to improve, but levels remain significantly below the 2021-2022 bull run. With Bitcoin and Ethereum up about 50% this year, invested capital grew 28% month-over-month, while deal count remained essentially flat. If this growth rate continues through the end of the year, 2024 will rank third in both invested capital and deal count, behind only 2021 and 2022. Investments in the Web3 and L1 categories were notable. The Web3 category led with a total of about $750 million, driven by Farcaster ($150 million) and Zentry ($140 million). L1 ranked fourth with $371 million, led by deals to Monad ($225 million) and Berachain ($100 million). The median valuation of venture-backed crypto businesses has surged, reaching its highest level since Q4 2021, the peak of the last bull run. Affected by the 2022 bear market and macroeconomic headwinds, most general venture capital firms are still on the sidelines, while venture capital firms focused on cryptocurrencies are in an increasingly competitive environment, providing project founders with more bargaining chips. It should be noted that the median is based on available data as of July 1, and may be updated and possibly adjusted downward as more transaction information in the second quarter increases. Bitcoin L2 continues to receive a large amount of investment, with related companies and projects raising a total of US$94.6 million, a month-on-month increase of 174%. Investors are still enthusiastic about the emergence of more composable block spaces in the Bitcoin ecosystem and attracting models such as DeFi and NFT to return to the ecosystem. Our internal research shows that at least 65 projects call themselves "Bitcoin L2". Early-stage transactions dominated the second quarter, receiving nearly 80% of investment capital, and Pre-Seed round transactions accounted for 13% of all transactions. The continued focus on early-stage transactions indicates the long-term health of the broader cryptocurrency ecosystem. While some late-stage companies struggle to raise capital, entrepreneurs are finding investors willing to invest in new and innovative ideas.   The United States continues to dominate the cryptocurrency startup ecosystem. While the U.S. maintains a clear lead in deals and capital, regulatory headwinds could force more companies to move to other countries and regions.If the United States wants to remain a center of technological and financial innovation in the long term, policymakers need to be aware of how their actions or inactions affect the cryptocurrency and blockchain ecosystem.