Translation: Blockchain in Vernacular

Please note that all charts and information are based on data collected on July 1, 2024. Data will change as more transactions are reported in the future. This report represents a point in time with publicly available data at the time of writing.

 

1. Cryptocurrency venture capital rebounded in the second quarter

After a strong first quarter for Bitcoin and liquid cryptocurrencies, the market has cooled somewhat but is still up significantly year over year. The cryptocurrency venture capital market rally observed in the first quarter appears to be continuing. However, as of July 1, the data was still slightly weaker than current market sentiment. Founders and investors generally report that the funding environment is more active than in previous quarters.

The number of deals fell slightly, from 603 in Q1 to 577 in Q2, while investment capital rose from $2.5 billion in Q1 to $3.2 billion in Q2. The median deal size increased slightly from $3 million to $3.2 million, but the median pre-money valuation rose sharply, approaching all-time highs, from $19 million to $37 million. This suggests that despite the lack of available investment capital compared to previous peaks, the recovery in the cryptocurrency market over the past few quarters is leading to intense competition and investor fear of missing out (FOMO).

1) Number of transactions and investment capital

In Q2 2024, venture capitalists invested $3.194 billion (up 28% QoQ) in companies focused on cryptocurrency and blockchain across 577 deals (down 4% QoQ).

2) Investment capital and Bitcoin price

The multi-year correlation between Bitcoin prices and capital invested in crypto startups has broken down, with Bitcoin prices rising significantly since January 2023 while venture capital activity has struggled to keep pace. Although Bitcoin has surged so far this year and investment capital has increased, it is still well below the levels it will be in 2021-2022 when Bitcoin trades above $60,000. Cryptocurrency-native catalysts such as Bitcoin ETFs, emerging areas (e.g. re-staking, modularity, Bitcoin layer 2 protocols), coupled with the pressure of crypto startup bankruptcies and regulatory challenges, as well as macroeconomic headwinds (interest rates), have led to This is a significant departure. Investors may be preparing to re-enter the market due to the resurgence of liquid cryptocurrencies, which may lead to an increase in venture capital activity in the second half of the year.

3) Venture capital by stage

In Q2 2024, 78% of capital was allocated to early-stage companies, while 20% went to later-stage companies. While early-stage venture funds focused on cryptocurrencies still have funding remaining for 2021 and 2022, large integrated VC firms have exited the space or significantly reduced activity, making it more difficult for later-stage startups to raise capital. .

In terms of deals, although the proportion of pre-seed round deals has slightly decreased, it is still higher than in previous market cycles.

3) Valuation and transaction size

Venture capital-backed crypto company valuations have fallen significantly in 2023, with the median front-end valuation in the fourth quarter reaching its lowest level since the fourth quarter of 2020. However, valuations recovered in Q1 2024 and surged to $37 million in Q2 (up 94% QoQ), reaching their highest level since Q4 2021. It is important to note that late reporting and a lack of detailed public valuation data could cause these figures to fluctuate significantly when more data becomes available. We strive to provide this information in a timely manner after the quarter ends, so the numbers we provide are always subject to revision, but this spike is still relevant.

Median deal size increased slightly quarter-over-quarter (+7%) to $3.2 million, but has remained essentially flat over the past five quarters. The increase in valuation stems from improved market sentiment; although investment capital has not increased significantly, the founders have taken advantage of interest and competition among existing investors.

 

2. Investment by category

In the second quarter of 2024, companies and projects in the “Web3/NFT/DAO/Metaverse/Games” category received the largest share of crypto venture capital capital, accounting for 24%, with a total of $758 million in financing. The two largest deals in this category were Farcaster and Zentry, which raised $150 million and $140 million respectively.

Infrastructure, Exchange, and Layer 1 companies followed closely behind, receiving 15%, 12%, and 12% of the investment capital share, respectively. Notably, the Layer 1 category increased its market share more than 6 times due to the Monad and Berachain transactions, raising $225 million and $100 million, respectively. Bitcoin second layer protocols (L2) raised $94.6 million in Q2 2024, a 174% increase from the previous quarter (from $34.7 million in Q1 2024).

1) Number of transactions by category

In terms of transaction volume, Web3 ranked first with 19%, thanks to an increase in decentralized social media and gaming-related transactions. Although the number of crypto startups related to resttaking decreased in the second quarter of 2024, the infrastructure category ranked second with 15% of transactions.

Trading and decentralized finance (DeFi)-related crypto companies followed closely behind, accounting for 11% and 9% of all completed deals in Q2 2024, respectively.

2) Investment by stage and category

A detailed analysis of investment capital and deal volume by category and stage provides a clearer picture of what types of companies are raising funding in each category. In the Web3, Layer 1, and Infrastructure categories, the vast majority of capital went to early-stage companies and projects. In Q2 2024, venture capital by deal category went primarily to later-stage rounds.

Analyzing the share of capital invested by stage in each category provides insight into the maturity profile of each investable category.

The number of deals reflects a similar picture, with the majority of deals completed in almost all categories involving early-stage companies and projects.

Analyzing the share of completed deals by stage within each category provides insight into the different stages of each investable category.

3) Investment distribution by geographical location

In the second quarter of 2024, more than 40% of deals involved companies headquartered in the United States. 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%.

US-based companies attracted 53% of all VC capital, up 23.5% month-on-month. The UK accounted for 12.78%, Singapore 4.6% and the UAE 4.39%.

4) Investment distribution by years of entrepreneurship

In the second quarter of 2024, the vast majority of deals and capital raised involved companies founded between 2021 and 2023.

 

3. Summary

1) Cryptocurrency venture capital sentiment improves:

  • Although still significantly lower compared to the 2021-2022 bull run, with Bitcoin and Ethereum up about 50% year-to-date, invested capital is up 28% month-on-month, and the number of transactions is basically flat.

  • If this pace continues through the end of the year, 2024 would rank as the third-highest year in terms of both investment capital and deal count, behind 2021 and 2022.

2) Significant investments in Web3 and Layer 1 categories:

  • The Web3 category led with approximately $750 million raised, driven primarily by Farcaster ($150 million) and Zentry ($140 million).

  • The Layer 1 category ranked fourth with approximately $371 million, led by transactions from Monad ($225 million) and Berachain ($100 million).

3) Median valuation increased significantly:

  • The median valuation rose significantly to its highest level since the peak of the bull market in Q4 2021. While general venture capitalists are mostly staying on the sidelines due to challenges and macroeconomic headwinds in 2022, crypto-focused venture capitalists face a more competitive environment where founders have more leverage to negotiate terms.

4) Bitcoin’s second-layer protocol continues to attract investment:

  • Bitcoin second-layer companies and projects raised $94.6 million, up 174% month-over-month. Investor excitement about a more composable block space in the Bitcoin ecosystem remains high, attracting models such as DeFi and NFTs back into the Bitcoin ecosystem.

5) Leading in Early-Stage Deals:

  • Early-stage deals dominated the first quarter, attracting nearly 80% of investment capital, with seed rounds accounting for 13% of all deals. Continued interest in early-stage deals bodes well for the long-term health of the broader cryptocurrency ecosystem.

6) The United States dominates the crypto startup ecosystem:

  • The United States continues to dominate the crypto startup ecosystem in terms of deals and capital. However, regulatory challenges could force more companies to move overseas. Policymakers should be aware of how their actions or inactions could impact the cryptocurrency and blockchain ecosystem if the United States hopes to remain a hub for technological and financial innovation in the long term.

These insights reveal key trends and dynamics in cryptocurrency venture capital through Q2 2024, showing market shifts and opportunities across categories and stages.