Regulation
The first quarter of 2024 sees the return of venture capital in blockchain startups
Venture capital investments in crypto and blockchain startups rebounded strongly in the first quarter of 2024, reversing a three-quarter downward trend. According to Galaxy Research, investors invested $2.49 billion in the sector across 603 deals, representing a 29% increase in funding and a 68% increase in the number of deals compared to the previous quarter.
This surge could signal the start of a sustainable recovery, although Galaxy Research warns that further quarters of growth are needed to be confirmed. The report highlights that this is the first increase in invested capital and the number of transactions in three quarters, which could indicate a turning point after a difficult 2023. However, sustained growth in the coming quarters will be crucial to consolidate this positive trend.
Factors Driving the Increase in Investments in Blockchain Startups
Several factors would have contributed to the increase in investments in the first quarter. The introduction of Bitcoin exchange-traded funds (ETFs) is seen as a potential driver, alongside advancements in areas such as restocking, scalability and layer 2 Bitcoin solutions. Macroeconomic factors, such as bitcoin exchange rates interest, also play a role in investor decisions.
Interestingly, the historical correlation between Bitcoin prices and venture capital activity appears to be weakening. Although the price of Bitcoin has seen significant increases recently, venture capital investments remained stagnant until the sharp rise in the first quarter of 2024. It is worth noting that investment levels have not yet reached the highs seen when Bitcoin surpassed $60,000.
The report further reveals that start-ups were the main beneficiaries of this surge in investment, attracting 80% of total capital in the first quarter. Conversely, early-stage companies have faced a more challenging environment, with many large venture capital firms exiting the crypto sector or significantly reducing their investments.
The infrastructure sector dominated investment activity within the industry, capturing 24% of total capital raised during the quarter. A prominent example is EigenLayer’s $100 million funding round. The Web3 and trading sectors followed closely, capturing 21% and 17% of total capital, respectively.
Capital invested and number of transactions in 1Q24. Source: Galaxy Research
Global landscape and remaining challenges
The United States has maintained its position as a global leader in crypto venture capital. US startups participated in 37.3% of all deals and secured 42.9% of invested capital. Singapore followed with a 10.8% share of total transactions, while the UK had 10.2%. Switzerland and Hong Kong also emerged as important players with 3.5% and 3.2% shares respectively.
However, challenges remain for the industry. Galaxy Research highlights that fundraising conditions remain challenging due to ongoing macroeconomic uncertainties and lack of regulatory clarity. The report notes that “investors widely believed that rates would fall significantly during 2024”, but that due to persistent inflation, these expectations have been tempered, leading to a cautious investment environment for equity investors. -risk.
Despite these obstacles, the increase in venture capital activity for crypto and blockchain startups in the first quarter of 2024 represents a positive step forward. Continued growth and a supportive regulatory environment will be crucial determinants of the long-term health of the industry.