Blockchain
VC Sentiment Soars as Investors Fear They’re Missing Out on Cryptocurrency Resurgence
This year, sentiment among venture capitalists for cryptocurrencies continues to improve, with a potential recovery expected in the coming months.
However, in the second quarter of 2024, a breakdown in the relationship between the price of Bitcoin and the capital invested in crypto startups is underway, Galaxy Digital said in its latest analysis on Tuesday.
On Monday, Galaxy took stock of its deals over the past three months, according to Pitchbook data, which showed that capital investment increased 28% quarter-over-quarter to $3.19 billion.
While the total number of deals decreased by about 4% from the previous quarter, the average valuation of startups before they received new funding increased to near all-time highs, from $19 million to $37 million.
Despite this, venture capital activity has struggled to keep pace with the rising price of the world’s largest cryptocurrency. During the previous bull market of 2021-2022, capital invested in early- and late-stage startups was $12 billion, a time when Bitcoin’s price was hovering around $60,000.
Since then, the figure has fallen to just $3.75 billion, remaining well below levels of previous years, the research found. Galaxy points to several crypto-native catalysts and macroeconomic headwinds for the gap between price and invested capital.
These include the launch of Bitcoin exchange-traded funds in the United States and higher interest rates, which make it more expensive to borrow capital for new projects. Emerging sectors, including restaking, blockchain modularity, and Bitcoin layer-2, have also contributed to the divergence.
Despite attracting less investment capital than Bitcoin’s previous peak, the cryptocurrency market’s recovery starting in late 2023 is fueling competition and investor fears of missing out, Galaxy said.
“Allocators may be preparing to make a serious comeback due to the resurgence of liquid cryptocurrencies,” Galaxy’s head of corporate research Alex Thorn and research analyst Gabe Parker wrote Tuesday.
That’s good news for startups hungry for additional funding, as the interest could lead to increased venture capital activity in later stages of 2024, the pair wrote. That could put this year on track to become the third-highest year for investments and deals after 2021 and 2022.
While the U.S. continues to lead the way in startup deals and capital, regulatory hurdles in the form of opaque laws and hostile regulators could force companies to move abroad, Galaxy said.
“Policymakers should be aware of how their actions or inactions could impact the cryptocurrency and blockchain ecosystem if the United States is to remain the center of technological and financial innovation in the long term,” Thorn and Parker wrote.