VCs believe that there’s a growing fatigue in infrastructure investment and thus they are putting greater focus on opportunities in crypto applications.
As per the latest reports, cryptocurrency startups raised more money, however, managed to complete fewer deals during the last quarter of the year. During the quarter ending June, venture capital firms invested in crypto startups a total of $2.7 billion, recording a 2.5% surge from the first quarter and 9.8% from Q2 2023.
However, in comparison to Q1 this year, the total number of deals in Q2 dropped by 12.5%. This clearly shows the slowdown in the overall market with investors being picky about any fresh investments.
After Bitcoin price surged to its all-time high in Q1, the overall market faced a challenging period. The crypto market was typically behaving per the historical trends of strong consolidation phase and downward action following the Bitcoin halving event.
Furthermore, as reported by Bloomberg, the investor inflows in spot Bitcoin ETFs slowed down to $2.8 billion during Q2 2024, down by more than 80% from $13.7 billion in the quarter before. Speaking on the development, Rob Hadick, a general partner at crypto venture fund Dragonfly, said:
“While still far below the 2021 and early 2022 highs, VC investing in crypto reached somewhat of a fever pitch in March and April. Later stages have continued to be soft and as the market turned in late April and into May, the VC market slowed again.”
This was the third consecutive quarter where the crypto startups raised more money than the previous quarter. In a report published on Monday, Robert Le, a senior analyst at PitchBook, stated that the overall recovery in token prices this year, along with ongoing institutional adoption of digital assets, indicates that fundraising is likely to increase.
Increasing Valuation of Crypto Startups
The surge in valuations during the second quarter came as founders tried to make the most of the secondary markets. Investors remained picky about crypto infrastructure projects such as new blockchains, however, some venture capitalists continued to lean towards consumer-focused applications.
Shuyao Kong, co-founder of the blockchain startup MegaETH, secured $20 million in a seed funding round in June, stating that the fundraising succeeded because the market is still “hungry” for high-performance blockchains.
Social media platform Farcaster was the only company from the “crypto application” space that managed to attract a $150 million investment in May. VCs believe that there’s a growing fatigue in infrastructure investment and thus they are putting greater focus on opportunities in applications.
“It is a rebalancing of private investments away from infrastructure to applications. People are looking for applications and there are just fewer of those that are private market investable at the moment,” Tarun Chitra, a partner at Robot Ventures said.
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