VC sentiment in the crypto space is on the rise, as investors fear missing out on the potential resurgence of cryptocurrencies. Despite the breakdown in the relationship between Bitcoin’s price and capital invested in crypto startups during Q2 2024, venture capitalists remain optimistic. According to Galaxy Digital’s analysis, quarter-over-quarter capital investment has increased by 28% to $3.19 billion. Although the total deal count has dropped slightly, median valuations of startups receiving new funding have reached near all-time highs, going from $19 million to $37 million.
However, venture capital activity has not kept pace with the rising price of Bitcoin. In the previous bull market, capital invested in early and late-stage startups reached $12 billion when Bitcoin was priced around $60,000. Currently, that figure has dwindled to just $3.75 billion.
Galaxy attributes this disparity to various factors, including the launch of Bitcoin exchange-traded funds in the U.S. and higher interest rates, making borrowing capital more expensive for new projects. Additionally, emerging sectors like restaking, blockchain modularity, and Bitcoin layer-2s have contributed to the gap between price and capital invested.
Despite the lower levels of investment capital compared to previous Bitcoin peaks, the crypto market’s rebound is driving competition and igniting fear of missing out among investors. This renewed interest in liquid crypto assets could lead to increased venture capital activity in the later stages of 2024, potentially making this year the third-highest in terms of investment capital and deal count, following 2021 and 2022.
While the U.S. remains a leader in deals and capital among crypto startups, regulatory challenges, such as opaque laws and hostile regulators, may push companies to relocate abroad. Galaxy warns that policymakers should be mindful of the impact their actions or inactions could have on the cryptocurrency and blockchain ecosystem if the U.S. wants to maintain its position as a center for technological and financial innovation in the long run.