Crypto startups experience a $2.5 billion surge in Q1, signaling a gradual yet consistent recovery.
According to Galaxy’s data released on May 3, cryptocurrency companies raised nearly $2.5 billion in the first quarter of the year, marking a 29% increase from the previous quarter. During this period, there was also a notable 68% uptick in deal numbers, totaling 603 deals, marking the first upward trend in funding and transaction volume in the past three quarters. Galaxy characterized the increase in investments as ”modest” compared to the crypto market’s recovery trajectory.
Despite the rising values of cryptocurrencies, venture capital influx into the sector hasn’t reached the peaks seen in previous booms. The slower pace of investment is attributed to factors such as high-interest rates, the collapse of major crypto firms in 2022, and a shortage of mature companies ready for substantial funding.
The introduction of Bitcoin ETFs is also seen as influencing investment patterns, providing an alternative avenue for investors compared to direct startup investments. Investments were predominantly concentrated in three sectors, with infrastructure companies leading the way, accounting for 24% of the funds. Web3 and trading firms followed closely, securing 21% and 17% of the total investments, respectively. These sectors also led in terms of the number of deals, underscoring their attractiveness to venture capital. On the other hand, DeFi companies raised comparatively less capital relative to their participation in deals, indicating a trend towards smaller investments in this sector.
Investments in Bitcoin projects were notable but still constituted only 7% of the total capital and 6% of the deals. The majority of the funding went to early-stage firms, attracting 80% of the total investments. These startups, established between 2021 and 2023, garnered the bulk of the deals, reflecting significant investor interest in fostering new entrants into the market. Galaxy observed that while crypto-focused funds continue to engage in early-stage financing, larger VC firms have either exited the space or reduced their involvement, potentially posing challenges for later-stage companies seeking substantial investments. The quarter witnessed a renewed, albeit cautious, interest in crypto investments amid broader economic pressures and evolving investor strategies. Whether this trend will persist remains to be seen in the upcoming quarters.
Featured image from: coinpaprika.com