After three consecutive quarters of decline, crypto and blockchain startups have witnessed a significant uptick in venture capital investment.

According to data compiled by Galaxy Research, investors injected $2.49 billion across 603 deals in the first quarter of 2024, representing a 29% increase in funding and a 68% rise in deal count from the previous quarter. A sustained recovery must be confirmed by subsequent quarters of growth, the report states, adding:

“This was the first rise in both capital invested and deal count in 3 quarters, perhaps signaling that Q4 2023 was the “bottom,” although a continuation of QoQ increases – and a more meaningful increase – would confirm that over the coming quarters.”

Several factors influenced this quarter’s investment dynamics, including the introduction of Bitcoin exchange-traded funds (ETFs), innovations in areas such as restaking, modularity, and Bitcoin layer-2 solutions, as well as macroeconomic factors such as interest rates.

Capital Invested and Deal Count in 1Q24. Source: Galaxy Research

The historical correlation between Bitcoin prices and venture capital investments in crypto has weakened over the past year. The report notes that while Bitcoin has shown considerable price increases, venture capital activity has been stagnant until the recent surge in early 2024. However, investment levels are still not comparable to those reached when Bitcoin previously exceeded $60,000.

In addition, 80% of the invested capital in the quarter was allocated to early-stage startups. In contrast, later-stage companies faced tougher conditions, as many larger, generalist venture capital firms have either left the sector or substantially cut back their investments, noted Galaxy.

Capital invested by category and stage. Source: Galaxy Research

Investment activity within the industry was dominated by the infrastructure sector, which accounted for 24% of total capital raised in the quarter, including EigenLayer’s $100 million funding round. Moreover, the Web3 and trading sectors captured 21% and 17% of the total capital, respectively.

Geographically, the United States remained a dominant force in the crypto venture space, with American startups involved in 37.3% of all deals and capturing 42.9% of the invested capital. Singapore followed with 10.8% of the total deal count, while the United Kingdom had 10.2%, Switzerland had 3.5%, and Hong Kong had 3.2%.

Furthermore, Galaxy notes that fundraising conditions remain challenging, with macroeconomic conditions and regulatory uncertainties weighing on the industry:

“At the start of 2024, investors widely believed that rates would come down significantly over 2024, but throughout Q1, strong inflation data has tempered expectations for rate cuts this year, which has helped maintain a difficult fundraising environment for venture capitalists.”

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