This article was compiled and organized by BlockWeeks
In the second quarter of 2024, crypto and blockchain startups completed a total of 577 financings, a quarter-over-quarter decrease of 4%; disclosed total financing amounted to $3.194 billion, a quarter-over-quarter increase of 28%. The number of deals slightly declined, but the median deal size rose slightly from $3 million to $3.2 million, while the median pre-money valuation jumped from $19 million to $37 million, a quarter-over-quarter surge of 94%, approaching a historical high—the last time it reached this level was in the fourth quarter of 2021, the peak of the previous bull market.
It should be noted that the data in this report is as of July 1, 2024, based on information publicly available at that time. As more transactions are subsequently disclosed, the relevant data will still change.
The Correlation Between Investment Amount and Bitcoin Price Has Broken Down
The multi-year correlation between Bitcoin's price and crypto startup financing has broken down: since January 2023, Bitcoin has risen significantly, while venture capital funding has failed to keep pace. Despite BTC's notable year-to-date gains, financing remains far below the level of 2021-2022, when BTC last stood above $60,000.
Factors contributing to this clear divergence include: crypto-native catalysts such as Bitcoin ETFs, restaking, modularity, and Bitcoin L2; pressures from crypto startup bankruptcies and regulatory challenges; and macroeconomic headwinds such as interest rates. As the liquid crypto asset market recovers, limited partners (LPs) may be preparing to return in earnest, and venture capital activity is expected to increase in the second half of the year.
Stage Distribution: Early-Stage Projects Absorb 78% of Funds
In the second quarter, 78% of funds went to early-stage companies, and 20% to later-stage companies. Crypto-focused early-stage funds still have "dry powder" left from fundraising in 2021 and 2022, but large generalist venture capital firms have exited the sector or significantly reduced their activity, making it harder for later-stage startups to raise funds. The share of pre-seed deals declined slightly but remains higher than in previous market cycles.
Valuations Rebounded Strongly After Bottoming Out
Valuations of VC-backed crypto companies declined significantly in 2023, with the median pre-money valuation in the fourth quarter hitting its lowest since the fourth quarter of 2020. Valuations rebounded modestly in the first quarter of 2024, then jumped to $37 million in the second quarter (+94% quarter-over-quarter), the highest since the fourth quarter of 2021.
It should be noted that disclosure lags and limited public valuation data will cause this figure to fluctuate significantly as more information is disclosed, so the data may be revised downward later, but the jump itself is still meaningful. The median deal size rose slightly by 7% quarter-over-quarter to $3.2 million, essentially flat over the last five quarters. The rise in valuations is mainly driven by improved sentiment: without a significant increase in investment funds, founders gained greater bargaining power through interest and competition among existing investor groups.
Sector Distribution: Web3 Leads, Layer 1 Jumps Due to Large Financings
The "Web3/NFT/DAO/Metaverse/Gaming" category took the largest share of crypto venture capital funding in the second quarter (24%), raising a total of $758 million. The two largest deals in this category were Farcaster and Zentry, raising $150 million and $140 million, respectively.
Infrastructure, Trading, and Layer 1 followed, accounting for 15%, 12%, and 12%, respectively. Data also shows that the share of funds going to Layer 1 increased more than sixfold due to two deals, Monad and Berachain (raising $225 million and $100 million, respectively). Bitcoin L2 raised $94.6 million in the second quarter, up 174% quarter-over-quarter ($34.7 million in the first quarter).
By number of deals, Web3 led with a 19% share, mainly driven by an increase in decentralized social media and gaming-related deals. Although financing for restaking-related startups decreased in the second quarter, the infrastructure category still ranked second by number of deals with a 15% share; Trading and DeFi-related companies accounted for 11% and 9%, respectively.
Breaking down funding and deal counts by category and stage provides a clearer picture of which companies in each category are raising funds: the vast majority of funds in Web3, Layer 1, and infrastructure categories went to early-stage companies, while venture capital funding in the Trading category flowed more to later-stage rounds. The share of funds by stage also reflects differences in the maturity of each sector—in almost all categories, a considerable proportion of deals came from early-stage companies.
Geographic Distribution: The United States Takes More Than Half of the Funds
In the second quarter, more than 40% of deals involved companies headquartered in the United States. The United Kingdom accounted for 10%, Singapore 8.7%, the UAE 3.13%, and Hong Kong 2.78%. By financing amount, U.S. companies took 53% of all venture capital funding, up 23.5% quarter-over-quarter; the UK accounted for 12.78%, Singapore 4.6%, and the UAE 4.39%.
The vast majority of deals and financing in the second quarter came from companies founded between 2021 and 2023.
Outlook: Could Be the Third-Highest Year in History
Crypto venture capital sentiment continues to improve but remains significantly below the bull market levels of 2021-2022. BTC and ETH are up about 50% year-to-date, financing is up 28% quarter-over-quarter, while deal counts are essentially flat. If this pace continues through the end of the year, 2024 will be the third-highest year for investment amount and deal count after 2021 and 2022.
Web3 and Layer 1 received significant investment. The Web3 category led with about $750 million, driven by Farcaster ($150 million) and Zentry ($140 million); Layer 1 ranked fourth with $371 million, dominated by Monad ($225 million) and Berachain ($100 million).
Median valuations soared, reaching their highest since the fourth quarter of 2021 (the peak of the previous bull market). Because generalist venture capital firms are mostly still on the sidelines due to the 2022 market downturn and macroeconomic headwinds, crypto-focused venture capital firms are in a more competitive environment, giving founders more leverage in term negotiations. Note that this median is based on data as of July 1 and may be revised downward as more second-quarter transaction information is disclosed.
Bitcoin L2 continues to receive large investments, raising $94.6 million in the second quarter, up 174% quarter-over-quarter. Investors remain highly excited about more composable blockspace emerging in the Bitcoin ecosystem, expecting models such as DeFi and NFTs to return to the Bitcoin ecosystem. Internal research shows that at least 65 projects claim to be "Bitcoin Layer 2."
Early-stage deals continue to dominate, taking nearly 80% of investment funds, with pre-seed deals accounting for 13% of all deals. Continued interest in early-stage deals is a positive signal for the long-term health of the broader crypto ecosystem; despite financing difficulties for some later-stage companies, entrepreneurs can still find willing investors for new innovative ideas.
The United States continues to dominate the crypto startup ecosystem. The U.S. maintains a clear lead in both deal count and financing amount, but regulatory headwinds may force more companies to move overseas. If the United States wants to maintain its position as a center of technological and financial innovation in the long term, policymakers should recognize what impact its actions or inactions may have on the cryptocurrency and blockchain ecosystem.
