As an analyst with over two decades of experience in the financial industry, I’ve witnessed numerous market cycles and trends. The recent 20% drop in crypto venture capital funding to $2.4 billion in Q3 is not an anomaly but rather a reflection of the current “barbell market”. It seems we are witnessing a phenomenon where Bitcoin and high-risk memecoins are the only ones enjoying the limelight, leaving mid-tier projects scrambling for funding.
According to Galaxy Digital, crypto venture capital investments dropped by around 20% to approximately $2.4 billion during the third quarter, largely due to a “double-barrel market” where Bitcoin and high-risk meme tokens dominated, causing mid-tier projects to struggle in securing funding.
In a report published on October 15th, the head of research at the cryptocurrency investment firm, Alex Thorn, along with research analyst Gabe Parker, noted that a drop in funding was followed by a 17% reduction in deal transactions during Q3. Specifically, there were 478 deals made during this period.
In the third quarter of 2024, there was a 21.5% rise in venture capital investment compared to the approximately $2 billion poured into cryptocurrency during the same period in 2023, totaling roughly $2.4 billion.
As a researcher, I’ve observed that the slow progress in our venture can be attributed to several elements. One significant factor is the so-called ‘barbell market’ where Bitcoin and its associated ETFs have taken center stage, while marginal net new activity primarily originates from memecoins, which are often challenging to fund due to their uncertain future prospects.
2024 saw a subdued response from major investors (large allocators), causing the cryptocurrency market to remain relatively cool (kept tepid) throughout the year, according to the report.
A common strategy for a balanced crypto portfolio involves investing in well-established, large market cap cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), along with more risky, speculative tokens like memecoins. This approach generally overlooks mid-sized utility tokens and projects that frequently aim to secure venture capital funding.
According to the report, the strong interest in Bitcoin exchange-traded funds (ETFs) among big investors such as pensions and hedge funds might have caused them to shift away from venture capital investments in up-and-coming cryptocurrencies.
Thorn and Parker noted that over a prolonged period, Bitcoin’s price tended to align with cryptocurrency venture capital funding. However, they pointed out that this relationship appears to have recently “fallen apart.
“Weak allocator interest in crypto venture, and venture broadly, combined with market narratives that favor Bitcoin and have left out many of the hot narratives from 2021 can partially explain the divergence.”
So far, the demand for the ETF focused on Ether has been relatively small, but if its use expands, it may cause venture capitalists to invest less in decentralized finance and Web3 projects that are based on cryptocurrency, as Galaxy predicts.
In Q3, a large majority (85%) of investment capital was directed towards early-stage deals, primarily going to cryptocurrency exchanges, trading firms, and businesses associated with first-layer blockchain technology.
As an analyst, I’ve observed that cryptocurrency companies that adopted artificial intelligence (AI) services significantly boosted their progress, experiencing a remarkable five-fold surge in venture capital (VC) funding from one quarter to the next.
Notably, Sentient, CeTi, and Sahara AI were among the top donors, each securing funding of $85 million, $60 million, and $43 million respectively, according to Galaxy’s observations.
crypto companies located within the U.S. received approximately 56% of venture capital funding from about 43.5% of all deals in Q3, with Singapore and the United Kingdom coming in second and third at 8.7% and 6.8%, respectively. The United Arab Emirates and Switzerland completed the top five.
According to Galaxy, VC funding might speed up during Q4 2024 and Q1 2025 due to decreasing interest rates and potential loosening of regulatory restrictions.
Read More
- HBAR PREDICTION. HBAR cryptocurrency
- IMX PREDICTION. IMX cryptocurrency
- MNT PREDICTION. MNT cryptocurrency
- XDC PREDICTION. XDC cryptocurrency
- TRB PREDICTION. TRB cryptocurrency
- JTO PREDICTION. JTO cryptocurrency
- FLOKI PREDICTION. FLOKI cryptocurrency
- LDO PREDICTION. LDO cryptocurrency
- Dandadan Shares First Look at Season Finale: Watch
- OKB PREDICTION. OKB cryptocurrency
2024-10-17 05:37