Cryptocurrency Venture Capital Market Report: Q2 2023

The cryptocurrency venture capital market continued its upward trend into the second quarter of 2023, showing signs of increased activity in fundraising compared to previous quarters, as indicated by findings from Galaxy (GLXY) Research.

Despite this positive outlook, analysts Alex Thorn and Gabe Parker point out that while sentiment is strong, the data still presents a slightly less robust picture.

Key highlights from the report include:

• Deal count decreased to 577 from 603 in the first quarter.
• Total capital invested grew from $2.5 billion to $3.2 billion in the second quarter.
• The median deal size slightly increased to $3.2 million.
• Median pre-money valuation surged to near all-time highs of $37 million, reflecting increased competition and FOMO among investors.

Galaxy Research notes that despite the surge in the price of bitcoin, the correlation between BTC price and capital invested in crypto startups has weakened. Factors contributing to this shift include the successful launch of spot bitcoin ETFs, the rise of Bitcoin layer 2 solutions, regulatory challenges, and macroeconomic headwinds.

Although the capital invested has increased year-to-date, it remains below levels seen during the previous bitcoin rally above $60,000.

In terms of investment distribution, early-stage companies received 78% of the capital in the second quarter, with later-stage firms receiving 20%. Notably, larger venture capital firms have either reduced their activity in the sector or exited, posing challenges for later-stage startups in raising funds.

Galaxy Research anticipates a potential return of allocators to the market, driven by the resurgence of liquid crypto, which could lead to increased venture capital activity in the latter half of the year.