Markets
Galaxy Ventures Laments ‘Challenging’ Market as Crypto VC Funding Set for Just 2.4% Gain – DL News
- Investments in crypto projects are increasing.
- However, VCs and industry experts see several reasons why it won’t reach bull market levels in 2024.
- And Joe Biden’s stay in the White House is just one of them.
Venture capital investments in cryptocurrency projects will reach $12 billion in 2024 – an increase of just 2.4% from the $9.4 billion raised last year, even as Bitcoin hits a new record high.
This is according to PitchBook crypto analyst Robert Le.
“The pace of investments will continue to grow, but not at the pace we saw in 2020, 2021,” said Le DL News.
Venture capital sentiment is often seen as an industry weather vane.
This sentiment is increasing pessimism among industry insiders, who said DL News that their hopes are fading that Wall Street’s push into digital assets would spark another bull run.
Rigid inflation, uncertain regulations and the specter of past scandals contribute to a pessimistic outlook.
Scandals
Crypto investments fell nearly 70% in 2022 to $9.4 billion in 2023, according to PitchBook.
DefiLlama data proves the picture.
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“The last few years in venture capital have been really challenging,” said Mike Giampapa, general partner at Galaxy Ventures. DL News.
Scandals, including the collapse of FTX and the Earth accident – and its resulting legal proceedings and criminal charges – have reduced investor appetite, Le said.
Many large generalist investors who were hurt by their previous crypto investments have yet to return, which has kept the total low, Le said.
Inflation
VCs’ appetite is also influenced by the price of cryptocurrencies. If Bitcoin soars, so will investor sentiment, Le said.
While crypto has rebounded this year thanks to the launch of several spot Bitcoin exchange-traded funds by Wall Street giants like Black stonepersistent inflation kept this recovery muted.
It’s basic economics. High inflation means retail investors have less money to spend on riskier assets like Bitcoin.
With the Federal Reserve keeping interest rates high for now, there are lower chances of cryptocurrency price increases, which in turn means that venture capital investment will remain muted.
On the other hand, if the US central bank were to cut interest rates, then crypto would likely rise, which could see venture capital investments increase 60% quarter over quarter – putting the year’s total at around US$ $21 billion, Le said.
Big politics
donald trump It is Joe Bidenwho are seeking a second term in the Oval Office, have positioned themselves at opposite poles on the issue.
Trump is more pro while Biden has adopted an anti-crypto stance similar to that of the Securities and Exchange Commission chairman Gary Genslerwho cracked down hard on the industry during his tenure.
How the election unfolds will also affect venture capitalist sentiment.
A Republican administration could be more supportive of the crypto ecosystem and mean Gensler would step down, although Gensler could leave regardless of how the election goes, Giampapa said.
A more supportive SEC chairman would lead to more cryptocurrency startups being able to scale and exit — for example, through public listings, which allow investors to profit from their investments, he said.
Le noted that traditional exits dropped from 81 in 2021 to 73 in 2023.
“This isn’t unique to crypto – it’s just the technology market in general,” he said.
This number does not cover alternative exits in the form of token launches, which allow VCs to profit from their investments.
Have hope
There are certainly glimmers of hope for venture capital investments, with several companies saying they are far from idle.
Additionally, Le’s latest report shows that venture capital investments in the sector increased to $2.4 billion in the first quarter, a 40% increase from the last quarter of 2023.
“We invest across market cycles and take a long-term view of the space,” said Shan Aggarwal, vice president of corporate and business development at Coinbase Ventures. DL Newsadding that “we were very active in the second half of 2023”.
Le noted that many companies have a lot of dry powder.
“They can’t sit on these funds and charge management fees forever.”
Additionally, several crypto-focused VCs are raising new funds to invest in the market.
For example, Paradigm is in talks to raise a new $750 million fund, according to Bloomberg.
Le also noted that while most generalist investors have not yet returned to crypto, their crypto teams spent the bear market learning more about the industry.
“When we are in a bull market, they will come back,” he said.
Aggarwal echoed this sentiment: “2024 looks to be a very active year for crypto VC and we will need to balance speed and agility to keep up with the market while remaining disciplined in our investment heuristics and capital allocation.”
Eric Johansson is news editor at DL News. Have a tip? Email him at eric@dlnews.com.