Crypto startups secured more funding but closed fewer deals in the latest quarter, reflecting a broader slowdown across the digital asset landscape.
Venture capital investment in crypto companies totaled $2.7 billion in the three months ending in June, marking a 2.5% increase from the first quarter. However, this represents a 9.8% decline compared to the same period last year, according to PitchBook data. The number of closed deals dropped by 12.5% from the previous quarter.
The crypto market experienced challenges after reaching all-time highs in the first quarter, fueled by excitement over the approval of US exchange-traded funds (ETFs) holding Bitcoin for the first time. Investor inflows into these ETFs slowed to $2.8 billion in the second quarter, a steep 80% drop from $13.7 billion in the prior quarter, based on Bloomberg estimates.
“Although still below the 2021 and early 2022 peaks, VC investing in crypto reached a fever pitch in March and April,” said Rob Hadick, General Partner at Dragonfly, a crypto venture fund. “Later stages remained soft, and as the market turned in late April and May, the VC market slowed once again.”
Bitcoin, the bellwether of the crypto market, fell by 13% in the second quarter and has remained relatively stable so far this quarter.
Despite the challenges, the total value of investments saw its third consecutive quarterly increase. The broader recovery in token prices and continued institutional adoption of digital assets this year indicate that fundraising is poised to grow, according to Robert Le, Senior Analyst at PitchBook, in a report released Monday.
The rise in project valuations during the second quarter was driven by founders trying to capitalize on a more optimistic secondary market, said Jason Kam, founder of crypto venture firm Folius Ventures.
Investment continued to focus on infrastructure projects like new blockchains, while venture capitalists were cautious about consumer-focused applications. In June, Shuyao Kong, co-founder of blockchain startup MegaETH, raised $20 million in seed funding, noting that the market remained “hungry” for high-performance blockchains.
The only significant funding round for a crypto application last quarter was for the social media platform Farcaster, which raised $150 million in May. Venture capitalists noted that fatigue in infrastructure investments is growing, with more VCs now seeking opportunities in applications, contributing to the slowdown in the second quarter.
“This is a rebalancing of private investments away from infrastructure toward applications,” said Tarun Chitra, partner at Robot Ventures. “Investors are looking for applications, but there are currently fewer private market opportunities available.”
Meanwhile, exit activities—where investors realize returns by selling stakes in a company—reached the highest level since the first quarter of 2022. There were 26 exits in the second quarter, including Robinhood Markets Inc.’s acquisition of Bitstamp. PitchBook anticipates that exit activities will continue throughout the year.
“We expect to see more consolidation among crypto exchanges, custodians, and infrastructure providers as the market matures, with smaller players seeking strategic exits,” the PitchBook report concluded.