The strong recovery in the crypto market is beginning to impact the VC space

Crypto VC comeback: Signs of recovery emerge after two-year downturn

After two years of decline, there are early signs of recovery in the crypto VC market, as highlighted in this excerpt of Sygnum’s Crypto Market Outlook 2024. Get the report for more insights into key sectors and trends for the year ahead.

Venture funding volumes track the crypto market quite closely but with a lag. The peaks of venture funding have come with a quarter’s delay after the market’s peak, making new highs as the crypto asset prices were crashing. This delay is due in part to the time lag of negotiating and announcing deals, with the funding decisions tracking the secondary markets much more closely.

Monthly volumes averaged around three-quarters of a billion dollars last year – well ahead of the last bear cycle, where monthly volumes were below a quarter of a billion dollars. However, this figure represents a substantial drop from the USD 3bn monthly averages of the last bull cycle.

CRYPTO VENTURE CAPITAL, QUARTER LY FUNDING VOLUME
(USO BILLIONS)

Average valuations for deals also notably decreased last year, a welcome development that enforces greater financial discipline on projects, encourages more discernment among investors and ultimately leads to higher eventual returns.

There has been a shift in preferred deal structures, favouring equity investment in related private companies over deals for future tokens. This trend is partly due to the greater immediate influence over project governance that equity investment allows. The hybrid format of equity raise coupled with investment in an associated token has become increasingly common.

A lower proportion of funding went into use cases compared to the previous bull cycle, with a greater allocation towards infrastructure. It is also interesting to note that a lot of the VC firms are invested mostly in projects in the Ethereum ecosystem, while Solana and Bitcoin-based projects are underweighted.

The strong recovery in the crypto market is beginning to impact the VC space, with funding showing tentative signs of growth again while current valuations and deal structures promise attractive returns for investments made at this time. As many projects that raised funding during the last bull market will need additional funding soon, we may also witness consolidation and an increased level of M&A activity.

Katalin Tischhauser - Sygnum Crypto Market Outlook 2024

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