Bitcoin and Ethereum may be rising again, but venture capital firms continued to sour on the crypto space, according to a new report released by Galaxy Research.
Crypto and blockchain firms saw $2.3 billion in investments from venture capital firms during the second quarter of this year. It represents a steep decline from the same period a year ago, when VC firms invested more than $8 billion.
The crypto industry was flush with venture capital during its pandemic-era boom, drawing a record $13 billion in the first quarter of 2022. But a challenging business environment and higher interest rates have effectively reduced the deal flow flood to a small trickle—and it continues to shrink.
“Capital invested has not yet found a clear bottom,” the report said. “Rising rates continue to reduce allocator appetites to bet on long-tail risk assets like venture funds.”
As a result, the report notes, the sum of venture capital invested in crypto firms has now declined for the fifth quarter in a row.
Venture capital firms play a vital role in fueling the digital assets space, investing in startups and funding their growth in exchange for equity or tokens.
While the amount of cash thrown at crypto firms declined overall, the number of deals ticked upward to 456 from 439 in the first quarter, the report noted. Deals specifically involving companies building privacy and security products grew 275%.
Within the crypto space, startups focused on trading, exchanges, investing, and lending attracted the most capital at $473 million. That was followed by firms centered on Web3, NFTs, Gaming, DAOs, and the metaverse, which received $442 million.
Magic Eden, the cross-chain NFT marketplace, was highlighted in the report for its recent $52 million deal, which Galaxy Research said was the largest in the NFT space for the quarter.
Despite regulatory headwinds, Galaxy Digital also reported that crypto startups in the U.S. continue to receive robust attention from venture capitalists, suggesting that the Securities and Exchange Commission’s recent regulatory blitz has not entirely dissuaded investors.
The report noted that 45% of capital invested in crypto companies was directed at U.S.-based firms, followed by the United Kingdom at 7.5% and Singapore at 5.7%.
The report added that the lack of VC activity isn’t necessarily unique to crypto, explaining that tighter monetary conditions have weighed on VC firms’ ability to raise funds for investments across the board.
But the report acknowledges that other factors could also be at play, considering the bankruptcies that defined last the crypto space last year, stating “many allocators feel burned after the spectacular blowups of several venture-backed companies in 2022.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
