Markets
Galaxy Ventures laments ‘tough’ market as crypto VC funding expected to generate meager 27% gain – DL News
- Investments in crypto projects are increasing.
- However, venture capitalists and industry insiders see several reasons why the market will not reach bullish levels in 2024.
- And keeping Joe Biden in the White House is just one of them.
Venture capital investments in crypto projects will reach $12 billion in 2024, an increase of just 27% from the $9.4 billion raised last year, even as Bitcoin hits a new record .
This is according to PitchBook crypto analyst Robert Le.
“The pace of investment will continue to grow, but not at the pace we saw in 2020 and 2021,” Le said. DL News.
Venture capital sentiment is often seen as a weather vane of the industry.
This sentiment adds to the pessimism of industry insiders, who said DL News as their hopes are dwindling that Wall Street will jump into digital assets and spark a new bull run.
Persistent inflation, uncertain regulations and the specter of past scandals lead to a pessimistic outlook.
Scandals
Crypto investments fell nearly 70% from 2022 to $9.4 billion in 2023, according to PitchBook.
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“The last few years in venture capital have been very difficult,” said Mike Giampapa, general partner at Galaxy Ventures. DL News.
Scandals, including the collapse of FTX and the Earth crash – and the resulting lawsuits and criminal charges – have dampened investor appetite, Le said.
Many large general investors who were burned by their previous crypto investments have yet to return, which has kept the total low, Le said.
Inflation
VC appetite is also influenced by the price of cryptocurrencies. If Bitcoin soars, so does investor sentiment, Le said.
While crypto has rallied this year thanks to the launch of several Bitcoin spot exchange-traded funds by Wall Street giants like black rockpersistent inflation has kept this rally muted.
This is basic economics. High inflation means retail investors have less money to spend on riskier assets like Bitcoin.
Since the Federal Reserve is maintaining high interest rates for the time being, the risks of rising cryptocurrency prices are reduced, meaning that venture capital investments will remain modest.
On the other hand, if the US central bank cut interest rates, crypto would likely rise, which could see venture capital investments increase by 60% quarter over quarter, bringing the total for the year to about $21 billion, Le said.
Great politics
Donald Trump And Joe Bidenwho are both seeking a second term in the Oval Office, have positioned themselves at opposite ends of the subject.
Trump is more pro, while Biden has taken an anti-crypto stance similar to that of the chairman of the Securities and Exchange Commission. Gary Genslerwho harshly cracked down on the industry during his tenure.
How the election plays out will also affect venture capital sentiment.
A Republican administration could be more friendly to the crypto ecosystem and mean Gensler would leave office, although Gensler could leave regardless of how the election goes, Giampapa said.
A more supportive SEC presidency would allow more crypto startups to grow and exit — for example through public listings, which allow investors to cash out their investments, he said.
Le noted that traditional releases decreased from 81 in 2021 to 73 in 2023.
“It’s not specific to crypto, it’s just the tech market in general,” he said.
This figure does not cover alternative exits in the form of token launches, which allow venture capital firms to make a return on their investments.
Hope
Certainly, there are glimmers of hope for venture capital investments, with several companies saying they are far from idle.
Furthermore, Le’s latest report shows that venture capital investments in the sector reached $2.4 billion in the first quarter, an increase of 40% compared to the last quarter of 2023.
“We invest in all market cycles and we have 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 plenty of dry powder on hand.
“They can’t sit on these funds and collect management fees forever. »
Additionally, several crypto-focused venture capital firms are raising new funds to inject into the market.
For example, Paradigm is in talks to raise a new $750 million fund, according to Bloomberg.
Le also noted that while most general investors have not yet returned to crypto, their crypto teams have spent the bear market learning more about the sector.
“When we are in a full-blown bull market, they will come back,” he said.
Aggarwal echoed this sentiment: “2024 is shaping up to be a very active year for crypto VC and we will need to balance speed and agility to keep pace with the market, while remaining disciplined in our investment and allocation heuristics of capital.
Eric Johansson is the editor-in-chief of DL News. Do you have any advice? Send him an email to eric@dlnews.com.
This story has been updated to correct a typo in the previous copy that suggested venture capital firms would invest 2.4% more in crypto in 2024 compared to 2023. The correct figure is that they would invest 24% more there, according to Le’s estimates.