(Bloomberg) — Cryptocurrency startups raised more capital in the latest quarter but closed deals fell, reflecting a broader slowdown in the digital-asset industry.
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According to data from Pitchbook, venture capital investments in crypto-related companies totaled $2.7 billion in the three months ending in June, up 2.5% from the first quarter and down 9.8% from the same period last year. The number of closed deals was down 12.5% from the first quarter.
Overall, the cryptocurrency market has had a tougher time after prices hit an all-time high in the first quarter amid enthusiasm over U.S. exchange-traded funds (ETFs) being able to hold bitcoin for the first time. Investor inflows into ETFs slowed to $2.8 billion in the second quarter, down 80% from $13.7 billion in the previous quarter, according to Bloomberg estimates.
“While still nowhere near the highs of 2021 and early 2022, VC investment in crypto saw a bit of a frenzy in March and April,” said Rob Haddick, general partner at crypto venture fund Dragonfly. “Late-stage investments continued to be soft, and as the market turned around in late April and May, the VC market slowed again.”
Bitcoin, the cryptocurrency market benchmark, fell 13% in the second quarter and is little changed so far this quarter.
This marks the third consecutive quarterly increase in total investment. The broad recovery in token prices this year and continued adoption of digital assets by institutional investors suggest increased fundraising, PitchBook senior analyst Robert Le wrote in a report on Monday.
Jason Kam, founder of crypto venture firm Folius Ventures, said the rise in project valuations in the second quarter was “as founders sought to capitalize on a more buoyant secondary market.”
While investment continues to be focused on new blockchain and other infrastructure projects, venture capitalists remain wary of consumer applications. Shuyao Kong, co-founder of blockchain startup MegaETH, which raised $20 million in a seed round in June, said the funding came as the market continued to “hungry” for high-performance blockchains.
The only other big funding round for a crypto app to close in the past quarter was social media platform Farcaster, which raised $150 million in May. Venture capitalists said the slowdown in the second quarter was also due to growing fatigue in infrastructure investments, with more VCs looking for app investment opportunities.
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“This is a reallocation of private investment from infrastructure to applications,” said Tarun Chitra, a partner at Robot Ventures. “People are looking for applications, but there aren’t many that are investable in the private market right now.”
At the same time, exit activity — the process of investors selling a company’s shares to realize a return on their investment — increased to the highest level since the first quarter of 2022. There were 26 exits in the second quarter, including Robinhood Markets’ acquisition of Bitstamp. PitchBook expects exit activity could continue through the rest of the year.
“We expect to see further consolidation among crypto exchanges, custodians, and infrastructure providers as the market matures and smaller players seek strategic exits,” the PitchBook report said.
–With assistance from Vildana Hadjic.
(Updates market performance in fifth paragraph)
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