According to a report by Galaxy Digital Research, a New York-based financial services firm, venture capitalists (VCs) invested over $10 billion in crypto startups in the first quarter of 2022.
This is the largest quarterly investment ever made in the crypto industry in a quarter. Interestingly, the surge in VC deals in the crypto space is being executed at a time when crypto markets are trading around 50% below their highs.
The report’s finding is surprising as VC investments have spiked amid growing regulatory concerns and skepticism in the crypto market. Despite the market rout, valuations are at a solid spike.
Hitesh Malviya, founder of IBC Capital, said that institutional money mainly bets on bitcoin, which was considered a risk-free asset during the recent economic crisis.
“Institutions are putting their money into risk-free assets like gold and bitcoin in market conditions like today where we are approaching a global recession,” he added.
Since the fourth quarter of 2020, VC money has been pouring into the crypto theme. However, the number of venture capital deals took a hit from last quarter, the report suggested. The number of transactions has remained above 500 for the past five quarters.
According to the report, the valuation and size of transactions in the crypto and blockchain space continue to outpace the broader venture capital landscape.
Web3, Non-Fungible Tokens (NFTs), DAOs, Metaverse, and Gaming are key themes that have emerged victorious to capture the largest capital investment and the largest number of transactions, around 22% of the allocations of capital, according to the report.
However, trading exchanges or investment platforms are not far behind, which took around 21% of the venture capital fund allocation. Next come infrastructure (14%), custody (9%) and mining (5%).
The report concluded that despite the pullback in the crypto space, venture capitalists are coming to the sector at a rapid pace. Meanwhile, pre-seed offers continue to drop despite the massive appeal of cryptos, he added.
Anticipating the funds’ future course of action, Malviya predicted that institutions will continue to buy falling Bitcoin and Ethereum.
“But if we look at other crypto assets, I don’t think we’ll see an influx of these participants, as other altcoins are purely retail investor driven, and retail investors are currently bearish in the market,” he added.