AI and Crypto Funding Increases in Q1 Even as VC Funding Declines

In times of gloom for venture capital funding, it is the AI ​​and Crypto sectors that have kept the market moving and investors hopeful with their positive performances.

According to the latest forecast report by Gartner, global IT spending is speculated to reach $5 trillion by the end of 2024. The new expected figure is a straight 8% increase from the previous quarter.

Similarly, the first quarter of 2024 showed a favorable trend for the global economy on macroeconomic terms.

According to data provided by the Organization for Economic Co-operation and Development (OECD), the world economy showed a slight improvement compared to previous years, with a projected global GDP growth of 3.1%.

However, global venture capital funding has not followed the same trajectory of GDP growth with a rapid decline over the past year.

Global venture capital funding has reportedly seen a 30% decline in the first quarter of 2024. This follows the same dismal performance in 2023 when global VC funding was capped at $285 billion, which was a 38% decline compared to 2022 when funding totaled a staggering $462 billion.

As for the global technology market, it has also experienced turmoil with recent mass layoffs by Google, Microsoft and Amazon, among others. With the overall slump in VC funding, the tech firms are also facing the heat in uncertain times.

While one side of the picture looks bleak, the crypto and AI markets have received impressive funding over the past year.

According to analysts at Gartner, the 8% increase in IT spending is largely attributed to the advent of GenAI and a general investor rush to it.

Likewise, the crypto market valuation is set at nearly $51.5 billion, representing only 1.03% of the total valuation of the tech industry.

Is Crypto Market an Exception to Macro Economics?

Considered an anomaly in the VC sector, the crypto market has become one of the fastest growing markets in recent years. In March and April 2024, the crypto venture capital funding reached $1.09 billion and $1.02 billion, respectively. Despite being considered a highly volatile asset that is not backed by any fiat currency, the crypto market has seen a buoyant funding streak over the past two years.

Focusing on March and April 2024 funding, the crypto market saw several groundbreaking investments, including $1.7 billion in blockchain infrastructure firms, closely followed by decentralized financing protocols at $626 million, another $225 million in funding to ‘Monad’ and $47 million investment in ‘Securitize’.

With more than $3.67 billion already injected into the industry through 604 funding rounds, 2024 is poised to surpass the remarkable $9.3 billion raised in 2023.

As per DeFiLlama, the cumulative funding inflow to the blockchain industry has now surpassed an astounding $100 billion across 5,195 funding rounds since June 2014.

Javier Castro Acuña, Head of Crypto and Web3 at Bitnovo, said: “In recent years, crypto companies that have remained afloat have continued to grow and develop new products and services, and at the same time, new initiatives have emerged.

After the approval of ETFs in the United States, many realized the potential of the sector and, once the barrier of uncertainty was removed, financing projects were launched, especially the already consolidated ones, as it is much faster and safer to invest in. a platform that is already up and running, with experience, all its technology deployed, products developed and a good customer base, than building one from scratch.”

With the recently concluded Bitcoin Halving, trade analysts are bullish on the price of Bitcoin, expecting it to rise during the next rally. With a sharp increase in BTC valuation, the chances of crypto markets getting more funding increases.

What micro-level factors are driving the macro-scale growth of the crypto industry?

There have been several international events that have positively impacted the cryptocurrency market.

In January, the SEC approved the first Bitcoin ETF, marking one of the first positive events for the crypto market.

Similarly, data provided by Statista reflects the growth of the crypto market, indicating that the crypto market will continue to grow at a compound annual rate of 8.62%, predicting earnings of $71.7 billion by 2028.

Other factors such as direct access to a global network of investors, concept of peer-to-peer money transfer, initial coin offerings and crowdfunding mechanism in the crypto ecosystem have resulted in a sharp rise in funding.

However, some experts still believe that the crypto funding will only increase in the near future if strict policies are loosened by governments around the world.

Pavel Zavadskii, founder of Biqutex, added: “Despite a significant increase in venture capital funding compared to last year, venture capital investment in cryptocurrencies is still well below the bullish market levels of 2021. The main factor is the continued tight monetary policy of the Federal Reserve Board and the market participants’ uncertainty about the timing of the start of the next rate cut cycle.”

The recent Bitcoin Halving, together with the approval of the first crypto ETFs in Asia, and the possibility that the Fed will not raise interest rates, affects the crypto market in macro terms, driving the increase in funding.

Therefore, when viewed from the paradigm of macroeconomics, the crypto market indeed appears as an anomaly in the overall technology market scenario, but it is the small individual micro-level events that help create a sentiment of positivism and growth within the global crypto market.