In the times of gloom for venture capital funding, it is the AI and Crypto sectors that have kept the market afloat and investors hopeful with their positive performances.
As per latest forecast report by Gartner, Global IT spending is speculated to hit $5 Trillion by the end of 2024. The new expected figure is a straight 8% increase from the previous quarter.
Likewise, the first quarter of 2024 has shown a favorable trend for the global economy on macroeconomic terms.
As per data provided by the Organisation for Economic Cooperation and Development (OECD), the global economy has shown 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.
As per reports, the global venture capital funding saw a decline of 30% in the first quarter of 2024. This follows the same dismal performance in 2023 when global VC funding was restricted to $285 Billion, which was a 38% decline compared to 2022 when the funding amounted to a staggering $462 Billion.
When it comes to the global technology market, it has also witnessed 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 appears gloomy, the crypto and AI markets have received impressive fundings in the past year.
As per analysts at Gartner, the 8% increase in IT spending is largely credited to the advent of GenAI and a general rush of investors towards it.
Similarly, the crypto market valuation is set to be nearly $ 51.5 Billion representing only 1.03% of the whole valuation of the tech industry.
Is Crypto Market an exception to macroeconomics?
Considered an anomaly in the VC sector, the crypto market has turned out to be 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 cryptomarket has been witnessing a vibrant funding streak from the past two years.
Focussing on March and April 2024 fundings, crypto market witnessed several groundbreaking investments including $1.7 billion to blockchain infrastructure firms, followed closely by decentralized finance protocols at $626 million, another $225 million funding to ‘Monad’ and $47 million investment in ‘Securitize’.
With over $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 influx into the blockchain industry has now surged past an astonishing $100 billion across 5,195 funding rounds since June 2014.
Javier Castro Acuña, Head of Crypto and Web3 at Bitnovo, stated, “In recent years, crypto companies that have stayed 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 have realized the potential of the sector and, once the barrier of uncertainty has been removed, have launched finance projects, especially the already consolidated ones, since 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 to build one from scratch.”
With the recently concluded Bitcoin Halving, trade analysts are bullish on the price of Bitcoin, expecting it to shoot up during the next rally. With a steep increase in BTC valuation, chances of crypto markets getting more funding increases.
What micro-level factors are driving the growth on a macro scale of the crypto industry?
There have been various 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.
Likewise, data provided by Statista reflect the growth of the crypto market, indicating that the crypto market will continue to grow at a compound annual rate of 8.62%, projecting 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 has resulted in a steep rise in fundings.
However, some experts still believe that the crypto funding will only increase in the near future if strict policies are loosened by governments across the globe.
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 strict monetary policy of the Federal Reserve and the market participants’ uncertainty about the timing of the start of the next rate-cut cycle.”
The recent Bitcoin Halving, along with the approval of the first crypto ETFs in Asia, and the possibility that the Fed will not raise interest rates, are impacting the crypto market in macro terms, driving the increase in funding.
Therefore,when looked from the paradigm of macroeconomics, the crypto market indeed appears as an anomaly in the overall tech market scenario,however,it is the small individual micro-level events that are helping to drive a sentiment of positivism and growth within the global crypto market.
