I reviewed your new Q2 crypto report and See that in the quarter crypto startups Raised $2.7 billion across 503 deals That's a 2 and a half% bump in invested Capital compared to q1 of this year now That increase came even with a 12 and a Half% drop in Deal value that's Different than what we saw in q1 of this Year when there was an increase in both Deal value and deal count but the Results Mark the third straight quarter Of gains as relates to investment value So what do these Q2 numbers signal to You obviously with the drop in deals and More Capital invested the size of the Deals in Q2 must be bigger but why do You think that is and where is the Capital going what crypto projects got The most investment Dollars yeah so um like you said the Deals um you know the deal count went Down but the total deal value went up to $2.7 billion so on a deal by deal basis The check sizes are larger which means Means you know you see that investors Are really uh doubling down and putting Money into those strongest crypto Companies you know the ones that have Been building you know through the bare Market you know over the last two years And have gotten to place now where They're Finding Traction they're finding Product Market fit you know they're Getting users so um you're seeing the
Check size is bigger getting bigger for Those specific companies and we're Seeing um it's very similar to what We've seen over the last six months Infrastructure deals are getting um a Significant amount of the money uh layer One Solutions and Layer Two scaling Solutions as well um you know we saw Barry chain and monad raise uh these Mega rounds uh this past quarter and Then so those are kind of like the areas You're seeing infrastructure we haven't Seen a lot of applications yet but we do Expect um applications to be you know The next wave of Investments That going To come in the next you know 12 to 18 Months so what would you say were the Driving forces behind the third Consecutive quarterly increase in Investment Values um investors have just been um Much more uh willing to invest in the Space now we really you step back until Last summer when um Black Rock filed for The spot Bitcoin ETFs that's really when We solve the sentiment change with Investors in the private markets um a Lot of folks were saying hey look we Think that the uh the bull Market's Right around the corner the bull market Is coming back so we saw you know Investors were more willing to meet with Founders that are not part of the Portfolio to uh write new checks and
Then on from Founders they're finding it Easier to meet with investors and these Conversations have really accumulated Over the last six to eight months for us To see you know the uptick in in Deal Value did you see the same thing when Spot ether ETFs were approved here in The US um it's a little bit different I Think it's a little bit too early to say Um we think that it will drive more Investments but right now you know with What's gone in the crypto markets over Last week you know um uh a lot the Crypto markets down so we'll see how how That works but I think overall the spot E ETFs was pretty successful in the First week we saw a billion dollars of Inflows into these ETFs so we'll see if That continues we don't know if the Momentum's going to be strong as Bitcoin When those um ETFs started trading back In January but you know so far it seems Like they're doing pretty well and then I think on over a very long Peri over Long term it's going to be really good For the ethereum ecosystem And it certainly will be very Interesting to see if that doesn't fact Happen but do you think the streaks of Quarterly bumps in investment values Will continue into the next quarter when We spoke in the past you noted that Crypt VC Investments typically rise when Crypto markets are doing well and
Recently as you noted Bitcoin Experienced a selloff and it's trading Well below its record of more than $73,000 reached back in March so how Will crypto's performance this quarter Play into investor interest and do you Anticip at the increase in capital Invested will continue especially with The expectations of lower interest rates In the Mix um yes we do expect investors to Continue um deploying Capital into this Space um it will continue to increase Just because you look at the amount of Um dry powder that exists in the crypto Native Venture funds and Venture funds Are now coming to Market again to raise New funds so there's fresh Capital Coming into the market so I think all That would push the amount of Investments going into the space up um The thing is we won't I don't expect it To be as strong as it was in uh 2021 and 2022 um you know historically there's a Very strong correlation between you know Private investments into crypto startups And the publicly traded crypto tokens um We saw you know the crypto market cap go You know very close to its peak back in March about 93% of its peak I don't Think we'll see private Investments Reach 93% of his 2022 Peak because 93% Would be roughly $25 billion invested um I don't think we're going to reach $25
Billion of invested capital in to the Crypto space over this year or next year We'll probably get a much higher than The last um the amount invested last Year of10 billion I think this year Will'll probably end somewhere between 12 to 14 billion of invested capital and Maybe next year a little bit more than That but nowhere close to the 2022 Peak Even though so um the publicly traded um Tokens reached you know pretty close to Peak earlier this year interesting now What areas of crypto got the least Investment dollars this past quarter and Why do you think that is um I I think That it's been a pretty long-term Trend Defi continues to get um the least Amount of invested capital from Venture They still do raise money but because The mechanisms the mechanisms through Raising capital is different and defi a Lot of defi protocols come to Market by Launching a token um because a token uh Has a lot of value to the the defi Protocols so they don't necessarily go Into you know U the VC markets to raise Capital so VC still do support some defi Protocols some of the really notable Ones you know like unisoft last year Raised a really large round so um you Still see some of those deals but for The most part D5 protocols typically Raise money in a different mechanism so They don't go to VC so you see the
Lowest amount of deals going into that Space now I recently put together a Report on the integration of crypto and Ai and according to architect Partners AI is pulling some investment dollars Away from other Technologies including Blockchain data sent to us from the Crypto advisory firm shows that in Q2 of This year AI private Investments totaled More than $40 billion doar far Surpassing crypto Investments Elliot Chan with architect Partners told me That he expects the combination of AI And blockchain to be a quote powerful go Forward investable theme do you agree And do you think AI is in fact pulling Some Capital away from blockchain Investments um I think AI generally has Been a very hot sector over the last 18 Months so not surprising you know with The launch of chbt at the end of 2022 so Um it generally has been pulling money From anywhere especially from generalist Investors that's where their attention Has been and you know even in the crypto Space the generalist VCS have left they Haven't come back yet um you know they Are definitely looking at the shiny ball And that's AI right now um where we Think that generalist investors will Come back will be at the cross-section Of AI and crypto and so you know there Is a lot of new activities happening we You know in the research we uh
Highlighted decentralized GPU networks Which is the hardware compute Infrastructure to help power AI training And AI INF FS so that is one area I Think there's many different areas as Well uh that you see you know just using Blockchains to verify data or using Blockchains to um you know incentivize Folks to participate in the AI ecosystem Um so there's many different areas and And so we do see um a lot more Capital Coming into that um the intersection of Blockchains and AI I want to focus on decentralized GPU Networks which your report called a Crucial solution for ai's growing Computational challenges of course the Explosion of AI with the Advent of Things like chat gbt as you noted has Significantly increased the demand for Computing resources in fact here in Crypto world we have been covering the Growing trend of Bitcoin miners turning To AI retrofitting their facilities to Service AI clients in an effort to Diversify revenue streams and your Report notes that decentralized GPU Networks have emerged to shap share and Monetize unused resources so what are Some of the benefits of these networks What did you discover in your research If you look at AI training and inference You know one of the primary B bottle Necks right now is the availability the
Availability of computing power out There and so these networks are are Trying to support that to provide more Supply and they add the supply by using Tokens as an incentive for anyone with Spare GPU or spare CPU to put to bring That supply and add it to that Network And so you know there's many different Companies that are doing we know Previously on the programs in the past We spoke about Jensen who's doing that You know they have a bunch of different Gpus and they're and incentivizing folks To come on and contribute and then so You can do that for AI uh training and Inference so the main thing is to to Help increase Supply uh decrease cost And increase efficiency um by doing this The the challenge right now is it is in A very early research and development Phase still um no one has been able to Use these decentralized GPU networks to Train AI models at scale similar to a Cluster of gpus how you know open AI is Training their AI models so there's a Lot of research and development that's Going into the space and we're pretty we Feel pretty bullish in the next three to Five years that you know some of these Networks that we mention in the research Can can achieve that level of scale In a nutshell what would you say is the Key takeaway of pitchbooks Q2 crypto Report and is there anything that
Surprised You yeah I think um overall the Sentiment in crypto has has changed over The last year um that's our main Takeaway and we see that investors Excited to come back and investors are Excited to invest in infrastructure you Know middleware and backend stuff the The thing is we have not seen uh Applications being developed and and we We highlight this in the report you know You look at two cycles ago most of the Invest the Investments went into the Application layer right so the circle And the coin bases ago that's two cycles Ago last cycle was FTX and Dapper labs And Celsius and blockfi this cycle so Far we have not seen uh a lot of Application um Investments a lot of it Is into the infrastructure so we still Think that looking forward in the next 12 months to 24 month months there's Going to be these killer applications That have to come to Market that are Getting the users that are serving end Users whether it's Enterprise retail uh Business users that is where we're Expecting a lot of the value creation to Happen and so we expect investors to Slowly over the next you know 12 months To two years to start shifting away from Infrastructure there's a lot of Infrastructure Investments I don't know How much Roi you can get there but I
Still think there's a lot of opportunity There on the application side and did The lack of application investment Surprise You um not not not yet because I I Myself haven't seen the killer Applications yet you know forecaster Raised uh $150 million round this past Quarter you know forecaster your Audience doesn't know it's basically a Decentralized Twitter um very similar to Twitter um they have some different Innovations that they've done like Frames where you can like many Applications inside like the the the the Text line and so they're pretty Interesting but the challenge is that They're still serving mostly crypto Users most of the folks that are using Forecast that are crypto and so we're Looking at who are building a Blockchainbased application that is Serving non- crypto users and then so I Don't think we're we're there yet but Once we do get there we expect that's Where the Investments to go
