• The crypto venture capital market rebound seen in the first quarter appears to be continuing, the report said.

• The correlation between the bitcoin price and capital invested has broken down as venture capital activity has struggled to keep up.

• Galaxy said allocators may be getting ready to return to the market, which could lead to an increase in venture capital activity in the second half.

The cryptocurrency venture capital market extended its rebound into the second quarter of the year with founders and investors reporting a more active fundraising environment than in previous quarters, Galaxy (GLXY) Research said.

Still, “data still seems slightly less robust than the prevailing sentiment,” analysts Alex Thorn and Gabe Parker wrote in a Tuesday report.

The deal count slipped to 577 from 603 in the first quarter, while capital invested grew to $3.2 billion in the second quarter from $2.5 billion, the report said.

The median deal size rose slightly to $3.2 million, but “median pre-money valuation surged dramatically to near all-time highs” of $37 million, the note observed, suggesting that the resurgence of the cryptocurrency market in recent quarters is leading to “significant competition and fear of missing out (FOMO) among investors.”

Galaxy notes that the correlation between the bitcoin {{BTC}} price and capital invested in crypto startups has broken down, as the world’s largest cryptocurrency has increased significantly since the beginning of January last year while venture capital activity has struggled to keep up.

The successful introduction of spot bitcoin exchange-traded funds (ETFs) this January and the emergence of Bitcoin layer 2s, combined with regulatory challenges and macro headwinds, have all contributed to this divergence, the note said.

The amount of capital invested has risen year-to-date, but remains well below the levels seen when bitcoin last traded above $60,000, between 2021-22, Galaxy said.

Early-stage companies received 78% of capital in the second quarter, with 20% going to later-stage firms, the report noted. Larger, more generalist venture capital firms have either exited the sector or materially reduced their activity, making it harder for later-stage startups to raise cash.

Due to the resurgence of liquid crypto, allocators may be getting ready to return to the market, which could lead to more venture capital activity in the second half, the report added.

Read more: Maybe Old-Fashioned Venture Capital Wasn’t So Bad After All