(Reuters) - Crypto startup funding rose for a second straight quarter to hit $2.4 billion in the first three months of 2024, Pitchbook data showed, as expectations of lower interest rates and the debut of the first U.S. bitcoin spot ETF whetted investor appetite.

Funding was spread across 518 deals and rose by 40.3% from the previous quarter, according to data firm PitchBook. Global venture capital investments dropped to a near five-year low in the same period.

Investor bets on digital asset startups too have been on a slide since the peak of over $10 billion in the first quarter of 2022, hurt by a economic worries and the shutdown of key market players. However, the landmark U.S. regulatory approval of spot bitcoin ETFs, which are offered by heavyweights BlackRock and Fidelity, boosted the legitimacy of the asset class and helped send bitcoin to a record high of $73,803 in March.

"The recovery in publicly traded tokens and continued rise in institutional adoption will drive increased VC funding," Pitchbook analyst Robert Le said.

Startups focused on building infrastructure for crypto and blockchain technology led the way in funding during the quarter, according to PitchBook.

The largest deal was made by decentralized cloud platform Together AI, which raised $106 million in an early stage round led by Salesforce Ventures that valued the company at $1.1 billion.

"The investment rounds have become highly competitive, especially at the early stages," Pitchbook's Le said.

"This is compounded by the fact that early-stage deals are earning higher valuations than late-stage deals but.. we will see if this trend holds in the coming quarters."

Exits were still low, though. Le expects mergers to pick up later this year, particularly among crypto exchanges, custodians and infrastructure providers as the market matures.