2022 will be a tough year for the cryptocurrency space and the dismal market conditions have been mirrored by a downward trend in venture capital funding flowing into blockchain and crypto activities.
A Blockdata report highlights back-to-back declines in funding during the four quarters of 2022, following rising venture capital funding in the broader Web3 space through 2021.
Analyzing data from CB Insights, Blockdata ended the last quarter of 2022 of venture capital funding value, seeing a 34% decline from the third quarter of 2022. with the first and second quarters down 67% and 53% over the two quarters.
The subsequent drop in venture capital investment has fallen each quarter from an all-time high of $11 billion in investment from 692 deals accumulated in the first four months of 2022.
Blockdata points to a number of factors for the decline in crypto and blockchain-related VC funding over the past year. The $60 billion collapse of the Earth ecosystem in May 2022 is highlighted as a trigger event, leading to the subsequent bankruptcy of cryptocurrency lending firms Three Arrows Capital and Celsius.
The FTX implosion in November 2022 further impacted volatility in the space, while global macro conditions in capital markets affected by rising interest rates and inflation also played a major role in the decline in investments by venture capitalists.
As a result, the fourth quarter of 2022 saw just $3.7 billion in VC funding, which was a 61% drop from the $9.6 billion of venture capital invested in the fourth quarter of 2021. Total funding received by blockchain and crypto startups was down 11% year-over-year, down from $32 billion to $29 billion.
Related: Top Cryptocurrency Funding Stories of 2022
Blockdata highlights the turnover in 2022 increasing by 35% compared to 2021 as a positive conclusion. The firm suggests that despite a pullback in venture capital spending, investors are still looking to fund blockchain-based technologies, apps and startups.
The report notes that venture capital investments are shifting towards “non-volatile innovations”, including cross-blockchain bridges, payments and remittances, lending, decentralized autonomous organisations, asset management and digital identity management.
The fourth quarter still produced some sizable VC investments. Amber Group secured the largest amount of funding, raising $300 million in a Series C round in December 2022 to address withdrawals of specific products affected by the FTX disaster.
Nine ‘blockchain mega-rounds’ took place in the fourth quarter, where companies raised over $100 million in funding. Uniswap and Celestia were the only companies to achieve unicorn status in the fourth quarter of last year, valued at $1.7 billion and $1 billion, respectively.
Coinbase Ventures has been identified as one of the most active corporate VC investors through 2022, participating in 13 different funding rounds of blockchain and crypto startups.
Cointelegraph Research previously highlighted the drop in venture capital investments in blockchain and crypto companies in 2022. Web3 and infrastructure service providers received the largest share of VC funding, according to internal surveys conducted.