Why Blockchain and Crypto VC Funding Dropped in Q4, According to This Report

The year 2022 was a disastrous period for cryptocurrencies due to the bear market and other chaotic events. The crypto industry has yet to recover from Earth’s collapse in Q2 2022 to the FTX implosion in Q4. The industry-wide effects of the FTX bankruptcy affected many sectors, including major companies.

Among the affected area is crypto venture capital funding. Block data analysis company reported the state of venture capital funding in blockchain and crypto in Q4 (Q4) 2022. According to the report, venture capital funding in the crypto and blockchain sectors has declined.

Earth implosions and FTX among leading causes of decline in VC funding

Blockdata’s report noted a successive quarterly decline in funding throughout 2022, following burgeoning venture capital funding in the Web3 space in 2021. Blockdata analyzed data from CB Insights, a market intelligence platform that analyzes data points on venture capital, startups and various sectors.

In its analysis, Blockdata noted that the fourth quarter saw a 34% drop in venture capital funding compared to the third (third) quarter of 2022. second trimester.

According to Blockdata’s report, VC investment in crypto decreased quarterly in 2022. The first quarter saw a 53% drop from its 2021 value, the second quarter a 67% decrease, and the fourth quarter experienced a 61% drop in funding. The drop in venture capital investment maintained a back-to-back pattern, falling from its all-time high of $11 billion in funding and 692 deals in the first four months of 2022.

In its report, Blockdata highlighted several factors responsible for the decline in crypto and blockchain funding over the past year. First, it cited the collapse of the $60 billion Earth ecosystem in May 2022 as a trigger for the crisis. Terra’s collapse caused a ripple effect across the industry, sending many cryptocurrency companies, including Celsius and Three Arrows Capital, out of business.

The FTX implosion in November 2022 was also among the factors cited by Blockdata that fueled the reduction in blockchain and crypto VC funding. Furthermore, the FTX liquidity crisis has increased volatility in the cryptocurrency market, causing many assets to lose value while some companies fail.

In addition, global macroeconomic conditions in traditional financial and capital markets have contributed to the decline in venture capital funding. For example, rising interest rates and the US Fed’s inflation control strategy were among the factors that repelled venture capitalists from funding crypto and blockchain startups.

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Due to these factors, Q4 2022 saw just $3.7 billion in funding, down 61% from $9.6 billion in Q4 2021. an 11% annual decline, falling from $32 billion in 2021 to $29 billion in 2022.

A ray of hope for the crypto sector

However, Blockdata noted that investment transaction volume in 2022 increased by 35% over the 2021 result. This is a positive result amid the massive decline in funding recorded. Furthermore, the firm noted that despite the slowdown in venture capital investments, investors are still keen to invest in blockchain-based technology.

The report noted that venture capitalists are shifting their focus to non-volatile innovations including cross-chain bridges, payments, DAO, lending, remittance services and more.

Despite a fourth quarter funding decline, Amber Group raised $300 million in a Series C fundraiser in December 2022. The fourth quarter also saw nine blockchain mega-rounds, in which companies raised more than $100 million in funding. However, Uniswap and Celestia were the only companies to achieve unicorn status in Q4 2022.

Featured image from Pixabay stevepb, chart from TradingView.com.

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