Startup funding for cryptocurrencies is getting harder to come by. The amount of venture capital pouring into the sector fell for the fifth quarter in a row since Q1 2022 to $2.34 billion globally as investors withheld their funds out of concern for the dangers associated with a strict regulatory environment and an unstable economy.
PitchBook data show that $382 deals raised $2.34 billion in the second quarter, a significant decrease from the $12.14 billion high the sector reached in the first quarter of 2022. The largest funding rounds in Q2 2023 were the $115 million Series C round for WorldCoin and the $120 million Series B round for LayerZero.
Lyia Chiu, vice president of business development at Ava Labs, described it as a numbers game. She told that, investors are generally signing “smaller checks” because they perceive lesser valuations.
The Softbanks and Tiger Globals of the world won’t continue to invest in every venture. 1kx’s founding partner Lasse Clausen
Regulations have undoubtedly dampened industry optimism, but there are a number of other variables at work as well. A few well-known cryptocurrency businesses filed for Chapter 11 bankruptcy protection last year, which decreased industry trust. When the market changed, a few traditional businesses and entrepreneurs also completely abandoned the U.S. ecosystem. Additionally, when investors suddenly adopted a much more astute strategy that prioritized profits above expansion, it didn’t help.
Chiu claims that between 2022’s first and second halves, industry valuations fell dramatically by 50%. Since then, the values of cryptocurrency businesses have decreased by another 15% until the first quarter of 2023, a decrease of about 70% year over year.
That represents a significant reduction; for instance, startups that obtained money in January 2022 would find it difficult to do so today without drastically lowering their asking prices.
But it’s not all bad news; investors and innovators that are native to the cryptocurrency space are still holding out hope. That trend won’t necessarily change, but Chiu suggested that it might slow down or become less pronounced in Q3.
Lasse Clausen, founding partner at early-stage cryptocurrency investment firm 1kx, confirmed that a significant amount of money is still being invested. It’s true that funding appears to be declining, but when compared to all-time highs, those didn’t even make sense.
