Venture capital investment in cryptocurrency companies plummets in the first quarter of 2023

A recovery in the cryptocurrency market could attract more venture capital investments. Here we examine the close relationship between project activities and cryptocurrency prices.

Historically, the blockchain and crypto sectors have attracted significant venture capital (VC) funding, particularly during the 2017-2018 and 2021-2021 boom periods. However, financing can fluctuate based on market conditions, regulatory changes, and other factors.

Amidst the changing scenarios in the crypto space, funding initiatives have swung wildly. There is a correlation between investment investment activity and crypto-asset prices, especially for blockchain and cryptocurrency projects. When crypto assets experience an increase in value, there tends to be an increase in investment in startups and related projects.

Conversely, when crypto-asset prices drop, there may be a decrease in investment activity in this area.

Possible Correlation Between Crypto VC Investments and Bitcoin Price Source: Galaxy Research

However, it should be noted that this association is not necessarily a direct causal relationship. Other factors, such as regulatory changes or market sentiment, can also influence cryptocurrency investment activity. In addition, venture investment activity in any industry is affected by a wide range of factors beyond asset prices, such as the quality of the team, the strength of the business model, growth potential, and profitability.

The role of investors

Venture capital investment plays an important role in the growth and development of crypto companies. The crypto industry has experienced exponential growth in recent years, driven by increased mainstream adoption and acceptance. However, despite the huge potential of this industry, cryptocurrency companies still need to overcome challenges, including regulatory uncertainties, technological hurdles, and funding shortfalls.

Venture capital investment provides liquidity to support the growth of crypto companies. These investments enable startups to scale their operations, broaden their product offerings, and deliver innovative solutions. With venture capital funding, crypto companies can invest in research and development, marketing, and talent acquisition, among other critical areas. This, in turn, helps them to stay competitive and meet the ever-growing market demands.

Moreover, venture capital investment brings more than just financial backing to crypto companies. Provides valuable experience, guidance, and networks. Venture capital firms have years of experience in identifying promising startups, assessing their potential, and supporting them through their growth. They bring industry knowledge and contacts that can help crypto companies navigate the complex and rapidly evolving landscape of the crypto industry.

investment deals

Venture capital investment also plays an important role in attracting more investment in the cryptocurrency industry. When reputable venture capital firms invest in crypto companies, they are validating the potential of these startups and signaling to others that the industry is worth investing in. This, in turn, attracts more investment, promoting a virtuous growth cycle.

Moreover, investing venture capital in crypto companies helps boost innovation and creativity. The cryptocurrency industry is still in its infancy, and there is a huge potential for new and innovative solutions. However, crypto companies need significant funding to bring these solutions to market. Venture capital investment provides the capital to fuel this innovation and create new products and services to revolutionize our lives and work.

However, things can go south. With the crashes in 2022, investors pulled out as the industry lost its credibility. According to a report by Galaxy Research, the research arm of crypto investment firm Galaxy Digital, the first quarter of 2023 supports a similar conclusion. The first quarter saw the lowest crypto VC activity in two years, with $2.40 billion invested across 439 deals.

Crypto VC Deals and Capital Invested Source: Galaxy Research
Cryptocurrency Deals and Invested Capital Source: Galaxy Research

Venture capital investments have declined since peaking at around $13 billion in the first quarter of 2022, with results for the last quarter representing a drop of more than 80% compared to last year.

baggage of the past

Crypto Analyst PitchBook said the decline is “not a surprise” Robert Low, who noted that risk investing has waned across the board this year. In addition to rising interest rates, the first quarter also saw the breakup of the Silicon Valley Bank, an institution that venture-backed companies depend on.

“There’s still a lot of fear about what’s going to happen because the overall environment is still very uncertain,” he told me.

Regardless of the downward trend in invested capital, deal activity grew in the first quarter of 2023, raising 439 deals compared to 366 deals in the fourth quarter of 2022. The gains were primarily driven by relative increases in pre-seed deal activity (89) After a dismal last quarter of 2022. It saw just 42 pre-form deals.

Number of VC Crypto Trades Source: Galaxy Research
Number of VC cryptocurrency deals Source: Galaxy Research

Even the funding valuation, on average, has seen a significant increase. The average new fund size in the first quarter of 2023 increased to $211 million. At the same time, the average fund size decreased for the first time since 2020 ($62.50 million).

Could the numbers go up if the cryptocurrency market rebounds in the second quarter of this year? Alex ThorneGalaxy Research principal investigator told BeInCrypto:

Historically, project activity has closely tracked crypto-asset prices. (Who) It will be interesting to see if cryptocurrency activity can rebound if prices remain resilient or constructive this year. However, there are a lot of macro and monetary headwinds.”

In the hope of recovery

While the recovery of the cryptocurrency market may attract more venture capitalists and investors, many factors can influence investment decisions beyond market performance.

Investors usually consider various factors before investing in any asset, including cryptocurrencies. These may include the underlying technology, development team strength, potential market size, regulatory environment, etc.

Moreover, a lot of investors and venture capitalists are actively investing in the cryptocurrency space even during the economic downturn. Many of them have a long-term outlook and see current market conditions as an opportunity to acquire assets at a discount.

So, while a market recovery may help attract more investors, market performance is just one factor that influences investment decisions.


Following the Trust Project’s guidelines, this featured article features opinions and perspectives from industry or individual experts. BeInCrypto is dedicated to transparent reporting, but the opinions expressed in this article do not necessarily reflect those of BeInCrypto or its employees. Readers should verify information independently and consult with a professional before making decisions based on this content.

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