The year 2022 will go down in history as a challenging one for cryptocurrencies, as the gloomy market circumstances were reflected by a decrease in the amount of venture capital (VC) financing pouring into the blockchain and cryptocurrency industries.
A analysis by Blockdata reveals that there would be consistent decreases in financing on a quarterly basis through the year 2022. This comes after a period of growing venture capital investing into the larger Web3 field through 2021.
Blockdata closed out the final quarter of 2022’s analysis of the value of venture capital financing by noting a 34% decrease from the previous quarter’s total. The data was obtained from CB Insights. When compared to the first and second quarters of the year, the third quarter’s results were much worse, falling by 67% and 53%, respectively.
After reaching a record high of $11 billion in investments and 692 agreements in the first four months of 2022, the ensuing decline in venture capital investment occurred quarterly after that point.
Blockdata identifies a number of reasons for the decrease in venture capital financing for cryptocurrency and blockchain-related projects in 2017. The collapse of the Terra ecosystem, which cost $60 billion and occurred in May 2022, is noted as a trigger event that led to the eventual insolvency of bitcoin lending businesses Three Arrows Capital and Celsius.
The implosion of FTX in November 2022 contributed further to the volatility that permeated throughout the space, while the global macro conditions in capital markets, which were affected by rising interest rates and inflation, also played a role in the decline of investments made by venture capitalists.
As a direct consequence of this, venture capitalists only contributed $3.7 billion to financing during the fourth quarter of 2022. This is a 61% decrease compared to the $9.6 billion that was contributed during the same period in 2021. The overall capital received by blockchain and cryptocurrency firms fell by 11% annually, from $32 billion to $29 billion, bringing the total to $29 billion.
A good conclusion that Blockdata notes is the fact that the number of trades in 2022 is expected to increase by 35% compared to 2021. According to the company, there has been a slowdown in venture capital expenditure, but investors are still eager to fund blockchain-based technology, apps, and businesses. This is despite the fact that venture capital spending has been on the down.
According to the findings of the research, investments in venture capital are gradually moving toward “non-volatile ideas.” These innovations include cross-chain bridges, payments and remittances, loans, decentralized autonomous organizations, asset management, and digital identity management.
The fourth quarter saw a number of significant venture capital investments. Amber Group was successful in obtaining the most money, bringing in $300 million during a Series C round in December 2022. This was done in order to combat drawdowns of certain goods that were impacted by the FTX scandal.
During the fourth quarter, there were a total of nine “blockchain mega-rounds,” each of which resulted in the receiving of more than $100 million in investment. Only Uniswap and Celestia, with respective market values of $1.7 billion and $1 billion, were able to achieve the coveted “unicorn” designation during the fourth quarter of the previous year.
Due to their participation in thirteen separate fundraising rounds for blockchain and cryptocurrency businesses, Coinbase Ventures has been recognized as one of the most active corporate venture capital investors until 2022.