VC Funding for Crypto Startups Down 37% in Q3

Venture capitalists invested $4.44 billion in crypto startups in Q3 2022, marking a 37% drop compared to the same quarter last year, according to research firm PitchBook. The drawdown comes amid a broader crypto market downturn as investors keep away from high-risk assets due to difficult macroeconomic conditions.

VC Funding in Crypto Plunged 50% From 2022 Highs

Venture capital (VC) funding in crypto startups plunged by 37% year-over-year to $4.44 billion in Q3 2022, according to the new research report by PitchBook. The decline extends to almost 50% when compared to Q1 2022 when VC investors injected a record $8.83 billion into crypto and blockchain startup companies.

The 37% decline in VC funding, the biggest in more than a year, comes after a massive sell-off in the broader crypto market. Investors have been reducing their positions in technology and digital assets due to their high risk and volatility during a very challenging year for capital markets.

Bitcoin (BTC) continues to trade below the $20,000 threshold, while Ethereum (ETH) remains down almost 25% in the past month since it transitioned from the Proof-of-Work (PoW) to the Proof-of-Stake (PoS) model. The pair lost more than 50% in value in the past 6 months.

“We’re in the depths of crypto winter, so investors are not really excited about crypto, especially generalist investors.”

-Robert Le, an analyst at PitchBook

The crash in the capital markets was prompted by recession concerns and rampant inflation, which hovers around the highest level in 4 decades. The next consumer price index (CPI) print is due on Oct. 13, which is set to reveal inflation levels in September 2022. Inflation in August eased to 8.3%, though still very high, resulting in a third consecutive interest rate hike of 75 basis points by the Fed last month.

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There is “still a lot of support” for Blockchain Despite the Funding Slump

Despite a sharp overall drop, the PitchBook report showed that dedicated crypto funds continue to invest in blockchain and crypto companies. Lisa Fridman, co-founder, and president of non-fungible token (NFT) startup Quadrata, said “there is still a lot of support for the potential of blockchain.” Quadrata secured $7.5 million in funding this summer.

Investors are increasingly interested in the growing web3 space, which is viewed as the next iteration of the internet. Last month, an Epic Games-backed web3 startup Hadean bagged $30 million in a Series A funding round led by Molten Ventures.

Le says investors are excited about advertising opportunities in the web3 and metaverse markets, with many of them thinking that this is “going to be the next area where eyeballs are.”

Do you think VC funding in crypto startups could hit new highs after the current bear market? Let us know in the comments below.