Blockchain and crypto sectors experienced a decline in venture capital funding in 2022. According to a report from Blockdata, consecutive quarterly drops in funding were recorded throughout the year, following booming VC funding in the wider Web3 space in 2021. The report analyzed data from CB Insights and pointed out that Q4 2022 saw just $3.7 billion in funding from VCs, a 61% drop from the $9.6 billion in Q4 2021. The total funding from blockchain and crypto startups declined by 11% yearly, from $32 billion to $29 billion.
Blockdata cited several factors for the decline in crypto and blockchain-related VC funding last year. The collapse of the Terra ecosystem in May 2022 was highlighted as a trigger event, leading to the subsequent bankruptcy of cryptocurrency lending firms Three Arrows Capital and Celsius. The implosion of FTX in November 2022 further impacted volatility throughout the space, while global macro conditions in capital markets affected by rising interest rates and inflation also played a role in the decline of investments from venture capitalists.
However, despite the pullback in venture capital spending, investors are still looking to bankroll blockchain-based technologies, applications, and startups. Blockdata noted that venture capital investments are shifting toward “non-volatile innovations,” including cross-chain bridges, payments and remittances, lending, decentralized autonomous organizations, asset management, and digital identity management.
The report also highlighted the volume of deals in 2022 increasing by 35% compared with 2021 as a positive takeaway. Nine “blockchain mega-rounds” occurred in Q4, where firms netted over $100 million in funding. Uniswap and Celestia were the only firms to reach unicorn status in Q4 last year, valued at $1.7 billion and $1 billion, respectively.
Amber Group netted the highest funding, raising $300 million in a Series C round in December 2022 to tackle drawdowns of specific products affected by the FTX debacle. Coinbase Ventures was identified as one of the most active corporate VC investors through 2022, participating in 13 different funding rounds of blockchain and crypto startups.
Blockdata’s report shows that while there was a significant decline in VC funding in 2022, blockchain and crypto startups are still gaining traction, and investors are still interested in supporting the growth of the industry. The report’s findings suggest that blockchain-based innovations that are less volatile are likely to attract more investment in the coming years.
The decline in VC funding in the blockchain and crypto space has been highlighted by various industry analysts. Todayq News previously reported a drop in venture capital investments into blockchain and crypto firms in 2022. Web3 and infrastructure service providers received the highest share of VC funding, according to Cointelegraph’s in-house research.
The decline in VC funding is not necessarily an indication that the industry is in trouble. As the blockchain and crypto space continues to mature, investors are likely to become more selective, looking for companies with solid business models and sustainable growth prospects. With the increasing interest in non-volatile innovations, it is expected that more startups will emerge, looking to capitalize on the growing demand for blockchain-based solutions.
