2022 Crypto Industry Review and Predictions for 2023

While the story of the first ten months of 2022 survived the crypto winter, there was also some optimism that better times were coming.

There is a newly elected Congress and new leadership, which many had hoped would be thoughtful about the need for a new legislative and regulatory paradigm to account for the digital asset class. There was also hope that price stability would return as a result of more rate hikes, and investors ready to trade risk for alpha. Meanwhile in the Metaverse, an appetite for new Web3 applications was anticipated by inventors, entrepreneurs and cryptologists.

But then in the month of November, some of the smartest and most productive digital investors in the world were hit with a case of frostbite.

Year in review

CB insights has just released its Q3 2022 State of Blockchain report. Below are some recent highlights of dealmaking, funding and exits from private market blockchain and crypto companies.

The good news is that deals are still being made, with global funding and deals on track for a record year. And while the report shows the average global deal size is down 23% so far this year, the median deal size is at record levels in the US and Europe.

Some important findings:

35% decline in global blockchain funding.

Blockchain venture funding fell to $4.6 billion in the second quarter-over-quarter (QoQ) decline this year. Investors remained cautious due to a continued crypto winter, rising inflation and interest rate hikes. The sub-sectors with the biggest decline in funding were decentralized finance (DeFi) and institutional crypto and custody.

59% decline in blockchain mega-rounds.

There were just seven $100M+ blockchain mega-rounds, the fewest in a quarter since 2020. The number was down from 17 last quarter and 28 in Q1 2022.

1 in 4 new unicorns are blockchain companies.

There were only six new blockchain unicorns in Q3 2022, but they still accounted for a quarter of the 25 total unicorn births across all industries.

195 US Blockchain Agreements. Flat QoQ.

Nearly half of global blockchain deals went to US companies, the most of any region for the eighth consecutive quarter.

$2.9 billion in funding for Web3 startups.

While the mainstream media reveled in stories about the demise of Web3, it still accounted for over half of the total blockchain funding for the third quarter. The category includes Non-Fungible Tokens (NFT), Games and eSports, Metaverse, DeFi and Decentralized Identity. Looking ahead, expect to see more non-financial use cases for blockchain and Web3 to gain prominence.

74 agreements on infrastructure and development.

Blockchain infrastructure and development companies saw a record number of deals, increasing for the fourth consecutive quarter. Funding was down QoQ, but only by 12% – the smallest drop of any category tracked in this report.

67% deal growth for crypto exchanges and wallets.

Crypto exchanges and wallets saw 45 venture deals, a significant jump from the 27 in Q2 2022 and the largest quarter since Q3 2019. However, total funding ($0.5B) was the lowest since Q4 2020.

You can read the whole thing CB insights report and see their full analysis here.

What you can expect in the coming year

In the wake of the fall of one of the industry’s brightest stars (actually a constellation), ramifications for deals going forward are inevitable. While some mainstream media proclaim the end of cryptocurrencies, we continue to see a nearly $1 trillion asset class with applications far beyond your wallet.

As we look ahead to a new Congress in 2023, we can hope for some thoughtful legislation that will help enlighten regulators to come up with a strategy beyond enforcement. We can also expect auditors, investigators and the probate court to shed light on what went wrong.

Entrepreneurs and investors are hungry for clarity on how to design their business with clear guideposts to comply with the complex matrix of regulations created before digital assets were imagined. If legislation could enable regulation, and if regulation could ensure a safe and orderly market, we could bring this sector back onto land from its island hiding places. Unlocking safe and legal new technologies will enable new ways of living, working and playing together and a whole new economy.

We continue to monitor trends and activity among blockchain and digital asset companies and will provide you with additional updates and analysis from Q4 into next year.