Crypto and blockchain startup funding slows to $6.5 billion in Q2

Venture capital funding for blockchain and cryptocurrency startups fell 29 percent to $6.5 billion in the second quarter of this year due to greater market volatility and the “crypto winter” that sent prices crashing, a report by market intelligence platform CB Insights has shown.

Although funding fell for the first time in two years, the quarter’s total deal value was the fourth largest for blockchain and cryptocurrency startups, CB Insights said Thursday. In comparison, startups attracted $9.2 billion in the first quarter and are projected to receive $31.5 billion in total funding this year.

While venture capitalists led the share of investor deals in the second quarter, funding moved away from centralized cryptocurrency exchanges and wallets towards non-fungible tokens (NFT), gaming, decentralized finance (DeFi) and decentralized app (DApp) infrastructure and development. the report showed.

“Investors reduced crypto investments due to macroeconomic pressures and concerns about crypto values ​​and stablecoins,” CB Insights said.

The “crypto winter” – which saw Bitcoin crash below the key psychological level of $20,000 in June – wiped $2 trillion off the sector’s total market capitalization, sending it below $1tn.

Since then, Bitcoin, the world’s first and largest cryptocurrency, pared some of its losses and traded at $23,187.16 as of 10.06 UAE time Thursday.

Despite the decline in July, cryptocurrency-related companies have been among the worst-performing stocks this year as investors fled risky assets on fears that the Federal Reserve’s aggressive policy-tightening regime could tip the economy into recession.

The collapse of the TerraUSD stablecoin and subsequent folding of companies including Celsius Network and Three Arrows Capital compounded these losses in recent months.

The US led the decline in global blockchain funding in the second quarter, falling 42 percent quarter-on-quarter. However, the US led funding with 178 deals totaling $3.4 billion, CB Insights said.

Silicon Valley was the top US location for blockchain funding in the second quarter at $937 million, surpassing New York with $678 million and Los Angeles with $492 million.

Europe was the only region to record growth in blockchain venture funding and deals in the quarter, CB Insights found. It was tied for Asia at $1.4 billion, but was behind $3.4 billion that went to US companies.

Singapore ranked top in Asia for blockchain funding in the second quarter at $363m, while India ranked second after attracting $180.8m, CB Insights said.

Early deals continued to dominate from April to June, accounting for 81 percent of all blockchain funding. The average deal size in 2022 was $19 million.

“Web3 accounted for over half of blockchain funding for the second consecutive quarter, reaching $3.7 billion,” CB Insights said.

“Global funding for Web3 start-ups in 2022 already matches 2021’s total of $10 billion.”

Despite a quarterly decline in deals in the NFT, gaming and metaverse category, it still attracted more than 150 deals worth $1.9 million for the third consecutive quarter, the report said.

“However, the category’s future may face a tougher road ahead. NFT sales volumes are down, and Web3 metaverses are facing stiff competition from major tech companies,” CB Insights said.

Meanwhile, the infrastructure and development category recorded 52 percent growth in the number of deals. The category was one of the only blockchain spaces with deal growth in the second quarter, reaching a new quarterly high of 47 deals, CB Insights said.

The blockchain industry also recorded 49 mergers and acquisition exits in the second quarter, while the number of initial public offerings and agreements to acquire specialist companies in the area decreased.

As several prominent cryptocurrency lenders filed for bankruptcy, cryptocurrency exchanges such as Binance and FTX sought to acquire others hurt by the “crypto winter” at a discount, CB Insights said.

Animoca Brands was the most active blockchain investor for the third consecutive quarter, despite a drop in deals from April to June, the report added.

Blockchain funding from $100 million plus mega rounds fell to $2.6 billion in the second quarter. The number of mega rounds also declined quarter-over-quarter, suggesting investors were more cautious due to recent price volatility, the study said.

There was also a 50 percent drop in the “birth” of new blockchain unicorns, the research found.