Crypto-financing figures fall during the bumpy first half of the year

The crypto winter is not only falling on digital currency holders – but also on startups looking for financing.

Investments in VC-backed crypto companies declined during the first half of the year, from a record $ 12.5 billion invested in the first half of last year to around $ 9.3 billion invested in the first six months of this year, according to Crunchbase data.

The flow of agreements, on the other hand, increased as 534 agreements were announced in H1 this year, compared with only 456 in H1 last year.

However, some perspectives and a closer look show small positive results in the figures – especially considering the negative headlines around crypto in the first six months of the year.

First, it should come as no surprise that more money went to crypto in the last year compared to this, since ventures are down virtually everywhere. The venture capital market for 2022 has so far proved to differ greatly from last year, which was record-breaking in almost every way.

Second, the Q2 numbers held strong. In the second quarter, more than $ 4.2 billion came to venture-backed crypto startups, about $ 1 billion less than the previous quarter and far from the record high of $ 6.1 billion in the fourth quarter last year. However, it also remains fairly stable with the slightly less than 4.2 billion dollars that were collected in the same quarter last year.

One of the reasons why the numbers in the first quarter were higher was that it saw several large rounds. Six rounds of $ 400 million or more were announced in the quarter, while the second quarter was just such a round. This was Boston-based Internet finance firm Circle Internet Financial that completed a $ 400 million private equity round from BlackRock, Fidelity Management and Research, Marshall Wace and Fin Capital.

Other major rounds in the second quarter included:

• Germany-based Trade Republic, which allows people to buy and sell various assets, closed a Series C expansion worth about $ 250 million in June.
• The San Francisco-based crypto exchange Binance US completed a $ 200 million seed round in April.
• Liechtenstein-based digital asset exchange platform Unizen raised a $ 200 million venture in June.

Bad news

These rounds are particularly impressive considering how brutal this year has been for the crypto market. The values ​​of the two largest cryptocurrencies – Bitcoin and Ether – are down more than 70% from the peaks in November. And the industry saw one of its stack coins completely collapse. In addition, major lending platforms Babel Finance and Celsius Network have suspended withdrawals and transfers due to market uncertainty and liquidity problems – which led to Celsius filing for bankruptcy this week.

To top off the quarter, the notable cryptocurrency hedge fund Three Arrows Capital, also known as 3AC, collapsed after the decline in digital currencies made it unable to meet its obligations. The firm, which managed about $ 10 billion in assets as late as March, filed for Chapter 15 bankruptcy protection on July 1. Now it seems that the co-founders are on the run from creditors.

This news along with the changing economy has changed the investment environment in crypto.

“Yes, we have seen a decline in crypto / blockchain investments, reflecting the broader technology markets,” said Yash Patel, general partner at Telstra Ventures, whose investments include the Bahamas-based $ 32 billion FTX Exchange.

Much of the recent instability from centralized crypto-lending lending platforms and concerns about more systemic problems have created a sense of fear that has spread from consumers and price speculators to venture investors in the area, Patel said.

Consumer-oriented games such as NFTs and blockchain-based games have been particularly hit as financial speculators have been scared out of the market. As a result, the prices of these NFTs and tokens have fallen in value, Patel added.

“Ultimately, I see it as a good thing in the long run, since it clears out the noise and focuses more on the useful / real entertainment feature that these tokens (and) the NFTs unlock,” Patel said. “Like the Web2 world, games and digital art are meant to be fun, not burdensome financial instruments.”

We’ve been here before

Others who want to invest in the industry repeating cryptocurrency declines are nothing new. But people’s attitudes to such declines, and the industry in general, seem to be changing.

“We’ve seen this story before,” said Jordan Nof, a co-founder and CEO of Tusk Venture Partners, which invests in crypto. “If you think this is a fad, you’re probably leaving the market, but we do not hear it (people think so) anymore.”

Large VC companies clearly do not see it as a fad. In May, Andreessen Horowitz said they raised $ 4.5 billion for their fourth cryptocurrency fund – bringing the total raised funds for cryptocurrencies to $ 7.6 billion. And just this week, said Lightspeed Venture Partners, as part of their announcement to close more than $ 7 billion in new funding, they are creating the Lightspeed Faction – an independent team to invest in blockchain infrastructure.

Nof said that he believes the dramatic and much talked about fall of some stack coins is one of the main driving factors in the decline in crypto this year. But more regulation and infrastructure around digital currency should help curb fear and make consumers feel less under siege.

“Crypto will continue to play a role in the financial markets,” he added.

Although Nof is not surprised by the small decline in investments in the crypto sector, he still sees agreements at some high values. Despite the fall in the value of cryptocurrencies, he will not retire in the market.

“The price of Bitcoin does not affect our aperture for invitations,” he added.

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Illustration: Dom Guzman