Q3 Hits New Low in Crypto Venture Capital Investments. Here’s why
VC: Galaxy Digital Research has noted in its latest report that VCs invested more than $5.5 billion in crypto companies in Q3 2022. But that was a new low for the year.
PitchBook noted a steep drop of over 37% in Q3 crypto funding compared to the same period in 2021. However, despite the low quarterly numbers across 518 deals, the number exceeds the 2020 peak and 7-year average of $3.1 billion by over 2 billion dollars.
Lower crypto market cap accompanied by lower VC funding
Galaxy noted that the decline is seen due to the volatile market conditions in May and June, with funds likely delaying their autumn fundraising until Q4 to give markets time to adjust.
In Q3, crypto prices also remained subdued after the total market capitalization hit a low in July, according to CoinGecko’s quarterly report. It noted, “In Q3 it rose to ~$1.2T in August, before falling again to end the quarter +6.5% or about ~$100B higher than at the end of Q2.”
“Deal activity tracks crypto market cap very closely,” Robert Le, fintech analyst at PitchBook, told TechCrunch. “There’s a bit of a lag, but if you overlay the crypto market capitalization to the amount of venture capital entering the space by quarter or month, it tracks closely.”
For example, Blockchain.com’s valuation has also hit a weak market environment. Despite the exchange being valued at $14 billion earlier this year, a source-based news article this week highlighted that the current round could result in a valuation of around $3 billion to $4 billion.
High number of agreements in certain sectors
Galaxy also stated, “Despite the slowdown in broader VC investments, early-stage investments remain competitive and robust. On the other hand, late-stage investments showed significant weakness, potentially due to the persistently inflated valuations.”
Interestingly, the research found that in the third quarter of 2022, $1.5 billion was invested in companies created in 2018 and 2021, respectively. Companies launched in 2021 outperformed their contemporaries in terms of fundraising and number of deals, raising $1.5 billion through 190 agreements. This is in contrast to Q2 2022, when only businesses established in 2018 were market leaders, according to the report.
Although “Web3, NFT, DAO, Metaverse, and Gaming” significantly outperformed all other subsectors in terms of number of deals, the report found that the “Trading, Exchange, Investing, and Lending” category led in terms of total invested capital.
Meanwhile, the latest CoinShares Weekly Fund Flow report noted crypto outflows of around $5 million last week with continued “investor apathy.”
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