2023 Web3 & Crypto Funding Report: Unveiling Trends, Insights, and Projections
In the third quarter of 2023, the crypto and blockchain industries experienced a significant decline in investments, reaching only $1.975 billion. This figure not only marked the lowest point since the last quarter of 2020 but also set a new record low for the industry. This decline began after reaching a peak of $12 billion in the first quarter of 2022.
Given these changes in funding, there is a pressing need for a comprehensive examination of the current state of funding in the realms of Web 3, blockchain, and crypto. This analysis aims to provide a clear understanding of the complex nuances of Web 3’s funding landscape and shed light on the current financial situation.
1. Web3 Startups and VC Funding: A Comprehensive Review
The chart below provides a detailed overview of the funding landscape for VC-backed Web3 startups.
Quarter Total $ Invested Number Deals
Quarter 2, 2021 $5.8B 549
Quarter 3, 2021 $6.9B 524
Quarter 4, 2021 $9.8B 717
Quarter 1, 2022 $8.3B 797
Quarter 2, 2022 $7.5B 659
Quarter 3, 2022 $3.4B 507
Quarter 4, 2022 $2.5B 424
Quarter 1, 2023 $1.8B 418
Quarter 2, 2023 $1.8B 322
The market started off strong in 2021 but showed signs of stabilization and potential consolidation by the latter half of 2022 and the beginning of 2023. Interestingly, while the funding amounts fluctuated, the number of deals remained steady, indicating a resilient and diverse market landscape.
1.1. Quarterly Insights into Web 3 Funding Dynamics
The Web3 sector experienced significant growth in Q2 2021, with $5.8B invested across 549 deals. This positive trend continued into Q3 2021, reaching $6.9B across 524 deals. Q4 2021 witnessed a substantial spike, reaching $9.8B with 717 deals, showcasing remarkable expansion.
However, 2022 began with a slight dip in funding in Q1 to $8.3B, but this was accompanied by an increase in the number of deals, suggesting market expansion. Q2 2022 saw another decrease in funding to $7.5B but maintained a consistent number of deals, indicating market consolidation.
The latter half of 2022 marked a concerning decline, with Q3 and Q4 investments dropping to $3.4B and $2.5B, respectively. This downward trend continued into 2023, highlighting a challenging phase for the industry.
1.2. Half-Year Analysis: Comparing Web 3’s Financial Landscapes
The latter half of 2021 showcased impressive growth, with a total of $16.7B invested across 1,241 deals. This bullish sentiment continued into the first half of 2022, with $15.8B in investments. However, the latter half of 2022 saw a significant drop to $5.9B, indicating a potential market correction. This trend intensified in the first half of 2023, further signaling a significant contraction in the market.
2. Crypto Hedge Fund Dynamics in 2023: A Comprehensive Review
According to the 5th Annual Global Crypto Hedge Fund report, there has been a decline in hedge funds investing in crypto assets, dropping from 37% in 2022 to 29% in 2023. This shift suggests a reassessment of the risks and potential of crypto assets in investment portfolios.
2.1. Diving Deeper: Hedge Fund Crypto Investments
The chart below clearly shows the allocation of hedge funds to crypto assets based on the percentage of their total Assets Under Management (AUM).
AUM Percentage Range Percentage of Hedge Funds
Less than 1% 24%
1% – 2% 23%
2% – 5% 15%
5% – 10% 15%
10% – 20% 15%
20% – 50% 8%
The data highlights the diverse landscape within hedge fund crypto investments, reflecting a blend of caution, experimentation, and increasing confidence.
Notably, a significant portion of hedge funds (24%) takes a conservative approach, investing less than 1% of their AUM in crypto. This cautious stance aligns with the volatility and risk associated with the cryptocurrency market.
Interestingly, around half of the hedge funds involved in crypto assets adopt a “toe-hold” strategy, committing less than 2% of their total AUM. Strikingly, 63% of these funds have AUM exceeding $1 billion, indicating that even prominent players are cautiously exploring the crypto space.
On the other hand, 38% of hedge funds actively engaged in crypto assets display a high-risk appetite, allocating over 5% of their AUM. This marks a significant increase from the previous year’s 20%, signaling growing confidence or a willingness to embrace larger positions in the crypto market.
2.2. Why Hedge Funds Invest in Crypto: Top Reasons
The majority (39%) of hedge funds prioritize general diversification, using cryptocurrencies to spread risk across their portfolios. Another significant factor is the pursuit of long-term outperformance, with 38% seeking sustained growth from crypto investments. Additionally, 23% are drawn to market-neutral alpha opportunities, indicating an interest in exploiting potential returns regardless of overall market trends. These motivations collectively highlight the multifaceted role of crypto assets in enhancing hedge fund portfolio strategies.
2.2.1. AUM-Based Motivational Insights
Based on their Asset Under Management (AUM), hedge funds exhibit distinct preferences for investing in crypto assets.
AUM Range General Diversification Market Neutral Alpha Opportunities Long-Term Outperformance
Greater than $1bn 50% 13% 38%
Less than $1bn 20% 40% 40%
Hedge funds with over $1 billion favor general diversification (50%) and long-term outperformance (38%). In contrast, funds with less than $1 billion emphasize market-neutral alpha opportunities (40%) alongside long-term outperformance (40%).
2.3. Understanding Hedge Fund Preferences in Crypto Assets
The chart below reveals intriguing shifts in hedge fund investments across various crypto assets from 2021 to 2023. Notably, there is a substantial increase in the allocation towards Ethereum (ETH) and Bitcoin (BTC), rising from 67% in 2021 to 91% in 2023. This underscores a growing preference for established cryptocurrencies, potentially driven by their market dominance and recognition as store-of-value assets.
Conversely, NFT allocations witnessed a dramatic drop, while there was a noticeable spike in investments in other CEX-listed tokens, jumping from 29% in 2022 to a significant 55% in 2023. This hints at a rapid recalibration of hedge fund strategies.
3. Blockchain Fundraising Trends for 2023: An In-depth Analysis
This detailed overview explores the Blockchain Fundraising Trend in 2023, unraveling its intricacies.
The chart below provides insights into the amount of crypto funds raised and the number of fundraising rounds across different months in 2023.
Months Crypto Fund Raised in USD Value Number of Fundraising Rounds
Jan, 2023 $893.57M 120
Feb, 2023 $908.37M 128
March, 2023 $1.31B 104
April, 2023 $953.05M 119
May, 2023 $655.84M 90
June, 2023 $414.61M 67
July, 2023 $723.62M 69
August, 2023 $370.33M 75
September, 2023 $562.89M 99
October, 2023 $444.66M 113
November, 2023 $1.67B 111
December, 2023 $708.31M 79
In 2023, the Blockchain Fundraising Trend demonstrated a dynamic trajectory, with fluctuations in both the funds raised and the number of fundraising rounds throughout the year.
Key Insights:
– January to March: The year started strong, reaching its peak in March with $1.31 billion raised across 104 rounds.
– Mid-Year Dip: June witnessed the lowest fundraising amount at $414.61 million, indicating a mid-year slowdown.
– Year-end Surge: November was the highlight, with a whopping $1.67 billion raised across 111 rounds.
Despite a decrease in the total fundraising value compared to 2022, the consistent number of rounds suggests that the market is diversifying, with a shift towards more frequent, albeit smaller, fundraising events.
In total, 2023 saw $9.615 billion in crypto fundraising, involving 1,174 fundraising rounds. Comparatively, 2022 had a higher total of $41.86 billion across 2,072 rounds. While 2023 displayed a decrease in the total fundraising value, the number of rounds remained relatively consistent. This suggests a shift towards a higher number of smaller-scale fundraisers compared to the previous year’s emphasis on fewer but larger funding events.
3.1. 2023 Blockchain Fundraising Insights by Category
The breakdown of fundraising rounds by category sheds light on the specific sectors driving blockchain fundraising in 2023. The data provides insights into the number of fundraising rounds for each category in different months of 2023.
The data reveals intriguing insights into specific categories and their underlying trends:
– Blockchain Infrastructure and Services consistently attracted significant attention throughout the year, indicating a growing interest and investment in foundational technologies and associated services.
– Decentralized Finance (DeFi) emerged as a prominent sector, maintaining a consistent presence and reflecting the industry’s commitment to decentralized financial solutions.
– GameFi, a fusion of gaming and finance, demonstrated a fluctuating pattern, indicating a dynamic market response to this innovative intersection.
– Non-Fungible Tokens (NFTs) gained attention throughout the year, signifying the enduring appeal and relevance of unique digital assets.
– The social category exhibited resilience, indicating sustained interest in platforms integrating blockchain with social interactions.
– Surprisingly, stablecoins and traditional currencies showed no significant activity throughout the year, suggesting a shift away from traditional fiat-backed digital assets.
Comparative Analysis: 2023 vs. 2022
The comparison between trends in 2023 and 2022 provides valuable insights into the evolving landscape of the market.
The data reveals shifts in investor preferences and highlights emerging trends:
– Blockchain infrastructure saw a notable increase in 2023, indicating growing interest and investment in the foundational elements of blockchain technology.
– Blockchain Services witnessed a decrease, indicating a potential shift in emphasis from services to infrastructure development.
– Decentralized Finance (DeFi) remains a significant player, suggesting consolidation or maturation within the sector.
– GameFi experienced a drop, indicating a potential reevaluation of interest in gaming-related crypto projects.
– Centralized Finance (CeFi) and Chain categories decreased, implying falling interest in centralized financial services.
– NFT faced a sharp fall, while investments in other CEX-listed tokens spiked, hinting at a recalibration of strategies.
– The social category decreased, possibly indicating a shift away from social-oriented crypto projects.
– The Stablecoin category saw a slight increase, emphasizing their continued importance.
– Overall, investors appear to be diversifying their interests, emphasizing blockchain infrastructure, and adjusting their focus within specific categories like DeFi and GameFi.
3.2. Blockchain Fundraising Rounds By Stage
The landscape of fundraising rounds by stage reveals a dynamic capital distribution across different phases:
– Seed funding emerges as the primary driver, capturing a substantial share, signifying early-stage support for budding ventures.
– Strategic funding follows, indicating a focus on aligning investments with strategic business goals.
– Pre-Seed and Series A rounds contribute significantly, showcasing a commitment to nurturing projects in their early stages.
– Grant funding underscores the importance of non-dilutive financial support for innovative initiatives.
– Mergers and Acquisitions (M&A) reflect consolidation activities in the market.
– The data highlights a funding ecosystem that values early-stage innovation, strategic partnerships, and a flexible approach to financing.
3.3. Top 10 Blockchain Fundraising Locations
The primary hubs for crypto fundraising in 2023 include the United States, United Kingdom, Germany, Canada, Singapore, France, Switzerland, Italy, South Korea, and Hong Kong.
The data reveals intriguing geographical trends across different jurisdictions, highlighting the global nature of blockchain innovation and the unique strengths and preferences of different regions.
In Summary
The year 2023 has been a challenging year for the Web3 and crypto industries, with a significant decline in funding. However, the data also reveals underlying resilience and an evolving landscape. Blockchain infrastructure and services remain top priorities, while DeFi and GameFi continue to attract significant attention. The rise of early-stage funding and strategic partnerships highlights a focus on nurturing innovation and securing long-term success.
As we look ahead, it will be fascinating to see how these trends shape the future of Web3 and crypto. Established players may regain their dominance, or new pioneers may emerge to redefine the landscape.