In-Depth Report on Web3 Investments: Crypto & Blockchain Funding in 2023

In the third quarter of 2023, the crypto and blockchain sector experienced a significant decline in investment, reaching a new low since the fourth quarter of 2020. Only $1.975 billion was invested during this period, marking a sharp decline from the peak of $12 billion in the first quarter of 2022. This downward trend has raised concerns and highlighted the need for a comprehensive analysis of the current state of funding in Web 3, blockchain, and crypto.

To gain a thorough understanding of the prevailing situation, this report delves deeply into the intricacies of the Web 3 funding landscape.

1. Funding Trends for VC-Backed Web3 Startups: An Overview

The chart below provides a nuanced view of the funding landscape for VC-backed Web3 startups:

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The market demonstrated maturity in the initial quarters of 2021, stabilizing later in the second half of 2022 and the first half of 2023. This reflected potential market consolidation with reduced funding and deals, signaling the need for a cautious approach. Despite fluctuations in funding amounts, the number of deals remained resilient, indicating a diverse and dynamic market.

1.1. Web 3 Funding Trends: Quarterly Overview

The Web3 sector experienced robust growth in the second quarter of 2021, with $5.8 billion invested across 549 deals. This positive trajectory continued into the third quarter of 2021, reaching $6.9 billion across 524 deals. The fourth quarter of 2021 witnessed a significant spike, hitting $9.8 billion with 717 deals, showcasing remarkable expansion.

However, the first quarter of 2022 experienced a slight dip in funding to $8.3 billion, accompanied by an increase in deals, signaling market diversification. The second quarter of 2022 saw another dip to $7.5 billion but maintained a steady deal flow at 659, suggesting a period of consolidation.

The following quarters, the third and fourth quarters of 2022, witnessed substantial drops to $3.4 billion and $2.5 billion, respectively, raising concerns about market contraction. The first and second quarters of 2023 continued this downward trend, with funding at less than $1.8 billion in both quarters, emphasizing a challenging start to the year, alongside a decrease in deals to 418 and 322, respectively.

1.2. Web 3 Funding: Half-Year Comparisons

The second half of 2021 showcased impressive growth, reaching $16.7 billion and 1,241 deals, reflecting heightened investor confidence. The first half of 2022 sustained this momentum at $15.8 billion despite a slight dip, indicating a maturing market. However, the second half of 2022 witnessed a sharp decline to $5.9 billion and 931 deals, suggesting a potential correction in the market. The challenging trend continued into the first half of 2023, with only $3.6 billion invested and 740 deals, signaling a significant downturn.

2. Crypto Hedge Fund Landscape 2023: An Analysis

According to the 5th Annual Global Crypto Hedge Fund report, 29% of hedge funds are investing in cryptocurrencies, a decrease from 37% in 2022. The industry seems to be re-evaluating the role of crypto-assets in portfolios, influenced by events like company or project collapses.

2.1. Analysis of Hedge Fund Investments in Crypto Assets: AUM Distribution

The chart below clearly shows the allocation of hedge fund investments in crypto-assets based on the percentage of their total Assets Under Management (AUM):

[Chart]

The data underscores a diverse landscape within hedge fund crypto investments, reflecting a blend of caution, experimentation, and increasing confidence.

Notably, a significant portion of hedge funds (24%) maintains a conservative approach, investing less than 1% of their AUM in crypto. This cautious stance aligns with the overall volatility and risk of the cryptocurrency market.

Interestingly, around half of the hedge funds involved in crypto-assets exhibit a ‘toe-hold’ strategy, committing less than 2% of their total AUM. Strikingly, 63% of these funds boast AUM exceeding $1 billion, indicating that even prominent players are cautiously testing the waters in the crypto space.

Conversely, 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 willingness to embrace larger positions in the crypto market.

2.2. Why Hedge Funds Invest in Crypto: Top Reasons

Hedge funds invest in crypto-assets for various reasons. The top three are:

– General Diversification: 39%
– Long-Term Outperformance: 38%
– Market Neutral Alpha Opportunities: 23%

The majority (39%) 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, suggesting an interest in exploiting potential returns regardless of overall market trends. These motivations collectively highlight crypto-assets’ multifaceted role in enhancing hedge fund portfolio strategies.

2.2.1. Hedge Fund Crypto Motivations by AUM

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%

Those 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. Exploring Hedge Fund Footprints in Crypto Assets

The data reveals intriguing shifts in hedge fund investments across various crypto assets from 2021 to 2023. Notably, there is a substantial uptick in the allocation towards Ethereum (ETH) and Bitcoin (BTC), escalating 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.

Interestingly, the allocation to NFTs experiences a significant decline. In contrast, there is a remarkable surge in investments in other CEX-listed tokens, skyrocketing from 29% in 2022 to 55% in 2023. This shift suggests a dynamic adjustment in hedge fund strategies.

3. Blockchain Fundraising Trend 2023: A Detailed Overview

This detailed overview explores the Blockchain Fundraising Trend in 2023, unraveling its intricacies.

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In 2023, the Blockchain Fundraising Trend has demonstrated a dynamic trajectory, showcasing fluctuations in both ‘Funds raised’ and the ‘Number of Fundraising Rounds’ throughout the year.

The year kicked off in January with a robust start, witnessing $893.57 million raised across 120 fundraising rounds. Subsequently, February slightly increased to $908.37 million and 128 rounds. March marked a significant surge, reaching $1.31 billion in funding across 104 rounds. However, April experienced a dip with $953.05 million and 119 rounds. May continued this trend, reflecting the $655.84 million raised in 90 rounds. June and July continued the trend with $414.61 million/67 rounds and $723.62 million/69 rounds, respectively.

August saw a severe dip with $370.33 million across 75 rounds. September recorded $562.89 million in funding through 99 rounds. October and November showcased $444.66 million/113 rounds and a substantial $1.67 billion/111 rounds, respectively.

This month, nearly $708.31 million has been raised across 79 rounds.

In total, 2023 has amassed $9.615 billion in crypto fundraising, involving 1,174 fundraising rounds. Comparatively, 2022 demonstrated a higher total of $41.86 billion across 2,072 rounds. While 2023 displayed a decrease in total fundraising value, the number of rounds remained relatively consistent. This suggests a shift towards a higher number of smaller-scale fundraisers than the previous year’s emphasis on fewer but larger funding events.

3.1. Blockchain Fundraising Trends By Category

In 2023, the blockchain fundraising landscape has witnessed nuanced dynamics.

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The data reveals intriguing insights into specific categories and their underlying trend.

Blockchain Infrastructure and Services consistently attracted significant attention throughout the year. January marked a strong start with 6 and 39 fundraising rounds, respectively, and February saw a notable uptick to 8 and 48. This trend suggested a growing interest in foundational technologies and associated services, emphasizing the industry’s focus on enhancing blockchain capabilities.

Decentralized Finance (DeFi) emerged as a prominent sector, maintaining a consistent presence with 22 fundraising rounds in January and sustaining a competitive edge with 40 rounds in October. The DeFi space experienced substantial growth, reflecting the industry’s commitment to decentralized financial solutions.

GameFi, a fusion of gaming and finance, demonstrated a fluctuating pattern. While GameFi projects peaked at 22 in February, they experienced periodic fluctuations at 8 in July and 10 in October. This suggests a dynamic market response to this innovative intersection of gaming and finance.

Non-Fungible Tokens (NFTs) gained attention throughout the year, with notable peaks in January and March, recording 10 and 8 fundraising rounds, respectively. This signifies the enduring appeal and relevance of unique digital assets across diverse applications.

The social category exhibited resilience, particularly in April, August, and November, recording 14 fundraising rounds each. This indicates sustained interest in platforms integrating blockchain with social interactions.

Surprisingly, stablecoins and traditional currencies showed no significant activity throughout the year. This could imply a focus shift away from traditional fiat-backed digital assets, possibly due to regulatory concerns or an increased appetite for more innovative crypto solutions.

The comparison between trends in 2023 and 2022 provides valuable insights into the market’s evolving landscape.

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The chart reveals shifts in investor preferences and highlights emerging trends that sharpen dynamics within the crypto space.

In 2023, Blockchain infrastructure saw a notable increase, jumping from 62 to 72, signifying growing interest and investment in the foundational elements of blockchain technology. This suggests a continued focus on building a robust infrastructure to support various blockchain projects. On the other hand, Blockchain Services witnessed a decrease from 621 to 381, indicating a potential shift in emphasis from services to infrastructure development.

Decentralized Finance (DeFi) remains a significant player, with a slight decrease from 326 to 242, suggesting a consolidation or maturation within the DeFi sector. However, GameFi experienced a drop from 351 to 130, indicating a potential reevaluation of interest in gaming-related crypto projects.

Centralized Finance (CeFi) and Chain categories decreased in 2023, with CeFi falling from 244 to 97 and Chain from 71 to 65. This could imply a falling interest in centralized financial services. Notably, Meme showed no significant momentum. NFT faced a sharp fall from 224 to 62.

The social category decreased from 148 to 119, possibly indicating a shift away from social-oriented crypto projects or a more selective investment approach in this category. The Stablecoin category saw a slight increase from 5 to 9, emphasizing the continued importance – though not impressive.

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

In 2023, the landscape of fundraising rounds by stage reveals a dynamic capital distribution across different phases.

[Chart]

Seed funding emerges as the primary driver, capturing a substantial 30.62% share, signifying early-stage support for budding ventures. Strategic funding follows at 9.53%, indicating a focus on aligning investments with strategic business goals. Pre-Seed and Series A rounds contribute significantly at 8.68% and 6.43%, respectively, showcasing a commitment to nurturing projects in their infancy.

Grant funding, representing 3.49%, underscores the importance of non-dilutive financial support for innovative initiatives. Mergers and Acquisitions (M&A) make up 1.94%, reflecting consolidation activities in the market. The category ‘Others’ holds the highest share at 39.3%.

The analysis depicts a funding ecosystem that values early-stage innovation, strategic partnerships, and a flexible approach to financing, with a significant portion devoted to diverse and evolving funding models.

3.3. Top 10 Blockchain Fundraising Locations

In 2023, the primary hubs for crypto fundraising include the United States, United Kingdom, Germany, Canada, Singapore, France, Switzerland, Italy, South Korea, and Hong Kong.

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4. Geographical Trends in Blockchain Project Financing

A comprehensive analysis of blockchain project financing data reveals intriguing geographical trends across different jurisdictions.

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The chart analysis underscores the global nature of blockchain innovation, with different regions showcasing unique strengths and preferences in project financing.

The United States emerges as a robust leader in the blockchain space, with a diverse range of projects spanning Blockchain Services, GameFi, Social, Blockchain Infrastructure, CeFi, Chain, NFT, and Stablecoin. Notably, the highest concentration of projects falls within Blockchain Services and DeFi, strongly emphasizing foundational blockchain offerings and decentralized financial solutions.

Singapore follows closely, demonstrating a balanced portfolio of projects across categories. Blockchain Services and DeFi also dominate the Singaporean landscape, echoing global trends. The data indicates a notable interest in blockchain technology for financial and decentralized applications.

Although Hong Kong follows the global trend of increasing interest in Blockchain Services and DeFi, it exhibits a significant presence in GameFi, Blockchain Infrastructure, Chain, and NFT categories. This suggests a particular interest in gaming, blockchain infrastructure, and non-fungible tokens within the region. The diversity in project focus underlines Hong Kong’s commitment to embracing varied facets of blockchain technology.

The United Kingdom showcases strength in Blockchain Services, CeFi, and DeFi, emphasizing a keen interest in traditional blockchain services and the burgeoning decentralized financial sector.

Meanwhile, China, a key player in the global tech landscape, maintains a solid presence across multiple categories, with Blockchain Services, DeFi, GameFi, and Blockchain Infrastructure taking precedence.

Japan exhibits a balanced approach, with Blockchain Services, GameFi, DeFi, CeFi, and Chain projects being prominent. Switzerland and Canada, known for their financially solid sectors, are concentrated in Blockchain Services, Blockchain Infrastructure, and DeFi, indicating a strategic alignment with financial innovation.

South Korea focuses on Blockchain Services, GameFi, and Chain, showcasing a preference for projects with practical applications.

Lastly, the Netherlands displays a balanced portfolio, with Blockchain Services, GameFi, Blockchain Infrastructure, NFT, and DeFi projects distributed evenly.

The dominance of specific categories in each jurisdiction provides insights into the strategic priorities and interests shaping the blockchain landscape.

In conclusion, Coinpedia’s in-depth analysis of funding in Web3, Blockchain & Crypto for 2023 reveals a complex and evolving landscape. The report highlights the market’s maturation, shifts in investor preferences, and geographical trends. It provides valuable insights for stakeholders in the Web 3, blockchain, and crypto space, enabling them to navigate and make informed decisions in this dynamic industry.