Research Report Reveals Financial Decline in Cryptocurrency Funding in 2023

In the ever-extended market of the cryptocurrency industry, the landscape of crypto funding is experiencing a downfall after more than 500 days. Once thriving with venture capital and individual investors, it is now facing a financial crunch and witnessing newer lows in 2023.

The web3 space, in particular, is feeling the impact of this decline as the numbers continue to decrease. Recent data shows a long-term trend that aligns with the bear market of the past year and a half.

As a result of the decline in investors, the prices of many altcoins and Bitcoin have taken a significant hit, falling between 60% and 90% from their all-time highs. Bitcoin, for example, has dropped from its peak of $69,000 in 2021 to almost $14,000.

To understand the reasons behind this change in funding numbers, let’s examine the decline more closely.

According to recent data from Crunchbase, investment in the crypto market has taken a sharp hit, dropping to $1.3 billion in Q3 2023 compared to $2 billion in Q1 and Q2 of the previous year.

Additionally, the number of unicorns in the crypto and web3 space is decreasing at an alarming rate, going from 22 in Q2 2022 to just 5 in Q3 2023.

When we analyze these numbers on a quarter-to-quarter basis, the $2.1 billion invested across 297 deals in Q3 2023 represents a 36% decline in both metrics, reaching levels not seen since Q4 2020. This significant drop indicates a loss of confidence among investors or, at the very least, a more cautious approach from crypto investors.

To fully grasp the severity of this decline in the crypto market, we need to look back at the golden days. From Q3 2021 to Q2 2022, the crypto markets were raising nearly $8 billion every quarter, setting new records and driving a bull run fueled by the worldwide excitement over blockchain technology.

It is almost unbelievable to see such declining numbers after the golden days when web3 startups raised nearly $16 billion in H1 2022. This decline marks the end of the prosperous era and the spiraling downfall that has persisted for seven consecutive quarters.

On the other hand, Artificial Intelligence (AI) startups are attracting the attention of institutional and individual investors, receiving $25 billion in funding in the first half of 2023.

Despite the overall decline in crypto funding, there are a few notable funding rounds that stand out in 2023. One of them is Worldcoin, a crypto project led by Sam Altman, the CEO of OpenAI, who achieved success with the ChatGPT. Worldcoin secured $115 million in funding in a series C round in May 2023, led by Blockchain Capital.

Another significant funding round in 2023 is Layerzero, a crypto protocol that raised $120 million from a16z, Christie, and others.

These specific projects highlight a positive perspective from prominent financial investors towards the crypto market, despite the downward trend in funding. Additionally, the web3 sector demonstrates strength in the gaming industry.

For instance, Mythical Gaming, a web3 gaming company, raised $37 million in funding from ARK Investment and Animoca Brands in June 2023. This made it one of the most talked-about web3 gaming companies of the year. Mythical Gaming is optimistic about the future of web3 gaming, and their NFL rival apps, which have been downloaded over 1 million times, support this optimism.

The dilemma of interest rates also plays a role in the current state of crypto funding. In 2023, the United States struggled to control interest rates following the pandemic. As borrowing rates increased, startups faced difficulties in securing more funding. A recent report by Messari shows a 36% decline in both funding amount and the number of deals closed in Q3 2023.

Despite these challenges, some investors, such as Binance Labs, are still actively participating in funding rounds. Binance Labs completed 23 deals in Q3 2023, twice as many as the next closest investor, Robot Ventures. This indicates a more selective and cautious strategy.

Most of the funding activity in Q3 2023 occurred in the seed stage, with over $488 million raised across 98 rounds. This suggests that investors are becoming more cautious and hedging their bets on early-stage projects that promise high returns even in a potential bear market.

Chain infrastructure and DeFi projects have received significant funding over the past year, with an average of $207 million and $191 million per month, respectively.

Vessel Capital has recently launched a $55 million fund specifically for crypto startups, signaling that investors are still willing to bet on the long-term potential of the crypto industry even in a bear market.

MoonPay’s venture arm is another noteworthy development. While details are still emerging, the fact that MoonPay sees enough potential in the crypto startup ecosystem to create a dedicated investment vehicle is significant. These new funds could serve as lifelines for startups struggling to secure funding in the current climate.

In conclusion, the crypto funding landscape in 2023 presents a mixed picture. While there is a significant decline in funding, the emergence of new investment vehicles and innovative strategies from companies like Pudgy Penguins offer hope. Despite the overall downturn, certain sectors within the crypto industry, such as chain infrastructure, gaming, and DeFi, continue to attract substantial investment. This indicates that while the broader market may be bearish, there are specific areas where investors see long-term potential.