Venture capital funding to blockchain and cryptocurrency start-ups dropped by 29 per cent to $6.5 billion in the second quarter of this year amid wider market volatility and the “crypto winter” that caused prices to crash, a report by market intelligence platform CB Insights has shown.
Although funding declined for the first time in two years, the quarter’s total deal value was the fourth-largest for blockchain and cryptocurrency start-ups, CB Insights said on Thursday. In comparison, the start-ups attracted $9.2bn in the first quarter and are projected to receive $31.5bn worth of total funding this year.
While venture capitalists led the investor deal share in the second quarter, funding shifted away from centralised cryptocurrency exchanges and wallets towards non-fungible tokens (NFTs), gaming, decentralised finance (DeFi), and decentralised app (DApp) infrastructure and development, the report showed.
“Investors scaled back crypto investments due to macroeconomic pressures and concerns about crypto valuations and stablecoins,” CB Insights said.
The “crypto winter” — which caused Bitcoin to crash below the key $20,000 psychological level in June — wiped $2 trillion off the sector’s total market capitalisation, causing it to fall below $1tn.
Since then, Bitcoin, the world’s first and largest cryptocurrency, has pared back some of its losses and was trading at $23,187.16 as of 10.06am UAE time on Thursday.
Despite July’s rebound, cryptocurrency-related companies have been among the worst-performing stocks this year as investors fled risky assets, fearing that the Federal Reserve’s aggressive policy-tightening regime could tip the economy into a recession.
The collapse of the TerraUSD stablecoin and subsequent folding of companies including Celsius Network and Three Arrows Capital exacerbated these losses in recent months.
The US drove the global blockchain funding decline in the second quarter, falling 42 per cent quarter on quarter. However, the US led funding with 178 deals totalling $3.4bn, CB Insights said.
Silicon Valley was the top US location for blockchain funding in the second quarter at $937m, surpassing New York at $678m and Los Angeles with $492m.
Europe was the only region that recorded growth in blockchain venture funding and deals in the quarter, CB Insights found. It tied with Asia at $1.4bn, but was behind the $3.4bn that went to US-based companies.
Singapore ranked top in Asia for blockchain funding in the second quarter at $363m, while India ranked second after attracting $180.8m, CB Insights said.
Early-stage deals continued to dominate from April to June, accounting for 81 per cent of all blockchain funding. The average deal size in 2022 was $19m.
“Web3 accounted for over half of blockchain funding for the second straight quarter, reaching $3.7bn,” CB Insights said.
“Global funding to Web3 start-ups in 2022 already matches 2021’s total at $10bn.”
Despite a quarterly decline in deals in the NFT, gaming and metaverse category, it still attracted more than 150 deals worth $1.9m for the third consecutive quarter, the report said.
“However, the category’s future may face a tougher road ahead. NFT sales volumes are down, and Web3 metaverses face fierce competition from big tech companies,” CB Insights said.
Meanwhile, the infrastructure and development category recorded 52 per cent growth in the number of deals. The category was one of the only blockchain spaces with deal growth in the second quarter, reaching a new quarterly high of 47 deals, CB Insights said.
The blockchain industry also recorded 49 merger and acquisition exits in the second quarter, while the number of initial public offerings and special purpose acquisition company deals in the space slowed.
As several prominent cryptocurrency lenders filed for bankruptcy, cryptocurrency exchanges such as Binance and FTX sought to acquire others hurt by the “crypto winter” at a discount, CB Insights said.
Animoca Brands was the most active blockchain investor for the third straight quarter, despite a fall in its deals from April to June, the report added.
Blockchain funding from $100m-plus mega-rounds declined to $2.6bn in the second quarter. The number of mega-rounds was also down quarter on quarter, suggesting that investors were more cautious due to the recent price volatility, the study said.
There was also a 50 per cent drop in the “birth” of new blockchain unicorns, the research found.
What is Bitcoin and how did it start?
Blockchain unicorn births dropped from a record high of 16 in the previous quarter to eight in the second quarter. The most valuable unicorn birth was Seychelles-based cryptocurrency exchange KuCoin with a $10bn valuation, while half of the new unicorns were Web3 start-ups, CB Insights said.
The US accounted for 65 per cent of total unicorns, with 46, while five were created in the second quarter. However, US unicorn births also plummeted 64 per cent during the same period, the report said.
