Venture Investment in Crypto Drops to New Low: Report

Despite a gloomy outlook for venture capital, some segments of the crypto market are still attracting significant investments.

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  • Global crypto venture capital investment dropped to $2.6 billion in Q1 2023.
  • This represents the lowest amount of capital invested since Q4 2020.
  • However, certain segments of the markets still attracted significant investment. 

Macroeconomic factors continue to take their toll on the tech and crypto sector. Crypto venture capital (VC) investment has seen a significant slowdown in Q1 2023. 

According to a recent report by Pitchbook, venture capital invested a total of $2.6 billion across 353 deals globally, marking the lowest level of investment activity since Q4 2020.

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Despite the overall slowdown, certain areas within the crypto sector managed to attract notable investments. Layer-2 scaling solutions and crypto custodial services emerged as the bright spots in an otherwise cloudy investment landscape.

Crypto L2s and Custodial Services Attract Venture Investments

Despite the negative trends in crypto VC investments, Layer-2 scaling solutions continued their momentum from 2022. For instance, the Bitcoin scaling platform Blockstream raised a $125 million round to build out mining infrastructure. 

Scroll, building a zero-knowledge Ethereum Virtual Machine (zkEVM) scaling solution, also secured a $50 million investment. In fact, Pitchbook highlighted Zero Knowledge Proof as one of the emerging opportunities in the crypto space. The new technology, the report highlights, enables blockchain networks to power private transactions. 

Players that offer crypto custodial solutions also managed to secure substantial funding. Since the FTX collapse, crypto custody has been the prime concern in the crypto space. Consequently, Ledger, a self-custodial hardware wallet company, raised a hefty $493 million in a Series C round. Taurus, another player in the custodial services space, drew a $65 million Series B round. 

Crypto Venture Capital Sees Muted Venture Exits

Despite the slowdown in deal activity, valuation trends in Q1 2023 were mixed. Seed rounds were up by 33.3% and late-stage rounds saw a whopping increase of 209.2%, compared to full-year 2022. However, early-stage rounds saw a decline of 16.7%.

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Venture exits, on the other hand, remained subdued. The only notable exit was the acquisition of the crypto payment streaming platform Streami by Binance.

On the Flipside

  • The increase in late-stage valuations may be skewed due to selective disclosure practices, Pitchbook suspects. They speculate that venture firms are only disclosing up rounds, or rounds that increase valuations. At the same time, down-rounds are kept private. 
  • Currently, the main goal of zkEVMs today is to scale the Ethereum, and not to enable privacy. However, Pitchbook believes this will change in the near future. 

Why You Should Care

Venture investment is a crucial source of capital that fuels innovation in the crypto space. Less capital means less money for upcoming crypto projects that could shape the industry in the decades to come. 

Read about venture capital investment in Web3 gaming: 

Investors Poured $4.49B into Web3 Gaming, but Industry Still Struggles to Attract Players

Read about the latest use cases for the blockchain industry: 

Helium’s Solana Migration Fuels Cutting-Edge IoT Applications

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.