In a surprising turn of events, the third quarter of 2023 has witnessed a significant slump in cryptocurrency startup funding, with figures plunging to levels not seen since late 2020. According to the latest research conducted by the Messari platform, the total amount of capital invested in cryptocurrency startups during Q3 was just under $2.1 billion, marking a steep 36% quarter-over-quarter decline in both funding amount and deal count.
This downward trend comes as a stark contrast to the cryptocurrency market’s previous performance, which saw fundraising reach a staggering $17.5 billion in Q1 2022 through 900 deals. However, the crypto ecosystem has been marred by a series of scandals and crises, such as the catastrophic collapse of the Terra ecosystem in May and the fall of the FTX empire in November.
THE STATE OF CRYPTO FUNDRAISING Q3
The downtrend continues
After peaking in Q1 2022, crypto venture funding has declined precipitously across funding amount and deal count. Q3 2023 marked levels not seen since Q4 2020.
The $2.1 billion invested across 297 deals in Q3… pic.twitter.com/F5mnO95ZUP
— Messari (@MessariCrypto) October 5, 2023
While the first two quarters of 2023 maintained a relatively stable level of crypto funding, with approximately $7.5 billion raised through 200 transactions, the third quarter has experienced a sharp decline, causing concern among investors and industry observers alike.
One of the noteworthy findings from the Messari report is that most of the funding activity in Q3 2023 was concentrated at the seed stage, with over $488 million raised across 98 rounds. This shift towards seed funding reflects investors’ strategic positioning in anticipation of a bear market, seeking projects with the potential for substantial returns when market sentiment eventually improves.
In terms of categories, chain infrastructure and decentralized finance (DeFi) projects emerged as the most attractive investment options, with an average monthly funding of $207 million and $191 million, respectively, over the past year. These figures significantly outpaced other categories, with gaming and services being the only two other sectors that received average monthly funding exceeding $100 million during the same period.
When it comes to venture capital activity, Binance Labs stood out as the most active investor in the crypto space during Q3, completing 23 deals, which is double the number of deals done by the next closest investor, Robot Ventures. Notably, 12 of Binance Labs’ 23 deals were with projects participating in its accelerator program, demonstrating the exchange’s commitment to nurturing and advancing promising crypto startups.
In conclusion, the third quarter of 2023 has brought forth a sobering reality for cryptocurrency startups, as fundraising levels reached their lowest point since late 2020. Despite the challenges faced by the crypto industry, investors are strategically positioning themselves to back projects that show promise, especially at the seed stage. The emphasis on chain infrastructure and DeFi projects, along with the dominance of Binance Labs in the venture capital arena, highlights the evolving landscape of the crypto fundraising ecosystem.
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