Less and less capital is flowing into Bitcoin and Co - the beginning of the end?

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The year 2022 was a disastrous period for crypto due to the bear market and other chaotic events. The crypto industry has yet to recover from the collapse of Terra in Q2 2022 to the eruption of FTX in Q4. The industry-wide impact of FTX’s bankruptcy affected many sectors, including leading companies.

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One of the areas affected is crypto venture capital funding. For example, the analysis firm Blockdata reports on the status of blockchain and crypto venture capital funding in the fourth quarter (Q4) of 2022. According to the report, venture capital funding in the crypto and blockchain sectors has declined.

Terra and FTX are among the main reasons

The Blockdata report finds a gradual quarterly decline in funding in 2022. In 2021, on the other hand, venture capital funding was overwhelming in the Web3 space. Blockdata analyzed data from CB Insights, a market intelligence platform that mined data points on venture capital, startups and various sectors.

In the analysis, Blockdata found that there was a 34% decrease in venture capital funding in the fourth quarter compared to the third quarter (Q3) of 2022. There was a significant decrease in funding in the last quarter compared to Q1 and Q2.

According to a Blockdata report, venture capital investments in cryptocurrencies declined quarterly in 2022. Q1 saw a 53% drop from 2021 levels, a 67% drop in Q2 and a 61% drop in Q4 funding. The decline in venture capital investment continued, falling from a record $11 billion in funding and 692 deals in the first four months of 2022.

In its report, Blockdata cites several factors responsible for the decline in crypto and blockchain funding over the past year. First, the collapse of the $60 billion Terra ecosystem in May 2022 was cited as the reason for the downturn. Terra’s collapse triggered a cascading effect across the industry — sending many crypto companies into bankruptcy, including Celsius and Three Arrows Capital.

FTX debacle still noted

The November 2022 FTX implosion is also among the factors cited by Blockdata as being responsible for the decline in blockchain and crypto VC funding. Additionally, FTX’s liquidity crunch led to increased volatility in the crypto market, causing many assets to depreciate and several companies to go bankrupt.

Global macroeconomic conditions in traditional financial and capital markets also contributed to the decline in funding. For example, rising interest rates and the Federal Reserve’s anti-inflationary strategy were among the factors discouraging venture capitalists from funding crypto and blockchain startups.

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Due to these factors, there was only $3.7 billion in funding in the fourth quarter of 2022 – down 61% from the $9.6 billion seen in the fourth quarter of 2021. All blockchain and crypto startup funding was down 11% year over year – from $32 billion in 2021. to $29 billion in 2022.

A glimmer of hope for the crypto sector

However, Blockdata also notes: The number of investment deals in 2022 increased by 35% compared to the result of 2021. This is a positive thing in the midst of a huge contraction in funding.

In addition, the company says that despite the decline in venture capital investments, investors are still looking to invest in blockchain-based technology.

Venture capitalists would shift their focus to non-crisis innovations, including cross-chain bridges, payments, DAO, loans, remittance services, and more.

Despite a decrease in funding in the fourth quarter, Amber Group raised $300 million in a Series C funding round in December 2022. The fourth quarter also saw nine megawatts of blockchain, and companies gained more than $100 million in funding. However, Uniswap and Celestia were the only companies to achieve unicorn status in the fourth quarter of 2022.

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Text credit: Newsbtc