VC blockchain and crypto funding drops off in Q4 2022: Report

Published at: Feb. 24, 2023

2022 will go down as a tough year for the cryptocurrency space and bleak market conditions were mirrored by a downtrend of venture capital funding flowing into blockchain and crypto activities.

A report from Blockdata highlights consecutive drops in funding through all four quarters of 2022, following booming venture capital funding into the wider Web3 space through 2021.

Analyzing data from CB Insights, Blockdata rounded off 2022’s final quarter of venture capital funding value noting a 34% decline from Q3 2022. The last quarter of the year was down drastically in funding value in contrast to Q1 and Q2, dropping by 67% and 53% in comparison to the two quarters.

The subsequent drop in venture capital investment dropped every quarter from an all time high of $11 billion in investments from a cumulative 692 deals in the first four months of 2022.

Blockdata points to a number of factors for the decline in crypto and blockchain-related VC funding last year. The $60 billion collapse of the Terra ecosystem in May 2022 is highlighted as a trigger event, leading to the subsequent bankruptcy of cryptocurrency lending firms Three Arrows Capital and Celsius.

The implosion of FTX in November 2022 further impacted volatility through the space while global macro conditions in capital markets affected by rising interest rates and inflation also played a role in the decline of investments from venture capitalists.

As a result, Q4 in 2022 saw just $3.7 billion in funding from VCs, which was a 61% drop from the $9.6 billion of venture capital invested in Q4 2021. The total funding received by blockchain and crypto startups declined by 11% year on year, down from $32 billion to $29 billion.

Blockdata highlights the volume of deals in 2022 increasing by 35% compared to 2021 as a positive takeaway. The firm suggests that despite a pullback in venture capital spending, investors are still looking to bankroll blockchain-based technologies, applications and startups.

The report notes that venture capital investments are shifting towards ‘non-volatile innovations’ including cross-blockchain bridges, payments and remittances, lending, decentralized autonomous organizations, asset management and digital identity management.

Q4 still produced some sizeable VC investments. Amber Group netted the highest amount of funding, raising $300 million in a Series C round in December 2022 to tackle drawdowns of specific products affected by the FTX debacle.

Nine ‘blockchain mega-rounds’ took place in Q4, where firms netted more than $100 million in funding. Uniswap and Celestia were the only firms to reach unicorn status in Q4 last year, valued at $1.7 billion and $1 billion respectively.

Coinbase Ventures was identified as one of the most active corporate VC investors through 2022, participating in 13 different funding rounds of blockchain and crypto startups.

Cointelegraph Research previously highlighted the drop in venture capital investments into blockchain and crypto firms in 2022. Web3 and infrastructure service providers received the highest share of VC funding according to inhouse research conducted.