Crypto Funding Landscape Experiences Decline, Raising Concerns for Web3
The crypto funding landscape is facing a significant downturn, highlighting a decline in the web3 sector. After experiencing an unprecedented bull run for over 500 days, the crypto funding market is now plagued by decreasing numbers of venture capital investments and individual investors. This downward trend has been evident for the past one and a half years, coinciding with the bear market.
The impact of this decline in investor interest can be seen in the plummeting prices of altcoins and Bitcoin. Many cryptocurrencies have experienced a drastic decrease, with some falling as much as 60% to 90% from their all-time highs. Bitcoin, for instance, has dropped from its peak of $69,000 in 2021 to around $14,000.
Crunchbase data reveals the extent of the decline in the crypto investment market. In the third quarter of 2023, investments in the crypto market dwindled to $1.3 billion, compared to the $2 billion invested in the first and second quarters of the previous year. The number of unicorns, or highly valued startups, in the crypto and web3 space has also decreased alarmingly, dropping from 22 in the second quarter of 2022 to just 5 in the third quarter of 2023.
These declining numbers are cause for concern, especially when comparing quarter-to-quarter figures. In the third quarter of 2023, there was a 36% decline in both the funding amount and the number of deals closed, reaching levels not seen since the fourth quarter of 2020. This steep fall indicates a loss of confidence among investors or a more cautious approach in the crypto market.
To put things into perspective, let’s look back at the glory days of the crypto market. From the third quarter of 2021 to the second quarter of 2022, the market raised a staggering $8 billion every quarter, driving the bull run and sparking worldwide excitement about blockchain technology.
The stark contrast between those golden days and the current decline is hard to ignore. In the first half of 2022, web3 startups raised nearly $16 billion, but now the numbers have been spiraling downward for seven consecutive quarters.
While the crypto funding landscape faces challenges, other sectors are flourishing. Artificial intelligence (AI) startups, for instance, have attracted the attention of institutional and individual investors, resulting in $25 billion in funding in the first half of 2023.
Amidst the overall downturn, a few notable funding rounds in 2023 offer a glimmer of hope. One of them is Worldcoin, a crypto project led by Sam Altman, CEO of OpenAI, which secured $115 million in funding during a series C round in May 2023. Layerzero, a crypto protocol, also raised a significant amount of funding, totaling $120 million from investors such as a16z and Christie.
Interestingly, despite the decline in crypto funding, the web3 gaming sector shows strength. Mythical Gaming, a web3 gaming company, received $37 million in funding in June 2023 from ARK Investment and Animoca Brands. This company’s optimistic outlook is reflected in its NFL rival apps, which have been downloaded over 1 million times.
The challenges in the crypto funding landscape can partly be attributed to the struggle to control interest rates in the United States. As borrowing rates increase, startups face difficulties in securing more funding. Although this issue does not directly correlate with the decline in funding, investors are adopting a more cautious approach.
In conclusion, the crypto funding landscape in 2023 presents a mixed bag of challenges and opportunities. While there is a significant decline in funding overall, the emergence of new investment vehicles like Vessel Capital’s $55 million fund and MoonPay’s venture arm, along with success stories in specific sectors like chain infrastructure, gaming, and DeFi, highlight the long-term potential of the crypto industry. Investors are hedging their bets on early-stage projects that promise high returns, indicating a cautious strategy amidst a potential bear market.
