Venture Capital (VC) investments into cryptocurrency firms continued to fall in Q1 of 2023, as only $2.4 billion worth of VC funding was made in Q1 of 2023. A report from Galaxy Research states that this is the lowest amount recorded since Q4 2020.
Venture capitalists have sustained a trend that began in 2022 amidst scandals that have affected the cryptocurrency sector. The news of regulatory uncertainty, market downturn, and unprecedented crashes are the gales that have pushed venture capitalists away from the sector.
PitchBook, a research firm, also reported that private funding for crypto startups in the first quarter of this year plunged to its lowest level since 2020. In Q1 2022, venture capital funding into cryptocurrency firms saw a record-breaking figure of $13 billion. But since then, the figure has continuously dropped, which, for obvious reasons, is not questionable.
Considering the United States’ present regulatory headwinds, it ranks first for the number of firms raising capital, according to a new report. The American firms generated a good percentage of the funding, with 42.8%. The United States is closely followed by France, with 19.4%
France seems to be the biggest beneficiary, with capital investments for French crypto firms increasing to 19.4% in the most recent quarter, up from less than 5% in the third quarter of 2022. However, companies in the Web3, NFTs, DAOs, Metaverse, and Gaming sectors received the most deals, with 116, while companies involved in trading, exchange, investing, and lending, on the other hand, raised more capital, totalling $538 million.
According to the report, complete data on venture deals is frequently reported later, so the $2.4 billion figure may be revised in the future. In spite of the drop in capital investments, the report stressed that the number of deals made had risen by nearly 20%.
It suggests a possible relationship between crypto prices and capital invested, projecting that VC could witness a possible recovery following the substantial price gains observed late in Q1 2023.
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Why VC funding in cryptocurrency firms dropped
Since the fall of Terra Stablecoins in 2022, the market has endured devastating developments. The recurrence of these catastrophes has smudged the cryptocurrency market, giving VC firms more reasons to take a cautious approach.
The report shows that firms have decided to invest in more deals but reduce the amount invested. It is unsurprising because no firm would jump unthinkingly at the cryptocurrency market after seeing the news of crypto firms biting the dust in 2022. These firms have become more careful than before, interacting with the market with every ounce of caution.
Also, considering the rise in interest rates, VC firms may be less interested in investing in a very volatile industry. This is no good news for crypto startups; they can only hope that the market will yield favourable conditions that will attract VC funding better than it is now.
The good news is that the market seems to be picking up gradually, and there are high chances that VC funding might increase later in the year. Some days back, Bitcoin rallied above $30,000, accompanied by a general market improvement. Also, as US inflation rates are reducing, the finance sector might regain its stability, which will certainly attract more funding.
Read Also: G7 seeks to help developing countries launch CBDCs
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