2022 is set to be a tough year for cryptocurrencies, with less venture capital (VC) money flowing into the blockchain and cryptocurrency space reflecting the bleak market environment.
A report from Blockdata highlights sequential quarterly declines in funding through 2022 as VCs boom into the broader Web3 space in 2021.
Blockdata analyzed data from CB Insights, rounding the value of venture capital funding in the final quarter of 2022, noting a 34% drop compared to the third quarter of 2022. The last quarter of the year was down significantly compared to the first and second quarters, down 67% and 53%, respectively. Blockdata pointed to several factors behind the decline in crypto and blockchain-related venture capital funding last year. The $60 billion collapse of the Terra ecosystem in May 2022 was highlighted as the trigger event, leading to the subsequent bankruptcy of crypto lending firms Three Arrows Capital and Celsius.
The implosion of FTX in November 2022 further affected the volatility of the entire space, while the macro conditions of global capital markets affected by rising interest rates and inflation also played a role in the decline in venture capitalists' investment.
As a result, funding from venture capital in Q4 2022 was just $3.7 billion, down 61% from $9.6 billion in Q4 2021. Total funding from blockchain and cryptocurrency startups fell 11% annually, from $32 billion to $29 billion.
Blockdata highlighted a 35% increase in transaction volume in 2022 compared to 2021 as a positive gain. Despite the pullback in venture capital spending, investors are still looking to fund blockchain-based technologies, applications and startups, the firm said.
The report notes that venture capital is turning to "non-volatile innovations," including cross-chain bridging, payments and remittances, lending, decentralized autonomous organizations, asset management, and digital identity management.
The fourth quarter still generated some sizable VC investments. Amber Group received the highest funding, raising $300 million in a Series C round in December 2022 to address withdrawals for specific products affected by the FTX debacle.
Nine “blockchain mega rounds” occurred in the fourth quarter, with companies receiving more than $100 million in funding. Uniswap and Celestia were the only companies to achieve unicorn status in the fourth quarter of last year, valued at $1.7 billion and $1 billion, respectively. Coinbase Ventures has been identified as one of the most active corporate VC investors through 2022, participating in 13 different rounds of funding for blockchain and crypto startups.
Cointelegraph Research previously highlighted a decline in venture capital investment in blockchain and crypto companies in 2022. According to Cointelegraph's internal research, Web3 and infrastructure service providers receive the highest share of venture capital funding.
