The third quarter hits a new low in crypto venture capital investments. here’s why

VC: Galaxy Digital Research noted in its latest report that VCs invested over $5.5 billion in crypto businesses in Q3 2022. But that was a new low for the year.

PitchBook noted a sharp drop of more than 37% in crypto funding in the third quarter compared to the same period in 2021. However, despite the weak quarterly figures through 518 transactions, the figure exceeds the 2020 peak and the average over 7 years from $3.1 billion to over $2 billion.

Reduced Crypto Market Cap Accompanied by Lower Venture Capital Funding

Galaxy noted that the decline is due to volatile market conditions in May and June, with the funds likely delaying their fall fundraiser until the fourth quarter to give markets time to adjust.

In the third quarter, crypto prices also remained subdued after the total market capitalization bottomed out in July, according to CoinGecko’s quarterly report. He noted: “In the third quarter, it rose to ~$1.2 billion in August, before falling back to end the quarter +6.5%, about ~$100 billion higher than at the end of the second trimester.

“Deal activity tracks crypto market capitalization very closely,” Robert Le, fintech analyst at PitchBook, told TechCrunch. “It’s a bit behind the times, but if you overlay the crypto market capitalization on the amount of venture capital entering the space per quarter or per month, it tracks closely.”

For example, the valuation of also hit a weak market environment. Although the exchange was valued at $14 billion earlier this year, a news article based on a source this week pointed out that the current cycle could result in a valuation of around $3-4 billion.

The number of transactions of certain sectors is high

Galaxy also said, “Despite the decline in broader venture capital investments, seed investments remain competitive and robust. On the other hand, late-stage investing showed noticeable weakness, potentially due to inflated and buoyant valuations.

Interestingly, the research revealed that in the third quarter of 2022, $1.5 billion was invested in companies created in 2018 and 2021, respectively. Companies launched in 2021 outperformed their contemporaries in fundraising and number of deals, raising $1.5 billion through 190 deals. This contrasts with the second quarter of 2022, when only companies established in 2018 were market leaders, according to the report.

Although “Web3, NFT, DAO, Metaverse, and Gaming” significantly outperformed all other sub-sectors in terms of number of transactions, the report found that the “Trading, Exchange, Investing, and Lending” category led the way. terms of total invested capital.

Meanwhile, the latest CoinShares Weekly Fund Flow report noted crypto outflows of around $5 million last week with continued “investor apathy”.

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