Q3 Hits a new low in Crypto Venture Capital Investments. Here’s why

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

PitchBook noted a steep decline of over 37% in the third-quarter crypto funding against the same period in 2021. However, despite the low quarterly numbers through 518 deals, the figure exceeds the 2020 peak and the 7-year average of $3.1 billion by over $2 billion.

Lower crypto market cap accompanied by lower VC funding

Galaxy remarked that the decline is seen due to the volatile market conditions in May and June, with funds probably delaying their fall fundraising until Q4 to give the markets time to adjust.

In Q3, crypto prices also remained subdued after the total market cap hit a low in July, per CoinGecko’s quarterly report. It noted, “In Q3, it rallied up to ~$1.2T in August, before falling again to end the quarter at +6.5% or about ~$100B higher than at the end of Q2.”

“Deal activity tracks very closely to the crypto market cap,” Robert Le, fintech analyst at PitchBook, told TechCrunch. “It’s a little bit of a lag, but if you overlay the crypto market cap to the amount of venture capital going into the space by quarter or month, it tracks closely.”

For instance, Blockchain.com’s valuation has also hit a weak market environment. Despite the exchange being valued at $14 billion earlier this year, a source-based news article this week highlighted that the current round might result in a valuation of about $3 to $4 billion.

Deal count of some sectors high

Galaxy also stated, “Despite the drawdown in broader VC investing, early-stage investing remains competitive and robust. On the other hand, late-stage investing showed notable weakness potentially due to the sustained bloated valuations.”

Interestingly, the research found 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 deal count, collecting $1.5 billion through 190 deals. This is in contrast to Q2 2022, when only businesses established in 2018 were the market leaders, per the report.

Although “Web3, NFT, DAO, Metaverse, and Gaming” significantly outperformed all other subsectors in terms of deal count, the report found the “Trading, Exchange, Investing, and Lending” category led in terms of total capital invested.

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

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