Over the past year, venture capital investments in cryptocurrency companies have seen a substantial decline of over 70%, according to data published by RootData, a prominent crypto data provider. This downward trend is evident when comparing the funding figures for June 2022 and this year. In June 2022, the digital asset space received $1.81 billion in 149 funding rounds, while this year, only 83 projects secured a total of $520 million, marking the lowest funded month to date.
Venture capital investment slides 70%
Although there have been intermittent increases throughout the year, the overall trend showcases a waning interest from venture capitalists in the digital asset space. Notably, September 2022 reached a record high with $1.85 billion in funding distributed across 138 rounds, and June of last year had the highest number of recipients with 149 rounds.
Breaking down the funding by category, the infrastructure sector emerged as the leader, securing $213 million for 26 projects in the previous month. However, this still represents a nearly 50% decline compared to the preceding month when 28 projects received $410 million. Gensyn AI, a UK-based startup, gained attention in the infrastructure category, raising an impressive $43 million in a Series A round led by a16z crypto.
The second most funded category is CeFi, or centralized finance, which includes companies like OPNX and Chiliz. This category received $101 million in funding, accounting for approximately 20% of the total financing. Following closely behind is the games category, which secured $62 million, with a significant portion going to Mythical Games, raising $37 million in its Series C1 funding round. DeFi and NFTs round off the list of categories, in that order.
In terms of specific cryptocurrencies, Ethereum took the lead with 1,826 projects receiving funding over the past year, followed by Polygon (MATIC) with 1,076 funding rounds. Geographically, the United States received the largest share of funding at 34%, although it is expected that this may change shortly.
Analysts dissect the factors affecting the rise and fall of investments in crypto
Coinbase Ventures emerged as the most active venture capital firm in the cryptocurrency space, participating in 71 funding rounds over the past year. Hashkey Capital and Shima Capital followed closely behind, funding 54 and 49 projects respectively. However, the allure of the once-prominent crypto asset class seems to have diminished, with venture capitalists shifting their focus to other investments, particularly artificial intelligence (AI).
In a recent interview, Evan Cheng, co-founder, and CEO of Mysten Labs, noted that the rise of AI products and applications has broadened their appeal to a wider audience, while the crypto industry remains largely self-focused. However, Cheng also emphasized the complementary nature of AI and Web3, highlighting Justin Sun’s $100 million AI development fund as an example.
The reduced interest from venture capitalists in the crypto asset space can be attributed to various factors. Actions taken by companies such as FTX and Terra, along with the banking turmoil that affected several “crypto-friendly banks,” may have contributed to this decline. Additionally, the United States, despite leading the way in crypto investments, has recently witnessed a regulatory clampdown, which further dampened investor enthusiasm.
Venture capital investments in cryptocurrency companies have experienced a significant decline over the past year. While certain months saw increases in funding, the overall trend points to a waning interest from venture capitalists in the digital asset space. Factors such as specific company actions, banking issues, and regulatory challenges have likely contributed to this decline. Meanwhile, venture capitalists have turned their attention to alternative investments, including the burgeoning field of artificial intelligence.
