Is the Winter Still Coming? Crypto Venture Investment in 2023 Decreases by 68%, Remaining at Only $10.7 Billion

According to a report by The Block, cryptocurrency venture capital (VC) funding in 2023 for the crypto industry totaled only $10.7 billion, a 68% decrease from the previous year. VC firms primarily focused on investing in seed and Series A stage startups, with a particular emphasis on NFT gaming and Web3 infrastructure.

Total VC Investment in 2023 Still High

The latest report from The Block Pro Research shows that the total investment in crypto venture capital in 2023 decreased by over two-thirds compared to the previous year, dropping to $10.7 billion. The report suggests that this decline may be due to the aftermath of recent failed crypto projects and uncertainties in macroeconomics and regulatory directions.

Nevertheless, the total crypto funding this year is still the third-highest in the history of the crypto industry, following the record highs of $29 billion in 2021 and $33.3 billion in 2022.

Compared to the bear market of 2019 to 2020, this year's investment total still exceeds the approximately $6.3 billion raised during that period.

In terms of the timing of investments, most activities were concentrated in the first half of 2023, dipped slightly in the second half, and then surged with a large influx of funds in November.

Regarding the investment stages, seed and pre-Series A startups received larger investments in the early part of this year, while there was a decrease in the middle to late stages compared to last year, a trend that mirrors that of 2022.

Key Areas: NFTs, Web3 Games, Infrastructure

In terms of investment areas, NFTs, Web3 games, and blockchain infrastructure are the most favored sectors by crypto venture capitalists, while projects related to data and transactions are relatively neglected.

Notably, the well-known venture capital firm Spartan has revealed its focus on several areas within the crypto industry for the coming year, including 3A Web3 games, Bitcoin application development, and modular blockchain infrastructure, overlapping with the aforementioned data sector.

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The report also found a decrease in the number of projects that crypto venture capitalists invested in this year. There were only 1,819 recorded financing rounds, a 32% decrease from last year's 2,671 rounds.

However, overall, the number of invested projects in 2023 still surpasses that of 2020 and is similar to the figures from 2021.

Institutions Preparing for 2024

Another report indicates that institutional investors are already gearing up for the anticipated approval of a Bitcoin spot ETF in 2024, impending Fed rate cuts, and clearer regulatory developments. These institutional investors seem to be actively preparing for the promising crypto market of next year, aligning with the period of increased fund inflows mentioned earlier.

Data from derivative exchanges Deribit and CME Group show an increase in institutional investor activity since October this year, with total open interest approaching record levels. This could indicate that several traditional financial institutions are also eager to join the market.

Analysts at the exchange Bitfinex attribute this change to optimistic economic expectations overall, as well as speculation surrounding the introduction of a Bitcoin spot ETF product and related regulations.

Exchange VC Departments: Focusing More on Core Business

Previously reported, exchange venture capital departments at Kraken, Coinbase, and Binance disclosed adjustments in their investment strategies when asked by Bloomberg about their views on the current reduction in venture capital scale.

In particular, these adjustments include Kraken raising new funds in the hundreds of millions, Coinbase shifting to invest in more non-U.S. projects, and Binance prioritizing investments in startups with tangible products or revenue.

Abhishek Saxena, head of Polygon Ventures, commented on this:

This financing winter is a healthy and necessary correction for the industry to refocus on key and prioritized businesses and projects.