In an unexpected twist, crypto investment activity dropped significantly in the second quarter of 2023, reaching its lowest position since the end of 2020. The most recent study from PitchBook, a well-known research firm, exposes an alarming trend in worldwide venture capital investments in the crypto sector. Surprisingly, investments in crypto firms dropped by 14.7% in terms of deal value and 16.3% in terms of total number of transactions.
This depressing dip marks the fifth consecutive quarter of diminishing investment enthusiasm in the cryptosphere. Despite this bleak backdrop, the attractiveness of blockchain infrastructure projects has remained unwavering, garnering considerable investments on a daily basis. Notably, LayerZero pioneered this trend by raising a massive $120 million in its Series B investment round, effectively valuing the business at $3 billion. Not to be outdone, WorldCoin, a major competitor in the space, raised a sizable $115 million in its Series C investment.
The investment environment was further enriched by Gensyn and Together, both of which raised significant Series A rounds of $43 million and $20 million, respectively. However, the valuation and deal size landscape has been nothing short of unpredictable. While seed rounds increased by a surprising 18.1%, early-stage, and late-stage rounds declined by 20.3% and 15.8%, respectively.
A strange phenomenon has emerged in the valuing world. Initial rounds and subsequent stages promised promising valuations at first, only to see them plummet due to the combination of small sample size and the anonymity associated with down-rounds. In 2023, the median deal size decreased by less than 10% across all stages of the investment cycle. Seed, early-stage, and late-stage agreements, in particular, averaged $2.3 million, $5.1 million, and $10 million, respectively.
According to Robert Le, a renowned crypto analyst at PitchBook, the latter half of 2023 could see a welcome increase in VC investments. Lee’s prediction is based on the idea that investors have switched from a reactive to a proactive approach, engaging in detailed dialogues with varied companies, founders, and teams to obtain a holistic knowledge of the developing market.
“Now they’re starting to get comfortable and understand what opportunities are out there,” Le says. As a result, we believe that investors will be more at ease later this year.” He underlines the surprising lack of a daily correlation between crypto investment activity and crypto asset prices, a paradox given the crypto asset class’s overall good performance throughout the year.
“Overall, Bitcoin, Ethereum, and many major crypto asset prices have been on an upward trajectory this year, and we believe this momentum will spill over to private markets in the coming months,” Le correctly states.
This paper emphasizes the importance of the infrastructure layer maturation in the crypto industry before application layer projects can genuinely flourish. Comparing blockchain infrastructure to the evolution of cloud and mobile computing, where mammoth initiatives such as Uber and Airbnb developed following the establishment of fundamental infrastructure, blockchain infrastructure appears as a crucial investment hotspot.
While dealing with continued regulatory uncertainty and the occasional setbacks of major crypto firms, the crypto industry is progressively progressing towards maturity. In light of these hurdles, the sector is ready to overcome them, paving the path for unparalleled global development and innovation.