VC funding in crypto projects is expected to exceed the 2021 record despite a series of crypto blowups, including one of the biggest crypto exchanges in FTX, according to a PitchBook report. But the research firm noted that crypto funding slowed in the most recent quarter as investors grow concerned due to a lack of regulation and guidance.
Crypto Funding Sees a Slowdown in Q3 2022
Venture capital (VC) funding at crypto startups is set to surpass 2021 funding despite the recent FTX collapse, according to research firm PitchBook. VC investors poured $19.9 billion into crypto projects during the first nine months of 2022, 41% more than in the same period last year.
Crypto startups received a total of $21.2 billion in VC funding in 2021. While this was a record figure, VC funding this year is expected to cross that mark despite the prolonged crypto market, suggesting that investors retain an interest in the sector.
However, the pace of VC funding deployed into crypto startups has slowed down recently after several major crypto projects collapsed. Crypto projects received only $4 billion in VC funding in Q3, marking a 38.3% drop from the previous quarter and the lowest quarterly figure since Q2 2021, PitchBook reported.
Last month's FTX debacle marks the latest in a series of crypto blowups in 2022, triggering massive withdrawals from crypto exchanges. Before that, it was the collapse of Celsius Network and Voyager Digital, both falling into bankruptcy in the wake of the LUNA implosion in May. Robert Le, a crypto analyst at PitchBook said,
“The lack of clear regulation and guidance remains one of the crypto industry’s greatest concerns and limiting factors. Mainstream adoption is unlikely to occur until better guardrails in the form of established laws and guidelines are in place.”
Web3 VC Funding Jumps 44% in Latest Quarter
Several high-profile FTX backers, including Temasek Holdings and SoftBank Group, marked down their investments in November after the crypto exchange declared bankruptcy. However, reports from last month suggested that VC investors may have ignored red flags showing FTX engaged in suspicious financial relationships with related entities.
Struck Capital’s Adam Struck expects the bearish sentiment to continue throughout the entire 2023 as investors become increasingly concerned over contagion risks. As a result, Struck believes VC capital deployed into crypto will trend downwards next year.
PitchBook states that Web3 – also referred to as the next iteration of the internet – was the only crypto segment that saw a surge in VC funding in Q3. Investors parked $1.5 billion in Web3 startups in the quarter, 44.5% higher than in Q2.