Venture capital investments in crypto startups hit a 2-year low in the fourth quarter of 2022, capping a year that witnessed a dramatic shift from start to finish.
According to a new report from Galaxy Digital, investments into crypto startups totaled less than $3 billion on fewer than 400 deals in the fourth quarter of last year, the lowest for both measures since the fourth quarter of 2020.
This decline capped a year that began with a record number of deals and capital flooding the space in the first quarter of the year, with nearly $13 billion raised by startups.
Raises in the first half of the year were driven by major players with freshly raised funds from 2021, including major players such as Andreessen Horowitz, Ribbit Capital and Haun Ventures.
Coinbase Ventures, Animoca Brands, Jump Crypto, and GSR Capital, as well as the now bankrupt Alameda Research, were among the most active venture investors by deal count.
Crypto VC Deal Count & Capital Invested
“Startups will need to be laser focused on fundamentals, taming operational expenses, and driving revenue in 2023,” said Alex Thorn, head of research for Galaxy Digital.
U.S.-based crypto startups continued to dominate venture investments for the space, taking more than 40% of all deals for the year.
According to a 2023 outlook on digital assets by The Block Research collected from a spreadsheet shared with the Financial Times, Alameda invested $3.2 billion in equity and token investments in startups.
Despite a year-on-year decline in overall venture capital deal sizes, valuations across the broader VC market rose slightly in the fourth quarter while crypto prices dropped.
The report also found startups focused on crypto trading took the bulk of venture dollars, while so-called “web3” companies, which can range from NFTs and the metaverse to blockchain gaming, made up the largest portion of funding by deal count in the second half of the year, taking 41% and 31% of deals in Q3 and Q4, respectively.
VC Money Invested by Category
In a separate end of year report, crypto data platform Messari also noted that in addition to VC investments in early stage crypto companies slowing in the second half of the year, “there’s less dry powder for later stage crypto deals.”
“The companies that raised in 2021 and 2022 should have lengthy runways — if they’re smart… but I’m not confident that many up only founders will make the adjustments necessary to survive beyond then,” said Ryan Selkis, Messari co-founder and CEO.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
