Crypto pretty much seems to have lost its allure as far as venture capitalists are concerned. According to new data from Crunchbase, investments into web3 startups declined in the third quarter compared to the second quarter, marking the seventh straight quarter of declines for the sector since crypto venture fundraising peaked in Q4 2021.
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That’s not shocking. As TechCrunch+ reported in August, when crypto fundraising numbers surpassed most people’s expectations:
August’s good numbers might not be able to stem the bleeding, though. To put an optimistic spin on it, maybe Q3 2023 will break the trend since a few investment vehicles like Vessel Capital’s $55 million fund and MoonPay’s venture arm were launched in recent weeks and will start deploying capital soon. But it’s anybody’s guess whether investors will move quickly — or sign bigger checks.
Crunchbase’s data indicates that web3 startups raised $1.3 billion in the third quarter, down from around $2 billion in both Q1 and Q2.
Compared to the past few years, those numbers are vanishingly small. On average, web3 startups raised more than $8 billion in every quarter between Q3 2021 and Q2 2022. And then things fell off a cliff: The $4.5 billion that crypto startups raised in Q3 2022 was about half the amount raised in Q2, for reference.
Here’s what the trend looks like:
Data visualization by Miranda Halpern, created with Flourish
Discussing what happened is more of an academic endeavor at this point than anything else: Money got more expensive because of higher interest rates, venture capitalists became more conservative, and investors started preferring startups with proven revenues and a path to profitability rather than companies that had more vision than traction. This reshuffling of the venture market hurt everyone, but it seems that along with the rest of fintech, web3 companies are suffering a lot, if not the most.
Besides macro conditions indirectly related to intra-industry performance, we’re also seeing some worrying signs. Take a look at the following chart from The Block that tracks crypto trading volume on a seven-day moving average basis:
Other data tells a similar story. Total value locked in DeFi is down from its prior highs and is not growing. NFTs are also suffering similarly, though that market may still be shrinking. Search interest in bitcoin is also falling.
But all that bad news is not stopping some people. There’s an ironclad belief in blockchain-based transactions and assets that no bear market can shake, partly because crypto has managed a Lazarus and come roaring back so many times now. It’s still reasonable to remain long on crypto, if that’s your jam.
And some projects are trying pretty unique strategies to attract more people to the decentralized world. Despite its whimsical name, Pudgy Penguins is among the more interesting crypto companies out there. Its push into physical toys tied to digital experiences caught our attention last week, and yours truly now even owns a Pudgy Penguin plushie. Consider that purchase my good luck token to crypto.
Regardless, the data has landed pretty much where we expected it to, and the questions now in our minds are not new either: What will it take for web3 to rise again? Will bitcoin ETFs save the day? Would it be the push to tokenize real-world assets? Perhaps something absolutely novel?
As appeals court rules in favor of Grayscale, a bitcoin spot ETF could be on the horizon
I don’t know. But given the declining rate of funding, I suspect there’s a massive stress in the crypto startup market today and it doesn’t look like much help is on the way. We’ll have more on this when we get a good amount of Q4 data to chew on, but for now, the blockchain teams out there need all the luck in the world.
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