2022 will go down as a tough year for the cryptocurrency space, and the bleak market conditions have reflected a downward trend in venture capital funding flowing into blockchain and crypto activities.
A report from Blockdata highlights consecutive funding declines in all four quarters of 2022, following a boom in venture capital funding into the broader Web3 space through 2021.
Analyzing data from CB Insights, Blockdata rounded up VC funding values for the last quarter of 2022 and saw a 34% drop from Q3 2022. The last quarter of the year saw a drastic drop in funding value unlike Q1 and Q2, a 67% drop and 53% compared to both quarters.
The subsequent decline in venture capital investment fell each quarter from an all-time high of $11 billion in investment from a cumulative 692 deals in the first four months of 2022.
Blockdata points to a number of factors for the decline in crypto and blockchain VC funding last year. The 60 billion dollars the collapse of the Terra ecosystem May 2022 is marked as the trigger event that leads to the subsequent bankruptcy of cryptocurrency lending companies Three Arrows Capital and Celsius.
The FTX implosion November 2022 further affected volatility in the space, while global macroeconomic conditions in capital markets, influenced by rising interest rates and inflation, also played a role in the decline in investment from venture capital investors.
As a result, there was only $3.7 billion in funding from virtual firms in the fourth quarter of 2022, which was a 61% decrease from the $9.6 billion of venture capital invested in the fourth quarter of 2021. The total funds raised by blockchain and crypto startups fell 11% year over year from $32 billion to $29 billion.
Related: Top Cryptocurrency Funding Stories of 2022
Blockdata highlights that trading volume in 2022 will increase by 35% compared to 2021 as a positive. The firm suggests that despite the decline in venture capital spending, investors are still looking to fund blockchain-based technologies, apps and startups.
The report states that venture capital investment is moving towards “non-volatile innovations”, including cross-blockchain bridges, payments and remittances, lending, decentralized autonomous organizations, asset management and digital identity management.
The fourth quarter still saw significant venture capital investment. Amber Group received the highest funding when it raised $300 million in a Series C round in December 2022 to address the drawdown of specific products affected by the FTX debacle.
In Q4, there were nine “blockchain mega rounds” where firms raised more than $100 million in funding. Uniswap and Celestia were the only firms to reach unicorn status in the 4th quarter of last year, valued at $1.7 billion and $1 billion, respectively.
Coinbase Ventures was identified as one of the most active corporate VC investors by 2022, participating in 13 different funding rounds of blockchain and crypto startups.
Cointelegraph research previously pointed to a decline in venture capital investment in blockchain and cryptographic firms in 2022. According to an internal survey conducted, web3 and infrastructure service providers received the highest share of venture capital funding.