The scars of Bitcoin’s catastrophic 2022 are still fresh in the minds of venture capitalists.
While bitcoin has risen by nearly 55% this year, investments in crypto businesses have fallen for the fifth consecutive quarter.
The price of bitcoin, which dropped by 65% last year, increased by over 90% in the first half of 2023 and is currently up by over 55% year-to-date at $25,881. The price is still just one-third of its all-time high of $69,000 from 2021.
If bitcoin prices are any indication, the investment slump may be short-lived. The interest of venture capitalists in crypto is yet to recover.
According to data firm PitchBook, total venture capitalist bets on cryptocurrency were under $2.3 billion in April-July this year, the lowest quarterly level in more than three years. Investments fell nearly three-quarters year on year in the first half of 2023, to $5 billion.
“The lofty exuberant valuation days are gone,” said Tal Elyashiv, founder and managing partner of SPiCE VC, noting that crypto company prices have dropped in line with their real performance.
Crypto investors still fear the chaos that inclined on the sector last year when the FTX exchange and other large enterprises, including hedge fund Three Arrows Capital imploded and perturbed the industry.
It is followed by highly tightened US regulatory scrutiny on the industry.
According to PitchBook statistics, the number of deals closed by the midway point of 2023 were 814, down from 1,862 at the same point in 2022.
NFTs? Metaverse?
Venture capitalist have also shifted their type of investment, according to the Pitchbook stats.
A year ago, their emphasis were enterprises associated with speculative non-fungible tokens, as well as metaverse and Web3 initiatives that aimed to establish a future yet to be realized – iteration of the internet with crypto at its heart.
However, the investments have tilted towards platforms that supply or support blockchain or cryptocurrency technology.
According to PitchBook, infrastructure firms like as crypto exchanges, wallets, and other fintechs attracted the most investment in 2023 at $325 million, followed by blockchain networks at $220 million and Web3 companies at $274.6 million.
LayerZero, a platform that links two blockchains, and WorldCoin, a digital identification platform, received the only two fundraising rounds worth more than $100 million in the second quarter.
The founder and managing partner of bitcoin-focused venture firm Stillmark Alyse Killeen stated that “Institutional investors are looking for things that are more durable”.
