Venture capital keeps pouring in crypto?

Markets are inherently seasonal. Crypto is no exception. Despite this, even on the darkest days, builders continue to push on and remain optimistic. Then the dust settles and the gains become apparent.

Given the recent market downturn, we are now in a period of gloom — “crypto winter”. However, crypto investors are like fire on cold days… They continue to keep the spark of hope and hasten the onset of warm days. They keep pouring billions into crypto projects and remain bullish. How high is this level of optimism in Q1 and Q2’2022?

Quick take:

  • Venture capital funding for blockchain projects reached a record high in Q1’22 — $9.2 billion.
  • June was the worst month of the past two years, with a 21% drop in investment.
  • Investors continue to financially support blockchain projects, doubling the interest in the Web3 sector.
  • CeFi continues to be the less investment-intensive crypto-segment.
  • GameFi remains the most stable-investment sector.

Сyclicality is a crypto stunt

Despite the volatility of crypto, or rather the prices in this segment, this is its trump card as well. Numbers have always been a light indicator that has generated frenzied interest among crypto-enthusiasts, boosting their activity to the sky. In total, crypto has seen 4 cycles of crazy activity since bitcoin’s creation: 2011, 2013, 2017, and 2021 smoothly transitioning into 2022.

Source: Brainless Tales

2021-early 2022 — crypto projects are blooming

Venture financing for blockchain startups reached $25.2 billion in 2021, up from $3.1 billion in 2020. Globally, blockchain startup funding accounted for 4% of total global venture capital funding (1% in 2020). At the same time, Coinbase Ventures was the leader in the “blockchain incentives race” for 2021, investing in 68 companies, followed by China’s AU21 Capital with 51 companies and Andreessen Horowitz (a16z) in third place, financially supporting 48 companies.

2021 can rightfully be considered a “crypto summer”. Although diminished, investors’ appetite continues to sweep startups in the first half of 2022 as well, reaching its all-time funding level in Q1’2022.

Q1’22 — Crypto summer does not intend to back down

In general, the data for the 1st half of 2022 show a waning appetite of venture capitalists for a hyped crypto-theme. However, the first quarter of 2022 made a significant dent in the crypto’s history. Blockchain and cryptocurrency startups had a record quarter of funding, mostly due to a doubling of investor interest in Web3.

Venture funding for crypto projects reached an all-time high of $9.2 billion in the first quarter of ’22, due to the data from CB Insights.

Source: CB Insights

What other noteworthy first-quarter 2022 numbers, according to CB Insights?

  • 461 deals, up 60 deals from the previous quarter (Q4'2021).
  • 28 total rounds worth $100 million.
  • +115 new crypto unicorns.
  • DeFi projects raised $2.1 billion while NFT-focused — $2.4 billion.

Q2’22 — Crypto summer turns to fall

Venture funding in the blockchain sector fell 22% in Q2'22, from $12.5 billion to $9.8 billion, according to Block Research. That’s a drop not seen since 2020. The report also showed that while the total number of deals increased from 648 in Q1 to 694 in Q2, June was the worst month of all, down from 247 to 196 the month, a nearly 21% drop.

Of course, the numbers may vary from survey to survey, but the general vibe of the second quarter of 2022 is clear — dark times are upon us.

Source: Bloomberg

Also, the share of deals under $50 million was up. Thus, about $9.8 billion in financing in the second quarter, 44% were for deals under $50 million, down from 29% in Q1'22.

The second quarter was also poor in the influx of new unicorns: only about 62.

Source: Economic Times

Do investors remain in the shadows?

As mentioned at the beginning of this article, crypto is cyclical and there are no escaping problems here. The recent failure of Terra, financial difficulties at some lender giants like Celsius and Babel Finance, and other volatility in the current state of the crypto market have contributed to the uncertainty. However, despite entering colder times, VC financings continue to contribute to newer projects.

  • Multicoin Capital, a venture capital firm, announced a launch of a $430 million VC fund.
  • Lightspeed Venture Partners claimed the formation of an independent team focused on blockchain investment — Lightspeed Faction.
  • Magic Eden, the leading Solana NFT marketplace, has launched a Web3 gaming investment arm.
  • Request Finance, a French-born startup, raised $5.5 million from Animoca Brands, Balderton Capital, and XAnge on June 9.
  • Entropy, a New York-based startup, raised $25 million on June 8.
  • Andreessen Horowitz raised a $4.5 billion crypto fund in May.
  • Startups Babel Finance and StarkWare received multibillion-dollar valuations in recent fundraisers.

Total funding for May amounted to $4.219 billion, down 38.2% from April 2022 and up 97.8% from May 2021.

Therefore, the bear market is about builders who set the foundation for the future without ceasing to act in harsh times. Decreased but the continuing activity of funds indicates that the base for the next crypto-cycle is being paved.

Web3 — the most eye-catching crypto-sectors for VC investors

With the blazing success of DeFi and NFT in 2021, both segments crashed in the first half of 2022 and lost most of their trading volume. Meanwhile, while Web3 is starting to gain more momentum, especially from early 2022, the GameFi industry is in its element, bypassing the turbulent phase.

Source: Twitter

The reason for such brave resilience is that GameFi is not as tied to Ethereum or Bitcoin performance as the crypto market itself. Moreover, this sector has a slightly different audience from, for example, the users of DeFi or, generally speaking, even NFT. GameFi attracted the most investment among other sectors of the blockchain market in the first half of 2022, based on PitchBook data.

Source: Pitch book

However, according to CoinTelegraph research, the Web3 sector has been the leader in fundraising since the start of this year, winning 26.5% of deals, leaving behind even DeFi with 23.2%. In fact, seven of the ten most active venture capitalists have chosen Web3 as a sector to invest in. The driving force behind this new trend is the active involvement of companies in the overall Metaverse concept, as per CoinTelegraph. What’s more, recent funds such as Bain Capital and Haun Ventures are focusing on Web3 as a potentially robust crypto sector. But the NFT niche also continues to grow thanks to the investment funds.

While Web3 is slightly ahead of DeFi and NFT, CeFi continues to be the less investment-intensive sector.

Source: CoinTelegraph

Coinbase data also points to Web3 remaining the leader in this investment race so far.

Source: Coinbase

The growing popularity of Web3 can be explained by the fact that the Web2 era is beginning to exhaust itself, giving way to decentralization, especially in terms of social media data. One of the directions in the development of Web3 is SocialFi (social finance), which combines both social networks and decentralized finance. Maybe soon the sharks of the centralized social networking market like Meta and with it Instagram will give way to decentralized social networks, where users will be responsible for their data, have full control over their content, and perform seamless cross-platform interaction.

However, while Web3 is emerging from the shadows and picking up steam, the current market still needs products that will solve crypto’s pain points. For example, a versatile wallet, a single community platform, a mechanism to protect against scammers, and tools for creators and influencers. To facilitate the transition from the Web2 era to Web3 and still successfully address the aforementioned needs, a solid foundation is needed.

We, at OneArt, have already started putting it in place. Discover our NFT app, which is developed to provide a single hub for storing, sharing, and browsing NFTs for everyone from one place. NFT wallet, NFT preview, security, and other features are already in place.

Stay tuned for more updates!

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