The cryptocurrency industry has been beset by a slew of scandals, a bear market, and regulatory uncertainty, which has led to a notable waning of interest from venture capitalists.
According to PitchBook, a leading research firm, private funding for cryptocurrency startups in the first quarter of this year has hit its lowest point since 2020.
PitchBook’s data indicates that global VC funding for the industry has dwindled to $2.4 billion during the quarter, a staggering 80% decline from the all-time high of $12.3 billion recorded in the corresponding period of the previous year.
The firm’s crypto analyst, Robert Le, points out that this decrease is unsurprising, given the general downturn in venture investing this year, driven by the surging interest rates and the recent upheaval of Silicon Valley Bank, which is relied upon by many venture-backed companies.
It is evident that the cryptocurrency industry is undergoing a period of uncertainty and instability, with VC investors adopting a more cautious approach. Nonetheless, the current scenario should not be viewed as a death knell for the industry, but rather as an opportunity for innovation, introspection, and transformation.
In the coming months, it will be interesting to see how the industry adapts to these challenges and endeavors to create a more robust, transparent, and trustworthy ecosystem.
“There’s still a lot of fear about what’s going to happen since the macro environment is still very uncertain,” Le said.
The crypto industry has faced unique challenges, including the collapse and bankruptcy of crypto exchange FTX, which has resulted in a slowdown in funding rounds and a heightened need for due diligence.
According to Le, venture capitalists are now taking more time to conduct extensive research and ask more questions of founders before making a decision to back a startup, instead of rushing into deals.
“It’s not going to be based on FOMO or what other investors are doing,” Le said.
Although the downturn was substantial, the PitchBook data contained some positive news for crypto startups.
According to Le, on a month-over-month basis, crypto venture investing saw an increase in February and March. This suggests that the worst of the funding drought may be over.
Despite the challenges, venture capitalists still have funds available, and there is continued interest in supporting crypto infrastructure startups, data analytics firms, and developer platforms.
“We’ll slowly start seeing investors get more comfortable,” Le said.
Berlin-based decentralized finance infrastructure startup, M^Zero Labs, announced that it has successfully raised $22.5 million in a recent funding round.
According to co-founder and CEO, Luca Prosperi, the company began fundraising talks in October, just before FTX’s collapse.
Prosperi admitted in an interview that the market turmoil caused by FTX’s downfall had made the fundraising process more stressful, with investors increasingly seeking more information.
However, he expressed gratitude for having venture backers who remain committed to the potential of crypto.
The fresh capital raised will be used to expand the M^Zero team, Prosperi added.