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VC Crypto Investment at Lowest Level in 3 Years — Recalibration or Market Fears?

Last Updated March 4, 2024 1:46 PM
Teuta Franjkovic
Last Updated March 4, 2024 1:46 PM
Key Takeaways
  • In Q2 of this year, crypto firms secured $2.3 billion in VC funding.
  • Raisings hit their lowest level since Q4 2020.
  • Regulator ambiguity has stifled enthusiasm and forced revaluation of investment ideas.
  • Dwindling entrepreneur funding might hamper innovation.

Venture Capital funding has usually given the cryptocurrency industry a much-needed boost. Along with providing the urgently required funding, it was also providing access to crucial strategic advice, business contacts, and mentorship from experienced investors.

Backing has been dwindling, nevertheless, raising questions about the long-term viability of the cryptocurrency ecosystem.

A recent BitcoinCasinos.com report showed that VC funding for the crypto industry has significantly decreased as VC rounds raised $2.3 billion for crypto businesses, the least amount since Q4 2020.

Edith Reads, the site’s crypto specialist, commented that the crypto industry is at a crucial crossroads.

Although VC funding has historically served as a driver for innovation, the recent slump indicates that the sector urgently needs reflection and adaptation.

What’s Behind The Fall?

This fall in crypto VC funding is caused by several causes, most notably regulatory worries. Investor sentiment has been impacted by the various perspectives that governments around the world have taken on cryptocurrencies and blockchain technology. Regulator ambiguity has stifled enthusiasm and forced investment ideas to be reevaluated.

Furthermore, VC financing decisions have been impacted by the intrinsic volatility of the most popular cryptocurrencies. Investors struggle  to strike a balance between short-term market conditions and the potential long-term value of blockchain technology in a sector known for its volatile market dynamics.

Geopolitical factors, including COVID-19, the Ukraine conflict, inflation, high interest rates, and economic uncertainty, have amplified investors’ risk aversion. Consequently, investing in speculative assets like cryptocurrencies has become less appealing.

VC Investments
There is substantial fall in VC funding within the crypto space | Credit: PitchBook

Consequences of Declining Crypto VC

Crypto business will be significantly impacted by the ongoing fall in VC funding. It might primarily stifle innovation as entrepreneurs increasingly struggle to obtain the funding needed to create cutting-edge technologies. The fulfillment of blockchain’s promise to alter numerous industries may be slowed down as a result.

Additionally, a decrease in VC financing would make it more difficult for businesses to compete for the scarce resources. Only some of them will probably draw investors as the field becomes increasingly congested.

In the upcoming quarters, Edith sees a recalibration of the cryptocurrency investment landscape as attempts to stabilize the market, legislative changes, and the maturing of creative ventures will all contribute to a more balanced atmosphere.

VC Investment’s Link to Crypto Market Prices

In the past, VC funding for the blockchain and cryptocurrency industries has been enormous, especially during the booms of 2017–2018 and 2020–2021 . However, depending on the state of the market, funding may change.

Initiatives for funding have radically changed in response to shifting conditions in the cryptocurrency world. Venture investment activity and cryptocurrency asset values are correlated, particularly for blockchain and cryptocurrency ventures. Investments in connected firms and projects typically rise when the value of crypto assets increases.

On the other hand, if the value of crypto assets declines, there can be a decline in investing activity.

VC and BTC price
Credit: Galaxy Research

There may not be a direct causal connection despite the correlation as venture investments in the cryptocurrency sector can also be influenced by other variables, such as legislative changes or market mood.

Considering a Recover

While a reviving cryptocurrency market can draw more VCs and investors, several other factors outside market performance can affect investment choices.

Before buying any asset, including cryptocurrencies, investors often consider a number of different aspects. These might include of the underlying technology, the caliber of the development team, the size of the prospective market, the regulatory landscape, etc.

Furthermor, even in a downturn, many investors and venture capitalists actively invest in the cryptocurrency market as the view in the current market environment a chance to buy assets at a bargain for the long-term.

Therefore, market performance is simply one aspect impacting investment decisions, even though it may help a recovering market draw in more investors.

What Does Crypto VC Funding Have in Store?

The direction of cryptocurrency venture capital funding is still unknown, however, it is anticipated that it will stay muted in the near future.

A comeback in venture capital funding for cryptocurrency startups may occur in the upcoming quarters if the global economy strengthens and regulatory worries subside.

Due to the declining VC investments, cryptocurrency firms may need to look into alternate funding sources. Initial Coin Offerings (ICOs), Security Token Offerings (STOs), and decentralized finance (DeFi) platforms are examples of initiatives that may provide an alternate method of generating money and attracting a larger group of investors.

Grants, partnerships, and user-investor appeal vital for struggling entrepreneurs.

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