Venture capital investment is still going strong despite the crypto winter keeping its market cap below $1T
1. Global crypto venture capital investment expected to reach $584.4 billion by 2027
2. Venture capital investment is still going strong despite the crypto winter keeping the market cap below $1T
3. 2022 is expected to be the second highest investment-in-crypto year for VCs to date
Venture Capital firms have invested over $30 billion in various crypto companies last year. According to a report by Sifted Intelligence, the number of investments in crypto, and decentralized finance (DeFi) startups in particular, grew significantly in 2021. By the end of July this year, VC investments in crypto in 2022 reached $17.5 billion, according to PitchBook data.
Even as the crypto sector shivers from the winter period, venture capitalists are clearly continuing to bet on this market, pouring money into digital currency and blockchain projects. 2022 is set to be the second biggest year for crypto investment so far. Let’s take a closer look at why.
Venture capital investments in 2022 motivated by startups
While H1 2022 has seen global investments in crypto and blockchain reach almost half of the total figure achieved in 2021, it is hard to deny that the crypto winter took its toll on this market. In the first half of 2022, venture capital (VC) investments in cryptocurrency startups fell by 26%. It was a result of falling cryptocurrency prices, the demise of terraUSD and liquidity problems experienced by cryptocurrency lenders Celsius and Three Arrows Capital.
According to Crunchbase statistics, investments in crypto firms fell from $12.5 billion in the first half of last year to $9.3 billion in the first half of 2022. But the fact that the investment volume is decreasing does not mean that the overall interest in crypto has decreased with it. The same data also shows that the number of VC deals increased from 456 to 534 transactions from 456 to 534 in H1 2022.
The cryptocurrency industry has already gone through winters before. In previous years, investors would pull back when the price of bitcoin fell, while startups would go under trying to survive. This time, despite dramatic headlines about the turbulent market, venture capital still had a great second quarter in 2022, with deals totaling over $4.2 billion.
The belief that a crypto winter or bitcoin bear market could give this sector an opportunity to regroup and develop more successful products is backed by big-money venture capitalists. They continue to be bullish on cryptocurrency and blockchain companies and fund them with billions of dollars.
The promise of web3 that stimulates venture investments
International companies are aware that by making high-tech investments today, they will benefit from creating and using new Web3 technologies in the future. An increase in VC investment has been caused by the establishment of a number of well-known VC companies’ platforms to invest in Web3 and cryptocurrencies this year. Examples include the $2.5 billion fund from Paradigm and the $1 billion fund from Electric Capital. Even TradFi giants, such as Nomura, are jumping on the crypto bandwagon and establishing their own digital asset-focused funds.
To summarize, throughout 2022 we have seen macroeconomic issues, including inflation, rising interest rates and geopolitical risk, as significant impediments to investment. And this is likely to continue until the end of the year and into the first part of 2023.
But while they may not be at the unprecedented record levels we saw in 2021, VC investments in 2022 so far are still higher than any records in 2018, 2019 or 2020. As such, 2022 ranks as the second highest investment year in crypto to date .
