2023 Could Be a Tough Year for Crypto Venture Investments: Galaxy Research

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The past year has been a big one for crypto venture capital despite multiple high-profile meltdowns and the ensuing FUD (fear, uncertainty and doubt) tsunami. However, funds may not flow so smoothly this year, a crypto researcher warns.

The number of deals and the amount invested by VC firms in Web3 and crypto startups was just over $30 billion in 2022, according to Galaxy Research

Galaxy’s head of scale research Alex Thorn described it as a “monster year” that was barely eclipsed by the $31 billion in venture capital investments in 2021.

However, in a Jan. 5 report, Thorn said macroeconomic and crypto market conditions led to significant declines in investment in the third and fourth quarters. This will likely continue through 2023, until macro and crypto market conditions improve.

Thorn noted that there were 2,900 venture capital deals in 2022, although the fourth quarter saw the fewest deals and the lowest invested capital in two years.

If this trend continues, crypto and Web3 companies could struggle to raise funds in 2023, Thorn suggested.

The macro, monetary and crypto asset environment portends a challenging year for all parties involved.

He added that falling corporate valuations and tougher investor demands will lead to a tougher fundraising environment for entrepreneurs.

“Startups will need to focus on fundamentals, control operational expenses and generate revenue in 2023,” he continued.

The US regulatory environment will also have implications since America still dominates the crypto startup ecosystem.

According to the report, over 40% of all crypto venture capital deals last year involved a US-based startup.

The continued importance of the United States in these markets and its leadership position provide US policymakers with good reason to clarify and codify rules and regulations for the emerging space.

Investor dispositions and crypto markets are cyclical, however.

Gene Frantz, general partner at Google and Alphabet’s independent growth fund CapitalG, told Forbes last month that the outlook and headlines for year-end 2023 would be much better than today.

The current news cycle may be challenging, but persistence and innovation combined with an improving economic outlook will restore the optimism that has always defined our [venture capital] industry.

In a Jan. 5 report, Crunchbase also hinted at a slower 2023 for venture capital funding across all industries. In 2022, global venture capital funding fell 35% compared to 2021, but the crypto sector remained buoyant for the year, offering a silver lining for the year ahead.

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