Crypto Firms at Risk of Shut Down as Venture Funding Plunges 63%
Venture capital’s (VC) interest in the crypto market has declined significantly with funding dropping 63% due the bear market and rising interest in artificial intelligence (AI).
In 2021, venture capital interest in the crypto market was at its peak. However, with the bear market generating huge losses in 2022, VCs have been scared off.
Crypto Funding Woes Continue in Q3 2023
According to Bloomberg, VCs invested only $1.9 billion in crypto firms throughout the third quarter of 2023. That being said, the crypto funding is down 63% in Q3 2023 compared to Q3 2022.
Read more: Crypto Hedge Funds: What Are They and How Do They Work?
Quarterly global crypto Venture funding. Source: PitchBook/Bloomberg
PitchBook analyst Robert Le believes:
“We aren’t seeing the big deals anymore. That’s one of the drivers of the decline – deals are smaller.”
He fears crypto companies might leave the business if they fail to raise new funds. Le said:
“If they’re not able to raise a round, even a down round, they’re either going to go out of business or get acquired at a valuation that’s much, much lower.”
In fact, in May 2023, BeInCrypto reported that the Australian blockchain-based startup Everledger was wrapping up operations due to a lack of funding. Earlier this month, the blockchain data firm Chainalysis laid off 15% of its staff citing market conditions.
AI Hype Stealing Limelight From Crypto
Undoubtedly, VCs have also been ditching crypto investment due to the AI hype. For example, SoftBank, the Japanese investment giant, has been aggressively investing in AI startups, diverting away from crypto investments.
Read more: AI Stocks: Best Artificial Intelligence Companies To Know in 2023
Along with VCs, companies and individuals are also preferring AI to crypto.
In August 2023, the entertainment conglomerate Disney moved on from its metaverse ambitions and launched a dedicated task force for AI. Then Jaynti Kanani, the co-founder of Layer 2 solution Polygon, announced he was stepping down from day-to-day operations to work on a new AI startup.
Meanwhile, some investment firms have maintained a long-term vision for the crypto ecosystem. On Sept. 18, BeInCrypto reported that the crypto VC company Blockchain Capital had raised $580 million to invest in six crypto sectors.
Also, the upcoming Bitcoin halving brings hope for the new bull market and the fresh VC funding to enter the crypto space.