According to a research firm Pitchbook, the total funding for cryptocurrency companies in 2022 is expected to surpass the 2021 investments, though the pace of capital deployment is slowing as a series of blowups sapping private equity investment appetite.
The investments in cryptocurrency projects received USD 19.9 billion in venture capital (VC) in the first nine months of 2022, a 41% increase from the same period last year. Last year the crypto projects brought in a record USD 21.2 billion in total.
However, the amount of capital deployed has been declining throughout 2022, with only USD 4.0 billion spent in the third quarter, the lowest amount since the second quarter of 2021 and a 38.3% quarter-over-quarter fall, according to Pitchbook.
The collapse of FTX in November was the most shocking of several significant market participants this year, including Celsius and Voyager, prominent tokens terraUSD, and Luna, which have shaken investor confidence and destroyed USD 1.5 trillion in market capitalization for cryptos.
Robert Le, crypto analyst at PitchBook said, “The lack of clear regulation and guidance remains one of the crypto industry’s greatest concerns and limiting factors. Mainstream adoption is unlikely to occur until better guardrails in the form of established laws and guidelines are in place.”
Following the cryptocurrency exchange’s bankruptcy filing, a number of FTX backers, including Singapore state investor Temasek Holdings, SoftBank Group Corp.’s Vision Fund, and Sequoia Capital, marked down their investments to zero.
Adam Struck, at LA-based venture capital firm Struck Capital said, “This bearish sentiment will continue for all of next year and you’re going to notice that the pace of investment and the amount of capital deployed is going to get lower and lower on concerns over contagion risk.”
According to Pitchbook, VCs invested USD 1.5 billion in so-called Web3 startups in the third quarter, representing a sequential gain of 44.5%
Web3 – a term used to describe a potential next phase of the internet – was the only crypto area that experienced a gain in capital spending during the quarter, Pitchbook said.