2022 will go down as a tough year for crypto, and the bleak market conditions were mirrored by a decline in venture capital (VC) funding flowing into the blockchain and crypto sectors.
A report from Blockdata highlights consecutive quarterly drops in funding through 2022, following booming VC funding into the wider Web3 space through 2021.
Analyzing data from CB Insights, Blockdata rounded off 2022’s final quarter of venture capital funding value, noting a 34% decline from Q3 2022. The last quarter of the year was down drastically compared with Q1 and Q2, dropping by 67% and 53%, respectively.
The subsequent drop in VC investment fell every quarter from an all-time high of $11 billion in investments and 692 deals in the first four months of 2022.
Blockdata points to several factors for the decline in crypto and blockchain-related VC funding last year. The $60 billion collapse of the Terra ecosystem in May 2022 is highlighted as a trigger event, leading to the subsequent bankruptcy of cryptocurrency lending firms Three Arrows Capital and Celsius.
The implosion of FTX in November 2022 further impacted volatility through the space, while global macro conditions in capital markets affected by rising interest rates and inflation also played a role in the decline of investments from venture capitalists.
As a result, Q4 2022 saw just $3.7 billion in funding from VCs — a 61% drop from the $9.6 billion in Q4 2021. The total funding from blockchain and crypto startups declined by 11% yearly, from $32 billion to $29 billion.
Related: Top crypto funding stories of 2022
Blockdata highlights the volume of deals in 2022 increasing by 35% compared with 2021 as a positive takeaway. The firm suggests that despite a pullback in venture capital spending, investors are still looking to bankroll blockchain-based technologies, applications and startups.
The report notes that venture capital investments are shifting toward “non-volatile innovations,” including cross-chain bridges, payments and remittances, lending, decentralized autonomous organizations, asset management and digital identity management.
Q4 still produced some sizeable VC investments. Amber Group netted the highest funding, raising $300 million in a Series C round in December 2022 to tackle drawdowns of specific products affected by the FTX debacle.
Nine “blockchain mega-rounds” occurred in Q4, where firms netted over $100 million in funding. Uniswap and Celestia were the only firms to reach unicorn status in Q4 last year, valued at $1.7 billion and $1 billion, respectively.
Coinbase Ventures was identified as one of the most active corporate VC investors through 2022, participating in 13 different funding rounds of blockchain and crypto startups.
Cointelegraph Research previously highlighted the drop in venture capital investments into blockchain and crypto firms in 2022. Web3 and infrastructure service providers received the highest share of VC funding, according to Cointelegraph’s in-house research.