The Slump in Crypto Startups Investments: A Closer Look
While bitcoin has experienced a significant rebound this year, with a staggering 55% increase, investments in crypto startups have taken a hit for the fifth consecutive quarter. According to PitchBook, VC crypto bets reached just under $2.3 billion from April to July, marking the lowest quarterly level in over three years. In the first half of 2023, investments dropped by almost three-quarters compared to the previous year, dwindling to $5 billion.
Industry experts have noted a shift in valuation practices, aligning the value placed on crypto companies with their actual performance. Tal Elyashiv, founder and managing partner of SPiCE VC, stated that the days of lofty valuations are over.
The industry has also faced regulatory scrutiny, with heightened oversight from U.S. regulators. This has led to a change in approach, with funds now dedicating more time to thorough due diligence before closing deals. The number of sealed deals in the first half of 2023 decreased by over half compared to the same period in 2022.
Hot Take: A Potential Rebound on the Horizon
Despite the current investment slump, there is optimism that the situation may be short-lived. Historically, VC crypto investments have shown a correlation with crypto asset prices, albeit with a lag of three to six months. If current trends continue, VC investment is expected to rise during the second half of 2023.
It is worth noting that the focus of VC investments has shifted towards firms providing infrastructure and supporting blockchain or cryptocurrency technology. Infrastructure companies such as crypto exchanges and wallets, as well as blockchain networks, have attracted the most investments in 2023. This shift reflects a growing appetite for sustainable and durable technologies among institutional investors.
While the crypto startup investment landscape may be experiencing a temporary setback, the potential for a rebound remains on the horizon.
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