Cointelegraph Research Data: In July, Blockchain Venture Capital Dropped By More Than 43%

TL: DR

• Recent Cointelegraph research has shown that the inflow of venture capital in the blockchain industry plunged by more than 43% in July.
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• Despite this recent drop, the total year-to-date capital which is over $31.3 billion has surpassed 2021’s total when the market was at a high point.
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• The crypto market downturn and an uncertain macroeconomic landscape is affecting private funds while the Web 3 and Metaverse sectors are experiencing growing interest.
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• The general investment landscape is not as bad as the recent drop may suggest as there are positive signs of long-term blockchain innovations.

Introduction

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According to the latest report of Cointelegraph research, in July 2022, the blockchain venture capital inflows fell by 43% month-on-month. The research platform has described this revelation as a lagging indicator of the industry's health. After seven consecutive growth sectors, the explosion of venture funding in the blockchain sector in the previous year and the first half of 2022 seems to be cooling off. It is noteworthy that, whereas overall capital funding plunged 43% in July to $1.98 billion from June's $3.5 billion, the VC market looks to be much healthier compared to 2021. In total, $30.5 billion in venture capital was invested in the blockchain space in 2021. With over $31.3 billion in investments, 2022 has already surpassed 2021's total. Interestingly, The Web3 sector, which includes GameFi and the Metaverse, continues to attract the majority of investor attention.

Venture Capital Investment in Blockchain Industry

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Despite the overall adverse price action in the crypto industry, continued venture capital investments show that the industry is healthy and evolving. Macroeconomic factors have recently strangled the crypto economy, fueling fears of a prolonged downturn. Crypto prices plummeted after the United States Federal Reserve announced an increase in interest rates. Then, on May 9, the algorithmic stablecoin TerraUSD (UST) lost its one-to-one peg to the US dollar, causing a black swan event that impacted the Terra ecosystem and broader space. Venture capital firms are not immune to negative sentiment, confirming that the recent drop in cryptocurrency prices is beginning to affect private funding. According to the Cointelegraph Report, the average deal value in the venture capital industry fell 16% in the second quarter to $26.8 million, indicating that the engine of the crypto venture capital train is likely running out of steam.

Making Sense of the Drop in Venture Capital

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Private funding is impacted by the crypto market downturn and an uncertain macroeconomic landscape, but the outlook remains positive. With month-on-month declines in overall funding, deals, and deal values, VC market inflows stay on par with the market's bull run in Q2 2021. The 141 individual deals in July raised just over $1.98 billion in investment from $3.5 billion in June. Investors' attention is shifting to Web3, as uncertainty in the DeFi space affects investor sentiment.

Web3 Attracts the Most Interest from Investors.

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In the second quarter of 2022, venture capital firms changed their investment strategy, favoring Web3 over decentralized finance (DeFi). In July, Web3 companies accounted for 44% of investments and 55% (78) of the 141 completed deals. Capital interest in decentralized finance continues to decline, accounting for 27% of all funding and only 17% of deals closed in July. Furthermore, GameFi acquired 20% of the 78 completed deals, while Metaverse companies accounted for 17%. DeFi has always been the king of VC capital inflows. That changed in the second quarter when Web3 accounted for approximately 42% of all single transactions. DeFi trailed far behind at 16%. This trend was evident when looking at the most active investors, who made approximately 42% of all trades in Q2 compared to 65% in Q1.

Web3 was chosen as an investment sector by seven of the top ten most active investors. The impetus for companies to actively participate in the global metaverse concept is the driving force behind this new trend.

Examples of Recent Venture Capital Deals

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The top ten deals were down from the previous quarter, but there was a massive $2 billion deal with Epic Games to expand into the mix of sports experiences and the cryptocurrency metaverse. The Metaverse and Web3 have been recurring themes in these large deals.

Mergers and acquisitions (MA) provides companies with significant strategic opportunities, particularly during turbulent times. Animoca Brands appears to take these strategic opportunities seriously, having acquired three game-fi companies and others in education and marketing.

The acquisitions also included two big names: eBay and Napster. eBay acquired Known Origin, a marketplace for non-fungible tokens (NFTs), to broaden its consumer product offering. Algorand and Hivemind purchased Napster to expand the music NFT marketplace and improve access for music creators and consumers.

Top Crypto Venture Capital Firms by Deal Counts

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Coinbase Ventures: 254

dealsCoinbase Ventures is a venture capital firm founded by the Coinbase cryptocurrency exchange in 2018. It specializes in early-stage venture capital deals and works almost entirely in the blockchain and cryptocurrency. Despite Coinbase's rough start to 2022, their venture arm remains the sector's top VC investor, having recently invested in DeFi platform Mohash and DAO platform Samudai.

Digital Currency Group: 223 deals

Digital Currency Group, founded in 2015, is a venture capital company that invests in cryptocurrency and blockchain companies. The company has $72 million in dry powder and supports seed-stage, early-stage, and later-stage VC companies. Ballet, a cryptocurrency wallet, and Streami, a blockchain software company, are two of their most recent investments.

AU21 Capital: 212 deals

AU21 Capital is a venture capital company that prefers seed, early-stage, and later-stage investments in blockchain technology companies. Recent acquisitions by the firm include blockchain gaming startups Enjinstarter and Awkay Technologies.

NGC Ventures: 211 deals

NGC Ventures was founded in 2017 and acted as a global investor and incubator for blockchain and cryptocurrency projects. Many companies they support, such as Parami Protocol and Resource Finance, focus on utilizing blockchain's potential for decentralization, with use cases such as DeFi and decentralized computing.

Conclusion

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Even most optimistic maximalists have accepted the grim reality of a prolonged crypto winter as prices rise occasionally at best. The market condition reflected investors' change of strategy to favor Web 3 and Metaverse. The general investment landscape is, however, not as bad as the recent report of the Cointelegraph research may portray at face value. Total investment in 2022 to the current month has already surpassed the entire investment for 2021 with the bull run of that year. As venture capital firms invest in long-term projects, there are still positive signs for blockchain innovations in the days ahead.



Author: Gate.io Observer: M. Olatunji
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