September 4, 2023

Crypto Funding in August Declined Less Than $500 Mln

Crypto Funding

Crypto Funding

Crypto startups experienced a significant setback in August when venture funding declined to less than $500 million. According to The Block Research’s data, this marks the lowest point in over two years.

The decline in funding has continued for four consecutive months, a sharp contrast to the enthusiastic investments observed in the industry in the past few years.

Investors in the venture capital space are becoming more careful in their approach and exhibiting a noticeable change in sentiment. Tom Schmidt, a managing partner at Dragonfly, a crypto VC firm, highlighted in a report that investors are taking their time in selecting promising projects while being mindful of the inflated valuations rampant in the market in past years.

Several startups that raised large sums of money at exaggerated valuations are now finding it challenging to secure funding in 2023 unless they undertake significant restructuring efforts. Although the pre-seed and seed funding segments are relatively healthy, they constitute only a small portion of the overall market.

The bear market has negatively affected the cryptocurrency industry, which has caused a decline in prices and compounded the existing challenges.

On Friday, there was another drop in cryptocurrency prices as investors realized that the approval of a spot Bitcoin exchange-traded fund (ETF) might not happen until at least October. This delay has resulted in a wave of disillusionment among investors, leading to many of them leaving the market.

David Lifchitz, a managing partner and chief investment officer at ExoAlpha, has identified a crucial factor contributing to the persistent weakness in the crypto market – a severe liquidity shortage.

According to him, the liquidity surge in 2021 and 2022 was primarily due to large institutional investors entering the crypto space. However, as the bear market unfolded in 2022, many of these institutional players retreated, and the recent FTX incident further deterred their return. As a result, the digital currency market is now grappling with a significant liquidity vacuum, which has exacerbated its challenges.

Recent declines in venture funding and ongoing market uncertainties underscore the need for a tempered and pragmatic outlook in the crypto ecosystem.

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