The crypto market downturn is impacting private funding, but are recent declines in capital inflows as bad as the figures suggest?
Typically a lagging indicator of the sector’s health, the explosion of venture funding in the blockchain sector in 2021 and the first half of 2022 appears to be cooling off after seven consecutive sectors of growth. According to Cointelegraph Research, inflows in the blockchain venture capital market have declined by 43% month-on-month in July 2022.
The Web3 sector, including GameFi and the Metaverse, continues to command the lion’s share of investor interest. But, the decline in capital inflows should be viewed in context as the numbers are close to the same period in 2021 when the crypto market was in a bull run.
Capital inflows nosedive in July
Even the most bullish Bitcoin maximalists seem resigned to the bleak reality of a cold long winter as cryptocurrency prices crab along with the occasional bounce, at best. VCs are not immune to negative sentiment, confirming that crypto’s recent downturn is beginning to show in private funding. As revealed in the recently published Q2 Venture Capital Report by Cointelegraph Research, the average deal value in the venture capital industry has declined by 16% to $26.8 million in Q2, and the crypto VC train of 2021-2022 is likely running out of steam.
The Cointelegraph Research Terminal VC database data that contains comprehensive details on deals, mergers and acquisition activity, investors, crypto companies, funds and more outlines that in July, the total number of deals declined 26% month-on-month, with average deal values continuing their downward trend.
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Overall capital funding plummeted 43% in July to $1.98 billion from June’s $3.5 billion. It’s easy to view these figures negatively, but when compared to 2021, the VC market looks to be in a much healthier state. Total capital inflows throughout 2021 were $30.5 billion for the blockchain space. July saw 2022s total inflows surpass that figure with $31.3 billion in investments this year despite difficult macroeconomic conditions that caused the crypto market to see some bankruptcies and controversies like the Terra collapse in May.
Web3 commands the most investor interest
VCs shifted their investment strategy in Q2, favoring Web3 over decentralized finance (DeFi). This trend continued in July, with Web3 companies accounting for 44% of investments and 55% (78) of the 141 deals closed. Capital interest in DeFi continues to wane, with the sector accounting for 27% of the total funding and just 17% of the total deals completed in July. Additionally, GameFi took 20% of the 78 deals closed and the Metaverse companies accounted for 17%.
Download and purchase this report on the Cointelegraph Research Terminal.
For a full analysis of the blockchain VC sector in July, check out the recently launched monthly “Investor Insights” report from Cointelegraph Research. The research team breaks down the past month’s top market-moving events and the most critical data across the various sectors of the industry, including venture capital.
July fundraising bonanza
July’s fundraising numbers strike a different tone from the steep decline in VC deals completed with five companies securing over $100 million in funding. Overall fundraising in July was $15.4 billion, amounting to a 61% increase from June’s $9.5 billion raised. Having previously backed several crypto and blockchain-related firms, Sequoia Capital China alone raised $9 billion in July, which shows bullish investor interest in the Chinese market despite China’s crackdown on tech companies.
VC funding has already surpassed 2021
Investor interest is shifting to Web3, with uncertainty in the DeFi space impacting investor sentiment. The crypto market downturn and an uncertain macroeconomic landscape are impacting private funding, but the outlook remains positive. With month-on-month declines in overall funding, deals, and deal values, VC market inflows remain on a par with Q2 2021, when the market was in a bull run.
The article pulls from Cointelegraph Research Terminals’ expansive Venture Capital Database. This article is for information purposes only and represents neither investment advice nor an investment analysis or an invitation to buy or sell financial instruments. Specifically, the document does not serve as a substitute for individual investment or other advice.