Key Points
Crypto venture capital investment has yet to bottom out. The third quarter was the lowest quarter since the fourth quarter of 2020 in terms of completed deals and total investment.
Companies in the broad Web3 category dominated deal count, while companies in the deal category raised the most total capital. Q3 results continue a trend we’ve seen all year. Interest in AI called for the creation of a new sector in our dataset, and there is growing interest in the overlap between AI and cryptocurrency.
The United States continues to dominate the cryptocurrency startup scene, but other jurisdictions are catching up. While U.S. crypto startups account for more than 35% of all completed deals and raised more than 34% of venture capital firm investment capital, the U.S. is now losing significant share of deals and capital to countries like the United Arab Emirates, Singapore, and the United Kingdom, which all have more advanced cryptocurrency regulatory frameworks.
The venture capital fundraising environment remains extremely challenging, but may be improving. Venture funds raised more than $1 billion in the third quarter of 2023, the first increase since the decline that began in the third quarter of 2022. The number of new fund launches also increased from 12 in the second quarter to 15. The median and average fund sizes are down significantly from the bull market highs.
Cryptocurrency Venture Capital
Number of transactions and investment capital
The cryptocurrency and blockchain industry saw $1.975 billion invested in Q3 2023, a new cycle low and the lowest level since Q4 2020, continuing a downward trend that began after the $12 billion peak in Q1 2022. Cryptocurrency and blockchain startups raised less money in the past year than in Q1 2022 combined, four quarters higher. The number of deals also hit a new low in this cycle, at just 376 deals.
Cryptocurrency venture capital at corporate headquarters
While the United States continues to lead in terms of transaction volume and invested capital, companies based in jurisdictions with more advanced and clear regulatory frameworks for the cryptocurrency industry saw significant growth in both categories in the third quarter.
In Q3 2023, U.S. companies raised 34.5% of all cryptocurrency venture capital funding, followed by the United Arab Emirates (23.5%), the United Kingdom (9.5%), and Singapore (6.2%).
Cryptocurrency venture capital by category
For the third consecutive quarter, exchanges, investing, and lending startups raised the most VC funding ($611 million, or 32.5% of all VC funding). For the second consecutive quarter, Web3, NFT, Gaming, DAO, and Metaverse startups raised the second most funding ($266.5 million, or 14.2% of all VC funding deployed during the quarter).
Transactions in the exchanges, investments and lending sectors were the largest of the quarter, with $400 million in early-stage funding raised for Haqqex, a self-described “Sharia-compliant” digital asset exchange.
Custody saw the second largest deal in Q3 2023, with BitGo raising $100 million in a Series C round. Our new AI category shows that startups building AI-related products raised more than $60 million in Q3 2023, representing 3.2% of all venture capital deployed in the quarter.
In terms of transaction volume, companies building products in the Web3 gaming, NFT, DAO, and Metaverse sectors continue to lead, followed by trading, exchanges, investment, and lending companies. These trends are unchanged from Q1 and Q2 2023.
The bear market for cryptocurrency venture capital continues. The number of deals and investment capital make it unclear whether the market has bottomed out. High interest rates put widespread pressure on the venture capital industry. Other important conclusions include: cryptocurrency venture capital is still in a bear market, venture investors face a difficult financing environment, founders face financing pressure, and the United States' leading position is challenged.
Note: All content represents the author's personal views only, is not investment advice, and should not be construed in any way as tax, accounting, legal, business, financial or regulatory advice. Before making any investment decision, you should seek independent legal and financial advice, including advice on tax consequences.
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