The cryptocurrency market has seen a relatively slow start to the year, as industry-related firms globally managed to raise $2.42 billion in venture capital funding over 374 deals throughout Q1. Data from Pitchbook revealed a decline of 20% in total deal value, in comparison to the previous quarter, which totaled $3 billion. This decline also translated into a 5% drop in deal numbers, from 394 to 374.
Many factors have contributed to this slowdown in funding, including waning interest in digital assets and a series of scandals that have tarnished the cryptocurrency sector’s reputation. Q2 is already on track to mark the fifth consecutive decline in both deal count and value, as investment in the industry continues to fall.
But despite this overall downturn, there are a few encouraging signs emerging in the market. Layer-2 scaling solutions, such as Scroll, are still attracting significant investments, as they aim to improve the scalability of cryptocurrencies like Bitcoin and Ethereum. Scroll secured a $50 million deal on March 6, with a post-money valuation of $1.8 billion, while Blockstream, a Bitcoin scaling platform, raised $125 million in a late-stage deal on January 24, valuing the company at $2.49 billion.
In comparison, some of the largest deals in 2021 and 2022, like Fireblocks’ $550 million later-stage VC in January and Blockchain.com’s $490 million deal three months later, demonstrate how significantly the industry has contracted recently.
Some experts believe that late-stage valuations are being skewed upward, as only outsized up-rounds are publicly disclosed, while down-rounds are kept private. The small sample size of Q1 and the downward trend in seed-stage and late-stage valuations suggest that a reversal in these conditions is on the horizon.
While the overall outlook appears pessimistic, it’s important to note the positive developments occurring in the crypto landscape. As layer-2 scaling solutions and other innovative technologies continue to garner investor attention, it’s entirely possible that market conditions could shift in a more favorable direction. Nonetheless, the current state of the industry serves as a clear reminder of the inherent volatility and unpredictability associated with cryptocurrency investing.
Source: Blockworks
