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Report: Investments in Crypto Venture Capital Shift Focus from Speculative NFTs and Metaverse Projects Towards Infrastructure Development

VC Crypto Investments See Fifth Consecutive Quarterly Decline

The negative impact of Bitcoin’s disappointing performance in 2022 continues to affect the larger crypto and blockchain ecosystem, leading to a decline in investments in crypto-related startups for the fifth consecutive quarter. According to data from PitchBook, VC investments in crypto totaled just below $2.3 billion in the April-July 2023 period, marking the lowest quarterly level in over three years.

Investments in H1 2023 saw a decline of nearly three-quarters, dropping from about $5 billion in the previous year. Tal Elyashiv, founder and managing partner at SPiCE VC, stated that the days of lofty valuations are behind us, with valuations now aligning more closely with actual performance.

The industry has faced significant uncertainty over the past year, with the collapse of the FTX digital currency exchange and other prominent companies, such as Three Arrows Capital, sending shockwaves through the sector. US regulatory authorities have also increased their scrutiny of the speculative industry.

The number of finalized deals in H1 2023 stood at 814, down significantly from 1,862 in the same period in 2022. According to Reuters, funds are now taking more time to conduct deeper diligence before closing deals.

While the investment decline may be a short-term situation, it is worth noting that venture capital investments in the crypto space tend to correlate with digital asset prices, with a lag of approximately 3-6 months.

Bitcoin, the leading digital currency, has seen a significant recovery in H1 2023, surging more than 90%. However, it is still trading at around a third of its 2021 peak. If present market trends persist, VC investment may increase in the second half of this year.

PitchBook’s research also indicates a shift in VC investment strategies. While speculative non-fungible tokens (NFTs) and Metaverse/Web3 initiatives were the focus a year ago, investments have now shifted towards companies that offer support for the underlying technology of blockchain and distributed ledger technology (DLT). Infrastructure companies, such as cryptocurrency exchanges and digital wallets, received the most investments this year.

In Q2 2023, the only two investment rounds of over $100 million were secured by LayerZero, a platform connecting different blockchains, and the controversial WorldCoin initiative. Alyse Killeen, founder at Stillmark, commented on the shift in investment focus, highlighting the growing interest in blockchain/DLT infrastructure companies.

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