LianGuai Observation | 14 Charts Analyzing the Cryptocurrency Venture Capital Market in the Second Quarter of 2023

Source: Galaxy official website; Compilation: LianGuaiJason

LianGuai Report, cryptocurrency venture capital company Galaxy Digital has released its Q2 cryptocurrency venture capital market report, which shows that the bear market continues, although transaction volume remains strong, the total capital allocated to cryptocurrency startups is still declining compared to the previous quarter. However, compared to the previous bear market, cryptocurrency venture capital activity remains strong. The number of transactions and investment capital are still about twice as much as during the bear market period from 2017 to 2020, indicating a net growth in the startup ecosystem over a longer period of time. In addition, early-stage transaction activity remains strong, with the United States continuing to dominate the cryptocurrency startup ecosystem, while funds are flowing into emerging verticals such as Web3, DAOs, metaverse, and gaming.

1. Analysis by Transaction Volume and Investment Scale

1. In Q2 2023, the total investment scale of the cryptocurrency and blockchain industry was $2.32 billion, hitting the lowest level since Q4 2020, and continuing the downward trend since the peak of $13 billion in Q1 2022. In fact, the funding for cryptocurrency and blockchain startups has not been optimistic in the past year, with the total funding for the past three quarters being less than that of Q2 2022.

2. Despite the gradual shrinkage of venture capital, the number of investment and financing transactions in the cryptocurrency industry in Q2 2023 has slightly increased, with a total of 456 transactions completed, compared to 439 transactions in Q1 2023. Analysis shows that the number of financing transactions in the Series A stage increased to 174 transactions in the last quarter, an increase of about 13% compared to 154 transactions in Q1 2023.

3. In terms of financing stages, early-stage transactions (pre-seed, seed round, and Series A financing) accounted for the vast majority (73%) of investment in the cryptocurrency industry in Q2, while late-stage transactions (27%) were relatively few in number.

2. Analysis of Venture Capital by Company Age

4. In Q2 2023, cryptocurrency startups established in 2021 and 2022 completed the most financing transactions, both exceeding 100 transactions.

5. Cryptocurrency startups established in 2022 raised the most funding among companies of the same kind in all years (close to $500 million), followed closely by those established in 2021 (over $450 million).

3. Analysis of Venture Capital by Geographic Location

6. Cryptocurrency startups headquartered in the United States dominate in terms of the number of completed transactions and the scale of funds raised. In Q2 2023, the funding raised by cryptocurrency startups in the United States accounted for over 45% of the total financing scale, followed by the United Kingdom (7.7%), Singapore (5.7%), and South Korea (5.4%).

7. In terms of the number of completed financing transactions, the situation is similar. In the second quarter of 2023, the number of financing transactions obtained by cryptocurrency startups in the United States accounted for more than 43% of the total number of completed financing transactions, followed by Singapore (7.5%), the United Kingdom (7.5%), and South Korea (3.1%).

4. Analysis by the scale of venture capital transactions and valuations

8. In the second quarter of 2023, the valuation scale of the entire venture capital field continued to decline, and cryptocurrencies were no exception. In the previous quarter, the median pre-investment valuation of cryptocurrency or blockchain venture capital transactions dropped to $17.93 million, the lowest level since the first quarter of 2022, and the median scale of cryptocurrency venture capital transactions was $3 million.

9. The decline in the scale and valuation of cryptocurrency venture capital transactions follows the trend of the entire venture capital industry.

5. Analysis by venture capital category

10. In the second quarter of 2023, the most venture capital funds were raised by cryptocurrency trading companies, exchanges, investment companies, and lending startups (reaching $473 million, accounting for 20% of deployed capital).

Web3, NFT, gaming, DAO, and metaverse startups followed closely, raising $442 million, accounting for 19% of all venture capital deployed in the second quarter of 2023.

The Layer2/Interop field witnessed the largest financing transaction in the previous quarter: LayerZero raised $120 million in Series B financing. Magic Eden completed a financing of $52 million; infrastructure service provider Auradine completed a financing of $81 million, and River Financial raised $35 million.

11. In terms of the number of transactions, companies developing products in the Web3 gaming, NFT, DAO, and metaverse fields continue to lead, followed by trading, exchanges, investment, and lending companies. These trends have not changed compared to the first quarter of 2023, but it is worth noting that the companies building privacy and security products have the highest growth rate in the number of financing transactions (275%), followed by infrastructure companies (114%).

12. The largest share of transactions completed in the later stages is in the mining and enterprise blockchain categories, while the compliance category, including chain analysis and regulatory tools, has the largest share of transactions completed in the seed stage.

13. In terms of funds raised, mining and Layer 1 transactions are mostly in the later stages, while custody, media/education, compliance, and DeFi have a large portion of funds raised in the early stages.

Sixth, analyzing by encrypted venture capital institutions

13. Since the third quarter of 2020, the number of new funds issued in the second quarter of 2023 is the lowest (10), and the allocated funds are also the lowest (720 million US dollars).

14. Combining the data for the first half of 2023, the average size of new funds is currently 236 million US dollars, and the median is 50 million US dollars, both of which have decreased significantly compared to last year.

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