Crypto companies around the globe have raised a staggering $2.6 billion in venture capital in the first quarter of 2023, showcasing the potential of the emerging market.
Despite the impressive figure, it represents an 11% decrease in quarter-on-quarter deal value and a 12.2% decrease in the number of deals, according to PitchBook’s Crypto Report.
This trend marks the lowest capital investment and deal completion since Q4 2020, and the fourth consecutive quarter of declining investment activity.
Layer-2 scaling solutions lead the way
Layer-2 (L2) scaling solutions have continued to attract investments, maintaining momentum from the previous year. Bitcoin scaling platform Blockstream raised $125 million in a convertible note and debt rounds, with plans to use the funds to build out Bitcoin mining infrastructure.
This comes after the company raised a $163.1 million Series B in August 2022. Scroll, which is developing a zero-knowledge Ethereum Virtual Machine (zkEVM) scaling solution, also secured a $50 million late-stage VC round in Q1.
Crypto custodial services have also witnessed substantial investments in Q1 2023. Notably, Ledger raised a $493 million Series C, while Taurus brought in a $65 million Series B.
These investments emphasize the growing need for secure and reliable solutions in the crypto space, as more investors and institutions enter the market.
Crypto VC developments in the first quarter
The first quarter of 2023 saw various noteworthy events in the crypto VC landscape. Binance made its return to the South Korean market by acquiring a majority stake in local crypto exchange GOPAX.
This acquisition enabled GOPAX to resume withdrawals and interest payments after a suspension due to an issue with Genesis. GOPAX boasts over 600,000 users.
In February, crypto exchange Kraken settled with the Securities and Exchange Commission (SEC) over unregistered securities allegations related to its crypto staking services.
Kraken was required to pay a $30 million fine and unstake assets from US investors. Non-US investors were not affected by this development.
Meanwhile, Coinbase received a “Wells Notice” from the SEC in March, indicating the regulator’s intent to recommend enforcement action over some of the exchange’s products.
The company has committed to letting the courts decide on any outcome. Earlier in January, Coinbase was fined $50 million by the New York State Department of Financial Services and ordered to invest an additional $50 million in its compliance program due to an inadequate know-your-customer (KYC) program.
A cautiously optimistic outlook
Although the crypto VC sector has experienced a decline in investment activity, the first quarter of 2023 has still demonstrated several bright spots.
The continued investment in Layer-2 scaling solutions and crypto custodial services highlights the industry’s ongoing innovation and potential for growth.
As more investors enter the crypto space and regulatory clarity improve, there is reason for cautious optimism about the future of crypto VC investments.
The coming quarters will reveal whether the downward trend in investment activity continues or if the sector rebounds. As the industry evolves and matures, crypto VC investments will play a vital role in shaping the future of the digital asset ecosystem.
