Crypto VC funding hits 2-year low- Are U.S. firms still favorite?

• A report by Galaxy Digital found that Q1 2023’s VC investing in crypto reached its lowest point in over two years. 
• Despite having a challenging regulatory climate, crypto firms in the U.S. raised the most capital. 

A new report published by Galaxy Digital traced the trends in venture capital investing in the crypto industry. The New York-based crypto investment firm found that crypto VC funding has decreased significantly over the past two years.

Much of this can be attributed to the falling prices thanks to crypto winter, as well as the string of bankruptcies and scandals in the industry. 

United States maintains the lead in crypto VC investing

According to the report by Galaxy Digital, the first quarter of 2023 saw venture capital firms investing $2.4 billion into crypto-related startups and protocols.

Despite being a significant sum, it was actually the lowest investment in crypto in more than two years. Interestingly, while the amount invested had gone down, the number of crypto investment deals actually went up as compared to the last quarter of 2022. Q4 of last year saw 366 deals while the Q1 of 2023 registered a 19% increase with 439 deals. 

Despite an increase in the number of deals being made, the median deal size went down from its all-time high of $4.5 million which was witnessed in the third quarter of 2022.

Meanwhile, the median pre-money valuation dropped to $18.8 million, the lowest point since Q1 2022. The majority of the VC capital was attracted by companies specializing in trading, investing, exchange, and lending, $538 million to be precise.

However, companies building in the NFT, DAO, and web3 space secured the most number of deals (116). 

Galaxy Digital’s Head of Firmware Research Alex Thorn stated: 

“The declines in crypto VC deal size and valuation mirror declines in the broader VC market. rising cost of capital due to interest rate policy combined with lackluster exits have reduced allocator appetite for venture exposure.”

Thorn’s report concluded that despite the challenging regulatory landscape in the United States, the country maintained the lead in terms of firms raising capital for crypto.