Despite a sluggish market, total funding for crypto businesses in 2022 is expected to surpass investments in 2021. The research was presented by the data firm Pitchbook. The numbers could indicate a positive start to 2023.
According to the research cited by Reuters, venture capital (VC) investments in cryptocurrency businesses reached nearly $20 billion globally in the first nine months of 2022.
This is a 41% increase from the same period last year. In total, last year saw $21.2 billion in investments.
High Sequential Growth but Top Cryptos Trading Low
According to Pitchbook, VCs invested $1.5 billion in web3 startups in Q3 2022, representing a sequential gain of 44.5%. If the momentum continues year-on-year, investor interest could kickstart a relief rally in the sector.
However, Bitcoin is now down close to 67% of its value in the past year, according to CoinGecko. BTC is currently trading in the $16,800 and $17,200 range. This is a massive drop from last year’s all-time high of $69,000. Ethereum, the second largest crypto by market cap, is trading close to $1,250. It also suffered a major fall from last year’s peak of $4,800.
The recent collapse of FTX, which was included in the list of bankruptcies for 2022, has further soured market sentiments. The collapse came months after companies like Celsius Network and Voyager Digital filed for bankruptcy.
But, large investment deals are returning to normal levels according to Pitchbook’s Emerging Tech Indicator (ETI) for Q3. The report noted, “We recorded 10 ETI deals sized $100 million or larger, still above the historical quarterly average of five since 2015, but down from the peaks of 22 in Q4 2021 and Q1 2022.”
Web3 and decentralized finance (DeFi) will likely top the list of investments in the sector in 2023.
Positive Drivers of Investor Interest in 2023
Robert Le, a crypto analyst at PitchBook, added, “The lack of clear regulation and guidance remains one of the crypto industry’s greatest concerns and limiting factors. Mainstream adoption is unlikely to occur until better guardrails in the form of established laws and guidelines are in place.”
With the European Union finalizing the Markets in Crypto Assets (MiCA) bill, the regulatory change is on way. The UK’s Treasury is working on initiating new rules. Meanwhile, the US Congress has several crypto bills in its pipeline. Therefore, the following year could be a year of sweeping change—especially when the FTX collapse has called on Congress to act fast to pass CFTC laws.
Therefore, despite a decline in high-value crypto deals in the last two quarters, the annual momentum can pick up on the back of new regulations in 2023. However, many analysts are not optimistic about the price action in the first quarter of the new year.
Additionally, the “2023 Virtual Asset Market Prospect Report” from cryptocurrency exchange Korbit predicts that market capitalization will return to its previous levels of over $1.5 trillion in the upcoming year, with monetary policies limiting the inflationary trend. The market cap is currently only about $800 billion, as there is a reduced demand for on-risk assets. However, the platform expects a trend reversal in 2023.
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