Amid a widespread cryptocurrency market downturn triggered by the collapse of formerly prominent crypto firms like Celsius and Three Arrows Capital, investments in venture capital-backed crypto firms fell about 26% to $9.3B in the first half of 2021, according to data from Crunchbase released Friday.
That compares with a record $12.5B invested during the first half of 2021, the same year in which major cryptos like bitcoin (BTC-USD) and ethereum (ETH-USD) peaked at all-time highs.
Despite the slump in funding, which mirrors that of the broader technology space, deal flow rose to 534 deals in H1 2022 vs. 456 in H1 2021, Crunchbase highlighted.
Looking at second-quarter numbers, though, over $4.2B was deployed to venture-backed crypto startups, which held strong from the slightly less than $4.2B figure in Q2 of last year, Crunchbase noted. Still, that reading is down about $1B from Q1 and from a record $6.1B in Q4 2021.
As momentum of the financial contagion effect in the cryptocurrency market keeps growing, consumer-oriented vehicles like non-fungible tokens ("NFTs") and blockchain-based games have taken a hit.
“Ultimately, I view that as a good thing long term, as it cleanses out the noise and focuses more on the utility/real entertainment function that these tokens (and) NFTs unlock,” said Yash Patel, general partner at Telstra Ventures, which has a stake in Sam Bankman-Fried's crypto exchange FTX, as quoted by Crunchbase. “Similar to the Web2 world, games and digital art are meant to be fun, not burdensome financial instruments.”
Note that OpenSea, one of the world's largest NFT marketplaces, recently laid off 20% of its workforce in the wake of crypto winter as well as "macroeconomic instability."
At the end of May, Morgan Stanley said blockchain and crypto venture is poised to sink as much as 50%.