Bear Market Struggles: Crypto Fundraising Reaches New Low
Crypto Market Intelligence firm Messari, has released a new data report revealing the depressing state of the crypto market through the amount of funds raised across multiple counts in the market. Per the research, Q3 2023 registered new lows both in funding amounts and deals.
A Return to Late 2020 Figures in Q3 2023
The cryptocurrency market is experiencing a significant downturn in 2023, with fundraising hitting its lowest point in nearly three years. According to a report from market research firm Messari, the third quarter of 2023 only attracted $2.1 billion in funding from 267 deals. This represents a substantial 36% decrease from the previous quarter in terms of both funding volume and the number of deals
Further breaking it down, the report noted that a large number of the deals in Q3 are from early stage seed rounds. Early stage funding accounts for 98 rounds checking in at $488 million. This data also signified a decline in later stage projects funding and an increase in the early stage rounds.
While the overall fundraising has seen a downturn in 2023, there has been a notable shift in the type of deals being made. Series A or early-stage deals have witnessed a significant increase, accounting for 48% of the deals in Q3 2023, up from 37% at the end of 2020. In contrast, Series B deals have experienced a decline, dropping from an 8% deal share to just 1.4% over the same timeframe.
According to Messari’s report, this trend suggests a strategic move by investors during the bear market. They are targeting projects with asymmetric upside potential, anticipating these investments will yield higher returns when the market sentiment shifts positively.
The third quarter of 2023 also marked an increase in funding from strategic investments, particularly through private equity and corporate deals. A standout transaction was the $200 million funding secured by Islamic Coin. Amidst the bear market, such strategic investments have grown substantially. They accounted for just 0.2% of total funding during the bull market peak in Q4 2021 but surged to 22% in Q3 2023.
This spike can be attributed to the challenging market conditions, pushing projects to opt for short-term bridge rounds of funding or even acquisitions by more substantial projects to secure their financial standing.
Chain Infrastructure and DeFi Lead the Pack in Funding
Over the past year, funding distribution trends in the market have remained consistent. Chain infrastructure, gaming, and DeFi are consistently at the forefront, securing the most substantial investments. Hot on their heels is the services sector, which encompasses essential business functions like legal services, marketing, and security.
As the market navigates through the bear run, the services sector has proven its resilience and significance, being the only other sector aside from chain infrastructure, gaming, and DeFi to average over $100 million in the past one year.
Funding Breakdown Across the Top Sectors
Chain infrastructure emerged as the champion in Q3 funding, capturing 18% of total investments. Scaling solutions and smart contract platforms were significant contributors, with the Optimism Foundation’s 116 million OP tokens sale making a substantial impact. The $387 million total funding for the sector underscores a dynamic shift and growing investor confidence in scaling solutions.
On the other hand, the DeFi sector boasted dynamism in project counts, hosting 68 deals. The exchange category was a hotspot, attracting a myriad of investments.
Binance Labs marked its prominence with strategic investments, while Brine’s $16.5 million Series A round highlighted the sector’s appeal. In total, DeFi projects amassed $210 million, reflecting the sector’s resilience and innovation amidst a challenging market.
The gaming sector wasn’t left behind, pulling in $249 million across 33 deals, largely attributed to early-stage investments. It demonstrated its dominance in the consumer sector, capturing a whopping 67% of capital investments. The sector’s performance underscores the growing investor interest in digital and interactive entertainment, even as the broader market faces headwinds
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