- The data indicates that sentiments toward the cryptocurrency industry have substantially deteriorated following the market turbulence experienced in 2022.
- Whereas 2021 saw record fundraising sums, with cryptocurrency startups raising $30 billion from venture capital investors, the following year brought a dramatic reversal.
- In 2022, fundraising declined precipitously to only $17.5 billion, representing a 42% decline year-over-year.
The preposterous crypto fundraising spectacle of 2021 hit the brakes hard in the following year. After the crazy measures of cash that overwhelmed new crypto companies in 2021, there was a sudden halt to this momentum. The extravagance of crypto’s dash for unheard-of wealth received a brutally rude awakening.
Venture Money Dries Up as Prices Tank
In 2022, venture funding for crypto startups sank to $17.5 billion, reflecting a huge 42% drop from the record $30 billion in 2021. The number of VC deals also got cut in half, plunging from over 2,000 to around 1,000, according to Pitchbook. This VC funding was drought-hit as crypto prices went into freefall. Bitcoin crashed 60% to under $17k. Ethereum dove 65%. The overall crypto market cap shriveled from nearly $3 trillion to under $1 trillion as investors ran for the exits.
Catastrophic Failures Shake Confidence
Some big-name crypto projects failed hard, crushing investor confidence. The collapse of Terra/LUNA in May marked the start of a crisis of confidence. Crypto hedge fund Three Arrows Capital suddenly went bust in June, shocking the industry. FTX’s disastrous November failure left everyone stunned. Investors got extremely wary about funding crypto ventures.
Still Some Hope Despite the Carnage
Even with all the carnage, crypto still attracts believers. Venture firms like a16z say that crypto can still transform finance, gaming, social media, and more, once the industry matures. They believe that the current troubles are necessary growing pains on the path to changing the world. But for now, the crypto funding spigot has been turned off. Until things improve, startups will likely struggle to attract the massive investments that were once common. Crypto founders need to focus more on building viable long-term business models that can handle the market’s harsh swings.
Summary
While battered, crypto’s promise still lures backers. The industry has rebounded after past meltdowns. With its creative talent and devoted users, crypto may emerge stronger and smarter from this trial by fire. However, the irrational exuberance has been extinguished for now. The road ahead requires patient builders instead of eager speculators. Crypto needs to learn to walk before it can run again.