Crypto companies raise $2.6 billion in VC funding in Q1 2023 amid regulatory uncertainty

Amid regulatory uncertainty causing trouble for the cryptocurrency industry, venture capital (VC) deals with cryptocurrency companies have continued to decline in the first three months of 2023, representing the fourth quarter in a row of falling investment activity.

As it happens, crypto businesses have raised $2.6 billion in VC globally during the first quarter of this year, which represents an 11% drop in quarter-on-quarter (QoQ) deal value, according to the research published by capital market analytics company PitchBook on May 12.

Specifically, crypto-focused companies around the world managed to raise this amount across 353 investment rounds, a figure which by itself represents a 12.2% drop in the number of deals during this period.

As the authors of the analysis further noted, “this was the lowest amount of capital invested and deals completed since Q4 2020, representing the fourth consecutive quarter of declining investment activity.”

Reasons behind declining investments

Notably, the study refers to a lack of regulatory clarity, the failure of several crypto companies in 2022, including the crypto trading platform FTX, and uncertain practical benefits in many still experimental projects, as the reason for the continuous decline in VC investments, despite the expanding use cases and a growing number of users.

In fact:

“Mainstream adoption of crypto is unlikely to occur until better regulations and guidelines are in place. The lack of clear regulation is a major concern for the industry and is seen as a limiting factor. Governmental regulators, particularly in the US, tend to be reactive rather than proactive.”

That said, the analysts are certain that “2023 could present a policy inflection point for the industry,” expecting “financial regulators and central banks around the world to increase their focus on crypto assets and accelerate their work in writing new rules that help prevent an FTX-type collapse in the future.”

Elsewhere, Clarify Capital research published in April has revealed that 52% of 254 investors interviewed during 2022 in the study ‘Catching the Eyes of Investors’, plan to steer away from buying digital assets in 2023, as Finbold reported on April 13.

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