Web3 projects see 78% drop in VC investments as crypto funding falls

Web3 projects raised $3.6 billion from venture capital firms during the first six months of this year, representing a 78% drop from what they raised from these organizations during the same period last year, Crunchbase reported on July 18.

According to the report, web3 projects’ deal flow hit the slowest pace since the final quarter of 2020, when 291 deals got $1.1 billion.

Crunchbase defined web3 as cryptocurrency and blockchain startups.

Crypto investments declining

A closer look at the number showed that web3 projects raised $1.8 billion during this year’s first two quarters. Venture capital funding for web3 projects notably crashed by 76% during this second quarter compared to what was raised during the same period last year.

Meanwhile, a separate research report from Galaxy Research corroborates Crunchbase’s findings. According to Galaxy, crypto and blockchain projects raised $2.32 billion during the second quarter—the lowest amount since the fourth quarter of 2020. The firm noted that the downward trend had begun in the first quarter of last year when investments peaked at $13 billion.

“Crypto and blockchain startups raised less money across the last three quarters combined than they did in just Q2 of last year.”

Will Clemente, the co-founder of Reflexivity Research, pointed out that VC funding for crypto in June was lower than any month during the absolute depths of the 2018 bear market.

The Head of Firmwide Research, Alex Thorn, explained that investors struggled to raise new funds, adding that founders were getting lower project valuations.

Why is crypto VC funding crashing?

Crunchbase noted that the declining funds were coming when the industry witnessed a renewed level of institutional interest.

In June, BlackRock led a wave of institutional Bitcoin spot ETF applications with the Securities and Exchange Commission (SEC), resulting in the value of several digital assets, including Bitcoin (BTC) and Ethereum (ETH), rising to their yearly highs.

However, the institutional interest was coming on the heels of heightened regulatory scrutiny of the space across multiple jurisdictions following last year’s record market crash.

For context, the U.S. SEC filed lawsuits against leading crypto exchanges, Coinbase and Binance, alleging that their operations violated federal securities law. The financial watchdog’s regulation-by-enforcement approach has further led several crypto-related firms to shutter operations in the country.

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