Key Points

The risk investment in cryptocurrency is still not at its lowest. In terms of completed transactions and total investment, the third quarter was the lowest since the fourth quarter of 2020. The companies in the broad Web3 category dominate the number of transactions, while companies in the trading category raised the most total capital. The results of the third quarter continue the trend we have seen throughout the year. There is a growing interest in artificial intelligence, which requires the creation of a new department in our dataset, and the interest in the overlap between artificial intelligence and cryptocurrency continues to increase.

The United States continues to dominate the cryptocurrency startup sector, but other jurisdictions are catching up. Although cryptocurrency startups in the United States account for over 35% of all completed transactions and have raised over 34% of the investment capital from venture capital firms, the United States is now clearly losing its share in transactions and capital to countries such as the United Arab Emirates, Singapore, and the United Kingdom, which have more advanced cryptocurrency regulatory frameworks.

The venture capital financing environment remains extremely challenging, but it may be improving. In the third quarter of 2023, venture funds raised over $1 billion, marking the first increase since the decline that began in the third quarter of 2022. The number of new fund launches also increased from 12 in the second quarter to 15. The median and average fund sizes have dropped significantly from the highs of the bull market.

Cryptocurrency Risk Investment

Transaction Volume and Investment Capital

The investment in cryptocurrency and blockchain industry in the third quarter of 2023 reached $1.975 billion, hitting a new cyclical low and the lowest level since the fourth quarter of 2020, continuing the downward trend that began after the peak of $12 billion in the first quarter of 2022. Cryptocurrency and blockchain startups raised less funds in the past year compared to the sum in the first quarter of 2022. The transaction volume also hit a new low in this period, with only 376 transactions.

Cryptocurrency Risk Investment Headquarters

While the United States continues to lead in transaction volume and investment capital, companies headquartered in jurisdictions with more advanced and clear regulatory frameworks for the cryptocurrency industry saw significant growth in both categories in the third quarter.

In the third quarter of 2023, U.S. companies raised 34.5% of all cryptocurrency risk investment funds, followed by the United Arab Emirates (23.5%), the United Kingdom (9.5%), and Singapore (6.2%).

Cryptocurrency Risk Investment by Category

Startups in the exchange, investment, and lending sectors continued to raise the most venture capital funds ($611 million, accounting for 32.5% of all venture capital deployed this quarter). Startups in the Web3, NFT, gaming, DAO, and Metaverse sectors raised the second most funds for the second consecutive quarter ( $266.5 million, accounting for 14.2% of all venture capital deployed this quarter).

The largest transaction in the exchange, investment, and lending sector this quarter was the early financing of $400 million for Haqqex, a self-proclaimed "Shariah-compliant" digital asset exchange.

Custody completed the second largest transaction in the third quarter of 2023, with BitGo raising $100 million in Series C financing. Our new artificial intelligence category shows that startups building artificial intelligence-related products raised over $60 million in the third quarter of 2023, accounting for 3.2% of all venture capital deployed this quarter.

In terms of transaction volume, companies building products in the Web3 gaming, NFT, DAO, and Metaverse sectors continued to lead, followed by companies in the exchange, investment, and lending sectors. These trends have not changed compared to the first and second quarters of 2023.

The bear market in cryptocurrency risk investment continues. It is still unclear whether the market has bottomed out in terms of transaction volume and investment capital. High interest rates are putting widespread pressure on the risk investment industry. Other key findings include: cryptocurrency risk investment is still in a bear market, venture capitalists are facing difficulties in the financing environment, founders are under financing pressure, and the leading position of the United States is being challenged.

Note: All content represents the author's personal views and is not investment advice, nor should it be interpreted in any way as tax, accounting, legal, business, financial, or regulatory advice. Before making any investment decisions, you should seek independent legal and financial advice, including advice on tax consequences.

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