Introduction

2023 is a milestone year for cryptocurrencies. BTC has risen by over 160%, and ETH has risen by 90%. However, cryptocurrency venture capital has decreased significantly from its peak in 2022. Tight monetary policies have increased capital costs and reduced overall investment in risk, while several major explosions in cryptocurrency startups supported by venture capital have further reduced investor interest. By the end of 2023, cryptocurrency venture capital investment was only one-third of the previous two years, and trading volume was only slightly higher than the previous two years. However, the cryptocurrency industry seems poised for a surge in 2024, and central banks around the world are preparing to relax monetary policies, which could lead to renewed interest in cryptocurrency venture capital this year.

Venture Capital

Trading Volume and Investment Capital

From the perspective of trading volume and investment capital, 2023 is the third largest year for cryptocurrency venture capital, despite significant declines in both indicators compared to 2022.

Looking at it on a quarterly basis, the number of transactions and capital investment continue to hit new lows. In the fourth quarter of 2023, there were 359 transactions with a total investment of 1.98 billion US dollars, slightly lower than the third quarter of 2023.

The trading volume hit the lowest point since Q2 2020, while investment capital reached the lowest level since Q4 2020.

Risk Capital Investment and Bitcoin Price

Although venture capital is usually related to the price of Bitcoin, this correlation was significantly broken in 2023, with Bitcoin rising 160% while capital investment in cryptocurrency venture capital continued to hit new lows.

阶段性风险投资

Stage Venture Capital

Throughout 2023, early-stage companies dominated the majority of venture capital transactions, a trend that accelerated throughout the year. In the third and fourth quarters of 2020, less than 20% of transactions were completed by later-stage companies.

Although the pre-trade share of seeds will increase from mid-2022 to mid-2023, the earliest stage of trading share will sharply decline in the second half of 2023.

Valuation and Trading Volume

The valuation of cryptocurrency companies supported by venture capital is expected to drop significantly in 2023, reaching the lowest median pre-investment valuation since the fourth quarter of 2020, while all pre-investment valuations for venture capital have remained relatively stable since the initial decline in early 2022. The fourth quarter saw a 33% drop from the historical high of $4.5 million in the third quarter of 2022.

Investment by Industry

The start-ups that establish transactions, exchanges, investment, and loan companies have raised the most venture capital for the fourth consecutive quarter (27% of the total). Our Layer 2 and interoperability category raised the second-largest amount of funds for the first time (16%), led by Wormhole's $225 million financing. Web3 ranks third with 12% of the financing amount. Our new artificial intelligence category remains stable at around 3% of all funds raised.

From the perspective of transaction volume, Web3 continues to lead, which includes companies related to gaming, NFT, DAO, and metaverse. Infrastructure companies come in second, surpassing transaction, exchange, investment, and loan companies.

Investment categorized by stage and type

From a stage perspective, start-ups in the compliance category tend to be in the seed stage, while capital in the venture capital and custody categories heavily leans towards the later stages. If a company is a platform for financing or capital deployment, it is classified as "venture capital". Please note that a company raised later-stage funds in the custody category, but did not disclose the transaction size, so one column in this chart is based on extremely limited data.

Regarding transaction volume, it is worth noting that 50% of AI startups' transactions are seed or pre-seed transactions, indicating a strong interest in this emerging category among enterprises.

Investment by Geographical Location

By 2023, the United States will continue to dominate in terms of transaction volume and investment capital. Nearly 40% of transactions in the fourth quarter will involve startups headquartered in the United States.

From the perspective of investment capital, the situation is similar. Despite facing regulatory obstacles, the United States' dominant position continues.

Group Investment

In the fourth quarter of 2023, the company established in 2021 had the highest number of transactions (78), followed by the companies established in 2022 (77) and 2023 (42).

Although the company established in 2021 raised the most funds (516 million US dollars), the startup established in 2019 ranked second (482 million US dollars).

Encryption Currency Risk Investment Financing

The fundraising for cryptocurrency risk funds remains extremely challenging. The turbulence in the macro environment and the infrastructure of cryptocurrency market startups have hindered allocators from making the same level of commitment to cryptocurrencies as they did in 2021 and 2022. In the fourth quarter of 2023, the number of new cryptocurrency venture capital funds was at its lowest and the allocation amount was also the lowest since the third quarter of 2020.

From an annual perspective, 2023 is the year with the fewest newly launched cryptocurrency venture capital funds since 2020. The average fund size has decreased by 30% compared to the previous year, while the median fund size has decreased by 45%.

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