2023 Q2 Encryption Venture Capital Report: Total Investment Hits New Low, U.S. Dominance Continues

2025-08-11 03:34:16

Encryption and Blockchain Venture Capital: Q2 2023 Report

Main Findings

The venture capital in the encryption field has not yet bottomed out. Although the number of transactions slightly increased in the second quarter, the total investment continued to decline quarter-on-quarter.
Valuation continues to decline. The median pre-investment valuation for crypto venture capital transactions in the second quarter dropped to $17.93 million, the lowest in nearly two years.
Web3 companies dominate in transaction volume, while trading companies have the highest fundraising amounts, continuing the trend from the previous quarter.
The United States maintains a leading position in the encryption startup sector. American startups account for over 43% of total transactions, receiving more than 45% of the investment.
The financing environment still faces enormous challenges. In the second quarter, only 10 new cryptocurrency venture capital funds were established, raising a total of $720 million, the lowest in nearly three years.

Transaction Volume and Investment Scale

In the second quarter of 2023, the investment amount in the encryption and Blockchain industry reached $2.32 billion, setting a new cyclical low and marking the lowest level since the fourth quarter of 2020, continuing the downward trend since the peak of $13 billion in the first quarter of 2022. The total investment amount over the past three quarters is even lower than the investment scale in the second quarter of last year.

Although capital investment has not yet bottomed out, trading activity saw a slight rebound in the second quarter, with 456 transactions completed, up from 439 in the first quarter. This is mainly due to an increase in Series A transactions from 154 to 174.

From the investment stage perspective, early-stage transactions before seed, seed, and Series A account for 73% of the total investment in (, while later-stage transactions account for 27%.

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Analysis by Year of Company Establishment

Companies established in 2021 and 2022 completed the most venture capital transactions in the second quarter. In terms of fundraising amounts, companies founded in 2022 raised the most, followed closely by those established in 2021.

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Geographic Distribution of Company Headquarters

American companies lead in both trading volume and fundraising. In the second quarter, American companies received 45% of the encryption venture capital, followed by the UK )7.7%(, Singapore )5.7%(, and South Korea )5.4%(.

In terms of the number of completed transactions, American companies account for 43%, followed by Singapore and the UK at 7.5%), and South Korea at 13.1%(.

Transaction Scale and Valuation

The median pre-investment valuation of encryption venture capital transactions in the second quarter fell to $17.93 million, the lowest in nearly two years. The median deal size was $3 million. This downward trend is consistent with the overall venture capital industry.

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Niche Market Analysis

Startups in trading, investment, and lending raised the most funds in Q2 with 14.73 billion, accounting for 20%. Web3, NFT, gaming, DAO, and metaverse-related startups followed closely, raising 4.42 billion, accounting for 19%.

LayerZero completed its largest single transaction of the quarter, raising $120 million in Series B funding. Magic Eden's largest deal in the Web3/NFT space was $52 million, Auradine's largest in the infrastructure sector was $81 million, and River Financial's largest in the trading/exchange sector was $35 million.

In terms of transaction volume, companies in the Web3 gaming, NFT, DAO, and metaverse sectors lead, followed by trading, exchange, investment, and lending companies. Notably, privacy and security product companies saw the largest month-on-month increase in transaction volume at 275%, followed by infrastructure at 114%.

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Venture Capital Fundraising

In the second quarter of 2023, the number of new funds issued was 110, and the fundraising scale was 1.72 billion USD, both hitting new lows since the third quarter of 2020. In the first half of this year, the average scale of new funds was 236 million USD, with a median of 50 million USD, significantly lower than last year.

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Analysis and Conclusion

The encryption venture capital bear market continues. Although the number of transactions remains stable, the total investment amount continues to decline. This trend is consistent with the challenges faced by the broader venture capital industry.

Compared to the previous bear market, the current encryption venture capital activity is still relatively active. The number of transactions and the scale of investments are still about twice what they were during the bear market from 2017 to 2020, indicating that the overall entrepreneurial ecosystem is still growing.

Venture capital firms are facing a difficult fundraising environment. Rising interest rates have reduced investors' appetite for risk assets. Additionally, the sluggish prices of crypto assets, along with the collapse of several projects backed by venture capital last year, have made it even more challenging for venture capital firms to raise new funds in 2023.

The lack of new venture capital funding will continue to put pressure on founders. Founders need to focus on revenue and sustainable business models, and be prepared to accept smaller-scale financing and cede more equity.

Pre-seed round trading activities remain active. Early stage trading accounts for nearly 75% of the total, indicating that despite the overall sluggish environment, entrepreneurs are still active, and investors are continuing to pay attention. Savvy investors may find opportunities among these resilient entrepreneurs who are starting up in a difficult environment.

The United States continues to dominate the cryptocurrency startup ecosystem. Despite an unfriendly regulatory environment, U.S. startups still attract the vast majority of venture capital activity. U.S. policymakers should consider crafting more innovation-friendly policies to maintain their leading position in this emerging field.

Web3 leads in the number of transactions, while trading projects still attract the most investment. This continues the recent trend - traditional profit model exchanges, trading tools, and other companies raise the most funds, but the largest number of individual transactions flow into emerging areas such as Web3, DAOs, the metaverse, and gaming.

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