2023 Q2 encryption venture capital report: Investment amount continues to decline, valuations hit a new low.

ZKSherlock

2025-07-12 09:12:22

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2023 Q2 Cryptocurrency and Blockchain Venture Capital Report

Key Points

Investment in the encryption sector has not yet bottomed out. Although the number of transactions slightly increased in the second quarter, the total investment in encryption and Blockchain startups continues to decline month on month.
Valuations continue to decline. The median pre-investment valuation of cryptocurrency venture capital transactions in the second quarter of 2023 dropped to $17.93 million, marking a new low since the first quarter of 2021, while the median transaction size saw a slight quarter-on-quarter increase.
Web3 category companies dominate in the number of transactions, while transaction category companies receive the most total funding. This continues the trend from the previous quarter.
The United States maintains a leading position in the encryption startup sector. U.S. encryption startups completed over 43% of transactions and secured over 45% of venture capital funding.
The venture capital financing environment remains severe. In the second quarter of 2023, only 10 new crypto venture capital funds were established, with a total fundraising amount of $720 million, marking the lowest level since the third quarter of 2020 during the pandemic.

Cryptocurrency Venture Investment Transaction Volume and Capital Investment

In the second quarter of 2023, the total investment in the encryption and Blockchain industry amounted to $2.32 billion, marking a new cycle low and 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. Over the past three quarters, the total funding received by encryption and Blockchain startups has been lower than the same period last year.

Although capital investment has not yet hit the bottom, 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 Series A transactions increasing from 154 to 174.

In terms of capital investment, early-stage transactions account for 73% of seed pre-stage, seed stage, and Series A (, while later-stage transactions account for 27%.

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Venture Capital by Year of Company Establishment

Companies established in 2021 and 2022 completed the most venture capital deals in the second quarter of 2023. Unlike the first quarter, companies founded in 2022 received the most funding, followed closely by those established in 2021.

Encryption Venture Capital Company Headquarters Distribution

American companies dominate in both completed transactions and the funds raised. In the second quarter of 2023, American companies secured 45% of the encryption venture capital, followed by the UK )7.7%(, Singapore )5.7%(, and South Korea )5.4%(. In terms of completed transactions, American companies completed 43% of the transactions, followed by Singapore )7.5%(, the UK )7.5%(, and South Korea )3.1%(.

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Encryption Risk Investment Trading Scale and Valuation

In the second quarter of 2023, the valuations across the entire venture capital field continued to decline, and cryptocurrencies were no exception. The median pre-investment valuation for crypto or blockchain venture capital transactions fell to $17.93 million, the lowest level since the first quarter of 2022. The median for crypto venture capital transactions in the second quarter of 2023 was $3 million, with a pre-investment valuation of $17.93 million. This trend is consistent with the overall venture capital industry.

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Cryptocurrency Risk Investment by Category

In the second quarter of 2023, trading, exchange, investment, and lending startups received the most venture capital funding, amounting to 4.73 billion USD, accounting for 20% of the total. Web3, NFT, gaming, DAO, and metaverse startups followed closely, securing 442 million USD in funding, which represents 19%. The Layer 2/interoperability sector saw the largest transaction of the quarter, with a company completing a 120 million USD Series B financing.

In terms of transaction volume, companies in the Web3 gaming, NFT, DAO, and metaverse sectors remain at the forefront, followed by companies in trading, exchanges, investments, and lending. Notably, privacy and security product companies experienced the largest month-over-month increase in transaction volume )275%(, followed by infrastructure )114%(.

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Encryption Venture Capital Fundraising

In the second quarter of 2023, the number of new fund issuances was 110, and the total fundraising amount was 7.2 billion USD, both of which hit new lows since the third quarter of 2020. In the first half of 2023, the average size of new funds was 236 million USD, with a median of 50 million USD, both significantly lower than last year.

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Analysis and Conclusion

The encryption venture capital market is still in a bear market. Although the number of transactions remains stable, the total amount of capital allocated to encryption startups continues to decline. This trend is consistent with the resistance faced by the entire venture capital industry. Other important conclusions include:

Compared to the previous bear market, cryptocurrency venture capital activity remains active. The number of transactions and investment capital are still about twice that of the bear market period from 2017 to 2020, indicating that the entrepreneurial ecosystem is still growing in the long term.
Venture capital firms are facing a severe financing environment. Rising interest rates have decreased investors' willingness to allocate to risk assets. Coupled with the sluggish prices of encryption assets and the setbacks faced by several VC-backed companies in 2022, venture capital firms are struggling to raise new funds in 2023.
The lack of new venture capital will continue to put pressure on founders. Founders need to focus more on revenue and sustainable business models, and be prepared to accept smaller rounds of financing and give up more equity.
Pre-seed trading activities remain active. Early stage trading accounts for about 75% of all transactions, indicating that entrepreneurs are still proactive and venture capital firms are keeping an eye on them. Savvy investors may discover potential stocks among these persistent entrepreneurs.
The United States continues to dominate the encryption startup ecosystem. Despite an unfriendly regulatory environment, U.S. crypto startups still attract the majority of venture capital activity. U.S. policymakers should consider developing policies that promote innovation to maintain their leading position.
Web3 leads in the number of transactions, while trading companies receive the most investment amounts. This trend has continued for several quarters, with traditional exchanges and trading tools companies raising the most funds, but more individual trading is flowing into the emerging fields of Web3, DAO, metaverse, and gaming.

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