The cryptocurrency ecosystem suffered another tough test in the third quarter as fundraising in the space fell to a three-year low, blockchain intelligence firm Messari noted in a research report last week.
In fact, the amount raised by cryptocurrency-focused companies in the third quarter fell to just under $2.1 billion across 297 deals, down 36% in both categories from the second quarter and the lowest since the fourth quarter of 2020, according to the report.
Fundraising peaked at nearly $17.5 billion across more than 900 deals in the first quarter of 2022, but an industry-wide downturn created by the collapse of the Terra ecosystem emerged soon after.
In terms of overall funding amounts and number of deals, last year's returns fell sharply in the Q2-Q3 period, when the demise of the TerraUSD stablecoin (UST-USD) and token sister Luna (LUNA-USD) wiped out tens of billions of dollars in market capitalization in one week and contributed to the collapse of several other key players, such as Sam Bankman-Fried's multibillion-dollar empire.
While rising sharply on the year, prices of major digital tokens posted losses for the third quarter of 2023 as investors came to understand that interest rates will likely stay higher for longer with inflation still too high much to the taste of the Federal Reserve. Bitcoin (BTC-USD) and ethereum (ETH-USD), the two largest cryptocurrencies by market value, fell by 8.6% and 10.6%, respectively, during the quarter. The S&P 500, by comparison, posted a loss of 3.8%.
Messari noted that the bulk of deals in the third quarter were concentrated in early-stage rounds, with seed funding representing the largest stage total with $488 million raised across 98 rounds. "Trends in the number of deals show a significant shift from later-stage projects to early-stage projects over the past three years," she said.
Looking at all sectors, on-chain infrastructure saw the highest share of funding at 18%, while decentralized finance (DeFi) dominated in terms of number of deals funded at 67. Gaming also had another strong quarter, attracting almost 250 million dollars.
Interestingly, Binance Labs, the venture capital arm of embattled cryptocurrency exchange Binance, was by far the most active investor during the quarter, according to Messari. saying. Its 23 deals, focused on projects related to the DeFi and gaming sectors, were more than double those of the next largest investor, Robot Ventures. The dominance in venture funding comes as Binance, led by Changpeng Zhao, finds itself embroiled in regulatory trouble, with the US Commodity Futures Trading Commission and the US Securities and Exchange Commission They allege that the platform failed to register with US regulators and sold illegal securities.
