Venture capital (VC) funding in the cryptocurrency industry has reached its lowest point in two years, according to a report by Galaxy Research, the research arm of crypto investment company Galaxy Digital. The report showed that during Q1 2023, VCs invested only $2.4 billion, which is the smallest amount invested since Q4 2020, and represents an 80% decline compared to the previous year’s Q1 peak of almost $13 billion. Although the report acknowledged that venture deal data is frequently reported retrospectively, so the $2.4 billion figure might be adjusted in the future.
The report revealed that despite VC investments dropping, the number of deals made increased by nearly 20%. The study also hypothesized that the correlation between crypto prices and invested capital could result in a rebound of VC activity following strong price gains in Q1. Numerous statistics and anecdotal evidence suggest that cryptocurrency firms are relocating from the United States in search of more favorable regulatory and tax policies. However, the report found that US-based companies accounted for 42.8% of the VC money invested in cryptocurrency in Q1 2023, with France following at 19.4%.
The report also demonstrated that although the US's share of crypto VC investment has decreased by only 2.8 percentage points since Q3 2022, France is the most significant beneficiary. Capital investments in French crypto businesses jumped from less than 5% in Q3 2022 to 19.4% in the latest quarter. The report concluded that regulatory and tax frameworks are becoming increasingly important in the distribution of venture investment activity in the cryptocurrency sector.
In summary, VC investment in the cryptocurrency sector has dropped to a two-year low, with $2.4 billion invested in Q1 2023. The number of deals increased by almost 20%, and the report stated that VC activity could rebound following strong price gains in Q1. Although many statistics and anecdotal evidence indicate that cryptocurrency companies are relocating from the US, the report disclosed that US-based firms raised 42.8% of the VC funds invested in cryptocurrency, with France following at 19.4%. The report noted that regulatory and tax frameworks are becoming increasingly critical in the global distribution of venture investment activity in the cryptocurrency industry.
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