The crypto market underwent major shifts in January 2024. The US Securities and Exchange Commission approved 11 Bitcoin spot ETFs, true to market expectations. Market volatility ensued from the en masse redemptions associated with Grayscale Bitcoin Trust, due to which some investors fled the market in panic. With time, fund outflow eased, and conventional asset management institutions drew capital inflow with IBIT and FBTC.
Trends of the investment market
The investment market saw a similar trend, more specifically, crypto project funding. There was a significant increase of projects with funding of less than $10 million but an overall decline in funding size. Overall, the number of projects increased in January, reflecting a relatively conservative performance according to KuCoin’s monthly market insights report. There was a higher proportion of strategic and seed funding. The main verticals were still LSD, ZK, and Layer2, while DeFi and Infra remained the leaders in total funding.
Almost $300M less funding m/m
EVM projects gathered momentum in a shifting trend in crypto project funding. One hundred and thirteen funding projects were disclosed last month in keeping with increasing project numbers. Overall, the financing scale was $631 million, not unlike early last year. Financing dropped by 28% month-on-month, down from $909 million in December.
Cause for concern?
December represented a decline from November as well. The experts who wrote the report don’t find cause to be concerned about crypto project funding, however, as January is traditionally a weak month. It’s when investors summarize their decisions made over the previous year, and it is a transitional month for new investments in the year to come. The trend of limited market opportunities began in December 2023 and has continued so far.
The figures
Crypto project funding in the range of $1-10 million increased from approx. 68% to 76% from December to January. However, projects in the range of $10-100 million received less funding: from approx. 22% in December to 19% in January. Seed-stage financing accounted for almost half of the total (46%), and strategic financing accounted for around a quarter of all projects.
The changes in the crypto project funding proportion reflect an overall decline in Web3 financing in January.
SUI led the Move ecosystem. Infra and DeFi held the top two positions for project numbers and investment institutions, but LSD, ZK, and Layer2 verticals got more investors’ attention in the first quarter. This was in terms of the number of platforms investing in individual projects.
Crypto project funding down last year, but no disaster
There is some cause for optimism, considering how poorly crypto projects fared last year. VC funding dropped by 68% to $10.7 billion, down from $33.3 billion in 2022. Still, crypto project funding was higher than during previous bear markets. Investments amounted to just $6.4 billion in 2019 and 2020.
Most of this crypto project funding took place in the first six months of 2023, with a decline in the second half with the exception of November. More funds were allocated to Series A, pre-seed, and seed startups in 2023 while funding for projects in their midterm and later stages declined compared to 2022.
In terms of deal count, web3, NFT, and gaming maintained their dominance. There were fewer transactions in trading, data, and enterprise.
Not a surprise, really
Even though the total amount of crypto project funding was far below the unprecedented levels of 2022, this could have been expected given the regulatory uncertainty, the macroeconomic environment, and the consequences of major failures like FTX’s bankruptcy. This development in crypto project funding can serve as a healthy corrective, allowing the industry to shift its focus to important priorities.
There was also a drop in crypto VC transactions last year. There were 1,819 deals, almost a third fewer than in the previous year when there were 2,671. The number of deals last year stayed close to that in 2021 and was much higher than in 2020.
Looking ahead: Will funding move to blockchain?
An increase in crypto project funding and deals is expected in 2024, aligning with anticipated bullish trends and the recent price shifts in the crypto market.
Changes are expected not only in the amounts invested but also in the investment vehicles. Investors have a number of compelling reasons to turn to the blockchain for future crypto project funding endeavors, which are outlined below.
Cut out the middleman
IPOs, VC, and other traditional crypto project funding methods involve middlemen and can be time-consuming. Blockchain-based fundraising is more efficient and streamlined, limiting the time it takes to secure funding.
Crypto and blockchain operate on a global scale, allowing investors to access a diverse pool of projects worldwide. This can lead to higher exposure and a more varied backer range.
Lower costs
Smart contracts and cryptocurrency transactions on blockchain networks can minimize the fees and costs associated with crypto project funding. More funds are allocated directly to the project as a result.
Investors can gain access to higher liquidity before IPOs and other exits. This is possible by issuing tokens that one can trade on secondary markets. It will attract investors seeking the ability to exchange tokens and grow their investments.
Ensure transparency
The blockchain’s transparency appeals to investors because it lets them verify crypto project funding use and project progress. It builds trust and confidence.
Higher engagement
Investors who are familiar with crypto and technology are drawn to the space. They are better informed and more engaged because they grasp a project’s true value.
Regulatory flexibility
The blockchain’s decentralized nature provides flexibility in fundraising strategies. Platforms are free to explore different structures and jurisdictions.
Through blockchain-based crypto project funding, candidates for financing show a commitment to innovation. This can attract investors’ attention and that of the broader tech community.
Finally, the blockchain is still evolving, which offers candidates for crypto project funding an opportunity to establish themselves as pioneers in the niche. The early mover advantage is very real. It can lead to increased recognition and visibility.
