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Startup funding in the crypto industry has fallen back to Q4 2020 levels amid the ongoing bear market. 

According to an Oct. 5 report by blockchain analytics firm Messari, a total of $2.1 billion was raised by crypto startups across 297 deals in Q3 2023, down 36% from the previous quarter and nearly 70% from Q3 2022.

Seed funding accounted for the largest fundraising category, with $488 million raised over 98 deals. “Trends in deal counts show a significant shift away from later-stage projects and into early-stage projects over the last three years,” researchers wrote. Less than 1.4% of deals involved companies at the Series B round or later.

Crypto VC funding has been on a decline since Q2 2022. Source: Messari

Meanwhile, strategic financing rounds rose sharply from 0.2% of total deal share in Q4 2021 to over 22% as of Q3 2023. The highest private equity round during the quarter was a $200 million investment into United Arab Emerites-based Islamic Coin from family office Alpha Blue Ocean’s ABO Digital. Messari stated:

“Harsh market conditions are forcing projects to raise short-term bridge rounds or ultimately get acquired by larger projects.”

Despite regulatory uncertainty, 54% of all active venture capital investors were from the United States, more than the rest of the world combined. Investors’ appetites have also shifted from user-facing applications to blockchain infrastructure, with the latter consistently outperforming the former in funding for the past three months.

“However, this trend may not last for long as more investors are beginning to realize that without successful user-facing crypto applications, infrastructure investments are less likely to generate their desired returns,” researchers wrote.

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