Venture funding dedicated to Web3 startups during the second quarter has plunged by 76% in comparison to the previous year, as major funding deals have slackened considerably, according to Crunchbase data. It appears that investors are increasingly turning their attention to the rapidly growing field of AI, as well as other traditional sectors.
Web3, typically associated with blockchain and cryptocurrency startups, has been hit the hardest, with startups amassing just over $1.8 billion in 322 deals during the second quarter of the year. This in stark contrast to Q2 of last year, as startups then had raked in more than $7.5 billion, marking a 75% decline in funding and a 51% fall in deal flow.
A dwindling number of large funding rounds significantly contributed to the steep decline in Web3 funding. In Q2 of last year, startups garnered 15 rounds of funding exceeding $100 million. In stark contrast, this quarter witnessed just three such rounds.
Has the market reached rock bottom in terms of investor interest in Web3? There may be a glimmer of hope, the last couple of quarters have observed relatively consistent funding to Web3 startups.
Regardless of the lack of interest from investors, cryptocurrency prices have experienced a surge, with Bitcoin up more than 80% this year and Ethereum up almost 50%.
This uptick in price was triggered last month when Fidelity Investments and BlackRock filed with the U.S. Securities and Exchange Commission to launch the first U.S. exchange-traded spot Bitcoin fund.
The question now is, what lies ahead for Web3? It’s hard to tell, but the current investment climate is a far cry from 2021 when startups were awash with capital. Now, investors appear much more cautious, steering their funds towards AI and more mature sectors.
Despite the shift, small-scale investments are still being made into startups aiming to fortify the Web3 landscape, which could signal brighter days ahead for funding in the sector.
However, we cannot ignore the severe blows dealt by the collapse of large cryptocurrency exchanges and recent regulatory actions in the U.S. These events may have dissuaded some investors from exploring the digital asset space.
Whether investors will return, or whether existing investors will attract more, remains uncertain.