The first trimester was a hot time for crypto-focused startups. According to a recent dataset from CB Insights, crypto startups raised more capital than ever before in the first quarter of 2022 and set records on a host of other metrics.
If you’ve been following the venture capital cycle closely in the first quarter, this should come as no surprise. As noted by The Exchange, the economy of crypto startups – blockchain technology startups, trading platforms, web3 more generally, etc. the value of software revenue.
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Crypto startups mostly ignored this, raising a huge number of rounds worth $100 million in the three-month period and hitting a record number of unicorns, reports CB Insights.
Bets may have been timed incorrectly. Over the past few weeks, the crypto market has suffered from a number of issues, the latest stemming from the collapse of the so-called algorithmic stablecoin Terra and its sister token, Luna. Crypto prices have fallen sharply in recent days, which likely hurt trading volumes as well.
The contrast between record Q1 VC totals and the crypto pullback might seem ironic, even humorous if you’re the cynical type. Instead, it’s more of a reflection of how even professional investors can get caught up in an instant, frenzy of checkbooks competing for a limited number of startup bank accounts outbidding their real value.
More so, we learned this week that investors should have been aware, at least somewhat. Let’s talk about data, declines and warning signs.
Crypto’s heady Q1 drops to Q2
In short, the high-level numbers for the first quarter, according to CB Insights, look like this:
- $9.2 billion in total investment during the first quarter of 2022, an all-time high that broke the previous record (fourth quarter of 2021) of around $400 million.
- 461 blockchain-focused seed deals in total in Q1 2022, some 60 deals from the previous record high (Q4 2021).
- 28 total rounds worth $100 million or more in Q1 2022, up from the previous record of 18 set in Q3 2021.
- A total of 62 crypto-focused unicorns worldwide, up from 49 in the last quarter of 2021.
- Decentralized finance startups raised $2.1 billion in the first quarter, and NFT-focused startups raised $2.4 billion, both all-time highs.
- Finally, the first quarter of 2022 was the second consecutive quarter in which American crypto startups raised more than $5 billion.
Shit yeahyou could say, crypto is the future, so all of the above makes sense! This perspective is perfectly acceptable as long as your time horizon is long. For those of us who care about what will happen in the next few years, let alone quarters to come, the data above may indicate something of a spike.
Why? Because sitting here almost in the middle of the second quarter of 2022, it’s hard to imagine such exuberance continuing into the rest of the current quarter. With prices falling for key assets and the NFT market taking a break from past growth, it’s unclear where the newfound investor enthusiasm will come from in the near term.
But don’t shed a tear for crypto startup backers; they had early warnings. Recall that in its fourth quarter 2021 results, Coinbase said the following: