Can crypto's recent wins resurrect venture interest?

Like a tenacious balloon, no matter how hard crypto gets knocked down, it tends to float back up again. I’ve found that to be true in all the years I have covered the decentralized market and economy since 2013.

Still, the latest crypto bust is starting to look a little different.

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After a lengthy downturn — a crypto winter, if you want — blockchains and their constituent tokens and services seem to be on a rebound. Data paints the picture: Spot trading volumes reached a 12-month high earlier this month, the total value of crypto tokens has appreciated materially in recent months, and even NFTs are showing signs of life.

Adding to the count, the recent launch of spot bitcoin ETFs shows that in the critical United States technology market, the legal system may remain more crypto-positive than elsewhere in the world. China and India come to mind.

Yet, despite the run of positive news, venture capitalists’ interest in web3 startups continued to decline in Q4 2023, dipping further underneath a severely depressed third-quarter figure. This begs the question: When will VCs turn the spigots back on?

Crypto’s return, part XVI

Business moves in cycles, which is why you may have heard very imaginative phrases like “the business cycle.” The world of startups also moves in cycles, but the revolutions are often more rapid and frequent than the overall turning of the economy. And inside of startups, the crypto world operates at an even faster cadence of booms and busts. It took startups en masse a bunch of long years to climb up to their 2021-era peak before they hit the reset button, but crypto had several cycles to its name (ICOs, NFTs, etc.) in the same time.

This is why I am very glad that TechCrunch has its crypto-focused newsletter and podcast, so that no matter when crypto falls, or rises again, we are ready to cover its developments. After all, while capital has dried up in recent years for crypto startups, the people who believe in the promise of the technology are hardly giving up the ghost. They are tenacious and impossible to unstick from their views.

Sadly, venture investors have proved more fickle. Per Crunchbase, funding for web3 companies fell to just $1.2 billion in Q4 2023, off from $1.4 billion in the third quarter. Compared to the $2.2 billion and $2.1 billion that crypto startups raised in the first two quarters of last year, respectively, those figures are a little forlorn.

Considering that web3 as a sector posted a yearly fundraising run rate of just $4.8 billion in the last quarter of 2023, it feels almost like a waste of time to compare that paltry figure to the nearly $30 billion that web3 startups raised in 2022, and the more than $33 billion they raised back in 2021. That’s the kind of pullback in capital that usually wipes out sectors.

So, our question is simple: Is the current run of good crypto data and news enough to unlock venture capital’s checkbooks? Much of the dreck from the last boom has been cleared out. The FTX founder suit is over; Binance has cleaned house; fraud is falling (somewhat), and there’s so much more. If you were hoping for the stars to align, what we have in the sky today is a pretty winsome constellation of crypto news and datapoints.

Sadly for the crypto-faithful, this data is only so encouraging. Web3 startups raised just under $300 million this year, per Crunchbase. That puts the sector at an even slower pace of investment than in Q4 2023. Of course, it’s still early in 2024, so we should not take the first three weeks of the year as indicative of what we may see in the rest of the three-month period.

Still, web3 isn’t exactly starting the year with a leap and a whistle. Perhaps rising trading volumes will help crypto exchanges get their corporate venture arms back to full strength. They have written a blizzard of checks before, so why won’t they again?