Q2 2023 Encryption Venture Capital Analysis: Investment Scale Hits New Low, Valuations Continue to Decline

2025-08-02 18:37:59

2023 Q2 Encryption and Blockchain Venture Capital Analysis

This article provides an in-depth analysis of the venture capital situation in the encryption and Blockchain fields for the second quarter of 2023. The report utilizes data from relevant data platforms; due to the lag in venture capital transaction data, revisions may be made to this quarter's data in the future.

Main Points

Venture capital in the encryption sector has not yet bottomed out. Although the number of transactions slightly increased in the second quarter, the total investment in cryptocurrency and Blockchain startups continued to decline month-on-month.
Valuation continues to decline. In the second quarter of 2023, the median pre-investment valuation for cryptocurrency venture capital transactions dropped to $17.93 million, the lowest in nearly two years, while the median transaction size saw a slight increase quarter-on-quarter.
The Web3 category dominates in transaction volume, with the transaction category raising the most capital. This continues the trend from the previous quarter.
The United States continues to lead in the encryption startup sector. U.S. encryption startups account for over 43% of all completed transactions and over 45% of the funds raised.
The venture capital financing environment remains severe. In the second quarter, only 10 new cryptocurrency venture capital funds raised $720 million, the lowest level in nearly three years.

Transaction Volume and Capital Investment Analysis

In the second quarter of 2023, the investment in the encryption and blockchain industry amounted to $2.32 billion, marking a new cycle low and the lowest level since the fourth quarter of 2020, continuing the downward trend since the peak of $13 billion in the first quarter of 2022. The total fundraising amount over the past three quarters is lower than that of the second quarter of last year.

Although capital investment has not yet bottomed out, trading activity increased slightly in the second quarter, completing 456 transactions, a modest increase from 439 in the first quarter. This is mainly attributed to Series A transactions rising from 154 to 174.

In terms of capital investment, early-stage transactions account for 73% of ( Pre-Seed, Seed, and Series A, while later-stage transactions account for 27%.

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Analysis by Year of Company Establishment

Companies founded in 2021 and 2022 completed the most venture capital transactions in this quarter. Unlike the first quarter, companies founded in 2022 raised the most funds among all years, with companies founded in 2021 coming in second.

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Encryption Venture Capital Company Headquarters Distribution

American companies dominate in both the number of transactions and fundraising. In the second quarter, American companies raised 45% of the encryption venture capital, followed by the UK )7.7%(, Singapore )5.7%(, and South Korea )5.4%(.

From the completed transactions, American companies accounted for 43% of all encryption venture capital transactions, followed by Singapore )7.5%(, the UK )7.5%(, and South Korea )3.1%(.

Transaction Scale and Valuation Trends

In the second quarter of 2023, venture capital valuations in the encryption sector continued to decline. The median pre-investment valuation of transactions dropped to $17.93 million, the lowest in nearly two years. The median deal size was $3 million. This downward trend is consistent with the overall venture capital industry.

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Subfield Analysis

Trading, investment, and lending startups raised the most funds, reaching $473 million, accounting for 20% of total investment. Web3, NFTs, gaming, DAOs, and the metaverse followed closely, raising $442 million, accounting for 19%.

In terms of transaction volume, Web3 games, NFTs, DAOs, and the metaverse are at the forefront, followed by trading, exchanges, investment, and lending companies. The transaction volume of privacy and security product companies saw the largest month-on-month increase of 275%, followed by infrastructure with a 114% increase.

In the later stages, trading mainly focuses on the mining and enterprise Blockchain categories, while the compliance category ), which includes chain analysis and regulatory tools, accounts for the largest share in seed pre-stage trading.

Venture Capital Fundraising Situation

In the second quarter of 2023, the number of new fund issuances was 110, and the fundraising scale was 7.2 billion dollars, hitting a near three-year low. The average scale of new funds in the first half of the year was 236 million dollars, with a median of 50 million dollars, both significantly down from last year.

Analysis Conclusion

The cryptocurrency venture capital bear market is still ongoing, but compared to previous bear market cycles, the activity level remains relatively high.
Venture capital firms are facing a difficult fundraising environment, which may put financing pressure on founders.
The trading activity in the early seed stage remains stable, with nearly 75% of transactions occurring in the early phase, indicating that entrepreneurial enthusiasm is still strong.
The United States still dominates the cryptocurrency startup ecosystem, and policymakers should consider creating policies that are conducive to innovation.
The number of transactions in the Web3 space is leading, while transaction-related companies continue to receive the most investment, a trend that has persisted for several quarters.

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