The volume of investment into the crypto industry has slowed in 2022 due to macro headwinds and the crypto bear market, though experts suggest there continues to be strong interest in blockchain and crypto technology.
In 2021, venture capital, private equity and M&A activity in the blockchain and cryptocurrency space reached a record $32.1 billion. This fell in the first half of 2022 to just $14.2 billion, according to a recent report by KPMG.
The firm noted however that despite the “Russia-Ukraine conflict, rising inflation and the challenges experienced by the Terra crypto ecosystem,” the investment numbers mid-year are still higher than all years prior to 2021, suggesting a “ growing maturity of the space and the breadth of technologies and solutions attracting investment.”
Blockchain infrastructure attracting interest
One of the areas likely to be of particular interest to investors this year is crypto and blockchain infrastructure, according to the firm, particularly as blockchain tech continues to gain traction in financial market modernisation.
“Crypto and blockchain investments will increasingly focus on infrastructure: While investment in cryptocurrencies is expected to slow further, there will likely be a continued focus on the use of blockchain in financial market modernization,” it said.
Fred Schebesta, founder of Finder and blockchain investment fund Hive Empire Capital, told AIBC that he also believes this is the area attracting funds.
“What we’re seeing is a trend for investment into infrastructure and long-term equity plays.”
Schebesta said there is “a lot of great tech and innovation being built right now in the web3 space” and this is where there is utility in solving real problems and creating more seamless experiences that make it easier to integrate web3 into different industries.”
Schebesta, a notable crypto entrepreneur and a self proclaimed “crypto king” said he prefers to invest in web3 companies at a grassroot level, saying he is “currently focused on web3 start-ups for angel and seed round investing,” specifically where he can “provide advisory.”
Gaming activity strong
Another area that venture capitalists may be keeping an eye on this year is blockchain gaming, which has already raised $1.3 billion in venture capital funding in the third quarter of the year.
According to a DappRadar report earlier this month, blockchain gaming activity is still making up for a significant amount of overall blockchain activity, accounting for almost half of all blockchain activity in Q3.
The top blockchain games have continued to keep their player base, despite a wider crypto market slowdown, with 847,230 daily unique active wallets and $698 million in transactions.
“The best blockchain games keep their player base, which demonstrates actual engagement at the top of the rankings. In addition, investments in metaverse and blockchain-based gaming businesses continue to rise.”
Venture capital firms have noticed this too and continue to invest in the space, which is seen as getting closer to mainstream gamer adoption.
Blockchain gaming expansion
Stardust, a start-up providing developer tools for building blockchain-based games, recently got funding of $30 million in a funding round by crypto venture capital firm Framework Ventures.
Michael Anderson, co-founder of Framework Ventures told Bloomberg that “his firm invested in Stardust because he thinks the company will help expand blockchain gaming, including to those active in traditional gaming.”
Anderson acknowledged the bridge needed, given the majority are still playing traditional web2 gaming, saying that without a company like Stardust “there isn’t the level of infrastructure that will be able to bridge web2 gamers and web3.”
Meanwhile, web3 infrastructure firm, Chainsafe, which focuses on building blockchain gaming utilities raised $18.75 million last week. The investment was led by VCS Round 13 as well as new investors NGC Ventures, Hashkey Capital, Sfermion, Jsquare and others.
Rocky road for web3 start-ups
Looking ahead, the remainder of 2022 will still likely be rocky for web3 start ups.
KPMG has warned to “watch out for resilience of crypto-focused companies being tested very hard as some look to recapitalise at lower valuations.”
It added that “well managed crypto companies with healthy risk management policies, long-term vision and a strong cost and risk management approach are surviving, while others go bust.”
Meanwhile, Schebesta believes that web3 venture capital funding “will be going towards great projects that are building for the bull market. These are projects that have a 12–24-month horizon.”
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