The final quarter of 2023 saw a 2.3% increase in total venture capital funding related to crypto firms compared with the previous quarter, the first such increase since the first quarter of 2022, according to a new report.
“After six straight quarters of decline, an uptick in funding, albeit a tiny percentage, could present welcome news for startups in the coming quarters,” says the report by Pitchbook, a private market data analysis provider.
The data arrives in the same week where Bitcoin broke $52,000 for the first time since December 2021, according to CoinGecko data, and recaptured its $1 trillion market cap, suggesting confidence in the digital currency is growing after a turbulent two years of scandals and bankruptcies.
Pitchbook’s analysis corroborates that the latest Crypto Winter, which began after Bitcoin tumbled from a high of near $69,000 in November 2021 to below $17,000 by the end of the following year, may be coming to an end.
Despite the spectacle surrounding criminal charges against the founders of the centralized exchanges Binance and FTX, and multiple bankruptcies across the industry, investors appear optimistic, the report states, with a particular enthusiasm for centralized finance providers.
“We observed a marked uptick in deal activity in Q4 last year. Most of the companies that raised in Q4 were built through the bear market—truly a testament to their grit and conviction,” John Robert Reed, a partner at VC firm Multicoin Capital, told Fortune.
The top deals were won by centralized exchanges Swan Bitcoin and Blockchain.com, which raised two mega-rounds of $165 million and $100 million, respectively, according to the report. Cross-chain bridging protocol Wormhole took the largest deal of the quarter, closing $225 million in an early-stage round at a $2.5 billion post-money valuation.
“We have seen pretty healthy pickup in the activity going into Q4 last year,” Michal Benedykcinski, chief operating officer of Arca Investments, told Fortune. He attributes that optimism to anticipation of the Securities and Exchange Commission’s passage of spot Bitcoin ETFs, which were approved Jan. 11. Since then, the 10 trading ETFs have accumulated $10 billion assets under management, with inflows reaching as much as $1 billion in a single day.
Ahead of the approval, investors felt “the entire space was about to get a little bit of a rewrite,” he said, with hopes that the “big institutional Wall Street marketing machine” would spend big to reach new audiences. Benedykcinski also believes developments in consumer categories, such as payment products and social networks, have excited funds.
Indeed, stablecoins have increasingly entered traditional payment flows. Meanwhile, the Farcaster protocol saw a 400% increase in usage in one week following the introduction of Frames on its social media application, according to Dune Analytics data, indicating an appetite for decentralized networks for social media applications.
Shan Aggarwal, vice president of corporate and business development at Coinbase Ventures, told Fortune via email that he thinks investor interest has been accelerated by growth in consumer use cases across payments and social, advancements in protocol infrastructure—such as scalable layer 1s and layer 2s—and the institutional offerings of ETFs.
“Despite the recent market downturn,” he added, “innovation in the space has remained high, and we’ve seen steady growth in tenured developers in the ecosystem.”
