PitchBook estimates VC investment in the crypto industry totaled $9.5B in 2023, down 68% YoY; CryptoSlam says NFT sales fell 63% YoY to $8.7B in 2023
Hannah Miller / Bloomberg :
Context & Ripple Effects
Crypto venture funding had already been retreating from 2022 levels: PitchBook recorded a drop to $2.4B in global crypto startup funding in Q1 2023, following a 2022 slowdown. The annual figures show that the pullback extended across the full year rather than being confined to one quarter.
The simultaneous decline in NFT sales connects startup-financing conditions to weaker activity in a major crypto application market. Subsequent coverage of a modest Q4 funding uptick but the lowest crypto exit count since Q4 2020 underscores that capital-market liquidity remained constrained.
First-order effects
- Crypto startups faced a substantially smaller annual VC funding pool, increasing pressure to preserve cash and compete more intensely for new rounds.
- Lower NFT sales reduced transaction activity for NFT marketplaces and other businesses tied directly to NFT trading demand.
Second-order effects
- Investors can become more selective about crypto business models when both financing and a prominent end-market weaken, concentrating available capital among companies with clearer infrastructure or revenue cases.
- Fewer exits and weaker funding conditions make it harder for early crypto investors to recycle capital into new startups, prolonging the financing squeeze.
Third-order effects
- If this pattern persists, crypto venture investing is likely to become more segmented: infrastructure-oriented startups may draw attention while consumer-facing NFT businesses face a higher bar for financing.
- The episode points to a more cyclical crypto startup market in which venture deployment and application-market activity move together, making recovery dependent on both capital availability and renewed user demand.
The trend: Crypto is shifting from broad, cycle-driven venture deployment toward a more selective funding market shaped by application-level demand and limited exit liquidity.