Crypto Fundraising Slumps, Investment Inflows Thrive Amid Market Shifts

Photo of author

By A D

The crypto investment product landscape saw a significant shift with $21 million in inflows, marking a sharp departure from six consecutive weeks of outflows. This change in tide has sparked renewed interest in digital assets despite the ongoing bear market. Several factors, including slight price momentum, institutional movements, and the recent United States government funding debacle, contributed to this unexpected shift.

crypto investment inflow chart 2022/23
Largest inflows since July, totalling US$78m. Image Source: CoinShares

Bitcoin Leads the Charge

The week began with traders bracing for another week of losses, but a series of key developments altered the trajectory. Notably, Bitcoin (BTC) products surged with $20 million in inflows after a week of losses, claiming the lion’s share of the weekly inflows. In contrast, short Bitcoin products experienced outflows of $1.5 million, continuing a trend that has persisted since April, with cumulative outflows reaching $85 million.

BTC Inflows chart
BTC inflows saw a 15-month high. Image Source: Glassnode

Ethereum’s Struggles Continue

Ethereum (ETH) maintained its losing streak as it recorded outflows of $1.5 million, marking its seventh consecutive week of outflows. Despite the buzz surrounding an Ethereum exchange-traded fund (ETF) and increased adoption, ETH products have been experiencing weekly outflows.

Solana Emerges as Institutional Favourite

Amidst relatively low activity in the altcoin space, Solana (SOL) has garnered attention as an institutional investor favourite. Often referred to as an “Ethereum killer,” Solana has demonstrated remarkable consistency. The community has embraced Solana for its fast payment capabilities and robust ecosystem, attracting both users and developers. In the past year, Solana has seen impressive growth, thanks in part to significant partnerships, including one with Visa. These factors have contributed to Solana’s 27 consecutive weeks of gains, with four weeks of outflows this year. Solana also reached its highest total value locked (TVL) this year, exceeding $338.8 million.

solana has been a favourite amongst institutions
Solana investment products see largest week of inflows since March 2022. Image Source: CoinShares

This influx of funds represents a significant improvement from the previous week, during which digital asset products recorded outflows of $9 million, marking a sixth consecutive week of losses. Notably, Bitcoin accounted for $6 million in exits during that period.

Blockchain equities, on the other hand, recorded $8.4 million in outflows, reflecting losses in traditional technology stocks.

A noteworthy observation is the regional divergence in investment behavior. Institutional investors have been adapting their strategies based on regional markets, with Europe leading the way due to clear regulations. This week, European investors recorded inflows of $23 million, while Canadian investors followed with $17 million. In contrast, the United States experienced outflows of $19 million.

Crypto Fundraising: A Persistent Negative Trend

The crypto fundraising landscape faced persistent challenges in Q3 2023, marked by decreasing investment volumes and a notable absence of significant deals. This stagnation was primarily driven by investor concerns and regulatory uncertainties.

Read: Crypto Industry Sheds $685.5 Million in Q3 2023

crypto fundraising activity in Q3 2023
A 31.5% decrease in fundraising activity compared to Q2. Image Source: cryptorank

Decreasing Investment Volumes

Crypto startups raised a total of $1.61 billion in 222 deals during Q3 2023, representing a 31.5% decrease from the previous quarter (Q2) and a substantial 75.8% decline from Q3 2022. These figures clearly indicate a downward trend in crypto fundraising throughout the year.

Blockchain Services Dominance

Blockchain services emerged as the most attractive category for investors in Q3 2023, with startups developing various blockchain tools and services securing $515 million across 73 deals. This category’s popularity reflects the industry’s demand for infrastructure development.

Notable Investors

Binance Labs and Coinbase Ventures were among the most active tier-one investors in Q3. While many investors explored various sectors, these funds primarily focused on the DeFi (decentralized finance) sector, demonstrating their commitment to its growth.

The Top Three Leaders in Q3

  • Flash Bots: A research and development organization aimed at mitigating the negative externalities posed by maximal extractable value (MEV), Flash Bots raised $60 million in a Series B round led by Paradigm. Their mission is to create a permissionless, transparent, and sustainable ecosystem for MEV by enhancing transparency, democratizing access, and enabling sustainable distribution of MEV revenue.
  • Future RSE: This leader in revolutionary AI and metaverse technologies secured $54 million in a series A round with participation from Ripple. Future RSE focuses on developing open, scalable, and interoperable apps, games, and experiences, while their smart wallet SDK, Ena, aims for secure and password-free onboarding to web3 applications.
  • Risk Zero: Dedicated to building a developer-friendly, scalable blockchain based on zero-knowledge proofs, Risk Zero raised $40 million in a series A round led by Blockchain Capital. Their ZKVM (Zero-Knowledge Virtual Machine) allows developers to build ZK applications in languages like Rust and C++, contributing to blockchain’s scalability and privacy.
country wise crypto fundraising heatmap
Crypto ventures look to be most active in the U.S., tailed by India and Hong Kong. Image Source: cryptorank

Despite regulatory challenges, the United States remains the most active crypto venture hub, with US-based startups raising $743.1 million in Q3, accounting for 46% of the total amount raised. Surprisingly, India emerged as the second most popular jurisdiction for crypto investment, followed by Hong Kong and France.

Crypto Market Growth in South Korea

South Korea’s crypto market cap experienced a substantial 46% increase in the first half of 2023, reaching a total of $21.1 billion. This growth underscores the growing interest and participation of both individual and institutional investors in the crypto sector.

crypto coins and south korea flag

In addition to the surge in market capitalization, South Korea’s virtual marketplace operators reported an impressive 82% rise in operating profits. The cumulative operating profits of these operators reached $168 million during the first half of the year.

Deposits in South Korean crypto exchanges also witnessed growth, with an 11% increase to approximately $3 billion. This increase in deposits reflects the growing trust and participation of investors in the crypto market.

Market Trends and Statistics

  • Daily Transaction Value: Despite the overall growth in the crypto market, the average daily transaction value at the 26 South Korean exchanges experienced a slight decrease of 1.3%. It amounted to $2.1 billion during the January to June period compared to the previous six months.
  • Number of Traders: The number of individual and corporate crypto traders decreased slightly by 210,000, totaling 6.06 million by the end of June. Among individual traders, those in their 30s accounted for the largest share, with over 67% holding virtual assets worth less than 500,000 South Korean Won.
  • Cryptocurrency Variety: South Korea saw the trading of 622 types of cryptocurrencies in the first half of the year, including popular options like Bitcoin, Ethereum, Ripple, and Dogecoin. Additionally, 169 new cryptocurrencies were listed during this period, while 115 coins had trading suspensions due to various reasons, including project risk and investor protection.

South Korea is set to implement a new law in July next year aimed at protecting crypto investors. This legislation will enable authorities to penalize unfair trading practices with potential sentences and fines. Acts of unfair trading covered by the law include the use of undisclosed information, market price manipulation, and illegal transactions. This regulatory framework reflects South Korea’s commitment to fostering a secure and transparent crypto ecosystem.

Read: Crypto Bill in South Korea: Pushing Asia’s Crypto Hub

Overall Crypto Market Trend

The cryptocurrency market saw a rollercoaster of price movements over the past week, with Bitcoin (BTC) taking center stage as its dominance over altcoins reached 50% for the first time since the summer. While BTC showed signs of an uptrend early in the week, it faced resistance at the $28,000 level. The broader market witnessed minor price drops, leaving many altcoins in the red. 

BTC’s Volatile Week

BTC kicked off the week with an impressive rally, surging by over $1,500 in a single day, reaching a 6-week peak at over $28,600. However, this upward momentum was short-lived. The following days saw relatively less volatility in BTC’s price as it struggled to maintain its gains. Market sentiment remained cautious.

Bitcoin price chart for the week
BTC is currently trading at $27,684.50. Image Source: TradingView

Thursday brought renewed hope for BTC as it started pumping once again. However, the bears intervened, pushing the price southward. By Friday, BTC’s price had declined to around $27,200 after failing to break the $28,000 level. Over the weekend, BTC experienced another leg up, briefly reaching $28,300, only to retrace back to around $28,000, where it ended the week.

Altcoin Performances

Ethereum (ETH), Binance Coin (BNB), and Polkadot (DOT) experienced minor price drops- 4 to 5%, reflecting the subdued sentiment in the altcoin market. XRP, SOL, DOGE, MATIC, LTC, and BCH witnessed slightly larger declines, contributing to the overall bearish trend. Avalanche’s (AVAX) native token suffered the most significant drop, losing 3.3% of its value, trading below $10.

The total crypto market capitalization experienced a 3.2% decline for the week, settling at $1.09 trillion. This drop can be attributed to a high base effect following a strong start to October.

crypto market cap chart

Image Source: TradingView

The Israel-Hamas conflict, now in its third day, has introduced geopolitical tensions that have rippled through various financial markets, including cryptocurrencies.  Global equity markets faced modest declines, and rising oil prices. Crude oil rose 3.5%, continuing a 16% three month gain.

Other altcoins, including XRP, SOL, MATIC, AVAX, and DOGE, saw losses of 4%-5% over 24 hours. Oil prices rose due to fears of the Israel-Hamas conflict spilling over to neighboring states, potentially disrupting supply. Equity markets in Asia, Europe, and the U.S. closed with modest losses, reflecting market jitters- Stoxx 600 off just 0.25% and the S&P 500 down 0.6%.

Leave a Comment