In a remarkable trend, May 2023 witnessed back-to-back monthly growth in crypto VC activity, soaring past the $1 billion funding milestone for the first time since September 2022.
Crypto venture capital investments continued their upward trajectory for the second consecutive month in May, defying the prevailing economic downturn. According to Cointelegraph Research’s Venture Capital Database, funding amounts experienced a remarkable surge of 34% compared to April, while the number of individual deals witnessed a staggering 62% jump.
Despite a moderation in inflation from 4.9% in April to 4% in May in the United States, down from a peak of 9.1% in the summer of 2022, the U.S. Federal Reserve opted for 10 consecutive interest rate hikes. While decreasing inflation tends to instill investor confidence in the manageability of inflation and the potential easing of Federal Reserve measures, the market is cautiously awaiting further developments.
The recent announcement by the Fed on June 14, signaling a pause in interest rate hikes, has the potential to serve as a bullish indicator for financial markets, including the crypto industry. According to Cointelegraph Research’s Venture Capital Database, the crypto VC market experienced a significant surge in investments, totaling $1.1 billion in May. This notable milestone marks the first time since September 2022 that the monthly investments surpassed the $1 billion mark. As June unfolds, it becomes a pivotal month to gauge the sustained growth in VC investment trends within the crypto market.
Blockchain infrastructure is still on top
May showcased a compelling breakdown of crypto VC deals, with the infrastructure sector leading the way in capital inflows, amassing an impressive $783.9 million across 23 funding rounds, accounting for over 68% of the total invested funds. Meanwhile, Web3 secured the highest number of deals with 24 conducted, but its funding amounted to $170.1 million. Decentralized finance experienced a slight setback in May, raising $93.6 million through 20 deals, while centralized finance struggled to attract VC interest, culminating in a mere two deals totaling $24.8 million.
Among the standout performers in May were Worldcoin and Auradine, both infrastructure solutions developers, along with Magic, a Web3 project. Worldcoin’s Series C round raised an impressive $115 million, with notable participation from Spark Capital, Zoom Ventures, Sound Ventures, Salesforce Ventures, Menlo Ventures, and Google. This significant funding will drive the advancement of Worldcoin’s custodial solution, World App, and its decentralized identity solution, World ID.
Auradine, a leading provider of blockchain privacy and security solutions, secured $81 million in a Series A round, backed by Marathon Digital Holdings, Celesta, Mayfield, Cota Capital, and DCVC. The aim of this funding is to further promote their “next-generation web infrastructure” augmented with artificial intelligence and zero-knowledge-proof solutions.
Magic, a prominent Web3 development and tooling project, sealed a $52 million Series B deal with backing from PayPal Ventures, Volt Capital, and other key investors. These funds will be utilized to expand Magic’s integration in the European and Asia-Pacific markets.
In June, the Federal Reserve concluded its streak of 10 consecutive interest rate hikes, potentially redirecting investment strategies towards a risk-on approach. Adjustments to interest rates can significantly influence how capital is allocated in both traditional and decentralized finance realms. However, it’s important to note that VC activity acts as a lagging indicator and may experience positive effects amid these recent developments. To stay updated on VC activity, it is recommended to follow the Cointelegraph Research VC Database, which provides weekly updates and tracks over 6,000 deals from 2012 to the present day.