Venture capital investment in crypto startups peaked right before everything went to hell

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First quarter it was a hot time for crypto-focused startups. According to recent dataset from CB InsightsCrypto startups raised more capital than ever before in the first quarter of 2022 and set records across a range of other metrics.

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If you’ve been following the venture capital cycle closely in the first quarter, this shouldn’t come as a surprise. As The Exchange notes, the crypto startup economy — blockchain technology upstarts, trading platforms, web3 in general, etc. — was busy partying while the rest of the startups were losing money due to stock market crashes, limited exit opportunities, and a sharp revaluation of the value of software revenues.

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Cryptocurrency startups have largely ignored this, raising a massive amount of $100 million in rounds over a three-month period and releasing a record number of unicorns, according to CB Insights.

The stakes may have been miscalculated. In recent weeks, the cryptocurrency market has suffered from a number of problems, the latest of which is related to the collapse of the so-called algorithmic stablecoin Terra and its sister token Luna. Cryptocurrency prices have plummeted in recent days, which likely hurt trading volumes as well.

The contrast between record first-quarter venture capital and the decline in crypto might seem ironic, maybe even funny if you’re the cynical type. On the contrary, it is rather a reflection of how even professional investors can be trapped at any moment, a checkbook frenzy competing for a limited number of start-up bank accounts that inflate their real value.

Moreover, this week we learned that investors should have known better, at least a little. Let’s talk about data, deviations, and early warning signs.

Heady First Quarter Crypto Failed Into Second Quarter

Briefly, the high-end numbers for the first quarter according to CB Insights are as follows:

  • The total investment in the first quarter of 2022 was $9.2 billion, a record breaking the previous record (Q4 2021) by about $400 million.
  • In total, there were 461 deals for blockchain-focused startups in the first quarter of 2022, up about 60 deals from the previous record (Q4 2021).
  • 28 rounds worth $100 million or more in the first quarter of 2022, up from the previous record of 18 set in the third quarter of 2021.
  • There are a total of 62 cryptocurrency-focused unicorns worldwide, up from 49 in the last quarter of 2021.
  • Decentralized finance startups raised $2.1 billion in the first quarter, while NFT-focused startups raised $2.4 billion, an all-time high.
  • Finally, the first quarter of 2022 was the second quarter in a row that U.S. crypto startups have earned over $5 billion.

Hell yeahyou could say crypto is the future so all of the above makes sense! This perspective is absolutely wonderful as long as your time horizon is long. For those of us who care about what’s going to happen in the next few years, let alone the upcoming quarters, the data above may point to a peak of sorts.

Why? Because, sitting here almost in the middle of the second quarter of 2022, it is hard to imagine that such abundance will continue until the end of the current quarter. With key asset prices declining and the NFT market pausing after a previous rally, it is unclear where the excitement of new investors will come from in the near future.

But don’t shed a tear on crypto startup supporters; they had early warnings. Recall that in its fourth quarter 2021 earningsCoinbase stated the following:

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