May 2023 marked the second consecutive month of crypto VC activity growth, surpassing $1 billion in funding for the first time since September 2022.
Crypto venture capital investments were on the rise for the second month in a row in May despite the generally declining economic backdrop. Funding amounts surged 34% from April, and the number of individual deals jumped 62%, according to data from Cointelegraph Research’s Venture Capital Database.
Though inflation in the United States cooled from 4.9% in April to 4% in May — down from 9.1% in the summer of 2022 — the U.S. Federal Reserve still raised interest rates 10 consecutive times. Decreasing inflation tends to build trust among investors that inflation is controllable and that Federal Reserve measures will become softer, but the market is still in the waiting phase.
On June 14, the Fed announced it would pause interest rate hikes, which may become a bullish signal for financial markets, with crypto no exception. Cointelegraph Research’s Venture Capital Database reveals that the crypto VC market saw $1.1 billion in investments in May, the first month to surpass the $1 billion mark since September 2022, with June set to serve as a crucial benchmark for continued growth in VC investment trends.
Blockchain infrastructure is still on top
Breaking down May’s deals, the infrastructure sector still leads the market in capital inflows with $783.9 million in 23 rounds, over 68% of the total invested money. In terms of the number of deals, Web3 is on top with 24 deals conducted, but seeing only $170.1 million in funding. Decentralized finance lost ground in May, with 20 deals and $93.6 million raised. Centralized finance was not attractive for VCs, having only two deals at $24.8 million in total.
The top raisers in May included infrastructure solutions developers Worldcoin and Auradine alongside Web3 project Magic. Worldcoin’s $115 million Series C round saw the participation of Spark Capital, Zoom Ventures, Sound Ventures, Salesforce Ventures, Menlo Ventures and Google and was aimed at promoting World App, its custodial solution, and World ID, its decentralized identity solution.
Blockchain privacy and security provider Auradine raised $81 million in a Series A round with the backing of Marathon Digital Holdings, Celesta, Mayfield, Cota Capital and DCVC to promote the “next-generation web infrastructure” with artificial intelligence and zero-knowledge-proof solutions.
Web3 development and tooling project Magic got a $52 million Series B deal with PayPal Ventures and Volt Capital as backers, among others. The funds are intended to expand the company’s integration in European and Asia-Pacific markets.
As of June, the Fed’s streak of 10 consecutive interest rate hikes has ended. That may turn investment strategies back to risk-on, as short-term adjustments to interest rates significantly impact how capital is invested in both the traditional and decentralized finance spaces. However, VC activity is a lagging indicator and may experience tailwinds in the background of the news. To keep on top of VC activity, follow the Cointelegraph Research VC Database, which is updated weekly and tracks over 6,000 deals from 2012 through the present day.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.