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While the story of the first ten months of 2022 was surviving crypto winter, there was also some optimism that better times were coming.

There is a newly elected Congress and new leadership, which many had hoped would be thoughtful about the need for a new legislative and regulatory paradigm to account for the digital asset class. There was also a hope that price stability would return as a result of of multiple interest rate hikes, and investors ready to trade risk for alpha. Meanwhile in the Metaverse, an appetite for new Web3 applications was being anticipated by inventors, entrepreneurs, and cryptologists.

But then the month of November saw some of the smartest and most prolific digital investors in the world hit by a case of frost-bite.

Year in Review

CB Insights just released its Q3 2022 State of Blockchain Report. Below are some recent highlights of dealmaking, funding, and exits by private market blockchain and crypto companies.

The good news is that deals are still getting done, with global funding and deals on track for a record year. And while the report does show that the average global deal size is down 23% so far this year, the median deal size is at record levels in the United States and Europe.

Some key findings:

35% decline in global blockchain funding.

Blockchain venture funding fell to $4.6 billion in the second quarter-over-quarter (QoQ) decline this year. Investors remained cautious due to a continued crypto winter, rising inflation, and rate hikes. The sub-sectors with the largest funding declines were Decentralized Finance (DeFi) and institutional crypto and custody.

59% drop in blockchain mega-rounds.

There were only seven $100M+ blockchain mega-rounds, the fewest in a quarter since 2020. The count plummeted from 17 last quarter and 28 in Q1 2022.

1 in 4 new unicorns are blockchain companies.

There were a mere six new blockchain unicorns in Q3 2022, yet they still accounted for a quarter of the 25 total unicorn births across all industries.

195 U.S. blockchain deals. Flat QoQ.

Nearly half of global blockchain deals went to U.S. companies, the most of any region for the eighth consecutive quarter.

$2.9B in funding to Web3 startups.

While the mainstream media regaled in stories of the demise of Web3, it still accounted for over half of the total blockchain funding for the third quarter. The category includes Non-Fungible Tokens (NFTs), gaming and eSports, the Metaverse, DeFi, and decentralized identity. As we look forward, expect to see more non-financial use cases for blockchain and Web3 to gain prominence.

74 deals to infrastructure and development.

Blockchain infrastructure and development companies saw a record number of deals, increasing for the fourth straight quarter. Funding was down QoQ, but only by 12% — the smallest drop of any category tracked in this report.

67% deal growth for crypto exchanges and wallets.

Crypto exchanges and wallets saw 45 venture deals, a sizeable jump from the 27 in Q2 2022 and the largest quarter since Q3 2019. However, total funding ($0.5B) was the lowest since Q4 2020.

You can read the full CB Insights report and see their complete analysis here.

What to Expect in the Year Ahead

In the wake of the fall of one of the industry’s brightest stars (indeed, a constellation), ramifications for deals moving forward are unavoidable. While some mainstream media are proclaiming the end of cryptocurrencies, we continue to see a nearly $1 trillion dollar asset class with applications far beyond your wallet.

As we look to a new Congress in 2023, we can hope for some thoughtful legislation that will help enlighten regulators to come up with a strategy beyond enforcement. We can also expect auditors, investigators, and the bankruptcy court to illuminate what went wrong.

Entrepreneurs and investors are hungry for clarity on how to design their business with clear guideposts on complying with the complex matrix of regulations that were created before digital assets were imagined. If legislation could enable regulation, and if regulation could ensure a safe and orderly market, we can bring this sector back onshore from its island hideaways. Unlocking safe and legal new technologies will enable new ways of living, working, and playing together and a whole new economy.

We continue to monitor the trends and activity among blockchain and digital asset businesses, and will bring you additional updates and analysis from Q4 and into next year.

Author Louis Lehot

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