May 2023 heralded the second successive month of crypto VC activities trending upward, with funding exceeding $1 billion for the first time since September 2022.
Crypto venture capital pursuits enjoyed a resurgence for the second month running in May, even against the backdrop of an overall weakening economy. Data from Cointelegraph Research’s Venture Capital Database indicates a 34% surge in funding from April, with the count of unique deals seeing a 62% spike.
Although inflation in the US declined from 4.9% in April to 4% in May — a significant drop from the 9.1% seen in the summer of 2022 — the US Federal Reserve has consecutively hiked interest rates ten times. Falling inflation often instills investor confidence, suggesting that inflation is manageable and Federal Reserve actions may ease. Nevertheless, the market continues to wait.
On June 14, the Fed disclosed a halt in its interest rate hikes, potentially triggering a positive response in financial markets, with crypto poised to benefit. According to Cointelegraph Research’s Venture Capital Database, the crypto VC landscape observed investments amounting to $1.1 billion in May, the first occasion to breach the $1 billion threshold since September 2022. June will serve as a critical gauge for sustained VC investment growth.
Blockchain infrastructure remains the leader
Diving into May’s transactions, the infrastructure sector continues to attract the largest capital inflow with $783.9 million across 23 rounds, accounting for more than 68% of total investment. Web3 leads in deal count with 24 transactions but only secured $170.1 million in funding. Decentralized finance lost momentum in May, registering 20 deals and raising $93.6 million. Centralized finance failed to garner VC interest, with merely two deals totaling $24.8 million.
The most significant contributors in May encompassed infrastructure solution developers Worldcoin and Auradine, and Web3 project Magic. Worldcoin’s $115 million Series C round was supported by several backers including Spark Capital, Zoom Ventures, Sound Ventures, Salesforce Ventures, Menlo Ventures, and Google, with the goal of enhancing 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, aided by Marathon Digital Holdings, Celesta, Mayfield, Cota Capital, and DCVC. The aim is to advance “next-generation web infrastructure” with artificial intelligence and zero-knowledge-proof solutions.
Web3 development and tooling project Magic secured a $52 million Series B deal backed by PayPal Ventures and Volt Capital, among others. The funds are slated to bolster the company’s expansion in European and Asia-Pacific markets.
As of June, the Fed’s ten consecutive interest rate hikes have ceased, potentially swinging investment strategies back to a risk-on stance. This is as short-term interest rate adjustments greatly influence capital investment in both traditional and decentralized finance areas. However, VC activities are a lagging indicator and may still feel the aftershock of the news. To stay updated on VC activities, refer to the Cointelegraph Research VC Database, which offers weekly updates and tracks over 6,000 deals from 2012 to the present.