European Crypto Startups See Record VC Investment in 2022
Despite a challenging year for the crypto industry in 2022, VC investment in European crypto startups reached an all-time high of $5.7 billion, with decentralized finance startups seeing a 120% increase in investments. Europe is also home to the highest number of crypto startups, but lags behind the US in unicorns and startups with over $1 million in funding. Investment in financial service-based startups declined by 19% compared to 2021, while infrastructure grew by 24%. The EU's Markets in Crypto-Assets regulations are set for a final vote in April 2023.
The year 2022 was a tumultuous one for the cryptocurrency industry, with an ongoing bear market and the high-profile collapses of some of its most prominent players, such as Terra and FTX. However, despite these setbacks, venture capital (VC) investors remained steadfast in their support for crypto startups, with a new study released by European investment firm RockawayX revealing that VC investment in European crypto startups reached an all-time high of $5.7 billion in 2022.
This marks a significant increase from the previous year's investment of $2.2 billion, indicating a strong appetite for innovation and growth in the European crypto space. Notably, decentralized finance startups saw a 120% increase in investments, reaching a total of $1.2 billion in 2022.
Viktor Fischer, the CEO of RockawayX, emphasized that the crypto market is cyclical and that startup funding activity can hold steady even during a market downturn. He pointed to the 2018 winter, when "the total digital asset market cap fell by 80%, but startup funding activity held steady." Investments made during such periods can lead to tech and usage traction alongside "bull market" price recoveries.
Europe is home to the highest number of crypto startups globally, with 3,977 startups based in the region, according to headquarters location. However, it lags behind the United States in the number of unicorns and startups with over $1 million in funding.
Top global investors in European startups include Animoca Brands, Coinbase, Blockchain Capital, and the Digital Currency Group. In Europe, investment in startups that provide financial services made up more than half (52%) of all investments, with infrastructure and Web3 making up 32% and 16%, respectively.
Compared to 2021, investment in financial service-based startups declined by 19%, while investment in infrastructure grew by 24%. This shift in investment focus reflects a growing interest in the underlying technology and infrastructure of the crypto industry.
Europe's rising prominence as a crypto-friendly region comes as lawmakers in the European Union (EU) finalize the Markets in Crypto-Assets (MiCA) regulations. These regulations have been delayed twice due to translation issues, as laws passed in the EU must be translated into all 24 official languages of the member states.
If passed, MiCA will provide a regulatory framework for crypto-assets, including stablecoins, and establish requirements for issuers and service providers. The final vote on the regulations is set for April 2023, and their adoption is expected to provide greater clarity and stability for the European crypto industry.
In conclusion, despite the challenges faced by the crypto industry in 2022, European crypto startups continued to attract significant VC investment. As the industry continues to evolve and mature, investment focus is shifting towards infrastructure and Web3, reflecting a growing interest in the underlying technology of the crypto ecosystem.
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