The Ultimate Report on the State of European Crypto Startups in 2023

Venture capital (VC) plays a key role in the fast-moving crypto environment. Thanks to their profound analysis of market trends and long-term narrative VCs serve as an important indicator of where the market could go next. By supporting startups with great innovation potential, they often decide in which direction the technology will develop and how fast. Observing the moves of VCs can prove a valuable strategy for deciding where to focus your attention and capital. 

Comparison of Global Markets

Investments according to market cycles

The Crypto market is defined by 4-year cycles of altering bull market and bear market. Looking at investment activity during these cycles can provide valuable insight into the sentiment and belief in the technology.

Interestingly, as seen on the chart the VCs investment volume has remained steady even during times of lower crypto market capitalization. In the phase from 2017 to 2021, the investments reached a volume of around $1T and stayed pretty much the same across the whole cycle.

The VC activity reached its peak at the end of the 2021 bull market, with a record-breaking $2.8T quarterly.

So far, investing steadily across the whole cycle has proven beneficial for VCs, further multiplying their investments in the bull run.

Funding volume for Crypto Startups

Compared to 2021, the 2022 overall funding volume has decreased roughly by $1.2B, however still holding up above the $30B benchmark. Despite the distinct cooldown of the market in 2022, funding volume remained almost the same as in the peak bull run of 2021. This indicates a high level of trust in the industry and technology.

Notice that Europe's funding volume has actually risen from $5B to $5.7B, maintaining its growth in contrast to the US.

The total amount of funds raised by VCs continues to grow rapidly, reaching roughly $35B, even despite the harsh market conditions and more negative sentiment in 2022. This amount accounted for 16 % of the capital raised in all market sectors.

The Activity and Development of Startups in Crypto

Europe seems to be a rapidly developing crypto market with great potential even compared to the more established US. During 2022 as many as 3,977 crypto startups emerged in Europe, making up a significant percentage (35 %) of the global scene.

A Unicorn, in these terms, is a startup, which at one point reached at least a $1B valuation. Unicorn creation is an important metric of successful startup development from its beginning to finish. The US is traditionally a leader in this category, showing constant support of VCs to their portfolio companies.

VC Investment Focus in Europe

In the chart below you can see the state of European crypto startup investments during the last few years.

The investment activity of VCs peaked in Q2 of 2022, continuing the increase up to an overall $5.7B funding volume.

Noteworthy Places in Europe

There are a few distinct locations within Europe, where investment and startup activity stayed the highest. London remains the Crypto-capital of Europe with its $1.6B investment volume.

Second in line, with a difference of only $600M, are the Swiss cities of Zug and Zurich, and for third place are competing Berlin and Paris.

Hottest Crypto Application Sectors

Financial Services

Traditionally, most attention was focused on the financial applications of crypto and this year wasn't any different. Over 52 % of the funding in Europe went to financial services.

Centralized finance (CeFi) still continues to attract most of the funding, with a total of $1.7B that went into their development. However, decentralized finance (DeFi) is slowly catching up.

Investments in DeFi have registered a rocket growth of 120 % within the last year, resulting in a funding volume of over $1.2B. 

Blockchain Infrastructure

Another rapidly growing crypto application sector, slowly closing on financial applications is Blockchain infrastructure. Accounting for the development of new blockchains (L1s, L2s) and developer tools.

Closing Thoughts

In the year 2022, the crypto market has shown a significant shift towards maturity accounting for all the infrastructure improvement and regulatory framework. Thanks to these innovations we can expect the trend to move more in the direction of mass adoption and practical applications.

Overall, we are seeing a rising trend in the European crypto startup landscape, which is characterized by fast development - a large number of startups, bigger support in early phases, and so on. However, the approach of the US seems to be focusing more on the quality of individual startups, resulting in more unicorns.

This article is based on the report from Rockaway X on the State of European Startups in 2023.