Crypto VC market flashes green amid macroeconomic recession alarms

Despite the overall economic downturn, venture capital investments in the cryptocurrency industry increased for the second consecutive month in May. Cointelegraph Research’s Venture Capital Database reported that the total amount of funding rose by 34% from the previous month and the number of individual deals increased by 62%.

In spite of the fact that inflation in the United States dropped from 4.9% in April to 4% in May, which is a decrease from 9.1% in the summer of 2022, the U.S. Federal Reserve still increased interest rates ten times in a row. This decrease in inflation has generated confidence among investors that inflation is manageable and that the Federal Reserve will take a more lenient approach, however the market is still in a state of anticipation.

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On June 14, the Federal Reserve declared that it would halt its interest rate increases, which could be seen as a positive indicator for financial markets, crypto included. According to Cointelegraph Research’s Venture Capital Database, the crypto VC market witnessed $1.1 billion in investments in May, the first month to exceed the $1 billion mark since September 2022. June will be an important month to observe if this trend of increasing VC investment continues.

Blockchain infrastructure is still on top

The infrastructure sector continued to be the leader in capital inflows in May, with 23 rounds and $783.9 million invested, accounting for 68% of the total. Web3 had the most deals at 24, yet only raised $170.1 million. Decentralized finance saw a decline in May, with 20 deals and $93.6 million in funding. Centralized finance, however, was not as attractive to venture capitalists, garnering only two deals with $24.8 million in total.

In May, the top raisers included Worldcoin and Auradine, developers of infrastructure solutions, and the Web3 project Magic. Worldcoin’s Series C round of $115 million was backed by Spark Capital, Zoom Ventures, Sound Ventures, Salesforce Ventures, Menlo Ventures, and Google, with the intention of advancing World App, its custodial solution, and World ID, its decentralized identity solution.

Auradine, a blockchain privacy and security provider, has secured $81 million in a Series A round of funding from Marathon Digital Holdings, Celesta, Mayfield, Cota Capital and DCVC to advance the development of “next-generation web infrastructure” incorporating artificial intelligence and zero-knowledge-proof solutions.

The tooling and Web3 development project Magic has secured a Series B investment of $52 million from PayPal Ventures and Volt Capital, among other backers. These funds are meant to facilitate the company’s expansion into European and Asia-Pacific markets.

As of June, the Federal Reserve has ceased the string of 10 consecutive interest rate increases. This could lead to a shift back to risk-on investment strategies, as short-term changes in interest rates have a major influence on how capital is allocated in both traditional and crypto investing. However, venture capital activity tends to be a lagging indicator and may benefit from the news in the long run. For the latest venture capital news, keep an eye on the Cointelegraph Research VC Database, which is refreshed weekly and includes data on more than 6,000 deals since 2012.

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