Retail Investors Ease Back Into Crypto as VC Funding Rises in 2023
Retail investors are cautiously re-entering the crypto market rebound 2023, while venture capital (VC) funding experiences a notable increase for the first time in 1.5 years. In the fourth quarter of 2023, net revenue surged by 80% compared to the previous quarter. Bitcoin prices also soared by nearly 70% during this period, indicating a bullish trend.
After suffering significant losses in the 2022 market crash, retail investors are approaching the market more cautiously, taking their time to make informed decisions. This approach is in stark contrast to the exuberant bull market of 2021.
Despite the cautious approach of retail investors, VC funding for crypto and blockchain startups has shown signs of recovery. In Q4 2023, VC funding increased by 2.5%, following six consecutive quarters of decline. This demonstrates growing confidence in the market from institutional investors.
Leading cryptocurrency exchange Coinbase saw a substantial rise in net revenue from customer transactions during the fourth quarter of 2023, with a remarkable 60% increase compared to the previous year. The surge in net revenue was driven by a 164% growth in retail trading volume on the platform during this period. Retail trading also constituted a larger percentage of the total trading volume, reaching 19% in Q4 2023, up from 14% in Q3. However, it still falls short of the 28-40% range observed during the previous bull market.
Robinhood Markets, another popular trading platform, reported a similar trend. Their crypto trading volumes experienced a significant surge, increasing by 242% in December 2023 compared to the previous year.
The resurgence of retail investors can be attributed to several factors, including Bitcoin's price crossing the $50,000 mark for the first time in two years and the anticipation of the Bitcoin halving. Historically, Bitcoin halving, which reduces mining rewards by half, has led to heightened retail engagement and market growth.
Additionally, the launch of Bitcoin exchange-traded funds (ETFs) in the United States in January boosted retail interest, as indicated by increased Google searches for the term "Bitcoin." However, the Google Trends data suggests that retail investors are not rushing back into the market, as search volumes have returned to bear-market levels.
This positive trend is also reflected in the crypto market rebound 2023 for startups. In Q4 2023, crypto and blockchain startups raised $1.9 billion from 326 deals, marking the first growth in funding after a year and a half of decline. Although this increase is relatively small, it signifies a potential improvement in the fundraising environment for startups in the coming quarters.
While VC funding has improved, deal volume decreased by 2.4% in the past quarter. However, centralized exchanges continue to provide the easiest entry point and a better user experience, which explains why investors maintain their optimism.
In terms of significant deals, crosschain bridging protocol Wormhole secured the largest funding in Q4, raising $225 million in an early-stage round.
Overall, the crypto market rebound 2023 is gradually attracting retail investors and experiencing a recovery in VC funding. The cautious approach of retail investors and the resurgence in funding for startups indicate a broader optimism about the future of cryptocurrencies and blockchain technology.
Analyst comment
Positive news – Retail investors are slowly re-entering the crypto market with increased caution. VC funding in crypto and blockchain startups has risen for the first time in 1.5 years. Bitcoin prices have climbed by nearly 70% in Q4 2023, indicating market rebound and retail engagement. Google searches for ‘Bitcoin’ surged with the launch of ETFs, but retail interest has since declined. Crypto startups raised $1.9 billion in funding, suggesting potential ease in raising funds. However, deal volume in startups decreased slightly.