2023 Crypto Roundup: VC Funding and Hacking Losses

Bitcoin futures have risen by around 158% as of early Wednesday morning, December 27, 2023. There are high hopes for U.S. Securities and Exchange Commission approval of bitcoin spot exchange-traded funds (ETFs), with Ark Invest’s Ark21 decision due by January 10.

Here is a look at some of 2023’s lowlights for cryptocurrency.

VC funding plunged in 2023

Venture capital funding for crypto startups fell by nearly 68% this year, according to a report in The Block. As might be expected, the number of crypto deals also tumbled, down 32% compared to 2022. Here’s a chart showing funding and deal totals since 2020.

Abhishek Saxena, principal lead at Polygon Ventures, told The Block:

The significant drop in crypto funding in 2023 was largely expected given the macroeconomic environment, regulatory uncertainty, and the scars left by recent major crypto failures. … However, most investors and founders were still surprised by the sheer intensity of the funding pullback. This funding winter served as a healthy and necessary correction, enabling the industry to take stock and refocus on critical priorities.

Hacking losses declined

The good news for crypto investors is that the number of hacking attacks on crypto sites fell. According to data compiled by TRM Labs, the dollar volume of hack attacks declined by more than 50% year over year in 2023. The 160 attacks were roughly equal to the number of attacks in 2022.

Dollar volume fell from nearly $4 billion in 2022 to $1.7 billion in the first 11 months of 2023. More than 60% of the money lost resulted from attacks on the crypto infrastructure. These thefts include private key theft and seed phrase compromises, both of which give hackers access to crypto’s basic infrastructure.

Infrastructure attacks averaged about $30 million in losses per attack, and the 10 biggest hacks represented almost 70% of the stolen funds. (These are the biggest celebrity cryptocurrency losers.)

Losses are much worse

The data compiled by TRM Labs reflects only dollar losses from crypto hacks. Counting bankruptcies, scams and other collapses, Molly White figures crypto crimes have cost investors some $9.55 billion so far in 2023.

The big one was the bankruptcy filing by Genesis in January, following close on the collapse of FTX. The filing by Genesis showed some $5.1 billion in liabilities. The troubles continue–on Tuesday, Digital Currency Group CEO Barry Silbert resigned from the board of Grayscale Investments, which has filed to convert the Grayscale bitcoin trust to a spot bitcoin ETF. A similar request was rejected by the SEC in 2022. DCG is the parent company of Genesis.

DCG has also been sued by the state of New York. The state’s Attorney General alleges a $1 billion fraud by DCG and its Genesis subsidiary. The lawsuit also names Silbert personally.