Mining stocks spurt ahead, but VCs remain cautious, as some are expecting a recovery in the crypto markets.
March has been a turbulent month for the crypto industry. Bitcoin recorded its highest weekly close in 10 months and raised hopes among many that the bear market is over. One of the key drivers of this expectation was a series of banking collapses in the United States. This made investors hope for falling interest rates later this year, despite Federal Reserve Chair Jerome Powell’s insistence that lower rates were not part of the base scenario for 2023.
However, optimism about the macro environment risks being offset by the regulatory crackdown on the industry in the United States. This mixed environment is markedly different from the typical bull and bear market action that the crypto industry is used to and affects its various areas in different ways.
For those serious about understanding the crypto space’s various sectors, Cointelegraph Research publishes a monthly Investors Insights Report that dives into venture capital, derivatives, decentralized finance (DeFi), regulation and much more. Compiled by leading experts on these various topics, the monthly reports are an invaluable tool to quickly get a sense of the current state of the blockchain industry.
VCs put off by looming stagflation
Investment activity in the blockchain industry experienced a significant decline in March, according to the latest information from the Cointelegraph Research Venture Capital database, as only 59 individual deals took place, down from 96 in February. This represents a 38.5% decrease in investment activity. The total aggregate capital inflows for March were $504 million, a drop of over 42.7% from February’s figure of $880 million.
VCs require stable and favorable macroeconomic conditions that can support the growth of high-risk ventures. The risk of a long-term stagflationary environment makes it difficult to achieve this, which is why VC investment sentiment has recently tended toward being bearish. Until there is a shift in macroeconomic indicators that turn investors from risk-off to risk-on, there may continue to be a stagnant or decreasing investment sentiment in the blockchain industry.
However, there were still some notable investment rounds in March, including $50 million for Ethereum layer-2 solution Scroll, $40 million for surveillance-free internet builder DAO tomi, and a $40-million seed round for CCP Games. Overall, the report rates the investment sentiment for the blockchain industry as 3 out of 5, indicating that VC investment is still being hampered by macro factors. However, VC activity is likely to be a lagging indicator in any future recovery.
Mining stocks ahead of the pack
Crypto stocks saw a mixed performance in March. While mining operations boosted their share price due to higher revenues, other types of crypto ventures struggled. This included the likes of Coinbase, Canaan and Block. The latter’s price continued to be impacted by the short-selling attack by Hindenburg Research.
On the mining front, the highest gains were recorded by Riot Platforms at 60%, Cipher Mining at 53%, and Terwulf, which now runs a nuclear-powered mining facility providing it with cheap electricity, at 47%. These top performers compare favorably to the MoM return on BTC at 23.0% and a 20.4% uptick in mining revenues. However, on aggregate, crypto stocks still significantly underperformed Bitcoin.
The crypto industry is likely to operate in a more profitable environment with a more benign outlook for interest rates and reduced debt obligations for mining firms in the coming months.
Yet the macroeconomic outlook remains shaky, with markets likely to continue a risk-off approach. With new information arriving with Q1 2023 results, investors will be paying close attention to financial reports for any indication of strength or weakness in the crypto industry.