(Bloomberg) -- Venture capitalists are continuing to pull back from crypto, an industry that’s been plagued by scandals, a market downturn and regulatory uncertainty. Private funding for crypto startups in the first quarter of this year plunged to its lowest level since 2020, according to data from research firm PitchBook.

Global VC funding for the industry fell to $2.4 billion in the quarter, an 80% decline from its all-time high of $12.3 billion during the same period last year, according to PitchBook. The drop is “not a surprise,” said PitchBook crypto analyst Robert Le, who noted that venture investing has dwindled across the board this year. In addition to rising interest rates, the first quarter also saw the unraveling of Silicon Valley Bank, an institution widely relied on by venture-backed companies. 

“There’s still a lot of fear about what’s going to happen since the macro environment is still very uncertain,” Le said.

Crypto has had its own special challenges. Le said the collapse and bankruptcy of crypto exchange FTX has helped slow down the pace of funding rounds and has reinforced the need for due diligence. Rather than rushing into deals, VCs are conducting months of research and asking founders more questions before deciding whether to back a startup. “It’s not going to be based on FOMO or what other investors are doing,” Le said. 

Despite the size of the downturn, there was some good news for crypto startups in the PitchBook data. On a month-over-month basis, crypto venture investing actually increased in February and March, meaning that the worst of the funding drought may be over, Le said. Venture investors have money in their coffers, and that there’s still interest in backing crypto infrastructure startups, data analytics firms and developer platforms. 

“We’ll slowly start seeing investors get more comfortable,” Le said.

M^Zero Labs, a decentralized finance infrastructure startup based in Berlin, managed to raise $22.5 million in a funding round announced this month. The company began fundraising talks in October, right before the implosion of FTX, according to co-founder and Chief Executive Officer Luca Prosperi. 

The market turmoil made the fundraising process more stressful, Prosperi said in an interview. FTX’s downfall “forced investors to keep asking more questions,” he said. 

He said M^Zero will use the fresh capital to expand its team, and said the company is lucky to have venture backers who remain committed to crypto’s potential. 

©2023 Bloomberg L.P.