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Indian digital currency sector sees slowdown in startup funding: PwC

2022 has been a tough year globally, and one of the sectors that have taken the biggest hit is the startup ecosystem. India is one of the countries that are feeling the heat, and as one report recently shows, startup funding dipped 40% in the second quarter, with the digital asset industry being among the most affected.

Indian digital asset startups had seemed untouchable for most of this year, even as layoffs plagued the industry. However, in the past two months, the global economic downturn has made its way to India, and many digital asset firms have announced layoffs, a slowdown, or even a complete freeze in new hires.

A new report by PricewaterhouseCoopers (PWC) India reveals that startup funding in India has taken a 40% hit in the second quarter of the year, dipping to $6.8 billion between April and June. Of this, early-stage deals comprised more than 60% of the funding, with the average size sitting at $5 million.

“After three consecutive quarters of raising more than USD 10 billion, the total funding in the Indian startup ecosystem fell by 40 percent during Q2 CY22 to reach USD 6.8 billion. The decline can be attributed to a global slowdown, decrease in tech stock valuations, inflation and geopolitical instability,” the report, titled Startup Deals Tracker – Q2 CY22, stated.

Software-as-a-service (SaaS) and fintech startups received the bulk of the funds with a combined $3.1 billion.

Digital currency startups recorded a slowdown in funding. The biggest raise was by the CoinDCX exchange, which in April raised over $135 million in Series D funding. This round valued the startup at $2.15 billion, nearly twice the $1.1 billion it was valued in its Series C round in August last year. The funding also came at a time when trading volumes have plunged as prices of most digital assets dip, in addition to the new taxes that have kicked in this year.

“The ecosystem will require a good 12-15 month to recalibrate from the present scenario. The various macro-economic indices present a veritable slow haul and a long ‘crypto winter,'” Raj Kapoor, the founder of India Blockchain Alliance, told a local outlet.

However, despite the slowdown in funding in Q2, Indian digital currency startups have had a great year. In the first half of 2022, the sector raised over $1 billion in funding, almost twice the $536 million it raised in 2021. CoinDCX exchange, NFT platforms Rario and FanCraze, and digital currency treasury management platform Coinshift have recorded the biggest funding rounds.

However, the biggest raise has been by Polygon, the layer 2 scaling solution for Ethereum, which raised $450 million in February.

Already, there are four companies that have raised over $100 million this year, up from just one last year.

Indian developers are confident that despite the tough times in the industry, the country will continue to see innovation. India is rich in talent, boasting 20,000 active blockchain developers and over 4 million developers overall.

“What this means is that India has the talent to build the next generation of Web3 companies. India has both the talent and the money to be number one in the Web3 space,” says Sanjay Mehta, the founder of 100X, a venture capital firm investing in the sector.

Sumit Gupta, the CEO of digital asset unicorn CoinDCX, concurs. Even though his exchange was forced to halt withdrawals last month in response to “compliance risk and monitoring requirements,” he sees a bright future for the industry.

“I believe India is going to become the next Silicon Valley for Web3. Ultimately what you need as a strength is high quality developers who can build on top of these blockchains to drive adoption. Moreover, the rate at which Web2 developers are shifting to Web3 and building solutions gives me the confidence that India is going to become a hub for crypto and Web3 in the years to come,” he told one outlet.

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