Moonwatch: Crypto Macro & Web3 Insights
A recap on talks about crypto markets, investments, and founder challenges
It is fair to say that the crypto industry has experienced lots of major hiccups over the past year. Amidst this emerging space that is often seen as the wild west, what do investors and founders need to know?
At Arcane & QCP Capital’s “Moonwatch: Crypto Macro & Web3 Insights” event last week, industry experts gathered to unpack various aspects of the market, including adoption, regulation, and investment opportunities.
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ON CRYPTO MARKETS
The night’s talks began with what started it all - Bitcoin (BTC). While Arcane Group’s Managing Partner Neo Su calls the digital currency a risk asset, he believes that there is more than meets the eye: “If you just trace it back for almost 10 years, Bitcoin is actually the best performing asset among any other asset class, including single commodity, cash and stocks. But does it mean that this trend can continue? We can’t say for sure, but we are betting on not just Bitcoin itself, but also the blockchain technology that can unlock and create new innovation in different use cases, including a digital economy. I think that's what will make Bitcoin even more valuable in the future because it is creating a new narrative of what an asset can be.”
On the other hand, Founder & CIO of QCP Capital, Darius Sit sees Bitcoin as having gone beyond the classification of a risk or safe haven asset. He elaborates: “Bitcoin has become the cornerstone of an entirely new asset class. What we saw as a global institutional crypto trading firm was that when the banks collapsed, BTC price went up. I think for a lot of people in traditional finance, that was a very key moment. There is the safe haven narrative to BTC, but more than that, it has become sort of a political hedge, where we saw investors just completely sell all their dollars and stablecoins, and move into BTC.”
Despite the collapse of major players, regulatory hurdles and tech-related issues, such as security breaches, the crypto industry has remained largely resilient. Su maintains that investors need to look beyond the price and examine the underlying technology and ecosystem that are driving this sector: “Bitcoin is still an alternative asset class so you need to have a lot of people to continue building micro-systems around it. To add, building the infrastructure - not just with regards to the technology, but also the regulatory framework and all other components that make it easier for people to buy and hold the trade.”
While the mainstream focus is largely on the volatility of crypto prices, Su argues that more attention should be directed at the builders behind the cryptographic technology: “Arcane still thinks that developer activity and contract deployment remain at a fairly high growth ratio. So incorporating this metric, crypto’s resilience is actually coming from the consensus built on the community. The fact is that both developers, Web3 investors, and every other player in blockchain are still putting so much effort beyond just the price.”
Sit is also betting on the future growth of cryptocurrencies: “More than ever, investors are seeing Bitcoin again as a safe haven as well as a new asset class. I think they have finally accepted that this is something they can't ignore but something they have to embrace. And I think that explains the resilience of Bitcoin in that it not only survived but it is now becoming a hedge for the institutional market.”
The conversations did not just stop at Bitcoin. As one of the strongest cryptocurrency, Ethereum (ETH) is shaping up to be a powerful token to rival Bitcoin. Arcane Group’s Partner Chew Min Wei thinks any viable competition between the two digital assets is difficult to predict in the short-term. He argues that there are some sticky points for ETH to weed out in order to get a clearer picture: “I think post-merge and post-Shapella upgrades, ETH really needs a new narrative to enter a new roadmap before it gets more traction in the space based on its scalability issues.”
With BTC having progressed 75% through its next halving cycle, Chew maintains that it is difficult to see ETH flipping over BTC anytime soon. While the price impact of Bitcoin halving remains a topic of debate among experts and investors, many believe that the event is a bullish signal for Bitcoin's price. Historically, Bitcoin halving has been followed by periods of significant price increases.
However, Chew believes in the long-term strength of ETH: “I think the interesting case for ETH flipping over Bitcoin really comes two halvings away, maybe across 2028, where the security model of Bitcoin release comes into question. By then, transaction fees would essentially need to double for the next two halvings to give the miners enough incentives to secure rewards in terms of block and transaction fees. That would probably be the biggest push for users to move towards another ecosystem.”
As with any investments, diversifying assets is key to risk management. While BTC and ETH get the majority of the spotlight, investors could also turn to alternatives outside of the two major protocols. Even though the early days of crypto were powered by blockchain maximalists (those with firm conviction for only one cryptocurrency - or in fact, currency), many are pushing the idea that Web3’s future is ultimately one that is multi-chain.
OKT Chain’s Director of Ecosystem Development (Asia Pacific) Nicholas Soong remarks: “As a project, why should you limit yourself to one chain over the other chain when you can get exposure to all chains? Some chains can get you access to more active users who may also trade bigger volumes. Others may provide you with more financial incentives and grants. For our chain, we tend to work hand-in-hand with the projects to help accelerate their growth by providing marketing support and leveraging of our existing users to run campaigns together, fostering collaboration with players already within our ecosystem and introducing them to our VC partners. I believe for certain chains, they implement the idea that you have to be chain-exclusive and I'm not a big advocate of that. I believe being multi-chain is the future and should be the narrative. That should be the direction that's taken for all new projects coming into the scene.”
ON WEB3 FUNDING
With more and more up-and-coming projects entering the blockchain space, all eyes are now on how founders can keep building during the bear market. This will be key to creating and growing more ecosystems that can truly prop up the whole industry, beyond fixating on simply BTC and ETH prices.
While Arcane Group continues to actively seek for emerging startups to finance, the firm’s Head of DeFi Glen Aw says that overall funding of a VC fund itself has declined amidst current market conditions. He raises concerns over how this can eventually affect project founders: “Funding from the fund side has dried up quite a bit, which also leads to tightening in the funding towards projects that they are building or founders that are building in crypto. So that's the tough part and I think more so in the sense for founders. From what I've seen, some headwinds that they are experiencing is finding product market fit in this very bearish sentiment and environment. So founders who are building very innovative products may not find the kind of traction that they're looking for as opposed to during the bull market.”
QCP Capital’s Head of Investments Stan Low also acknowledges another type of challenge faced by founders, particularly those working to incorporate blockchain into their businesses: “Fundraising for founders nowadays, especially in the crypto space, is sort of like when you go to McDonald's and you don't know whether you should get a McSpicy or a Double Quarter Pounder. Today, founders have more options to choose with the way they raise - via equity or through a token, or even both. Each method has its own advantages and disadvantages, and that's a dilemma that founders have been facing in the crypto space today.”
The complexities of working in the industry can often turn away promising founders with potentially ground-breaking ideas. However, amidst the volatility and uncertainty covered by mainstream media, there have also been great upsides for those entering in the initial phases. Early investors have seen significant gains as the value of a particular project or token increases over time. Hashed’s Edward Tan notes: “Crypto is really skewed on the risk-reward spectrum where you take on a lot higher risk than all the other asset classes, but your returns are in different magnitudes. It is an asset class with heavy information asymmetry, where you are able to find big inefficiencies if you spend a lot of time on it. If you're early to this space, there's a lot of ways to take advantage of it. And if you put that to your advantage, there are commensurate returns - both quantitative and network wise - that you can get out of this.”
Being early in crypto can also provide both founders and investors with a chance to learn and gain knowledge about the technology and the market itself. As it is still a relatively new and evolving field, staying informed and up-to-date can provide an edge in making informed business and investment decisions. Low observes: “Looking at narratives in the crypto space is extremely fast-paced and entertaining. What’s exciting is that as Web3 narratives change once every few months as compared to that of a traditional venture capital. This really shows the pace of innovation and how iterative and early this space is.”
Ultimately, Aw points out that crypto is here to stay, highlighting that there are more viable developments in the near future: “What's exciting for me in the venture space is L2 solutions. So scaling Ethereum is something that we are really looking forward to - anything that's building on the infrastructure or applications layer for that. The other thing that I really look at is DeFi itself. So we are trying to look at more innovations on that end, bringing perhaps real world assets on-chain.”
For more on the growth of cryptocurrency adoption, get an insider look here.
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