Family offices back NFTs, digital wallets as Web3 develops
After a difficult 2022 for crypto assets, some investors remain committed to investment in blockchain technology, powered by a belief in the promise of Web 3.0, the idea of a new, decentralised internet powered by blockchains.
Built on networks of distributed ledgers controlled by participants, Web3 promises a new model for the internet, where community-operated networks take charge.
Some family offices believe non-fungible tokens and digital wallets will play crucial role in Web3's evolution.
“Non-fungible tokens (NFTs) have come under pressure due to the bear market in cryptocurrencies in the fall of 2023, when Bitcoin fell to below 17,000 USD from its peak above 64,000 USD in November 2021. We have accordingly reduced our investments in the web3 space, said Kelvin Liu, managing director at Hong Kong-based global family office Tsangs Group, told AsianInvestor.
“However, we anticipate the bear market has seen its trough, and we are recovering as legal questions in the United States (keyword: Binance) are getting clarified,” he added.
Global macroeconomic challenges have triggered a“crypto winter,” and together with FTX's collapse in late 2022, have significantly impacted Web3 investment. A recent Crunchbase report reveals a 78% decline in funding for Web3 projects in the first half of 2023 compared to 2021.
Despite these challenges, cryptocurrencies such as bitcoin and ethereum exhibited resilience, with prices rebounding 80% and 70%, respectively, since the start of 2023.
WEB3 INFRASTRUCTURE
For Liu, “digital wallets are of interest as they are still in the nascent stage in relation to cryptocurrencies. Like there were many home computers in the early 1980s and only a few brands made it through, surviving until today (Apple, IBM, Hitachi, etc.) the future for e-wallets on smartphones and wearables looks bright, but not for all e-wallet providers.”
The Xin family office, a single-family office based in Singapore, also focuses on Web3 investments. For Ken Chew, deputy CEO of the firm, “nascent industries like Web3 are riskier and use cases are difficult to predict. So, in Web3, we do technology infrastructure-related investments.”'
“No matter which side the tide turns, and which use case becomes successful, investing in the infrastructure of Web3 is a more logical and safer bet for us,” he added.
Infrastructure-related investment in Web3 including development of the fundamental tools, protocols, and platforms needed to enable the functionality of Web3.
Chichi Hong, who manages investments in a Hong Kong-based single-family office and is a partner in a VC firm investing in Web3 and artificial intelligence startups, also sees a lot of potential in the space.
Hong’s family office has recently partnered with US-based Hack VC, specialists in Web3 and AI.
“This collaboration enables us to identify the best investment opportunities. We encounter numerous founders with immense potential, and we are excited to work with them”, noted Hong.
CRYPTO FRIENDLY
“Dubai, Hong Kong, Switzerland, and the Baltic states” is where Tsangs Group’s Liu sees the most promising innovations in Web3.
During Hong Kong’s Fintech Week in November, officials showcased the city's dedication to Web3 advancement. They highlighted the growth of blockchain, tokenisation, and central bank digital currencies.
For Liu, “gaining acceptance from governments and the general public is crucial. Open markets and fintech incubators play a significant role in this regard.”
Earlier this year, Hong Kong allowed licensed cryptocurrency exchanges to service retail customers.
Due diligence for Web3, nevertheless poses challenges.
“Similar to any investment, evaluating Web3 involves assessing financial health, market size, growth potential, competitive landscape, and synergies with other family office investments. Particularly for Web3, considerations include addressing data privacy, security, intellectual property protection, evaluating innovation and differentiation from existing solutions, and managing environmental, social, and governance risks and opportunities,” Liu said.