Almost $2 trillion of market value has disappeared from the crypto industry in 2022. Is it still a good opportunity to invest in Web3?
First, let's start by defining what Web3 means, the concept is attributed to Gavin Woods - one of the creators of Ethereum and Polkadot - alluding to the evolution of the internet (Web2), so this term is considered a set of concepts that describe the behavior of the decentralized digital economy.
This is why the hypothesis of this article is about the investment toward the ecosystem, taking a set of elements that make up the new decentralized digital economy, not analyzing the acquisition of a specific type of crypto asset.
Let's suppose you are looking for medium-term returns and want to invest in the future of technology with a suitable investment strategy. In that case, this is still an excellent opportunity to invest at the end of Web3.
The arguments of my hypothesis have four main verticals:
- Today's digital economy is broken
- The world's leading VCs have decided to invest in Web3 companies with a medium- and long-term panorama.
- Web3 adoption will take years, but it will eventually come
- Passive investment + DCA is the perfect combination
Today's digital economy is broken
The current digital economy is made up of an entire set of companies whose resources are the digital universe of the internet.
On September 19, 2022, the news of the loss of 71 Billion USD by Mark Zuckerberg was shared in various media outlets around the world, being the billionaire with the greatest loss in 2022 due to the poor results of Meta (formerly Facebook).
This result could be multifactorial. I believe that one of the main factors is the growth in the use of social media networks like TikTok among Millennials and Centennials, but also the decrease in ad investment due to the economic slowdown we are experiencing.
Meta has fared worse in 2022 than most of her FAANG peers.
It's down 57%, far more than the 14% drop by Apple Inc., 26% by Amazon.com Inc., and 29% by Google's parent company Alphabet Inc. Meta is even narrowing the loss gap from 2022 with Netflix Inc., which is down 60%.
Of course, Meta (Facebook) is just one company in a group of companies that make up the digital economy, but perhaps one of the most important ones, with nearly 3 billion individual accounts, according to Statista.
Meta has declined in earnings and worldwide dominance due to economic factors and media conflicts over privacy. Given this last factor, decentralized proposals such as lens have begun to emerge, seeking to promote user privacy and ultimately break the business model that benefits companies over users.
The slowdown of companies like Meta is just the tip of the iceberg of the transformation that the Web2 digital economy (internet) is experiencing in business, economic models, and how it relates to end users.
The world's leading VCs have decided to invest in Web3 companies with a medium- and long-term panorama.
According to Entrepreneur, VCs focused on the Web3 ecosystem invested close to $33 billion in 2021 and are poised to almost double that in 2022.
Even significant investment funds have allocated more than 4,000 million dollars to invest in the Web3 ecosystem in the following years.
Bitcoin showed the world a new way of understanding money as a representation of value, but in the Web3 ecosystem, it is not only this representation of value that will predominate.
VCs are investing in different organizations that go beyond just money; they are investing in a new digital economy that flourished from the roots of the internet, so investing in Web3 represents that bet.
Many projects in Web3 will have significant challenges that some will be able to solve and probably others won't, so you could see your investment portfolio decrease due to these poor results. But big investors are putting their vote of confidence in this industry.
Web3 does not depend on one company or a small group of companies as in Web2. In other words, VCs are diversifying and betting on an ecosystem of companies, not on a single company that dominates the market.
Web3 adoption will take years, but it will finally come
In real terms, the Web3 ecosystem in 2022 does not have enough tools to compete with Web2 for a critical mass of millions of users.
The products probably have more deficiencies than attributes, but that is what it is about, investing in the construction of an ecosystem when it is forming, in the same way some early adopters did with the start of the internet.
Unbeknownst to many, the internet had been around since the 1960s, when government researchers used it to share information.
But the internet as we know it is in its fourth decade of evolution, officially born in 1983 after TCP/IP (Internet Transfer Control Protocol/Working Protocol) was established.
A well-known promoter of Web3 technology, Lark Davis, tweeted a graph highlighting user growth on Coinbase between 2014 and the end of 2021, taking as a sample one of the major exchanges in the U.S.A and the world and comparing it with the user growth on the internet.
The two graphs seemed indistinguishable, and if the internet adoption rate were used as a guide to predict Web3 adoption, the latter industry could have a billion users in the next five years: 2026-2027.
Finally, according to a graph on the Research Gate site, the adoption of new technological tools has decreased from more than five decades to less than one, as with cell phones.
The Cypherpunk movement, in charge of promoting the foundations of decentralized technologies such as those we see today as Bitcoin, had its origin more than three decades ago. But Bitcoin, as a unique proposal, is about to turn 14 years old, and Ethereum is only 7, so you can begin to see the potential in a period of fewer than five years.
Passive investing + DCA is a great combination when it comes to investing
Passive investment management is a long-term approach to building wealth over time gradually. By minimizing the buying and selling of securities, passive investing increases long-term profits through cost savings.
There is no interest in profiting from short-term market fluctuations but instead seeking to enter a position and hold it for more extended periods.
Index funds, in particular, have grown in popularity in recent years as more and more investors realize that it is challenging, if not impossible, to outperform the market systematically.
What is the difference between active and passive management?
Basically, in the products you invest, the time you dedicate to them, and the commissions you pay.
Dollar Cost Average (DCA)
DCA is a practice in which an investor invests money at regular intervals, usually less than a year (monthly or quarterly). It is generally used for more volatile investments, such as stocks or mutual funds, and not for bonds.
All risk reduction strategies have their drawbacks, and DCA is no exception.
First, there is a risk of missing out on a higher return if the investment continues to rise after the initial investment period. But it has the advantage against sudden drops as if you had invested it all at once.
DCA may not be the best investment strategy if you want to buy low and sell high in the short term by day trading and the like.
However, a conservative investment approach can give you the edge you need to achieve your goals.
Let's look at an example of DCA with hypothetical Bitcoin prices:
On January 1, 2021, Romina and Matías decided they wanted to invest in Bitcoin. However, they have different profiles and different investment strategies.
On one hand, Matías wants to buy $500 worth of Bitcoin each week until he accumulates an entire Bitcoin.
Matías accumulated a Bitcoin for a total price of $9,500 over time, investing $500 every week, regardless of price volatility. On the other hand, Romina decided to buy an entire Bitcoin at once.
Romina purchased a Bitcoin on January 1, with a total investment cost of $13,400.
This example illustrates how the DCA strategy can be helpful. In this case, Romina has paid significantly more than Matías, buying one Bitcoin at a time. She had no other opportunity to buy lower because she decided to enter the market in one move.
This strategy, combined with passive investing, can catalyze medium and long-term results as an investor in a growing industry.
If you are an investor who is committed to the future of technology in the medium or long term, who does not seek to obtain high returns in the short time, and who decides to have a passive investment strategy in the market, not only in an asset, but through a methodology that guarantees exposure to the leading crypto assets of most sectors through weighted purchases, the answer is yes. It is an excellent opportunity to invest in the future of Web3.