Web3 Big Reshuffle: East Advances West Retreat

Last year’s Web3 was a thrilling story about the next-generation Internet. Traditional capital made a bold move, and young people from Dachang made gold digging in the name of freedom. Web3 once became a new concept of capital creation. According to statistics from Messari, in 2022, Web3 VC will open a total of 1,769 investment projects, a year-on-year increase of 30%. Giants and crowds have become the keywords of 2022 Web3.

But in just one year, its popularity has continued to decline. The most direct manifestation is the wave of layoffs. According to CoinGecko data, in January 2023 alone, as many as 2,806 people in the Web3 field lost their jobs, and centralized cryptocurrency exchanges accounted for 84% of the total layoffs, including Huobi, Coinbase, Blockchain.com, and Crypto. com and Luno and other well-known institutions.

When it comes to the reasons for layoffs, it is nothing more than the squeezed profit margins caused by the sluggish market environment and pessimistic expectations. Coincidentally, the global crypto policy environment led by the United States has suddenly tightened, which has also brought unexpected pressure to the industry.

But unexpectedly, under the favorable conditions of Hong Kong, the Chinese-style Web3 spread rapidly.

2022-2023: From capital influx to departure, Web3 rides the extreme roller coaster

From 2022 to 2023, the Web3 field will be like driving a speeding roller coaster.

At the beginning of 2022, with the bull market advancing all the way, the total market value of the crypto circle has grown steadily. The crypto circle took Russia and Ukraine as an opportunity to enter the mainstream center. Web3 soon became a popular new story in the capital circle.

Throughout the first half of the year, the influx of hot money into Web3 can even be described as crazy. The native crypto venture capital a16z launched a 4.5 billion US dollar fund to gain a sense of presence, and Paradigm accelerated its move, traditional capital Sequoia Capital, Goldman Sachs, IDG, Hillhouse, and Matrix Partners Actively grabbed the beach and took the lead, Sequoia Capital even quickly followed up with the investment at a rate of one project a week.

As of July 2022, there are nearly 900 cryptocurrency funds in more than 80 countries around the world. According to Crypto Fund Research, the total size of global cryptocurrency funds is as high as $69.2 billion, and it is still developing rapidly. In the first half of 2022 alone, the investment in the Web3 field has exceeded $1 billion, and the overall investment scale has exceeded $30 billion, a year-on-year increase of more than 50.795. There are 107 new investment funds related to Web3, with a total amount of $39.9 billion.

But the heat won’t last forever.

In the second half of the year, as the Federal Reserve continued to raise interest rates, the tightening of liquidity quickly pierced the hidden mines in the crypto field. First, Luna, whose market value was close to $20 billion, collapsed, and then Three Arrows Capital ignited the fire. At the end of the year, FTX, the wolf of Wall Street there, was also a big reversal of the year, and the entire Web3 circle quickly fell into the darkest moment.

Taking mainstream currencies as an example, BTC, known as digital gold, fell below $20,000 to $19,224 on June 1, 2022. Since then, it has continued to fall and even fell to $15,757 on November 9, and as of December 31, BTC was quoted at $16,529, a drop of 288.78% from the beginning of the year, a significant drop.

ETH is not far behind. The price dropped from $3,000 at the beginning of 2022 to $993.64 on June 18, 66.88% from the highest point, and continued to oscillate to $1,199.92 at the end of the year.

With the sharp decline of mainstream currencies, other Web3 markets are also increasingly difficult. From the perspective of total market value, the total market value of the NFT market continued to slump after reaching a peak of $34.96 billion in March 2022 and fell to a bottom of $20.82 billion in November. Until the end of the year, the total market value of the NFT industry was $22 billion.

But for Web3 Venture Capital, even after the continuous thunderstorms of Terra and Three Arrows Capital, investors did not give it a yellow card warning and even felt that this was a good time to seize the key window with a reasonable valuation.

“Terra’s thunderstorm still affected the investment and financing market to a certain extent, but the impact lagged behind. After all, it was only a matter of mechanism, and the choice of targets was extremely limited at that time, and FOMO sentiment spread in the capital. For venture capital, Web3 returns High, short cycle, fast exit, and a large number of institutions in the same round, occupying Portfolio first is definitely a priority,” an investment director of a US dollar fund said at the time.

The key turning point is FTX

As the world’s third largest exchange, FTX, its founder SBF is a frequent visitor to Wall Street and a well-known political participant in the crypto circle. According to reports, FTX is an important contributor to the political donations of the democratic Party. In the Terra thunderstorm, FTX is known for its white gloves in the currency circle and once used the bankruptcy assets of Voyager Digital, a cryptocurrency lending platform of approximately $1.422 billion.

Such a promising company declared bankruptcy on November 11, and more than 130 affiliated companies, such as FTX Global and FTX US, were affected. According to the legal documents disclosed in January this year, there are about 7,500 creditors of FTX, Goldman Sachs Group, JPMorgan Chase, Mitsubishi UFJ Bank and Deutsche Bank, Apple, Netflix, Amazon, and many other giants are included. So far, the currency circle has officially caused a major earthquake.

The collapse of FTX has had a profound impact on the Web3 circle. At its root, as a candidate favored by Wall Street, many traditional capitals and even pension funds have participated. When the building is about to collapse due to account misappropriation and high leverage, Not only is it a huge blow to the industry, but it also hits capital’s expectations for the crypto field.

After the bankruptcy of FTX, the investment and financing market fell significantly. In November, the total investment and financing fell by 32.87% compared with the previous value, a year-on-year decrease of 80%.

In December, the amount of investment and financing and the number of events continued to decline. The number of investment and financing events completed in the whole month was 57, a month-on-month decrease of 15%.

From the perspective of the average financing amount, in December, the average financing amount of the global blockchain dropped to 49 million yuan, a month-on-month decrease of 43.60%. Capital investment expectations for the Web3 circle have further decreased, and the pursuit of profit has continued to increase.

After thunderstorms, regulators also turned their attention to the barbaric and disorderly Web3 field.

Supervision tightens, and overseas Web3 kicks off the prelude to compliance

In view of the badness of FTX after its bankruptcy, the United States, Japan, Australia, the United Kingdom, Singapore, and other regions have expressed great importance to the crypto regulatory bottlenecks exposed by the incident. Scope recognizes its validity in disguise.

Although there are early clues, the regulation will only begin in 2023, and the United States, which is located in the center of crypto power, is the most typical one.

On January 3, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement emphasizing that risks related to crypto assets cannot be transferred to the banking system.

On January 27, the White House of the United States released a blog post entitled “The Government’s Roadmap to Mitigate Cryptocurrency Risks,” calling on the authorities to strengthen law enforcement where appropriate and asking Congress to step up efforts to regulate the crypto industry, and pointed out that legislation should not Give mainstream institutions the green light to dive headlong into the cryptocurrency market.

After February, the SEC, the main crypto law enforcement agency, has frequently acted. At the beginning of February, Kraken, one of the world’s largest cryptocurrency exchanges, was involved in an investigation by the SEC for violating the securities regulations for issuing products. The investigation quickly triggered speculation in the market that the United States would ban crypto pledges.

The prices of platforms such as Lido quickly rose to 10%. As of February 9, the first battle between the SEC and crypto in 2023 ended with Kraken terminating the US pledge and paying $30 million in compensation. Although ending with compensation is a common routine for the SEC, there are still rumors in the market.

Coincidentally, only four days after the incident ended, Binance’s stablecoin BUSD was targeted again.

On February 13, people familiar with the matter revealed that the stablecoin issuer Paxos would face a lawsuit by the US Securities and Exchange Commission (SEC) for BUSD-related issues. US SEC law enforcement officers have issued a “Wells notice” to Paxos to inform possible enforcement actions, stating that the BUSD issued and listed by Paxos is an unregistered security and plans to sue Paxos for violating investor protection laws and Coercive action may be taken.

Currently, Paxos has announced the end of its partnership with Binance on the stablecoin BUSD, and the existing BUSD is still fully supported and redeemable until February 2024.

All these actions show that the U.S.’s regulatory attitude towards the crypto field is gradually changing. The SEC’s move is also known as the “Nazi Night of Swords.” Strong regulation has become a predictable objective trend of crypto and Web3.

At its root, in the thunderstorm in 2022, the lack of supervision is visible to the naked eye, and the head of the SEC, Gary Gensler, is deeply involved in the suspicion of FTX’s internal transactions. From this perspective, in order to protect investors, the tightening of crypto supervision is both It is also a key way for the SEC to get rid of the responsibility for regulatory failures.

From a macro point of view, the US-led crypto regulation has become the global wind vane, and the regulatory measures have long-term continuous spread. On the positive side, compliance and mainstreaming are mutually causal, and the promotion of compliance will inevitably migrate the crypto field to mainstreaming.

With pessimistic expectations, Web3 starts a wave of layoffs

However, during the compliance window period, the suffering of crypto companies is unavoidable.

Especially last year, when the global economic downturn and inflation pushed up, the Federal Reserve raised interest rates continuously, and the crypto asset market with Bitcoin as the core was severely impacted as a US dollar derivative market. The way is also rapidly playing out in the crypto field.

According to CoinGecko data, layoffs in the crypto space surged after two major crashes. In January 2023 alone, as many as 2,806 people lost their jobs in the Web3 field. Among them, centralized cryptocurrency exchanges accounted for 84% of the total layoffs, including well-known institutions such as Huobi, Coinbase, Blockchain.com, Crypto.com, and Luno.

Before this, Web3 layoffs had been going on for some time. Coinbase had already laid off telecommuting staff in October 2022, and Crypto.com also laid off 2,000 employees in the same month, accounting for 30-40% of the total number of employees.

In February, layoffs continued. The crypto market maker GSR, the NFT market Magic Eden, and the crypto media The Block have also disclosed their staff reduction plans.

Fortunately, due to the volatility of the U.S. dollar index and the weakening expectations of interest rate hikes brought about by the slowdown in inflation, the crypto market rebounded significantly in 2023, and the cryptocurrency market maintained a relatively strong trend.

The total market value has soared from $820 billion to about 11,000. According to Wind data, from the beginning of 2023 to the present, Bitcoin ranks first in the performance of major global asset classes, with an increase of nearly 50%.

However, looking closely at the data, altcoins have become the main currency after the year, and some non-mainstream currencies have risen by more than 400%. It can be seen that this round of market price does not mean the end of the clearing of the crypto field, but the market environment is extremely vulnerable to relaxing the start of another round of hype about capital inflows and backflow.

But this is already the norm in the bizarre Web3. Chainalysis data shows that 24% of new tokens in 2022 will have pumping characteristics, and it is estimated that investors spent $4.6 billion worth of cryptocurrencies on buying 9,902 different suspected fraudulent tokens.

Young people working in Web3 are also deeply confused about the treacherous external environment.

Alex, born in 1995, who is in charge of the operation of an NFT platform, said bluntly that after he switched from a big factory to Web3 because of the double package, he had to resign from tens of millions of projects in less than a year to the cold winter of the industry. Now he is also thinking about whether to leave this industry.

“Maybe because of my personal reasons, this industry makes people feel insecure,” he said.

The one who shares the same opinion as him is Ann, a former high school teacher. From her dream of getting rich, she resigned from the establishment to enter the Web3 industry.

“This industry, but the risk is unquestionable. After FTX went bankrupt, I felt that it was time to wake up from the dream.”

But another post-00 didn’t think so:

“This is just a period of cold winter. The Internet used to be full of disasters. I personally think that the return of data sovereignty and asset digitization are irreversible. Although there are fewer wealth codes than before, they definitely exist.”

Just now, after resigning from a leading exchange, he is working on seeking a market position in Web3.

The headhunters at the forefront of employment have also felt the trend of the market from hot to cool and then hot.

“The entire Web3 case has been basically unstoppable since February last year. People from big factories have frequently inquiries about their intentions, but since October, the plan for the reduction or abolition is obvious. Until January, there were not many marketing and functional jobs released, and the levels were relatively high, while the job categories were mainly quantitative and technical jobs. After February, there was a sudden surge in operation-related jobs, some small exchanges are also starting to move around.” Doris, a headhunter who focuses on Web3, said.

The other side of Web3: an aggressive Chinese-style development path

Overseas Web3 has experienced a year of ups and downs, but in contrast to the domestic Web3, although digital collections can not help but hype public opinion, but after stripping off the crypto field early, it has embarked on an unusual development path.

After successive encounters with thousands of regiments, the withdrawal of giants, and the violent liquidation, digital collections that are most closely related to the crypto field are moving towards compliance this year.

After the release of the “Twenty Articles of Data,” the establishment of data ownership and transfer pricing has achieved a basic theoretical basis. Digital collection platforms represented by state-owned assets and data exchanges are constantly emerging.

The Greater Bay Area digital cultural asset trading platform, Guangwen Digital Cultural Assets Trading Platform, Anhui “National Edition Youzang,” and other platforms emerge endlessly. Among them, the Chinese Digital Assets Trading Platform has opened up the bottom line for the secondary circulation of digital collections and superimposed the policy mentions for NFT in various places.

Overseas, as a supplement to domestic policies, Hong Kong officially issued an invitation letter to the crypto field this year following the “Policy Declaration on the Development of Virtual Assets in Hong Kong.” Hong Kong Financial Secretary Chen Maobo has repeatedly announced at public meetings to encourage the development of virtual assets and crypto companies in Hong Kong.

From a practical point of view, Hong Kong has completed the legislative work of setting up a licensing system for virtual asset service providers. The new system will be implemented in June this year, the China Securities Regulatory Commission has approved two virtual exchange licenses, and three major virtual asset ETFs have been successfully listed. Recently, Hong Kong announced the successful sale of HK$800 million in tokenized green bonds under the government’s green bond program.

Whether it is data privacy, which has been criticized a lot, compliant digital asset transactions, or even cooperation and acceptance in the crypto field, my country is moving towards a more open and free direction.

Although under the ban on tokenization, my country’s Web3 project is obviously constrained, the current supplement of Hong Kong has also allowed the entire Web3 territory to be fully rolled out in China. Industrialization focuses on data to be realized in the mainland, while financialization focuses on the entry and return of assets to Hong Kong.

With the tightening of the SEC and the opening up of Hong Kong, completely different attitudes are affecting the volatile crypto circle. Recently, rumors that “Hong Kong residents will be able to freely buy and sell cryptocurrency on June 1 this year will be completely legal” have been rampant. The crypto circle immediately voted with its heels.

The concept of “China” has become a popular sector from everyone’s shouting in the past. Domestic projects such as Cocos and Conflux have increased by more than 200% within seven days. But behind the hype of the concept, it is not difficult to see that market speculation about the reshaping of the Eastern and Western Web3 pattern under the evolution of compliance is already lingering.

On February 20, Hong Kong regulators took another action. The Hong Kong Securities Regulatory Commission launched a consultation on the proposals for the supervision of virtual asset trading platforms.

It started in the consultation document that individual investors would be allowed to trade tokens with large market value on exchanges licensed by the Securities Regulatory Commission, provided that safeguards such as knowledge testing, risk tolerance assessments, and reasonable risk exposure limits are in place.

Conclusion

Is Web3 the future? The answer may take a long time to know. But it is undeniable that whether it is the East or the West, it has nothing to do with regions and competition. For long-term development, Web3 must not be just a flickering bubble story.

But on the other hand, the capital is impatient. AIGC and Chat GPT quickly replaced Web3 as the protagonist of the next story. Google Trends shows that the search volume of generative AI has skyrocketed by 80% in the past year, the corresponding Web3 has dropped by 40%, and the anxiety selling of technology companies has become the spiritual food of the capital circle.

For the venture capitalists who are walking in the wind, the creation of gods is obviously more worthy of attention than the gods themselves. As for whether it is a false god or Stockholm syndrome, no one cares after one cycle.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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