During the latest Token2049 conference, investors, founders, and media of the blockchain industry gathered in Singapore for the main conference as well as over 100 related themed events spread over a week. During its own event, MEXC Exchange officially announced that its fund is officially being rebranded as M-Ventures as a new sub-brand affiliated with MEXC Group.
Crypto industry participants were hit with buzzwords like Metaverse and WEB3, as if temporarily calmed in this torn world, masking the challenges of disease, inflation, geopolitics, and economic recession.
Two different worlds in the cryptocurrency market
Apart from the crypto industry events, let’s see what’s happening in current cryptocurrency markets:
According to statistics, the average amount of disclosed funds raised in the primary market has dropped ten-fold since the second quarter of this year, dropping from tens of millions to a few million; the number of disclosed fundraising projects dropped by approximately half in the third quarter, while the total market cap of cryptocurrencies fell below $1 trillion from the all-time high of $3 trillion last year. And the downward trend of the secondary market shows no sign of slowing down.
At the same time, most of the investment institutions at Token2049 are being more cautious in their investing, preferring strategies like reducing their number of investments and elevating their standards to control the winning rate of bets. Some funds are even beginning to worry about the returns from this year’s investments. This is the context we wish to convey to practitioners in the industry through this letter.
After more than two rounds of industry cycles, we have some views that we would like to share with fellow participants in the industry:
Sacrificing valuation or forgoing the next funding round?
When the market is down, the secondary market tends to decline the fastest. When the secondary market has been down for nearly a year, the primary market tends to conform. Like stocks and bonds, when bonds fall enough, hedge funds will allocate a larger proportion of bonds.
The same is true for the primary and secondary markets of cryptocurrencies. When investment institutions feel that the valuation of the primary market is unreasonable or the secondary assets are underpriced enough, funds start buying Bitcoin and Ethereum, which are cheap enough. As far as we are aware, some funds have already started behaving in this manner, and the projects should review their proposed valuation reasonably and lower their future fundraising expectations.
Industries cycle around every 3-4 years generally, and the crypto industry is also becoming more obviously cyclical. To teams that have completed funding rounds: congratulations, you may proceed to plan for cost control. In the recently completed funding rounds, more and more discussions on burn rates and road maps, namely the speed at which funds are spent and whether that warrants creating a more reasonable project development roadmap, took place.
A large number of early projects actually have no cash flow or their native token has not yet entered secondary circulation. Such teams must plan the cycle of capital expenditure, which includes creating a 2-year plan and having cash reserves that will last 1 year at least.
You may get only one opportunity to raise funds in a bear market. So, before the project has enough dazzling data or products, ensure the sustainable operation of the team and the health of its expenses. In the past two cycles, a large number of excellent teams fell before the rise of the bull market, which is really a shame.
The balance between WEB3 community governance and economic incentives
The rapid development of the cryptocurrency industry has attracted a large number of WEB2 industry giants to participate in the construction of WEB3, many of whom are seasoned teams having top tier applications. However, WEB3 is not a new subcategory of WEB2, but a completely different market with a unique community culture.
To give a simple example, the typical practitioners of WEB2 are consumers and service providers, where consumers pay and experience services, and have no participation rights and ownership of projects. The asset data in WEB3 is open and transparent onchian; in contrast, in the WEB2 world, external consumers of the black box cannot see the internal situation at all.
WEB3 has token assets or NFT assets, and users have the right to encrypt data. Crypto community culture and governance are very important links that determine the success or failure of the project—the sense of community participation determines the future of the project.
There is also an ecological orthodoxy in the WEB3 community, with a typical community culture and heritage. This crypto community governance and market culture make it completely different from the WEB2 world.
Moreover, token incentives and community governance are unique and unavoidable paths in the WEB3 industry. It is highly recommended that aspirants from WEB2 gearing up for their efforts in WEB3 first understand and internalize these two different aspects in the industry so that their project can be largely supported before it goes online. Having the support of a large number of communities will ensure that the crypto community will always accompany the development of the project.
Use your strengths to counter your opponent’s weaknesses, and choose the most suitable track but not the most popular ones
There is a Chinese allusion to Tian Ji’s horse racing (use your strengths to counter your opponent’s weaknesses), that has been passed down since ancient times, advice for practitioners: If a track is already popular, only choose it if your team itself has a clear advantage in that track; it is not recommended to choose an overheated track. The overcrowded track is bound to cause most of the internal projects to fail to run, excessive waste of resources, and overheating. It also shows that the potential opportunities in the industry are gradually decreasing.
Some tracks, such as metaverse, GameFi, data analysis, etc., are already very popular, and you must be very cautious before entering. On the other hand, the fund will also undergo portfolio management, and strictly control the proportion of the investment portfolio in different tracks (unless it is dedicated to the track fund, many of which, generally, are not long-term). It is recommended that industry practitioners try innovating on different tracks or choose to do more research on some tracks that are not yet popular but have enough potential. After all, a projects’ tempo in the bear market will generally be longer and slower.
Persistence is the key to success
Although the current market is full of uncertainty and downturn, the important thing is that the overall fundamentals of the industry are proving good, from Coinbase’s going public to the passage of Bitcoin futures ETF, to the large-scale use of stablecoins and the acceleration of various countries to promote digital currency. The technical value of blockchain is increasingly being discovered and recognized by society. Regarding the future, the market is always cyclical as dawn is always followed by night.
Many great projects have emerged during a bear market, and the alpha with the largest industry investment also comes from firm investment in the cold winters. Those projects that persist in building and surviving during the market trough often win a larger market value in the bull market.
5 short suggestions for practitioners and entrepreneurs in the cold winter:
1. Solve the problems encountered by the current mainstream ecology or figure out how to better improve the current ecology.
2. Know the needs of the crypto community and how to solve them, and don’t imagine them.
3. Practice dedicated persistence and cost control.
4. Integrate into the community and accept crypto community diversity.
5. Choose a track that suits you better, not the most popular track.
If you are very confident in your project and want to join the WEB3 industry and work together to promote the progress of the crypto industry, please contact us at M-Ventures. We have rich industry experience with more than 2 rounds of cycles. We offer financial support, provide pertinent suggestions, help clients sort out their development plan, work on the token economic design with them, provide industry-related upstream and downstream resource support, and even provide assistance for completing the project’s next funding round and future exit. M-ventures will accompany practitioners all the way through this round of the bear market and work together for the construction of the industry.
M-Ventures is a comprehensive fund under MEXC Group, committed to empowering innovations in the cryptocurrency field via strategic investment, M&A, FOF, and project incubation. M-Ventures upholds the concept of “discovering opportunities and growing together” by fully sharing fund resources and providing solid support for projects. The team spans across USA, Singapore, HKSAR, and other regions of the world, with $100m+ AUM and 300+ portfolio investments.