The recent collapse of FTX, one of the world’s largest cryptocurrency exchanges, has rocked the Web3 industry. However, despite the fact that a large Web3 player has gone down, the Web3 industry is still ripe with investment opportunities if you know where to look.
In this article, we will go over some of the best investing opportunities in Web3. But, before we dive into the various investment options for the new, upgraded version of the internet, let’s first start with a warning. The Web3 industry is still very young, and as a result, it can be more volatile and unpredictable than many other, more established markets. So, you should proceed with a healthy amount of caution. The FTX debacle is a perfect example of people investing without enough caution.
So, with that being said, let’s now discuss the best investment opportunities in Web3.
Cryptocurrencies
Cryptocurrencies are digital currencies that run on blockchain technology. Blockchain technology is a system of recording information in a way that makes it impossible to alter the information once it has been added to the database. It is blockchain technology that preserves the integrity of cryptocurrency networks, makes sure that cryptocurrencies are never double-spent or counterfeited, and makes sure that all transactions on a cryptocurrency network are valid and recorded. The first cryptocurrency was Bitcoin, released on January 3rd, 2009.
When Bitcoin was first released, it was worth less than a penny. However, now it is worth over $16,000, which goes to show the investing potential of cryptocurrencies. However, not all cryptocurrencies are created equal, and some make better investments than others. Here are three categories of cryptocurrencies and some of the best cryptocurrencies within those categories that you should consider for investments.
Store-of-Value Cryptocurrencies
One of the main criticisms of fiat currencies is that they do not store value well long-term. This is because the central banks that issue them tend to print significantly more currency yearly, leading to inflation and a subsequent dwindling of purchasing power over time. With inflation currently tracking at 7.75% according to the latest CPI numbers, inflation is a concern for many investors.
Unlike fiat currencies, which can be printed infinitely, some cryptocurrencies have finite amounts and firm rules for issuance. Many cryptocurrencies are designed to be deflationary, which is the direct opposite of the inflationary fiat currencies issued by governments worldwide. Deflationary cryptocurrencies, or cryptocurrencies that are designed to store value well over time and hedge against inflation, are commonly referred to as “store-of-value” cryptocurrencies. For these cryptocurrencies, as time goes on, fewer new coins are minted every year.
Here are some of the top store-of-value coins:
- Bitcoin
- Bitcoin Cash
Smart Contract Platform Cryptocurrencies
Some cryptocurrencies were designed to serve as platforms that can help to facilitate smart contracts. This makes them ideal blockchain networks for developers to build and launch Web3 apps. Smart contracts can self-execute based on a pre-defined set of rules created by the developer. ‘
Some smart contract platform cryptocurrencies have become incredibly popular and are helping to build the infrastructure fueling decentralized finance (DeFi).
Here are some of the top smart contract platform cryptocurrencies:
- Ethereum
- Cardano
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Stablecoins
Stablecoins are cryptocurrencies that are designed to have stable prices, most of which track the US dollar. So, the price of stablecoins usually remains $1 or very close to $1 at all times. However, although stablecoins do not offer returns in terms of price appreciation, they can be staked to earn passive income. Many stablecoins generate returns of 5-15% APY when they are staked. They can be staked on centralized exchanges such as Coinbase or Binance.
Staking is the process of allowing a blockchain protocol to use some of your cryptocurrencies to help verify transactions for the blockchain network. People who stake cryptocurrencies can earn rewards and generate passive income. Oftentimes, staking rewards are quite significant, and thus some stablecoins can make good investments.
Many investors prefer to invest in and stake in stablecoins because they do not have all of the volatility that other cryptocurrencies have.
Here are some of the best stablecoins:
- US Dollar Coin (USDC)
- Dai (DAI)
- Binance USD (BUSD)
Cryptocurrency Mining
Crypto mining is the process of running software on special computers to help verify blockchain transactions. Cryptocurrency miners compete to verify transactions for a blockchain network and are rewarded when they successfully “mine a block.” Mining a block means verifying a group of transactions which are then added to the chain of existing transactions for a cryptocurrency that acts like a ledger.
The way that miners compete is by having their mining computers race to solve a complex mathematical equations. Whichever miner solves the equation first gets the reward, which is distributed as a certain amount of crypto tokens. For example, right now, the current block reward for Bitcoin is 6.25 Bitcoins, which is worth about $104,375. These rewards are distributed roughly every ten minutes.
There are several different ways to invest in cryptocurrency mining. The first is by actually purchasing the computers and running the software yourself. The second is by investing directly in publicly traded stocks for mining companies.
Here are some crypto mining stocks that you can consider:
- Canaan Inc. (CAN)
- Marathon Digital Holdings (MARA)
- Hive Blockchain Technologies Inc. (HIVE)
Other Web3 Stocks
In addition to mining stocks, there are other stocks for companies that are deeply embedded in Web3.
Here are some of the most popular Web3 stocks:
Coinbase
Coinbase is one of the top cryptocurrency exchanges in the world. It is led by Founder and CEO Brian Armstrong. The company currently has a market cap of about $13.1 billion. Coinbase offers dozens of cryptocurrencies for trading and has over 108 million users. This company makes profits by charging fees for every trade on its platform.
MicroStrategy Inc. (MSTR)
MicroStrategy Inc. is a business intelligence company. The company does not specifically provide products for the Web3 industry. However, the company is one of the largest holders of Bitcoin in the world. This is because the company, under the leadership of Michael Saylor, Co-Founder and Executive Chairman, decided to take a Bitcoin-based treasury reserve strategy. With this strategy, the company decided to buy a massive amount of Bitcoin to hedge its treasury reserve against inflation. Michael Saylor decided that Bitcoin, due to its deflationary nature and scarcity, made an excellent long-term store of value. So, now MicroStrategy owns about 130,000 Bitcoins, which are currently worth about $2.171 billion. So, because MicroStrategy’s value is so heavily tied to the price of Bitcoin, many people invest in MicroStrategy to get indirect exposure to Web3.
NFTs
NFT stands for non-fungible token. Non-fungible tokens are unique crypto tokens that have their own metadata and identification codes. This makes them non-interchangeable with other tokens. So, in other words, NFTs are unique tokens. These tokens are often tied to unique pieces of digital artwork. However, NFTs can be made for other things, such as songs, video clips, etc.
Over the past few years, many marketplaces have emerged to facilitate the trading of NFTs. Some people have made many millions of dollars trading NFTs. The NFT marketplace is similar to the art marketplace or the collectibles marketplace.
Investing in NFTs is not without significant risk. However, for people willing to study the market, there is ample opportunity to generate profits in this niche.
Here are some of the top NFT marketplaces where you can buy and sell NFTs on:
- OpenSea
- Rarible
- Nifty Gateway
Taking Advantage of the Current Market
Warren Buffett famously said, “You (investors) must be fearful when others are greedy and greedy when others are fearful.” Right now, in the crypto markets, there is a significant amount of fear due primarily to the spectacular implosion of FTX.
So, according to Warren Buffett’s philosophy of being greedy when others are fearful, it could be the perfect time to invest in Web3.
This is not the first time that the crypto market has crashed. Each time, so far, it has come back stronger than before. Many cryptocurrency prices are trading well beneath their all-time high prices. So, if the market returns even to the level of strength that it was about a year ago, people who invest now could make substantial returns.
There are many different ways to invest in Web3. But, regardless of which option you go with, always make sure that you prioritize security. For example, if you buy cryptocurrencies, you should store them on hardware wallets and not leave them on exchanges. As we saw with FTX, exchanges sometimes collapse. But you can lower your risk of loss significantly by taking the proper security precautions.
Ultimately, Web3 is a very exciting niche with an abundance of investment opportunities, but you should only allocate a small portion of your portfolio to this sector unless you are an expert due to the inherent risk.
If you are interested in learning more about how you can use our VC investment solutions to invest in promising industry companies that have not gone public yet, then feel free to get in touch with us today.
