Web3 Investment Trend Analysis: Primary Market Decline and the Rise of New Models

Recently, the Web3 investment sector is undergoing profound structural adjustments. Although some viewpoints suggest that the prospects for crypto VC remain promising, data and market sentiment indicate that the Primary Market is indeed facing challenges, with signs of further acceleration in this trend by 2025.

The Dilemma of the Primary Market

In the second half of 2024, when the secondary market is enthusiastic about MEMECoin and BTC, the primary market has already fallen into a winter. Data shows that crypto VC fundraising peaked at $33.7 billion in 2021, but plummeted to $10.1 billion in 2023, and is expected to drop below $4 billion in 2024.

Important reasons for this predicament include:

1. The amount of cryptocurrency VC funds is limited and has not yet fully integrated with mainstream financial markets.
2. Facing longer exit cycles, highly volatile markets often lead to significant losses.
3. After the lock-up period ends, the token plummets, with an average valuation shrinking by more than 50%.
4. The vicious cycle of financing - launching - dumping, lacking a secondary market to take over.

Data shows that new cryptocurrency projects launched in 2023-2024 have an average decline of 45% within 90 days, with 60% of projects breaking even within six months. This is not only a matter of market enthusiasm but also reflects a failure in model design.

The Rise of Incubation Models

In the face of the challenges in the Primary Market, incubator-type investments have become a new direction for capital seeking breakthroughs. Some well-known investors and institutions are transforming or increasing their focus on the incubator model.

The incubation model has more advantages compared to traditional VC:

• Fully engage in project development, from resources, market to product synergy.
• Exit methods are flexible and not solely reliant on token listings.
• Funding needs are more flexible and can be exchanged for equity through resources.

It is expected that by 2032, the global Bitcoin project incubator market size will reach $5.7 billion, with a compound annual growth rate of 19.1%. This indicates a continued expansion of demand for crypto incubators.

However, the incubation model requires higher demands from investors, needing comprehensive industrial resources and team capability support.

Development of the Secondary Market

Compared to the Primary Market, the secondary market has become a real safe haven for current funds. In 2024, the total volume of spot trading in the crypto secondary market has rebounded to nearly $13 trillion, a year-on-year increase of about 40%.

The current round of the secondary market presents new characteristics:

1. Institutional entry, strategy-driven. The scale of crypto asset management rises to $67.4 billion in 2024, a year-on-year increase of 160%. Traditional financial institutions' capital influx drives changes in market rhythm.

2. Liquidity is king, short-term speculation. High volatility assets such as MEMECoin, AI, and RWA have become the focus. Investors are more in pursuit of recovering funds or obtaining high returns within a short cycle.

Investor's Choice

Despite the challenges faced by the VC model, the market cycle continues, and there are still opportunities for crypto VC in the future. For high-net-worth investors, the following can be considered:

• Incubation Model: Deep collaboration, empowering projects throughout the entire chain, with great return potential. However, it requires rich industrial resources.

• Secondary Market: High liquidity, flexible strategies. Participation can be through structured products and other means.

Regardless of the path chosen, compliance is a core issue. As global cryptocurrency regulations tighten, the compliance requirements and legal risks faced by different paths vary. Compliance is not only about risk prevention but also serves as a moat that protects through cycles.

Investors need to weigh the pros and cons of each path, combine their own resources and risk preferences, and develop suitable strategies. At the same time, they should closely monitor regulatory trends and ensure compliance to seize opportunities in changing circumstances.