There are two arguments used when promoting anything related to cryptocurrencies. One is simply that the niche is growing, a wave of the future, and will be highly profitable. The other is that crypto, the blockchain, decentralized finance, NFTs and the rest provide social and financial value. This argument goes back to when Bitcoin was invented and simply meant to provide a way to buy and sell on the internet without interference from third parties or government regulators. Crypto winter has made investors and speculators anxious about putting money into any crypto-related ventures. True believers watching things like the FTX bankruptcy and charges of fraud are thinking that crypto has lost its way. Plunked into the middle of this is the concept of web3 which is an internet version with a blockchain backbone and lots of use of crypto. Now people have lost so much money in crypto ventures the question is, will investments in web3 be safe?
What Is Web3?
The idea of web3 is to redo how the internet works. The blockchain, which is a theoretically transparent ledger stored on multiple internet locations, is to be used for information storage. This would break the monopoly of big tech companies which currently control big data and make money from the personal information of millions, if not billions, of individuals. The argument is that whole new economies with new types of products and services will be created, all using cryptocurrencies to handle the financial side of things. In an era where crypto seems to have lost its way many see web3 not as a brave new world of opportunity but another iteration of a handful of people controlling the crypto center trying to inject new value after crypto winter has virtually sucked the life out of tokens like Bitcoin. Whatever reservations there might be, web3 already exists in the forms of non-fungible tokens, decentralized finance, blockchain games, and the Metaverse.
Are Investments in Web3 Secure?
People were convinced that buying crypto tokens was a good deal because prices kept going up. Yes, the market fluctuated wildly but the long term trend was up and there seemed to be no top figure in sight. The Ether token (Ethereum) started 2017 at $9 and passed $700 before the end of the year. It peaked at $1,386 in 2018, fell to $394, peaked again at $812, and fell to $134 by the end of the year. It started 2020 at $134 and hit $775 by the end of the year and went up to $3,917 in May of 2021, fell to $1,825, and rose to $4,644 in November when, unknown to folks at that time, crypto winter started with the Federal Reserve raising interest rates to drive inflation down. At the start of 2023, Ether trades in the $1,300 range. Anyone who bought Ether tokens at the start of 2017 and sold in November of 2021 made out like a bandit with a 516-fold increase on their investment. The same person still holding those tokens has a 144-fold increase even today. And anyone who bought Ether at the peak lost 72% of their investment.
Web3 and Other Investing
The argument for crypto as it went up and down was that cryptocurrencies were a hedge against inflation, a safe refuge in times of social and geopolitical turmoil, and an investment divorced from others such as the stock market. It turns out that Bitcoin and the rest have pretty much tracked up and down with the Nasdaq as they have lost three-fourths of their value as inflation has raged and the Fed has raised rates making the dollar go up against other currencies. Successful long-term investors only get into investments that they understand. They only buy stocks of companies when they can reasonably expect that company to make money over the years in both strong and weak economies and they understand how that will happen. Investors who want to profit from web3 efforts will do well to apply the same logic to investments in the Metaverse, DeFi, NFTs, and other blockchain related ventures. Part of that picture should be the kind financial disclosure required of companies whose stocks are listed on the Nasdaq or NYSE. That sort of transparency would have helped keep fraud at FTX from robbing investors of their money.
Will Investments in Web3 Be Safe? – SlideShare Version