A letter from M-Ventures to crypto enthusiasts: A Winter Survival Guide

During the recent Token2049 conference, investors, founders and media from the blockchain industry gathered in Singapore for the main conference as well as over 100 related themed events spread over a week. During their own event, MEXC Exchange officially announced that their fund is officially being renamed M-Ventures as a new sub-brand affiliated with the MEXC Group.

Crypto industry participants were hit with buzzwords like Metaverse and WEB3, as if to temporarily calm this fractured world, masking the challenges of disease, inflation, geopolitics and economic recession.

Two different worlds in the cryptocurrency market

Aside from the events in the crypto industry, let’s see what is happening in the current cryptocurrency markets:

According to statistics, the average amount of disclosed funds collected in the primary market has fallen tenfold since the second quarter of this year, from tens of millions to a few millions; The number of disclosed fundraising projects fell by about half in the third quarter, while the total market capitalization of cryptocurrencies fell below $1 trillion from an all-time high of $3 trillion last year. And the downward trend in the secondary market shows no signs of abating.

At the same time, most of the investment institutions on Token2049 are more cautious in investing, preferring strategies such as reducing the number of investments and raising the standards to control the winning rate of bets. Some funds are even starting to worry about the returns from this year’s investments. This is the context we want 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 other industry participants:

Do you sacrifice valuation or forgo the next round of funding?

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 match. Like stocks and bonds, when bonds fall enough, hedge funds will allocate a larger proportion of bonds.

The same applies to the primary and secondary markets for 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 know, some funds have already started to behave in this way, and the projects should consider their proposed valuation in a reasonable way and lower their expectations for future fundraising.

Industries cycle around every 3-4 years in general, and the crypto industry is also becoming more obviously cyclical. To teams that have completed funding rounds: congratulations, you can continue to plan for cost control. In the recently completed financing rounds, there were more and more discussions about burn rates and roadmaps, namely the speed at which the funds are used and whether it implies creating a more sensible roadmap for project development.

A large number of early projects actually have no cash flow or their original token has not yet entered secondary circulation. Such teams must plan the investment cycle, which includes creating a 2-year plan and having cash reserves that last at least 1 year.

You may only get one opportunity to raise money 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 last two cycles, a large number of excellent teams fell before the rise of the bull market, which is a real shame.

The balance between WEB3 community governance and financial 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 which are experienced teams that have top-level 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; however, in the WEB2 world, external consumers of the black box cannot see the internal situation at all.

WEB3 has token resources or NFT resources, 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 WEB3 society, with a typical social culture and heritage. This crypto community governance and market culture makes it completely different from the WEB2 world.

Moreover, token incentives and community management are unique and inevitable paths in the WEB3 industry. It is highly recommended that WEB2 aspirants preparing for their efforts in WEB3 first understand and internalize these two different aspects of the industry so that their project can be greatly supported before it goes online. Having the support of a large number of communities will ensure that the crypto community will always follow the development of the project.

Use your strengths to counter your opponent’s weaknesses and choose the most suitable slot, but not the most popular

It’s a Chinese allusion to Tian Ji’s horse race (use your strengths to counter your opponent’s weaknesses), passed down since ancient times, advice to athletes: If a course is already popular, choose it only if your team itself has a clear advantage in that slot; it is not recommended to select an overheated track. The crowded path is guaranteed to cause most internal projects to malfunction, 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 need to be very careful before entering. On the other hand, the fund will also review portfolio management, strictly controlling the proportion of the investment portfolio in different tracks (unless it is dedicated to the track fund, many of which are generally not long-term). It is recommended that industry players try to innovate on different tracks or choose to research more on some tracks that are not yet popular but have enough potential. After all, a project’s pace in a bear market will generally be longer and slower.

Perseverance is the key to success

Although the current market is full of uncertainty and slowdown, the important thing is that the general fundamentals of the industry are proving to be good, from Coinbase going public to the transition to the 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. As far as the future is concerned, the market is always cyclical as dawn is always followed by night.

Many great projects have appeared during a bear market, and the alpha with the largest industrial investment also comes from solid investments in the cold winters. Those projects that continue to build and survive during the market often gain a greater market value in the bull market.

5 short suggestions for practitioners and entrepreneurs in the cold winter:

1. Solve the problems faced by the current mainstream ecology or find out how to better improve the current ecology.

2. Know the needs of the crypto community and how they can be addressed, and don’t imagine them.

3. Practice dedicated persistence and cost control.

4. Integrate into the community and accept the diversity of the crypto community.

5. Choose a track that suits you better, not the most popular track.

If you are very confident about 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 relevant proposals, help clients sort out their development plan, work on the token financial design with them, provide industry-related upstream and downstream resource support, and even provide assistance to complete the project’s next round of financing 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.

About M-Ventures

M-Ventures is a comprehensive fund under the MEXC Group, committed to strengthening innovations in the cryptocurrency field via strategic investments, 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 to projects. The team spans the US, Singapore, HKSAR and other regions of the world, with $100m+ AUM and 300+ portfolio investments.