Web3 investors urged to take long-term view beyond cryptocurrency headlines

Investors should spread their portfolios across several verticals and avoid a 'hit-and-run' approach, Wamda Capital's Fadi Ghandour says

Digital currencies are in a 'crypto winter' but proponents see long-term investment potential. Reuters

Web3 has opened up a multitude of opportunities for investors who should take a long-term view to investment and consider building their portfolio across several verticals such as block chain and cryptocurrency assets, Wamda Capital managing partner Fadi Ghandour has said.

Investors and consumers need to have a “mind shift and an appreciation” that technology has drastically changed and serious disruption is already taking place, Mr Ghandour, who is a serial entrepreneur and founder and former chief executive of logistics company Aramex, said in Dubai on Thursday.

Web3 is at an early stage and investors may not recognise its investment potential — similar to how investors doubted the investment potential of internet back in early 1990s.

“I take a very broad view on being early and being across the board and not betting … on whether this start-up or that start-up is going to be a winner,” Mr Ghandour told a panel discussion at a Harvard Business School conference in the emirate.

“What you need to do is to pick five or six verticals. Is DeFi [decentralised finance] happening? Yes, it is happening. Is entertainment going to change? You bet it is going to change.”

However, the biggest question for investors is whether they are willing to take these changes seriously and are ready to take a step back from negative headlines about the so-called crypto winter and the collapse of digital assets, he said.

The crypto winter dragged Bitcoin, the world's first and largest digital token, below its $20,000 psychological level in June. The plunge wiped out $2 trillion off the sector’s total market value.

The digital currency clawed back some ground but fell again. It was trading at $20,146.13 at 4.56pm UAE time on Thursday.

The market, jolted by collapse of the Luna cryptocurrency and its associated Terra stablecoin, was further shaken by the bankruptcies of major crypto companies, including Celsius Network, which filed for protection in July after massive losses, and Singapore's Zipmex, as well as job losses.

All these have led to a drop in venture capital funding to blockchain and cryptocurrency start-ups, which slid 29 per cent to $6.5 billion in the second quarter of 2022, market intelligence platform CB Insights said in a recent report.

Critics say the sharp decline in the value of digital assets has cast further doubt on the sector’s stability and its credentials as a strong asset class.

However, Mr Ghandour said the software upgrade to the Ethereum blockchain, known as Merge, which is aimed at slashing its huge energy consumption, is a “proof of work” and will expand the use of that technology.

The Merge will mark a radical change in how transactions on the Ethereum blockchain occur and how Ether tokens are created. The new system will consume 99.95 per cent less energy.

Investors unsure of Web3 or the metaverse should consider investing through funds that specialise in investments in that space, Mr Ghandour said.

The metaverse is considered to be the future of business and human interaction and is expected to reach a value of $5 trillion by 2030, according to the latest report from McKinsey & Company.

E-commerce, which has grown significantly because of the coronavirus pandemic in the past two years, is poised to make up more than half of the metaverse market at $2.6tn, the consultancy said in Value Creation in the Metaverse. It will be followed by virtual learning at $270bn, advertising at $206bn and gaming at $125bn.

In July, Dubai unveiled its Metaverse Strategy, which aims to create 40,000 jobs and add $4bn to the emirate's economy in the next five years.

The emirate is holding the inaugural Dubai Metaverse Assembly at the Museum of the Future and Emirates Towers later this month.

The assembly is expected to draw more than 300 experts, policymakers and officials, as well as 40 organisations involved in the metaverse.

“Serious investors are not in the business of hit-and-run. They are in the business of long game and the long game is digital [assets] and metaverse,” Mr Ghandour said.

Exponential disruption is happening and “you need to invest in it and stick around for the long term”, the Jordanian entrepreneur said.

Thousands of start-ups that are developing applications and solutions in the digital world need support and an open dialogue with regulators, especially in the six-member GCC economic bloc, he said.

The start-ups that are creating “the future businesses in the future economies” of this region need help beyond the sandbox and the ability of “interoperability across the GCC”, the lack of which is stifling growth.

Without that critical element, “we are creating small companies, rather than big companies that are able to serve across the GCC”, Mr Ghandour said.

Yasmeen Al Sharaf, director of FinTech and innovation at the Central Bank of Bahrain, said regulators were accommodative and were encouraging the development of the FinTech sector.

However, they also face challenges, especially in terms of the pace at which technology is “evolving and impacting the way that financial services are engineered and structured”.

Regulators may not acquire technical skills and expertise required to fully understand such technology and properly supervise it due to the sheer pace of technological advancement, Ms Al Sharaf said.