- Insider spoke to 13 crypto venture capital firms about the industry trends they expect to see in 2023.
- Among his predictions: the era of large exchanges like FTX is over, but NFTs will find new life.
- The VC said that although funding may be slow, more and more companies will adopt Web3.
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It’s been a tough year for crypto and Web3 companies, and even industry advocates have had to accept some hard truths about their shortcomings.
However, Venture Capital (VC) investors who have pumped billions of dollars into Web3 still strongly believe in the potential of blockchain technology. Although this year’s cryptocurrency crash has been painful, he says, it had the advantage that it drove out speculators seeking short-term profits. Thus, startups creating legitimate products and services will finally have their moment to shine.
“We are doubling our efforts and actively investing in blockchain because we know the best companies will emerge stronger than ever from this reform,” said SC Moati, Founder and Managing Partner, Mighty Capital.
Insider asked 13 crypto venture capitalists what trends they think 2023 will bring to the industry. He added that the current crypto winter will not end overnight. However, they expect major breakthroughs in areas such as finance, gaming and climate technology. These are your predictions.
1. Funding will be slow at least in the first half of the year
Crypto investment has been falling in recent months, and it is likely to continue into early 2023, several VCs told Insider.
“There is no doubt that 2022 was an incredibly difficult year of self-harm in the crypto ecosystem. And this is already manifesting itself in the form of bearishness from institutional investors in crypto,” said David Pakman, Head of VC at Coinfund.
But others believe that VCs may again turn to crypto and Web 3 in the second half of 2023. For example, Edith Yeung, a partner at Race Capital, told Insider that she sees a rebound in funding starting in August.
“Like most bear markets, investing now will provide exceptional returns for those who know how to navigate it effectively,” said Jules Miller, partner at Mindset Ventures and co-founder of VC3 DAO.
2. More large companies will start adopting Web3
Financial companies such as JP Morgan and KKR are already investing in cryptocurrencies and Web3. Those trends are likely to accelerate in 2023, according to Nyssa Amoiles, managing partner at venture capital firm A100x. With increasing regulation, more financial companies will feel comfortable with crypto, said John Wu, president of blockchain firm Ava Labs, which runs its investment arm, Blizzard.
“All the Wall Street banks and retailers will start experimenting with blockchain,” he said.
Dan Abellan, partner at Two Sigma Ventures, told Insider that he believes this trend will continue through 2023. mainstream,” he said.
SC Moati, founder and managing partner of Mighty Capital, also envisions more Web3 companies branching out into business-to-business software.
“Apps that can increase business productivity and reduce costs are now gaining popularity,” he says.
3. The discussion about the new token is officially over
Even the most avid investors on cryptocurrencies and web3 have acknowledged the market oversaturation that has led to the current crypto winter. Among them: a rush of immature startups to launch tokens, the value of which has plummeted this year. Most will fail outright, investors told Insider, with fewer launching into 2023.
“About 80% of all coins in circulation will be bankrupt,” Wu said. “However, it will be good for the industry as a lot of the projects are speculative.”
Similarly, as investors place more emphasis on due diligence and corporate governance within the cryptocurrency industry, they will be more skeptical of tokens when considering deals, Miller said.
4. NFTs will be reborn, though perhaps under a different name
Like altcoins, non-fungible tokens (NFTs) have had their own boom and bust cycle over the past year. Many investors said that while the novelty of app-themed profile photos may wear off, NFTs may flourish in other ways.
M13 partner Latif Peracha says that companies like Reddit, Ticketmaster and Starbucks continue to experiment with NFTs, even if they don’t call them by that name. Reddit, for example, calls them “collectible avatars”.
“I think NFTs will re-emerge in a different way,” Peracha says. “They can no longer be called NFTs.”
For one thing, there remains the potential for artists to earn more revenue from the sale of their digital work, Moatti told Insider. “There is inherent merit to NFTs as a new way for creators to monetize their work,” he said.
Real estate could become “the next big use case for NFTs,” according to Adam Struck, founder and managing partner of Struck Capital. Companies like Roofstock onChain have started creating real estate tokens to make it easier to buy and borrow.
5. Farewell to centralized cryptocurrency exchanges and lenders
Following a series of high-profile crypto bankruptcies this year, VCs tell Insider they are preparing for a regulatory push in 2023 that will change the way crypto financial institutions are built.
“In 2023, I think the broader market will begin to see centralized cryptocurrencies for what they are: poorly regulated traditional fintech businesses,” said Andy Kangpan, a director at Two Sigma Ventures.
Tyler Griffin, managing partner and co-founder of Restive Ventures, agreed: “Unregulated centralized exchanges are dead.”
Kangpan said he sees further momentum for decentralized finance, or DeFi, which aims to give customers access to loan-like products without traditional banks.
However, not everyone is convinced. “My view is that DeFi is exciting and will drive a lot of innovation in the years to come, but ultimately it will not,” Moati says.
6. Universal Internet Identifier will come
The uproar over Elon Musk’s acquisition of Twitter has fueled rumors that another major social media platform may finally emerge. Wu believes that Web3 social networking is growing in scope as more and more people want control over their data online.
“Web 2.0 social media will continue to come under scrutiny, while native Web3 social media platforms will begin to gain market share,” he said.
Other VCs including Amoils, Ethan Daly, partner at Shine Capital, and Jessica Peltz Zatulov, founding partner at Hannah Gray, say they expect a rise in popularity of Web3 services that allow users to prove their identity and credentials online. Gives
“On-chain credentials will be implemented to verify the competence and reputation of a community member or virtual worker in order to build more trust,” Peltz Zatulov said.
7. Weather technology and gaming Web3 applications will also be prosperous
Climate technology has attracted the attention of investors over the past year, with companies like Union Square Ventures raising dedicated funds to invest in this space. Several companies have tried to apply blockchain technology to climate issues, for example by allowing cryptocurrency holders to offset their carbon footprint. According to Mercury Fund director Samantha Lewis, this is one of the trends that will accelerate in 2023.
“Everyone talks about the weather,” he says. “Web3 can unlock many of the things we need.”
Lewis and other venture capital firms point to web3 gaming as another segment set to gain momentum in 2023. According to Pakman, gamers are already accustomed to buying virtual goods, so they fit in well with NFTs and other Web3 applications. “There are a lot of exciting Web3 games in the works,” he told Insider.
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