How to Invest in Web 3: Three Ways

Imagine investing in internet companies after the dot com ‘bubble’ popped two decades ago… Buying Google or Amazon stock for bargain prices or applying for a job in those companies sure would have been a good idea. But how to invest in Web 3? It turns out there are three important angles to do this. Buy coins, find a job, or buy stocks.

1. Buy Coins From Projects that Solve Pressing Problems

The most obvious angle to invest in Web 3 is to buy coins – or earn them by staking, using or playing – from growing Web 3 projects. 

But from what angle should you look at potentially profitable investment opportunities? Well, start from your own user experience and frustrations with certain current products. As a user of crypto or Web 3 related applications, you must have had poor experiences or witnessed downright failure. You’re not the only one, and you can bet some team is already working on solving the very problem that kept bugging you – and standing in the way of mass adoption.

Many bottlenecks in web 3 are screaming for a solution. A few come to mind:

Problem: The Scaling & User Experience of Decentralized Exchanges (Dexes)

If you’ve used a dex like Uniswap, you might have experienced a transaction that got stuck. And if you ever poured money in a liquidity pool, you must have come to terms with impermanent loss sooner or later (loss that comes from relative price volatility between a pair of coins). Also, why isn’t it even possible to execute something basic like a stop loss? The investment angle would be to look out for projects that try to solve these basic issues.

Problem: Maturing NFT Technology

The way an NFT ‘points to’ for example the image it represents is currently hard to guarantee. Let alone if we want NFT’s of real-world objects. The basic infrastructure needs to be overhauled for the NFT market to mature into something truly big and widely relevant.

Problem: Maturing Lending Markets

Attempts to set up lending pools that lend out money without collateral backing the loan (Maple Finance, Goldfinch) have not been very successful. That doesn’t mean that it can’t be achieved. But it’s simply the case that there won’t be a high demand for lending with collateral: it will probably always be only a fraction of the demand of uncollateralized lending.

Problem: Decentralized Social Networks (DeSoc)

This development is very much in its infancy, so in that sense it’s a bit cheating to rubric it under a pressing problem. There are no clear winners yet in DeSoc. But it’s clear that centralized social networks pose a problem for users (read more about this topic in the article: The difference between Web 2 and Web 3?). As a user, you don’t own your online identity. After years of building your audience on platforms like Facebook or Instagram, it can disappear in an instant if you happen to violate terms of service, or even by a mistake on the platform’s part. This centralized model is not sustainable and ids ripe for disruption. Platforms like Lens and Farcaster are attempting to do just that.

Problem: Private Key Storage & Recovery

It’s hard to imagine mass adoption of Web 3 technology as long as users risk losing their funds or online identity by a single error. Developments like social recovery /soulbound tokens and account abstraction will try to make storage and recovery of identity user friendly and foolproof.

A word of warning: investing in teams/companies that try to solve these problems is speculative. Sometimes, companies have good ideas but are simply too early to make it work. Or they execute poorly, or the project fails because of some other reason.

2. Find a Job in Web 3 / Start a Web 3 Business

Wait, how is getting a job about investing? Well, it’s about investing in your knowledge, skill set and network. Not a bad idea to give yourself a head start in an industry that might see double or even triple digit year-on-year growth rates. By immersing yourself, you leverage the fruits of your labor. Not only your resume and skill set benefit, but you will also naturally keep paying attention to investment opportunities. That’s especially valuable in bear markets when you would otherwise be inclined to tune out.

Web 3 teams need people in roles that are very similar to traditional companies. They too need to recruit people and market their products. This is just to say that you don’t need a ton of knowledge about Web 3 to apply.

Looking at job boards across the Web 3 space, we see a lot of the following vacancies:

• Software engineer/ developer
• UI/UX designer / frontend developer
• Marketing manager
• Product manager
• Data analyst
• Community manager
• Copywriter
• Investment analyst

If you have none of the above skills (yet), why not start in a more generalist and entry level function? Think customer support, social media marketing intern or marketing associate. 

Of course, you can also start your own business. This is the more ‘high beta’ (high risk, potential high return) option. Because of the risk of failure, it’s an option to start it as a side hustle next to your regular job. If it takes off – and the bull market takes off, lol – you might consider dropping your 9-to-5 and fully going for the web 3 business.

3. Invest in Web 3 Stocks / EFTs

Depending on your appetite for active versus passive investing you can invest in either stocks or stock indices (ETFs). Obviously, single stocks are more risky bets than a basket of companies bundled in an ETF. At least, as a rule.

Listed Web 3 Stocks: Picks & Shovels

The most obvious choice for investing is companies that are listed on the New York stock exchange. Not many of these companies are obviously into Web 3. Except Coinbase. It sells coins, duh. But other companies make products that incidentally help facilitate the blockchain ecosystem, such as Nvidia. Let’s call these companies the picks and shovels, as a reminder that companies that sold picks and shovels benefited a lot from the Californian gold rush.

The following are just some examples of Web 3-ish stocks.

• Coinbase (COIN): Coinbase Global is the undisputed and most trusted crypto exchange of the most important jurisdiction: the United States. It has over a hundred million users and is the only US crypto exchange that is listed on a stock exchange.
• Nvidia (NVDA): Nvidia is a giant in the ‘picks and shovels’ of crypto: the semiconductor design space. It also launched the Nvidia Omniverse, a platform designed to assist developers in their Web3 projects.
• IBM: IBM’s advances in AI make it a significant influence on the Web3 market, and the company itself has plans for Web3 projects.
• AMD: Widely known for its graphics and central processing units, Advanced Micro Devices (AMD) is looking to tap into the exciting world of Artificial Intelligence (AI). With their prior experience in designing semiconductors, their team is now working on developing state-of-the-art graphics chips for Web3 applications.
• Block: Formerly known as Square, Block provides solutions for cryptocurrency transactions, Point of Sale (POS) systems, P2P payments, and more. Their flagship product is Cash App, which has over 40 million monthly users. Users can also buy and move bitcoin to their own crypto wallet.

Start-ups & Unlisted Companies in Web 3 

It’s both less accessible and potentially much more profitable (but of course also risky) to invest in companies that are not listed yet on a stock exchange. There are platforms like BnktotheFuture who let accredited investors (and hopefully soon also non-accredited investors) do this. They let investors buy shares in the early stages of capital raising: the so-called Series A and/or Series B funding rounds.

Web 3 EFT’s

There are numerous Web 3 EFT’s, sometimes called blockchain ETF’s. In this Blockworks article, they plotted the correlation between Web 3 stocks and Bitcoin in 2022. It’s clear that the ETF’s couldn’t escape the bear market: “Ultimately, the fate of these funds remains closely tied to the success of bitcoin and other cryptocurrencies.”

• BLOK: the largest blockchain ETF — actively managed Amplify Investments’ Transformational Data ETF (BLOK). The fund, which launched in January 2018, has about $360 million in assets — off its high of more than $1 billion.
• LEGR: First Trust Indxx Innovative Transaction & Process ETF (LEGR). Has 102 holdings, with its top investments including Infineon Technologies, SAP, Nordea Bank, Engie and Honeywell International. Down roughly 23% year to date.
• BLCN: Siren Nasdaq NexGen Economy ETF, down 53% year to date. High weighing of Coinbase.
• CRPT: First Trust SkyBridge Crypto Industry and Digital Economy ETF

For the performance, a lot depends on how broad the view is of the fund on what constitutes exposure to blockchain technology. LEGR did far less bad than Bitcoin. Probably because they include companies that are quite loosely related to the crypto industry.

On the other hand, an ETF such as Van Eck Crypto and Blockchain Innovators (not in the graph) consists of a lot of Bitcoin miners. In a bear market and with rising energy prices, it’s hardly a wonder that the fund did even worse than BTC.

So don’t buy an ETF based on the name: look on the companies that are included. The main question to answer is: 

Are these stocks a higher or lower beta (risk/volatility) bet on crypto than simply buying the coins themselves?

Conclusion: Entrench Yourself in Different Ways

How to invest in Web 3? Like conquering a country, you can conquer Web 3 by land, over water and through the air. Buy coins, and/or get a job, and/or buy stocks. Each will give you a different sort of stronghold over this new space. And each approach carries different levels of risks and rewards. For example, buying individual coins comes with a higher risk than buying traditional stocks – but the potential rewards are also higher. Getting a job in Web 3 is like a levered play: it increases both your professional skills and your investment opportunities.