Web3 investments are gaining momentum in Southeast Asia, following the global upward trend for the industry. As blockchain technology and decentralized platforms continue to evolve, Southeast Asian investors and entrepreneurs are exploring the opportunities that Web3 presents. To gain deeper insights into the trajectory of Web3 investments in this dynamic region, we spoke with Kunal Chowdhry, CEO of Apollo Singapore Investments, a company that has been at the forefront of supporting and investing in Web3 projects.
We explore the potential of Singapore as a Web3 hub
Kunal brings a wealth of experience and a unique perspective to the table. Under his leadership, Apollo Singapore Investments has been instrumental in shaping the investment strategies for numerous Web3 projects. His insights are invaluable for anyone looking to understand the potential and challenges of Web3 investments in the region. With a keen eye on the evolving landscape, Kunal shares his thoughts on the opportunities that Web3 presents for Southeast Asia and how investors can navigate this uncharted territory.
We delve into the heart of Web3 investments, exploring the factors driving its growth in Southeast Asia, the hurdles investors may face, and the strategies for success in this exciting new arena.
How has your perspective on traditional financial investments influenced your approach to investing in the crypto and Web3 space?
I have dedicated over 20 years to the traditional finance industry in London and Singapore but have had to adapt my viewpoint in my approach to investing in the crypto and Web3 space. From the middle of 2022 onwards, central banks ceased monetary easing and implemented significantly tighter monetary policy, resulting in a dramatic increase in interest rates. People sometimes forget that the source of money flowing into the overall financial ecosystem is the same – whether that goes into traditional financial instruments or crypto and web3. A common mistake investors in the crypto and web3 space make is that they see crypto as a distinct entity, completely cut-off from the traditional financial markets. However, this decoupling hasn’t happened and is unlikely to happen anytime soon. This underscores how critical it is to comprehend the overall macroeconomic environment and the interdependencies among different financial instruments, even when investing primarily in the crypto and Web 3 space.
What motivated you to shift your focus to the Web3, crypto and blockchain sectors?
My investment interest in the Web3, crypto and blockchain sectors came from personal curiosity, especially during the COVID-19 lockdown which gave me plenty of time to research. I was fascinated by the opportunity that blockchain technology offers across disparate industries as well as the rise of crypto as a new financial asset class. I look at crypto as not merely a speculative asset class but as a viable alternative instrument for investors to consider for portfolio diversification. I firmly believe that there is significant potential for investors in this space, be it holding bitcoin as a form of digital gold or finding real use cases for NFTs, which are now becoming clearer.
What key criteria do you look for in a startup before deciding to invest, particularly in the context of the Web3 and crypto space?
When considering investing in a startup, I base my decision on four key parameters. First is the product- market fit. A startup should demonstrate that its product or service fulfils a real need in the marketplace. In particular, does it offer a noteworthy innovation or improvement over current solutions and does it satisfy a legitimate market demand? Second is scalability. The startup’s offering should be scalable, be it across industries or geographies. But it should also be noted that if a particular market niche or geography is large enough for significant growth on its own, scalability can take a back seat. Equally important is faith in the CEO/founder and alignment in vision. Finally, the cultural fit with the management team is vital, especially when it comes to financial discipline, since it impacts the organisation’s growth trajectory and sustained profitability.
Can you share some insights on the challenges and opportunities you see in investing in the rapidly evolving crypto and Web3 landscape?
Investing in the rapidly evolving Web3 and cryptocurrency markets provides both opportunities and challenges. The challenges stem primarily from the uncertain regulatory landscape and lack of uniform standards across geographies. Even though significant strides have been made in the last two years, there is still no global standard which makes it challenging for institutional investors in particular. This is why the recent spot BTC ETF approval in the US is a massive game changer as it allows access to BTC from the trillion-dollar institutional investor base in the US. There have also been numerous scandals in crypto in the last few years from FTX to Luna to Celcius which have dominated headlines for months and caused the price of BTC to crash to just under $16,000 at the end of 2023 from an all-time high of $69,000 in November 2021.
However, I view this as a cleansing of the bad actors in the industry and the beginning of a new cycle for crypto/Web 3 with greater clarity around regulations and support from key institutional players like Blackrock and Fidelity. An Ethereum ETF is also on the horizon which will result in even more traditional money flowing into crypto. The final thing I will say is that BTC has rebounded significantly and hit an all-time high of just under $74,000 in March 2024 and the market cap of the entire crypto industry is $2.7 Trillion. Just for context, the current market cap of Microsoft alone is $3.14 Trillion.
How do you assess the long-term vision and scalability of a startup in the Web3 and crypto sectors, given their inherent volatility and regulatory uncertainties?
From the perspective of assessing long-term vision of a startup in the Web 3/crypto sector, the same parameters which I stated above for investing in traditional startups apply, viz. product-market fit and revenue model. The issue which is particularly crucial for startups in this sector is the ability to navigate regulatory uncertainty and the ability to pivot if regulatory changes render their current business model non-viable.
As for scalability, it should not be an issue for Web3 companies as digital online assets are, by default, scalable and allow you to engage with customers anywhere in the world, assuming regulatory issues don’t stand in the way. For e.g., a DeFi protocol may be illegal in a particular country so the onus is on the startup to do their KYC and due diligence appropriately so that they don’t risk falling foul of local regulations. Investors, on the other hand, should be comfortable with the inherent volatility in this sector and should develop internal processes that account for the volatility of the underlying assets in their portfolios.
How do you balance risk management with the potential for high returns when investing in the relatively new and unpredictable field of Web3 and crypto?
Diversification is key when it comes to effective risk management. Investors should treat crypto as speculative assets in their portfolio and a significant portion of their crypto investments should be in less risky options such as Bitcoin and Ethereum. Similar to startup investing in which more than 90% of startups fail, investing in crypto is even riskier as cryptocurrencies (apart from Bitcoin and Ethereum) can fall 95% in a short period of time. I would also avoid leverage in this space as adding leverage on top of inherent volatility is a recipe for disaster for all but the most sophisticated and experienced investors in this space!
How do you see the future of crypto and Web3 investments evolving, and what impact do you think they will have on the broader financial landscape?
I believe we will see a lot more clarity around crypto regulations in the next 18 months. The entry of institutions into crypto using the BTC ETF as a conduit will cause a massive influx of traditional money flowing into the crypto sector. Even today, fund managers like Blackrock are openly advocating for BTC to be 5% of an active portfolio. As a result, I do anticipate more mainstream adoption over time. However, I do not see crypto becoming legal tender in most countries anytime soon and it is better to view it as an alternative asset class for investment.
More companies, however, will be open to enabling certain cryptocurrencies such as stablecoins or BTC as a payment method to pay for products and services. Grab in Singapore, for example, now allows users to top up their Grab Pay wallets with stablecoins (USDC, USDT, XSGD) or BTC or ETH.