January 31, 2023

3GI Ventures September 2022 Report

General Market Update

The first major announcement of the month was the U.S unemployment rate showing an increase from 3.5% to 3.7% - this result was better than market expectations leading to a brief rally in markets. Soon after, inflation figures in Europe came in at 9.1% which the ECB responded to through a 0.75% interest rate hike, its biggest ever single hike since the ECB began setting monetary policy in 1999.

Another narrative which drove markets in the first half of September was the substantial increase in European energy prices due to increased geopolitical tensions straining supply chains and driving up the price of crude oil & gas. This trend reversed in the second half of September as fears of a global recession heightened and the strengthening of the U.S Dollar.

Another reason behind the market decline in mid-September was the higher than expected 8.3% U.S. inflation rate for August casting doubt on previous beliefs that inflation has peaked. Stocks and crypto markets fell in response as panic led to sell-offs dragging prices down triggering massive liquidations.

Global markets took another dive after the U.S Fed raised rates by 0.75% for a third consecutive time and projected hiking rates to 4.6% by end of 2023. This matters because higher interest rates increase cost of debt, remove liquidity from markets and lower spending levels, which lead to the contraction of the economy resulting in higher unemployment rates, companies’ bankruptcies, and decline of markets.

One notable development this month was that cryptocurrencies were the best performing asset (behind only the U.S dollar) while stocks, bonds, commodities & gold fell considerably more than the overall crypto market. S&P 500 fell by 10.85%, Nasdaq fell by 11.97% while Total Crypto Market ended the month with a 5.77% decline and Bitcoin was down 4.05% in September.

3GI Updates

We did a deep dive into the blockchain gaming sector and studied the different layers and aspects of the industry. There are over a thousand blockchain-based games, some already released while others are still in development. The blockchain gaming sector has attracted billions of dollars in investments as it has proven to be the sector onboarding the most users into Web3.

Given the broad competitive landscape with many different players involved, and prematurity of Web3 games, we decided to focus on the gaming infrastructure layer before investing in any specific blockchain games. Gaming infrastructure protocols include blockchains, game development tools, game engines, etc.

Furthermore, we also opened a position in a decentralized identity protocol, doubled down on two blockchain infrastructure protocols which we believe have a lot of room to grow and resumed our Dollar Cost Averaging (DCA) into some of our high conviction bets.

3GI Top Gainer of The Month

Our biggest gainer this month was XRP, rising appx. 45.73% in price from the period starting September 1st, in part due to positive developments relating to the legal disputes between the Securities & Exchange Commission (SEC) and Ripple. Ripple, powered by XRP, offers a cross-border payments product that allows enterprise customers to move money across borders and currencies with instant settlement at an extremely low cost. The SEC filed a lawsuit back in 2020 accusing Ripple of selling XRP, which they consider a security and not a cryptocurrency. Recent updates have pointed out that the fight against SEC has been going exceedingly well, and the matter should be closed by early 2023. Not only is this a big win for Ripple and its growth potential, but also can have a lasting impact on crypto.

The Merge

The Merge successfully took place on September 15th.

Context: Today, for an internet business to stay online continuously, their servers need to be maintained and ensured that they’re consistently working. In the Web3 world, because it is decentralized, there is no one server that one entity needs to maintain to ensure everything is running smoothly. The network needs to build an incentive mechanism to ensure 100% uptime of all the separate servers (computer owners scattered all over the world) operating the blockchain. This is where Proof of Stake (PoS) comes in: PoS requires computer owners (called validators) to put collateral to participate in the network and earn a return. If the computer owner turns off their device or unplugs it from the internet, they will be penalized by slashing part of the collateral they staked.

The Merge saw Ethereum switch from relying on miners, which operate expensive mining hardware and expend vast amounts of electricity to verify transactions and secure the network, to validators that will do the same through staking ETH in smart contracts. The Merge upgrade will reduce the network’s energy consumption by over 99% as illustrated below (0.2% of global electricity consumption).

The Merge | ConsenSys

Noteworthy Crypto Related News

  • Russia legalized cryptocurrency in international trade
  • Starbucks will leverage blockchain technology to conduct its loyalty
  • rewards program - Click here for more
  • Helium partnered up with T-Mobile to launch a new 5G network that will run
  • on Helium’s decentralized network
  • Nasdaq to launch an institutional crypto custody service
  • Financial behemoths Charles Schwab, Citadel, Sequoia and Fidelity will
  • launch a crypto exchange called EDXM
  • SWIFT has partnered with crypto protocol Chainlink to work on a project
  • which would allow traditional finance firms the ability to transact across
  • blockchain networks - Click here for more

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