From "ebb" to "reconstruction", Web3 investment paths are changing.

In the previous two articles of Portal Labs, we discussed the fundraising difficulties and valuation collapse of the Web3 primary market, and also saw that some new investment paths are taking shape: the secondary market is making a comeback, incubation-type investment is accelerating, and structured platform products are gaining momentum.

These changes are not accidental. As the traditional VC model loses its appeal again due to difficulties in exiting and cold fundraising, Web3 investors are beginning to look for more flexible and market-adaptive ways to participate in Web3.

But at the same time, the new path also needs to face new legal responsibilities and regulatory challenges.

In this article, Portal Labs will start from the compliance perspective, first dismantling the legal boundaries and risk warnings of secondary market participation, to help high-net-worth investors sort out the key points that need to be paid attention to.

Participant Identity

In the encrypted secondary market, your participation method determines the regulatory requirements you need to face. Different identities have significantly different compliance obligations.

Take Hong Kong and the United States as examples. The two places present different characteristics in the supervision of investor roles:

• In the United States, whether individual or institutional investors, as long as they invest in tokens, options, contracts and other products, they must comply with the relevant regulations of the SEC or CFTC. For example, LPs participating in crypto asset management products must be "accredited investors" (Accredited Investors), and managers (GPs) usually need to be registered as RIAs (Registered Investment Advisors) or exempt fund managers in the United States.

• In Hong Kong, there is currently no explicit prohibition on the participation of individual investors, but the platform must hold a virtual asset trading license (VATP) issued by the SFC (Securities and Futures Commission), and high-risk products (such as contracts and leveraged trading) must not be promoted to retail investors. If you, as an investor, trade derivatives through an unlicensed platform, you may face legal charges of “illegal trading”.

Therefore, it is recommended that investors choose legal and compliant paths according to their own identities:

• Individual investors should give priority to using locally licensed CEX platforms and register with real names, and avoid using overseas wallets or agents with unclear entities;

• Family offices/small funds can set up SPVs or fund structures in Hong Kong, Cayman and other regions, which is conducive to identity isolation, tax declaration and compliance operations;

• Structured fund participants (LPs), if participating in quantitative funds, CTAs, and hedging strategies, should confirm whether the manager holds legal licenses such as CIMA (Cayman), RIA (USA), MAS exemption (Singapore), etc., to avoid stepping on illegal private placements.

Some overseas crypto foundations accept high-net-worth users in the form of convertible bonds, income certificates (Note) or token income rights, but be careful to prevent regulators from characterizing them as "disguised fundraising" or "illegal issuance of securities".

Investment platform selection

Whether you are an individual or an institution, you need to use the right platform before participating in the secondary market.

Currently, there are many virtual asset trading platforms, and centralized exchanges (CEX) such as Binance, Coinbase, OKX, Kranken, etc. are usually operated by physical companies and have applied for regulatory licenses in some countries/regions. They support user real-name, legal currency recharge, tax declaration and other operations, and have a relatively high degree of compliance.

But this does not mean that the CEX you use is naturally compliant. It also depends on where you are and whether the platform has obtained a license in your location. For example, in mainland China, no exchange can operate, which everyone should know. But in other regions,

• In Hong Kong, the SFC (SFC) has officially launched a licensing system for virtual asset trading platforms. Only licensed platforms can provide token trading services to Hong Kong people, and currently only open to professional investors. At present, represented by HashKey and OSL, there are about 10+ CEXs that have obtained SFC licenses, and other platforms cannot open trading services to local retail users.

• In the United States, supervision is even stricter. Platforms like Coinbase and Kraken must register as MSB (Money Service Business) and accept FinCEN supervision. The platform has the responsibility to conduct KYC for users and report suspicious transactions. If you use an unregistered platform or transfer money through gray means, you may be identified as a participant in the money laundering channel once you are investigated.

Decentralized exchanges (DEX) such as Uniswap, dYdX, SushiSwap, etc., although technically there is no registered entity, but because of this, the regulatory attitude is generally conservative. In many jurisdictions, the legal risks involved in using DEX are actually higher - especially when you use DEX for derivatives trading, leveraged trading or high-frequency arbitrage, it may be identified as "illegal financial activities."

For investors, although it is not necessary to memorize every regulatory provision, at least two things should be done:

1. Clearly understand the compliance background of the platform

Has the platform you use obtained a formal license in your location? For example, Bitget is registered in Lithuania and New Zealand, Coinbase is regulated by the SEC and FinCEN in the United States, and Binance has encountered compliance restrictions in some countries. Not all globally famous platforms are legal - the key is whether the "place" where you use it recognizes it.

2. Don’t use “black technology” to bypass the rules

Many people like to use anonymous wallets to jump and cross-chain bridges to bypass deposit and withdrawal controls, but you should know that in Hong Kong, the United States and other places, once such operations are identified, they may be identified as money laundering or illegal fund transfers. Not only will the funds be frozen, but you may also face legal prosecution.

Safe deposit and withdrawal

Many people think that the risk of Web3 investment lies in “whether you buy accurately and how fast it rises”. But what really determines whether you can participate in the long term and whether you can exit with peace of mind is actually two words: deposit and withdrawal. In other words, how do you transfer money out and how do you legally exchange it back to legal currency?

Especially for investors in mainland China, in the past, many people bought and sold USDT through OTC merchants. But in the past two years, the issue of deposits and withdrawals has become extremely sensitive. Last year, public security in many places across the country reported cases of "underground banks + USDT money laundering", and some OTC merchants were directly closed down.

At the same time, banks' review of large-scale USDT exchange has also become significantly stricter, and more and more people are facing the problem of frozen cards. If you are still using your personal bank card to connect to OTC, and the amount of funds is large, you are putting yourself in a high-risk area.

Of course, not all places are so "tightened".

In markets such as Hong Kong, Singapore, and the United States, there are many compliance paths to take, but the premise is that you have to sort out your "identity" and "path".

If you really want to participate in the crypto market, try not to let your personal account bear all the transactions. Especially when there are frequent transactions and large amounts of funds, using a legal and isolated identity structure is not only a compliance issue, but also a way to protect yourself.

The more common methods include:

• Cayman SPV: a standard configuration for many crypto funds, with flexible deposits and withdrawals and transparent supervision;

• Hong Kong family office structure: suitable for investors with Hong Kong background or overseas income, convenient for foreign exchange settlement and asset allocation;

• Singapore exempted fund structure: suitable for portfolio investment, convenient for declaration and subsequent transformation;

These structures can cooperate with licensed institutions for foreign exchange exchange and clearing and settlement, and are also convenient for banks and tax authorities to make accounting statements. In short, how the money comes and how it goes out can be explained clearly.

Tax declaration

In the crypto market, many people focus on "how to trade", but ignore the more realistic question: Is the money earned considered income? Do you need to declare taxes?

The answer is: Yes.

Especially in major jurisdictions such as the United States, the United Kingdom, and Singapore, regulators have clearly included crypto assets in the tax system - any form of income you get from trading, including arbitrage, airdrops, Staking rewards, NFT trading profits, etc., in theory, must be declared and taxed.

Take the United States as an example. The IRS (Internal Revenue Service) updated the 1040 tax form as early as 2021, and directly included "Are you involved in virtual currency transactions" as a mandatory item. Whether you buy, sell, transfer, or make money, it is all considered a "taxable behavior." In recent years, there are many people who have been taxed or even fined for not declaring.

Although Singapore has a low overall tax burden, the IRAS (Inland Revenue Department) has made it clear that as long as crypto assets generate commercial income (such as holding coins for legal currency, token mining), they must be taxed according to the relevant income type. You say you didn't cash out? As long as the on-chain address corresponds to the identity one by one, it is not a safe haven.

Not to mention that many countries (including the UK, the US and Singapore) have joined the CRS/AEOI global tax information sharing network. If you open a Hong Kong account and use offshore funds, once the local tax authorities require data exchange, they may trace you back.

So, don't expect that "anonymous accounts + cross-border transfers" can always evade reporting obligations.

For high net worth investors, the safest way is always:

• Prepare complete transaction records in advance (on-chain browser, trading platform export, wallet log, etc.);

• It is recommended that a professional tax consultant/accountant sort out the income structure to determine which items are capital gains and which are income;

• If you are participating in the investment through an SPV or family office, you must also combine corporate law and tax agreement arrangements to confirm the income attribution and jurisdictional responsibility.

Conclusion

Since 2024, the role of Web3 investors has been undergoing a profound transformation. After the VC tide receded, the secondary market became the main battlefield for liquidity, and incubation and structured products provided more ways for capital to participate. But the more paths there are, the more complicated the responsibilities.

Whether it is an individual investor, a family office, or indirect participation through a fund, investors must actively identify their legal identity, choose a compliant platform, and sort out tax and deposit and withdrawal paths - this is the underlying logic to ensure that the red line is not crossed in the future.

As we have repeatedly emphasized: the Web3 world can be diverse and high-speed, but investment behavior can never deviate from the "boundaries of legal principles."