From "ebb" to "reconstruction", the Web3 investment path is changing.
In the previous two articles of Portal Labs, we discussed the fundraising difficulties and valuation collapse in the primary market of Web3, 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 popularity.
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 requires facing new legal responsibilities and regulatory challenges.
In this article, Portal Labs will start from a compliance perspective and first break down the legal boundaries and risk warnings of secondary market participation to help high-net-worth investors clarify the key points that need to be paid attention to.
Participant identity
In the secondary crypto market, your participation method determines the regulatory requirements you need to face. Different identities have different compliance obligations.
Taking Hong Kong and the United States as examples, the two places have different characteristics in investor role supervision:
- 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 register 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 must not promote high-risk products (such as contracts, leveraged trading) to retail investors. If you, as an investor, conduct derivatives trading through an unlicensed platform, you may face legal charges of "illegal trading."
Therefore, it is recommended that investors choose a legal and compliant path based on their own identities:
- Individual investors should give priority to using CEX platforms that are licensed locally, 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 Islands and other regions, which is conducive to identity isolation, tax declaration and compliance operations;
- Structured fund participants (LPs), if participating in quantitative funds, CTAs, or hedging strategies, should confirm whether the manager holds legal licenses such as CIMA (Cayman), RIA (USA), and MAS exemption (Singapore) to avoid 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 they must be careful to avoid being characterized as "disguised fundraising" or "illegal issuance of securities" by regulators.
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. 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 registration, fiat 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 automatically 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. Currently, 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, regulation is stricter. Platforms like Coinbase and Kraken must register as MSBs (Money Service Businesses) and be regulated by FinCEN. The platform is responsible for conducting KYC on users and reporting 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 do not have registered entities, are generally subject to conservative regulatory attitudes because of this. 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, which may be deemed "illegal financial activities."
For investors, although it is not necessary to memorize every regulatory provision, they should at least do two things:
1. Understand the platform’s compliance background
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 platforms that are well-known around the world are necessarily legal - the key is whether the "place" where you use it recognizes it.
2. Don’t use “black technology” to get around the rules
Many people like to use anonymous wallet jumps and cross-chain bridges to bypass deposit and withdrawal controls, but you must know that in Hong Kong, the United States and other places, once such operations are identified, they may be considered 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 or not, and whether the price rises quickly or not". But what really determines whether you can participate in the long term and whether you can exit the market 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 parts of the country reported cases of "underground banks + USDT money laundering", and some OTC merchants were directly closed down.
At the same time, banks have tightened their scrutiny of large-amount USDT exchange, and more and more people are facing the problem of frozen credit 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 follow, but the prerequisite is that you have to clarify 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 trading frequently and with 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 capital background or overseas income, facilitating foreign exchange settlement and asset allocation;
- Singapore exempted fund structure: suitable for portfolio investment, easy to file and subsequently transform;
These structures can cooperate with licensed institutions to exchange foreign exchange and clear and settle accounts, and are also convenient for banks and tax authorities to provide accounting explanations. In short, how the money comes in and how it goes out can be explained clearly.
Tax declaration
In the crypto market, many people focus on “how to trade” but ignore more realistic issues: Is the money earned considered income? Do you need to file a tax return?
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 gain from transactions, 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 "whether you are 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 Authority) 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 said 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 now joined the CRS/AEOI global tax information sharing network. If you open an account in Hong Kong and use offshore funds, once the local tax authorities request data exchange, they may trace back to you.
Therefore, don’t expect that “anonymous account + cross-border transfer” can always circumvent the obligation to report.
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 investing through an SPV or family office, you will also need to combine corporate law and tax agreement arrangements to confirm income attribution and jurisdictional responsibilities.
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 they are individual investors, family offices, or indirect participants through funds, investors must proactively identify their legal identities, choose compliant platforms, and clarify tax and deposit and withdrawal paths - this is the underlying logic to ensure that they do not cross the red line in the future.
As we have repeatedly emphasized: the Web3 world can be diverse and fast, but investment behavior can never deviate from the "boundaries of legal principles."
In the next article, Portal Labs will focus on the incubation investment path: What are the compliance requirements for incubation? How can individual investors participate in compliance?
*Tip: Investment is risky. Please participate in Web3 legally and in compliance with regulations.
