From 'retreat' to 'reconstruction', the investment paths in Web3 are changing.

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

These changes are not coincidental. As the traditional VC model has lost its attractiveness again due to difficulties in exiting and cold fundraising, Web3 investors are starting to seek more flexible ways to participate in Web3 that adapt to market rhythms.

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

In this article, Portal Labs will start from a compliance perspective, first breaking down the legal boundaries and risk warnings of participating in the secondary market, helping high-net-worth investors clarify the key points they need to pay attention to.

Participant identity

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

Taking Hong Kong and the US as examples, the regulatory characteristics regarding investor roles differ between the two places:

  • In the US, whether for individual or institutional investors, as long as they invest in tokens, options, contracts, and other products, they must comply with SEC or CFTC regulations. For example, LPs participating in crypto asset management products must be 'accredited investors', and managers (GPs) typically need to register as RIAs (Registered Investment Advisors) or exempt fund managers in the US.

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

Therefore, it is recommended that investors choose legal and compliant paths based on their identity:

  • Individual investors should prioritize using CEX platforms licensed in their locality, register with their real names, and avoid using unverified offshore wallets or proxies;

  • Family offices/small funds can set up SPVs or fund structures in regions like Hong Kong or the Cayman Islands, which are beneficial for identity isolation, tax declaration, and compliance operations;

  • Structured fund participants (LP) should confirm whether the manager holds legal licenses such as CIMA (Cayman), RIA (US), or MAS exemption (Singapore) when participating in quantitative funds, CTAs, or hedge strategies to avoid illegal private placements.

Some overseas crypto funds accept high-net-worth users through convertible bonds, income certificates (Notes), or Token income rights, but be wary of being regulated as 'disguised fundraising' or 'illegal securities issuance'.

Investment platform selection

Whether you are an individual or an institution, before participating in the secondary market, you also need to be clear about the platform.

Currently, there are many virtual asset trading platforms, centralized exchanges (CEX) like Binance, Coinbase, OKX, Kraken, etc., usually operated by real companies and have obtained regulatory licenses in some countries/regions, supporting users with real-name registration, fiat currency deposits, tax reporting, and other operations, with relatively high compliance levels.

But this does not mean that the CEX you are using 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 is allowed to operate, which everyone should know. But in other regions,

  • In Hong Kong, the SFC has officially launched the licensing system for virtual asset trading platforms. Only platforms that obtain a license can provide token trading services to Hong Kong residents, and currently, it is only open to professional investors. At present, represented by HashKey and OSL, about 10+ CEX have obtained SFC licenses, and other platforms cannot open trading services to local retail users.

  • In the US, regulation is stricter. Platforms like Coinbase and Kraken must be registered as MSBs (Money Service Businesses) and be subject to FinCEN regulation. Platforms are responsible for conducting KYC on users and reporting suspicious transactions. If you use an unregistered platform or transfer funds through gray methods, once investigated, you may be deemed a participant in a money laundering channel.

Decentralized exchanges (DEX) like Uniswap, dYdX, SushiSwap, etc., although technically do not have registered entities, because of this, the regulatory attitude is generally conservative. In many jurisdictions, using DEX involves higher legal risks—especially when you engage in derivative trading, leveraged trading, or high-frequency arbitrage, you may be deemed as engaging in 'illegal financial activities'.

For investors, while it is unnecessary to memorize every regulatory clause, at least two things should be done:

1. Understand the platform's compliance background

Does the platform you are using have a proper license in your location? For example, Bitget is registered in Lithuania and New Zealand, Coinbase is regulated by SEC and FinCEN in the US, while Binance faces compliance restrictions in some countries. Just because a platform is globally recognized doesn’t mean it’s legal—the key is whether the 'place' you use it in recognizes it.

2. Avoid using 'black technology' to circumvent rules

Many people like to use anonymous wallets to jump around and cross-chain bridges to bypass fund inflow and outflow controls, but you should know that in places like Hong Kong and the US, such operations, once identified, may be deemed as money laundering or illegal fund transfers, not only freezing the funds but also potentially facing legal accountability.

Safe fund inflow and outflow

Many people think that the risk of Web3 investment lies in 'whether the purchase is accurate, whether the price rises quickly'. But what truly determines whether you can participate long-term and exit with peace of mind is two words: fund inflow and outflow. That is, how you withdraw money and how to legally exchange it back to fiat currency.

Especially for investors from mainland China, in the past, many people bought and sold USDT through OTC merchants. But in the past two years, fund inflow and outflow has become extraordinarily 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 shut down.

At the same time, banks have also tightened their scrutiny of large USDT exchanges, and more and more people are facing issues with frozen cards. If you are still using personal bank cards to connect with OTCs and the amount is large, you are putting yourself in a high-risk area.

Of course, not all places are tightening up like this.

In markets like Hong Kong, Singapore, and the US, there are many compliant paths available, but the premise is that you need to clarify your 'identity' and 'path'.

If you really want to participate in the crypto market, try not to let accounts under your name bear all the transactions. Especially when trading frequently and the amount is large, using a set of legal and isolated identity structures is not just a compliance issue, but also a way to protect yourself.

Common methods include:

  • Cayman SPV: A standard configuration for many crypto funds, flexible fund inflow and outflow, transparent regulation;

  • Hong Kong family office structure: Suitable for investors with Hong Kong capital background or offshore income, facilitating currency exchange and asset allocation;

  • Singapore exempt fund structure: Suitable for portfolio investments, facilitating reporting and subsequent transformation;

These structures can cooperate with licensed institutions for currency exchange and settlement, and also facilitate accounting explanations with banks and tax authorities. In simple terms, how the money comes in and how it goes out can be clearly explained.

Tax declaration

In the crypto market, many people focus on 'how to trade', but overlook the more realistic question: is the money earned considered income? Is it necessary to report taxes?

The answer is: yes.

Especially in major jurisdictions like the US, UK, and Singapore, regulatory authorities have explicitly included crypto assets into the tax system—you must report and pay taxes on any form of income obtained from trading, including arbitrage, airdrops, staking rewards, NFT trading profits, etc.

Taking the US as an example, the IRS (Internal Revenue Service) updated the 1040 tax form in 2021, directly including 'Are you involved in virtual currency transactions?' as a required field. If you buy, sell, transfer, or earn, it is all considered 'taxable behavior'. In recent years, there have been many cases of individuals being assessed for back taxes or even fined for not reporting.

Although Singapore has a low overall tax burden, the IRAS (Tax Authority) has made it clear: as long as crypto assets generate commercial gains (such as exchanging coins for fiat currency, token mining), they need to be taxed according to the relevant income type. You say you haven't realized any gains? As long as the on-chain address corresponds to your identity, 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 an offshore fund, once the local tax authority requests data exchange, it may trace back to you.

Therefore, do not expect 'anonymous accounts + cross-border transfers' to forever avoid reporting obligations.

For high-net-worth investors, the most prudent way is always:

  • Prepare a complete transaction record in advance (on-chain browser, export from trading platform, wallet logs, etc.);

  • It is recommended to have a professional tax advisor/accountant organize the income structure to determine which items are capital gains and which are income.

  • If you are participating in investments through SPVs or family offices, you also need to combine company law and tax treaty arrangements to confirm income attribution and jurisdictional responsibilities.

Conclusion

Since 2024, the role of Web3 investors has been undergoing a profound transformation. After the retreat of VC, the secondary market has become the main battlefield for liquidity, with incubation and structured products providing more ways for capital to participate. But with more paths come more complex responsibilities.

Whether you are an individual investor, a family office, or participating indirectly through a fund, investors must actively identify their legal identity, choose compliant platforms, and clarify tax and fund inflow/outflow paths—this is the underlying logic to ensure that they do not cross red lines in the future.

As we have repeatedly emphasized: the Web3 world can be diverse and fast-paced, but investment behavior must never stray from the 'boundaries of law'.

In the next article, Portal Labs will focus on incubation investment paths: what compliance requirements are there for incubation? How should individual investors participate compliantly?

*Note: Investment involves risks, please participate in Web3 under the premise of legal compliance.