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Tag: investing

What Type of Investors Does Crypto Need?

Let’s beg the question – how relevant are traditional Wall Street fund managers as investors in the crypto sector? 

My viewpoint is that we need fund managers that are long term believers and are committed because they have done their own original research. They should be able to understand crypto to the point where they are able to comprehend what the technology does, where it is going, and are able to form their own defendable (and original) thesis across the many emerging blockchain sectors. But do they? 

For example, of the traditional investors that get it, Ray Dalio is one of them. In a CNBC interview this morning, he said that he sees Bitcoin, cryptocurrencies or digital gold, as part of the “new money” that is a medium of exchange and a store-hold of wealth that you could move between countries. He admitted that Bitcoin had made tremendous achievements over the past 11 years towards those goals.

Sadly, many other so-called crypto investors have a superficial knowledge pertaining to what they got into, and often haven’t even used the technology themselves.  

Fickle investors will flee their investments the minute there is a weakness or bad news, because they need to protect their capital, and will wait for the next momentum cycle. 

Maybe, the crypto industry was too early for the proverbial “Here comes everybody”.

Most current crypto investors have no real relationships with the projects they are investing in, except the relationship they have with the price chart. I doubt some of them even spoke to entrepreneurs directly. 

Investing in crypto is not yet like investing in the stock market where companies are at a known stage of predictability in their business, and where valuation metrics are more easily quantifiable or visible. There is no such thing as a missed quarter that later corrects itself. Instead, the field is full of information asymmetry. 

Traditional Money Managers Don’t Get It, Won’t Get It, Can’t Get it

Reality is that not all traditional fund managers will be able to fully comprehend, let alone believe in the crypto revolution. The grand-daddies of conservatism, Buffett and Munger have already spoken, and their views are the epitome of denial that there is something new here.

In part, the analogy of asking traditional fund managers to get into crypto is like asking a professional basketball player who has never heard of soccer to suddenly play that game. Imagine they would start saying things like: 

  • The net is too wide, that doesn’t make sense!

  • You can’t touch the ball with your hands? That will never work.

  • Why is the field so long and wide? It will be too tiring to go up and down both ends!

  • Why are there 11 players? You can’t easily talk to each other. 

  • Why don’t you stop the clock if there is a whistle? That’s not fair. 

Well, the rules of soccer are very different from those of basketball. And the type of players it attracts is different. Both games have tackling, intercepting, shooting, and blocking in common, but it doesn’t mean that an athletic basketball player that is willing to learn and adapt couldn’t play soccer if they wanted to. However, not all of them will be able to.

Taking the analogy one step further, imagine a sports regulator stepping in and saying: we’ve had the rules of basketball for years, all other sports must adapt to them.

What Matters is Who is Staying, Not Who is Leaving

During the UST/Terra debacle and overall crypto prices correction of mid-May, talking-head after talking-head went on CNBC exposing their ignorance of crypto and predicting the darkest scenarios about an industry they clearly never understood well enough. Most of them would be hard pressed to talk for more than 15 secs about what crypto really does in terms of the variety of use cases and state of practice.

In retrospect, it wouldn’t be such a bad thing if some types of investors flee the crypto markets, as they get replaced by smarter ones who get the longer term view. What matters is who is staying. Developers, entrepreneurs, smart investors and dedicated users are all staying. 

If the narrative shifts too hard towards prices, speculation and superficial involvements, instead of latching on the fundamentals of blockchain technology via a discriminating eye, we have lost the plot about what crypto is about.

It is mind boggling to see most coins (especially the L1 variety) move up and down almost at the same rate. Do these “investors” clearly have any clue about how different the top 10 L1 blockchains really are? For example, for the amount of weight it carries and share of transactions it commands, it is surprising that Ethereum’s market dominance keeps hovering below the 20% level. 

As long as most cryptocurrencies fall and rise in unison, and investors follow each other like sheep, this points to the fact that the market is full of investors that are not very sophisticated nor discriminating. The crypto industry will not be able to break free of its own if it continues to be linked to the vagaries of the traditional markets. 

In the next post, I will debunk the theory of crypto-to-market coupling…or decoupling. 

In The Aftermath of Down Markets, What Can We Learn?

In light of the recent price drops in the financial crypto markets this week, I feel compelled to make some comments.

Everyone is wondering what is going, and why are crypto prices falling so precipitously.

In August of this year, we were already at a market cap of $190B, down 77% from the January 2018 highs, as I outlined in this post, The Long Blockchain Crash. In retrospect, that was an early warning for what has happened this week, as total market cap touched $145B and is about where we were in early October 2017. In essence, the gains of the past 12 months have been erased so far.

There is no doubt that prices will eventually settle towards a given bottom (not zero), then we will begin to see the better coins rise again, hopefully less aggressively than before. But the question on my mind is whether the current crash will also flush out some of the bad elements and habits inside the blockchain market. Bad things always take longer to get un-done.

Undoing the Mess

The blockchain market was messy. It is full of cowboy attitudes. We pushed the limits on what tokens could do. And we pushed the limits on how much money was needed. We conflated everything by extrapolating into the future without a real foundation of the present.

Being Humble Again

If we rewind to where we were in 2017, we were more hungry and more humble. Will we return to being more grounded as the dust settles? Yes, ICOs provided a good economic windfall for people and projects, but money doesn’t solve everything. For some people, too much money changes them for the worse, instead of for the better.

Regulatory Storms

Regulatory headwinds and uncertainties have always been prevalent, but the recent SEC actions have turned into deadly storms, with casualties. In retrospect, the SEC is exploited the decentralized nature of the blockchain ecosystem, and poked at its weaknesses. There is no single, strong voice for the industry that has the power to face regulators cohesively, despite a few advocacy groups that were doing their best, given the circumstances. In spite of these action, in my opinion, there is a silver lining because the SEC positions are much clearer now, if you read their recent public statement entitled Statement on Digital Asset Securities Issuance and Trading. And the Singapore authorities also updated their policy with ICO, via this update: Regulator’s Column: What SGX expects of listed companies conducting an Initial Coin Offering (ICO). Both of these updates from two of the most important regulators in the space point to increased clarity, which is a positive.

Security Tokens Expectations

Security tokens are not going to solve it everything, and they are not a boon for getting some of the prospective utility tokens out of the hot water they put themselves in. You still need to have a successful model behind these tokens, and the challenge of getting market traction is not diminished. So, they aren’t going to save everything. This short article does a good job explaining it, Security Tokens Don’t Solve The Regulatory Mess of Utility Tokens.

Accountability Evasion

ICOs lack of transparency is still there. The mess has already been done. For live projects that took money in the past 24 months, now is the time to show real progress. Most ICOs promised the moon and the skies, but few are delivering. The lack of accountability is for real, despite a denial. For those thinking about decentralized governance as the next step, that is not going to solve this accountability dilemma.

Hype vs. Reality

Projects need to curtail their announcements to actual achievements, not conflating their future with promises. We oversold everything. The White Paper is dead. I’ve stopped reading them a long time ago. White Papers are useful if you have truly devised an original technical contribution, but they are not to be used as a marketing ploy to impress and gain credibility.

Better Software

Blockchain software tools are still immature despite 3 of the top ones reaching over 1 million downloads (Metamask, Infura and Truffle, read my post, The Blockchain’s Magical Million Users Club). We are currently trying to do too much with blockchains. For many cases, maybe only 5% of a given application needs to touch a blockchain. Blockchains are not for everything. They are perfect for passing value in a peer to peer manner, but storing everything on the blockchain is still a daunting task.

Too Many Crypto Hedge Funds

I’ve said this many times before. Too many crypto hedge funds were formed too early in the cycle we are in. Many of them will shut down by end-of-year. November 15th was a key date for investors to give notice to hedge funds that they’d like their money back, so hedge funds started to liquidate their positions, precipitating this week’s crash.

What will come out of this last downturn in prices? My hope is that we return to the sobriety days of early 2017 when ICOs weren’t so easily concocted, and when realism preceded fantasy. The sin of irrational exuberance has already been committed. Now, we need to commit to rational reality.

The psychology of bad markets is difficult to pin down. I hope the aftermath of the current downturn makes many of us smarter, and encourages some of us to give-up trying. I hope it brings better products, results and projects to the market. In Web parlance, the real Blockchain 2.0 era has not really started.


Announcing WMX, the William Mougayar High Growth Cryptoassets Index

Screen Shot 2017-10-05 at 8.11.40 AMToday, I’m announcing the start of a project that has been a long time in the making: the William Mougayar High Growth Cryptoassets Index, based on the ICONOMI platform, with a symbol: WMX.

My experience with tracking stocks and constructing indexes dates back to the Internet days when I created the B2Index in 1998, and it was the highest performing Internet index at the time.

For nostalgia sake, I digged-up an old headline and snippets from the press release, dated November 16 1998:

“Business 2.0 Unveils the B2Index to Track Stock Performance of Publicly Traded Net-Ebusinesses; With a Performance of 214% for the Year, B2Index Outperforms All Other Internet Indexes

The B2Index has outperformed the Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 since its inception. As of the week ending Nov. 13, the two components of the B2Index were up 159.96% and 213.97% for the year, as compared to a 96.63% increase in the ISDEX and a 63.78% increase in the IIX, respectively.

The B2index is comprised of two parts: the B2Index-p and B2Index-m, each one offering different views on market data. The B2Index-p is a price-weighed index, based on $100 equally invested in each stock, and similar to the construction of the Dow Jones average. The B2Index-m, a market capitalization index, mirrors the construction of the Nasdaq Composite. With each beginning on Dec. 31, 1997 at 100, the B2Index-p closed at 259.96, up 159.96%, and the B2Index-m closed at 313.97, up 213.97%, as of Nov. 13, 1998. The B2Index, along with key valuation data for 39 ebusiness companies, will appear each month in Business 2.0 and is updated weekly online on the last day of trading for the week.”

That index did very well, and outperformed all others for 2 years in a row. The only problem is that it was a paper index. You couldn’t trade it. The listings barriers were too high at the time. 19 years later, I get my revenge and a chance to manage a tradable cryptocurrency index.

In this case, I’ve constructed a basket of 15 cryptocurrencies with a variety of weighting for each one of them. This composition will be revised continuously and may change on a monthly basis. The choice of tokens was limited to what’s available on Iconomi. There were some that I wanted to add, but they are not yet supported yet. As new tokens become available, they might make their way into the WMX index which will be re-balanced accordingly

Screen Shot 2017-10-05 at 8.12.04 AM

You can also read about this announcement on CoinDesk, on the ICONOMI blog, and via the official press release.

This announcement and its related social media appearances do not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for, any securities, nor is investment advice or counsel or solicitation for investment. Full terms of use and disclaimer are published on iconomi.net. William Mougayar is an advisor to Steem, Cofound.it and was a previous advisor to the Ethereum Foundation. This index is not available to residents of Canada or the United States.]]>

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