When Henry Ford produced the first Model T, he unknowingly set off a chain of events leading to the industrial revolution. The buggy whip manufacturers were opposed to anything that Henry Ford did and published dozens of hit pieces against Ford and his ilk. Enter the institutional investors that are looking for opportunities to grow their hard-earned cash, and it then becomes difficult to determine who represents the next good investment opportunity.
The Crypto Utopia
Institutional investors collectively managing more than $500 trillion of assets and seeking to enter the cryptocurrency space today are burdened by many factors beyond the simple question of “who is right?” These investors have to weigh the risk of regulatory issues, due diligence and historical choices against the opportunities and financial rewards.
Autonomous Research Partner and Global Director Lex Sokolin have released a free report titled “Crypto Utopia,” aimed squarely at these institutional investors addressing many of their concerns. Their prior report, Token Mania was well received by over 15,000 FinTech professionals including institutional investors from Fidelity and hedge funds like Citadel and Point72.
The information packed, feature rich, 124-page report covers nearly every aspect of the fledgling cryptocurrency space. Our review of this report continues below.
Lex Sokolin is the author of this report and the Global Director of Fintech Strategy and Partner at Autonomous Research. He is an entrepreneur hailing from AdvisorEngine and NestEgg Wealth. He is a frequent contributor to WSJ, CNBC, Reuters and many other widely read sources. He has spoken at major conferences such as Techonomy, In|Vest and holds a JD/MBA from Columbia University and a BA in Economics and Law from Amherst.
In the report, Lex is stating that we’re on the fourth wave of innovation wherein institutions will tokenize cryptocurrency securities. This wave, called “Crypto Cambria,” represents more than $500 trillion of crypto assets. These assets are represented among many crypto industries and token types. The following rich map demonstrates the wide variety of opportunities available within each sector:
(Source: Autonomous NEXT)
Bitcoin Helps Reach Financial Singularity
Over the past two years, many of the growth industries are in vertical apps as well as financial services with more than $5 Billion invested in the first six months of 2018.
Another approach to understanding the opportunity that is available to the institutional investor is to understand the maximum growth opportunity. Frequently, Bitcoin advocates make the case that by 2033, Bitcoin will reach a financial singularity. The statistical value of all human life on earth is $5 quadrillion. Given the realistic growth curves, it is not likely that Bitcoin will reach that market cap by 2033. But what is realistic is that there are still some opportunities to invest in cryptocurrency assets and to realize substantial gains.
(Source: Autonomous NEXT)
Token investing is early-stage tech investing. It is a high-risk activity that must pass through several filters. This includes screening for outright fraud, failure to raise the target capital, operating failure, instrument performance as well as cybersecurity. In truth, the ICO failure rate is less than or in line with other shortcomings. For example, 85 percent of DotCom tech IPO was gone within ten years. 65 percent of Kickstarter projects fail to reach their goals. ICO failures are to be expected, and it can be managed.
Many ICO’s currently have a rate of return that is worse than Bitcoin and Ethereum. To have proper performance, the portfolio needs to be balanced among multiple equity positions to maximize profits.
There are more than 312 crypto funds available in the marketplace today with more than 250 funds started within the last two years. Collectively, these funds manage more than $7.5 billion. The top 10 funds control 43 percent of the market. These funds include Bitcoin Investment Trust, Coin shares, and others. The following is a vibrant map of the different funds investing in the cryptocurrency space:
(Source: Autonomous NEXT)
Concerns and Opportunities
Considering all of this, Institutions are understandably viewing the fractured and developing space as an area that problematic. Concerns include:
- Shallow liquidity
- Lack of custody
- Immature value chain
Lex maintains that the opportunity remains for Institutional investors to participate via ETF and Mutual Funds. More than 29 percent of High Net Worth investors representing $20 trillion as a class have an interest in crypto investments. Also, there is another $20 trillion with non-HNW investors that have also expressed an interest. This is more than $500 billion of demand waiting for access to the cryptocurrency space.
There are many noteworthy developments at each area of the value chain indicating that over the next year more institutional investors will gain access to this market and to be able to invest in this new and emergent space.
Companies organizing ICO’s are finding it difficult to operate in today’s climate with banks traditionally refusing to transact ICO proceeds. Furthermore, costs to adequately fund an ICO can be well beyond a traditional NASDAQ / NYSE offering. For example, an essential ICO launch can cost more than $1.5 million whereas listing on the NYSE can cost $500k.
Although there are a few banks such as Silvergate, that offer banking services, the legal structure and taxation complexity can lead to a lot of legal challenges. Traditional banks such as Citi and Bank of America frequently close accounts without offering any recourse.
Many countries such as Iceland, India, and others have issued outright bans on cryptocurrencies. Other countries such as Canada, Australia, and Spain are encouraging cryptocurrencies. In a mixed regulatory space, it can be challenging to operate a crypto asset globally as compared to an offering on the traditional exchanges.
Autonomous Research is positioned to guide the institutional investors in understanding these issues and more. They offer a variety of paid research services and have offices in major markets – China, United States and the United Kingdom. As one of the first significant financial analyst covering the crypto space, Lex Sokolin provides critical guidance for institutional investors interested in investing their client’s funds into this opportunity.