Circular references in Crypto markets as exchanges: Binance and Huobi launch new ecosystem funds

acea79b6-04b4-4c96-9c7a-057df11c82a4[1].gif

Towards the end of last year, we noted that there was a circularity in the crypto, private and public markets. Large ICO launches were inspiring private companies to follow as well (e.g., Kik), public companies changed their names to blockchain pretenders (e.g, Long Island Ice/Chain), crypto companies pointed to this as progress and Bitcoin went up. It wasn't purposeful market manipulation, but a hype cycle reverberating in a small room. What we're seeing now is, well, kind of worse.

Tezos raised $232 million when the price of Ether was about 50% or less than it is today, so about $500 million now. The result is a lot of lawsuits, no product, and the formation of a $50 million venture fund. Binance raised $15 million through its ICO, which now trades at over $2 billion. The exchange is launching a $1 billion venture fund. Huobi raised $300 million, and though the token trades at a discount, it is also launching a $93 million venture fund. EOS, the largest ICO ever at $4 billion, is committing $1 billion to venture through partners like Galaxy Digital. Another example stuck out at us from a recent Coindesk article, where Meltem Demirors described this cycle -- "[Blockchain Capital invests in Ripple, which owns XRP currency]. Ripple took some of that XRP and gave it back to Blockchain Capital. Blockchain Capital then turns around and invests it in Coinbase ... Coinbase now created a venture fund investing in startups Blockchain Capital is also investing in, who are then turning around and investing in startups with ICOs."

This is billions and billions of capital that were invested for one purpose -- to help the fund-raising team build software products that investors want to use -- that are being re-purposed into another direction entirely. Hey, maybe you hired me to program this website, but I decided manage your retirement portfolio instead. One result is a skill mismatch: lucky coders are not professional investors. Another result is the loss of focus. And the last is the systemic risk to the whole ecosystem. If the investment returns are based on financial engineering and memes, rather than some real economic activity to underpin our excitement, then a regulator pulling hard on one thread will unwind the entire experiment.

fac2c1f6-ea72-4e3e-9976-4c6025c9f0ac[1].png

Source: ICOs (Binance ICOHuobi), Venture funds (TezosBinanceHuobiEOS), Coindesk (Quote)