BLOCKCHAIN: $1 Trillion lost in Crypto since all-time-highs, but $700 million in November still flowed in

Ugh. Here's the monthly update on the crypto fundraising figures. Let's start with some good examples -- we are fans of Trustology raising $8MM in equity from Two Sigma and ConsenSys, and ErisX raising $28MM from Fidelity and Nasdaq. Those sound a lot like the institutional chassis needed for traditional players. However, from a retail perspective, the crypto markets are not holding their value in an overall downturn, and have been fairly correlated with traditional equities as everything nosedives together. This is in meaningful part, we think, driven by the availability of instruments to take short positions in the market. 

We took the ever excellent OnchainFX data from Messari, and looked at the total loss of market capitalization (i.e., "hopium") across their tracked coins from all-time-highs. The answer is that there has been nearly a trillion of burned down value in the last year. Millennials are going to be salty for a long time! But look, it's not all doom and gloom. November saw another $700 million or so in blockchain-first funding, again roughly split 50% between token sales and venture investment.  The sustained flow of venture is encouraging to the promise of this sector in the future.

Some conclusions from looking at the tokens in detail: (1) an Arizona offering stood out as an interesting jurisdiction, (2) a few EOS projects are going forward, (3) some projects are using the STO monicker to try and position more positively, and (4) there are still quite a few questionable business models in the mix. Looking at crypto funds, we continue to see new entrants in the space, even as 2018 funds face -80% performance profiles and shed employees. Crypto projects are also starting to downsize, and we projected for Bloomberg a contraction of 25-50% in the number of funded seats at the blockchain table for existing companies today. That doesn't mean there can't be new companies with new opportunities ahead -- it just means their journey will be more rational, and potentially more fruitful.


Source: Messari (liquid coin data), Autonomous NEXT (crypto fund data set, ICO tracker leverages and cleans CoinSchedule, ICO Rating, ICO Bench, ICO drops and various others), Bloomberg (layoffs)

BITCOIN: ETP launches on Swiss Exchange, while Chinese miners go out of business due to price collapse

What a weird crypto week. This market moves in conflicting directions at once, in large part because the execution speed of the actors is very different. A billionaire selling on a whim is instantaneous, while an enterprise team's process to build a product can take 18 months. So we simultaneously get to see (1) Switzerland's SIX stock exchange listing a crypto index product composed of BTC, XRP, ETH, BCH and LTC and (2) the long tail of miners starting to shut down their machines as BTC crashes below break-even range. Financialization and speculation up, infrastructure and hash power down. Would this be different if the timing was better synchronized?

This isn't the first exchange traded product, the honor for which goes to Coinshares (Bitcoin ETP at $500mm+ in assets on Nasdaq Stockholm). But it is meaningful. The underlying index comes from VanEck, a mid-size traditional asset manager which had tried to get a US ETF going and failed. And it is also a basket -- broadly speaking, diversification is a strict good, putting the arguments around inclusion of BCH and LTC aside for now. We hope now to see at least some family offices and Swiss private banks allocate 1-5% to crypto in liquid, regulated wrappers.

Right, so the second point is that Bitcoin mining pools across China are slowing down activity, with certain devices (Antminer S7, S9, Canaan Creative's AvalonMiner 741) becoming unprofitable at prices below $5,000. We have pegged the range of break-even somewhere at $6,000 for individuals with regular access to electricity, and $2,500 for large scale players inside a hydro-electric dam. Regardless of scale, this is bad news for Bitmain and several other Chinese hardware manufacturers. But, BTC was designed for this eventuality -- as price drops, miners will exit, and the probability of rewards to the remaining players goes up. 


Source: FT (Switzerland pay wall), Coin Telegraph (Swiss ETP), South China Morning Post (Mining), Amun/VanEck (Index Sheet -- which we neither hold nor endorse)

CRYPTO: $600 Million of both ICO and traditional venture funding in October for $1.2 Billion total

Some positive news for the crypto world, in the form of fundraising figures. The financialization of crypto assets, melding securitization with tokenization, continues to move forward. Based on our latest data, this year saw over 140 crypto investment funds enter the space. While that is below the 270 from last year, a couple of developments are notable. First, we continue to see new entities formed month over month, even though the narrative is that most crypto funds are 50%+ down this year. Second, there has been a healthy development of ecosystem funds, attached either to exchanges or at the protocol level. These entities are well aligned with funding projects that are adopted by consumers, which then would use the exchange or protocol to engage with the token. Circular logic, or lifting yourself up by the bootstraps -- you decide!

We also know that much of the focus in crypto fundraising has now shifted to STOs, with both enterprise blockchain success stories like BNP Paribas building out syndicates of financiers to provide large loans (e.g., Red Electrica), as well as public STO asset examples like the Aspen resort token from Templum. Similarly, many of the crypto funds are doing equity investing first, and getting tokens for free. With that in mind, we are encouraged by the October numbers in our ICO/token database.

ICO funding data listed on public trackers, and cleaned/confirmed by us to the extent possible, shows about $600 million in flows, which is higher than $450 a month ago. There were not any major unusual chunky raises like the Petro or RubyX. But there was a roughly equivalent amount ($600 million) of traditional venture capital activity in the space. Looking at the chart below, it is becoming a trend that VC funding constitutes 50% of the overall money flowing into the space. From an economics perspective, it is good to see institutional investors find the risks attractive again. From a decentralization perspective, it seems less likely that global crowdfunding will democratize the ownership of a future Internet. 


Source: Autonomous NEXT (analysis of various trackers for $1mm+ ICOs), Pitchbook Data

CRYPTO: Did ICOs raise $300 million or $2 billion in September? Depends who you ask.

Last week we published some grim ICO figures, which made the rounds in the media, suggesting that token offerings are 90% down on a monthly basis relative to the peak. We were challenged on our figures based on two sources: Elementus and Coinschedule (ICO Rating is another great reference). While our number floated down to $300 million, some of the others saw September as $1B+. As an aside, we want to show the largest number possible to frame the best story for a delicate and growing space. This is why we began adding venture capital equity investment into crypto companies. When looking at that particular chart, our trend is at over $1 billion in August. So let's explore the delta.

First, there are some chunky and problematic figures which we chose to treat differently. For example, CoinSchedule lists Rubi-X as a $1.2B ICO entry for the month of September, which we have not been able to verify otherwise and chose to exclude. The Venezuelan Petro ($700MM+) we also ignore, as it is at best a government-backed monetary unit, and at worst an experiment in sovereign fraud. Second, there are various timing differences. Take the $134MM into tZero, which we had already accounted for at announcement in July. Lastly, taking a closer look, many of the ICOs we chose not to include are self-reporting a "completed" ICO, and then a data spider is taking their softcap as the amount raised. We generally exclude data where the confirmation of a meaningful raise ($10MM+) is hard to pin down.

Further, Elementus tracks monthly flows as they happen. This means if an ongoing ICO is 40% through its time period, they will have counted accrued fund flow. We track data at period end, meaning that only closed offerings are counted. Such an approach will not give credit for capital in flight, and perhaps there are good months ahead if indeed flows are strong. But this methodology difference should generally wash out, unless large chunky and unusual things are happening (e.g., Telegram and EOS). 

Our final point on this is to revisit our data sources. We focus on analysis, and leverage other primary sources for much of the underlying gathering, which we then scrub. In looking at the process, we counted over 30 ICO trackers used in our aggregation process. The kicker though is the short half life of the sources -- charted below. We find ourselves swinging between various sites and their increasing and decreasing data quality! So if you ever think there's something we should pay attention to, do let us know. And without further ado, here are the adjusted figures, telling the same story as before.


Source: Cryptoglobe (ICO data reporting), ElementusCoinSchedule

CRYPTO: September ICOs 90% Down from January, but Venture Funding is Ray of Hope.

Source: Autonomous NEXT, Pitchbook Data, China     Microlenders

Source: Autonomous NEXT, Pitchbook Data, China Microlenders

We're really trying to make this look good! But it's not working. We've scrubbed token offering data from September, and the trend continues generally to be down. Last month saw about $300 million in ICO funds raised, with the month before that revised to a bit over $400 million, a far cry from the $2.4 billion in January of this year. If we include EOS and other chunky private token raises, the highs go to over $3 billion, suggesting that monthly ICO activity is down 90%, which of course looks a lot like Ether's price performance, but with a 3-month lag.

There are three narratives at play, which are worth exploring. First, perhaps investors have devalued the idea of buying a utility token (does nothing yet, legally non-binding), and instead want to buy equity in the same companies. To test this, we looked at Pitchbook's data on blockchain and Bitcoin venture capital raises, which you can see in the second chart below in the magenta color. There is indeed a lagged effect in venture as well, with increasing drips of capital, reaching over $1 billion in August 2018. Why is that? Two reasons: (1) fintech companies like Robinhood and Revolut pivoting into crypto and (2) Bitmain trying to vacuum up capital before the public offering. This gives us a slightly more balanced view of funding in the space -- with recent months seeing a decline in public crowdfunding, but an increase in private checks. Anecdotally, projects are selling equity and giving matching tokens for "free" to investors in the capital structure.

The second narrative is Security Token Offerings (STOs). We know many different platforms working on this space -- from Templum, to Tokeny, to Sharespost, to Indiegogo, to tZero. And while we'd love to plot STOs on this chart as well to offset the decline, truth is that STOs won't hit the market in earnest for another half-year at least due to regulatory indigestion. We tried to find that extra monthly billion in STO land, but it's not there yet. And last, we're testing a narrative about the collapse/crisis in Chinese P2P lending since 2015, and whether that risk-seeking capital wound up in ICOs. If you've got any hints on that last one about Asia, let us know!

CRYPTO: As ICOs wind down, Developers code and Financiers finance.

Hope you like bad news. We are in an Ethereum sentiment downward spiral. As prices fall both (1) quite naturally as design result from fundraising in ETH, and (2) from an increasing number of financial derivatives shorting token economies, i.e., BitMex, ETH as a currency is less attractive to hold for a newly formed company. Dissenters from the ETH thesis are becoming louder, with some claiming that all utility token values trend to zero, and others (see TechCrunch discussion source) suggesting that ETH will bleed out all of its value into those utility tokens. While we don't agree with either and it can't be both, the end result is that ICO funding has meaningfully slowed to a bit over $300 million. That's a 2017 May equivalent. 


Hope you like good news. Ethereum's use as a decentralized computing platform is growing. While many other Dapp stores (i.e., Dfinity, EOS, NEO, Cardano) are only now getting funded on future claims, Ethereum is churning away at building useful apps. ConsenSys backed Alethio put together a chart of operation codes, which we take to mean how much computing the system is doing. More is better, as is more diversity of operations. The chart has been going around the web, but we think it's useful to reiterate as a counter to the ICO fundraising data. First you raise, and then, you build. Actually, first you sell, then you hire, then you build.


Second, while non-equity token funding is failing, security token offerings (STOs) are starting to hit the market. Should we be counting this in our ICO numbers? Take for example Tokeny, which used to be primarily an ICO technology platform. Since the shift in the winds, it has pivoted to enabling STOs. The latest projects to use its system are a $250 million real estate tokenization and a $50 million equity tokenization in a fintech company. These two deals alone match the entire ICO market from last month and are just the tip of the iceberg. No wonder that Bank of America is rumored to join Nomura and Fidelity in the crypto custody race. Investment banking fees and exchange listing fees for all asset classes are in the cross-hairs, in a way that enterprise blockchain cannot solve (e.g., accepting crypto as payment). 

Unfortunately, by the time the incumbent custodians are in the game, there may not be much left of the crypto currency market caps. The snake will have eaten its own tail (thanks Cardano!). So instead of messing with digital assets backed by the techno hope of Millennials, they will turn their sights on the familiar glow of securitization.  

Source: Autonomous NEXT (ICOs), Tokeny (STO vs ICO), ICO Journal (Bank of America), Reddit (AlethioTechCrunch editorial

CRYPTO: $20 Billion in Cumulative ICO Funding, 300+ Funds

Let's start with our macro bread and butter. Through June of 2018, we saw $12 billion of funding flow through into token offerings. Our numbers track only those ICOs with $1 million or more raised, so the numbers could be slightly higher, but the magnitude is correct. That's still 4x the amount of equity investment from venture capitalists going into blockchain-related companies (a number that now includes Robinhood and Revolut's pivots into crypto). So overall the trend appears healthy, until you really dig into the deals themselves. As you can see on a monthly basis, EOS and Telegram have been the elephants in the room for token fundraising. Now that they have been pulled out from active fund-raising, the underlying trend is less enthusiastic, cutting the monthly numbers in half.


Both of those exceptions have something to teach us. In the case of Telegram, the lesson is that private institutional investors are now the major driver in pre-sales, and often lead to closed rounds. In the last 2 months alone, we see a $500 million raise for video production platform Tatatu, and another $750 million to a gambling company in Asia. That means that there is not an opportunity for a crowd to participate, which in turn has led to the prevalence of Airdrops as a way to get people to hold the token. See Tatatu giving away $50 million of its tokens; in our full paper we highlight the Airdrops trends. The case of EOS teaches about the cyclical nature of capital flows between these projects. Token offerings appear to be a fairly steady function of their parent networks, sitting around 2% of monthly Ethereum reinvestment. That was a surprising finding.

On the manager side, we see 312 crypto funds controlling approximately $7.5 to 10 billion in assets. If we add in traditional instruments, like the Bitcoin Investment Trust or Bitcoin Futures, that's likely another $3 billion of exposure. So while the absolute number of entities is not exploding like last year, the asset they hold do seem to be increasing (based on extremely selective self-reporting). This has been buoyed by the entry of ecosystem funds from exchanges like Binance and Huobi, or networks like EOS. In a sense, that's recycled money from offerings, but it may still fund the right entrepreneur to build her company.


Source: Autonomous NEXT (Crypto Utopia)

CRYPTO: The Mega ICO and Future of Crowdfunding


Let's dive one more level deeper into the 1Q 2018 numbers. Our accounting methodology puts ICO funds raised into the latest  month in which the ICO was still active, which can make for lumpy data as the market becomes more institutional. This becomes painfully clear with EOS and Telegram, which we define as Mega ICOs and exclude in industry estimates. But what do things look like if we DO include these two projects?

Well, ICO fundraising jumps from $3.4 billion to $6.8 billion, which is the total amount raised in all of last year. According to this version of the story, there is no token fundraising slow down of any kind, whatsoever. We have already matched what happened in the past. And if we look on a monthly basis, instead of seeing a normalization in April/March that takes us to the levels previously seen in last September/October, the funding totals are accelerating to all time highs. What is going on?

Source: Autonomous NEXT, Token Report, Pitchbook, EOSscan

Source: Autonomous NEXT, Token Report, Pitchbook, EOSscan

Two things. First, the Telegram raise of $1.7 billion highlights the trend of outside venture capital money moving into the crypto economy to buy tokens. This is not the "crypto capital gains" thesis of 2017, where early winners wanted to diversify their holdings, but instead the "let's not miss out" thesis of venture chasing last year's success. The other side of the coin is that high-profile projects can lean into this fear of missing out and run pre-sales, rather than offer tokens to the public. In turn, this can minimize regulatory risk if done for accredited investors only.

Second, the year-long EOS token offering took in about $800 million of value in 2017, and 1.6 billion of value in 2018 according to EOSscan. Talk about a financial black hole! EOS is the opposite of Telegram, publicly open to the world for contributions of any size. One way to interpret its approach is a prolonged attack on Ethereum at the protocol level, pulling the currency of one "world computer" to fund a direct competitor.  Maybe it's some sort of futuristic M&A, where a decentralized Internet super-organism eats its own tail and rises anew. And last, we found the below chart on non-Ethereum token offerings very interesting. Meaningful competition for the use-case of launching an ICO are already out there -- NEM, Waves, NEO, Stellar. Ethereum is seeing over 100 monthly new projects, but the race is not yet fully won. Are decentralized networks a winner-take-all market? Are they a market at all?

Source: Token Report

Source: Token Report

CROWDFUNDING: Most ICOs Have Already Failed - But So What?

Source: Autonomous NEXT, TokenData, CB Insights, Mattermark

Source: Autonomous NEXT, TokenData, CB Insights, Mattermark

An article on discussed some rough metrics for ICOs to date, claiming that of the 902 ICOs from last year according to Token Data, already 46% have failed. That's $104 million down the drain -- not to mention the opportunity cost of token appreciation and the funds that disappeared through various scams. So are things as bad as the article makes them out to be? We dove into the numbers, and came away with the opposite conclusion.

In looking at the Token Data underlying data set, there is an important distinction. And that is the difference between failing to raise capital and failing to execute on an idea after having raised capital. The article combines these two into a larger headline. But when we look at the "failing to raise" stats, things are not so dire. In 2016, that number is 14% and in 2017 it is 28%. This is in line with the intuition that it is now harder to raise money in crypto than before as investors become more discerning. But it is still far easier than raising money on Kickstarter, for example, which sees a 64% failure rate.

And second -- if we do the math on operational failure in 2017 ICOs, the answer comes out to 18%. That may seem like a lot in a short period of time. But we can compare this to the percentage of Seed stage startups that fail to raise Series A, thereby failing to achieve enough operational traction to move to the next round. A Mattermark data set suggests that 68% of early stage companies wipe out without going to the next round, and CB Insights shows similar numbers, with 40% failing to raise and 14% exiting the market. Runway for venture-backed companies is usually 18-24 months. If ICOs continue to fail at their current pace, perhaps the numbers will look even more extreme than traditional startups. But today, 18% is far below the 60-70% comparison.


CROWDFUNDING: Jan 2018 Initial Coin Offering and Crypto Fund Numbers


2018 is off to a bumpy start for the trading of large cap crypto assets. But we hold the view that pricing accuracy of $100B+ tokens isn't particularly meaningful for the technology progress in the space. It measures sentiment, which perhaps reflexively prices the market, but isn't all that helpful for figuring out what's happening in the world. On the other hand, the flow of resources -- from capital, to human, to corporate -- indicates something more real. When people choose a new way or a new product, the super structure may change. 

We updated our ICO and crypto fund data as of Jan 2018. The first finding is that ICO funding, which is a metric for the early stage entrepreneurship in the space (like Angel and Series A funding), is looking quite healthy. 2017 ended with $5.4B of ICO proceeds going to projects raising over $1mm+, and the one month of January already has $1.4B in flows. That doesn't include either Telegram's $1B+ planned ICO, or Overstock's $250-500mm raise, so we expect this level to continue through the year.  It may be harder for an individual ICO to raise capital given higher standards and competition, so in that sense, the market is equilibriating with the Venture Capital market. Vesting schedules, performance targets and covenants are becoming standard as the early crypto funds are joined by mega venture like Andreessen. Traditional early stage investors are writing equity checks into blockchain companies, but those numbers are less than 20% of the overall equation.


Coindesk makes the point that in Ethereum terms, actually the funding levels are fairly stable and not increasing. From our view, that's the whole point! The crypto Cambrian explosion was driven by capital gains in Bitcoin relative to fiat. Of course people are taking risk at the edges, using their winnings to fund more work. But there is indeed some danger that if the smart token platforms collapse in value, ICOs will have less purchasing power and thus facilitate less development. This is a real risk. And given that an increasingly large proportion of the ICO proceeds are funding utility tokens (magenta in the graph) and fewer platforms/currencies, actual economic activity within the apps has to appear for investment value to exist. 

The second data point is that the number of funds continues to grow. We point to crypto capital markets volatility as a positive for the plethora of trading, quant and index funds entering the market. In total, we are tracking 225 crypto funds across 7 strategy types (hey there Salt's credit fund), and see assets in the space being between $3.5 billion and $5 billion. The diversification of strategies point to an earlier observation that crypto has collapsed all asset classes into software, putting hedge fund managers and venture investors into the same exchange. No wonder there's pandemonium.


If you would like to have your fund added to the list, or to get access through an institutional subscription, please reach out here

FINTECH: Digitization of All Asset Classes

Source: Roofstock

Source: Roofstock

So here's the good news. While we wait for blockchain to change the infrastructure of financial services, amazing things are constantly happening across the financial front office. The Fintech change is really here and we can see it -- especially if we look past cashflow and to customer experience. Using last decade's innovation of mobile and web, platforms have created access to previously expensive financial products. Digitization has led to the democratization of each and every asset class.

Here are a few data points, more of which you can always find in the body of the full email. First, digital lending -- 2017 saw increasing online lending activity. Even companies like Goldman Sachs are boasting about $2 billions of loans originated and $5 billion of deposits in their Marcus platform. That's Goldman, not Lending Club, but the consumer shouldn't care. The other side of the balance sheet, neobanks, are also maturing and growing their offering.Revolut has added insurance to its product portfolio, as did SoFi and N26 earlier. Monzo is opening up current accounts, while Tandem gets its banking license after buying Harrods. Such European startups have over a millions of eager users, which is why a $45 million check just went into an American neobank called Varo.

In digital wealth, Vanguard peaked over $100 billion in AuM, and the hybrid roboadvisor platforms (those where a human and algorithms are combined) are booming. Venture investors keep pouring money into the combination of traditional and digital -- see for example NextCapital's $30 million round. Access to and manufacturing of alternative investment products is moving along too. Real estate marketplace RoofStock gets a $42 million funding round on $1 billion transactions moving through its platform. And Wealthforge, a private offerings platform announced more than $500 million in investments processed. Insurance is not far behind -- take of example how insurtech Betterview used drones and machine vision to assess damage for claims during hurricane Irma.

Source: Betterview

Source: Betterview

Source: AdvisorEngine

Source: AdvisorEngine

So this is Fintech -- multifaceted, difficult, working with industry to impact the most people possible. Access and democratization are its core values, even if it is not decentralized nor truly disruptive. For the Crypto movement to have the most impact, it needs to retain this driving spirit to create services that help all people access better financial services to live better lives.

ONLINE BANK: Neobank Tandem eats Old Bank Harrods

Source: Harrods Bank

Source: Harrods Bank

Building a consumer-facing fintech company, in particular one competing on user experience when most clients just want some deposit interest, is really hard. It is "$1 billion to be spent on marketing" hard. To add insult to injury, getting a license to do the very basic function that you are trying to improve can be prohibitively difficult for banks.

Tandem, a challenger that competes with Atom, Monzo, Revolut and other neon-colored websites, had two strokes of bad luck this year. First, its pre-announced capital raise of £29 million fell through. And second, its license to offer banking services in the UK was never granted. But Tandem has something that traditional banks lack -- 11,000 vocal champions that have crowdfunded it on Seedrs. It's not the money that mattered, but the conviction of future customers and the love of a brand (prior to the launch of any financial products). This, you could say, provided Tandem a mandate to satisfy a demonstrated demand.

And it has done so through a reverse acquisition of a traditional bank. Aren't all fintechs just looking for an exit? Harrods is a bank aimed at the high end of the market, the same segment as theaffiliated luxury store Harrods. It does not have a distributed retail footprint, but it does have a banking license. And there's something satisfying about this high-end brick and mortar organization going all-in to Millennial mobile banking. Tandem is getting the infrastructure and £80 million of capital to fulfill its mission. Since the terms of the deal were not disclosed, we wonder if they were heavily tilted to equity, and who retains majority share. Probably not the 11,000 vocal champions.