Inside the room at Multicoin Capital’s Investor Summit; a snapshot of the current blockchain market from one of the leading crypto hedge funds

Jacob Mullins of Shasta Ventures and Kyle Samani of Multicoin Capital
  • The entire market cap of all crypto assets has lost 40% to 60% of its value
  • The leaders, BTC and ETH, saw lows of nearly 30% to 40% of it’s highs
  • XRP is at less than 1/3 of it’s all time high, drawing crypto-mainstream conversation around the importance of true tokenomics and de/centralization of private blockchains
  • Altcoins as a segment have deflated with capital going back to BTC and ETH as stores of value
  • This retrenchment is threshing out the wheat from the chaff, leaving more long term crypto investors, and less speculative retail investors
  • Longer hold investors increase stability of prices
  • Investors are gaining a real understanding of the tops, and bottoms, and are more sober about expectations and opportunities, and the reality of dramatic loss of value
  • Investors are more actively considering the fundamentals of blockchain businesses, such as team, technology, opportunity, as a method of valuation, as opposed to just historical growth (e.g. “mooning”)
  • Crypto fund managers are learning and employing risk mitigation tactics to curb losses, (An interesting note here, as opposed to traditional hedge funds, many of the short and derivatives instruments that enable traditional public market “hedging” simply do not exist in crypto today.)
  • As opposed to the developer community being the primary purchasers of crypto assets, institutional investors, family offices and traditional financial investors are becoming increasingly familiar in how (and why) to invest in the market as an asset class.
  • Today, we are still largely in the infrastructure building phase (picks and shovels) to enable the promise of a broad decentralized “internet” and dapps.
  • Big believers in the native token as the core of a smart contract platform — Dapp infrastructure is the key for any Dapps to be successful. Bullish to invest across many smart contract platforms because it’s still early, there is no winner/s yet.
  • While Ethereum is the earlier leader with a very robust developer community, because of scaling concerns, lots of competitors are building to solve this problem. And this is one of the more interesting parts of the market, including projects like Tezos, Dffinity, Solana and EOS. Excited to invest across all projects and watch as developer mindshare grows around them.
  • While crypto asset market caps are down, what hasn’t changed is developer interest, still seeing the smartest technologists in the industry moving into blockchain and building blockchain products.
  • In 2018, appears the crypto entrepreneurs raising are “more experienced” with deeper thoughts about product and economics of the token product, as compared to 2017 where entrepreneurs were a little “less experienced” and more opportunistic to “grab cash.”
  • Dapps take a very long time to build today, because of lack of tooling and greater platform services that just don’t exist yet
  • Major need for Dapp to support cross-chain flexibility; when BTC hit its peak in late 2017, simple transactions became incredibly expensive ($50 per validation), desperate need to leverage other chains that are more efficient, can’t be so dependent on one.
  • Dapp developers should choose the base blockchain based on their application use case and their concerns such as, need for true decentralization, processing speed, anonymity, country dependence, etc.
  • Not many Dapps have shipped, yet, the next 6 months we will see many go live, which should (hopefully) decrease the wild speculation in the cryptocurrency markets for those tokens
  • The panelists most exciting areas of Dapps right now: a) chain computation, b) cross chain interoperability, c) plasma chains, d) distributed file storage
  • The spirit of the token airdrop is right, but the execution breeds speculation
  • Do not do token pre-sales
  • It starts with company and team culture, if the team ever mentions “HODL” “MOON” or “LAMBO,” they are disciplined
  • The team does not hype price expectation in their comms channels / Telegram room
  • Seed tokens with developers, not end users
  • Most investment focus today is focused on Dapp infrastructure platforms to enable Dapps
  • Strong belief that Non-Fungible Tokens, platforms like Cryptokitties, will be the first Dapps to acquire large mainstream user bases. An anecdotal example, 25% of Cryptokitties users have not previously held cryptocurrency.
  • Long term questions about crypto-native monetization models for Dapps that align incentive with users and validators that also create stability
  • Structure equity purchase agreements to be flexible and aligned with the team, so as the business / token model shifts, the investors can take part in the new economics as well
  • Equity would act as base ownership value in perpetuity (for this entity) enabling an investor to take part in any economics the company produces, offers, issues, etc.
  • Starting to see some standardized legal terms around this, but still very early
  • Beyond the economics that the equity will produce to investors, the equity itself may be rendered illiquid and unsaleable if a traditional “exit” never comes; make sure to plan for realizing returns along the way through token value or other means, not expecting M&A or IPO.
  • Believe NFTs will be one of the first blockchain applications that stretch to mainstream user bases
  • Many many types of NFTs: collectibles, experiences, fractional ownership of physical goods, unique digital assets in AR/VR, rare digital art, enable “reselling” of digital goods like music / video licenses and more
  • Brand matters! Most blockchains (and thus Dapplications / NFTs) are forkable, so to retain value in your unique digital marketplace, product or asset you must build a strong brand that resonates with end users
Tushar Jain of Multicoin Capital, David Sacks of Craft Ventures & Harbor, Ryan Selkis of Messari, Kathryn Haun of Coinbase Board of Directors (left to right)
  • It’s clear that most all “utility” tokens that ICO’d in 2017 are all securities; this should seriously halt the ICO market until SEC enquiries and enforcement actions come down. Tread very carefully if you are planning an ICO.
  • Next area of complexity that US regulators will come down on: regulation on compliance of utility token exchanges, as actual securities exchanges
  • Harbor is laser focused on ensuring that security tokens are compliant with federal securities laws; doing so through frameworks and code embeds into the blockchain to identify accredited investors, specific time lock ups, etc.
  • Harbor proposing a PICO (Private Placement ICO) to ensure compliance with securities laws and US regulatory moves
  • David Sacks believes that securitizing real estate investments will be the biggest opportunity for security tokens, potentially even the biggest opportunity for the entire blockchain, bringing liquidity to a previously $1.3 Trillion in illiquid assets
  • Summer 2018 will be the summer of security tokens

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