Cryptoasset Market Update

1Q18 ICO fundraising is set to beat out nearly all of 2017, with YTD fundraising of $3.4B exceeding Jan — Nov in the prior year. To-date March funding of $1B+ is in-line with February funding of $1.25B.

Source: Satis Data

Deal Quality: Deal size rose substantially M/M, as the average deal in our $6M+ bucket hit $38M (vs $23M) in total funding, while the average project hit ~81% of its hard cap (vs 95% last month). Deal size was driven by: DRG ($320M), BNK ($151M), LDC ($50M), and SVD ($49M), and partially offset by: IPSX ($7M) and SPX ($7M).

Source: Satis Data

Seasonality and Outlook: Although seasonality has improved and 1Q18 locks up a record breaking quarter in similar pace to the prior year, we reiterate our prior concerns with regard to: risks associated with relevant legal regimes and recent shifts, project delays as a result of hazy token liquidity (with several online trading platforms (“exchanges”) rumored to mass de-list utility tokens in response to regulatory mandates, and a significantly larger market with a much more difficult comparison economics (the past two months of 2018 are nearly 100x the amount of fundraising seen in the same period in the prior year).

Source: Satis Data

Sector Share: Advertising (18%), Infrastructure (14%), Trading & Investing (14%), and Marketplace (14%) were the most popular sectors in the past month.

Source: Satis Data

Platform Share: ETH (+1% M/M) continued to gain market share at the expense of Proprietary chains (-1%), with little change in share among the remaining sixteen platforms (that hold ~9% total share).

Source: Satis Data

Fund Flows: Roughly ¼ of the value of all ICO funding to date is stored in ETH, by a select (based on availability of treasury address) 100 ICO’s by market capitalization. In the past 30 days, ~727k ETH (~$390M, or ~13% of the total ETH held) has been moved from the addresses.

Source: Santiment Data

The median price/ETH balance ratio for the group was 3.2x (calculated as market capitalization / USD value of ETH held).

Source: Santiment Data
Source: Santiment Data

On-chain transaction volume of the top 27 smart contract tokens, compared to ETHUSD.

Source: Coinmetrics

Top 27 smart contract token’s on-chain transaction volume share of total ETH network transaction volume.

Source: Etherscan, Coinmetrics

Exchange-token multiples, measured as the market capitalization of the exchange-token divided by the 24-hour volume of the token’s respective exchange (i.e. BNB market cap / Binance exchange 24-hour volume), have remained steady as the decline in prices has roughly matched declines in exchange volume over the past month.

Source: Coinmarketcap

ICO Quality: On the basis of pre-determined classifications, we found that approximately 81% of ICO’s were Scams, ~6% Failed, ~5% had Gone Dead, and ~8% went on to trade on a exchange. Within the 8%, in coins/tokens with an MCap of $50M+: ~47% were Successful, ~20% were Promising, and ~34% were Dwindling. In coins/tokens with an MCap of $50M — $100M (the lowest tier tracked): ~24% were Successful, ~22% were Promising, and ~54% were Dwindling. Check out our full note here.

Sources: icorating, coinschedule, tokendata, icodata, coinscamlist, deadcoins, Satis Data

Takeaways from Investor Meetings

Last week we met to discuss the cryptocurrency markets with institutional investors from a handful of large, legacy fund managers (Vanguard/Fidelity/Wellington/et al) as well as hedge funds (Two Sigma/Citadel/AQR/et al). Despite recent price performance and bearish headlines, interest in the space from traditional managers (and their clients) has continued to increase dramatically.

· The progression in technical understanding and conversation around the technology has heightened. Discussions are slowly shifting away from fundamental knowledge around the core workings of the cryptocurrencies (and the blockchain/distributed ledger networks they power) to more detailed workings of the networks (from Layer-2 solutions like Lightning and Raiden, to emerging consensus protocols like PoS and DPoS).

· Categorically, understanding of the cryptocurrency trading universe has become more defined. Investors are thinking more in terms of sectors (by platform, anonymity, store of value, among others). In the nascent and inefficient cryptocurrency market, correlation has been tight across all sectors, and prices move in lock-step for the most part. This shift in thought is encouraging, as targeted fund deployment (once funds can actually enter the market) can allow for larger entrants and strategies to enter and progress within the space. Though this maturity will obviously take time, the ability for the market to choose more differentiated winners is the next step the ecosystem needs as it progresses through this development in thought.

· Investment in the cryptocurrency space remains blocked off to large institutions in the near term, though with an improving outlook, until: 1) further knowledge is gained around the universe of coins and tokens, particularly within the technical mechanisms that differentiate them and the use cases that may breed value and utility in them, 2) more custodial solutions are available, to allow funds traditional exposure/assurance/logistics that they can introduce and expand crypto operations with, 3) further regulatory guidance is given, to permit some sort of stable circumstances and protocol to invest by, 4) more liquidity venues open up, to facilitate legal trading of a growing security-registered coin/token market, and 5) volume and onboarding in cryptocurrency derivatives markets, such as futures, picks up and allows for risk-management strategies.

· Investment action in the space continues to be limited to equity (not coins/tokens) in companies operating in the space, for now. Sector plays in the cryptocurrency space have migrated away from investment in software names (such as MSFT/IBM/AMZN/GOOGL’s blockchain offerings, which have trivial translation to the bottom line) and more towards hardware infrastructure, particularly:

o GPU Design: NVDA, AMD

o ASIC Design and Fabrication: TSMC

o Fabrication Equipment: ASML, AMAT, LRCX, KLAC

o Memory (particularly DRAM): SK Hynix, MU, Samsung

Major News

(Exchange) Robinhood began its rollout of cryptocurrency trading integration. Initially, the service will be available in California, Missouri, Montana, Massachusetts, and New Hampshire and be limited to Bitcoin and Ethereum.

(XZT) Tezos, locked in a power struggle that has prevented the disbursement of tokens from their $232m ICO, appears to be getting back on track as multiple board members voluntarily stepped aside. Approximately 40 developers are being recruited to continue work on the Tezos protocol.

(Exchange) After a protracted legal battle with the IRS, Coinbase began notifying users that their information would soon be turned over. 13,000 customers who exceeded $20,000 volume between 2013 and 2015 are affected.

(ETH) Vitalik Buterin proposed an enhancement to the on-chain scaling solution Plasma, called Plasma Cash. The new solution would incorporate a second coin, to ultimately optimize the amount of data used, and help ease transaction fees and throughput.

(GS/BAC/CATM) Goldman Sachs, Bank of America, and Cardtronics listed the growth of cryptocurrencies as risks to their business in government filings.

(BTC) SegWit has been fully rolled out on the Bitcoin network.

(ETH/LTC/BCH/XRP) Grayscale Investments is adding individual investment trusts for Ethereum, Litecoin, Bitcoin Cash, and Ripple’s XRP, which should make it easier for tradition investors to increase their exposure to these assets.

(GOOGL/FB) Following in Facebook’s footsteps, Google has announced that cryptocurrency and ICO advertisements will be prohibited on their platform from June 2018.

(BTC) Lightning Labs has launched their implementation of the lightning protocol in beta, allowing off-chain transactions on the Bitcoin network among others.

(BTC/TWTR/SQ) Jack Dorsey, CEO of Twitter and Square, believes that bitcoin will become the single currency of the internet within 10 years. Square’s Cash App has supported bitcoin transactions since January 2018.

(Exchange) Business Insider reports that exchanges are charging fees of up to 1 million dollars to have tokens listed on the exchange, a figure higher than many stock exchanges.

(GOOGL) Google is reported to be working on distributed ledger technology. The Bloomberg report indicates that Google is looking to differentiate their cloud platform, as well as hedge against upstart competitors leveraging the technology.

(XLM) Stellar, looking to increase scalability, is working on implementing Lightning technology on its testnet with hopes a wider 2018 release.

Project-Specific News

Our friend Eric Meltzer puts out a great newsletter, called Proof of Work, with quality updates on the biggest projects in the space.

We really like it, and you can check it out here.

Major Forks

MoneroV (XMV) — An upcoming hard fork from Monero (delayed from original date), is expected to occur around April 30 with 10 XMV distributed for every 1 XMR held. Notable differentiation from Monero include a finite coin supply as well as implementation of the MimbleWimble protocol for scalability.

Zcash (ZEC) — Zcash is planning a “software-updates-required” network upgrade dubbed Zcash Overwinter. According to developers, the patch is designed to pave the way for future upgrades, while improving transparent transaction performance and adding a new feature of transaction expiry, among others.

Upcoming ICO’s

MDL Talent Hub — A talent sourcing ecosystem designed to facilitate booking of gigs between brands and performers

Sector: Human Resources

Platform: Skyledger

Pre Sale: December 12

Public Sale: March 23

Competitors: Backstage, Craigslist, Gigmasters

XiWatt — a platform for the crowdfunding of green energy projects

Sector: Energy

Platform: ETH

Pre Sale: TBA

Public Sale: TBA

Competitors: WePower, GridShare

Neon Exchange — a platform for complex decentralized cryptographic trade and payment service creation

Sector: Trading & Investing

Platform: NEO

Pre Sale: N/A

Public Sale: April

Competitors: CryptoBridge, IDEX, BitShares

Conference Appearances

Make sure to stop by and say hi to us at the following conferences.

Block 2 The Future / San Francisco, CA — April 4–6

Penn Blockchain Conference / Philadelphia, PA — April 6–7

Blockfin Summit / San Francisco, CA — April 9–11

Global Blockchain Summit Denver / Denver, CO — April 19–20

eMerge Americas / Miami, FL — April 23

Upcoming Research

We will be adding some nifty content in the coming months, notably:

· Primers: Security Tokens, Exchanges, Institutional & Retail Custody, Consensus Algorithms, Hashing Algorithms

· Frameworks: Token Economics, Screening (Utility vs Security)

· Data: The most comprehensive ICO database, open to everyone to use for free.

· Legal: Thoughts and insights from our GC, Emma Channing.

Make sure to sign up here.

As usual, Mike and I are happy to chat on any questions or suggestions. Feel free to reach out anytime. Thanks.