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Chasing a unicorn — should you invest in blockchain in 2018?

This is a translation of the article originally published on July 20, 2018 and written by Alexander Borodich, which can be found at http://www.forbes.ru/finansy-i-investicii/364813-v-poiske-edinoroga-stoit-li-investirovat-v-blokcheyn-v-2018-godu (In Russian).

Last year a great number of investment funds turned their eyes to the technical blockchain-based startups. What does a classical venture investor need to know, when researching more about this market?

Blockchain is based on three key principles: decentralization, openness and protection. It allows to store information about any activity or event, no matter the importance. The blockchain technology resembles air in a way that one cannot simply regulate it on a country’s sole territory. It belongs to the whole world. This is the essence of the decentralization and that is why, in spite of the fact that the market is experiencing its obvious seasonal recession, the biggest IT players, with many financial analysts employed, do enter the crypto market.

The initial coin offering of the Telegram’s Gram tokens raised $1,7 billion USD primarily from the classical global funds: Benchmark, Sequoia Capital, Kleiner Perkins Caufield & Byers. Among their investment recipients one can find such big names as: Twitter, Uber, Instagram, PayPal, YouTube, WhatsApp, AirBnb и Spotify.

Yuri Milner’s DST Global fund is investing around $150–250 million USD in the mobile banking project called Revoult, which offers its premium clients among many others an option to sell, buy and exchange bitcoin and other cryptocurrencies, which turns this fin-tech startup into a ‘unicorn’ with the capitalization od over $1,4 billion USD.

The global IT giants are also actively pursuing their agendas on the market. Mark Zuckerberg, the founder of Facebook, expressed his interest in the blockchain, encryption and cryptocurrency market earlier this year. He directly said that he intended to find a better blockchain-based solution for the Facebook’s services, while one of the top Facebook managers recently was promoted to a director of the blockchain engineering. It is obvious, that Mark understands clearly how important this technology of the future is.

At the summit in Morocco on July 8, co-founder of Google Sergey Brin also said that he had long been ‘experimenting’ with cryptocurrencies.

The particularities of the Russian market

Undeniably, the ICO market is rather young, especially in comparison with the traditional venture investment. However, even now it is important to hear what both sides — the regulator and the cryptocommunity — say to fully understand what investment prospects the blockchain industry has on the Russian market.

Olga Skorobogatova, the First Deputy Governor at the Central Bank of The Russian Federation, proposes to separate the notions of blockchain and cryptocurrencies, to set out why it is necessary to apply this new technology and also to decide on the key principles to protect investors.

Sergey Zhigarev, the chairman of the State Duma Committee on Economic Policy, Industry, Innovative Development and Entrepreneurship, supports this stance on the legal basis and openly declares that the Parliament will adopt new bills regulating cryptocurrencies and blockchain before the end of the year.

The main concern here is that the ‘digital financial assets’ bill complicates the token issuance procedure, the cooperation with other jurisdictions and pushes developers to move to other countries.

Consequently, a great number of venture investors prefer to enter the shares capital abroad, although Russia has enormous potential for investing in the technological blockchain-based startups in various spheres: banking, real estate and car deals registering, everything that is connected to the documentation formalizing, issuing and approving various notes and rights, elections, logistics, healthcare, retail, management, law, etc.

Applying blockchain does not only make payments and deal approvals more secure, but also simplifies and accelerates all the processes involved. As a result, the whole country’s economy wins. It is obvious that it is exactly between the regulator and the professional community that the legal basis should be developed, that will respect the interests both the state’s and the investors’ interests.

Prospects for the digital investments

The blockchain industry regulation is taking shape all over the world, and there are reasons for this. The latest analytical review by ICS Statis Group, a consulting agency, which takes into account the key ICO stages of the projects launched in 2017, starting with the pre-sale, and ending with tokens being traded on crypto exchanges, shows that more than 70% of the ICOs in 2017 could be identified as scam.

Last month TechCrunch published a report, based on the data collected by Coinopsy and DeadCoins, which showed that, as of June 29, 2018, more than 1000 cryptoprojects are already ‘dead’.

However, is the situation that dire? If we turn to Coinmarketcap data for 2017, we will see that the total capitalization of the cryptomarket surpassed the $600 billion USD mark, while it started with $17 billion USD in the beginning of 2017. Many professional market players learnt more about the new trend and were able to increase their asset portfolio more than ten-fold.

If you decided to invest in technological blockchain-based startups, you should be aware that your digital assets can be ‘frozen’ for a long time, as the exchanges introduced stricter regulations for the companies in 2018.

In other words, you can start investing in autumn and only get the opportunity to actually trade on an exchange the next summer. The risks are also high: the actual value of any startup and its token can plunge at any given moment.

And still, cryptocurrencies have their inherent advantages. Firstly, cryptocurrencies allow performing a multimillion USD transaction with minimum exchange rate costs, which no other classical bank can offer. Secondly, blockchain operations and smart contracts are extremely transparent. These arguments give us hope that more and more people will save their funds in crypto or invest in it. In other words, new technologies often come into our lives completely unnoticed, and blockchain will not be an exception.



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