4th IR Economy 14 items
Guiding HNW Clients On Blockchain Investment Options (fa-mag.com)

Investing in blockchain technology may be the next big thing over the next few years, but opportunities accessible to most retail investors, though increasing, are still quite limited.

This isn’t the case, however, regarding opportunities for well-heeled HNW clients, whose universe of choices is far broader.

These options include the offerings of various private equity and venture capital firms channeling money into more than 1,200 blockchain startups from Silicon Valley on the West Coast to Silicon Alley in New York. Access to equity in these nascent ventures and fledgling companies—and ultimately, potentially in consolidated entities and IPOs —is increasing rapidly for accredited investors through more than 800 institutional blockchain investment firms whose vehicles include venture funds, private equity and hedge funds.  

Blockchain technology, which was created in the 1990s and became the transmission vehicle for Bitcoin when it started in 2009, is a revolutionary technology that can be adapted for use in just about any digital application involving record keeping, as its immutability fosters the creation of a perfect audit trail enabling transparent transactions with high accountability.

Evolving uses include establishing provenance, security exchanges, identity verification, financial services, gaming, lotteries, job seeking, e-commerce, digital transaction solutions, online value transfer and non-traditional monetary solutions.  

Many of the applications under development are focused on facilitating P2P uses of the internet rather than relying on centralized (traditional) financial institutions that profit from serving as intermediaries. These P2P uses are part of what’s known as the DeFi movement.

The terrain of potential investments in startups headed down these entrepreneurial roads is growing under the industry’s feet, and opportunities are expanding apace for qualified HNW clients who want to get into blockchain technology investing in the current early stages.

The focuses of some of the more prominent among firms gathering investment capital include funding blockchain application development through VC and private equity. A key player in this terrain is Pantera Capital, which started as a hedge fund in 2003 and in 2013, changed its focus to blockchain.

Pantera, which aims to stimulate blockchain-application development and innovation, has a large and widely diversified investment portfolio of more than 35 companies.

Managers of some blockchain investment funds are revolutionizing private equity by selling small pieces of their enterprises, making them accessible to a broad spectrum of investors with varying levels of resources.

The first firm to do this was Blockchain Capital, a VC firm that has issued pieces of its fund in the form tradable tokens called BCAPs, which entitle holders to some of the fund’s profits. (In the broader blockchain world, such tokens are being used to represent a broad range of assets, including fine art.) Since its inception in 2018, Blockchain Capital has financed about 70 companies, protocols and tokens.

Also, some longstanding, name-brand VC firms are marshaling growing ownership portfolios of blockchain startups. Prominent among these is Andreessen Horowitz.  

The firm has not only has a 20-plus and growing portfolio of companies in wide range of blockchain pursuits but has also recently announced a mentoring role in the form of a blockchain-based startup course whose live sessions in Silicon Valley will also be recorded for subsequent downloads. 

The course will include material on existing applications, development tools, regulatory compliance and fundraising.

Advisors who develop a basic understanding of blockchain investment avenues (few have done so) can alert HNW clients to these investment avenues. But the universe of firms seeking capital is expanding so fast that it can be difficult for even knowledgeable and adroit advisors to navigate the growing cadre of firms and stay abreast of changes in the field.  

When encountering resistance from clients regarding blockchain’s investment potential, advisors could effectively liken blockchain to the internet in its early stages—a relatable analogy for baby boomers. Though basic blockchain technology is free, so was the embryonic internet when Google and Amazon started up with what were essentially just applications.

Moreover, risk management for blockchain is now a rapidly developing area, in which expertise is being touted by digital asset managers such as Darma
 , a firm that’s bullish on the concept of Web. 3.0, which would embody the DeFi and hence, financial decentralization of the current web.Specifically, what will happen in this digital gold rush is anybody’s guess.

About the only thing that’s certain is that picking likely winners from the multitude of entities—and the firms investing in them on behalf of clients—is a daunting challenge reminiscent of the chaotic early years of the internet.

Advisors getting into this realm would do well to keep in mind that responsible advice to clients requires no small amount of effort to catch up and stay current.  

Eric. C. Jansen, ChFC, founder, president and chief investment officer of Finivi Inc., an SEC-registered investment advisory firm based in Westborough, Mass., is the author of numerous articles on blockchain. He is the founder of blocksocial.com, a blockchain technology media site.
    • 1
    Francisco Gimeno - BC Analyst Capital from VCs is coming to blockchain start ups this 2020. If last year was a year of consolidation, this year could be the one when serious investors strongly bet for blockchain industry. This article is a good example.