Finance

Summary

The empirical truth is that Central Banks love blockchain.Governments are uncertain about Bitcoin as a currency, but Central Banks have made it clear that blockchain technology is a huge opportunity.Several Bitcoin and blockchain investment opportunities are provided with this backdrop, with due respect to investor risk/reward tolerance.

I've already explained why Bitcoin cannot go to zero. Now investors need to understand that even if Bitcoin is pushed to the side, blockchain isn't going away because Central Banks love it. Therefore, you will want to consider your bets in Bitcoin and blockchain. Mitigate the risks, maximize the return.

Does The Government Accept Bitcoin?

I've received a lot of feedback in public and private about my articles on cryptocurrencies. In one recent article, Bitcoin Vs. PayPal (NASDAQ:PYPL), one reader expressed what many people have been thinking:

...my gut feeling is that it is a candidate to be one of the biggest financial asset/value destrction [sic] at some time in the future, I imagine that Global reserve currecny [sic] Central banks will not allow their most valuable power to be taken away by digital tech nerds, so they can easly [sic] out law it once they see the threat getting big enough or it becomes de facto currecy [sic] of crime cartels...

In short, the idea is that the government will never allow Bitcoin to survive. It will crush Bitcoin before it gets too big. It hates Bitcoin.Indeed, as Fortune tells us:

Big governments cannot tolerate Bitcoin, the digital currency that threatens to break their monopoly on printing money, and to manipulate the economy to accommodate the interests of powerful elites.

At the same time, we know there is activity on top of Bitcoin, in the form of Grayscale Bitcoin Investment Trust (OTCQX:GBTC) and the Winklevoss Bitcoin Trust ETF (COIN). Bitcoin hasn't been crushed like a cockroach under the boot.But there are cracks. For example, with GBTC:

Both the Bitcoin Investment Trust and the Ethereum Classic Investment Trust are private investment vehicles, not registered with any regulatory agency of any jurisdiction, and are NOT subject to the same regulatory requirements as SEC-registered exchange traded funds or mutual funds [emphasis added], including the requirement to provide certain periodic and standardized pricing and valuation information to investors.

And

The BIT’s shares are publicly quoted on OTCQX® market under the OTC Market’s Alternative Reporting Standards, which do not require the same level of public disclosure as the Securities Exchange Act of 1934[emphasis added] standards applicable to SEC-registered investment vehicles.

Therefore, we know that we can get GBTC into an IRA, and get "skin in the game" with Bitcoin quite easily. But it's not like there is an extra layer of safety from the government for investors.The government is neither for nor against GBTC, and investors might feel safe because GBTC is so easily bought and sold via brokers, and put in IRAs for example.

There are mixed messages.Keep in mind there is an extra price to pay with GBTC. I've previously explained that Grayscale Bitcoin Investment Trust has indicated that the normal premium over investing directly in Bitcoin is 42%. Well, let's do the math today:

For every share of GBTC, you get 0.09258535 Bitcoin.One share of GBTC today would cost you $719The market value of 0.09258535 Bitcoin is $392.56 todayTherefore, the premium is about 83% above the underlying Bitcoin
To summarize, the government is mostly in a holding pattern on Bitcoin. Obviously, Bitcoin hasn't been killed by the U.S. government. But it hasn't approved and endorsed it either.Now, let's shift gears. What if the government cracks down on Bitcoin? I will prove that even if the government crushes Bitcoin, you can still do well because of blockchain.

Bitcoin In Government and Central Banks

We return to the idea that Bitcoin could die through government and politics. But we know that the technology powering Bitcoin is blockchain, and the genie is out of the bottle. More important? Central banks love it.

The central bankers do not want their institutions to own or use Bitcoin itself. Instead, they hope they can use the decentralized method of record-keeping introduced by Bitcoin [emphasis added] - known as the blockchain or distributed ledger - to complete and record transactions in the real economy more efficiently, quickly and transparently.

Plus this tidbit:

If the central banks succeed, it would be one of the greatest unexpected twists in new technology: An invention aimed at dethroning central banks and making it harder for money to be tracked instead ends up empowering those central banks and making money more easily traceable.

Indeed, the Bank of England has even said blockchain could...

...permanently raise GDP by as much as 3% [emphasis added], due to reductions in real interest rates, distortionary taxes, and monetary transaction costs.

The truth is that Central Banks love blockchain and they are aggressively investigating it. Of course that doesn't mean they love and embrace Bitcoin.Then again, beyond the U.S., some governments are directly embracing Bitcoin not just blockchain:

• Japan accepts Bitcoin as legal form of payment
• South Korea: Bitcoin can coexist with fiat currencies
• Australia will treat Bitcoin just like money

So, pressure is mounting in this space from multiple angles. There's great uncertainty about Bitcoin but clarity on blockchain. Again, we're going to have to look at options for investing, and moderating your risks.Digital currencies and blockchain are here to stay. Some governments around the world are directly embracing Bitcoin. They are embracing cryptocurrencies and certainly the technology that powers the infrastructure.

The Central Banks' Safety Net

Make no mistake about any of this. Central Banks are on top of this right now. Indeed, according to the IMF, 15% of big banks will be using blockchain by the end of this year.

Furthermore, Dong He, who has lead research into digital currencies at the IMF, believes that the switch to digital currencies, by central banks could happen in the next five to ten years But this depends on the speed at which the banking system moves to using the blockchain for financial transactions.

The biggest reason is that Central Banks cannot leave blockchain to chance. They need to maintain control. So, while Bitcoin is a nuisance right now, blockchain is a new set of handcuffs and they want the keys. The tracking and accountability using blockchain is happening today.

Play the Bitcoin and Blockchain Investment Game?

With the "Central Banks Safety Net" in your mind, what are your options for investing in Bitcoin and blockchain? It's important to get a bit creative here.First, you can simply invest directly in Bitcoin (e.g., using Coinbase). That gives you direct access but the highest risk.Second, you can invest in Grayscale Bitcoin Investment Trust.

The NAV tracks the Bitcoin market price, less fees and expenses. You'll pay a 2% annual fee for that privilege. There are reasons why GBTC is superior to directly holding Bitcoin, so wrap your head around that. This is also a very high risk, noting especially the premium to NAV mentioned above.Third, you can invest in Bitcoin mining via a company like MGT Capital Investments (OTCPK:MGTI).

There's a bit less risk because MGTI isn't "all in" on Bitcoin. It's also into cybersecurity and privacy hardware.Fourth, you can also invest in the hardware that powers Bitcoin mining, such as Nvidia (NVDA) and Advanced Micro Devices (AMD).

Obviously, NVDA and AMD are not "all in" on Bitcoin but instead have diverse product portfolios.Fifth, you can invest in companies that provide Bitcoin services like Bitcoin Services, Inc. (OTCPK:BTSC).

They mine Bitcoins but also offer escrow services, for example. If Bitcoin gets killed, BTSC is highly exposed.Sixth, you can invest in companies that focus on Bitcoin technologies like IBM(IBM). If you go big, like IBM, your risks are dramatically smaller because of moderate Bitcoin exposure. I've talked about this in several ways. Here are two recent examples of IBM's blockchain exposure:

• IBM Food Chain Takeover
• The IBM Bitcoin Puzzle

It's likely that other companies will enjoy the benefits of Bitcoin acceptance. For example, a natural extension would be e-commerce players, but that starts to stretch the investment thesis.If you're worried about a crash in Bitcoin, the highest risks are obviously going to be direct Bitcoin investment, GBTC, MGTI, and probably BTSC.

The lower risks are likely going to be NVDA, AMD and IBM. Obviously this risk spread is all about size and focus, and not having all your eggs in one basket.If you're concerned about investing in Bitcoin but you still want to ride the technology shift, including Central Bank support, there's a simple approach.

Moderate your bets by investing in companies like IBM that are embracing blockchain and happen to have deep roots in the financial sector. Similarly, NVDA and AMD are reasonable candidates for further due diligence:

...according to MIT Technology Review editor David Rotman, Nvidia’s explosive growth in the AI and Blockchain markets gave the firm an edge over other companies.Source

And

Semiconductor firm Advanced Micro Devices has recently launched a beta version of its new Radeon Software Crimson ReLive Edition Beta for Blockchain Compute graphics card driver.Based on the release notes from the company, the driver will boost performance for “Blockchain Compute Workloads,” thus bolstering the efficiency of digital currency mining computers that use a graphics processing unit (GPU) for mining. Source

In short, you can play the Bitcoin and cryptocurrency game and moderate your bets by looking at Central Banks for insight and support. While it's unclear where Bitcoin will head in the future, it's extremely likely blockchain will survive and even thrive. That's a conservative approach versus...continue reading: https://seekingalpha.com/article/4105691-central-banks-love-blockchain-means-investors-bitcoin-specu...

LONDON – Startups around the world are raising hundreds of millions of dollars by issuing new digital coins, a trend that has made people both excited and concerned.

Over half a billion dollars has been raised through so-called "Initial Coin Offerings" (ICOs) since the start of the year, according to Richard Kastelein, a partner at the Cryptoassets Design Group, a company that helps launch ICOs.

It's an incredible amount considering that ICOs were unheard of just five years ago.The speed at which companies are raising money is turning heads too. Gnosis, a prediction market for digital currency Ethereum, raised $12 million in just 10 minutes in April. 

Brave, a new web browser startup set up by the founder of Mozilla, made that look pedestrian, raising $35 million in less than 30 seconds selling "Basic Attention Tokens" last month.

"The space itself started heating up in the back end of last year," says Jan Isakovic, the CEO of new ICO platform Cofound.it. "It really caught fire since April of this year. We believe this is only going wider and wider."

'We’re selling tickets to a movie but still fine-tuning the last third'

To raise money through an ICO, a company issues a new digital currency that can either be spent within its ecosystem, a bit like Disneyland dollars, or used to power part of the business, like the fuel you put in your car."The Cofound.it token will be used on the platform by startups applying to join the platform," says Isakovic.

His business raised $14.8 million through an ICO last month and is building a platform that to connect ICO-funded companies with experts who can help grow the business."They will use token to pay expert evaluations on the platform. If you want to work with the project you have to put a certain amount of Cofound.it tokens in escrow. It’s like an internal currency."

With token crowdfunding, you can get thousands of engaged supporters who are extremely motivated to see your company succeed

What is unusual about most ICOs — sometimes called Crowdsales — is that, in most cases, the coins being sold are for marketplaces or businesses that have yet to be built. Investors who are buying them are betting that the businesses will become successful and the coins will become more valuable as people flock to the platforms.

"We’re like selling tickets to a movie but we’re still fine-tuning the last third while the audience is filling into the movie theatre," Isakovic says.

He was drawn to ICOs because of an unhappy experience he had with venture capitalists who funded his previous venture, a retail startup called Storesense."Unlike with the traditional VC system where you lose six months to a year raising, here you don’t lose any time — the opposite," he says."

When you get money from a VC you get money from one person or one perhaps their team. Everybody says, 'we have the connections, we will help your startup grow', but that really seldom happens.

Whereas with token crowdfunding, you can get thousands of engaged supporters who are extremely motivated to see your company succeed. They are your early adopters, they’re your evangelists."

'They will thaw a lot of frozen capital and lead to a lot of innovation'

Setting up an ICO is relatively easy, with most companies piggy-backing on the Ethereum network. Ethereum is a blockchain-based public system that lets people write "smart contracts."





The Ethereum logo seen at the Ethereum DEV offices in Berlin, Germany, 14 April 2015. JENS KALAENE/dpa 

Isakovic says: "A smart contract is effectively a piece of software, a piece of code. In our smart contract, it says we are selling 125 million tokens, our cap is at 56,000 Ether or something. The crowdsale lasts until the cap is reached or until four weeks is done. Calculate the contribution and then send tokens. It’s two or three pages of programme and Ethereum does everything else.

"Ethereum's developers, in fact, carried out one of the first ICOs back in 2014 to fund the project, selling digital currency Ether. Joseph Lubin, one of the people who helped build the network, says ICOs are "the first killer use case for Ethereum, in that they will thaw a lot of frozen capital and lead to a lot of innovation."

"You have a global context of the potential buyers of the token and you have a lot of college kids who have $50 and they’re excited about this technology or a particularly E-Sports project, and they throw $50 into the token," Lubin told Business Insider.

"The amount of capital that that will free up to create innovation, to create growth, is amazing."On the other side of that equation, [there are] a number of two people [startups] in a dorm room putting together a project that was never going to get an email back from a venture capitalist. But they can permissionlessly VC themselves."

'If you had an analyst look at it, this is a typical kind of bubble'

Not everyone is so excited about ICOs. David Rutter, a Wall Street veteran who now runs fintech company R3CEV, told Business Insider: "I think people are way over their skis when it comes to these various digital currencies."

"There’s approximately 200 coins now. If you had an analyst look at it, this is a typical kind of bubble, in that folks that have made money in bitcoin are trying to parlay that into other kinds of cryptocurrencies and now they’re moving out of those.

"What Lubin sees as thawing capital going to dorm room entrepreneurs, Rutter sees as dumb money going into flimsy startups.




David Rutter, CEO of R3CEV. John Phillips/Getty Images for TechCrunch

"Many of them are based on powerpoint decks and not a lot more, not fundamentally sound business plans," he says. "Of course you would, if you can go and make $10 million or $15 million or $20 million on an ICO in a matter of hours, based on a really well put together powerpoint — if you think that’s good for the economy and the world and young entrepreneurs, that’s fine. I don’t.

"Isakovic disputes this: "There has not been a project yet that has only had a powerpoint and raised more than, I don’t know, £1 million. All of the projects that have raised large amounts have really competent teams and products behind them."Still, he adds: "I think we are in a period of inflated valuations, but not a bubble.

"Isakovic believes money is flocking into ICOs because people have seen the incredible price rises in bitcoin and Ethereum, as well as rises for ICO coins, and want to make money. Unlike buying shares in an early stage company, investors in ICOs can trade the coins almost immediately on a number of exchanges, rather than waiting for a company to list on a stock market.

This attracts investors looking to make a money, which is pushing up valuations.There is, of course, the possibility that many of the coins could become worthless. Tulip bulbs became extraordinarily valuable in the Netherlands in the 1600s in an incident known as "Tulipmania" before the market collapsed abruptly.

'The Wild West of financing'

Rutter is also concerned about the lack of investor protection in crowdsales. The issuing of digital currencies exists in a legal grey area outside of securities law and there are no rules governing what a company should do with the money it raises.



Cofound.it CEO and founder Jan Isakovic. 

Jan Isakovic"There’s a reason securities laws exist and that is to protect the consumer and to make sure that what you’re offering is actually fundamentally of value," Rutter says. "These initial coin offerings I would never participate in, I don’t see how they’re compliant with current securities regulations." (Some have been structured to comply with securities law.)

Cryptoassets Design Group's Kastelein described ICOs as "the Wild West of financing" in a recent piece for the Harvard Business Review and, at a recent finance conference in Copenhagen, I heard many people voicing concerns similar to Rutter's about the space.

Isakovic says, in practice, investors are protected as startups must have a dialogue with them in order to raise money and make their project a success.

"For us, our strategy really depended on instant and very comprehensive communication with our investors," he says. "We had endless discussions with people on Slack, on Reddit, in person with people who helped us craft our roadmap.

That is what is our supporters recognise. First, we developed a bond with them but also they saw we were willing to listen and adapt."ICOs remain hugely popular with both startups and investors.

Europe's first ICO conference took place in London on Friday, with over 200 attendees expected from...continue reading: 
http://www.businessinsider.com/initial-coin-offerings-explained-icos-token-crowdsale-2017-7