January 25th, 2023

What Are Crypto Venture Capitalists (VCs) Investing in This Bearish Market?

(Image credits: A Golden Bear Market by Anndy Lian)

The value of a cryptocurrency can be influenced by various factors, including news about the cryptocurrency and its underlying technology, government regulations, and overall market conditions.

The market can also be influenced by investor sentiment, which can be affected by a wide range of events.

There are many different types of investments in the cryptocurrency space, and the popular specific investments can vary over time. In general, some of the most popular types of cryptocurrency investments include:

Bitcoin: Bitcoin is a decentralized cryptocurrency that was the first of its kind. It is often considered a store of value and is widely recognized and accepted as a form of payment.

Ethereum: Ethereum is a decentralized platform that runs smart contracts, which are applications that execute automatically when certain conditions are met. It is also used as a platform for building decentralized applications (dApps).

Decentralized finance (DeFi) tokens: DeFi refers to financial applications built on the blockchain and decentralized, meaning that they are not controlled by a single entity. DeFi tokens are often used to access or participate in these applications.

Security tokens: Security tokens are digital assets representing ownership in an asset, such as a company or real estate. They are subject to federal securities laws and are often issued through initial coin offerings (ICOs).

Stablecoins: Stablecoins are cryptocurrencies that are pegged to a stable asset, such as the US dollar, to reduce price volatility.

There are many different investment theses for cryptocurrencies. Some people believe that cryptocurrencies have the potential to replace traditional fiat currencies. In contrast, others think they will be used primarily as a store of value or a means of exchange.

Still, others believe that the underlying blockchain technology has the potential to revolutionize a wide range of industries, from supply chain management to identity verification.

These Are Some Specific Investment Theses for Cryptocurrencies:

The use of cryptocurrency as a means of exchange: Some people believe that cryptocurrencies will eventually be used as a primary means of exchange, replacing traditional fiat currencies.

The store of value thesis: Some people believe that cryptocurrencies will eventually be used as a store of value, similar to gold.

The blockchain revolution thesis: Some people believe that the underlying blockchain technology has the potential to revolutionize a wide range of industries and that investing in cryptocurrencies is a way to get in on the ground floor of this technological revolution.

The “greater fool” theory: Some people believe that the price of a cryptocurrency will continue to go up as long as someone is willing to buy it at a higher price, even if there is no intrinsic value to the cryptocurrency. This is sometimes referred to as the “greater fool” theory of investing.

Venture capitalists (VCs) are investors who provide capital to early-stage companies in exchange for equity ownership. In the cryptocurrency space and especially after witnessing the fall of FTX, many VCs have started to be interested in investing in companies that are working on infrastructure and applications for the blockchain, rather than investing directly in cryptocurrencies themselves.

Some Specific Areas of Interest for VCs in the Cryptocurrency Space.

Blockchain infrastructure: VCs have invested in companies working on building out the infrastructure for the blockchain, such as companies that are developing new consensus algorithms or building out decentralized storage solutions.

New blockchains get good support too. Shardeum is the world’s first EVM (Ethereum Virtual Machine)-based sharded blockchain mainnet.

With dynamic state sharding technology, the blockchain can linearly scale and increase TPS (transaction per second) with every node added to the network.

The network can maintain low gas fees indefinitely. It was co-founded by Nischal Shetty, a co-founder of WazirX, India’s largest crypto exchange by trading volume.

They have raised $18.2 million in a seed funding round from more than 50 investors, including Jane Street and The Spartan Group joined this seed round along with Wemade and others.

Web3 solutions: Web3, also known as Web 3.0, is the next iteration of the World Wide Web, and it is built on blockchain technology. It is designed to be more decentralized, secure, and open than the current Web.

VCs are looking for projects that align with the core principles of Web3 and have the potential to drive its adoption and growth. This is another rising trend.

The Venom Foundation, a Layer-1 blockchain licensed and regulated by the Abu Dhabi Global Market (ADGM), and Iceberg Capital, an ADGM-regulated investment manager, have announced a partnership to launch the Venom Ventures Fund (VVF), a $1 billion venture fund.

The fund aims to invest in innovative protocols and Web3 dApps, focusing on long-term trends such as payments, asset management, DeFi, banking services, and GameFi.

The VVF will be blockchain-agnostic, meaning it will not be limited to any specific blockchain and will invest in projects based on their potential regardless of the underlying blockchain. The fund aims to become the leading supporter of next-generation digital technologies and entrepreneurs.

I noted that the VCs in my network are also looking at blockchain applications.

VCs have also invested in companies that are using the blockchain to build new applications, such as supply chain management platforms, decentralized finance (DeFi) platforms, and decentralized identity solutions.

Interoperability and cross-chain solutions, for example, aim to enable different blockchain networks to communicate and interact with each other and are also one of the top investment choices.

When I showed this article to some of my friends before publishing, they asked me why didn’t VCs consider investing in crypto exchanges.

The truth is that most of the VCs who understand how the crypto market works would know that exchanges are facing tremendous stress from the regulators. Having a license does not necessarily mean good, honestly. There are new travel rules that will tighten how crypto moves.

The new rules may even force DEXs to new unknown territories where the realization of profits can be deemed a nuisance for many investors. The older existing exchanges usually have very high operating costs, overspending habits on marketing, sponsorships, and staffing.

Moreover, the valuation is way too high for a good entry point, in my humble opinion.

Therefore, I believe investing in blockchain infrastructure and applications will support the development and growth of the cryptocurrency ecosystem and potentially generate more sustainable returns for its investors in this bear run.

It is also important to note that VC investment in the cryptocurrency space is just one aspect of the broader cryptocurrency ecosystem.

There are many other types of investors, such as hedge funds, family offices, and individual investors, who may have different investment theses and strategies.

Having said this, there are still many opportunities in this volatile market. I commented in the South China Morning Post yesterday, “Gold may be a safe haven”, but there were many other [crypto] opportunities elsewhere for investors “to profit from price fluctuations.”

Take a recent market movement, for example. A fellow investor in Singapore reacted quickly to short bitcoin after the US report of 6.5% CPI inflation. He made money. During the same week, he noted that the resistance level had hit its low and would bounce upward soon.

He injected another $10m to long it. Bitcoin went over $21,000. He made money again. And when he heard rumors that PBOC might start to print more money as a stimulus, he sold his crypto holdings into Chinese A-shares as he saw a higher upside in the longer run.

As a licensed fund manager and a VC myself for over a decade, this is my humble note to all.

“Believe in the underlying technology, aim for community growth and ride on the right waves for the best crypto returns.”- Anndy Lian.

Not financial advice, of course.

Source: https://hackernoon.com/what-are-crypto-venture-capitalists-vcs-investing-in-this-bearish-market

Anndy Lian

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com

j j j

December 24th, 2022

Regulating Cryptocurrencies: Are you Investing in Securities?

There is an ongoing legal case between SEC and Ripple Labs. In December 2020, the San Francisco-based corporation and its current and former senior executives were sued by the SEC on charges that they had been selling unregistered securities worth $1.3 billion since the token’s inception. The commission declared XRP as a security. You should have heard of this case if you are in the crypto industry. Many questioned how this happened and will this have any affect on the rest of the cryptocurrencies. What is a security? How SEC determine what is a security? I will try to break it down in this article.

What is Howey Test?

The Howey test is used by the U.S. Securities and Exchange Commission (SEC) to determine whether a particular financial product or transaction qualifies as an “investment contract.” If a product or transaction is deemed to be an investment contract, it is subject to certain regulatory requirements under federal securities laws.

The test is named after the 1946 Supreme Court case SEC v. W.J. Howey Co., in which the Court established a four-part test to determine whether a transaction qualifies as an investment contract:

It involves an investment of money
There is an expectation of profits from the investment
The investment of money is in a common enterprise
Any profit comes from the efforts of a promoter or third party

If all four of these criteria are met, the transaction is considered an investment contract and is subject to regulation as a security.

What is a Security?

Before we look further, let’s look at what is a security. A security is a financial instrument representing an ownership position in a publicly traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

There are several types of securities, including:

Stocks: Stocks represent ownership in a company and entitle the holder to a share of the company’s profits.
Bonds: Bonds are a type of debt security that involves borrowing money from an investor for a set period of time at a fixed interest rate.
Options: Options are a type of derivative security that gives the holder the right, but not the obligation, to buy or sell a specific asset at a predetermined price within a specific time frame.
Mutual funds: Mutual funds are investment vehicles that pool money from multiple investors and use that money to buy a diversified portfolio of stocks, bonds, or other securities.
Exchange-traded funds (ETFs): ETFs are investment funds that are traded on stock exchanges, much like stocks. They typically track an index, such as the S&P 500, or a specific sector or theme.
Derivatives: Derivatives are financial instruments that are derived from other assets, such as stocks, bonds, commodities, or currencies. They are used to hedge risk or speculate on the price movements of the underlying asset. Examples of derivatives include futures, options, and swaps.

Howey Test Applied to Cryptocurrencies

The Howey test is a well-established legal test used for decades to determine whether a financial product or transaction qualifies as an investment contract and is subject to regulation as a security. While the test was originally developed in the context of traditional securities, it has also been applied to cryptocurrency and initial coin offerings (ICOs).

The four-part test established by the Howey case has generally been applied to cryptocurrency in the same way as it has been used to traditional securities. However, there may be some nuances or specific considerations that apply specifically to cryptocurrency when applying the Howey test.

For example, the first prong of the test, which requires an investment of money, may be satisfied by the purchase of a cryptocurrency using fiat currency (such as U.S. dollars) or by the exchange of one cryptocurrency for another.

The second prong, which requires an expectation of profits, may be satisfied by the potential appreciation of the cryptocurrency’s value or by the ability to earn returns through the use of the cryptocurrency in a particular platform or network.

The third prong, which requires the investment of money to be in a common enterprise, may be satisfied by the pooling of resources or the use of a shared infrastructure or platform.

The fourth prong, which requires any profits to come from the efforts of a promoter or third party, may be satisfied by the involvement of a central authority or the use of a decentralized autonomous organization (DAO) to manage the cryptocurrency or ICO.

Modern-Day Version of Howey Test for Cryptocurrencies

The above pointers may sound familiar to you. You are a project owner and have spoken to a lawyer before; this is the same advice they gave you. My question now is, since the state of play in cryptocurrencies are changing rapidly, should there be an adapted version for the modern day?

The modern-day version might look something like this:

Is there an investment of money?

If the crypto digital asset issuer has not sold any assets issued to build its project. It is most likely not considered a security.

Is there an expectation of profits from the investment?

If the crypto asset is utility-based, for example, it is used for voting purposes. It is most likely not considered a security.

Is the investment of money in a common enterprise?

If the project is decentralized, it is not controlled and operated by a centralized entity. It is most likely not considered a security.

Are any profit comes from the efforts of a promoter or third party?

If the profit primarily comes from the community which has nothing to do with the issuance of the crypto asset. It is most likely not considered a security.

Reminding all again, when all four criteria are met, the investment is considered a security and is subject to regulatory requirements of the Securities Act of 1933. The application of the Howey test to cryptocurrency may involve considering the specific characteristics and features of the particular cryptocurrency or ICO in question, as well as the broader market and regulatory context in which it operates.

Take some time to do a self-evaluation based on the above thoughts shared. If you have time, you can ask yourself these questions about the tokens you invested. This is a good exercise for self-reference. I am not a lawyer, and none of the written content is formal advice.

“If you are a retail crypto investor- Do your crypto research. Learning about the regulation side of things can help you with your investment decision, avoiding unnecessary issues down the road.

If you are a project and you claim to be decentralized. Please stay decentralized. This will also avoid getting into any regulatory problems.” – Anndy Lian

Source: https://www.securities.io/regulating-cryptocurrencies-are-you-investing-in-securities/

Anndy Lian

www.anndy.com

j j j

May 19th, 2022

UK Investing.com- People Hesitant To Buy Crypto Due to Lack of Knowledge: Study

With over 100 million people globally using cryptocurrencies in 2021, the digital dollar has become a widely accepted way of saving and spending.

A new study, however, points out that the majority of those who have not invested in cryptos are either due to a lack of knowledge, massive fluctuations, or a perception that the digital currencies are a scam.

A study conducted by Coupon Follow also found out that Gen Z says further government regulations and crypto law enforcement is most likely to convince them to buy crypto and one in five people who have never bought crypto have downloaded a crypto exchange app at some point.

Coupon Follow surveyed 1,172 respondents over the age of 18 via SurveyMonkey and respondents were limited to those in the United States who had not yet bought or invested in cryptocurrency.

Gen Z, millennials, Gen X, and baby boomers were all included in the survey, with sample sizes ranging from 172 to 333 for each generation.

Hesitation due to lack of understanding When respondents were asked about their aversion toward purchasing cryptocurrency, 42% said it was because they didn’t understand its value. Meanwhile, 39% were put off by the massive fluctuations in value that have plagued certain cryptocurrencies.

The third most common reason for hesitation was a concern that cryptos as a whole seemed like a scam. This sentiment was most common among baby boomers, 44% of whom selected it as their primary cause for pause.

Surprisingly, 18% of crypto skeptics have downloaded crypto exchange apps onto their phones but never ended up investing in any coins. The biggest reason for this sort of course reversal was a lack of knowledge about how to use the app or the currencies.

Interest Piqued? Crypto investment interest seems to have taken a hit in 2022, with 61% of respondents saying they’re not at all likely to buy in this year. Only 6% of respondents who didn’t currently own crypto said they would be very or extremely likely to do so in the near future.

Looking forward to learning The study results point out that interest in learning more about cryptocurrency is not dead. 6 out of 10 people were at least somewhat willing to learn more about cryptocurrency, even if they weren’t ready to spend money on it.

Experts say educating the masses is the need of the hour and relying on hear-say or sole dependence on the media is not good enough.

Anndy Lian, Thought Leader and Chief Digital Advisor to Mongolian Productivity Organization says people should look at reading online expert opinion articles and blogs where real users share their experiences.”

“This would help them think wider and allow them to make sound decisions on what to do next. Be the changemaker, don’t be the problem. Crypto changes minds and empowers you to think beyond what you have learned in the textbook,” Lian says.

Raj Kapoor, chief Advisor at Acryptoverse, a crypto blockchain and advisory firm, says for years crypto has seemed like the fleeting tech trend most people could safely ignore, however, its power – both economic and cultural – has become too big to overlook.

“The elephant is in the room. Can we kick it out? I don’t think so, so let us learn to dance with the elephant now,” he adds.

Original Source: https://uk.investing.com/news/cryptocurrency-news/people-hesitant-to-buy-crypto-due-to-lack-of-knowledge-study-2651819