Private Market Insights: Focus on Cryptocurrencies and Blockchain
July 24, 2018 | Blog

Private Market Insights: Focus on Cryptocurrencies and Blockchain

As part of our “feet on the street” approach to research, this week we are in Aspen, CO attending Fortune’s Brainstorm Tech Conference. Below are our highlights:

Large tech feeling bullish about Blockchain technology: Blockchain’s truly decentralized nature can improve security and privacy and thus offer a lot of uses to companies. The technology may be immature and unproven but IBM has already developed applications beyond payments and digital currencies, according to Bridget van Kralingen, the company’s senior vice president of global industries, platforms, and Blockchain. While data has become increasingly important, it has become more vulnerable to theft too. Recently, IBM partnered with the government of Australia to protect and secure citizens’ data using Blockchain applications. Australia is also working on pilot projects with IBM to boost efficiencies and reduce costs concerning supply chain management and cross-border trade communication.

Our Take: Near term, we believe investors and large corporations are still looking for real world uses beyond Cryptocurrencies. Widespread adoption of Blockchain will likely come from consumers instead of businesses. But we think the future is bright, especially as large institutions like IBM use the technology, which helps attract more investment and innovation.

Crypto skeptics still waiting for real-world commercial applications: We attended a fairly insightful panel discussion between Crypto skeptics and believers. At a higher level, panelists debated around the practical applications of Cryptocurrencies and Blockchain technology. The general consensus was that Blockchain offers significant potential to improve inefficient markets hobbled by large numbers of people, especially “middlemen” or intermediaries that slow transaction times or increase transaction costs. However, the panelists also agreed that it will be another 24-36 months until we actually see these applications. Crypto experts expect protocols to replace the ERC-20, which has been plagued with some technical problems, could emerge by the end of 2019 and allow developers to start building decentralized apps on these new platforms.

Our Take: Blockchain technology may be immature but companies and people are already putting it to good use beyond payments and digital currencies. While CryptoKitties get a lot of media attention, we believe applications to monetize such virtual collectibles and valuables could give way to tokenization of physical but illiquid assets.

Still unclear regulatory environment, particularly in the United States: At the conference, we heard from investors and entrepreneurs that a patchwork of different regulatory bodies, particularly in jurisdictions outside the United States, are slowly developing a framework to regulate the industry. Adele Faure, assistant general counsel for Robinhood, said federal regulators must protect investors from fraud but not stifle innovation or development of new technology— not an easy balancing act. Furthermore, regulators should create infrastructure that encourages capital formation. Faure cautioned that the recent rhetoric from the Securities and Exchange Commission could prompt innovation to flee the country, hurting U.S. investors and technologists alike.

Our Take: We believe a constructive approach by regulators coupled with better understanding of the crypto technology will help unlock demand from institutional investors, both from the buy side and the sell side. While speculators might attribute the ongoing crypto bear market to the launch of derivatives trading in December last year, we view recent developments at the SEC and the Chicago Board Options Exchange as progress.

Growing ecosystem support for Security Tokens: Several conference attendees expressed optimism about security tokens. Indiegogo founder Slava Rubin believes tokenizing illiquid assets and reducing transaction costs represent a multi-trillion-dollar opportunity. He said recent developments in real estate development projects tokenization demonstrate the potential of security tokens. As the regulatory environment for cryptocurrencies improves, we believe the broader infrastructure to help connect issuers and investors is starting to take shape.

Our Take: We believe that there’s a growing arms race to develop compliant trading solutions among crypto startups. Coincidentally, we think large amounts of institutional money is collecting on the sidelines, as opportunistic crypto investors look to exploit future demand for security tokens.

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CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.

Alejandro Ortiz

Alejandro Ortiz

Alejandro is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Valuation Analyst at Duff & Phelps with a focus on TMT industries.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.