Monthly Archives: July 2017

Unless you've been under a rock, you've likely read a lot about ICOs (initial coin offerings) in the last few weeks. These are offerings by companies starting their own variant of blockchain-based digital currencies.

This year has not only seen the explosion in the price of bitcoin itself but also the second and third most popular cryptocurrencies Ethereum and Ripple.

More interesting, there's been a rise of many additional cryptocurrencies such as Steem, Dash, AntShares and Dogecoin. In fact, if you measure bitcoin's market capitalization as a percentage of the market capitalization for all cryptocurrencies, it's currently at 45.5 percent, down from 94 percent a year ago.

The value of all cryptocurrencies now is $88 billion, which is actually down from $114 billion a few days ago.

New ICOs have raised $500 million so far this year. One community that is showing great interest in becoming part of the trend of launching a new cryptocurrency is start-ups.

Last week, Thai fintech start-up Omise raised $25 million in an ICO to develop a decentralized payment platform. The company had already raised $20 million in traditional VC funding.

Rahul Sood's esports betting company Unikrn is launching its own cryptocurrency called UnikoinGold as the way to place esports bets on its platform. Unikrn has raised $10 million from Mark Cuban, Shari Redstone's Advancit Capital, Elisabeth Murdoch's Freelands Ventures and others.

However, social messaging company Kik has bigger plans for its upcoming ICO. In a recent talk given by Kik founder and CEO Ted Livingston, he explained that Kik saw its ICO of a currency called Kin as a potential alternative exit for them.

Like the Omise and Unikrn examples, Kik has also raised traditional venture capital money more than $120 million, including $50 million from Tencent most recently valuing the company at $1 billion. Kik's ICO will help bring it more money. Kik will sell 10 percent of its Kin currency (half to institutional investors and half to retail investors). Kik will keep 30 percent of Kin and 60 percent of Kin will be overseen by a nonprofit Kin Foundation aimed at making Kin a popular cryptocurrency. That foundation will give away 20 percent of its stock of Kin every year to developers and others who help build out the economy for Kin.

Kin will be used as the currency on the Kik social network for things like emojis, stickers, hosting and participating in group chats, building apps like bots, etc. However, the stated goal is for Kin to also be used as currency outside of the Kik app.

Even if stays confined within the Kik community, Kik has 15 million monthly active users. It's currently ranked in the 60s in terms of popularity on the App Store. That community alone will make the currency among the more popular cryptocurrencies.

But here is what's interesting, Livingston said that, if all goes well, this ICO could be Kik's liquidity event. Up until now, Kik has been thinking it had to translate its popular youthful community chat service into ad dollars in order to make a successful business similar to what Facebook has done. The problem is that Facebook and Google continue to suck up more and more of the ad dollars that are getting spent in the space.

Livingston said in the talk that the penny dropped for him when he saw Snap's S-1 IPO filing in February. Here was a young Facebook competitor seemingly doing everything right and yet still failing in its growth of its ad-based revenue. If Snap was failing, Livingston thought, what hope did Kik have of building a better ad mouse trap?

Yet, he thought, if Kik could develop a cryptocurrency that became a self-sustaining economy and Kik owned a big chunk of that supply limited currency the value of that stake in Kin could end up being more valuable than the potential exit valuation for Kik as an ad-based business in an IPO or through an acquisition. Luckily, one of Kik's earliest investors was Fred Wilson of Union Square Ventures, also a big investor in the cryptocurrency space. He agreed with Ted.

Can you name the fourth most popular cryptocurrency? It's Litecoin and has a market cap of $2.5 billion. If Kin got that kind of valuation and with an established community of 15 million monthly active users, it could be a currency worth more Kik's 30 percent stake in Kin would be worth $750 million, almost equal to the valuation of Kik's last round. If Kin became as valuable as Ripple the third most popular cryptocurrency today Kik's stake would be worth $2.5 billion.

Livingston pointed out that, in this kind of scenario, an exit via M&A or an IPO would be unnecessary for Kik. Its existing backers could simply convert their shares into Kin and liquidate them. Kik could stop trying to win advertiser dollars, if it wanted. It could simply focus on developing the community's use of Kin and helping Kin proliferate outside of the Kik ecosystem.

In this scenario, according to Livingston, "we just step back and watch it continue."

Will it work out this way? Possibly for some lucky start-ups but certainly not for all. The world likely doesn't need 1,000 different cryptocurrencies. The current gold rush mentality with ICOs will probably only get bigger in the months and years to come but will probably also meet the inevitable bust of the dot-com era.

But some cryptocurrencies will endure especially ones with strong use cases and/or communities supporting them. It's intriguing to imagine if some ad-dependent companies like Kik will opt to stop competing with Facebook and Google on a battlefield they can never succeed at and go for an alternative cryptocurrency path to value creation.

Kik is truly breaking new ground with its ICO. It will be intriguing to see if it causes other unicorns to follow its lead.

Commentary by Eric Jackson, sign up for Eric's monthly Tech & Media Email. You can follow Eric on Twitter @ericjackson .

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

Disclosure: CNBC parent NBCUniversal is an investor in Snap

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Why a messaging start-up is making its own digital currency instead of going public - CNBC

The cryptocurrency Cassandras are starting to look right.

The sector has lost about a third of its market value since peaking in early June, pushing it into what traditional equity market analysts label as a bear market. Bitcoin, the largest of the digital currencies, is down about 20 percent from its peak of $3,000, reached June 12. Smaller rivals such as ethereum and ripple are getting hit even harder.

When when we look for signs of excess in the market, I look at bitcoin and to me that looks pretty scary, Richard Turnill, global chief investment strategist at BlackRock Inc., said during a midyear outlook presentation in New York on Tuesday.

Whether the virtual currencies were caught up in an asset-price bubble was debated as the market capitalization of the sector soared this year, raising skepticism from pundits including tech billionaire Mark Cuban. Backers such as Ripple Chief Executive Officer Brad Garlinghouse, whose money-transfer company is tied to the third-largest cryptocurrency by market value, said he isnt convinced.

"I would be surprised if there was a major crash," Garlinghouse said in an interview at Bloombergs New York headquarters Monday. "Could we see digital assets continue to double or triple or quadruple from where we are today? That wouldnt surprise me at all."

Digital coins are currently worth around $80 billion, down from a market capitalization of $100 billion on Friday and $115 billion on June 14, according to data from Coinmarketcap.com.

This weeks slump coincides withinitial hearings in the trial of the former head of Mt. Gox, the bankrupt Japan-based bitcoin exchange that imploded in 2014 after losing hundreds of millions of dollars worth of bitcoin. Chief Executive OfficerMark Karpeles pleaded not guilty in Tokyo on Tuesday to charges of embezzlement and inflating corporate financial accounts.

The turbulence may be far from over, too, as rival bitcoin enthusiasts are set to adopt two competing software updates at the end of July. This has raised the possibility that bitcoin will split in two, an unprecedented event that would send shockwaves through the market.

Read more on the dispute between bitcoin developers

Volatility is nothing new for cryptocurrency buyers, who have faced losses in recent months as exchanges grapple with outages and poor performance, struggling to keep up with the volume surge that has swept the market amid speculation about the potential for widespread adoption of virtual assets and blockchain technology.

"It is easy to look at the appreciation that we have seen this year and conclude that we are witnessing a bubble, said Martin Garcia, vice president of sales and trading at Genesis Global Trading. While I understand that the prices we are seeing now a more than a little frothy, I think that we are in the very early stages of the development of an entirely new asset class."

Read more from our TOPLive Q&A with Martin Garcia

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Cryptocurrencies Are Getting Crushed - Bloomberg

Valuations of cryptocurrencies like Bitcoin, Ethereum, and Ripple have skyrocketed in recent months, with all three of the leading cryptocurrencies making significant gains to market price and market capitalization since the beginning of the year. Ripple has reached a market cap of almost $10 billion and Ethereum's has grown to more than $20 billion in that time period. Prices have grown considerably over the same time span. A recent article by Tech Crunch suggests that these sudden and significant gains may be due in large part to activity taking place in China and Japan.

China has become one of the world's largest hubs for cryptocurrency mining. Huge mining pools have formed thanks to the low costs of hardware and electricity in the Asian nation, and that has prompted China to account for more than 60% of the Bitcoin networks collective hashrate. Still, that position was tempered somewhat early in 2017, when the Chinese government began to crack down on the country's digital currency exchanges. This prompted a suspension of all withdrawals of cryptocurrencies in the country, and the market suffered heavily as it lost a substantial portion of its trading volume at one time. Tech Crunch points out that the government in China moved to change some of its regulatory framework in order to allow withdrawals to resume for certain top exchanges. As this news hit the crypto space in recent weeks, it inspired consumer confidence and may have contributed to a rise in currency values.

Before this year, Japan represented only about 1% of all Bitcoin trading volume. This number has been increased by about six times in recent months, and Japan has begun to account for more than half of all Bitcoin trade volume on some days. Why the sudden increase? When liquidity in China stagnated thanks to government regulations, the market in Japan exploded. With the sudden gains in interest in the Japanese Bitcoin market, the worldwide currency market grew as well.

There may be other reasons China and Japan have contributed to the gains that cryptocurrencies have made in recent months, too. The tight government control over the Chinese yuan may have prompted Bitcoin to become viable as an alternative asset class, with digital currencies becoming viewed as more accessible and less volatile than the fickle yuan. Simultaneously, as the Bank of Japan has used quantitative easing to create low or even negative interest rates, digital currency values in that country have risen, too. As consumers become less confident in the strength of the yen, they have increasingly turned to the decentralized digital space. Add to this the fact that more and more Chinese and Japanese major financial institutions are beginning to accept and adopt cryptocurrencies, and the role that these two countries have played in the industry's recent growth becomes even more pronounced.

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China, Japan are Behind Recent Cryptocurrency Spike - Investopedia

With so many cryptocurrency ICOs taking place right now, something will need to change. It appears the entire cryptocurrency ICO scene is turning into a bit of a joke. Useless tokens are created which offer no real value to users, yet people are still throwing money at them. It is very unsettling.

There arepositive and negative sides to the entire cryptocurrency ICO sector. The positive element comes in the form of giving people a way to raise enough funds to create new products and services. Although not all of these concepts will succeed, using an ICO is the quickest and less cumbersome way of raising the necessary money right now. It creates a slew of new opportunities, which may also be its downfall.

To put this latter part into perspective, one could make the argument a lot of dumb money is poured into cryptocurrency ICOs. Most of these investors do not even take the time to read a projects website or white paper. All they want is instant gratification and see the value of their tokens go up by 1,000% in a week or less. Sustaining such a bubble will not be possible for much longer.

As a result, we now see a lot of prominent ICO tokens decline in value as soon as they hit an exchange. Not because people are selling at a profit, but mainly because these investorshave no patience. In fact, it has become almost cheaper to buy ICO tokens after a Bittrex listing compared to partaking in the ICO itself. Even with lucrative bonuses for early investors, there is no real reason to buy into ICOs right away. Once again, another sign of the cryptocurrency ICO bubble about to pop.

To make matters even worse, we now see people spending money on joke ICOs which offer no inherent value. Some people still believe even vaporware can be turned into something valuable, though this is rarely the case. In fact, anyone can create their own ERC20 tokens in an hour or less and post the smart contract address to the whole world. Regardless of what the tokens may be used for, there will always be people actively investing in these ICOs.

Not too long ago, we touched upon the concept of the Useless Ethereum Token. It was believed this joke ICO would not receive any money whatsoever. Things have turned out quite differently. The projects smart contract address has seen nearly 20,000 transactions since it was revealed to the public. People are actively sending money to it, although no one knows why exactly. Most of these transactions are for 0.01 ETH. However, thousands of those small transactions still add up over time.

The cryptocurrency ICO ecosystem is showing a lot of signs of becoming a bubble. Billions of dollars have been invested in projects with no actual demo or prototype. The code for these projects has never been vetted by third parties in manycases. Lots of people will lose money due to investing in ICOs. Doing your own research when it comes to cryptocurrency ICOs has never been more important than it is today.

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The Rise and Potential Fall of Cryptocurrency ICOs - The Merkle