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Bulge-bracket money headed for crypto-currencies

Andrew Keys and Gil Penchina, token and investor veterans, swap notes on how the big money is coming into digital assets – and why.

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Next year will see Wall Street real money move into digital assets, including new tokens from ICOs (initial coin offerings) and existing crypto-currencies such as Bitcoin and Ether, according to a pair of U.S.-based heavy hitters in the digital innovation and investment space.

Speaking to a gathering of Ethereum enthusiasts in Hong Kong, Andrew Keys and Gil Penchina, based in Brooklyn, New York and San Francisco, respectively, swapped stories and insights into what’s attracting money to tokens, and what it means.

DigFin brings you the highlights.

Andrew Keys is co-founder of ConsenSys Capital, a new financial-services group based employing blockchain-based digital assets. He has a background in banking, capital markets and insurance.

Some takeaways from Keys:

  • Wall Street bulge-bracket firms are now preparing huge investments and trading strategies for tokens and crypto currencies. Now that CME has introduced a futures contract for Bitcoin, institutional money will come in, starting in 2018.
  • But this will require Ethereum and other blockchains to scale, so they can handle institutional throughput.
  • From 1996 to 2006, the value of 86% of listed internet companies went to zero. The same will happen to companies in the token economy.
  • But unlike the internet, token apps are being built while the protocols are still being developed – hence the need to see Ethereum become scalable. Developers are working on a variety of technical fixes, including proof of stake, sharding and interoperability among blockchain networks – see DigFin’s primer from a speech by Vitalik Buterin to get more detail on this.
  • The very richest handful of people in the world own as much as the bottom 3.5 billion people because they have secured monopolies on data. They are middlemen at risk from blockchain technology.
  • Ethereum is a mechanism for pricing middlemen, and pricing trust. “Ethereum commoditizes trust.”

Gil Penchina is a serial startup investor, whose investments include LinkedIn, Wealthfront and Paypal.

Some takeaways from Penchina:

  • Large-scale bulge-bracket money will demand governance and control functions by founders issuing tokens. This kind of money will ask for things the general crowd cannot. Some discipline, therefore, is good. But some of it will just be there to pay the lawyers.
  • People are critical that ICOs have now raised $3 billion. But in the mid-1990s, dot.com companies raised $3 billion or more in a quarter through IPOs.
  • Like with internet stocks in the 1990s, if you picked just one to invest in, it would probably fail. But if you put a reasonable amount of money into a basket of ICOs, you’ll probably do okay.
  • When considering investing in an ICO, ask yourself if the token is being created simply to build a new rent-seeking rail for the founders.
  • Blockchain lets us all become producers, not just consumers. Peer-to-peer lets your browser become your I.D., your wallet – your reputation. This is foundational to data self-sovereignty.
  • Blockchain is revolutionary because it removes middlemen – and middlemen do very little. Blockchain makes the world more efficient and reduces costs, in finance and in everything else.
  • The first function being democratized by blockchain is venture capital. But next will be illiquid assets, like a building. People will be able to trade or collateralize their fractional shares of real assets. “This thawing of illiquid assets will create a huge new inclusivity.”
  • Things like securitized loans are good targets to be decentralized, because removing middlemen and obviating the need for parties to trust each other can bring transparency and lower costs to the process.
  • But not everything needs to be decentralized. Not all trusted intermediaries need to be removed. “I trust my PC to deliver my email, and a blockchain alternative would be worse.”
  • Ethereum is like the App Store for everything.

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Bulge-bracket money headed for crypto-currencies