Crypto Liquidity aggregators in need for institutional trading

liquidity

Liquidity is one of the main attributes of an asset class that deserves an allocation in a retail or institutional portfolio. Clashing indicators that measure liquidity especially for over-the-counter financial assets, are nothing new. Corporate bonds or stock options, for example, are largely traded over the counter; liquidity fluctuates and measures are more than one (e,g, issue size, bid-ask spread, trading block size, price impact from trade, etc).

Naturally, the emerging crypto asset class cannot escape the liquidity conundrum. With this year’s increase in the overall market capitalization and with more than 5,000 tokens now issued on the blockchain ecosystem; we start paying attention. We have already witnessed the first flash crashes on exchanges, like GDAX run by Coinbase, simply because a large order came in that resulted in wild price swings.

On June 21st, 2017 around noon EST: “Within seconds the price of ETH crashed from ~$320 to as low as $0.10. While the price recovered quickly, the rapid price movement caused many traders to experience margin calls or stop loss orders, resulting in potentially severe losses.” Source; Coinbase is reimbursing losses caused by the Ethereum flash crash

 This recent flash crash was caused by a multimillion dollar sell order ETH/USD. Given the crowded pipeline of crypto-hedge funds (see more details in Shapes and colors of the booming US crypto hedge fund space) we expect an increased need for liquidity providers in the crypto asset class. Add on to this, the additional emerging appetite from asset managers (fund managers, family offices, pension funds, governments etc) there is a pressing need to create liquidity pools for institutional trading of cryptos.

I see a significant risk for the crypto asset class because there are too many startups building software and apps to facilitate the evolution of the crypto market, but there won’t be enough liquidity to accommodate the users of these technologies (especially for institutional appetite) once they grow out of the MVP-beta phase. I am worried even more because this pipeline of technology is also congested and we will be flooded with such tech-tools in the next 3-4 quarters.

Crypto Liquidity aggregators in need. The race is on!

Who’s who in the crypto liquidity aggregation space at the institutional level

 To trade large quantities of crypto assets, there are few established businesses:

Cumberland is a US mining company offering two-way markets for institutional size transactions (probably the largest). Genesis Trading and Itbit is based out of NY; Circle Financial, out of Boston (the money transfer company); and Gemini Exchange (the Winklevoss Brothers). Bitcoin Suisse from CryptoValley Switzerland.

The biggest problem institutional clients face is that each exchange operates in isolation and has its own cumbersome agreement requirements.

There is a pipeline to address the problems around the liquidity for crypto-assets, that really needs to be filled up. I have identified the upcoming platform, code-named “Project Omni,” that is being designed to serve as “the first large-scale institutional infrastructure specifically targeted towards crypto assets” from an ex-State Street executive.  The B2Broker who is building liquidity and brokerage software for the crypto space; a broker and a B2B liquidity enabler with a business focus towards the East (from the Arab world all the way to Japan).

Who else did I miss, operating in the crypto institutional space?

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Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Wrap of Week #32: Bitcoin, Fidor, Starling, Revolut, Nesta, Kin, Cleo, Onfido, Tractable, Habito, Aire

 

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Fidor, Starling, and Revolut add Fintech credit and investment products

connect

Digital transformation projects in banking come in all shapes and colors. To grasp the evolving space, I like to think of service providers focused on consumer banking transformation projects and those focused on SME digital projects. In consumer banking, those involved are incumbents or startup digital banks (challenger or neo or other acronyms depending on the region). For SME banking, there are digital spinoffs of banks realizing that technology now allows them to profitably serve small businesses and also standalone startups.

For both of these types, I like to think of service providers that offer Banking as a Service and those offering Cloud based Core banking. Banking as a Service goes with a white label banking license that usually includes KYC, AML, and back office needs; leaving the marketing and customization to the “client” (Solaris and Fidor are two examples). Cloud based core banking service providers don’t offer KYC, AML or a banking license; they are focused on the back-office infrastructure (Mambu and Temenos are two examples).

In this space, most service providers and B2B clients are focused on the deposit part of the banking business. The credit and investment aspect is taking off now.

For me what is more interesting in this space is that it is ideal for all sorts of partnerships.

Re-bundling is happening;

Marketplaces are being launched;

API connectors are being used to integrate deposits, credit, investments!

 

Growth, convergence, innovation!

 

Digital banks integrating credit and investment Fintech products

There are more than one noticeable moves in this direction out of the UK.

FinanceBay is the new marketplace that Fidor Bank in the UK has just launched. I like to think of it as a banking app store or a marketplace that curates relevant fintech partners. The first two fintech partners are Seedrs and NutmegSeedrs will be the first and only equity-crowdfunding “app” on FinanceBay that gives access to such investment opportunities (i.e. equity funding of UK SMEs). To date through Seedrs accredited investors have allocated 200 mil pounds through 500 deals. A touch of Nutmeg will be added soon so that Fidor Bank customers can open fully managed investment portfolios on Nutmeg. According to Business Insider, Nutmeg is the largest UK robo-advisor with £600 million AUM which is more than its competitors, Moneyfarm and Scalable Capital.

In April, UK bank Starling announced an integration with savings and investment app Moneybox, after its earlier partnership with Transferwise.

The foreign exchange app Revolut has launched a partnership with property investment platform Bricklane to offer its clients a tax-efficient way to invest in property, and with Lending Works to offer its clients consumer P2P credit up to 5,000 pounds.

Watch the Fintech startup world, blurring the lines between digital consumer banking and WealthTech, much faster than the established incumbents can. The race is on!

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Wrap of Week #31: Bitcoin cash, Billon, Tezos, Crypto Hedge funds, ZipMoney, Jarvish, Fintech M&A, Steemit, EOS

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Shapes and colors of the booming US crypto hedge fund space

hedge fund

At the end of March, I covered Polychain Capital which caught my attention since Andreessen Horowitz and Union Square Ventures funded them with $10million. In Polychain Capital: A hedge fund investing at the Protocol layer of Web 3.0, I started with the motto: “Today is the slowest day of the rest of our lives”, and just 4 months later Polychain Capital is proof of accelerated growth. They have already accumulated already $200mil in assets under management.

Over the past year, despite the stricter regulatory pre-positioning towards the crypto world (digital “currencies” or “assets” and tokens) in the US, the growth of dedicated hedge funds aiming to capture the boom is stunning. In early July Forbes reported Crypto Boom: 15 New Hedge Funds Want In On 84,000% Returns

“43 projects raised $1.2 billion in initial coin offerings since May 1, according to Nick Tomaino’s The Control, and with stratospheric returns for so many ICOs — 82,000% for Ethereum, 56,000% for IOTA, 44,000% for Stratis, 21,000% for Spectrecoin” excerpt from Forbes.

There is clearly a summer boom in investment vehicles that are only suitable for accredited investors in the US and are deployed a variety of strategies to gain exposure in the booming space.

“From July 1, 2016, the value of bitcoin rallied from $680 inch-close to the $3,000 mark in mid-June and is now trading around the $2,650 mark. This impressive 12-month rally caught the attention of institutional investors who want their piece of the pie in this new high-performing asset class.” excerpt from “How Big Money Investors Will Boost the Price of Bitcoin

There are some investment vehciles taking the buy-and-hold Buffet style approach, that end up in retirement accounts. There are others that are closer to the approach of futures and commodities trading, and could end up in the “alternative” allocation of HNW portfolios, since the 90s alternatives can’t promise anything close to the spectacular returns of the crypto asset class.

There is a mesh of digital currencies of sorts of capitalizations and of tokens of all kinds (utility, or equity or hybrid). And more recently, there are investment companies that are issuing or plan to issue their own token (ICO) that gives exposure and liquidity to various of their fund vehicles.

This is my categorization of the US crypto hedge fund space right now. If I have missed any hedge fund and if the strategy changes in the future, please let us know in the commentary below.

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US crypto hedge fund space – more details

Mestable Capital was founded by Lucas Ryan, Josh Seims and Naval Ravikant, the chief executive officer and cofounder of Angel List, in late 2014 and has $45 million in assets under management.

Crypto Assets Fund (CAF) invests in bitcoinetherzcash, ripple, litecoin and dash. It is the first fund focused on Latin American family offices and is co-founded by former senior manager at Bain, Roberto Ponce Romay. The first tranche has raised $10mil and aims to grow to $50m.

The BKCM Digital Asset Fund is an investment fund for institutional clients that so far has invested in bitcoin, ethereum, litecoin, ripple and Zcash, among others. It strategy is hybrid: Buy-and-hold for about 50% of the tokens, ICOs for 20% and actively managed for the remaining. Investments consist of foundational protocol tokens such as Bitcoin and Ethereum, currencies such as Litecoin, XRP, Zcash and Stellar, plus tokens such as Golem Network Tokens (GNT), Augur’s REP and Siacoin.

Alphabit is a Cayman Islands-based fund with $13 million AUM aiming to raise $300 million and also offer an ICO. Its uses a mix of manual trading, algorithmic trading, and ICO investing. It has so far invested in Ethereum, Ark, Ethereum Classic and PeerCoin, as well as ICOs MetalPay, Blocktix, Matchpool, Aeternity, and Skycoin.

Blockchain Capital is a unique case because it is the first VC that in 2013 started investing on blockchain companies, like Bitnet (sold to Rakuten) and Coinsetter (sold to Kraken). This spring, they raised a third round ($50mil) to invest not only in blockchain startups but also tokens. Then they tokenized $10 mil of this fund, selling BCAP tokens to the public (but only accredited investors in the U.S.).

Auryn Capital will launch this month with a $12.5 million. It will be the holding company for a crypto hedge fund that is actively managed with a mix of technical and fundamental strategies. It will also launch a decentralized exchange, and ICO incubator, and token called Karma (to launch this September).

SuperBloom launched in July with both a $10 million hedge/venture fund as well as an accelerator/investment bank. SuperBloom plans to hold a $30 million pre-ICO crowdsale for the Seed token this month for both accredited and non-accredited investors to fund its accelerator companies. Seed holders can exchange the token for an individual company’s pre-sale token for a 20% discount.

The BlockTower Capital fund, will also launch this month with about $50 million, and uses a mix of strategies: Event trading; new coin listings; “activist” investing in smaller cryptocurrencies and helping them gain traction with developers and on exchanges; and invest in themes such as decentralized file storage.

Coinshares 1 LP is the 2nd fund that Masters’ Global Advisors launched in June with $5 mil. In AUM. It is a Jersey-based fund investing in protocol tokens like Ether, Tezos and EOS. Its first company investment will be in decentralized ticketing platform, Aventus.

Pollinate Capital is a new hedge fund with more than $100mil committed for actively trading digital assets with strategies similar to Long/Short quantitative trading of futures and commodities trading.

Pantera Capital is launching a new hedge fund, Pantera ICO fund, focused on investments solely in tokens that power public blockchain protocols. Pantera was the first US Bitcoin investment firm in 2013.

The founders of Koalah, a mobile app in which players can bet on the outcome of games using bitcoin, launched in July Grasshopper Capital an actively managed cryptofund with $25mil. They are using a mix of fundamentals, event-driven arbitrage trading and algorithmic trading. The fund has so far invested in Ether, Civic, Bitcoin, Singles and Storj.

Efi Pylarinou is a Fintech thought-leader, strategic consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Wrap of Week #30: Abra, SEC, Open, Aigang, PSD2, GDPR, Veristart, ArtByte, SingularDTV

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Fintech and Art – platforms and tokens

Just three months ago I started covering how technology (Who’s Who in Fintech and Art) is transforming the illiquid and non-standardized asset class of Art. The post was inspired by Spiros Margaris the Artist.

I had identified five startups offering more transparency, platforms for provenance or exchanging value; using machine learning or Blockchain technology.

  • Arthena: A machine learning platform that allows us to become a co-owner of a genuine Picasso
  • Artelry: A mobile art discovery platform.
  • MutualArt: a global leading source of art market information and manager of the APT (Artist Pension Trust) collection.
  • Ascribe with a focus on empowering artists.
  • Weifund a blockchain-based equity crowdfunding platform developed by ConsenSys.

A Fintech entrepreneur who is an Artist

Today I am inspired by another Swiss Fintech personality that has also a less known artistic side. Marc Berneggger, is a serial entrepreneur, who wears gracefully and successfully more than one Fintech hat. Before I dive in that part of his activities, I share with you Marc’s Pixel based art which started as he was playing around with his Commodore 64 to create pixel prints. Since then he has designed 3D sculptures of pixel art in square, rectangular and sphere shapes. He has exhibited and evolved as an artist.

Marc is involved in the venture studio Finleap with 12 ventures currently and with a recent fundraising of $21million (bringing to a $121million valuation). He recently joined the board of Falcon Private Bank, a Swiss private bank, who just announced that through their partnership with Bitcoin Suisse their wealthy clients will be able to store and trade bitcoins via their cash holdings with the bank. He is also on the board of the newly announced venture of The CryptoFund, which will be the first FINMA approved diversified investment vehicle for institutional investors to gain exposure in the cryptocurrency space in a simple and compliant way.

Fintech and Art startups

The startups already covered in April using blockchain technology were Ascribe and WeiFund. In June, WeiFund supported the funding of the Braid movie, a psychological thriller, that raised $1.7 million through a token sale that promises to distribute 30% of revenues to the token holders. The shooting of the movie has already started and distribution is planned for the end of 2017.

The progress of this symbolic crowdsale will be watched, as it is the first of its kind. A use case of the decentralized principles for artists tapping into investors directly and in a way (partly) making them into producers. Will this idealistic way of producing movies, where the audience can invest and share profits in movies they care about and want to see, scale? Will the trading, flipping ICO frenzy allow any room for such experiments?

Ascribe has invested in Verisart, a startup that is using the blockchain technology and focusing on authentication of art.

To the list of blockchain based startups, I am adding ArtByte, the digital currency supporting the arts. The cryptocurrency is aiming to monetize artistic content, similar to how Steemit is focused on monetizing broader content.

To the list of decentralized ecosystems creating the future Internet of Value, I am adding SingularDTV who is also building the infrastructure for monetizing the entertainment industry.

“As a tokenized ecosystem within the CODE structure, SingularDTV will be able to operate as a blockchain entertainment studio that is a producer, acquirer, and distributor of content. Its universal and non-regionalized rights, revenue and royalty platform is laying the foundation for a decentralized entertainment industry.” Source: Anatomy of SingularDTV’s CODE (Centrally Organized Distributed Entity) A Decentralization Generator for the Tokenized Ecosystem

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 To the list of platforms focused on transparency and match making, I add Wealth-initiative, a Swiss startup that has launched a platform for wealthy clients to trade 4 asset classes: real estate, art, passion investments and direct equity. For now the platform is a secure marketplace for P2P trading of private clients within institutions. Later the plan is to offer the capabilities across institutions.

We will be watching the competition between the platformification and the tokenization of value exchange in Art.

Efi Pylarinou is a Fintech thought-leader, consultant and investor. Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.