I get questions about Bitcoin and crypto almost every day from investors in First Block Capital or from investors in one of our crypto products. The main question is always my view on price, why did Bitcoin go down so much and what will happen in the future? After writing many emails about it and having many conversation on this topic, I decided to put some of my thoughts here as well.
Markets always overshoot, both on the upside and on the downside. Looking back to what happened a year ago when Bitcoin hit all time highs almost every day around this time, it’s now clear that the Bitcoin price went up way too fast and that it overshot it’s “real” value. What was happening is that because price went up so much demand increased fast, but nobody wanted to sell. That led to an even bigger increase in price, which in turn led to even more demand. This whole carousel stopped when the price hit almost $20,000 and some people started taking profits, meaning the supply went up. This caused the price to go down and some of the latest investors started to panic (they had never seen Bitcoin going down) and started to sell. The market stabilized after a couple of months and for many months the price hovered between $6000 and $8000. News reports about Bitcoin being more stable than Twitter stock came out, but they were a bit too fast.
Over the past couple of weeks Bitcoin saw another huge reduction in price. This happened all of a sudden and not many people had expected this (I for sure had not seen this coming). The main reason seems to have been the hard fork in Bitcoin Cash. I have never been a fan of Bitcoin Cash (BCH), mainly because of the scammers and criminals behind it and because of how they have been trying to destroy Bitcoin itself. The group behind BCH got into a disagreement about what the future of the coin should look like and that led to a split (a hard fork that split BCH into 2 different coins). Normally a hard fork pretty quickly has a winner and a loser, but because both parties behind the coins had tons of money they both invested crazy amounts o money in mining these coins to make their coin the winner. I think that what happened is that in order to finance this race, they had to sell their Bitcoin. This led to an increase in supply while demand was very stable, with a huge drop in prices as a result. That caused a panic among people that still held their Bitcoin and believed it would never go below $6000 (“Bitcoin might go to zero!”) so a whole wave of new selling occurred, causing Bitcoin to drop even further.
What we are seeing now is another example of the market overshooting its target, but now on the downside. My gut feeling tells me that Bitcoin would be fairly priced in the $12,000-$15,000 range right now (which would be more in line with prices that most miners could profitably mine at), but in reality the price is in the $3000-4000 range. It’s once again supply and demand: a year ago everybody wanted to buy and not many people wanting to sell, now it’s a lot of people trying to sell their coins while there is not a lot of demand. I believe today’s prices are a great entry point if you are new investor or a good way to get a lower average price of your coins. Sure, Bitcoin could go down even more, especially with people selling for tax purposes (losses that can offset capital gains), but I don’t see it going much lower anymore.
I am actually surprised prices are so low, even though with hindsight I can explain why it happened. But I also know this bear market won’t last forever, simply because too much is happening in the space. Earlier this year I publicly said that I expected the Bitcoin price to be in the $20,000-$30,000 range by the end of 2018. This prediction was based on institutional capital coming into the market. That has not materialized yet, simply because it took much longer to get products and services approved. For example, a Bitcoin ETF has still not been approved by the SEC, despite many reputable companies filing to launch one. It will happen eventually (put February 27, 2019 in your calendar, by then there will be a final decision on the Van Eck ETF, the most promising candidate to be approved), and once it happens it may be a catalyst for a new bull run. But also other institutional products took a lot longer to get to market, for example institutional custodians and institutional exchanges. But that is all changing, with Goldman Sachs investing in BitGo and Fidelity launching a crypto custody product. Also a Bitcoin settled future will have a big impact (BAKKT will launch this in late January 2019), because in order to settle the transaction physical Bitcoins have to be bought (so far all Bitcoin futures were cash settled), meaning increased demand for coins. Once these products are live it will be a matter of time. None of the institutions wants to be first, but once one or two announce that they invest in crypto the others will follow. Nobody wants to be last either, so everybody aims to be a fast follower. When will this happen? Nobody can tell, but given the time frame when these products will be live I think prices a year from now may be significantly higher.
My long term view on Bitcoin has not changed at all. I still believe that Bitcoin might eventually be worth hundred of thousands of dollars per coin. My views on this are even stronger now than a year ago, partly because of new developments in the space (things like Lightning Network that will make Bitcoin a currency with lightning fast transactions at almost zero cost) and partly because I have changed my view on Altcoins significantly. A year ago I still believed we would have a world with hundreds of altcoins that could all be very valuable. Now I believe we will end up with maybe 10-20 valuable altcoins, while the rest may go to zero. Only the altcoins with strong teams and with properties that other coins don’t have will survive. Several of the top 10 coins may not survive, even the number 2 coin (XRP) will likely disappear once the SEC determines it is a security. I am also not that worried about forks anymore. Bitcoin has proven many times that it can survive hard forks, and the current slow death spiral of Bitcoin Cash is another example of this. The increase in Bitcoin dominance (the Bitcoin market cap as a percentage of the total crypto market cap) to over 50% shows this as well.
The current bear market reminds me of the dot com boom and bust in the early 2000s. At that time the media predicted the end of the Internet and that e-commence would never work. But guess what, 18 years later the most valuable companies in the world are the tech companies that nobody believed in anymore. Amazon went down from close to $100 to $6 during the dot com bust, Bitcoin is actually doing relatively well compared to that decline. This year Amazon hit $2000, over 20 times its all time high during the dot com boom and over 300 times the value during the bust. Assuming Bitcoin is the next Amazon a 20X at its all time high would be a price of $400,000 and a 300X based on the current price would be more than $1 million per Bitcoin. Don’t give up on Bitcoin yet!
Now that Bitcoin is in a bear market it’s a good opportunity to work on new business opportunities in the crypto space. Once the next bull run starts the emphasis will be mainly on price again and it will be harder to focus on building out new ideas. One of the things we are focusing on at First Block Capital is the Lightning Network, a second layer solution on top of the Bitcoin blockchain (and several other blockchains) that will lead to super fast and super cheap transactions. Basically Lightning makes Bitcoin the perfect payment method. There are still a lot of hurdles to overcome before we are there but I am confident the teams working on it will get there.
I was relatively late to the Bitcoin game (I first started investing in early 2013), but I was early to the Lightning Network. Last year I invested a small amount in Lightning Labs‘ seed round (through AngelList) and have been closely following the technology since. After the initial beta for developers earlier this year I started looking for business models on top of Lightning (Lightning Apps (Lapps), basically 3rd layer solutions on top of a blockchain) but also realized we needed to set up a Lightning node at First Block.
We did set up a node and quickly became the 6th most connected node on the Lightning Network with over 200 open channels. This sounds easier than it is, the Lightning network is still very user unfriendly and opening up channels is a time consuming manual process. At one point we actually lost half of our channels and our in-house Lightning expert Chang Li had to set them up all over again.
However, the return on investment is huge. By trying and breaking things we learn a lot about Lightning, information that is not available online yet, and I believe we now know more about Lightning than most other companies in the crypto space. But even better, we also make money with it! I had seen theoretical models that predicted that well connected nodes can earn 60-80% per year in Bitcoin on the funds in its channels, but I thought that would only be the case once Lightning would be more mature.
Turns out I was wrong. After many of our channels had crashed Chang added up the money in our node to see if we lost anything and it turned out we had made about $125 in just one week on an investment of $2000 (spread over 200 channels). That is over 5% per week! We paid about $60 in transaction fees to set up all the nodes, so basically we earned that back in 3-4 days and all returns after that are profit (not taking the time to set up the nodes into account nor the cost of the server). We can always close our channels and get our $2000 investment back, plus all the fees we earned.
The ‘problem’ is that we don’t know how we made this money. Lightning is so new that you can’t easily see which (or even how many) transactions went through your node and how much you made per transaction. Our thinking is that Satoshi’s Place (an interesting Lightning ‘game’ based on the million dollar homepage) led to a large number of transactions through our node, but we don’t know for sure. We are now looking at how we can best record the number of transactions and the average fee per transaction (we believe gathering and analyzing Lightning data may be another angle to earn money).
We have a lot more ideas for Lightning that we may work on. My personal opinion is that if Lightning should take off it will change the Internet as we know it. Not only will Bitcoin go sky high, but it will likely change the business model of most of the top Internet companies. I believe the next generation of multi-billion dollar companies may be based on Lightning and now is the time to start thinking about them and build (or fund) them.
Because all my businesses are directly or indirectly related to Bitcoin I get questions about the Bitcoin price almost every single day. I probably spend about 20 hours per week reading about cryptocurrencies, blockchain applications, and ICOs. I enjoy talking about it, but most people seem to be mainly interested in the price of Bitcoin and my opinion on the major alt coins.
Bitcoin is extremely volatile and that makes it interesting, at least for me. Having an asset that goes up 1500% in a year and then down 70% within a few months is not for the faint of heart. Understanding why that happens, or at least trying to understand the fundamentals behind Bitcoin, makes it a lot easier not to worry if prices go down a lot.
As most people that follow me on social media know I am extremely bullish about the crypto sector, and especially about Bitcoin. After being overvalued in late 2017 I now believe that Bitcoin is very much undervalued at its current price level. It’s hard to predict short term Bitcoin prices (say over the next 3 months), but long term it’s much easier. I strongly believe that we will see new all time highs, but whether that’s in a couple of months or still 9-12 months from now is much harder to predict.
The main reason why I am so bullish is because I see signs everywhere that the big institutional players (hedge funds and banks like Goldman Sachs) are ready to enter the market. Many of their traders already hold small positions themselves, but the banks are waiting for institutional exchanges and institutional custodians. This will happen over the next couple of months. For one I am involved in one of these exchanges (can’t say more than that right now) and some of the leading players are working on custody solutions themselves (e.g. State Street is rumoured to launch a crypto custody solution this summer).
I believe Bitcoin will lead the way, simply because it’s the most liquid and most secure crypto asset out there. But if you are a trader there are many opportunities in the top 10-15 alt coins as well. Our company First Block Capital has a trading team that trades 24/7 in the major coins and they are making outsized returns. The team does not trade for external investors yet, but they are in the process of setting up a Cayman hedge fund for this.
Another reason why I am so bullish about Bitcoin is because of the Lightning Network. This is a second layer solution on top of the Bitcoin blockchain (and on top of some other blockchains like Litecoin) that will allow for lightning fast transactions for extremely low fees. The Lightning Network has the potential to completely disrupt the payment industry (bye bye credit cards!). Lightning launched a couple of months ago in beta and is growing fast. It is still very hard to use and quite unstable, but the potential is amazing.
First Block Capital has its own Lightning node and we are currently the 6th most connected Lightning node on the Internet. We are also working on payment solutions (3rd layer solutions) using Lightning. It’s fascinating to see what’s happening here and it makes you realize the potential of Bitcoin. We still don’t know if Lightning will see massive adoption, but if it does Bitcoin might go into the hundreds of thousands of dollars per coin.
The current slump in prices is mainly due to the fact that retail has left the market. Most retail investors don’t really understand crypto and just follow the hype. Many got burned badly by buying at inflated prices in Q4 last year and are now worried that Bitcoin may go to zero. To me it’s obvious that won’t happen, but if you only follow mainstream media it’s understandable that people get worried and sell. After the FOMO (“Fear Of Missing Out”) during the bull market people now have the “fear of losing it all”.
That’s one reason why Asia is not driving the market anymore. Korean markets used to make great arbitrage opportunities with Bitcoin prices that were much higher than the ones on Western exchanges, but that is over. It may come back though once the next bull run gets started. Whales are slowly getting back into the market and I think the probability of prices going up is much higher than of prices going down.
There is still a lot price manipulation going on, both in alt coins and in Bitcoin. You can easily see that in the price charts, for example Bitcoin often goes up or down by $100 or more within minutes. But that will change when liquidity goes up again and also because the regulators are taking a closer look at price manipulation.
I tend to stay away from most alt coins, because there are so many scams. There are a few exceptions, especially in some of the large cap coins that have fallen more than Bitcoin. But also a few selected coins with smaller market caps and with great development teams behind them are bargains right now (especially Emercoin ($EMC) is a coin that’s undervalued and has a great potential).
I do not invest in many ICOs, most are still overvalued or are simply get-rich-quick-schemes with inexperienced teams. That may change though, especially when valuations come down and when regulated security tokens will become more widespread. I do believe security tokens are the future of financing companies or projects publicly, it will just take a bit longer before we will get there.
So in general I am still very positive about crypto. I have been a HODLer for the past couple of months but think this is the right moment to start investing (again), especially in Bitcoin and in some large cap coins. Do your homework before you put money into crypto though, it’s still a Wild West out there and it’s easy to get scammed.
I have not updated this blog in several months. The main reason is that I have been extremely busy building up several new companies in the crypto space (among others FirstCoin.com, First Block Capital, and Hut 8 Mining). I had to cut my time commitment to other things and my blog was one of the first things I decided cut out. I will not close this blog down but it is unlikely I will soon start blogging more regularly. I still use Twitter (@chijs) and Facebook a lot, and my daily life and crypto & business ideas are all on there.
The reason I now post is because of an interview I did last week and that was published on Medium (see below for the full text). It gives a good overview of what I have been working on for the past 12 months and what Sean Clark and I achieved during that time period. My life has literally changed completely since Sean and I teamed up, and over the past year almost everything we touched seemed to have turned into gold. Almost scary because you know this likely won’t last forever. On the other hand, the more successful we are the easier it is to build new companies and to raise substantial capital for them. As Sean and I say almost every day: Living the dream!
Interview With CryptoCurrency Distinguished Thought Leader — Marc van der Chijs
I had the pleasure of interviewingMarc van der Chijs, a founder of several companies in the blockchain and crypto-industry. Among others, Marc founded crypto asset management company, First Block Capital, ICO investment bank FirstCoin.com and Hut 8 Mining, the largest Bitcoin mining company in North America.
Gene: Thank you so much for taking the time to speak with me. Please give us a brief overview of your background and how you got started in this industry Before I became active in Bitcoin I was an entrepreneur in China for 13 years. Among others I co-founded Tudou.com that grew into the leading online video site in China. That allowed me to retire to Vancouver when I turned 40. Right after moving to Canada the Cyprus banking crisis started and I happened to be involved in a company there which bank account got frozen. That led me to do research on how the global financial system really works, because I did not understand how a bank can stop you from taking your own money out of your account. I quickly learned that money in a bank account is actually not your money, but that it’s an asset of the bank. I started looking for alternatives and then came across Bitcoin in early 2013. At first I dismissed it as a pure libertarian idea but after a couple of weeks it suddenly hit me. It was on a Friday night when I suddenly realized that Bitcoin was more than a potential global currency because of the underlying blockchain technology. I got so excited that I literally spent the whole night reading up on the technology. At that point hardly anybody knew what Bitcoin was and even less people talked about the blockchain. It seemed not many grasped the potential of a distributed immutable ledger yet, but when I saw the opportunity it changed my world. I then started investing in Bitcoin and in blockchain companies, and started to travel to conferences all over the world to learn more and become part of the community.
Gene: Can you please tell us more about what your company does? I love learning about advancements in the crypto space, so please feel free to geek out with me on this. My most important company in the space is First Block Capital, the only fully regulated investment company in the cryptocurrency space in Canada. We are the only company that can run crypto funds, such as our FBC Bitcoin Investment Trust and our upcoming Bitcoin ETF. First Block also invests in ICOs, altcoins and it incubates new blockchain companies. One of the companies we started was FirstCoin.com, an ICO investment bank. We just sold this company to Wall Street hedge fund billionaire Mike Novogratz, and it’s now part of his company Galaxy. Another company I founded is Hut 8 Mining, which has grown into the largest Bitcoin mining company in North America within a few months. By the end of 2018 we will have 200 MW of mining capacity in North America. We are currently in the process of listing the company on the Toronto Stock Exchange, in the latest pre-listing round it was already valued at over $500 million. For 2018 I have plans to start and list at least 2 other companies in this space.
Gene: Who are your competitors in this space? What makes your company stand out? There is no other company doing what we do, we are building a conglomerate of crypto companies that create synergies for the other companies. There are of course several other crypto asset management companies and crypto funds, for example Mike Novogratz’ Galaxy Digital. But none of these competitors actively incubates start-ups or is fully licensed in Canada. For Bitcoin mining we have many competitors, but none of them is as big or as well capitalized as we are. We have the advantage that we work very closely with GMP Capital, the leading investment bank in the crypto space in Canada. GMP has a very strong team that is involved in all of the big deals in Canada and their CEO Harris Fricker is one of the few people in the financial industry who completely understands the blockchain space. Having strong financiers that have full trust in us is what really makes us stand out from the competition.
What sort of traction have you guys gotten so far? Are you a well known brand? Still in the startup stage? Or somewhere in the middle? Without trying to brag, our traction has been faster than any other start-up I have ever been involved in, especially for the companies that we incubate. FirstCoin.com for example was acquired for tens of millions of dollars within 4 months after starting it. Hut 8 Mining is on track to become the fastest billion dollar company in the world. We are not doing any real marketing for our businesses and focus on strategy and execution. My business partner Sean Clark and I have been working 100-hour weeks for the past 12 months and are literally on a plane 5 days a week. It’s super exciting to see that everything we do seems to turn into gold, but it’s also a bit scary. Our biggest problem now is to find good people to lead our new companies, we just don’t have the time to do that ourselves anymore.
Gene: What is the most innovative project that you have ever worked on?I don’t have a most innovative project, but I would say that the ‘reverse take-over’ structure that we use to quickly raise lots of capital for blockchain companies is the biggest innovation we bring to the sector. What this means is that we start a company, capitalize it ourselves, grow it as fast as possible and then take it public by merging it with a listed company on the Toronto Stock Exchange. That has allowed us to become the leaders in this space, simply becausewe could raise capital extremely fast.
What are some up and coming coins that we should keep on our radar?My favorite below-the-radar coin is Emercoin (EMC). It’s a coin that has been around for 4 years already with a very strong development team. They are not just a whitepaper with some ideas but they have built all technology already. We look at a lot of coins and this one really stands out. First Block Capital and Bitfury invested in the team a few weeks ago and will help with marketing and business development for them. I believe this coin has the potential to get into the top 20 of coins this year (it just got into the top 100 in mid January). I am also a fan of Decred, a coin that has seen good growth over the past year. Other ones that will keep on doing well this year are Dash, Zcash and Monera. Of course anybody should also hold some Ethereum and Ethereum Classic. Keep an eye on Ravencoin as well, you can’t buy it yet but if it becomes available it might be an interesting investment.
Gene: What is your opinion on bitcoin? Is it still a good investment? I am still a big believer in Bitcoin, simply because the Bitcoin blockchain is the best blockchain in the world. We are seeing a transition from physical data to digital data and the best and most secure way to store digital data is the Bitcoin blockchain. It’s not the fastest or cheapest blockchain, but nothing comes close in terms of security. That is what give Bitcoin its real value and that’s what makes Bitcoin stand out. Next to that I believe that the Lightning Network, a second layer solution that allows ultrafast and very cheap Bitcoin transactions, will be a game changer. It will go live over the next couple of months and will likely lead to an explosion in Bitcoin prices. I believe the Bitcoin price will hit $150,000 within the next 3 years, so it’s still one of the best investments you could do.
What sort of regulations do you think we can expect to see in 2018? How will it impact the industry? Governments will try to create their own fiat-based cryptocurrencies, so they will make it harder to use Bitcoin and altcoins. I think this might ultimately be a good thing, because fiat-based crypto will make the general public more aware of crypto and people will eventually realize that Bitcoin is far superior to government-owned currencies. I expect central banks all over the world to work together to try to slow down the growth of Bitcoin, but they will ultimately fail. The thing is that they can’t ban Bitcoin, because it is a peer to peer currency. That means you don’t need the traditional financial rails to transact, but anybody can buy and sell without the government knowing about it. Next to that there will always be some countries that will fully embrace Bitcoin. As long as one country will support it Bitcoin can’t be stopped anymore. In practice I believe even governments don’t want to stop Bitcoin anymore, they just want to control it. They see the value the Bitcoin blockchain has and how it will change the world. Stopping that would not be in their best interest.
Gene: Who is your hero (In your business or personal life)? How have they inspired you to become the person you are today. I have had a few business heroes over the years. One of them was Steve Jobs, I admired him for the way he built Apple into what it is today. He was a true visionary and for a long time I aspired to be like him. However, once I met him in real life during negotiations in his office my view of him changed completely. He may have been an amazing manager, he was not a nice person. I guess you can’t be both, but after meeting him I decided that I would never be the negative person that he was. My real hero now is Elon Musk, what he has achieved in the past years is astounding. He is not only a true visionary but he also executes almost flawlessly. He envisions what the future will look like, creates companies around that and builds them into the biggest and most disruptive ones in the world. He is super smart and is probably the most dangerous competitor in any industry that he enters. In a way I am glad he is not in crypto yet!
Gene: If you could jump into a time machine, go back in time, and change one aspect of your past, what would it be, and why? You know, I don’t think I would change anything. Of course there are a few regrets, things like relationships that did not work out because of me not focusing on them, or not executing faster on a business idea, but in general I am pretty happy how my life has evolved. The past has made me into who I am now and I don’t think I would want to be a different person.
Gene: How will the work your team is doing impact humanity in the future? For example, bringing people closer together, creating more jobs, create killer robots that will destroy all of humanity (joking), etc. I believe we are building the foundation of the biggest industry of the future, we are building the infrastructure that is needed to run the crypto industry. We are funding companies that we believe will change the world, or if we can’t find these companies we create them ourselves. Take for example Bitcoin mining, it is my strong belief that this might eventually become the most important industry in the world. What the oil companies and the banks are now is what the crypto mining companies will be in the future. Most people don’t see that yet. In order to be a leader in that space you have to think big, because only scale leads to efficiency. You need to innovate constantly to stay ahead of the competition and you can only do that with sufficient scale and capital. The blockchain will change the world and we will power that.
Gene: Throughout our careers, we have all run into a few roadblocks. Can you please tell us about a time that you failed? How did you motivate yourself to keep going? Like every serial entrepreneur I have had a couple of failures in my life, one of them was when I co-founded online fashion company UnitedStyles back in 2011 in Shanghai. The company allowed people to design their own fashion and we would make it for them on-demand using 3D modeling and inkjet printing techniques. The idea was great but we were far ahead of our time. It was hard to raise money for it because investors did not understand our vision. In the end we decided to stop the company. It was painful because we had a great team and put a lot of personal money in it, but in the end you have to bite the bullet. I also realized that fashion was not really my passion and that I should focus on industries that are closer to my heart.
Gene: What are a your 5 tips that you would give to an inexperienced investor? Why? As an investor I have a couple of rules of thumb that I always try to follow:
1. Invest only in experienced teams, success with first time entrepreneurs is much less likely
2. Invest in teams that are passionate about what they are working on
3. Don’t invest at crazy valuations, not even for the best teams. Chances that you’ll make your money back are much smaller because too much money generally leads to less success. That’s one reason why I pass on most ICOs that I come across, a start-up with 20 millions in the bank is often doomed to fail.
4. Make sure the team has a strategic advantage (a ’secret sauce’) that sets them apart from the competition. That can be a better network, more experience or simply an innovation that is hard to copy.
5. Never put all your eggs in one basket and start investing small amounts at low valuations and add more in later rounds. Or in the case of a coin: buy early and keep buying more when it keeps on going up.
Gene: If you could spend one day with any person (alive or not), who would it be any why? That’s an easy one, I’d love to spend a day with Elon Musk to understand how he manages his time, his companies and his private life. I’d like to learn how he keeps up with all the latest technologies (I spend at least 3 hours per day reading, he does not have time for that) and how he makes time for his kids despite his stressful business life.
Over the past couple of months Sean and I worked extremely hard to become the first fully regulated cryptocurrency investment fund and we pulled it off together with Jason Brooks and his legal team at BLG! The British Columbia Securities Commission granted our company First Block Capital its license and called it a landmark registration in a press release earlier today. Super happy with the result.
This week we will launch the FBC Bitcoin Trust, our first product that we will roll out globally to institutional & accredited investors. Next week our roadshow will start, looking forward to getting the financial world into Bitcoin!
B.C. Securities Commission grants landmark bitcoin investment fund manager registration
VANCOUVER, BRITISH COLUMBIA–(Marketwired – Sept. 6, 2017) – The British Columbia Securities Commission (BCSC) today announced the first registration of an investment fund manager in Canada solely dedicated to cryptocurrency investments. The BCSC has granted First Block Capital Inc. registration as an investment fund manager and an exempt market dealer in order to operate a bitcoin investment fund.
“Cryptocurrency investments are a new and novel form of investing in Canada. We have seen from the market and from investors that there is a strong appetite for access to these kinds of investments,” said Zach Masum, Manager, Legal Services, Capital Markets Regulation, and leader of the BCSC’s Tech Team. “This first registration allows access to bitcoin investments, while providing the BCSC with unique mechanisms to monitor operations in a rapidly developing area.”
Cryptocurrency investments raise risks that are different from traditional asset classes, including the cybersecurity risks inherent in dealing with digital currencies. These risks relate not only to the registrant, but also to the bitcoin fund’s custodian, a third party chosen to facilitate the safekeeping and exchange of bitcoins.
The conditions of registration imposed on First Block Capital were crafted to give flexibility to allow them to operate under the present regulatory framework, and give tools to the BCSC to evaluate the identified risks of this innovative fund type. First Block Capital is also now registered as an investment fund manager and exempt market dealer in Ontario; the BCSC is its principal regulator.
“We strongly encourage other companies in British Columbia, whether they are potential new registrants or existing investment fund managers, to contact the BCSC’s Tech Team if they are considering pursuing cryptocurrency investments in their funds,” said Masum. “The Tech Team can help ensure compliance with securities regulation, which can help save time and potential costs later on.”
The BCSC launched the Tech Team in January 2017 as part of its fintech outreach initiative to help B.C.-based fintech and technology companies understand their securities regulatory requirements. The Tech Team is also actively involved with the Canadian Securities Administrators’ Regulatory Sandbox Initiative, which supports fintech businesses seeking to offer innovative products, services and applications in Canada.
The Tech Team will continue engaging with key stakeholders, and anticipates issuing a publication later this year summarizing results of its outreach and proposing next steps to meet the needs of B.C. financial technology industry participants.
The British Columbia Securities Commission is the independent provincial government agency responsible for regulating capital markets in British Columbia through the administration of the Securities Act. Our mission is to protect and promote the public interest by fostering:
A securities market that is fair and warrants public confidence
A dynamic and competitive securities industry that provides investment opportunities and access to capital
As most of you know I am a big believer in Bitcoin and I have been for years. I invested in Bitcoin, I invested in Bitcoin companies, I speak at Bitcoin and blockchain conferences, and I founded and run a blockchain company. One thing I realized over the years is that buying Bitcoin and keeping it safe is still a major hurdle for investors. Experienced “Bitcoiners” may think it’s easy, but if you have never bought coins and you need to transfer money to an exchange and then set up a wallet, it can be a daunting task. If you invest a significant amount of money you want to make sure the bitcoins are safe and you may worry about getting hacked. So many people asked me about how to buy Bitcoin that last year I decided to solve this problem.
The idea Tom Kineshanko and I came up with was to launch a trust that would issue units that represent part of a bitcoin. People can buy these units, so effectively they buy small parts of a Bitcoin without having to physically buy Bitcoin themselves and without having to worry about being hacked. It’s comparable to buying shares in a private company, although in this case the company is Bitcoin and the shares are relatively liquid.
In order to get this started we teamed up with super-entrepreneur Sean Clark, who is among others the former Co-Founder of Shoes.com. Together we founded First Block Capital earlier this year and raised $700,000 for it in one week (probably a record for a start-up in Vancouver). FBC is the management company that will eventually run several funds, including a cryptocurrency hedge fund that will be managed by Tom, and the first vehicle we started was a Bitcoin trust.
Sean and I launched the the Canadian Bitcoin Trust in June to accredited investors, with a minimum investment of $1 million per investor. But our aim was to open it for retail investors as well. That was easier said than done, because you need licenses to sell to the general public – which is a good thing in my opinion, there have been too many scams and pump & dumps in Canada. So we applied for these licenses but it will take at least a few more months to get these and we wanted to be the first to launch a product like this to the retail sector in Canada.
We managed to become the first by partnering with FrontFundr, an equity crowdfunding platform based out of Vancouver. I am a shareholder in FrontFundr and I am on their Investment Committee, so I knew they had these licenses already and that we could potentially work with them if we would prepare a so-called Offering Memorandum. Together with our law firm (Borden Ladner Gervais, BLG) we worked crazy hours over the past couple of weeks to get this done and this week we got the green light to put our offering online. Having the best law firm was not cheap, but BLG helped us to navigate the many hurdles and potential roadblocks, and they were fully committed to help us to launch as soon as possible. I am very impressed with their work, especially after having worked with many other top law firms over the past decade.
We are now officially the first investment vehicle (in Canada) that allows eligible investors to own bitcoin through owning units of a trust. We know a couple of other firms are working on similar ideas and one even tried to launch yesterday as well – too bad they didn’t know we already launched a month ago without mentioning it in the press. We have big plans for the future of the Canadian Bitcoin Trust, but I can’t write about it here until we have our licenses.
If you’re interested to own some Bitcoin you can go to our campaign on FrontFundr and invest on the site. The minimum investment amount is CAN$500, there is no maximum amount. Except for US citizens we should be able to accept investors from most countries in the world, as long as you are able to invest in Canadian Dollar (so Chinese who want to invest would have to get C$ first). If you are an accredited investor who wants to put in at least $1 million please get in touch with me directly. The press release for our launch is here.
Note: This is not investment advice! Bitcoin is very risky and investing in the Canadian Bitcoin Trust could mean losing all your money. Please read the Offering Memorandum that we published on FrontFundr site before making any investment decisions.
Over the past couple of months the Bitcoin price exploded, from around $1000 in early January to almost $3000 earlier this week. The price increase not only leads to more people being aware of the cryptocurrency, but also to mainstream financial media taking it more serious. This morning I was very surprised to see that the Wall Street Journal casually mentioned on its front page the four asses classes stocks, bonds, gold and bitcoin! That is huge, as far as I know that has never happened before. Bitcoin has come a long way, happy to see it’s becoming a lot more mainstream.
Going to the Business & Finance section of today’s WSJ, my surprise got even bigger when I saw the title of the main article on the front page of that section “Bitcoin Trades Full Speed Ahead”. Wow… For years I have told people why Bitcoin won’t go away, why it is so valuable, and why people should invest 5% of their net assets in it. For years most people did not want to listen, but at least the ones that listened made incredible money on their bitcoin investments. And then all of a sudden the WJS puts bitcoin in the same league as stocks, bonds, and gold! This really made my day.
By the way, I still believe bitcoin is undervalued and the bitcoin price will go up a lot more. If you follow my Twitter feed this is no news to you, I have been telling people for years to keep buying bitcoin and also told them to buy Ethereum and Ethereum Classic in early February (people who did that made $15,000-$20,000 for every $1000 they invested – in just 4 months).
But what will happen to the bitcoin price now that it’s at almost $3000? Is this a bubble? I wrote an article about this earlier this week to the investors in First Block Capital, the management company that runs several bitcoin and altcoin funds. I copy/paste the article below with some small changes to avoid that this is seen as marketing for our own funds (it is not of course, it is my personal opinion that anybody can agree or disagree with).
Since we closed our investment round in late April the cryptomarket suddenly went into exponential growth mode. Bitcoin grew from $1360 in late April to about $2700 in late May, before bouncing back to about $2000 and then growing back to $2900 at the time of writing (June 5). Altcoins have seen even stronger growth, with not only the smallcap coins but even some of the larger coins such as Ripple, Ethereum, and Ethereum Classic exploding in value. Daily price increases of 30-50% were not uncommon for some of these coins during this period.
What is behind this trend, specifically for Bitcoin? Is it a bubble? Yes and no, growth rates of consistently more than 10% per day are highly unusual and normally a clear sign of a bubble. That’s why I was quite happy to see Bitcoin go down 25% in 2 days around May 25. After this cooling off period slower growth started immediately, showing that nobody had lost appetite in Bitcoin yet. After about a week the price was back at $2500 and then over the past 2 days the price started increasing with about 10% per day.
The reason for the fast growth is simply supply and demand. The bitcoin supply is fixed at 21 million coins, and currently about 16.4 million coins have been mined. The rate of growth in coins is decreasing and only 4.6 million more will ever be created. At the same time more people hear about Bitcoin. People who may have dismissed it a few years ago are surprised Bitcoin is still around and growing faster than ever. Suddenly they realize they may have been wrong all along or they may still not get it, but want to at least hedge their bets. So they want to own a Bitcoin themselves. When not enough new coins are created and nobody is selling (most Bitcoin holders are so called HODLers – they “Hold On for Dear Life” in the Bitcoin rollercoaster) the price will automatically go up until someone feels enticed to sell.
And what happens if the price goes up? More people hear about it and want to own a coin as well, leading to even faster growth. This is what happened in May and what will happen very soon again. There are just not enough coins available and demand is going through the roof. Bitcoin exchange Coinbase added 400,000 users just in May this year. The average waiting time to get approved by an exchange is up to 3-4 weeks for most exchanges. All these people will talk to their friends after they made 20% profit in just a few days, and then some of their friends will want to get into the game as well.
A bubble, yes, but not an unsustainable one. Look in your direct circle of friends or family, likely most of you will not have more than 2 or 3 good friends or family members that hold Bitcoin. That means most people you know have not even thought about buying coins, let alone really bought them. That’s not the sign of a bubble. Institutional money is not even in the game yet, simply because most funds can’t invest directly in Bitcoin (we are working on solving that!). Or think about it this way, the US has about 11 million millionaires. If all of them wanted to have just one Bitcoin that would be impossible. There are only 4.6 million coins left, prices would likely have to go into the hundreds of thousands of dollars per coin to convince enough people to sell.
Some people may say that Bitcoin prices of $2500 are crazy, but I don’t agree. I have been in the market since prices were below $100 and each time the price hit a new psychological hurdle people said that Bitcoin was overpriced. At those lower prices I was never fully convinced whether Bitcoin would make it and whether the prices reflected the real value of Bitcoin. But the longer Bitcoin survived, the more I realized how resilient it is. Now that the public is finally waking up to Bitcoin I believe the currency is suddenly very undervalued. I have seen the fast growth from $100 to $1000, I have seen the crash from $1000 to $200, followed by the slow growth back to $1000. I have then seen the fast growth from $1000 to 3000, I am now fully convinced we may see $5000 quite soon and potentially even $10,000 later this year. And after that? Nobody knows. But if Wall Street gets into the game and if people really start treating Bitcoin as digital gold prices of $100,000 or more are very well possible. We will get lots of crashes in between, it won’t be straight growth. But keep in mind that you should HODL – don’t sell your coins in a sudden panic wave of sell orders.
There are still some risks, but they are getting smaller. The biggest risk is still how to keep your coins safe, and that is what First Block Capital will help its investors with. Later this month we will go live with a campaign on FrontFundr so Canadian retail investors can invest in Bitcoin as well. A self fulfilling prophecy? Partly, but a prophecy in which I believe completely.
Next time some more information on some of the major alt coins that we plan to invest in through our hedge fund and what I see happening there. Always feel free to get in touch with remarks or questions and keep in mind I intentionally left a lot of information out (Segwit and Hard Fork anyone?). Happy crypto investing!
For months I have been surprised to see that the US stock market keeps breaking records. Yes, I get it of course, corporations and investors believe the Trump presidency means lower taxes and more stimulus for businesses. However, by now any rational person should realize that most of this will be pure wishful thinking.
In my opinion the USA is headed for disaster, but most market participants don’t want to see it. Trump behaves like he is crazy, just looking at his tweets it is clear that he does not belong in the White House. Not only does he not seem to grasp what it means to be president, but with his erratic behavior and thin skin he is a danger to the world. Most of his voters didn’t want to see it before the election, which was a surprise to me. But it seems most still don’t want to see it, and that is why I believe the US economy -and with that the stock market- is headed for disaster. When will that happen? I think fairly soon. I see so many red flags that I wanted to write a quick blog post about it.
This week the world faces some important economic and political events that may lead to a perfect storm. First of all the Brexit vote. If the UK indeed decides to leave the EU this will be a major setback and could lead to a shockwave on financial markets. On Wednesday the Dutch will have their elections. Normally not an important event (at least not for the rest of the world), but given that the right-wing populist party of Geert Wilders has a chance to win, this could lead to a new shockwave. Next to that the FED will make a decision on the interest rates. Trump wants to see economic growth, so he wants to keep the rates low, but it seems likely that the FED will start increasing its rates this week. That’s bad news for business, especially because this will be the beginning of a series of rate increases.
But most important, and something you don’t read much about in the media (yet), is that Wednesday night the US will reach its debt ceiling. That means that the country is not able to borrow more money to finance its deficit. With $20 trillion (!) in debts the country is in unsustainable territory already, but now things are getting even worse. In the past debt ceilings were always increased, although sometimes at the last moment and after a serious stand-off. However, now that Trump is in power there is no Democrat who would vote for an increase in the debt ceiling. So the world may realize on Thursday morning that the good times might suddenly be over.
The US has enough money to keep paying its bills until early this summer (mainly interest payments on debt), but it will have cut a lot of other costs do so. That in itself is problematic already, but when that happens Trump might finally realize that his plans for tax cuts and additional infrastructure and defense expenses simply won’t work. Or if he still doesn’t get it, it is likely that at least the market will understand that fiscal stimulus measures are unlikely to happen.
And what will happen the moment the US really runs out of cash is anybody’s guess. I would actually not be surprised if Trump would choose to go for a default its obligations and then blame it on the Democrats (he indicated this once during his election campaign!). I believe this would pave the way for a dictatorship: the economy would completely fall apart, people would not only lose their social security but also their pensions, and riots would be very likely. Trump would then re-emerge as the strong man who will solve it, by blaming anybody but himself for the mess.
Summarizing, from an economic point of view I don’t believe the stock market rally can continue for much longer. To me it seems a huge stock market crash is inevitable. It’s not a question if it will happen, but only when it will happen. The moment the first investors start heading for the exits the whole house of cards may collapse. If you are an investor you should consider hedging your bets by going into gold, silver and possibly Bitcoin. Don’t wait too long.
A team of four experienced serial startup and fund founders will launch a Canadian Bitcoin and Altcoin Investment Fund out of either Vancouver or Toronto.
A Canadian management company will be set up to run multiple crypto funds:
Fund 1: tax efficient bitcoin buy and hold fund.
> Value to investors: they get secure exposure to bitcoin and their bitcoin is managed by experts, their gains are taxed at 50% less than if they held bitcoin directly
Fund 2: bitcoin alpha fund
One of our co-founders, a machine learning PhD who has been building trading algorithms for 100M+ hedge funds for the past 6 years, will be designing our trading strategy/algos.
> Value to investors: a team of very experienced people will trade their bitcoin
Fund 3: altcoin ICO fund This one requires a deeper understanding of the crypto world, in short we’ll be buying into “Initial Coin Offerings” – digital IPOs effectively where we can buy and then later sell tokens (crypto curency units) at a gain.
> Value to investors: significant, liquid, upside
The team has worked with a major law firm for the past 4 months and has determined the best structure to set this up. The team also has about 70% of the seed capital needed to open and begin raising money into fund 1. We need to find a few more friends/family investors to invest in the management company.
We are looking for a proven entrepreneur who wants to commit to this full time for at least 3 years. Large stock incentive package available for the right candidate.
My preferred candidate should be an entrepreneur based in Canada (or someone with previous experience in Canada who would be willing to move here), should have raised money before, should have a working knowledge of and interest in bitcoin and altcoins, and should have some previous fund experience.