The Breakdown - Crypto Fundraising and the Nothing-Is-Safe Haven

Episode Date: March 10, 2020

Whatever you thought of the uncorrelated or safe haven narratives a few weeks ago, it’s hard to deny that bitcoin and crypto are moving in lock step with equities - even mirroring a small bounce in the morning that retreated in the early afternoon.  On this episode of The Breakdown, NLW looks at hot takes on the narrative from Bloomberg’s Joe Weisenthal and crypto investor Ari David Paul.  Not all the news is bleak, however. Also on this episode, we break down recent financings for  Argent’s de-fi friendly wallet  Horizon Games’ blockchain-based Hearthstone/MtG style game SkyWeaver Futureswap’s decentralized futures exchange and more

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Tuesday, March 10th, and I got to tell you guys, yesterday was exhausting. And well, it should have been. It ended up being the worst day in markets since 2008, since the last financial crash. It wasn't much better for Bitcoin. It was maybe a little bit better by percentages, but it wasn't much better around here. In fact, everything kind of moved in lockstep down. Now, because of that,

much of the conversation today has been about Bitcoin as a safe haven asset or even as a non-correlated asset and whether this just puts the nail in that narrative coffin. So I am going to touch on that a little bit to kick off today's show. However, at the risk of being Pollyannish about what we're facing next. I think that we're in for a very long, very extended, challenging period, both in the context of this public health emergency, as well as in the context of not just the market's ability to deal with it, but the economy's ability to deal with it in general. Because of that, we're going to have to win some positivity where we can here and there. And so today I'm going to actually look at a slate of fundraising news from the last few days.

Companies that were fortunate enough to get their capitalizations done before the coronavirus really kicked in, I think are in a good position as long as they manage their treasury as well. So we're going to look at some of that news and hopefully remind ourselves that even as bad as this might get, it will pass. and a whole new set of exciting companies and ideas and innovations will come out of it too. So that's where we're going to focus today. First up, like I said, let's look at the Safe Haven asset narrative in the wake of a very bad Monday. Yesterday, Brian Armstrong from Coinbase tweeted that he was surprised that Bitcoin was going down at the same time as everything else was going down.

He said he would have anticipated it going the opposite direction. For those of you who listened to the show yesterday with Kevin Kelly, you'll know that when we talk about safe havens, we're really talking about a lot of different things. And that even in the context of those words, in established markets, in traditional markets, there can be multiple different types of safe havens that can prevent or be valuable in different types of situations. What we've seen in the last period is that all of the safe haven, all of the risk-off money has been flowing into treasuries, into U.S. bonds as the absolute pinnacle of safety in a very challenging time. Well, in this morning's

market's newsletter, Joe Wisenthal from Bloomberg expands on this point. He says, in a panic, your first priority is maintaining cash flow and paying bills. And since everyone has liabilities in fiat currencies, something like gold eventually becomes a thing to sell for cash. Hence lately, treasuries have clobbered gold in performance. Virtually nobody has bills that are denominated in Bitcoin, so Bitcoin becomes something else to sell for cash. So Joe's point here is that anything that's liquid is going to move at least to some extent at the beginning. And that's what we've seen. And again, as you heard from Kevin Kelly yesterday from Delphi Digital, even gold hasn't been soaring because some selling pressure has been on gold as well to just get money into cash.

Joe makes another point, which is really interesting, however, which has to do with the correlation of the actual buyers, right? The buying base. He says, in recent years, the crypto industry has made a major push to become an asset class owned by institutions. When Bitcoin was owned just by weirdos, I say that with affection. On Mount Gox, its price was probably totally disconnected from the rest of the world. But now it's owned by entities that have to write quarterly letters and sometimes get redemption requests. So its correlation with other assets will rise. Ultimately, Bitcoin can be an uncorrelated asset or it can be institutionally owned, but it's a correlation. but it can't be both.

Now, whether you agree with that last statement or not, there's no doubt that it has moved in a much more correlated fashion over the last couple weeks. Coin metrics actually focused their state of the network newsletter on exactly this point, saying in the past week, crypto assets have been highly correlated with global equities, with a near identical reaction to the Fed surprise 50 basis point interest rate cut and a coordinated sell-off on Sunday as futures markets opened.

So again, we're talking now about not just the diminishment of the safe haven narrative in the short term, but also the uncorrelated narrative. Now, Joe does bring up in his letter that he actually believes that safe haven isn't a particularly good term because it doesn't have context for what it's providing safety from. In Joe's estimation, Bitcoin is a safe haven, but against payments that could otherwise be censored. So he concludes his piece, if you're worried about authoritarian deciding who can buy what online, that it can be seen as a haven against that risk. If you were in the business of buying and selling Samzadat literature in an impressive regime,

Bitcoin offers you a safe haven. The bottom line is that every haven has different states where their ideal properties kick in. In this environment, though, where people fear not having enough dollars, Bitcoin is just another thing that a distressed owner is forced to liquidate. Now, others are sort of repeating this similar line. Ari David Paul was on TD Ameritrade Network this morning talking about this example. exact question. And he likened Bitcoin a little bit to gold during the 2008 crisis, where between August and November of that year, it was off something like 30%, where institutions just needed to have

that liquidity that was ruling their decision-making above all else. Now, gold would go on to rebound a little bit, but it's an interesting analogy. From my perspective, I think it's a good reminder about why we should be a little bit less quick to let narrative shifts happen. We jump wildly sometimes between one narrative or another based on one new piece of evidence, when really what the way that we should be viewing all of this is that narratives are constantly competing to reveal themselves as true, and all of us are, of course, combatants in that battle. We're not unbiased observers, but at the same time, there's simply an evolutionary process in all of this. What the last few weeks have revealed is that Bitcoin, because it can be liquid, will be sold in real times of crisis,

at least by some actors in the market. It also probably does show to Joe's point and to Ari's point that there simply are more traditional players who are in Bitcoin and that is going to have some impact. But the other thing is that we are just very barely into what the real economic fallout of this situation might be. The market is reacting on the basis of things they don't know. We don't know how bad this crisis is going to get. Although epidemiologists and people who do math have a better idea.

than others, it seems. We don't know what the real impact to economies is going to be, not just to markets that price assets, but to real lived economic experience, people's jobs, people's daily decisions. We're seeing Italy now, the full country of 60 million people is in quarantine, which is a thing that we wouldn't have believed possible two weeks ago. Nine days ago, Italy had half the cases of coronavirus that we have now by formal records. So there's just a huge amount that is truly and fully unknown in this situation. Point being, we don't know yet how Bitcoin is going to fare over the totality of this. All we know right now is how Bitcoin did in the worst day of the markets since 2008. And it did basically what everything else did. That's the new piece of

evidence. That's the new piece of information. We're going to keep debating narratives because that's what we do and it's totally fine. But for now, like I said, I want to move into a grab hold of some positive news for some parts of the industry and focus on the raft, really, of interesting fundraising news from the last few days. All right, fundraising news. I'm going to do these in kind of quick hit succession to show you just how variable the focus of these companies is, right? This is not just one subsection of crypto or one type of project. It's a really diverse array of projects that all touch this complicated space. So first up, Horizon Blockchain Games has raised $5 million in new funding. It's an extension of a $3.75 million seed round from last year. Now, this is the company that is

building Skyweaver, which is a digital trading card game that uses the Ethereum blockchain and is designed to take advantage of the idea of truly ownable digital assets. So Skyweaver itself is kind of in the tradition of hearthstone or Magic the Gathering and is really about that kind of collectible card game experience. The people who are betting on these types of startups, the other one that's big and known in the space is God's Unchained, think that the actual, the true ownership of digital assets and the ability for that to enable secondary markets and all sorts of exciting, interesting things is a real game changer.

No pun intended. The round was led by initialized capital, which is the venture firm that was founded by Alexis O'Hanian, the co-founder of Reddit. And it also saw investors from both the crypto space and beyond. So polychain capital, consensus, and more. Next up, we have $12 million for the D5-friendly Argent wallet. This was led by paradigm and also included compound founder Robert Leshner and a number of other investors, index ventures, and more. Arjun is based in London and is effectively designed to be a wallet that puts defy right up front. Now, the excitement around the wallet has a lot to do with

usability issues. Compounds Robert Leshner said that Arjun is building the simplest, safest, and most practical gateway to crypto and open financial products. And interestingly, in their beta test, Argent has something like 3,000 clients using this wallet, and it ranges from very small amounts all the way to wallets with more than $200,000 of value in them. Speaking of Defi, next up, we have a couple of investments out of Framework Ventures. Framework Ventures is a Defi-focused fund out of San Francisco. They were early investors in both ChainLink and synthetic, so they have some pedigree. They've invested 400,000 into a decentralized futures exchange called FutureSwap and 500,000 into common labs who are building the proof-of-stake blockchain

edgeware. So, again, these are smaller amounts perhaps, but show just that there's a ton of excitement around Defi. Now, over in a very different part of the market, there is a company called First Digital Trust that spun out of the Hong Kong-based custodian legacy trust, which is traditional financial custodian, they've raised $3 million from Noggle Capital, who is a telegram investor based out of Taiwan. This is meant to effectively be sort of a silver gate bank but for Asia. So again, a custody startup, totally different domain in some ways than these other things that we've seen also raising money in a completely different part of the world. Now last up, I just wanted to briefly mention Solana. Salana raised $20 million last year,

And they seem to be out raising again, although whether it's just a small extension round or a larger strategic round, it's not exactly clear. But a Coin Desk report, they've gotten their hands on Solana's pitch deck. And it looks like one of the things that they're touting is a major pilot with the DISH Network, which is a huge US TV services provider. So this is a little bit different because it's not a raise that's been completed. It's something that people are out doing. But it does show again that there is this excitement and energy around these new companies, given that they're out looking for something like a $125 million valuation with this raise. Now, let's talk bullish and bearish signals for just a second.

It's undeniable that all these companies completing rounds out looking for money and getting success is a good thing for the industry. Now, fundraising nudes tends to be a little bit lagging in the sense that these deals were probably completed before most people were paying attention to coronavirus, which is obviously resetting our expectations from the economy in a big way. We've seen the very impactful note from Sequoia last week, basically saying that it was time to batten down the hatches. But still, the fact that these companies have this dry powder is something to be excited about.

One last little note, again, on the context of grabbing these positive moments when we can. let's not forget that last week, crypto effectively became legal again, became viable again in India. Cracken wrote a note this week saying that over the course of this year, they'd be announcing a lot more about how they intend to get into that market, right? So even as we're seeing some of these challenges from a macroeconomic perspective, we're seeing the businesses that are in this space and continuing to build, look for new opportunities, look for new communities to go work with and that's worth something. Like I said, I think yesterday was exhausting and I think unfortunately we're in for more yesterdays, although hopefully not quite as rough and all at once.

But as we see what's coming, one thing I know for sure, I will be here to keep breaking it down for you. So with that, until tomorrow, peace.