$3.5 Bilion in 1Q 2018 ICOs; $7 Billion Including Mega ICOs; Financial Advice Fees Fall to Zero -- via Autonomous ?NEXT

Hi fellow futurists -- here are our top 3 favorite thoughts. 

Initial Coin Offerings: 1Q 2018 in Review  

There's a bear narrative in the air about ICOs and crypto currencies. It starts out by suggesting that last year was a bubble around Bitcoin, that many unscrupulous parties tried to jump on the bandwagon and take naive investors' money. This spilled out in the fintech, crypto and public markets. See, for example, Long Island "Blockchain" being de-listed from NASDAQ. Or India cracking down on crypto currencies. Or the ban on Venezuelan crypto petro currency. And on top of this, regulators across the globe are recognizing Initial Coin Offerings for what they are -- unregistered securities offerings from unlicensed institutions. Not surprisingly, we don't quite agree.

We looked at $1 million+ ICOs over the first 3 months of 2018 for an updated set of charts (see below). But first, a review. 2017 saw $6 billion in token sales (non equity), as compared to about $1 billion of traditional and corporate venture equity going into blockchain companies. That means 6x the funding, 6x the human capital, 6x the interest. So far in 2018, the same pattern holds. Despite the macro crypto slow down, we see $3.5 billion of capital flow into tokens in Jan, Feb and March. Now, there is some underlying slow down relative to November and December of last year, and the number of projects starting fund-raising in March is lower. Some high profile companies are choosing to airdrop instead of ICO. But at a high level, the crypto economy is going to be far bigger this year than last year. This is because, we believe, the early stage ecosystem of company/project formation should be uncorrelated from large coin cap prices. The same can be said about -- for example -- the price of BAML stock and the number of startups raising Seed funding.

Further, there is continued differentiation in the projects across industries. The infrastructure layers of various currencies and protocols are still being negotiated, representing about 25% of the 2018 raises. Many investors continue to look for value in fat protocols (we think this is hard due to network effects). The financial infrastructure, like banks, investment tokens, and decentralized exchanges, are still being put in place, also about 25%. Real growth, however, is coming from things like Identity, Gaming, IoT and other decentralized applications. File that one under obvious.

As a last point, we're sharing our latest number of crypto funds: about 251, not including the 9 or so that shut down or pivoted. The number is not growing as quickly as we'd expect -- partly because it's a more difficult environment to raise, and partly because folks are being less vocal about what they're doing. Our intuition is that there's probably 60 or so vehicles we are yet to identify. And on the other side of the equation, many traditional venture funds are starting to buy tokens. Does this mean traditional venture should start being listed as a crypto fund? Blockchain is infecting all the capital markets, which is just what technology does.

Source: Autonomous NEXT

The Mega ICO and Future of Crowdfunding. 

Let's dive one more level deeper into the 1Q 2018 numbers. Our accounting methodology puts ICO funds raised into the latest  month in which the ICO was still active, which can make for lumpy data as the market becomes more institutional. This becomes painfully clear with EOS and Telegram, which we define as Mega ICOs and exclude in industry estimates. But what do things look like if we DO include these two projects?

Well, ICO fundraising jumps from $3.4 billion to $6.8 billion, which is the total amount raised in all of last year. According to this version of the story, there is no token fundraising slow down of any kind, whatsoever. We have already matched what happened in the past. And if we look on a monthly basis, instead of seeing a normalization in April/March that takes us to the levels previously seen in last September/October, the funding totals are accelerating to all time highs. What is going on?

Two things. First, the Telegram raise of $1.7 billion highlights the trend of outside venture capital money moving into the crypto economy to buy tokens. This is not the "crypto capital gains" thesis of 2017, where early winners wanted to diversify their holdings, but instead the "let's not miss out" thesis of venture chasing last year's success. The other side of the coin is that high-profile projects can lean into this fear of missing out and run pre-sales, rather than offer tokens to the public. In turn, this can minimize regulatory risk if done for accredited investors only.

Second, the year-long EOS token offering took in about $800 million of value in 2017, and 1.6 billion of value in 2018 according to EOSscan. Talk about a financial black hole! EOS is the opposite of Telegram, publicly open to the world for contributions of any size. One way to interpret its approach is a prolonged attack on Ethereum at the protocol level, pulling the currency of one "world computer" to fund a direct competitor. Maybe it's some sort of futuristic M&A, where a decentralized Internet super-organism eats its own tail and rises anew. And last, we found the below chart on non-Ethereum token offerings very interesting. Meaningful competition for the use-case of launching an ICO are already out there -- NEM, Waves, NEO, Stellar. Ethereum is seeing over 100 monthly new projects, but the race is not yet fully won. Are decentralized networks a winner-take-all market? Are they a market at all?

Source: Autonomous NEXT, Token Report, Pitchbook, EOSscan

Investment Management Fees Approach $0

Is automation finally catching up with the traditional investment management industry? A few data points say yes. First, Fidelity has unveiled the Fidelity Flex funds, which have management fees of ... you guessed it ... zero basis points. While there is a catch (these funds have to be held in Fidelity managed accounts), there is also pretty good exposure to asset classes. From bonds, to money market, to real estate, to small cap, the marginal cost of putting money into getting beta index exposure is nothing. As context, Fidelity's roboadvisor costs 35 basis points, while its human advisors cost 160 basis points. Same allocation we presume. Hmm.

Second, roboadvisor WiseBanyan has 30,000 clients and about $150 million in assets under management. Not a large business, but one that has good engagement with its customers and just raised $6.6 million. As a reminder, FutureAdvisor was sold to BlackRock for $140 million when they had about $700 million under management. And ... you guessed it .. WiseBanyan charges 0 basis points for financial advice. We don't have to remind you about fee-free trading from Robinhood for stocks and cryptocurrencies, their 5 million users, and $5 billion valuation.

Two observations from this information. First, free is not a business! Unless you sell the data to someone who cares, or you upsell another product. And the latter is exactly what is happening all across Fintech. Investment Management is a loss-leader for other banking or insurance services. See for example, Stash partnering with Green Dot to offer banking accounts, or Goldman's digital lender Marcus moving into savings, or any of the other players (Acorns/Paypal, SoFi, Transferwise, Revolut, N26, etc). So the strategy is to get to the Millennial consumer, earn loyalty with at least one good service, perhaps free, and then lock them into a full financial services relationship. Sounds hard!

The other point is that some firms seem to be quite disconnected from this reality. For example UBS and SigFig have been working on an American roboadvisor for several years, just now launching UBS Advice Advantage. Strangely, UBS already has a platform in Europe called UBS SmartWealth. Two brands, two technology stacks, same market. This signals that there are still underlying legacy systems that require bespoke integrations. And second, the Advice Advantage product is priced at 75 bps, which is a price that reflects cost of manufacturing, distribution, and a line item for profit. Does the UBS roboadvisor have enough of an audience to build in that profit? Does it provide enough value to deserve it?

Source: Fidelity, WiseBanyan

Thanks for reading!

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