Here is the transcript:

• The panellists discussed the steep rise in prices of ICOs due to new hype and popularity brought about inherent advantages, such as providing efficient and low-cost funding to start-ups
• The experts also shed light on ICOs from an investment perspective and raised some questions and topics, mainly about the risks and problems of ICO markets
• The conclusion is that ICOs are still evolving, and its future outlook will be impacted directly by new regulations in the future

Boon Ping (BP): Good afternoon. It is 4:00 p.m. here in Singapore. Welcome to The Asian Banker Live. Today, we are discussing the rise of ICOs and the future of cryptocurrencies. Cryptocurrencies have been touted as the next big thing in finance. Despite experiencing probably one of the biggest valuation bubbles since the dot-com era, its prospect is still uncertain. It is still generating a lot of interest and potential investors aren’t about to back or shy away because they cannot afford to miss out given the potential, especially with the interest in blockchain, which in many ways has been connected with the discussion about ICOs.

2017 has been an eventful year for cryptocurrencies. Dominating the news lately has been the exponential growth in initial coin offering or digital token or initial token offering. With companies raising over $1.2 billion in funds during the first half of 2017. Explosion in bitcoin and ethereum or ether prices, raising the market valuation to new heights and the recent split of bitcoin resulting in Bitcoin cash. ICOs are emerging as cryptocurrency’s next big risk money makers. It has rapidly emerged as a democratic, transparent, and frictionless way of crowdfunding of modern digital companies, surpassing venture capital funding this year.

In today’s session, we’ll be focusing on three areas: first, the key emerging trends in ICOs, the recent spurt in growth, risk, and the impact of new regulation. Next, we’ll look at the steep rise in prices of Bitcoin and ether, what the key trends and reason behind this movement, and finally, the future outlook. Where is the industry headed? To do this, we are happy to have as part of our panel today, Mike Kayamori, co-founder and Chief Executive Officer of Quoine. Mike has a career spanning 20 years in senior positions in Mitsubishi Corporation, Globespan Capital Partners and SoftBank Group.

He co-founded Quoine, which today is one of the leading blockchain and cryptocurrency companies in Asia, together with cryptocurrency exchange. He is based out of Tokyo in Japan. Japan is one of the countries that have national level regulation for Bitcoin and cryptocurrency exchanges. Next, we have Igor Pesin, fintech investor and partner at Life.SREDA. Igor is a partner and investment director at Life.SREDA, a global fintech group focused venture capital fund headquartered here in Singapore. Finally, we have our very own Neeti Aggarwal, our senior research manager and head of technology research. She’ll be sharing some of our research insight into this topic.

Now before I call Neeti to do her presentation, let me just share with you how you can participate in this session. You can do so by sending us your question and you can type your question into the chat box at the bottom corner of the WebEx screen. Neeti will start us off with a presentation and give us a quick overview of the key developments and trends in ICO and cryptocurrency. Neeti.

Key emerging trends in ICOs

Neeti Aggarwal (NA): Thank you, Boon Ping. Good afternoon, everyone. I’d like to quickly share with you some key trends in initial coin offerings and cryptocurrency market today. More than $1.2 billion was raised through ICOs in the first half of 2017. Compare this with $300 million, which was raised in the first two years. This outstrips the venture capital investment in blockchain and, in fact, $600 million was raised in just one month alone. These companies raise money creating network effects previously not seen in traditional funding modes such as IPOs. The craze is creating new hype.

Take, for example, Tezos, that raised $206 billion. Bancorp raised $150 million within three hours, and TenX raised $80 million in just minutes. So what are the reasons for the popularity of these ICOs? ICOs come with inherent advantages, as they provide efficient and low-cost funding to start-ups. They’re accessible to any parties spread across any geography. Often it is a nightmare for a new company without a track record to raise funds using traditional funding options, but ICOs make this readily possible.

It provides an opportunity to invest and came from disruptive blockchain technology projects and also allows the participants to diversity their current exposure to cryptocurrencies, besides providing the liquidity that as these coins can be traded after the launch. The growth of ICO is also associated over the surge in prices of Bitcoin Imperium to most popular additional currencies, a use for purchase of these tokens. Most of these ICOs are based on Imperium. Of course, that also adds to the volatility of ethereum prices.

The steep rise in prices

In fact, in the last one year, we’ve seen bitcoin rise by 450% to 500% and Imperium rising by 2400% in the last one year. The market gap has crossed $100 billion. In fact, this could rise further as the network effects thicken. In countries like Japan, we’re already seeing some mainstream penetration of Bitcoin. It’s being accepted as a legal tender now. There are cryptocurrency exchanges that are available. It’s also even being used as a payment mode in stores. So the acceptance is increasing of these cryptocurrencies. But the risk associated with ICOs that still remains high and needs to be cautiously weighed.

The projects raise huge sums without a proven product or a real utility to the underlying token. The industry good faith, fraught with companies taking advantage of excitement and social media. There are uncertain regulations, lack of enforceable consumer protection, possibly resulting in significant losses without recourse. Lack of transparency also remains a key concern. Cryptocurrencies, by the track record have been volatile and speculative in nature, so investors definitely need to be more judicious when they’re investing in these new offers.

The impact of new regulation and future outlook of ICOs

Until recently, they were completely out of purview of regulatory oversight. But as Boon Ping mentioned, the regulators are waking up now. Now, MAS has stated that they will be regulating these tokens under the Securities and Futures Act. It also pointed out the risks of money laundering and terrorism financing through these tokens. The Security Exchange Commission in the U.S. has also clarified that they would be considering many of these ICOs to be regulated as securities. We’re probably going to see more regulations coming in the future.

If I was to sum it up all quickly, the impact of these and possible future regulations could be in weeding out of smaller companies intending to make quick bucks and bringing stronger companies investors and also possibly create a compliance to the market. Many smaller companies will die, but the survivors could be the ones to redefine their industries. Probably as we saw in the dot-com era. The market is still evolving rapidly. The future could see more professional players such as institution investors, venture capital funds, and technology platforms enter the market, bringing greater stability, maturity to the crowdfunding platform. With that one thing, I want to hand my presentation over to you.

BP: Okay, thanks Neeti. Before I call onto Igor to share some more insights on ICOs, perhaps one question for Neeti. Who are issuing these ICOs now? What kind of investors are investing in them? Are they cognisant of the risk? How do investors know about the underlying projects that are tied to these ICOs?

NA: So yes, it is still a largely social media-driven, the largest in terms of information about the projects. But most of the projects are by new companies that are blockchain-based companies coming up with new services, but very little track record to talk about. Some of them actually have initial coding in place or a few documents in place and that’s the where they are talking about the risk level. New companies that are looking to invest, looking to build projects on blockchain, they do have an idea; they do have a plan in place, but not really a product in place. Most of the promotion is done through social media and that’s where the information is being flowed through.

BP: Okay. And the kind of investors that are investing in them? They tend to be what? More accredited investors, more knowledgeable ones? With higher mark over.

NA: No, not really. We are not seeing too many institutional investors in the market right now. More of little investors. Some venture capitalists are looking into entering into this segment now, but big institutions? No, not yet. 

BP: Okay, great. Thanks, Neeti. Okay, I’m happy to have Igor from Live.SREDA. We’re going to get from Igor a perspective on the ICO as an investment platform or an investment channel. How does it compare with your more traditional and conventional venture capital? Igor, if you can share with us your insight.

Igor Pesin (IP): Thank you, Boong Ping and Neeti Actually, I will comment on your question regarding the type of investors who invest into ICO companies. Let me please switch to my presentation.

Okay, yes, so I will talk about ICO from the investment perspective and actually will raise some questions and topics which people try to avoid today, mainly about the risks and problems of ICO markets. Just a very brief introduction of myself and our company. We are a fintech fund, as you mentioned. We are based in Singapore. We have been investing in fintech from 2012 and we have invested in 23 companies worldwide. We are based in Singapore and here is our headquarters. In 2016, we launched our Banking on Blockchain fund, and that is why we are quite deeply involved into the blockchain industry, but not into ICO markets yet.

However, we have such blends. This weekend you probably know that we’ll be at the so-called “money fight” in boxing, between Mayweather and McGregor. The budget of this boxing fight is $600 million. But the real money fight of this year takes place on ICO market, which for today, helped many companies to raise more than $2 billion dollars. [The difference between this] to show that on the boxing match, we’ll participate in professional boxers who have track records, experience, who have raised a lot of money before. On the ICO show, we have new companies which maybe have great ideas, great plans, but they are very new to the market.

They have no recognition and no traction. That is different. Next picture is like comparison. So this is like how these ICO companies would look on this boxing match, or like investors. So this is the difference. They are very new, young, and unprofessional. However, yes, we cannot avoid this market. It’s really big, dynamically high. For example, on these slides, I have investments that have begun into blockchain before ICO. You can see that the highest mark was $60 million invested in historical. $55 million invested into repo. Today, we have $200 million-plus investment rounds into several companies.

ICO changed dramatically industry in the blockchain space. My forecast – today, let’s say a few months ago, there were maybe 10, 12, 20 companies going to ICO. Today, we have hundreds of companies which are listed on the ICO market. Today there are almost 400 ICO companies on ICO. However, my prediction that the market will be cooling down until the end of this year because it was hard, with a lot of attention. Now, there are many companies with different qualities and people will be more cautious about these kinds of investments.

However, next year, potentially the market will go up and that is because new players, new institutional investors, sophisticated investors, will enter the ICO market. Anything, it’s already a big industry. It’s not like a few players. Different companies, consultants, lawyers, funds, and different research groups have already entered this market and that is why the whole stand-alone industry. It seems that ICO is good for every participant. For founders, who can raise a lot of money within days. For inventors, conventional investors, who can invest $1.00 or $10.00 into start-ups, which is not possible with traditional blockchain companies.

It’s even good for the currency community, because a lot of initiatives, a lot of competition, it drives the development of the industry. But today we have many real, significant problems on the market. All of these companies who are not able to raise money from traditional investors, not because investors are like stupid, but because actually many of these companies are not ready to get this funding and to use it in the proper way. I don’t even talk about scams. I don’t talk about fraud. I just talk about unprofessional schemes which raise too much money that they actually don’t need or which they will not spend in a good way.

Actually, we already see these problems on the ICO market. It’s just beginning. Like some of the companies were hacked. ICO campaigns were hacked. This is just the beginning, but we already see these problems visible. But we cannot only… ICO market has much more risk than the venture capital industry though. Because here we have a lot of legal fields and regulation fields. A lot of related to tech development, how tokens are built. This is actually not possible for every investor, every person to understand and analyse all this risk. It can be done only by professional investment teams.

ICO is not like a pill. Everyone thinks that ICO changed the investment industry. No, it’s not. In just, in two years, which has a lot of advantages, but which also has a lot of problems and this too should be used by professional investors. That is why my statement is simple. I feel not many people today tell that ICO will replace venture capital investors, but I will say that if venture capitalists will not come to the ICO industry, this industry will die because of too many problems which will be visible very soon. That is why venture capital funds should enter this market.

Actually, it’s already happened. As you can see, today maybe about 12 venture capital fund which have started to explore this opportunity of investments through tokens, through ICO. This is just the beginning. More and more funds and more and more investors will come to the market. And it has a lot of benefits for all investors. Because these professional teams are able to make a proper due diligence, proper investment analysis, proper value creation after investment. Because today, companies raise a lot of money, hundreds of millions of dollars, but after they’ve raised everyone, forget about this company.

Nobody really helps these companies to run their business, to make this company successful at the end of the day. This is what venture capital funds will bring to this market. From the other side, I think the ICO market is interesting for venture capital funds because it has more liquidity and it has the biggest paying of venture capital funds of investments into venture capital funds is that one of the investors puts $1 million into venture capital funds, you can forget about this for many years. The money are freedoms in the fund. But ICO provides a lot of liquidity, which is actually very good for a venture capital fund.

Our team and our fund, our ICO opportunities for ourselves to our BB fund, which is blockchain oriented investments and potentially we will be active in this market next year and which we have a lot of interest from different investors who need this kind of player. The investor who does not want to analyse all these hundreds of companies, but just invest into the fund and the fund will do this work instead of them. From my point of view, a different fund which are already on the market, do not have very good terms for investors and that is our target also to try to make it very transparent, very clear.

All fee structures should be convenient, comfortable for investors. That’s it. If you have any questions regard the investment into ICO market, please go ahead.

BP: Great. Thanks, Igor. I really liked your presentation and the many points that you raised. So ICOs, because of the narrow effect, they are able to raise a lot more funds in a shorter period of time from what you show us as compared to traditional VCs. But you are also citing the number of potential risks and problems in terms of the underlying businesses that people are investing in, in terms of whether they are running a proper or how their businesses are in terms of whether they are proper financial reporting or accounting for and so and so forth. But you also are saying that venture capital players like yourself are also looking into entering this area. Potentially you will make them safer, better, right?

IP: Yes, so that is actually our job. Actually, investments are a day-to-day job. You have within your team, you have people who know legal parts, who know tech parts, who know financial parts, who know parts, who has strategy, investment strategy, and you have to spend all of your time – it’s actually much more than eight hours a day. It’s like 16 hours a day. You have to spend this time for each company. It’s impossible to make investment decisions based on reading and spending 20 minutes to read a white paper off an ICO company and that’s it.

It’s impossible to make the right decision in this way. Only if you want to pay some kind of speculation game, but it’s not our job. Actually, speculation hopefully will leave this market soon. Because investment into start-up, it’s not about speculation at all.

BP: Right, okay. Now, ICOs and a lot of these start-ups, they operate in the marketplace form of crowdfunding platform where they are connecting the businesses to individual investors. On a really kind of private basis. How do you regulate them in this borderless world of the web?

IP: Is the question for me?

BP: Yes.

IP: Again, from my point of view, there is no difference between ICO start-up and traditional start-up. These kinds of platforms, they can provide some information for you, but when you make investment, it’s only to – you can use this kind of crowdfunding platforms, but you need to understand that nobody will guarantee you investment return and most likely you will lose this money. Or if you are a professional, sophisticated investor, potentially you can do as good as funds, but usually not, because funds are not like just a wallet. A fund is number of people with different skillsets which can do these kinds of investments much better than just crowd.

BP: Okay, great. Okay, I’d like to bring Mike into the conversation. Mike, one of the things that Igor mentioned in terms of the attractiveness of ICOs is potentially they all have a higher level of liquidity than traditional form of investments. Do you agree? Do you see that?

Mike Kayamori (MK):            Yeah, so I must respectfully disagree with Igor. Being a VC myself for ten years and also an entrepreneur for four, the best and brightest entrepreneurs will take the ICO route, non-equity, non-security route. Especially if you know or if you have confidence that you can raise capital without dilution, without preferences, without voting rights, without all these strings attached, they will raise it through a token sale. So yes, VCs will compete with these retheril investors who are able to come in these token sales. I wasn’t sure if anybody really addressed who the existing investors right now are participating in these token sales.

Essentially, there are roughly around 10,000 to 15,000 crypto-millionaires. These people, the average net worth is over $10 million. Some even have more than $100 million, individually. They are crypto-millionaires through Bitcoin and Ethereum and other token sales. They understand that there’s risk. But they fund the craziest ideas. They know that only maybe one out of 100 is going to make it, but that company could become $100 billion. So it is going to happen. It is disrupting the industry. But I think institutional investors, there’s always a way to play it. So traditional VCs are building ICO funds, crypto funds.

They will compete to invest in the companies. Any company, any start-up, there’s always risk. So it’s all part of disruption. The market is large enough for many people to come and play. But if I were an entrepreneur who had confidence in myself, I would do an ICO or a token sale.

BP: Right, okay. So Mike, you’re saying the investors are these crypto-millionaires. How much of it are these big, wealthy individuals? At least on the crypto assets fund versus the retail, individual investors who need some form of protection?

MK: Right now, the only way you can invest in these token sales is if you have bitcoin or ethereum. Most institutional or most mainstream do not have access or they don’t have Bitcoin or Ethereum with them. So only recently in the U.S. where there are these FIO coins and Kick, who are allowing investors or purchasers to invest with fiat. But until those two, the only way to access is you need to have Ethereum or Bitcoin. That’s why it has already been limited accessibility to the retail investors. It was only four people who were involved or who purchased cryptocurrencies early and they have a lot of unrealised capital gain, which they’re willing to fund the next big project.

BP: Right. So the two dominant cryptocurrencies being used to fund these ICOs, you mentioned bitcoin and ethereum. I understand that there are also other cryptocurrencies in the market. What’s the potential of this being currency for ICOs?

MK: Yeah, so it boils down all to liquidity. The reason why these token sales accept Bitcoin and Ethereum is because there’s liquidity in these two cryptocurrencies. Because they need to pay their suppliers, they need to pay their salaries, they need to do marketing, and the reality is with all these hundreds and thousands of new tokens that are going to be issued over the next two to three years, they’re all going to have liquidity challenges. So what I look at from an industry perspective is liquidity. When you look at the financial crises in the past, essentially there’s a liquidity crunch. With all these tokens that are coming into market, without liquidity, it’s going to be volatile. When it’s volatile, it’s going to be very difficult for the token economy to prosper.

BP: Okay. I want to both your and Igor’s perspective on this. Is this the best time to invest in ICOs or for the investor? Should they wait for a couple more years with the possibility of market saturation? Obviously, it’s also dependent on the kind of investors, whether you are a retheril, kind of High Street investors, versus a more sophisticated credit investor who can take more risk kind of investment in a venture capital way.

MK: So it’s very similar to VC, right? When there’s hype, there are hype curves. As a VC what you do is you continue to invest in the companies you believe in. So there’s no right period or wrong period. For example, when Google raised money, it was at the top of the height curve and they were the tenth search engine that came. Then there are companies that were funded during the dark days after the bust. The right time to invest is when you believe in the company, when you believe in the management team, and when you believe in the opportunity. That’s when you invest and you participate in ICOs.

BP: Okay, great. Igor?

IP: For example, again, in our fund, we still plan to invest into fintech-related companies which are tokenised, meaning that – and also to Mike’s point, liquidity is a very important thing and actually there is much liquidity right now on the market. Our aim is to invest into mid-term or long-term with mid-term or long-term plans. Token is just a tool, I would say a very good mechanism to invest, but still, companies understand. They still have the same problems and they address the same client markets, etc. So yesterday is the right moment to invest in some good companies and in five years will be also a good time to invest in some good companies.

But what I feel right now, that many companies came to the market designed specifically for ICO. I would be very cautious about such companies which do not have proper product market seat, who do not have a long-term strategy. That can be dangerous because tokens are not liquid, many of them. Those who plan to speculate face liquidity problems.

BP: Okay. One area that is of interest, obviously, is in the prices of bitcoin and ether, ethereum, the ethereum currency, fuelled by all these prospects of Bitcoin. What do you see of the volatility with the emergence of ICOs and all the acceptance of ICOs? Do you think that the fear about a bubble or the instability of the currency will be somewhat abated with ICOs?

MK: I can explain or I can give my thoughts. We’ve been operating an exchange for the past three years. Early this year, when the price of Bitcoin was $1,000; right now, it’s $4,000. Early this year, on January 1st it was around $1,000. People said it was a bubble. Last June, when it was about $500, people said it was a bubble. So it’s very difficult to define or say that it’s a bubble or not. It’s always hindsight. Some people say one Bitcoin could become half a million dollars. Some people say there is no underlying residual value.

Right now, it’s purely supply-and-demand speculation. Because there’s no advanced derivative product like options, like futures, like swap, that the volatility cannot be hedged. It’s still very early and when these financial instruments and products like ETFs, until the entire ecosystem evolves and matures, it’s still going to be volatile. But when you look at it from February 2014, when Mt. Gox happened and when you step back and look at the chart, it’s been continuous rise of the price. I mean, short term, there’s a lot of volatility, but when you look at it long term or medium term, it just continues to go up. That’s Bitcoin.

You cannot categorise or bundle Bitcoin with Ethereum because Ethereum is closely correlated with ICOs. 95% of these token sales are now based on the Ethereum ERC20 token standard. When these start-ups raise money through these token sales, they use Ethereum. They need to make sure that it’s not pegged, but you have allocation in Ether. So the price and rise of this ICO is directly or influencing taking an effect on the price of Ethereum.

BP: Right, okay. So the rise and fall of ICOs will impact Ethereum and Ether more than Bitcoin? Can we infer?

MK: Yes, you’re absolutely correct.

BP: Right, okay. Now, cryptocurrency, as you mentioned, a lot of investors in ICOs today are cryptocurrency millionaires. So they still operate in a much defined space. Japan is one country where cryptocurrency regulation is kind of introduced at the federal level. You have Bitcoin, all cryptocurrency being used for retheril transactions for example at physical shops and so on. When will it move from this rarefied field where only a few can access it, to becoming more mainstream? Which country will achieve it? But will it be Japan or some other country? What are your thoughts?

MK: I am absolutely confident that it will be Japan. Japan, as you know, is the largest retail FX market. So per capita, the retail FX is largest in the world. Also, there’s a big loyalty points ecosystem, a coalition points program that’s similar to these airline mileage or hotel coins. Japan, like every industry or every company, has its own loyalty points. Essentially, there are types of stored value. When you combine those together, it’s almost like a Bitcoin, where it’s digital, it’s store value. You can use it, you can redeem it, you can pay it, and you can invest in it. You can buy or sell. When you look at it, it’s a perfect storm.

It’s a place where Japanese people are familiar. That’s why the opportunity for exponential growth is in Japan. That’s also the reason why the Japanese government, the Japan FSA, the federal financial service agency, has passed a bill last May and it’s in effect this April.

BP: Right but there are some number of factors that were against it, like you have an aging population there. It’s still a very cash-based economy, especially on the retheril side, right?

MK: Exactly. So the people who are buying it are not the aging society. I mean, this is too foreign to them. It is the actual retail FX users or customers, the so-called Mrs. Wakanabe. These retail FX investors are the ones who are coming into cryptocurrencies. When the Mt. Gox incident happened in Japan, actually there was maybe only 3% of the Japanese people were customers of Mt. Gox. It was actually global customers. But it brought awareness in Japan. So since the Mt. Gox was actually a catalyst for the retail FX users to come into Bitcoin. When you look at the growth of price, almost everybody has capital gains.

What they’re doing is once they start making money, they want to start using it. So there’s a positive spill over, where wow, my Bitcoin or my Ethereum has gone 10 times, 20 times. Where can I use it? So now there are a lot of wallet companies who are partnering with electronic stores, retail shops, restaurants, allowing people to use their Bitcoin or Ethereum for payment. So there’s a positive spill over and network effect that is happening right now.

IP: And just a question, Mike. What do you think about Japan as the capital for ICO, for new tokens, new currencies?

MK: Yeah, so that’s a great point. So the SEC has given their thoughts. The MAS has followed. The FSA still has not. So I think they are struggling to what extent they should regulate it. Obviously, if it’s a security, it will fall under the Securities Act. That’s a given. But I think that what the Japanese government is contemplating is should they go further? Obviously, that is something they are actively studying right now. I think they will take a little bit more time than, for example, the MAS or the SEC to give their official statement on ICOs.

BP: All right, okay. We talked about a few issues that kind of impinge on ICOs in terms of wider involvement of participation. This relates to the consensus of how fraud can be perpetrated, money laundering, and to potential investors, obviously regulation. As you mentioned, MAS and the SEC in the U.S. How do you expect this to shape the industry going forward?

MK: I’ll give my thoughts. You know, that’s a fascinating question. Obviously what’s going to happen is if it looks like a security, if it smells like a security, it’s going to be deemed a security. So that’s a given. The other elements that you mentioned like how do you prevent fraud? How do you prevent these fake coins or these money laundering or these crime organisations building a beautiful lending page, a white paper, and a video? There I no way to prevent that now, unfortunately. The only way is for the investors or the participants to learn it the hard way.

So there will be an opportunity for professional institutional investors in D.C. to play a significant role in the ICO market as well. These investors will probably do much more deeper due diligence, management team, reference calls, all of these things. These crypto millionaires will probably be much more easy-going. They actually fund – the crazier idea, the more they fund because the whole reason why Bitcoin came to prominence is it was after the financial crisis in 2008. Bitcoin was 2009, it was anti-government. It wanted to decentralise many elements.

A lot of the token sales or ICOs now are all talking about they want to create a decentralised browser or decentralised FRB. So they’re trying to create all these decentralised things without a white paper that’s peer reviewed. It’s always going to be there. There’s no way to weed out the good ones with the bad ones. Even with the right intention, there’s always product development risk. There’s a product market risk. Then there’s a scalability risk. So the best VCs in the world like the Sequoia Capitals of the world – still 80% of their companies fail. So it’s just going to be part of a start-up ecosystem where there’s going to be a lot of start-ups that will fail, even with the right intentions.

BP: Okay. What we’ve been discussing in terms of ICO, you mentioned Bitcoin and blockchain being developed as an alternative almost two former arrangements, so to speak, for luring the financial crisis. Today, ICOs are still evolving and it kind of exists outside of former capital markets. Now, do you see – and this got its own separate ecosystem as well. Where do you see the two at some point coming together or they will be separate alternative? Do you see the former capital market – we mentioned that the VCs and all. How do you think this will play out?

MK: Yes, I’m very clear that –

BP: Players get involved.

MK: Yes, I’m pretty confident that cryptocurrency and tokens, as an asset class, is already becoming, in the process of becoming mainstream. I see a lot of institutional investors, hedge funds, family offices, registering with our exchange to invest in the crypto. These people are also investing in ICO funds. They’re all coming in. Maybe not the Fidelities of the world. Maybe not the large banks. They’re not in yet, but it’s already starting to happen. With the maturity of the token and the crypto economy, it’s just a matter of time.

BP: Yeah.

IP: So from my observation, yes, it has already started. I see a lot of interest from many… let’s name them as institutional investors, but not like banks, not like big funds, pension funds, but different financial holdings, different high net worth individuals. They are coming to us asking about the market itself and our predictions regard this ICO market and should they go and invest or to work with us with different funds. I mentioned during my short presentation that next year will be the time when big players, big institutional players will enter this market.

Because yes, tokens are promising instruments for investors and this is the new economy. This is the new industry and it has a lot of potential. Just a lot of interest from different people, from different industries. So yes, it already happens. It’s not the future. It’s today.

MK: Yes, and adding to Igor, for larger institutions to come in, the crypto market cap is still around $140 billion. It’s only $140 billion. Yes, that is a lot, but it’s smaller than Apple, Google, Amazon or any of these. So there needs to be liquidity. There needs to be a robust, secondary exchange. All of these things, it’s still very early. That’s why, as an exchange, it’s an opportunity for us to expand our offerings. Us as an exchange, we have a regulated exchange between fiat currency and crypto.

But then it’s still in public ether, but we have a crypto-only exchange where we are opening up to all tokens, all non-equity tokens and we’re going to create an exchange where all these participants can come and to bring all the liquidity silos together. So the ecosystem still needs a lot of growing up to do and hopefully we can help that.

BP: Right, okay. Obviously, the devil is in the retail in terms of how did they get involved? How do they better integrate, whether it’s cryptocurrency or exchanges that you’re offering? I’m sure you talked to the large banks and the more traditional players as well. Where do they get started? Obviously, a platform like today’s session is one.

MK: Yeah, so it’s actually very similar. In the crypto space, there is no Goldman Sachs. There are no institutions or people who provide prime brokerages. Who can lend credit, which can do fiat management, who can move capital and who can aggregate liquidity? All of these things are absolutely necessary for this industry to grow. I’m not trying to market our own company, but we are launching a prime brokerages service. So for institutional investors who want access to multiple exchanges that are located dispersed across the world, there’s a need to move fiat or there’s a need to have a lending facility if they want to short a certain token, where can they borrow that?

All these things will be necessary. As an exchange, we are bringing all these services together, that will essentially – the result is liquidity. From my perspective, in order for institutions to come on board, it’s a classic chicken and egg. There’s going to be enough tokens in this ecosystem. It’s all about liquidity and how institutional investors can come in and participate.

BP: Okay, great. Obviously, this is – okay, Igor? Go ahead.

IP: Generally, I agree that banks – let’s talk about banks – can come to this industry. But from my observation, based on from 2014 to 2016, blockchain industry was underfinanced. If you look at size of investments into blockchain, it was like 2% of the whole fintech market. Mike’s exchange, I think the most funded blockchain-related company in this region, yes?

MK: Yes, correct.

IP: I think it was quite difficult to raise money for you because blockchain is not under radars of these kinds of players like banks. That is why I’m not sure that they will be fast enough and interested enough to come talk to this industry. If they did not invest into blockchain start-ups before, which was quite, I would say, complementary technology for all banks.

BP: Okay.

MK: It’s interesting. I’ve been in this space for four years. We founded this company before Mt. Gox. We launched our service two months after Mt. Gox. I couldn’t even open a bank account. I mean, as our company, we couldn’t open a transactional bank account. If I go and say we are a Bitcoin or a cryptocurrency exchange, traditional finance thought we were money launderers, we were criminals. But then people started talking about the underlying technology of Bitcoin, which was blockchain. So 2015 was the era of blockchain. Then it evolved. People were saying "why do you need a block?" It just needs to be distributed.

So in 2016, it became the distributed ledger technology. When you go to conferences, please will tell me, “Don’t even talk about cryptocurrencies or bitcoin because people will perceive that negatively.” It’s amazing how 2017 is now all about cryptocurrencies and tokens and the token-based economy. These things evolve. Last year, today, people didn’t even know was ICO was. Three years ago, ethereum still wasn’t in existence. Innovation and technology is moving at a speed where regulation is very difficult to keep up.

But there are a lot of institutions who are looking at this as an opportunity, where they might allocate 5%, 10% of their assets into this emerging industry. For those people, unless they build their own crypto expert or crypto investment team, they will go to people like Igor or go to these crypto funds and allocate a portion of their capital for these people to invest in. It’s really starting right now.

BP: Okay. Then there’s a real need for some of the more traditional institutions to create that capability and understanding and in operating and this whole cryptocurrency area. That’s something for them to continue to do and educate themselves.