Hidden Layer: On Raising Money

This weekend’s Hidden Layer is a collection of events from this week about making money. What drew my attention were recent events involving the “new money” of crypto-currencies — which brings us the same issues as the old money, including regulation, avarice, fraud, and disappointment.

Genesis Global Trading’s recent NYDFS Bitlicense, in mid-May 2018, coincided with support of trading in zcash - the zero knowledge crypto currency — another milestone. I remain fascinated by zcash’s privacy narrative and Zooko Wilcox’s story and of his recruitment to help commercialize it. Imagine being broke and losing luggage on a flight for a business meeting whose agenda involved changing the nature of money — while going one friendly fork further than the original and already revolutionary bitcoin. (Here’s the whitepaper for this decentralized anonymous payment scheme.)

Coinbase’s purchase of a California broker dealer marks further migration towards licensed exchanges. SEC chairman Jay Clayton’s stance on currency vs. security (ala crypto currency bitcoin versus ICO) reaffirms that Leviathan will have its say. If you are just exchanging value for value, then you are dealing in money. If you are offering in exchange for the prospect of a return, then you have a security. Like it or not, regulators want to run the game and set the rules (but the rules themselves are still being worked out, and the players still choose themselves and make the stakes). A CFTC commissioner’s speech at the U.N. mirrored the SEC focus on fraud when promoters attempted to parade security-like transactions as mere money changing.

A reminder about hucksters masquerading as earnest promoters, 2018 style. A recent report, from a firm called Satis Group, about the enormous fraud in ICOs, with 80% frauds and only 8% making it to exchanges, seems to reinforce Chairman Clayton’s stance. Over the last 18 months, the money changing action has been fast and loose, with a very 19th century feel to it as some whitepaper wunderkinds suddenly disappear after money has changed hands. (Just google “ICO” and “disappear” and you’ll see what I mean.) It’s no wonder Clayton put his foot down. The SEC was formed in the 1930s to deal with the bug in the markets mechanism, when capital raising foxes bypassed state bluesky laws and grabbed as many golden eggs in the capital markets henhouse as they could gobble up.

That said, money is still moving. Even if it changes form, we’ll still be doing the same things with it, like indulging in new or old objects of affection.

An auction for Andy Warhol art via the blockchain would have been something Warhol would have done himself I suspect were he still alive.

There was an auction in Singapore for a few paintings a few months earlier but it doesn’t quite capture the imagination as a Warhol auction could.

Not all collectibles are doing well however. I just learned that traffic in one crypto-native artform and investible collectible, crypokitties, has quieted a bit.

And not all big deals work out either in this new new space. The cash crunch at R3, which has been an attempt at a top-down platform from the banking industry, was written on the wall when Goldman and few other bigs about 18 months, pulled out of the consortium, in reaction to the ballooning of membership to 70. The hiring of more bankers as opposed to engineer in retrospect may not been the optimal path for cash burn and capital raise, especially when some of the biggest suits in banking have moved along.

Something that did work out in the more traditional capital markets, was Alibaba’s Ant Financial raise of $14B USD… series C for a valuation of 150B USD. The deal, in the works for weeks , finally closed — turning the former “Alipay” into a financial giant. It shouldn’t be a surprise given Ant Financial’s nearly half a billion mobile and online payment accounts and the world’s largest money market fund. The financing effectively allowed Alibaba to enter a global game of financial musical chairs. Shared below is a WSJ chart of the relative scale of this deal (with the Ant financing marked in yellow). Ant seems a funny image to conjure given such huge numbers.

That’s just great, but what about the rest of us? I’m sure could all use extra income and capital for our own little empires. How do we join in? While big deals were happening or not happening this week, we were all treated to some great advice from Naval Ravikant and Howard Lindzon.

About becoming the kind of person who makes money, a money-making machine, Naval Ravikant did an amazing Periscope (yes, there’s still periscope and it works well enough) on the topic, a followup to his mega-thread of 40 tweets on Twitter, which I shared in last week’s Hidden Layer post.

(https://www.pscp.tv/w/1lDGLaBmWRwJm)

Lastly, this morning’s read of Howard’s great blog (he’s been writing about money and markets long enough that he makes it look easy but we know it’s not), includes some wisdom and condolences for the loss of globe-trotting, gastronomic, and good-hearted bad boy storyteller Anthony Bourdain:

“The passing of Anthony reminded of this great line from Heath Ledger (as the Joker in Batman):

‘If you are good at something, never do it for free‘

I would say, and Anthony I am sure would have agreed that ‘if you are good at something, focus on the last mile of being great and eventually you get paid a lot.’”

Music weekend to accompany reading and research includes the following:

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Originally published at big-stack.com on June 9, 2018.