Miko Matsumura, co-founder of the Evercoin Cryptocurrency Exchange, talks with Business Insider executive editor Sara Silverstein about initial coin offerings. The following is a transcript of the video.
Miko Matsumura: Hi, I’m Miko Matsumura; co-founder of the Evercoin Cryptocurrency Exchange and here’s everything you need to know about initial coin offerings.
Sara Silverstein: So I really want to learn everything I can from you about ICOs. Seems to be a lot going on right now. Generally speaking what is an ICO?
Matsumura: ICO is kind of a funnily named thing. ICO which is Initial Coin Offering. So essentially what is happening is that tokens are being created and they are being sold to the public. So it’s quite a phenomenon these days.
Silverstein: And what are you getting? So you’re getting a coin. What is that?
Matsumura: So what you’re getting is that you’re getting a cryptographic token to store in a piece of wallet software and ultimately the value is determined by the value of the economy being created by this entity
Silverstein: So it’s not like you have a stake in an IPO? You don’t have a stake in what’s behind it?
Matsumura: One of the big concerns people have about coins and cryptographic tokens is that they don’t actually confer legal rights in most cases. So that’s pretty interesting and potentially concerning for people who hold them.
Silverstein: So kind of like the bitcoin — the value of the bitcoin is what keeps the bitcoin blockchain going right?
Silverstein: So the ICO coins associated with those, new ICOs are spurring new companies. And if that company continues to grow then maybe that coin will increase in value.
Matsumura: That’s correct. There’s really two classes of ICO tokens. One of them is asset backed securities. So asset backed is literally what it means, which is there’s real estate back there. So it represents the physical or virtual goods of that token.
The other class is a utility token. And that’s basically used to buy goods and services in some kind of microeconomy.
Silverstein: And how many of these are there?
Matsumura: Well we’re seeing about 30 new ICOs launching per day. Year to date we’ve seen about 3 billion go into the ICO market. So we’re seeing companies raise as much as 200 million USD per ICO. And what’s interesting they’re raising it in bitcoin and ether. The value of which also continues to rise.
One case — for example — eos has probably estimated about 700 million USD that’s been raised as a function of increase in bitcoin and ether.
Silverstein: And is that one of the things causing bitcoin to go up? To have ICOs you have to use bitcoin. So all this ICO activity is actually increasing the price of bitcoin
Matsumura: The most common platform is actually the ethereum blockchain. So ether purchasing for the purpose of transferring into ICO is definitely an economic driver for that. But I would say there are actually much larger geopolitical fundamentals with the respect to the price for bitcoin itself. And we are seeing a large movement — with respect — to the fiat currency to bitcoin interface, to crypto interface.
So we’re seeing a lot of new hedge funds. There’s over 100 crypto hedge funds that have emerged; some of which — I know of four — that are at the $500 million USD size. They’re fairly sizeable fiat to crypt interfaces.
Silverstein: And one of the funds you’re invested in is an ICO only fund, correct?
Matsumura: That’s correct, I am a limited partner with Pantera Capital. And that’s a $100 million ICO only fund. So it invests exclusively in tokens, not in traditional venture equity.
Silverstein: So if you missed out on the bitcoin rally or you think you did, should everyone just go into these ICOs? Because it sounds like a really exciting things that’s happening
Matsumura: Well I’d like to be a little more cautionary about this. One of the things that’s happened is that it’s such a popular fundraising vehicle, because it has genetic roots with crowdfunding. And so one of the problems is that everybody has like a cousin that’s doing an ICO. And that is actually a little scary. I would probably stay away from most of these instruments.
What’s happening now is that more and more kind of whale-class investors are diligencing these instruments and that’s actually very proper. It’s actually interesting that the market is self regulating. So there are fewer and fewer retail investors that are randomly throwing cryptos at CEOs, which I think is a healthy trend.
Matsumura: Because I do think these are very complex to analyze. And understanding the fundamental value of a specific ICOs I think the job of people who do that all day long as professionals.
Silverstein: And what are the types of flags you would look for as far as an ICO that doesn’t make sense?
Matsumura: Well for me I’m really looking for a fundamental connection to the technology underlying it, which is blockchain. So to describe blockchain very succinctly, it’s a really, really slow database. And the only reason you would want to use blockchain is if you didn’t trust anyone.
And what’s a situation like that? Bitcoin is a perfect situation because you shouldn’t trust anyone with your money and so that’s what that blockchain is doing. To underscore it, it’s a very slow database. So if you want a faster database, you just need to find a situation in which someone can be trusted to run it.
So to me, when I analyze ICO, I’m really looking for fundamental uses of the technology. Whether it’s relevant or not, I feel like that’s key.
Silverstein: So this general idea that blockchain can revolutionize everything and everything can be decentralized, doesn’t necessarily make sense.
Matsumura: No, so it is one of my investment thesis points that we are at a point of peak centralization and so it is the case that the pendulum — in many cases — swings toward decentralization in a lot of infrastructures. And that there are a lot of externalities, which means that there are costs that people are bearing that they didn’t agree to bear in many different kinds of systems.