Canaccord Genuity, a company that offers corporations and institutional investors around the world an integrated platform for equity research, sales and trading, and investment banking services that is built on extensive operations in Canada, the UK & Europe, the US, China, Hong Kong, Australia and Dubai had a bit to say on the cryptocurrency market.
The report “Crypto Quarterly,” published by Canaccord Genuity, on Nov. 14, gives the reader a very much needed extensive overview of the cryptocurrency space, the highest-capitalized coins and the trends that are expected to shape the crypto ecosystem in the months that are to come.
The primary people in the making of this report were, Michael Graham, Austin Moldow and Scott Suh, all analysts and associates that work within Canaccod Genuity US.
The primary topics discussed in the report were, the topic of cryptocurrencies and their value to the economy, the topic of ICO’s from a historical perspective and key issues that are present within that space. They also provide an update on major events, key developments, and other updates on major cryptocurrencies taking place in the sector.
The report starts off on an interesting note, they address how, at last year’s Money2020, bitcoin had dipped $750 to $500 and that it seemed generally, that everyone was giving up on the bitcoin currency. Interesting because the currency is now more than ten times that price.
They go on to state how they are generally in agreement with the notion that “the world will likely benefit from one or a few digital currencies that can find a middle ground between gold and fiat as a medium of exchange, combining the qualities of limited and visible supply with high trust (liquidity), but layering in the convenience of being digital and widely accepted globally.”
Next important point ” it is less obvious that we need all of the over 1,000 crypto coins that have been created to date, raising over $3.3 Billion via ICO’s so far in 2017 alone. In our opinion, there is clearly a great deal of froth, wishful thinking, and less-than-ethical behavior surrounding many of these coins. That said, however, the great thing about market prices is that they are accurate in the sufficiently short-term 100% of the time. Therefore, we have no quarrel with this estimate; these ICOs have created billions in market value in a very short time, and therefore this definitely qualifies as a boomlet, perhaps on its way to becoming a boom. Is it also a bubble? Maybe … but bubbles can take a long time to pop”
This note is a sentiment that is shared by many from regulators to investors, billions in market value created in a short time can also be wiped in a short time too can it not? That’s the underlying concern, how many of these projects will be able to continue further and accomplish their visions and missions? How can there be an enforcement of sticking to the mission and increase the value of the tokens that are distributed? Who will endeavor to get eth and other cryptocurrencies back to investors if the project is consistently missing it’s deadlines and goals?
Another important point made in the report was about the comparison between the coins and stocks. The differences between a coin and stock is information that’s necessary for investors know. The first point is that “the token received from an ICO are worthless because they typically will not confer any right of economic ownership or any portion of the future cash flows of the underlying company.” But, it’s also important that investors understand that “not all coins are created equal, and there are coins that allow the holder the right to receive a portion of a company’s revenue or net income. Yet, most coins rely on underlying demand for the company’s products or services to, when set against a fixed supply of coins, drive the values of these coins higher.”
Then they address what ownership means with common stocks, they state how “common equity will typically” not benefit fully from their ownership, in the sense, they may not be able to influence company operations and do other things.
“We deem it HIGHLY unlikely that you could convince the board to exchange your share of stock for 1×10-9 % (your fractional ownership of the company’s shares outstanding) of the company’s office furniture, intellectual property, cash, accounts receivable, etc. We deem it HIGHLY unlikely that the company is going to pay you a dividend any time soon (although they may buy back stock, which can also more or less happen in coin).
The share of the stock has value because in market dynamics,” you could very likely sell it for close to the price that the stock commands in the secondary marketplace. This means, that the price depends on the valuation of the company and it’s future prospects by the “incremental buyer / seller regarding two items: 1) the future operating performance of the company (i.e., happy customers, market share, innovative products, revenue, earnings, cash flow, ROIC, ROIC/IC ; and 2) what market participants think that operating performance is worth (typically based on some valuation metric like P/E which is a short-cut to considering risk, size and duration of competitive advantage, investment time horizon, and the like). Put more succinctly, the vast majority of common equity ownership situations are primarily bets on how the secondary market will value the future operating performance of the company. “
They come to the conclusion that there is more similarities than not between stocks and the coin market.
Further analysis of the report continued in part two of this series uncovering the insights present in this report!
“If, over the next 1-2 decades, the coin market evolves to a more mature state such that one day most coins are attached to well-established companies and trade with sufficient liquidity so as to reduce risk, we believe the gap between ICOs and IPOs will look fairly small. We are obviously not there yet, so in our opinion, while ICOs may hold a great deal of promise, they have to be viewed as extremely risky.”
As noted in the previous portion, it is necessary for these current companies that are launching their various ICO’s to be able to follow through with their stated projects or transform the projects into something that would be demanded by the market, will provide a solution that is needed and create value for all parties involved. If ICO launched companies are able to do this and overcome these initial fears that are presented by many investors, then ICO’s can become something that is common place and embraced by the market in general. But until they are able to do this they are going to have a high level of risk, fundamentally because of their lack of strong history and lack of significant accomplishments.
We then see that they dive into the definitions of what ICO is and the different sorts of coins that are present in the marketplace as of today.
“What is a coin? A “coin” (synonymous with cryptocurrency, and “token”) is a digital asset that can be purchased, sold and used as a medium of exchange. The method of exchange is typically digital and machine-to-machine.
How does an ICO work?
The company involved in the ICO will usually write a whitepaper and establish a new token or a crypto coin and sell these to investors. The whitepaper will state why the company is in existence, what it aims to do, what the current market problems and how this company will be the one to take over. They will typically have their histories, the team, the advisory board and the amount of money they are raising and why they are raising it.
The whitepapers will also make note of the technologies and how the technologies will work, milestones met, why there will be demand for the coin, and other details that might be relevant for interested parties to look at.
“(This is analogous to a prospectus, but with limitations as these coins have been deemed by their issuers as NOT being securities)”
therefore not registered with the SEC, and therefore the whitepapers are not subject to any regulatory content requirements).
There might be presale, the pre-sale dates will be presented as will the date of the ICO and what currencies will be accepted in the raise.
“These terms are posted on various ICO sites like CoinSchedule or ICO Tracker, or they are sent to known ICO investors, and the company keeps the offering open until it is filled, or until they want to stop it.”