To provide an insight into this market for our readers, Finance Magnates sat down with Stelian Balta, founder and CEO of HyperChain Capital, a blockchain assets-focused hedge fund.
How did you got started in the cryptocurrency industry?
Since I was 19, I founded companies in industries like e-commerce, social, mobile gaming and casino gaming. At 24, after I sold my first casino gaming company to Rocket Play (backed by Pitango Venture Capital, Israel) I took a 6 month break from work to focus on research and reading dozens of books.
I discovered Bitcoin and blockchain technology in 2012 and I realized it will have a disruptive impact in the world in so many areas.
Based in Singapore, as a founder of HyperChain Capital, I am focused on blockchain related companies, helping teams of brilliant people on their strategy and fund raising.
What are the main reasons for the recent rally in the cryptocurrency market?
The acceptance in the financial industry of digital assets as uncorrelated financial instruments is one of the reasons. Digital assets or tokens look very promising as alternative investments and high net worth investors, family offices and hedge funds are starting to participate in the market.
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I think the recent rally in the digital assets market is natural, people start to realize the potential of blockchain related technologies. By using token sales or ICOs (Initial Coin Offerings) to fund these projects, it’s the first time in the history of technology when people around the world can participate and fund the next generation of protocols and web technologies.
It disrupts VC completely. An investor doesn’t have to wait for a liquidity event 5-10 years (through M&A or IPO), it depends on the availability of the tokens on an exchange, which are released soon after the ICO is over.
What are the reasons for the high valuations and record fast crowdfunding in the ICO scene?
I think one of the reason is that blockchain technology is starting to have real applications. ICOs started as experiments and now are emerging as a standard way for Blockchain-related companies to get funded. All the value of these projects is at the protocol level and everyone who buys into ICOs is incentivized to help the project along the way. Imagine if HTTP or SMTP protocols were tokenized 30 years ago, it would have unleashed billions of dollars in value.
Tokens are creating new organizational structures , where users of the network and its creators have the same interests. Giving access to financial benefits to early supporters of a project is a big reason why ICOs are oversubscribed.
ICOs bring democracy to the world of financing and offers people around the world a way to participate in building and financing the next technologies.
How should an investor evaluate an ICO for its potential and avoid falling for scams?
I think the most important part is doing careful due diligence on the team. How long they know each other? What’s their history of working together? They will spend their next 5-10 years together working on a project, so the founder and the team should have a great reputation and a long history of working together. Another part is looking into the structure of how founders and teams are incentivized in the long term.
What is the best way to maximize profits in the current market?
We’re still in the experimental stage in ICO space. Projects try different funding structures such as auctions (Gnosis raised $12 million at a $300 million valuation using a Dutch-style auction). Everyone having access to this new market brings a lot of inherent risk. I think the best way to maximize profits is by participating in the creation of reputable projects when they do an ICO and holding the tokens…forever.
What is the safest way to enter the market?
Others think that it’s easy to participate in ICOs just by going to the project websites and following the instructions. That’s not true. You need to understand the white paper, have the technical background to understand the feasibility of the project, accept and assume security issues, understand the token structure, and many many more issues and processes.
Being in the industry since the first ICO (2013), I think investing in a professional hedge fund specializing in the digital assets (tokens) market is one of the solutions to the existing risks of ICOs. For example, at HyperChain Capital, we have skilled teams of people doing security audit of smart contracts, management of tokens, funds security, audits, etc. HyperChain Capital’s basic investment strategy is the management of a diversified portfolio of tokens.