[THE INVESTOR] NEW YORK CITY -- The recent cryptocurrency craze continues with seemingly no end in sight. More investors and even people with little knowledge of digital currencies are hopping on the bandwagon, propping up their price. Although many experts have raised a red flag over a possible bubble burst, many others also forecast that blockchain, the core technology behind cryptocurrencies, and digital coins will be widely adopted in the near future.
Blockchain records transactions between users in a virtual block and links a new block to the preceding one.
George Popescu, CEO of initial cryptocurrency offering consulting firm Block X Bank, said there should be some measures to cool the overheated market and more efforts need to be made to enlighten individual investors about potential risks stemming from the ongoing crypto-craze.
“People borrow money and invest in cryptocurrencies. If they lose it, they can get really hurt in this Bitcoin craze,” said the CEO, who also runs augmented reality lamp maker Lampix -- which produces lamps that transform a flat horizontal surface into an interactive computer, and raised US$14 million through an initial coin offering in August last year.
“Maybe what we should do right now is to set up a suicide prevention lifeline to give those who hoard Bitcoins a call and ask if they really know what they are doing,” he added.
Block X Bank, founded in 2016, helped five startups proceed with an ICO, through which they raised funds, of about US$14 million to US$90 million. Those companies include Coinme, a Bitcoin ATM company, and blockchain-based e-sports platform firm FirstBlood.
Regarding the controversy over whether bitcoin valuation is overblown, he said the digital currency is currently experiencing a bubble, but it is rather a natural process which other types of assets or technologies usually go through.
Popescu also drew a rosy picture of the blockchain tech and ICOs, which he said will soon go mainstream.
“Everything will be on blockchain in the very near future as governments are already creating their own cryptocurrencies or actively working with the private sector to understand the space,” he said.
As of Oct. 16, the number of ICOs in 2017 stood 234 with the total funds reaching nearly US$3.7 billion, according to CoinSchedule, an ICO data firm.
Following are experts from the interview.
The Investor: Do we have to brace for a Bitcoin crash?
Popescu: I find it very funny when people talk about a Bitcoin bubble. That is because if you look around, everything else is in a bubble. Real estate is in a bubble again. Stocks are in bubble territory by any measure. Bonds are in a huge bubble, with record-low yields -- even negative rates in some countries.
Can we see huge crashes along the way? Sure, especially if central banks turn off the spigot. But of all asset classes, crypto is probably the least overvalued, probably next to precious metals.
People who are worried about a Bitcoin bubble possibly bursting should worry first about all the other bubbles bursting.
TI: Is blockchain a threat to conventional financial institutes and government organizations?
Popescu: Blockchain is a threat to bloated, too-big-to-fail banking institutions that almost brought the whole system down eight to nine years ago. Bitcoin was created as a solution to the causes of the financial crisis. If it is a threat to the fractional reserve banking system it is not because Bitcoin is bad, but because that system is prone to failure. At the same time, blockchain is another chance for financial institutions and government if they adopt the new, superior technology instead of fighting it.
TI: Will blockchain disrupt some industries other than financial firms?
Popescu: I don’t think it will destroy all the industries as Amazon, which killed Barnes & Nobles, did not kill General Electric or General Motors. In the same way, the blockchain space is going to kill 10 to 20 percent of the internet businesses. It will also create new things that we have not seen before. So it is adding value to humanity.
TI: Should there be new regulations for cryptocurrencies?
Popescu: (Participants in the cryptocurrency market) have to abide by all the existing regulations (in the financial sector.) There are, for example, anti-money laundering and Know Your Customer rules you have to follow. I think they can apply the existing regulations to the emerging technology.
In the cryptocurrency market, everything is much clearer. You don’t have to declare every transaction above US$10,000. You can look at the blockchain and see how money is moving.
TI: What did you do with the funding for Lampix?
Popescu: We raised US$14 million during our ICO. We are using that to build our team and to finance operations. We have funding for more than five years. We are very stable, and are determined. We have a small, efficient team and we will succeed.
We had previous funding, enough to get to a proof of concept state, but we are now building the production grade product and will start scaling.
TI: Tell us the advantages and disadvantages of raising funds through an ICO.
Popescu: Doing an ICO means you get funding without dealing with venture capitalists, losing board seats or a huge chunk of equity shares. But you do have responsibilities toward your ICO participants.
After the ICO you are accountable to them, they believed in you and your project and you need to create value for them. Some of them might not be long-term investors, they might not have the patience necessary for a startup. That is the disadvantage, your communication needs to be top notch or you will deal with a lot of unhappy investors. I am still learning this.
TI: What does a startup have to do to become successful?
Popescu: The underlying idea is important, but even more important is the team you are able to put together and your execution. As an example, just look at McDonald’s. Almost everyone on the planet can make a better burger, but who can create such a great business?
If you look closely at McDonald’s you will see in fact they are a real estate company masked as a burger joint. They own some of the best commercial real estate in the world, best intersections and city street corners. So execution is even more important than the initial idea if a startup wants to become big.
TI: How difficult is it for a startup to attract investment in New York?
Popescu: New York is the financial capital of the world, so if you have a good network you can find funding. The important issue is under what conditions -- VCs would gladly grab seats on your board or a good slice of company shares if you accept just anything.
By Kim Young-won (firstname.lastname@example.org)
This story was sponsored by the Samsung Press Foundation. - Ed.