Blockchain firms ready to emerge out of the shad­ows, con­fer­ence told

In­sti­tu­tional in­vestors look­ing for ways to get a piece of bit­coin’s mas­sive gains

Calgary Herald - - FINANCIAL POST - CLAIRE BROWNELL Fi­nan­cial Post cbrownell@na­tion­al­post.com Twit­ter.com/clabrow

Deepak Kaushal, di­rec­tor of re­search at GMP Se­cu­ri­ties LP, had a word of cau­tion for the busi­ness crowd as­sem­bled un­der the Fair­mont Royal York’s crys­tal chan­de­liers in Toronto on Thurs­day.

GMP was host­ing a con­fer­ence on blockchain, the tech­no­log­i­cal in­no­va­tion that makes cryp­tocur­ren­cies such as bit­coin pos­si­ble. In a tes­ta­ment to the ex­plo­sion of in­ter­est from the fi­nance com­mu­nity as the price of a sin­gle bit­coin surges past US$15,000, the vast ma­jor­ity of peo­ple in at­ten­dance were wear­ing suits and ties, not jeans and hood­ies. Af­ter the pre­vi­ous speaker had colour­fully de­scribed the cryp­tocur­rency com­mu­nity’s at­ti­tude as “zero f---s given,” Kaushal is­sued a ret­ro­spec­tive heads-up to any­one more used to a dif­fer­ent tone.

“I just wanted to warn you,” he said. “You can’t get through a blockchain con­fer­ence without hear­ing an f-bomb.”

Just a few years ago, bit­coin was best known as a cu­rios­ity, of prin­ci­pal in­ter­est to geeks, hack­ers and drug deal­ers on the dark web. To­day, in­sti­tu­tional in­vestors are look­ing for ways to get a piece of the sec­tor’s mas­sive gains in the hopes of get­ting in early on a tech­no­log­i­cal in­no­va­tion some pre­dict will be as trans­for­ma­tive as the in­ter­net.

GMP’s chief ex­ec­u­tive Har­ris Fricker wants to help match those in­vestors with blockchain com­pa­nies look­ing to raise cap­i­tal. Fricker said he sees an op­por­tu­nity to help such com­pa­nies go pub­lic us­ing a mech­a­nism fa­mil­iar to Canada’s min­ing and oil in­dus­tries: re­verse takeovers to list blockchain firms on the TSX Ven­ture ex­change.

“The real op­por­tu­nity has been to do what we al­ways do,” Fricker said .“And that con­nects re­ally good en­trepreneurs with good man­age­ment teams and good boards with re­ally smart peo­ple who want to in­vest money in them.”

The strat­egy comes with some big risks. Gov­ern­ments are still grap­pling with how to reg­u­late blockchain and cryp­tocur­ren­cies, which make it pos­si­ble to anony­mously trans­fer value across bor­ders without in­volv­ing cur­rency is­sued by cen­tral banks.

To stay on the right side of the reg­u­la­tory en­force­ment, Fricker said GMP does rig­or­ous due dili­gence on ev­ery blockchain deal it un­der­writes. Ul­ti­mately, how­ever, he said his firm is look­ing for the same qual­i­ties that make any startup a good bet.

“It all starts with, do you have a good man­age­ment team? Do they have a log­i­cal and com­pelling idea? And do they have, in their struc­ture, good gov­er­nance?” Fricker said. “We pass, prob­a­bly, on eight out of 10 op­por­tu­ni­ties.”

To some blockchain com­pa­nies, go­ing pub­lic through a re­verse takeover on a ju­nior stock ex­change rep­re­sents the old-fash­ioned way of rais­ing money. The past year has seen un­proven com­pa­nies with lit­tle more than a web­site and an idea raise hun­dreds of mil­lions of dol­lars through ini­tial coin of­fer­ings, in which founders sell units of cryp­tocur­rency to the pub­lic rep­re­sent­ing shares in the com­pany.

Fricker said he thinks the ICO mar­ket will even­tu­ally calm down and be­come a per­ma­nent fix­ture, with founders able to use the mech­a­nism if they com­ply with the same reg­u­la­tions as any­one else sell­ing a se­cu­rity. How­ever, he said com­pa­nies will still need the ser­vices of in­vest­ment banks like GMP if they want ac­cess to big-name in­sti­tu­tional in­vestors.

“We’re deal­ing with large in­sti­tu­tional money man­agers, pen­sion funds, en­dow­ments, trusts,” Fricker said. “They want to know the due dili­gence has been done, they want to know there’s a top­tier au­dit­ing firm in the mix, a top­tier le­gal firm in the mix.”

There’s also a risk gov­ern­ments will one day de­cide they don’t like the idea of a state­less dig­i­tal value trans­fer sys­tem and at­tempt to ban cryp­tocur­ren­cies out­right. Reg­u­la­tory de­ci­sions that are un­favourable to the sec­tor have caused wild swings in the value of bit­coin in the past, with more and more cap­i­tal at risk as the main­stream fi­nan­cial com­mu­nity en­ters the space.

Speak­ing on a panel, Mat Cy­bula, chief ex­ec­u­tive of Cryp­tiv Inc., a Toronto-based cryp­tocur­rency wal­let soft­ware com­pany, said he thinks gov­ern­ments would have a tough time mak­ing a move that dras­tic now.

“At this point, if you try to kill bit­coin, it will just make it stronger,” he said. “There’s no go­ing back at this point.”

PE­TER J. THOMP­SON

GMP’s chief ex­ec­u­tive Har­ris Fricker wants to help match in­sti­tu­tional in­vestors with blockchain com­pa­nies. He sees an op­por­tu­nity in re­verse takeovers that list blockchain firms on the TSX Ven­ture ex­change, though it comes with huge risks in the Wild West of cryp­tocur­rency.

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