TIME FOR CONSTRUCTIVE DIGITAL ASSET REGULATION

Blockchain Coinvestors Newsletter

Vol. 4, No. 14, June 2022

Time for Constructive Digital Asset Regulation - Past is Prologue

Before we talk about constructive lawmaking in the context of digital monies, commodities, and assets, we would like to remind you that the next closings of Blockchain Coinvestors Fund III (Fund of Funds), Fund IV (early stage token strategy), and Fund VI (mid stage growth strategy) will be in June. Please send in your LOI if you wish to participate in this closing or increase your commitment if you've already invested. Our team at IR@blockchaincoinvestors is standing by.

 
Remember 1994?

 

Back in 1994 the Internet (or the world wide web as most people chose to name it) was a confusing concept. Our opening image is taken from a TV show in which Katie Couric and Bryant Gumbel debate how to pronounce @ and its meaning. Bryant asks "what is the Internet anyway?" None of them have a good answer. Who would have known that every industry would be transformed? Well Bill Gates got it in 1994 as you can see in this clip from the same year with David Letterman. Microsoft took the plunge and became one of the world's most valuable companies as a result.

 

However, the world was in chaos and figuring out how to guide and accelerate a new innovation was not top of mind for most lawmakers. In headlines from 1994 interest rates were threatening to collapse the public equities markets...

...and the fear of inflation was keeping the Fed chairman in front of lawmakers in Washington DC who were arguing back and forth on the strength of the economy, the prospect of rampant inflation, the need for higher interest rates, and the risk of damaging the investment markets.

The dialog was not helped by the mainstream press who themselves did not really get the Internet and its prospective power. They wrote articles like this one from Newsweek arguing that it was all bunk anyhow.

Meanwhile, when many people did think about the Internet all they could see was the 'darker side' of the innovation. The papers were full of stories of the dark web, porn online, sales tax avoidance, copyright infringement, and credit card fraud and chargebacks among other matters. All real issues, but chaff that made it hard to see what was really happening. 

 

All the world's communications and content were being digitized and made available to everyone who chose to be online.

 

In among all that confusion, chaos, and disinformation, the good news was that a handful of forward looking lawmakers took action to accelerate the Internet and ensure the US's leadership on a global scale.

 

Constructive Internet Lawmaking

 

To quote Roger Cochetti who was then responsible for Global Internet Public Policies at IBM:

 

"Beginning in 1994, most of the principles and basic rules that govern the internet today came together in Washington, and by the end of the 90s, they were mostly established. The world was a very different place than it is today: Around 25 million people used the internet (up from 14 million the year before); there were about 3,000 websites (up from a few hundred the year before); “Forest Gump” and “Pulp Fiction” were the top movies; computer bulletin boards were still mildly popular, and the big three online service providers were AOL, Prodigy and CompuServe. And, oh yeah, Mark Zuckerberg was in junior high school, Jeff Bezos was working for a New York City hedge fund, and Larry Page was an undergrad at the University of Michigan."

As Roger recalls, Internet regulation began because of a handful of Washington insiders who were able to see the power of the innovation, and wanted to accelerate it:


"Against this background, a small number of Washington insiders began to formulate the ideas that soon led to major laws and regulations that have determined to this day that the internet is fundamentally different from broadcasting, publishing, cable TV, telephony, and even private computer networks...Internet policy-making in those early days was not driven by scholars, law review articles, extensive hearings or international conferences. It was driven by the practical concerns of businesses and the input of a very few NGOs...Most of the internet giants today assert that these 1990s policy principles were wise and are essential to the internet’s survival."

 

Well past is prologue.

 

Constructive Blockchain Lawmaking


Today our lawmakers are again confused about a second inevitability. Just as it was inevitable that global communications and content would be digitalized and thus give birth to the Internet, so today it is just as inevitable that monies, commodities, and assets will be transformed from paper to digital, and that we will have global digital versions powered by blockchain.

Much of the reason our lawmakers are missing this key transformation is that most of them are focused on the serious challenges of today - the global pandemic, war in Eastern Europe, inflation, interest rate policy, public market volatility, and so on. It is not that they are wrong to focus on today's big issues. It is just that their role is not only to respond to the challenges of our times. They are supposed to also be the ones that lead us into the future and shape it to our best purposes. They are supposed to set constructive laws that make the future a better place, and to position the US as a leader in that future (the same can be said of lawmakers in every other country too of course).


Fortunately a few are - just as in the 1990's. To quote Coindesk:

"A wide-reaching, bipartisan crypto bill emerged Tuesday from U.S. Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), who are seeking to extend a comprehensive set of regulations across digital assets in the U.S. and have given industry lobbyists something meaty to debate...Their bill would liberate small-scale purchases of goods and services from the mire of tax implications by making transactions of less than $200 tax-free – potentially clearing a path for a cryptocurrency that acts more like a currency. And, as expected, the legislation would grant new powers and a commanding presence to the Commodity Futures Trading Commission. The legislation attempts to tackle the biggest questions hanging over digital assets. It would set new federal law for stablecoins, taxes on small-scale payments and the jurisdictions of regulators – answering the uncertainties that have kept the fledgling financial sector from maturing."


Read more of the Coindesk assessment by clicking here.

 

We are excited that Senators Gillibrand and Lummis have taken this constructive and bipartisan first step. They will make digital monies, commodities, and assets a reality, and once again help the US be a leader in innovation and not the laggard which it is at this time.

 

What Should Investors Have Done in 1994?

 

For us as investors, what should we be doing right now? Well in 1994 we know what the answer was. It was to take our heads out of the interest rate, inflation, public markets volatility themes that were filling the newspapers, and instead look for great companies to invest in for the long term. That would have taken us in the direction of the pioneering Internet venture capital firms of that time and the companies they were backing like Amazon, Apple, Facebook, Google, and Microsoft which are today the world's most valuable businesses.

 

That is what we are doing in 2022 at Blockchain Coinvestors. It feels very much the same as that earlier time that we all lived through when the Internet was first incubated, launched, and then accelerated into global prominence.

 

Recognize the Opportunity

We believe the timing for investing into early stage blockchain companies and projects is ideal. Our investment thesis remains on point as we are seeing a global acceleration towards digital monies and assets. Meanwhile, the historical evidence shows that venture capitalists outperform following a downturn. Furthermore, early stage venture capital remains the highest performing asset class and blockchain is the highest performer within venture capital. We have recently recorded a webinar called Recognize the Opportunity that recaps how well positioned our funds are in this context.

Thank you for reading.

Alison Davis

Matthew C. Le Merle

ABOUT BLOCKCHAIN COINVESTORS

 

Launched in 2014, our goal is to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and crypto projects. The strategy is now in its 9th year and has to date invested in more than 40 pure play blockchain venture funds in the Americas, Asia and Europe; and in a combined portfolio of 400+ blockchain and crypto projects including approximately 50% of all blockchain unicorns. Our funds rank in the top decile amongst all funds in their respective categories on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in Grand Cayman, London, New York, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.

FUND PERFORMANCE

 

Blockchain Coinvestors Fund III (Fund of Funds) was created to provide diverse coverage of the best blockchain pure play venture funds in the Americas, Asia, and Europe. Blockchain Coinvestors Fund I and II have already experienced significant appreciation. Fund I Net TVPI is 4.72x with an IRR of 72%. Fund II shows equally impressive early results with Net TVPI of 2.08x and an IRR of 146%. Almost all of our fund investments are performing as top quartile against the Cambridge Associates Venture Benchmark.

BLOCKCHAIN COINVESTORS FUNDS

Blockchain Coinvestors’ goals are to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships. Our funds are open to investors that meet the Qualified Client definition with a minimum subscription level of $250,000 at the discretion of the Manager. 

 

  • Blockchain Coinvestors Fund III (Fund of Funds) was created to provide diverse coverage of the best blockchain pure play venture funds in the Americas, Asia, and Europe. Blockchain Coinvestors Funds I and II have already experienced significant appreciation. Fund I Net TVPI is 3.64x with an IRR of 69%. Fund II shows equally impressive early results with Net TVPI of 1.72x and an IRR of 161%. Almost all of our fund investments are performing as top quartile against the Cambridge Associates Venture Benchmark.

  • Blockchain Coinvestors Fund IV (Early Stage Token) provides direct access to promising private stage token projects accessing our relationships with many of the world’s leading blockchain investors. We leverage asymmetrical information from our 40+ VC Funds to pick the most attractive opportunities. This is a continuation of the direct token investing strategy of the Fund Manager that has included private stage investments in Acala, Filecoin, NEAR, Polkadot, Structure, and others.

  • Blockchain Coinvestors VI (Mid Stage Growth) provides direct exposure to the emerging category leaders in the blockchain and crypto ecosystem. The fund leverages our unique sustainable competitive advantage (USCA) in blockchain, web3, and fintech to create a concentrated portfolio of between 20 and 30 investments with attractive return profiles and visible paths to liquidity. The fund assesses the more than 400 blockchain and crypto projects in which we are direct and indirect investors and employs a robust investment framework to select investment opportunities into the leading mid stage growth rounds - typically Series B, C and D. This is a continuation of the mid stage investing strategy of the Fund Manager that has included investments in Bitwise, Brex, InfiniteWorld, Securitize, Uphold, Wyre, and others.

Please visit the Blockchain Coinvestors website to learn more about our offerings. You can also reach our Investor Relations team directly at ir@blockchaincoinvestors.com.

BLOCKCHAIN COINVESTORS SWISS

We are excited to announce that Blockchain Coinvestors Funds are now available through Swiss certificates for those of our non-US investors who prefer this approach. The underlying fund is the same, however, our Zurich based team at Blockchain Coinvestors Swiss, who will introduce in future weeks, can provide detailed information regarding this investment option. Email us at mlemerle@blockchaincoinvestors.com to learn more.

BLOCKCHAIN COINVESTORS ANGELLIST SYNDICATE

Continuing the theme of the democratization of investing, we have a rapidly growing Blockchain Coinvestors syndicate on AngelList providing access to selected coinvestments. Please join us and our partner Lou Kerner on AngelList.

Click here to receive the insightful weekly crypto newsletter and webinar invitations from our Blockchain Coinvestors partner Lou Kerner.

REGISTER NOW FOR UPCOMING WEBINARS AND CALLS

 

Our investment team hosts bi-monthly webinars and calls to help educate our community about the Fifth Era, fintech, blockchain and crypto. We discuss important trends, tailwinds and investment themes including what we have learned and how we are using our knowledge to inform our own investment thesis and actions. Below is a list of upcoming webinars for which you can register by clicking the links:

 

What are NFTs?
- June 27th, 7:00am PT
- June 27th, 11:00am PT

 

Meet the Blockchain Unicorns - Mid-Year 2022
- July 12th, 7:00am PT
- July 12th, 12:00pm PT

 

Options for Investing in Blockchain and Crypto

- July 25th, 7:00am PT
- July 25th, 12:00pm PT

 

Recordings of past webinars and calls can be found at www.blockchaincoinvestors.com/webinars.

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