GMP Blockchain Conference Final - gmpsecurities.com · Blue Sky 204% 75% Markets return to LTM peak Be informed, take advantage, and invest with discipline Source: GMP Securities

Deepak Kaushal, P.Eng., CFA (416) 943-6686

November 2018

BLOCKCHAIN

A year later: Investing in the Trough of Disillusionment

The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not guaranteed, nor in providing it does GMP Securities L.P. (“GMP”) assume any responsibility or liability whatsoever. Information on which this report is based is available upon request. This report is not to be construed as a solicitation of an offer to buy or sell any

securities. GMP and/or affiliated companies or persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.


November 2018

A bubble has burst…

…but digital assets are here to stay

Emerging asset classCrypto-correction

20

40

60

80

100

120

-

100.00

200.00

300.00

400.00

500.00

(U$b

n)

LTM Performance

Altcoins Market Cap

Bitcoin Market Cap

Canadian Blockchain Companies (Indexed)

Source: FactSet, Coindance Source: GMP Securities, BIS, Worldbank, coinmarketcap.com, SIFMA.org, federatedinvestors.com

*Global bond debt as of 2016

0.2 7.777.6

127

532

0.0

100.0

200.0

300.0

400.0

500.0

600.0

$U trillion

s

Global Market Capitalization ‐ 2017 (U$t)


November 2018

We have entered a trough of disillusionment…

…and now is a good time to invest

Significant long-term value

Source: Gartner, Geoffrey Moore Source: FactSet

“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” Roy Amara


November 2018

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

Bitcoin Price ($U)

All eyes are on Bitcoin

Past bubbles have corrected to a higher base, followed by gradual value appreciation

Source: Coinmarketcap

-

400

800

1,200

2,500

3,500

4,500

1,500 1,900 2,300 2,700 3,100

320

420 520

620


November 2018

Bitcoin appears to be establishing a new base…

…suggesting a market bottom

Current prices have found a base

Source: coinmarketcap

Number of transactions are steadily increasing

Source: Coindesk


And so have trading volumesPrice volatility has stabilized…


-

5,000

10,000

15,000

20,000

BTC: 2017-2018 (U$)

125,000

200,000

275,000

350,000

425,000

500,000

BTC Transactions per Day

-

5,000,000,000

10,000,000,000

15,000,000,000

20,000,000,000

25,000,000,000

BTC 24H Trading Volumes (U$)


November 2018

While the debate rages on…

…awareness and understanding is on the rise

Bull caseBear case

• No government backing

• High energy consumption

• Used for illegal activity

• Hacking risks

• ICO fraud

• Not scalable

• Not used for payments

• No real applications

• Blockchain is real but crypto currencies are a scam

• Speculative investors only

• No government point of failure

• Low total cost for trust without centralized control

• Transparent, improving forensics and AML regulations

• Regulated custody and insurance is emerging

• Regulatory clarity on commodity vs security

• Second layer solutions emerging (i.e. lightning network)

• Early days (new currencies take decades to earn trust)

• Forget Cryptokitties, ICOs have disrupted traditional VC

• Not a winner take-all technology

• Institutional investment rising


November 2018

$0.2$0.5 $0.5

$0.7$1.0

$3.9

0

50

100

150

200

250

300

350

400

450

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

2013 2014 2015 2016 2017 2018

VC Capital Invested (U$bn) vs Deal Count

VC Raised (U$bn) Deal Count

Underlying capital investment in the industry is rising

…falling crypto prices are NOT reflective of underlying activity

ICO activity has slowed down in recent months

Source: GMP Securities, Diar

- 100.00 200.00 300.00 400.00 500.00 600.00

Altcoin Market Cap (U$bn)

VC investments have been on the rise

Source: GMP Securities, Diar

Source: Coindance

And smarter money is flowing in

Resulting in price pressure on altcoins

Source: Diar, CB Insights

$2.4$2.6

$2.0

$1.3

$2.0

$0.6$0.4 $0.5

$0.2

0

10

20

30

40

50

60

70

80

90

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

Jan‐18 Feb‐18 Mar‐18 Apr‐18 May‐18 Jun‐18 Jul‐18 Aug‐18 Sep‐18

ICO Funds Raised (U$bn) vs Number of deals

ICO Funds Raised (U$bn) Number of Deals


November 2018

On-ramps for institutional capital are improving…

…and will enable a new wave of investment and innovation

Regulatory Clarity

Improving Markets

Next Catalysts

Brand-name custody✓

Commodity vs. Security✓

Cash Settled Derivatives✓

Physical Settled Derivatives✓

Security Token OfferingsExchange-traded Funds


November 2018

But development in underlying technology takes time…

…and application remains at an early stage

First movers Early followers

Public Blockchains Private Blockchains

Fintech

Enterprise

Consumer

Pilot Projects Live Application

Gov’tState-issued

currency

Land Registry

Digital identity


November 2018

Our thesis is intact: Be informed, take advantage, and invest with discipline

Investors in technology and financial services should have exposure


November 2018

Canadian equities are only a small corner of a large high-growth industry…

…and early stage investing is high risk and requires diversity

$2,561

$273,602

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Total Canadian Public BlockchainEquities

Total Crypto Market Cap

(C$m

m)

Canadian Public Blockchain Equities vs Total Crypto Market Cap (C$mm)

Source: Factset Source: Factset, Coinmarketcap

Canadian Blockchain equities have performed worse than Bitcoin in the past 12 months…

And while Canada is the largest public market for blockchain, it is tiny versus the global market


November 2018

The investment landscape is segmenting as expected…

…but startup investing requires diversification to maximize risk-returnSource: GMP Securities


November 2018

Opportunity offers asymmetric upside

‐

100,000,000,000

200,000,000,000

300,000,000,000

400,000,000,000

500,000,000,000

600,000,000,000

700,000,000,000

800,000,000,000

900,000,000,000

Feb‐16 Aug‐16 Feb‐17 Aug‐17 Feb‐18 Aug‐18 Feb‐19

Crypto Market Growth: Scenario Analysis

Base Case Grey Sky Blue Sky

Grey Sky: ‐59%Base Case: 136%Blue Sky: 204%

Scenario Analysis Crypto Mkt Cap Returns ‐ Volatility Adj Weighted Probability CommentaryGrey Sky ‐59% 25% Markets decline to LTM LowBase Case 136% ‐ LTM Market ReturnsBlue Sky 204% 75% Markets return to LTM peak

Be informed, take advantage, and invest with disciplineSource: GMP Securities


November 2018

Key takeaways:

Be informed, take advantage, and invest with discipline

We have entered a trough of disillusionment and now is a good time to invest1.

Bitcoin appears to be establishing a new base suggesting a market bottom2.

Underlying capital investment in the industry is rising and falling crypto prices are NOT reflective of underlying activity

3.

Development in underlying technology is well underway but application remains at an early stage

4. On-ramps for institutional capital are improving and will enable a new wave of investment and innovation

5.


November 2018

Why attend GMP’s “NEXT in TECH” conference?

Learn from GLOBAL industry leaders

Leading crypto merchant banks

Leading crypto venture capital funds

Leading industry stakeholders

Leading Canadian Technology Firms

Documents

GMP Blockchain Conference Final - gmpsecurities.com · Blue Sky 204% 75% Markets return to LTM peak Be informed, take advantage, and invest with discipline Source: GMP Securities