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Crypto Incubators: An Ultimate Solution or Just a Tool for Startups?

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After crypto prices went through the roof in 2017, an eruption of new tokens, companies and products occured. With such a high level of consumer and corporate interest, many promising projects were inevitably lost in the crowd. Fortunately enough, some of cryptocurrency’s biggest names offer their services to a select few projects that are they have deemed promising.

Companies that pick and nurture these future projects are known as incubators. Since mid-2018, many fortunate companies have been guided through their developmental stages by such companies. While being selected by a prominent incubator gives a company a huge advantage over its competitors, it does not always end in success.

So, what is an incubator?

In the modern tech world, there is an enormous oversupply of startups. There are now blockchain solutions for problems that most people didn’t even know existed. But for many startups, being snapped up by a larger company is now the end goal. For crypto-related projects, aside from drawing the eye of a venture capital company, being selected for an incubator is the cryptocurrency equivalent of being bought out by Google at early stage.

Incubator firms scout out promising companies and guide them through the fundamental phases of development until they are robust enough to launch successfully on their own. But incubator firms are not operating out of compassion. The motivation for taking a chance on these companies is usually a significant chunk of equity, something that can transform into a hefty reward should the company become successful at a later date.

Related: Biggest Crypto Hedge Funds and What They Tell About the Market

Perhaps the most important resource available to projects through incubator companies is financial capital. Start-ups are famously short on cash, and a significant injection of funding — along with access to a wide variety of financial partners and advisors — can often lead to companies developing at a rapid rate. Aside from funding from the incubator company itself, selection can sometimes open the door to additional support from either government or university institutions.

Incubator companies often attract professionals with a decades-long history of venture capital, those with an eagle-eye for investment potential and are highly specialized experts in their fields. These seasoned professionals often act as consultants to the leaders of projects during the incubation phase.

The chief technology officer of the Interdax trading platform, Charles Phan, explained to Cointelegraph that while incubators grew out of the 2017 crypto mania, they have developed in 2019 into projects that seek to guarantee quality and revenue in a vastly different market:

“In 2019, launchpads started to gain traction and exchanges introduced these platforms for projects to issue their tokens, market them and also try to guarantee the quality of the project. Launchpads have also provided another stream of revenue for exchanges during the crypto bear market and a unique use case for exchange tokens (as a funding currency for IEOs). The teams behind cryptocurrency projects also gain, as there is certainty that their coin will be listed on an exchange and will receive a lot of exposure.”

In an ideal world, the incubator company swoops down on a rough-around-the-edges, yet promising young company and takes a nice chunk of equity. A little further down the line, the company is launched as a polished, efficient alumnus of the incubator that will attract further investor interest and generate profit for all stakeholders. But, as so often happens in the cryptocurrency sector, things do not always go to plan.

Matic tanks after launch

Matic, an Ethereum-based cryptocurrency payment network that passed through Binance’s now-famous Launchpad incubator, recently strove to quash claims that it manipulated the price of its token after a dramatic 60% plunge in mid-December.

Matic was one of the first alumni of Binance Launchpad but seemed to falter soon after launching. As previously reported by Cointelegraph, Matic lost value after the initial exchange offering, but saw a reversal of its fortunes in the last week of November. In a blog post on Dec. 10, Matic executives described price manipulation claims as “baseless” and appeared to lay the blame at the feet of an unnamed “FUD account against Matic team.”

According to Coin360 data, Matic/BTC had reached a high of $0.042 on Monday before nose diving to a nadir of $0.014. Since then, Matic has climbed up to $0.0145 at press time.

Price of Matic/USD. Source: Coin360.com

Price of Matic/USD. Source: Coin360.com

Twitter-happy Binance CEO Changpeng Zhao, known to most of the crypto world as “CZ,” stepped in to defend the project. CZ wrote on Twitter that, while Binance was still investigating the data, he was confident that the Matic team was not involved with the price volatility. CZ did, however, offer a theory on what could have caused such a rapid fluctuation:

“A number of big traders panicked, causing a cycle. Going to be a tough call on how much an exchange should interfere with people’s trading.”

Since launching Matic on April 25, Binance Launchpad has gone on to kickstart the Harmony blockchain project, Elrond, WINk, Perlin, Band and Kava. Just this month, Launchpad concluded a lottery-based token sale of Troy, a broker that specializes in crypto trading and asset management. According to a Binance press release, a total of 15,605 investors took part in the lottery draw, claiming a total of 88,632 tickets. The press release states that 11,949 participants had at least one winning ticket, a 76.57% user win rate.

Who else is at it?

Binance is not the only company that wants a stake in promising new companies. Since 2018, an ever-growing number of incubator companies have popped up, nurturing the next generation of businesses toward the tentative goal of profitability.

Andreessen Horowitz

Founded in 2009 as a venture capital firm in Silicon Valley, Andreessen Horowitz is one of the most renowned incubators working in cryptocurrency today. Although the firm has extensive portfolios in other sectors such as health care, tech, energy and fintech, it announced that it would be “aggressively investing” in crypto, an announcement that drew attention when made during the middle of the so-called crypto winter.

Andreessen Horowitz’s initial foray into crypto began with a $300 million “all-weather” investment fund that the company reported would be implemented over time, regardless of the tumultuous fluctuations of the crypto markets. The fund has consequently come to be known as A16z.

Most recently, together with venture capital firm Polychain Capital, A16z invested $25 million in cryptocurrency payments startup Celo. According to an announcement made by Celo, the two investors purchased $15 million and $10 million respectively. Andreessen Horowitz currently has over 20 crypto-related projects in its portfolio, including exchange giant Coinbase and Facebook’s Libra project.

Coinbase Ventures

As Binance Launchpad clearly shows, some crypto companies have skyrocketed from startups to potential kingmakers in their own right. Coinbase, a crypto wallet provider and one of the world’s largest cryptocurrency exchanges, founded its investment arm, Coinbase Ventures, in 2018.

Despite the downward trend in cryptocurrency as 2019 draws to a close, Coinbase Ventures is still actively investing in the sector. Earlier this month, the firm participated in a $4 million funding round led by Uncork Capital for the cryptocurrency research startup Messari. The firm’s other most recent selection was a $2.1 seed investment in Opensea.io. The funding round took place in November.

Earlier this year, Coinbase Ventures invested in United States-based blockchain firm Near, in which over $12 million was raised in its Series A round. The firm also participated in the same Celo investment round as Andreessen Horowitz. 

Y Combinator

Y Combinator is a U.S.-based accelerator that also makes investments into cryptocurrency companies. After a competitive application process, Y Combinator makes small investments in a number of companies twice a year. It’s no secret that money isn’t the be-all and end-all of the incubation process, and Y Combinator makes a point of stating on its website that many of its applicants don’t need funding at all. The firm says that it also offers help to startups to develop their ideas and helping founders deal with investors and acquirers.

The firm recently took part in a $4.2 million funding round for TRM, a digital currency compliance and risk management service provider. TRM is an alumnus of Y Combinator’s startup incubator, and has reportedly offered its services to major banks and brokerage firms around the world. Y Combinator lists a number of cryptocurrency firms among its top exits, including SFOX and Coinbase.

But what do the experts think?

For Andrew Adcock, CEO of crowdfunding platform Crowd for Angels, crypto incubators play an important role in creating a healthy business environment:

“Firstly, they provide knowledge transfer, ensuring the entrepreneur has access to the information they need. Secondly, they provide a key network of investors, service providers and stakeholders to help establish and scale the business. Finally they can also provide a vital source of early-stage finance before a larger round is progressed. As well, a business that enters an incubator can be seen as ‘championed’ and thus create a good foundation for the potential future ahead.”

Although incubators are influential in the success of selected businesses over others, Adcock explained to Cointelegraph that the nascency of the cryptocurrency sector adds an element of uncertainty to the incubation process:

 “One of the key flaws that crypto incubator face, is the infancy of the industry, technology and public understanding. This state of ‘influx’ can create uncertainty and rapid change, which both the entrepreneur and incubator have to adapt alongside. This being said, the industry as a whole has shown great ability to transform and deliver on change.”

Beyond the developing nature of cryptocurrency hindering the work of incubator companies, Jared Polites, a partner at LaunchTeam, an accelerator and management consulting firm that works with crypto companies, said that the restrictions imposed upon entrepreneurs by those giving out the help and funding creates the need for compromise:

“If you take money from an incubator there will likely be a stipulation that a company is built on top of a specific protocol that the incubator has an interest in promoting. This can create a situation where founders bend their original strategies just to chase the money/resources and end up working off of a completely different foundation.”

Interdax’s Phan told Cointelegraph that, by virtue of their established presence in the crypto world, incubator companies that choose to launch a new product can sometimes initially rely on reputation alone in the early stages of its trading life, as opposed to working for long-term profitability:

“There is the problem with launchpads that they will attract some people that are most likely buying IEO tokens simply because they know that token will trade on a popular exchange. This isn’t too different to the speculative frenzy that occurred with ICOs, which often encourages short-termism — investors will only care about price and not about actual development.”

Separation of ownership form responsibility

In light of the Matic debacle, many commentators have suggested that incubator companies do not do adequate research into the companies they promote other than short-term profit. Adcock, however, told Cointelegraph that he does not believe companies behind the incubators are culpable unless they have been shown to be working in a fraudulent or illegal manner. Adcock added that instances in which incubator efforts do not pay off could actually be used to learn from in order to avoid once again making the same mistake:

“For an entrepreneur who chooses to ignore an incubators advice and guidance, is not the fault of the incubator. However, this does not mean that the incubator themselves, will simply distance themselves from a mistake, instead, this could be used as a learning opportunity to see how they may better communicate to build a more transparent relationship with the entrepreneur.”

As with all investments, incubator companies are taking an educated guess that the projects they take on will eventually turn a profit. Inevitably, this doesn’t always work out. Phan said, citing data from CryptoRank, that very few projects have returned on their investment to date:

“The average return on investment for all IEO projects are currently positive only for projects that launched with Binance and Gate.io. […] For the other 11 exchanges, the current average return on investment for their IEO projects are negative.”

For Polites, cryptocurrency projects are particularly hard to forecast with regard to when they will turn a profit. Polites outlined his view to Cointelegraph, saying that as cryptocurrency is still a very young sector, it is unlikely that many of the companies going through development in incubators will see profitability in the short term: “The crypto adoption and use challenge is still the biggest issues along with education.”

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Crypto exchange BTCNEXT seeking Japan license

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BTCNEXT, an Asian based cryptocurrency exchange, earlier this month announced it received notification from the Japan Financial Services Agency (FSA) that it must suspend services for Japanese residents.

As part of Noah Ark Technologies Ltd., BTCNEXT operates with a Virtual Currency Exchange license issued by the Cagayan special economic zone and Freeport Philippines.

The BTCNEXT team says that its legal department is currently working with the FSA in regards to getting a Japanese license and will take necessary steps to ensure full compliance with all FSA requests.

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NEO Price Prediction: Long-term (NEO) Value Forecast – June 2

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  • The long-term outlook is in a bullish trend.
  • The 1.618 in the fibs at $19.17 is the bulls target in the long-term.

NEO/USD Long-term Trend: Bullish

Supply zone: $20.00, $30.00, $40.00
Demand zone: $2.00, $1.00, $0.50

NEO continues in the uptrend in its long-term outlook. The strong pressure on the cryptocurrency by the bulls’ comeback at the 61.8 on 18th May has kept price up with new high each week. $12.59 and $15.04 in the supply area were the highs on 20th and 30th May respectively.

The new week is started on a bullish note with today’s opening candle at $13.72 higher than last week opening price at $11.45, an indication that the bulls are more in the market.

Price is above the two EMAs that are fanned apart which suggest strength in the trend and in this case the uptrend.

The journey to 1.618 of the fib extension with price at $19.17 in the supply area is the bulls target in the long-term as the bullish momentum increase and more bullish candle open and closed above the two EMAS.

The views and opinion as expressed here do not reflect that of BitcoinExchangeGuide.com and do not constitute financial advice. Always do your own research.

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Why Bitcoin’s ‘Culture War’ Matters

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Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.


Let’s talk about bitcoin, toxicity and inclusiveness.

(Boy, my Twitter feed is going to have fun over the next few days.)

To start with, let me take a position: I stand with those people, especially women, who’ve lately been calling out maltreatment from members of the bitcoin community and citing rude and abusive behavior as proof of that community’s lack of inclusiveness. These are people who believe in cryptocurrency technology’s potential but feel discouraged to believe that they belong to the community’s dominant white-male subculture. If this technology is to fulfill its global potential, the community associated with it must confront this problem.

But the real point of this column is not to just defend these critics. It’s to debunk one of the more common positions adopted by those who take issue with their complaints, particularly on Twitter. In doing so, I hope to emphasize just how important the concepts of “community” and “culture” are to the healthy development of crypto technology and the ecosystem growing around it.

Hammer culture?

The line that’s most often thrown back at those calling out incivility is that bitcoin is nothing more than a technology, a tool, and that it’s meaningless to attach to it value judgments relating to human behavior. Bitcoin is amoral, apolitical and a-cultural, the argument goes, and like any technology it is used by good and bad people alike.

These pundits, warning of a political correctness-based threat to free speech, will then advise the injured party to take issue directly with the bad actors but refrain from agitating for community-wide change.

A perfect example of the genre came from outspoken lawyer Preston Byrne.

Clever, yes. But it’s extremely unhelpful, because the examples given do not share equivalent terms of reference.

Byrne’s “hammer” refers solely to the steel implement that tradesmen use. By contrast, people complaining about “bitcoin” are clearly using the word in a much wider context than in merely a reference to the code, to the ones and zeros that comprise the bitcoin protocol. They are inherently talking about the wider ecosystem and community gathered around the idea of bitcoin.

So, let’s equalize the terms, shall we? We can turn each of these nouns into a modifier of the word “community.”

While it might sound silly to talk about a “hammer community,” there may well be groups of hammer-obsessed souls who debate questions of design and ease of use at meetups and in chat rooms. If so, I’m going to guess that that community would probably also be predominantly male.

But the real issue is that such a hammer community is going to be far less important to the future design and evolution of hammer technology than bitcoin’s community is to its. I’m no expert, but I don’t see a great deal of change in hammer technology having occurred over the centuries and I’m not sure people expect much in the future. As such, we don’t see much jockeying among users to ensure that proposals for hammer upgrades are implemented and standardized to their preferred design.

By contrast, the open-source technology behind bitcoin is in a constant state of evolution. It is, by definition, under development, which is why we talk about the engineers who work on it as “developers,” not “custodians.” As such, there is a constant battle of interests over who gets to modify the code. Exhibit A: the block-size debate.

Counter-arguing that those who don’t like the process can just fork the code, as the large-blockers did, and set up their own new community, doesn’t cut it for me. Bitcoin is the brand that matters. Any newcomer will struggle to achieve the same network effects. Secession just isn’t viable for anyone who likes its current design but doesn’t like how its future is being defined.

Also, is there a “hammer ecosystem?” Maybe. But beyond producers of nails, and perhaps steel and rubber or wood suppliers, you can hardly call it a complex ecosystem.

Bitcoin, by contrast, which purports to reinvent the global system of money, has attracted an inherently vast array of different technology providers, all of whom have competing interests in how it is designed, managed and marketed to the world. I’m not just talking about businesses applications built on top of it, but also the developers of related encryption, payment channel, smart contract and other vitally important technologies, all of which are themselves in a constant state of flux.

(I’m guessing that the exhibition halls at hammer conventions don’t have quite the same spread of offerings as cryptocurrency events such as Consensus.)

Saying that bitcoin is nothing but a tool, is like saying that music is nothing but a system for ordering different audible tones.

Money = community

When Paul Vigna and I wrote The Age of Cryptocurrency, we spent a lot of time chronicling the emergence of the community that had formed around bitcoin, which we saw as fundamental to its success. It struck us that the notion of a bitcoin community was so prominent — the “c” word was always being bandied about — because bitcoin embodied a profound and sweeping social idea. It offered nothing less than a reinvention of money, a revolution in the entire system for coordinating human value exchange.

Money only works to the extent that there is widespread belief in it, that people buy into its core myth. Money, Felix Martin says, is a social technology, by which he means that its functionality and usability depend far less on the physical qualities of the token that represents it than on the collective agreement among large communities of people that their token captures, represents and communicates transferable value. This is true whether we’re talking about gold, dollar bills, entries in a bank account, or cryptocurrency.

By extension, then, for any form of money to succeed, it must sustain a vibrant, growing community.

Communities = culture

The thing about communities is that they inevitably develop cultures. In self-defining their boundaries of belonging, they develop shared ways of seeing and language — akin to a kind of social protocol – that regulate (in a very unofficial, and quite subconscious way) their members’ behavior.

As they evolve, cultures can become more or less open, more or less inclusive, more or less abrasive in their treatment of outsiders. And inevitably, these cultural features will either encourage or impede the growth of the community.

All this should hardly be a revelation. Anthropology, the study of culture, is a globally widespread and influential field (one that is now appropriately turning its attention to cryptocurrency communities.)

Studies of U.S. culture, from Alexis de Tocqueville down, have rightly pointed to the inclusiveness of the founding fathers’ ideas as a key driver of its economic expansion. In fact, American culture is arguably its most important ingredient for success, a social manifestation of Joseph Nye’s notion of the United States’ “soft power.”

So, yes, bitcoin culture really, really matters. If the compelling ideas behind permissionless, peer-to-peer exchange and censorship-resistant money that attract people of all stripes to it are to retain those people’s interest and grow in influence, the bitcoin community needs to evolve a more inclusive culture.

The only way to do that is to spur the kind of open debates that have always driven the progress of human culture — those which shifted norms and mores to the point that it became unacceptable to own slaves, to spit in public, or to jump a queue.

So, listen up, bitcoin. It’s time to confront your toxicity.

Hazard drums image via Shutterstock

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Holiday Spending up 14.6% as E-Commerce Beats Brick-and-Mortar

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E-commerce sales hit record highs this year as Americans continue to move their holiday shopping online.

According to Mastercard’s SpendingPulse report, online retail grew 18.8% over last year’s holiday season. That’s enough to make online sales a record 14.6% of holiday shoppers total spend, the report says.

Online consumers this year spent 17% more on apparel, 8.8% more on jewelry, 10.7% more on electronics, and 6.9% more at department stores. 

Overall, holiday spending jumped 3.4% compared to 2018.

The strong numbers came in spite of 2019’s unusually short holiday season, commonly defined as the period between Thanksgiving and Christmas. Shoppers had six days fewer than they had in 2018.

Steve Sadove, an advisor for MasterCard, said in a press release that retailers adapted to the shortened season. 

“Due to a later than usual Thanksgiving holiday, we saw retailers offering omnichannel sales earlier in the season, meeting consumers’ demand for the best deals across all channels and devices.”

Interestingly – or ominously – retailers who accepted crypto or managed crypto payments were slow to respond when we asked them how their holiday shopping season went. eGifter, a gift card trading service, noted that it had not yet “crunched the numbers” on holiday sales but that “We saw growth in overall crypto sales,” said Bill Egan, the site’s VP of Marketing.

“We saw more gifting with crypto in 2019, compared to buy-for-self use cases in prior years,” he said.

Payment processor BitPay found the holidays quite inspiring as well.

“We saw twice our daily averages of processed volume leading up to the holiday,” said BitPay’s CMO, Bill Zielke.

It will be interesting to see what kind of statistics surface over the next few seasons as e-commerce becomes king and crypto payments come to the fore.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Crypto Custodians Grapple With Germany’s New Rules

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Crypto firms in Germany are getting ready to exist under a new regime. 

Under a law going into effect Jan. 1 requiring digital asset custodians to be licensed, each company that currently custodies crypto and targets German clients must announce to Germany’s Financial Supervisory Authority (BaFin) its intention to get a license before April 1 and submit an application before Nov. 1.  

A clause allows current crypto custodians to keep serving German customers without being penalized if they declare their intent to apply, but those same companies are waiting on BaFin to release final regulations around the law.

“As long as the legislation is not in place, BaFin is not going to think about how to cope or how to deal with the legislation,” said BaFin press officer Norbert Pieper. The regulator declined further comment and Germany’s Federal Ministry of Finance did not respond to request for comment by press time.

Pieper added: “There is no date foreseeable [yet] by which we’ll be able to communicate the results of our assessment. We will certainly communicate that on our website.” 

While the final regulations haven’t been set yet, the new license requirement may not produce the same kind of exodus of crypto firms that New York saw after the BitLicense requirement, said Miha Grčar, head of business development at Bitstamp.

London-based Bitstamp, one of Europe’s largest crypto exchanges, plans to continue operating in Germany but declined to say whether it would apply for a license, said Grčar. Crypto firms could also use a white-labeled custody service to operate in Germany. 

Because the law is an “updated version of the existing banking regulation,” banks will likely have the most to gain from it, Grčar added. Companies that get the license will be German financial institutions, but not classified as banks.

The law also means that German regulators now see crypto as a “legitimate” industry, he said. 

Ulli Spankowski, chief digital officer and managing director of the crypto custody subsidiary of German stock exchange Boerse Stuttgart, called Blocknox, sees the license as a step forward for “the professionalism of the industry.” The subsidiary has already advised BaFin that it plans to apply.  

“There are other countries that won’t go for a full-fledged license,” he said. “If you want to get traditional, established players from the banking side, you need to give them this environment to feel safe.” 

DLC group is taking advantage of the new regulatory framework by offering consulting services for firms interested in applying, and its own white-labeled crypto custody service. 

Sven Hildebrandt, head of Distributed Ledger Consulting Group, is concerned some exchanges won’t understand the nuances of the new law.

“The law is only in German and no English translation of the law is out there,” he said. “What’s going to happen to exchanges? [Operating without a licence] is actually a felony and not a misdemeanor so that’s jail time.”

Hildebrandt predicts the costs of licensing will be similar to other German financial services licenses where firms will need two managing directors, an established German entity and 125,000 euros of starting capital. He also estimates installation will cost 250,000 to 350,000 euros and recurring yearly costs will be 350,000 euros. 

Switzerland-based Crypto Storage AG, a subsidiary of Crypto Finance AG, is opening a branch in Germany to offer crypto custody to banks and then financial technology startups. 

“Large banking houses will do custody business in the future,” Stijn Vander Straeten, CEO of Crypto Storage AG, said. “They are moving slowly, though. We’ll build it up now for a premium.” 

Berlin-based solarisBank this month opened a subsidiary called solaris Digital Assets to offer crypto custody as a service. So far, the bank has a handful of customers testing the service with more than 40 companies in the pipeline, said Alexis Hamel, managing director of solaris Digital Assets.

In addition to waiting for details from BaFin, crypto firms are also waiting to see if the law can be passported to other European Union states. 

“Germany is definitely at the forefront with the clearer regulation,” Hamel said. “We still need to see how other European countries level up.”

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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