Institutional investors are eager to dip their toes into the lucrative pond of cryptocurrencies, but regulation is still keeping them at bay. Venture capital firms, on the other hand, are kicking down the door.

Linz, Austria

Europe is serious about establishing itself as a blockchain leader, new ventures are sprouting left and right, and so are accompanying events. “The Rise of ICO” was one of them and it was held in Linz, Austria on October 2nd and 3rd. It was organised by Startup300, a business angel network that has grown into a startup incubator. I was invited as a speaker to offer insight on how startups can gain access to further and better funding beyond seed investments where the venture capital (VC) ecosystem fails — the very reason why Cofound.it came to life.

The signalling value of venture capital firms

What has become clear over the last few months is that even if the explosion of the token crowdsales caught traditional VCs by surprise, the initial shock didn’t last long, and VCs are not just idly standing by. They know their names carry weight and if they back a project others will follow suit, giving them a new place as signals for selection of interesting projects.

Clever VCs are now entering the space; some are bringing funds and business know-how which is great. On the more negative side we are also starting to see the first examples of crowdsales as an exit opportunity for sunken investments where VCs use their brand name and support to push these investments onto the crypto-market instead.

But VCs are not the only big players rapidly gaining interest in the overall crypto market and ecosystem. With forecasts leaning in favour of blockchain technology and large overall gains this year, other large institutional investors want to join the ride as well. Many funds are also interested in crypto assets as a class because they are loosely correlated to the value of other assets.

Securitization of crypto assets

The catch for large financial institutions is that they work in a highly regulated environment. They need auditable assets with traceable ownership that can be judicially recovered in case something goes wrong. In other words, crypto assets need to be regulated securities, that’s why securitisation of crypto assets (the “opposite” of tokenization of real assets) is becoming a reality on a large scale. Regardless of rapid development, institutional grade investment options in crypto remain scarce that is why securitised crypto assets are traded at staggering premiums. In Linz I had several very interesting discussions with different teams working in this area, it’s advancing fast and it will be very interesting to follow over the coming months.

To finish on a slightly different but related topic; South Korean ICO ban was also one of the points of discussion. Good news, no one is pulling their hair over it. Yes, domestic ICOs were shut down, but all crypto holders are still there, and they are now looking for international projects to support instead. This is great news for European startups!