“Venture capital re-evaluate strategies following collapse of FTX and WeWork, Meta re-enters China market, ISINs for cryptocurrency arrive soon.”
TradFi & Global Market News
Global Market: S&P 500 & NASDAQ
Composite stocks continue to rally strongly as they see consecutive growth sessions over the past weeks. As of Friday, the S&P500 and NASDAQ witnessed a 1.6% and 2% increase from Thursday, the former breaking the 4400 value mark for the first time since September. Meta makes it way back into the eyes of investors with its 2.6% stock price hike following news of its re-entry into the Chinese market through a collaboration with Tencent Holdings to produce low-cost VR headsets. Through the collaboration, revenue generation will be allocated such that Meta will mainly focus on device sales while Tencent will leverage its expertise in content and services. Investors should remain wary of competition from Apple’s Vision Pro headsets, which are going on sale in early 2024 and existing devices like ByteDance’s Pico. Additionally, US-China tensions undercurrent the feasibility and performance of this deal, bearing in mind the conflicts over data management in technology products.
Global Market: FTSE100
UK’s stocks have remained resilient over the past week as the FTSE100 opens Monday up from Friday at 7415.79. Markets are aided strongly by signals that inflation figures across the seas are stabilising. Domestically, BAE Systems, a defence company and Phoenix Group were the top performance, the former rose by 7% from Friday following an announcement of the internal merger of two subsidiaries, Phoenix Life and Standard Life, raising their cash generation targets for 2023 from £1.3 billion to £1.8 billion.
Venture Capital News: WeWork
Externally, Adam Neumann seemed to have all the characteristics of the modern-day visionary, the charisma and an innovative idea that could have transformed the Future of Work. However, internally, WeWork was heavily mismanaged by Neumann, allocating its earnings for reckless drug binges on flights and spending heavily on alcohol while choosing to lay off 7% of its staff early in 2016. Most of its losses eventually came to light during its 2019 attempt at an IPO, and their date was ultimately sealed by the COVID-19 pandemic, throwing the future of work down the remote work path.
Attention should also be shifting towards Masayoshi Son and SoftBank. Innovation investing is an inherently riskier portfolio strategy, but it is inexcusable to justify a lack of risk management. SoftBank’s Vision Fund is explicitly allocated for transformative start-ups. This is precisely what the innovation economies are hoping for more banks to undertake, and there are merits to this high-risk, high-reward strategy. For example, SoftBank was one of the earliest investors in China’s Alibaba Group. However, more must be done in the due diligence process and portfolio management. In a 2018 Business Insider article, Son shared that he felt “the force”, akin to a Jedi master in the Star Wars franchise, when he makes an investment decision. For WeWork, Son admitted that he stuck by his intuition despite advisory from his other board members, leading to approximately $16 billion in losses for his WeWork investment when WeWork filed for bankruptcy early last week, solidifying its legacy as a lesson for venture capital investors and their search for innovation unicorns.
DeFi & Digital Assets News
Cryptocurrency Market: Bitcoin & Ethereum
Rallies in the past week surrounding cryptocurrencies have resulted in another surge. BlackRock holds confidence that the SEC will approve its application for a spot bitcoin ETF following its registration of an iShares Ethereum Trust on NASDAQ last Thursday. Unsurprisingly, ETH prices rose by 32.48% from the previous month, breaching the $2000 USD valuation mark. Bitcoin follows a similar trend, increasing by 37.37% in the same period, soaring ever closer to $38,000.
As more credibility props up the rumours, analysts from major banks are starting to weigh cautious stances against the bullish rally. The conventional view is that the bullish rise is a two-fold increase from cryptomarkets facing new inflows of capital through the ETF and the softening stance of the SEC towards cryptocurrencies holistically.
JPMorgan warns investors to challenge these assumptions on three fronts. Firstly, previous ETFs of this nature in Canada and Europe have not fared well. Hence, it is reasonable to question the validity of the capital inflow assumption. Secondly, JPMorgan predicts that most capital flows will occur within existing cryptocurrency products like the Grayscale Bitcoin Trust or existing futures ETFs rather than from external sources. Finally, it is unfounded to believe that regulatory stances will loosen, given that we are still in the early stages of this unregulated industry, especially in light of the FTX fraud that has recently concluded. Nevertheless, a long, drawn-out battle does not undermine the belief of crypto natives driving current bullish trends that integrating cryptocurrencies into traditional markets is a certainty. Consistent finding ways to meet regulations only brings more security for all stakeholders concerned.
Restructuring News: FTX
The FTX fraud case ended with Sam Bankman-Fried being convicted of 7 criminal counts and 115 years in prison. Sceptics may be quick to blame blockchain and cryptocurrency technologies for enabling fraud, but this ruling quickly recognises corruption and systematic criminal intent behind the exploitation of these technologies. While it is essential to recognise the role of technologies in enabling the formation of digital assets that the imaginary foundations of tokens can prop up, we should not write off the technology entirely. All the more, innovations and regulations should come together to co-develop safer uses of these financial technologies.
Contrarily, venture capitalists should be more wary about making rash bets. Digital innovations develop much faster than traditional technology innovations. Hence, there is a rush for these early-stage investors to adopt a heard mentality to support the next big founder should sufficient momentum swing in its favour. Due diligence processes may not be fast enough to capitalise on the investment opportunity, leading to qualitative metrics instead driving the thesis. Following this reality check, pragmatism will likely return to investors’ mindsets and more careful valuations surrounding digital assets in the near future.
In Other News…
Short Updates:
ISINs – Adjacent to regulations, the Association of National Numbering Agencies seeks to provide standardised International Securities Numbers (ISINs) for digital assets. This aligns blockchain transactions with open data principles for greater transparency. Theoretically, this enables authorities to individually identify the blockchain implementation of the asset and the digital asset itself.
UKRI – The UKRI Industry Impact Fund and the Faraday Institution are investing in R&D incentives to develop battery materials at an atomic level to improve storage performance in lieu of the resource shortages for Lithium and Copper. The latter has also invested £ 200 million to codevelop research-industry partnerships for cultivating the research talent required for battery innovations.
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