Cryptocurrencies& Blockchain

The greatest wealth creation opportunities of our lifetimes?

2018

WHOAREWE?

• WHY? WHY INVEST IN EARLY-STAGE TECH?

• WHAT? WHAT ARE BLOCKCHAIN & CRYPTO?

• HOW? HOW TO INVEST STRATEGICALLY?

TODAY’SROADMAP

DIGITAL&BIOTECHNOLOGYREVOLUTIONS

COMPOUNDINGINNOVATIONS

THE FIFTH ERA

GREATESTWEALTHCREATIONEVER

- POPULATION

- GDPPERCAPITA

- GLOBALIZATION

X

GLOBALPROFITPOOLSINFLUX

WORLD’SMOSTVALUABLECOMPANIES

1. Bill Gates2. Warren Buffett3. Jeff Bezos4. Mark Zuckerberg5. Larry Ellison6. Michael Bloomberg7. Charles Koch8. David H. Koch9. Larry Page10. Sergey Brin11. S. Robson Walton12. Jim Walton13. Alice Walton

14. Steve Balmer15. Sheldon Adelson16. Jacquelin Mars17. John Mars18. George Soros19. Phil Knight20. Michael Dell21. Laurene Powell Jobs22. Len Blavatnik23. Paul Allen24. Charles Ergen25. Carl Icahn

US’SRICHESTPEOPLE

68% FIRST GEN, 72% TECH, 88% GLOBAL

HIGHESTRETURNINGASSETS

32%

24%

12%

11%

10%

3%

EarlyStageVCIndex

USVCIndex

LateStageVCIndex

NasdaqComposite

S&P500

BarclaysGovtBondIndex

ANNUALRETURNSOVER25YEARS(%)

MORETHAN97.5%ONSIDELINES

USACCREDITEDHOUSEHOLDPARTICIPATION

WEIGHTOFINERTIA:

1. INDUSTRY2. INTERESTS3. NOACCESS

&MISINFORMATION

• WHY? WHY INVEST IN EARLY-STAGE TECH?

• WHAT? WHAT ARE BLOCKCHAIN & CRYPTO?

• HOW? HOW TO INVEST STRATEGICALLY?

TODAY’SROADMAP

PwC’s Digital Services 15

WHATISBLOCKCHAIN?

PwC’s Experience Centre – China and Hong Kong

Whatisbitcoin?

Anunregulated digital virtual currencybasedonblockchain technology.ItisusedtoprocessP2Ptransactionsandofferslowertransactionfeesthan

traditionalonlinepaymentmechanisms

Adecentralised publicledgerofalltransactions,essentiallyblocksof

validatedandcryptographictransactionschainedtogetherby

mathematicalalgorithms

Whatisblockchain?

Source: PWC

How blockchain works

Distributed ledgerEvery participant in the network has simultaneous access to a view of the information

CryptographyIntegrity and security of the information on the blockchain are ensured with cryptographic functions

ConsensusVerification is achieved by participants confirming changes with one another, replacing the need for a third party to authorise transactions

Smart contractsThe ability to run additional business logic means that agreement on the expected behaviour of financial instruments can be embedded in the blockchain

Source: PWC

Blockchain benefits

Reduction of costs &

complexity

Shared trusted transactions

Reduction of fraud

Audit trail & transparency

ResilienceSecurity & Immutability

BLOCKCHAINANDITSBENEFITS

BLOCKCHAINACROSSINDUSTRYSECTORS

Additionalcompaniesexploring blockchainsolutions

Stake-holders arecommitted

Wine Tracking� Associate each bottle of

fine wine as unique physical assets to create a traceable, pseudo-anonymous, decentralized, permanent historical archive all transactions to make digital provenance a reality

Gold Trading� Quick, transparent, and

easy access to bullion markets to ensure investing in physical gold is simple and efficient

Diamond Certification� Blockchain technology

based around Hyperledger Project to enhance security and traceability of Kimberly Process Certificates to prevent fraud against global diamond trading

Real Estate Contracts� Start-up company

building a land title registry for the citizens of Honduras to prove and defend land titles for the first time

Commodity Trading� Digitization throughout the

energy industry has ripple effects in oil production, refining, and shipping as cargo traders are passing title from buyer to shipper to seller through standardized blockchain contracts

Produce Tracking� International connected

supply chain systems built using the blockchain verify pork suppliers, shippers, and buyers involved in moving products across countries

Source: PWC

REDESIGNINGTHEINTERNET

Global Connectivity

Interactivity

Accessibility

Scaleability

The InternetDesigned for Communication,

used for Commerce

Flexibility

Concentrated Insecure

Opaque Unverified

Distributed Secure

Public VerifiedPermanent Timestamp

Weaknesses

Blockchain

Strengthss

Temporal Indeterminancy

CRYPTO-ASSETS

21

$1 $31 $9 $235

$3,700

2009 2010 2011 2012 2013 2014 2015 2016 2017

CRYPTOCURRENCIESANDCRYPTO-ASSETS

A crypto asset is a medium of exchange, created and stored electronically in the blockchain, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. It is not issued by any central authority.

What is a crypto-asset?

Then… … NowThere are over 1,500 coins and tokens globally(as of 2/23/18)

The total market cap of all coins and tokens $455B(as of 2/23/18)

Global token sales $millions

All crypto assets are not created equally…

Source: PWC

WHYDOCRYPTO-ASSETSREQUIREATTENTION?

Market catalysts that necessitate an assessment of Web 3.0 and decentralized models:

Emergence of decentralized digital workforce models

Entrepreneurs are moving faster than regulation

Developer roles in increasingly digital lives

Public discourse around security

Global conversation around data ownership

• Public unease around the concentration of data ownership in the vaults of Big Tech (GAFAM)

• Protocol layer behind web 2.0 covers data transfer, messaging, and security, but not ID and data ownership

• High profile data breaches of the most sensitive financial data

• Adoption of tokenization and the use of multi—factor authentication to protecting static data

• C-suites challenged to become digitally competent

• Incentive structures shifting towards developer channels

• Law suits in IP and non-compete clauses as developers move between corporates

• Test and/or launch in services that leverage cryptocurrencies (i.e. accepting cryptocurrencies for payment, raising capital through an ICO, committing teams of developers to investigate use-cases, and identifying partnership opportunities.

• Potential industry inflection in workforce across sectors: legal services, financial contracts, digital ID.

• Industries with high levels of commoditization are most likely to adopt decentralized networks

Source: PWC

2

INITIALCOINOFFERINGS(ICO’s)

ICOSEXPLODEDIN2017(>$5BN)

Source: https://www.icodata.io (Accessed on 8 Jan 2018)

ICOVS.IPO– SOMEFUNDAMENTALDIFFERENCES

ICOs represent the sale of digital assets providing access to

an early-stage project or concept

They align much closer to venture

funding than investments in public

companies

Unlike equity, the digital tokens do not

offer ownership in the venture

Source: PWC

ADVANTAGESOFDOINGATOKENSALE

An effective way to raise capital for a blockchain-based

project

Allows to put together talented team fairly quickly

Removes many of the hurdles present in the equity capital

raising process

Allows the setup and build of an

ecosystem

Provides optimal visibility in market

Receive funding without diluting equity

or control

Source: PWC

CRYPTOINVESTMENTS– THEREALITY

TaxAs ICOs are a nascent phenomena, most tax authorities do not have specific regulations in place yet. Whilst many ICOs tried to position themselves as a ‘foundation’ or ‘non-profit’ in the early days, way fewer are exploring such models today opting instead for a for profit model. The recent rise in Bitcoin and other cryptocurrencies has caught the attention of tax authorities around the world as well

Cyber-securityMany ICOs still lack proper cybersecurity which can represent a major threat for investors. As most ICOs raise money in the form of cryptocurrencies (e.g., Ether and Bitcoins), high-volume transactions provide an attractive target for criminals. Beside ICOs, several cryptocurrency wallets (where tokens/coins get stored) have been hacked.

RegulationWorldwide, regulators started to look into ICOs, and took different approaches. While some jurisdictions are mainly positive towards the new funding method (e.g. Switzerland, Hong Kong, Singapore), others are rather concerned or intervene actively (e.g. USA, China).

Source: PWC

• WHY? WHY INVEST IN EARLY-STAGE TECH?

• WHAT? WHAT ARE BLOCKCHAIN & CRYPTO?

• HOW? HOW TO INVEST STRATEGICALLY?

TODAY’SROADMAP

LESSONSOFTHEINTERNETBOOM/BUST

Environment• Many companies were formed• Most failed (e.g. Fintech)• Everyone had a hot dotcom deal• Valuations took off, then crashed• A few big winners emerged

Investment• Value was captured early• Diversification was smart strategy• Inside deals and circles won big• Best VC’s captured highest returns• Access diminished over time• Fund of Funds provided access

Environment• Avoid the herd• Avoid high valuations• Avoid publically shopped deals• Avoid unknown players• Avoid market timing strategies

Investment• Invest in early stages• Diversify• Gain access to insiders• Be an LP in insider VC’s/Funds• Get in early to emerging stars• Consider quality fund of funds

Internet/Dotcom Observations Blockchain Investment Strategies

• ICOFunds (e.g.PanteraICO)

• Direct ICO

• Cryptoasset Funds(e.g.Polychain)

• DirectAltcoin purchases• Singlecoinvehicles(eg.

GBTC)• CoinsinExchanges

(Coinbase)

• FundofFunds(e.g.KCBFOF)

• VCFirms (e.g.BCP)

• DirectInvestments

• FundofFunds(e.g.Bitbull Capital)

• Baskets(e.g.Bitwise)

• ETFs(OnceApproved)

INVESTINGINBLOCKCHAIN&CRYPTO

Blockchain Cryptoassets

TraditionalFunding Approaches

EmergingFundingApproaches

Smartinvestorsseekactive,diversifiedinvestmentapproachesinrapidlyemergingassetclasses

PLACEHOLDERCAPITAL

PLACEHOLDERCAPITAL

MOSTACTIVEBLOCKCHAINVC’S

PLACEHOLDERCAPITAL

BCP:SELECTEDINVESTMENTS

PANTERA:SELECTEDINVESTMENTS

CRYPTOHEDGEFUNDS

• LaunchedthefirstdigitalassetfundintheUnitedStates

• ManagedbytheformerHeadofMacroTradingatTigerManagement,advisedbytwofoundersoftop10cryptocurrencies

• Quantitativeandqualitativestrategies

• Closedfund

• Backedbytop-tierventurecapitalcompanieslikeAndreessen&Sequoia

• Long-only,fundamentalvaluestrategyfocusedonprojectswithtechnologicaldifferentiation

• Introduction-onlyfundwith$1Mminimuminvestment

• Backedbytop-tierventurecapitalcompanies

• Mixed-strategyfocusedonvalueappreciationandevent-driventrading

• ICOFunds (e.g.PanteraICO)

• Direct ICO

• Cryptoasset Funds(e.g.Polychain)

• DirectAltcoin purchases• Singlecoinvehicles(eg.

GBTC)• CoinsinExchanges

(Coinbase)

• FundofFunds(e.g.KCBFOF)

• VCFirms (e.g.BCP)

• DirectInvestments

• FundofFunds(e.g.Bitbull Capital)

• Baskets(e.g.Bitwise)

• ETFs(OnceApproved)

OURINVESTMENTSTRATEGY

Blockchain Cryptoassets

TraditionalFunding Approaches

EmergingFundingApproaches

Smartinvestorsseekactive,diversifiedinvestmentapproachesinrapidlyemergingassetclasses

KCBFOF

BitBull

Bitwise

Fifth Era Blockchain

CONCLUSION

MINDSET• TRANSITIONINGINTOANEWFIFTHERA• GREATESTWEALTHCREATIONEVER• VALUEISBEINGCAPTUREDEARLY

BEHAVIORS• MORETHAN97.5%AREONSIDELINES• WEIGHTOFINERTIA/MISINFORMATION• MANYWAYSTOPARTICIPATE/PROSPER

ACTIONS• 2018ALIGNSTRATEGIES/ASSETS• CONSIDERBLOCKCHAIN/CRYPTOALLOCATION• TALKTOUSTOUNDERSTANDOPTIONS