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From The Editor’s Desk: Stopping To Smell The Tulips

It seems now that national politics has once again subsided into the dull affair it should be, America is in need of a new form of mass amusement, or outrage, depending on your outlook. The GameStop trading fiasco offered that in spades.

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It seems now that national politics has once again subsided into the dull affair it should be, America is in need of a new form of mass amusement, or outrage, depending on your outlook. The GameStop trading fiasco this week offered that in spades.

A very brief recap for anybody who somehow tuned it all out: This week, shares in video game retailer GameStop, AMC Theatres and other struggling brands soared as much as 400 percent as hordes of amateur stock traders coordinated on the Reddit forum r/WallStreetBets, TikTok and other online communities to drive the selected stocks higher — in some cases making a lot of money in a very short period of time, while also inflicting substantial financial losses on hedge funds that had taken out massive short positions on those stocks.

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Like one of the earliest known bubbles, tulip mania — the frenzied tulip bulb price runup and subsequent collapse that swept Holland in the early to mid-1600s — the r/WallStreetBets frenzy became a self-fulfilling prophecy, with more traders piling into stocks as their peers egged them on and prices soared ever higher. In the midst of it all, the day-trading app Robinhood temporarily blocked new purchases of GameStop and other stocks caught up in the volatility, drawing intense ire from retail investors as well as some political and business leaders.

By the time of this writing on Friday afternoon, Wall Street just closed out its worst performance in months and the large financial players are suddenly reckoning with the implications of the new “meme stock” phenomenon.

It’s hard not to view the GameStop fiasco as a classic David vs. Goliath fight: A group of little guys organizing en masse to stick it to some of Wall Street’s biggest and most sophisticated players.

In the midst of the fray, even arch-enemies Rep. Alexandria Ocasio-Cortez and Sen. Ted Cruz seemed to briefly agree on that point, with Cruz offering support to comments from AOC in which she said she wanted more information on Robinhood’s “decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.” (The consensus was short-lived: AOC swiftly reminded the senator of his role in the instigation of violence at the Capitol earlier this month and said she’d work with “almost any other GOP that aren’t trying to get me killed.”)

Chamath Palihapitiya, the billionaire tech investor, himself got in on the action this week, reportedly buying $125,000 worth of GameStop call options, turning a quick profit when his bet soared, then donating $500,000 to a fund to help small businesses struggling during the pandemic.

In an interview with CNBC afterward, he explained what he thought the movement was all about. He’d spent hours poring over the r/WallStreetBets forums, he said, and came to this conclusion: “What you’re seeing is essentially a pushback against the establishment in a really important way. … A lot of people, coming out of 2008, they took a lot of risk, and they left retail (investors) as the bag-holder. And a lot of these kids were in grade school or high school when that happened. They lost their homes, their parents lost their jobs, and they’ve always wondered, ‘Why did those folks get bailed out for taking on enormous amounts of risk, and nobody showed up to help my family?’”

Tesla CEO Elon Musk chimed in too, with a one-word encouragement to the traders on Tuesday: ”Gamestonk!!”

As for me, I’m with Chamath, AOC and Elon on this one. Yes, the r/WallStreetBets traders may largely be a crowd of lulz-seeking dudes engaging in risky day-trading. Yes, some people will undoubtedly lose their shirts as this roller coaster comes crashing back to Earth. The Reddit traders appear to be motivated by some dizzying combination of thrill-chasing and profit-seeking, a principled sense of schadenfreude about sticking it to crony capitalists, and a wistful nostalgia for relic brands like GameStop.

But you have to hand it to them: As Chamath also notes, many in the r/WallStreetBets crowd are actually doing more fundamental financial analysis on companies than many of the professional analysts who whisper in Wall Street’s ears. The Reddit traders were also savvy enough to see that some of the world’s largest hedge funds were leveraged to the hilt on certain stocks, and they figured out how to organize an army of traders to exploit that vulnerability.

As a result, Melvin Capital, one of the hedge funds that had shorted GameStop’s shares, was forced to get a bailout to the tune of $2.75 billion from other investors. D1 Capital Partners, reportedly one of 2020’s top-performing hedge funds, posted a 20 percent loss this month as its positions were hammered by day traders, according to Bloomberg reporting. Point72 Asset Management, a $19 billion hedge fund, is down as much as 15 percent since the start of the year, sources told Bloomberg, as a result of the meme stock trading.

Displaying a stunning lack of self-awareness, some of Wall Street’s wealthiest were quick to cry foul. Hedge fund billionaire Leon Cooperman went on CNBC to angrily lament the nerve of “people sitting at home, getting their checks from the government!” while trading stocks, a privilege that’s apparently reserved for him and his friends in the Hamptons. “It’s just a way of attacking wealthy people!” he yells.

Another clear loser in all this: Robinhood, the day-trading app where many of the Reddit traders make their trades. The platform incited outrage among users yesterday when it halted new purchases of shares in GameStop and about a dozen other volatile stocks. Further fanning the flames was speculation that the app had done so at least in part at the behest of Wall Street customers: Robinhood is able to offer free trades to retail users because it generates a large portion of its revenue from “order flow,” or the practice of essentially selling information about its user’s trades to hedge funds and other institutional investors before those trades are actually executed.

Robinhood CEO Vlad Tenev went on CNBC Thursday to explain the company’s reasons for halting trades — ”we absolutely did not do this at the direction of any market maker or hedge fund … The reason we did it is because Robinhood, as a brokerage firm, we have lots of financial requirements,” he said — but his comments did little to quell the outrage. The company went on to get a quick $1 billion funding infusion yesterday from prior venture investors including Sequoia Capital and Ribbit Capital to shore up its balance sheet.

Whatever Robinhood’s true reasons for halting those trades, the damage to its reputation and business will likely linger. An $11.7 billion unicorn that itself is moving toward a public listing, Robinhood took as its name a swashbuckling hero who took from the rich and gave to the poor. Its entire business is built on the (arguably misguided) notion that the common man should enjoy the same level of access to the public markets as sophisticated Wall Street institutions. And yet this week it undoubtedly tipped the scales back to the rich and powerful. It’s hard to see the heroism in that.

Illustration: Dom Guzman

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Like one of the earliest known bubbles, tulip mania — the frenzied tulip bulb price runup and subsequent collapse that swept Holland in the early to mid-1600s — the r/WallStreetBets frenzy became a self-fulfilling prophecy, with more traders piling into stocks as their peers egged them on and prices soared ever higher. In the midst of it all, the day-trading app Robinhood temporarily blocked new purchases of GameStop and other stocks caught up in the volatility, drawing intense ire from retail investors as well as some political and business leaders.

Source: https://news.crunchbase.com/news/gamestop-wallstreetbets-robinhood-trading/

from-the-editor’s-desk:-stopping-to-smell-the-tulips

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The Briefing: Hailo Lands $136M Series C

Crunchbase News’ top picks of the news to stay current in the VC and startup world.

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Here’s what you need to know today in startup and venture news, updated by the Crunchbase News staff throughout the day to keep you in the know.

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Hailo lands $136M for AI chips

Tel Aviv-based Hailo, a startup developing AI accelerator chips for edge devices, announced that it raised $136 million in a Series C funding round led by Poalim and entrepreneur Gil Agmon. The round brings Hailo’s total funding to $224 million.

— Joanna Glasner

SupportLogic raises $50M Series B

San Jose -based SupportLogic closed a $50 million Series B funding round led by WestBridge Capital Partners and General Catalyst. Existing investors Sierra Ventures and Emergent Ventures also participated in the round.

SupportLogic’s AI-based platform allows businesses to act on customer communications in real-time in order to offer better customer service and support.

Founded in 2016, the company has raised approximately $62 million to date, according to Crunchbase data.

— Chris Metinko

SaaS

GitLab raises IPO range: San Francisco-based GitLab, a provider of development and collaboration tools for programmers, raised the proposed share price range for its upcoming IPO. The company now plans to raise around $700 million by offering 10.4 million shares at a price range of $66 to $69, up from the prior range of $55 to $60.

— Joanna Glasner

Illustration: Dom Guzman

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

— Joanna Glasner

Source: https://news.crunchbase.com/news/briefing-10-12-21/

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Square Rolls Up Afterpay As BNPL Market Stays Hot

Payments platform Square plans to buy Afterpay, an Australian buy now, pay later service, in an all-stock deal valued at around $29 billion.

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Payments platform Square plans to buy Afterpay, an Australian buy now, pay later service, in an all-stock deal valued at around $29 billion.

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Melbourne-based Afterpay is publicly traded on Australia’s ASX exchange. It currently counts more than 16 million consumers and nearly 100,000 merchants globally as users of its platform, including major retailers across fashion, homewares, beauty, sporting goods and other categories. The company, backed by investors including Tencent and Coatue, has raised just under $449 million in funding, per Crunchbase data.

Afterpay competes in the increasingly crowded buy now, pay later space, which allows consumers to break up online purchases into smaller payments. Its biggest competitors include Stockholm-based Klarna, which has raised $3.7 billion from private investors to date, and Affirm, which raised $1.5 billion in venture funding before going public in January. Affirm’s share price has since plummeted to less than half of its 52-week high in February, but jumped 14 percent in morning trading on Monday after the Afterpay acquisition was announced.

Another major player in the BNPL space includes fintech giant PayPal, which in 2008 purchased Bill Me Later, an early pioneer in the space.

All told, venture investors poured $1.7 billion into buy now, pay later companies between 2016 and 2020, per Crunchbase data. A Bank of America survey late last year predicted the BNPL market was poised to “grow 10-15 times by 2025 to eventually process between $650 billion and $1 trillion in transactions.”

Venture investors like the BNPL business model because these startups essentially have two revenue streams, Kamran Ansari, a venture partner at Greycroft, which invested in e-commerce pay-over-time financing tool Credit Key, told Crunchbase News earlier this year.

The first revenue source is the actual transaction, when the merchant typically pays between 2 and 3 percent of the purchase price to the BNPL service in exchange for being able to offer that convenience to its customers. The second revenue stream for the BNPL service is interest payments from borrowers.

Square’s shares have surged 105 percent over the past year amid a boom for digital transactions such as its mobile Cash App. It also reported second-quarter earnings on Sunday, revealing that revenue had more than doubled from the same quarter the previous year, to $4.7 billion.

San Francisco-based Square said it plans to integrate Afterpay into its Cash App and seller ecosystem.

“By combining with Square, we will further accelerate our growth in the U.S. and globally, offer access to a new category of in-person merchants, and provide a broader platform of new and valuable capabilities and services to our merchants and consumers, Afterpay co-founders and co-CEOs Anthony Eisen and Nick Molnar said in a statement announcing the deal.

Illustration: Li-Anne Dias.

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Another major player in the BNPL space includes fintech giant PayPal, which in 2008 purchased Bill Me Later, an early pioneer in the space.

Source: https://news.crunchbase.com/news/square-rolls-up-afterpay-as-bnpl-market-stays-hot/

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Cryptocurrency Experts Say These 4 Factors Are Driving Change In The Industry

The COVID-19

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The COVID-19 pandemic accelerated acceptance of digital currencies like Bitcoin and the underlying blockchain technologies that power them. And while Bitcoin volatility continues — with the currency hitting its lowest point in months this week — investors are optimistic momentum will continue even as the world slowly starts to return to normal.

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The crypto and blockchain sector has attracted nearly $12.4 billion in venture investment into U.S.-based companies since 2017 and $19.4 billion globally, Crunchbase numbers show. In fact, data so far for 2021 shows dollars were nearly 3x from 2020 for both global and U.S. investments. But the sector also faces continued opportunities and challenges going forward, including more widespread adoption and new regulatory pressures from governments around the world.

Case in point: Earlier this month, El Salvador became the world’s first country to adopt bitcoin as legal tender. At the same time, Thailand’s Securities and Exchange Commission ordered its exchanges to delist meme coins, such as Dogecoin, as well as NFTs, exchange tokens and fan tokens, saying those tokens have “no clear objective or substance or underlying [value].”

Stepped-up efforts by China’s government to rein in the crypto space had the largest impact on valuations. On Friday, authorities in China’s Sichuan province, one of the country’s largest mining centers, reportedly ordered cryptocurrency miners to shut down their operations,

Cryptocurrency experts say these kinds of polarizing events put a spotlight on the space.

“Blockchain was accelerated five years in the pandemic,” according to Alon Goren, founding partner at blockchain fintech venture studio Draper Goren Holm.

Here’s a closer look at four factors that are likely to drive big changes in the cryptocurrency space in years to come.

1) Mainstream adoption

Cryptocurrency startups are working to make the process of using, buying, trading and finding digital currencies easier, driving greater consumer awareness and adoption.

Increasingly, mainstream adoption of cryptocurrencies is “crazy important” to the growth of the sector, according to Goren. Still, some of that adoption has come from less serious applications of digital currencies, including “meme coins” — assets based on jokes but with no real value other than those given to them by social indicators — a phenomenon that also concerns Goren because they reinforce the notion that cryptocurrency isn’t legitimate.

“Publicly traded companies can show quarterly earnings, you can follow the CEO on Twitter and you know their opinions on things,” Goren added. “In crypto, you don’t have those kinds of things to show legitimacy.”

Meanwhile, Hsuan Lee, CEO of Portto/Blocto, said the adoption of NFTs — non-fungible tokens — is one of the biggest factors that has changed the industry in the past year. Portto is a Taiwan-based company that aims to make blockchain simple for users and developers.

Although NFTs have been around since 2017, they were initially not appealing for typical use, but that all changed when they became approachable by retail investors, including when sports organizations got involved in selling digital clips and cards, he said.

“The National Basketball Association doesn’t market itself as a blockchain, but offering collectibles on it appeals to fans,” Lee said in an interview. “With those kinds of applications, even introducing a music NFT would potentially attract existing music fans. With that kind of people joining the party, it will make crypto more mainstream.”

Muneeb Jan, a cryptocurrency and fintech expert operating out of Hong Kong, said the investor base for cryptocurrency is still largely retail investors, while major financial institutions are in the discovery phase.

Still, new companies are announcing on a daily basis that they will accept bitcoin and other cryptocurrencies, and banks are facing crypto investor demand to get more involved in the space, Jan said.

“Crypto funds are increasingly viewed as an asset class,” he said in an interview. “There is not much of a use case currently, but they want to jump onto the bandwagon. If more large institutional investors come in, there will be price stability, and it will improve the legitimacy.”

2) Price volatility

Jan believes two of the biggest headwinds slowing more mainstream cryptocurrency adoption are price volatility and the fact that bitcoin as a mode of payment is not yet completely viable due the current inability to quickly process transactions.

Bitcoin has been particularly volatile in recent days. After surging above $40,000 about a week ago, the currency fell below $30,000 this week, recovering to around $32,400 as of Tuesday afternoon. Over the past year, the price grew to a peak of more than $60,000 before falling back to half that at the end of May.

Just processing transactions is not a sustainable use long-term due to the expensive transaction fees associated with it, even though people want bitcoin to be able to do that, he added.

“Other cryptocurrencies are not volatile because the community investing in them have come to a consensus on the price,” Jan said.

Lee said price volatility will be aided by regulations, especially as cryptocurrency is adopted more broadly. Price volatility will only be fixed with time, he said.

“This is a very young market and it has attracted attention, which makes prices volatile,” he added. “It can be dangerous to get into a space without established regulations. Being at an early stage, there is a lot of imagination that can be had for these cryptocurrencies. At the same time, when bad news comes out, it can easily dump harder on crypto than other companies.”

3) Regulatory pressure

Regulations proposed for cryptocurrency have gained steam since the beginning of 2021.

Among them: The U.S. Department of the Treasury announced in May that it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service as part of an effort to curb tax evasion.

“I’m happy to see regulations come into place because it will be good for the industry overall,” Lee said. “It will minimize possible scams or malicious use cases and make it better for everyone to get on board.”

The government is also examining possible regulations of cryptocurrency exchanges with a focus on protecting investors and preventing market manipulation, as well as financial account reporting as it relates to cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies.

Goren called a focus on Bitcoin, Etherium and the public markets “a double-edged sword.” Any real value is eroded when inflation occurs, but Bitcoin is a decentralized currency, so its value holds up well against inflation.

And the more institutions that participate, the more legitimacy it creates so regulators are less likely to fight it, he said.

“Most lawmakers know crypto is not used by criminals, but the people who put them in office are large financial institutions that are cheering when they say that happens,” Goren said.

While he understands why there have to be IRS reporting requirements for tax purposes, he disagrees when government regulations don’t consider Bitcoin a currency, but then treats it like cash.

By instead treating cryptocurrency as a capital asset, the IRS is taxing capital gains, which could also have implications on the venture capital world, he added.

Goren said other countries have a bit more clarity, but there is still misunderstanding in the U.S. when it comes to how cryptocurrencies should be reported financially, and it won’t change until there is clear categorization of cryptocurrencies.

4) Beyond Bitcoin

Rocketfuel Blockchain founder Peter Jensen said it will take time for the public to understand and be comfortable with cryptocurrency, much as people had to acclimate to the idea of online banking and ATM cards before that.

Jensen’s company, based in San Francisco, processes crypto payments. He believes people are distracted by the price volatility of Bitcoin, although it is just one out of some 200 cryptocurrencies.

“We need to move people’s minds away from Bitcoin because who knows if cryptocurrency will survive,” Jensen said in an interview. “There are many cryptocurrencies pegged to the dollar, which means they have zero volatility. If you take those and use them for payment, then you get the benefits of that.”

Global developments — such as El Salvador adopting cryptocurrency and both Sweden and Dubai issuing their own digital currencies — bring promise for the future of the industry, and Jensen predicts the U.S. will eventually issue a digital version of the dollar.

He sees a world where when you get a job, you will have the choice of receiving your paycheck in dollars or cryptocurrency, and there will be no volatility because those funds will be guaranteed by the U.S. government.

“We feel that the U.S. has an opportunity to be ahead, even though China is adopting cryptocurrency faster, as well as those with less-efficient banking systems,” Jensen added. “If we don’t stay in front, we are going to be last.”

Crunchbase Pro queries listed for this article

The query used for this article was “Global Cryptocurrency Companies,” in which “Bitcoin,” “cryptocurrency” and “virtual currency” were the organizational industry search terms. The data was then separated out by changing the headquarters location to “United States.”

All Crunchbase Pro Queries are dynamic with results updating over time. They can be adapted with any company or investor name for analysis.

Illustration: Dom Guzman

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Stepped-up efforts by China’s government to rein in the crypto space had the largest impact on valuations. On Friday, authorities in China’s Sichuan province, one of the country’s largest mining centers, reportedly ordered cryptocurrency miners to shut down their operations,

Source: https://news.crunchbase.com/news/cryptocurrency-experts-say-these-4-factors-are-driving-change-in-the-industry/

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