Meltem Demirors in Davos: 'People were investing in projects at multi-billion dollar valuations without a single line of code being shipped'

Speaking in Davos at an event co-hosted by The Block and E8 Partners, Meltem Demirors, CoinShares' CSO, spoke about investing in crypto assets and blockchain tech.

Demirors' journey into crypto began by buying bitcoin on the now-disgraced crypto exchange Mt Gox. 

"So you're wiring money into this random exchange in Japan and you are hoping you don't lose all your money," she joked. Five years later, she's a C-level exec at CoinShares, the digital asset investment manager. She holds the familiar job of attracting institutional investors to crypto and blockchain-based opportunities. She also serves as the managing director of the firm’s US operations, choosing where to invest; from protocols, networks, to applications.

Before moving to CoinShares last May, Demirors worked at Digital Currency Group as a VP. More recently, she helped found the WEF's Global Blockchain council, putting her firmly at the table of industry leaders. 

Here's what Demirors had to say on investing in 2019's uncertain crypto space.

Breaking down the diversity within crypto

For Demirors, crypto is a mixed up family with the same roots. 

"When we talk about the crypto asset class, what do we actually mean?... It's actually not one asset class, it's many asset classes," she says.

On the one hand, there are the "store of value coins" - the Bitcoins of the world, "that really are like digital gold."  They are literally holding value. 

Then they are the tokens hoping to serve as legitimate mediums of exchange. She doesn't specify, but she could be referring to the likes of DAI$. "They're trying to build infrastructure to scrub the payment space... That's a totally different asset class."

Finally, there are the tokens integral to larger business models and which run on a blockchain. 

"People talk about Web 3.0 or more disintermediated web, where mega powerful corporations don't have access...[where] users keep more of their data. We talk about new models for computation. Whether it's file sharing or performing more advanced computation and some special analogs."

The ICO bug and the current playing field

"Over the last 18 months we saw this crazy frenzy," a result of the launch of Ethereum, she says. "People were investing in projects at multi-billion dollar valuations without a single line of code being shipped, without a single product, without a single use case, a little bit detached from reality."

In fairness, Demirors speaks from experience, having personally invested in her fair share of experimental projects, including Verge.

"Investing in Crypto assets is fundamentally different from owning a stock, or investing in real estate... There are all of these nuances and weird things that just take a lot of time and energy. So, I see a lot of people who get excited about the asset class. They say "Okay, I'm going to start allocating" and then six months later they're like "Okay, what do I do? What is this fork business, and what do I do?"

Now, she notes, there's an "adjustment phase," where expectations are more in line with reality and investment portfolios go beyond trying to get quick returns.  Today, she says, we've got "a different narrative, a different set of use cases" from the Bitcoin-centric world of 2017. ICOs are a different breed now too, meaning she's not ruling them out.

Indeed, the investor field betting on blockchain's future is bigger than ever - even it's paralysed for now amid the bear market and poorly performing hedge funds.

"Last year we saw really big respected names [join]. The Fidelities of the world, Andreessen Horowitz, Sequoia, Citadel. We see really large firms investing in, trading, launching ventures around Crypto. So, there is a changing investor cohort that I think has really legitimized the asset class in many ways."

Beyond that, she's excited by the nascent security tokens market, which would allow investors to experiment with fractional ownership models.

The 3 social trends underpinning crypto investments 

First, Demirors says, there's a trust gap in companies, intuitions, and government. And investors should monetize products working to fill the void.

"People want trust. They want to buy products that invest in things they trust. So, there is the simplest attention between trustless money, which was the idea Bitcoin started with, and this need we have for trust, and the lack of trust in our world today."

Second, the changing youth of today have much-changed priorities. We should not underestimate how that spending power will dictate the market's winners and losers, Demirors advises. "A lot of the conversations this year [at Davos] are around sustainability, they're around diversity, they're around Sustainable Development Goals, they're around investing for impact and purpose. I think this reflects the broader shift in how people view the way they allocate and use their capital," she says.

"I think what we've seen is the millennials invest very differently. We also have a growing of women who've become wealthy and they're viewing investment differently. I think that we're seeing big change in how people view the way they use their capital. It's no longer just about return, people want to have purpose, they want to do something that has a positive impact."

Finally, she notes, businesses are changing, the way we work is changing, with token economics playing a part. "There's really a big disruption when it comes to business models...You can incentivize participants in new ways... and work towards common goals." 

But, baby steps: investment no-nos

Still, for all the talk of revolution, humans are still cautious creatures, Demirors says, and breaking free the chains of regulation, intermediaries, and safety nets completely won't work in the short run. It's more evolution than revolution.

"People start with these ideas and they go to Malta, or they go to Hong Kong, or they go to Bermuda to set up these companies and these exchanges that at the end of the day, those are really small financial markets. And, I, as an investor, don't want to put my capital in to a jurisdiction where I may not be able to get it out. I want to invest in products, and business, and work with companies that have real backing. Where I know if I had an issue I can call someone. Where I know that my money is safe."

So where does that leave the crypto products seeking to transform the financial system, while entirely bypassing government and banks?

"In all likelihood, there's probably a point in the middle where we see, kind of this convergence where you're going to have this evolutionary trend with centralized applications...It's going to take some time to mature because we need people to change their behavior. When the internet first came out we didn't all go online and start transacting immediately. It took 20 or 30 years for the applications to get built, for people to trust it, and for people to learn how to use smartphones and computers and all these new applications and devices."

Demirors is also not sure about the idea of self-made custom solutions, calling it "a terrible idea."

Endless returns?

For Demirors, crypto would do well if it mimicked the journey one of the world's most powerful companies. "[Amazon] is not just a bookstore anymore, it's a complete commerce ecosystem. They're one of the leaders in integrating robotics, AI....Whole Foods. There's this whole ecosystem they've built that's re-imagining what commerce could look like. To me what's happening with cryptocurrencies, Bitcoin, blockchain technology, is we're rethinking what the future of money and finance looks like," she says.

In short, redefining the space it occupies.

But don't be fooled - investing in crypto is not an easy ride to be on, she says. There's not only the risk of this being an nascent, unregulated field, there's also the atypical market volatility. "People talk about "Oh, we have a diversified strategy. It's actively managed." What does that actually mean?" she asks. "People think that venture investing is easy, and I see those many people feel like anyone could be a venture investor." 

"The hardest part of investing for me, is not figuring out who to write checks to, but everything that happens after you write the checks. So helping these companies grow, helping them find customers, helping them raise additional capital, helping them manage some of the operational and financial risks with the business, helping them work with regulators, helping them really find product market fit."

What's next?

Demirors isn't blind to the effects of the current bear market, which she says has frozen any type of evolution - let alone revolution. Major investors like hedge funds are holding their cards close for now.

"There's a lot of fear. There's a lot of angst. And when people are uncertain they don't want to take a lot of risk...We see all of these silicon valley unicorns with no way they have paper value, but how are you going to turn that paper value into real dollars."

And there are more interesting times ahead too.

"I think what we're going to see over the next three to five years is another boom-bust cycle. But each cycle brings more innovation, brings more, really, use cases."

Demirors' full presentation, titled "Crypto Assets and Blockchain Tech: Investing Strategies and Risks" can be viewed here:

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