Ex-JPMorgan trader turned bitcoin fund manager says ICOs are 'better' than IPOs — but only 5% are worth investing in

Danny Masters ran JPMorgan's commodities trading desk in New York in the 1990s.
He left to set up his own commodities fund in 2000 but pivoted it to crypto in 2014.
Masters told BI that "initial coin offerings" provider" a richness that you'll never get in a regular IPO."
He admits ICO market is "chaotic" but wants a technological solution, not regulation.

LONDON — A former commodities trader-turned-bitcoin fund manager says that so-called initial coin offerings (ICOs) "offer a richness that you’ll never get in a regular IPO."

Danny Masters, who ran JPMorgan's commodities trading business in New York in the 1990s, told Business Insider: "I’ve never seen a better process for the formation of capital than this.

"I’ve raised for companies — angel, friends and family, series A, series B stuff — and it’s a real pain in the arse. It’s slow, it’s time-consuming, it’s duplicative. It’s a really heavy duty process. I know some great companies who’ve raised £5 million, £10 million and they’ve spent thousands of man hours doing it."

ICOs are "a better mousetrap, it's just chaotic and requires expert caddying," Masters said. "It is not something that anybody should really go and do themselves."

2017 saw a boom in ICOs as startups and open source projects issued their own cryptocurrencies in exchange for ethereum or bitcoin that they can use to fund their projects. $5.6 billion was raised via ICOs last year, according to TokenData.

'There's 5% wheat'

Masters became interested in bitcoin and cryptocurrencies around five years ago and pivoted Global Advisors, the commodities fund he set up in 2000, to focus on crypto in 2014. Global Advisors and associated businesses now have $1 billion of crypto assets under management. Global Advisors works with crypto companies in a number of ways, including investing in tokens and equity.

A monitor shows various cryptocurrencies' exchange rates against Japanese Yen including NEM coin (middle in the top) at 'nem bar', where customers can pay with NEM coins, in Tokyo, Japan January 29, 2018. While Masters is bullish on the potential of ICOs as a mechanism, he thinks there is a lack of quality in the market at the moment.

"There’s 5% wheat," Masters said when asked what the thought the ratio of wheat to chaff is. "We have had over 150 applications for funding. We’ve funded a dozen in total.

"You’d be surprised at how many cases there are where the token has absolutely no connection with the underlying technology."

Global Advisors is only interested in backing projects that are a "truly technical and a treatment of a problem that can only be solved by blockchain," Masters said.

"I’m not interested in replicating PayPal. If you come to me and say you have a cheese sandwich shop and you want to ICO how you buy cheese sandwiches, I’ve no interest in that."

'There's some real abuse'

Global Advisors carries out due diligence on all of the people involved in ICO projects, something Masters said is surprisingly rare in the market.

"There’s some real abuse. I got an ICO yesterday and there was a high profile advisor. I called the advisor directly and said, can I just confirm that you’re actually advising this project? They were like: what project? It’s very scammy.

"This is where the regulators obviously can rightly criticise. It is a very, very chaotic, unmanaged process."

I called the advisor directly and said, can I just confirm that you’re actually advising this project. They were like: what project? It’s very scammy

But Masters rejected attempts by regulators around the world to impose rules on the sector. He said: "These are all going to be technology-based solutions. It’s not going to be that the FCA decides here’s this, that, and the other rule. A lot of the regulators are just not keeping pace with the market for these things."

Masters believes ICO platforms could become the arbiters of quality in the market, similar to the role played by crowdfunding platforms.

"Some companies are now pre-screening ICOs so you don’t get onto my platform unless you’re a good ICO," he said. "That’s a very positive step because they’re going to do a lot of that filtering and their reputation will rise and fall on how well they do in blocking scam coins."

Masters also argued that investors have more information than they would in an IPO in an ICO.

"In a pre-ICO phase where your founders and developers are being hazed on Telegram or Discord 24 hours a day, for two months, there are no punches are being pulled in that environment — it’s “your software is shit”, “your idea will never fly”. If you can survive that, and it’s all open for anyone to see, you’ve gone through some sort of trial by fire, trial by your dev peers.

"That to me, although it’s very chaotic and very rude in many cases, that offers a richness that you’ll never get in a regular IPO."

He added: "What do you get in an IPO? You get a roadshow, a powerpoint presentation, a Q&A, a few resumes, financials. It’s very thin compared to what is essentially this really big jury of your peers."

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