Crypto Quarterly Q4-17

Internet Michael Graham, CFA | Analyst | Canaccord Genuity Inc. (US) | [email protected] | 212.849.3924 Austin Moldow | Associate | Canaccord Genuity Inc. (US) | [email protected] | 212.849.3931 Scott Suh | Associate | Canaccord Genuity Inc. (US) | [email protected] | 212.389.8360

US Equity Research 14 November 2017

$8,000

Industry Update

BitcoinYTDperformance

$6,000

Crypto Quarterly – Q4/17

$4,000

$2,000

$0 Jan-17

May-17

Sep-17

Source: CoinMarketCap, CoinSchedule, Canaccord Genuity

In this inaugural edition of our Crypto Quarterly, we explore the major developments since publishing our revised white paper on blockchain and cryptocurrencies in early October. Key updates within include: • Thinking through the ICO boomlet – The topic of whether the world needs a few digital currencies to enable a more friction-free remittance process for certain types of transactions is somewhat controversial, but nowhere near as contentious as the ICO boomlet which has created over 1,000 crypto coins that range from "utility tokens" to equity proxies. We provide historical perspective and examine the key issues surround the ICO market. • Update of recent events – As cryptocurrencies have drawn in an increasing number of enthusiasts and institutional investors alike, governments around the world have ramped up their efforts to regulate the still-nascent industry in recent months. Following in China's footsteps, South Korea announced its ban on initial coin offerings in late September, while Russia declared its intent to block access to cryptocurrency exchanges. Meanwhile, the much-anticipated Segwit2x bitcoin fork was called off on 11/8, sending shockwaves within the blockchain community and causing the price of Bitcoin Cash to skyrocket in the days following the announcement. • Update on key developments – We highlight several notable thematic developments over the last several months, including the cancellation of the Segwit2x Bitcoin fork, Japan's rise as the predominant leader by bitcoin transaction volume, and hedge funds' increased participation in ICO pre-sales. • Update on major cryptocurrencies – Bitcoin is up ~580% YTD, while altcoins such as Ethereum (up ~3,870%) and Ripple (up ~3,060%) have amassed even more outsized gains so far this year. While there are now over 1,200 cryptocurrencies in existence with a total market cap of ~$210B, Bitcoin has gained market share in 2017, and currently commands 53% of the entire market. • Update on ICO market – Through October, companies have raised ~$3.3B via initial coin offerings YTD. After a record ~$800M was raised in August, the ICO market cooled somewhat in October to ~$375M. • Cryptocurrency valuation framework – Our revised valuation framework accounts for Bitcoin Cash's recent market share gains owing to the cancellation of the Segwit2x Bitcoin fork and for the higher prices of all six cryptocurrencies that we assess. Notably, our framework now utilizes slightly lower discount rates relative to our previous iteration published in early October, in a nod to the apparent increasing acceptance of cryptocurrencies as a new asset class by retail and institutional investors.

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX) The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all the companies and securities that are the subject of this report discussed herein.

For important information, please see the Important Disclosures beginning on page 23 of this document.

Internet Industry Update

Thinking through the ICO boomlet At Money2020 (the fintech mecca) in Las Vegas in 2016, there was a lot of talk about Bitcoin, but not in a good way. Bitcoin had recently depreciated from ~$750 to ~$500 and many talked about how it was “over” and that we were lucky to have “that whole thing” behind us. Fast forward a year to October 2017, and one Bitcoin was commanding nearly $5,000 USD. The crypto crowd was cool again, and the most packed sessions were the ones focused on the new digital currencies. Figure 1: Bitcoin 2017 performance, as of 11/13/17

$8,000

$6,000

$4,000

$2,000

$0 Jan-17

May-17

Sep-17

Source: CoinMarketCap, Canaccord Genuity

One session on the burgeoning wave of ICOs (Initial Coin Offerings) stood out in particular. It featured a panel including Ted Livingston, founder of messaging platform Kik (beneficiary of a recent $100m ICO), and Dan Morehead, founder and CIO of Pantera Capital, a money management firm with a $100M fund focused exclusively on ICOs. Boomlet or Bubble? As we laid out in our recent whitepaper, we tend to agree with the crypto crowd that the world will likely benefit from one or a few digital currencies that can find a middle ground between gold and fiat as a medium of exchange, combining the qualities of limited and visible supply with high trust (liquidity), but layering in the convenience of being digital and widely accepted globally. The best example we can offer is a crossborder B2B payment from a company in, say, Sweden to a supplier in Sri Lanka. Making this payment with fiat currencies and the SWIFT system would require time and expense, whereas the same payment in Bitcoin could be free and happen instantly.

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It is less obvious to us that we need all of the over 1,000 crypto coins that have been created to date, raising over $3.3 billion via ICOs so far in 2017 alone. In our opinion, there is clearly a great deal of froth, wishful thinking, and less-than-ethical behavior surrounding many of these coins. That said, however, the great thing about market prices is that they are accurate in the sufficiently short-term 100% of the time. Therefore, we have no quarrel with this estimate; these ICOs have created billions in market value in a very short time, and therefore this definitely qualifies as a boomlet, perhaps on its way to becoming a boom. Is it also a bubble? Maybe … but bubbles can take a long time to pop. Coin vs Common The easiest analogy for crypto coins is common stock, although there are significant differences between the two. Some observers have commented that, unlike common stock, the tokens an investor receives from an ICO are worthless because they typically will not confer any right of economic ownership or any portion of the future cash flows of the underlying company. When thinking this through, we should begin by highlighting that not all coins are created equal, and we have seen coins that give the holder a right to receive a portion of a company’s revenue or net income. Most coins, however, rely on underlying demand for the company’s products or services to, when set against a fixed supply of coins, drive the value of these coins higher. More on this later. We also likely should partition our thinking between small and large (activist) shareholders, and between dividend-paying and non-dividend-paying stocks. Large activist shareholders can have considerable influence over companies’ governance. It is not unusual for these shareholders to demand that the value of certain assets within a company be realized through sale or otherwise. Similarly, dividend-paying stocks do provide the holder with steady income (although of course, this is only true so long as the company’s financial performance makes such a dividend prudent, and there is almost never a guarantee). In addition, the dividend is typically only part of the reason investors own a stock; usually there is a hope of capital appreciation as well. Excepting these two somewhat special cases, however, the vast majority of ownership situations for common equity will never fully benefit from a right of ownership. Let’s consider that share of common stock you might own in, say, GOOGL. We never like to say never, but we deem it HIGHLY unlikely that the management team is going to listen to your views on how to run the company. We deem it HIGHLY unlikely that you could convince the board to exchange your share of stock for 1x10-9 % (your fractional ownership of GOOGL’s 692M shares outstanding) of the company’s office furniture, intellectual property, cash, accounts receivable, etc. We deem it HIGHLY unlikely that the company is going to pay you a dividend any time soon (although they may buy back stock, which can also more or less happen in coin). If we are correct that all these events are quite unlikely, then what good is that right of ownership? Of course, the share of stock has value – going back to our market dynamic, it has value because you could very likely sell it for close to the $1,041 that GOOGL stock commands as we write this. In turn, this price typically depends upon the judgement of the incremental buyer / seller regarding two items: 1) the future operating performance of Alphabet the company (i.e., happy customers, market share, innovative products, revenue, earnings, cash flow, ROIC, ROIC/IC – essentially how well the company will compete, deploy capital, and serve as a prudent steward of that capital); and 2) what market participants think that operating performance is worth (typically based on some valuation metric like P/E which is a short-cut to considering

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risk, size and duration of competitive advantage, investment time horizon, and the like). Put more succinctly, the vast majority of common equity ownership situations are primarily bets on how the secondary market will value the future operating performance of the company. It is true and valid that a baseline amount of regulation, accounting standards, and the like, foster trust in the stock market that is currently missing in the crypto world. However, when comparing the stock market with the coin market, to our eye there are way more similarities than differences.

Figure 2: Code of Hammurabi

Precedent for financial innovation – has this happened before? Well, yes, of course it has. For a long time in many places, there was no ability for people or companies to access capital with which to invest and grow. Then, along came bankers and loans. Some accounts report that the first known bond in history dates back to 2400 BC and was discovered in present-day Iraq, and was transacted in corn, the common currency of the period. Mesopotamia continued as the first fintech capital of the world about 700 years later with the development of the Code of Hammurabi. This famous code was harsh (take someone’s slave outside the city gates and you would be put to death; and of course, taking the eye of another man would cost you one of our own), but it also laid out the basic principles of investing, including collateral for loans and the requirement to pay one’s debts. Secondary trading of these debt commitments began in earnest in 14th century Venice, and picked up steam in 1693 when Britain issued the first government bonds. Equity (no promise of repayment, but a share of the upside) came along much later. By some accounts, the first equity investment happened in 13th century France, when an investor bought a portion of the Société des Moulins du Bazacle, which was traded at a value derived from the profitability of the society’s mills. In the 1600s, this trend exploded with the “East India” companies, which were formed to share profits from all the voyages made by an entity, rather than from just individual trading trips (the first “joint stock companies”). Since then, it has pretty much been off to the races with equity and secondary trading markets. In the more recent past, financial innovators have brought forth a sizeable number of new financial products (see a partial list below), but they are all merely different flavors of, or derivatives for, the two big investment vehicles humanity has come up with so far: debt and equity.

Source: Wikipedia

Figure 3: Notable financial instruments created between the 1970s-2010s

1970s-1980s      

1990s-2000s    

First money-market mutual funds Foreign currency futures Gold futures Debt-for-equity swaps Eurodollar futures Collateralized Mortgage Obligations (CMOs)



Collateralized Debt Obligations (CDOs) Credit Default Swaps (CDS) Exchanged-Traded Funds (ETFs) Long Term Equity Anticipation Securities (LEAPS) Exchange-traded notes (ETNs)

2010s   

Accelerated Return Notes (ARNs) Bitcoin Investment Trust (GBTC) Bitcoin futures

Source: Canaccord Genuity

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If, over the next 1-2 decades, the coin market evolves to a more mature state such that one day most coins are attached to well-established companies and trade with sufficient liquidity so as to reduce risk, we believe the gap between ICOs and IPOs will look fairly small. We are obviously not there yet, so in our opinion, while ICOs may hold a great deal of promise, they have to be viewed as extremely risky. ICOs and different types of coins What is a coin? – A “coin” (synonymous with “cryptocurrency” and “token”) is a digital asset that can be bought, sold, and used as a medium of exchange. Importantly, the method of exchange is often digital and machine-to-machine (see examples below). How does an ICO work? – Typically, a company wishing to establish a new crypto coin and sell it to investors will put together a whitepaper that lays out the market need for its coin, how the technology behind the coin will work, the supply schedule for the coin, and what activities might drive future demand for the coin (this is analogous to a prospectus, but with limitations as these coins have been deemed by their issuers as NOT being securities, therefore not registered with the SEC, and therefore the whitepapers are not subject to any regulatory content requirements). Then, the company sets a date for the ICO to commence, the price of a coin, how much money is to be raised, and what currencies are accepted (most often ETH or BTC, but sometimes USD and other fiat currencies). These terms are posted on various ICO sites like CoinSchedule or ICO Tracker, or they are sent to known ICO investors, and the company keeps the offering open until it is filled, or until they want to stop it. Figure 4: Summary of Eidoo ICO

Source: ICO Drops, Canaccord Genuity

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While all crypto coins meet the definitional criteria mentioned above, there are several different flavors of coins (perhaps like there is voting and non-voting common stock, preferred stock, warrants, etc.). To our thinking, they can be divided into three broad categories: 1. Currencies – The primary intended uses are as a store of value like gold or as a means to pay for something; 2. Equity-like investments in a company’s future prospects; 3. Utility tokens that industry participants need to operate or consume a company’s products, thereby creating demand. And, while some coins fit nicely into one of these three categories, others are clearly hybrids of two or all three. One notable example is Kik.

Kik, based in Canada, is a popular messaging platform that boasts over 15 million MAUs (Monthly Active Users), 57% of which are 18-24 years old and 64% of which are in the US. Over 250 million messages are sent on Kik each day, and the average user sends 55 messages and spends 37 minutes on the platform daily. Kik also has experimented with an on-platform currency (Kik Points) in the past. In the below example, users could earn Kik Points by viewing ads, and then redeem them for various items like emoji sticker packs. During its two-year experimental life, the Kik Points program experienced over 300k transactions per day on average. Figure 5: Example Legacy “Kik Points” uses

Source: Kik

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In May 2017, Kik published the whitepaper for the ICO of its Kin token (crypto coin). Then, Kik raised $50M in a token pre-sale to institutional investors, and raised another $48 million over an approximate two-week period via a public ICO which saw purchases from over 10k buyers in over 100 countries. Importantly, Kik did not allow Canadians to participate, likely for regulatory reasons. Kik created 10 trillion total Kin tokens and sold 1 trillion (10%) to investors in the presale and ICO. 3 trillion KIN (30%) was issued to Kik (and by pass-through to its shareholders, including founders and employees). The remaining 60% of Kin tokens were held in reserve by the Kin Foundation to be slowly introduced into the ecosystem as rewards to users at the rate of 20% of remaining tokens per year (i.e. asymptotically approaching full distribution). Kin tokens can be transferred into and out of the Kik ecosystem via ETH, and are kept in each users’ Kin wallets. Kin can also be earned, and can be spent on various goods and services both within and outside of the messaging platform. In the examples below, restaurants that accept Kin and ostensibly are engaged in a user acquisition campaign are curated for Kik users, and a Kik user is selling a song she created to other users for Kin tokens. Figure 6: Kin wallet and example use case

Source: Kik

In these examples, we find evidence of Kin being a utility token (the token has usefulness in helping Kik users navigate and benefit from the platform), as a currency (Kin can be used to purchase goods outside of the Kik platform), and as an equity proxy (ostensibly as usage of the Kik platform expands, demand for Kin would grow, and the value of Kin would rise). Please see our whitepaper for a more detailed look at how various demand sources can drive the value of a crypto (or any) currency higher.

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Utility tokens or securities? This leads us to the last point we would like to make on ICOs, which is the great lengths all coin issuers have taken to avoid being perceived as securities and therefore subject to registration with the SEC. In a joint project between Protocol Labs and the Cooley law firm, authors Juan BatizBenet, Marco Santori, and Jesse Clayburgh set forth a thoughtful framework for thinking of certain coins as utility tokens rather than as securities. The framework hinges around the “Howey Test”, a legal test that requires an asset to be considered a security if it meets all of the following criteria: 1. 2. 3. 4.

There exists an investment of money; There exists a common enterprise; There exists an expectation of profit; Whether this expectation is solely from the efforts of others.

The analysis goes on to assert that utility tokens (perhaps like Kin) fail this last part of the Howey Test and are therefore not securities. So far, regulators have been fairly quiet on these topics, and there is no clear timeline for resolution. Earlier this year, the SEC issued a report pertaining to the Decentralized Autonomous Organization (DAO) token that have been deemed to be securities, but so far we are not aware of any word from regulators regarding how they are thinking about utility tokens. Clearly, if/when this happens, it will be an important milestone in the ICO journey. A stamp of approval for utility tokens could accelerate the wave of ICOs, whereas anything less could create turbulence in this market and potentially drive this method of capital formation away from the US.

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Update on recent events 

9/29/17 – Chinese media outlet Jinse reports that China will begin regulating cryptocurrencies as “virtual property” beginning as early as October 1. Despite the lack of an official determination from the Chinese government, the price of Bitcoin continues to rebound from its mid-September lows following China’s decision to ban initial coin offerings and cryptocurrency exchanges.



9/29/17 – South Korea bans initial coin offerings and margin trading in cryptocurrencies. In addition, the practice of loaning funds to trade cryptocurrencies is banned.



9/30/17 – Japan grants approval to 11 Bitcoin exchanges to operate in the country under its new regulatory framework. Japan previously recognized Bitcoin as legal tender and eliminated the consumption tax on Bitcoin purchases from exchanges as part of a bill introduced in April.

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10/10/17 – Russia announces intent to block access to cryptocurrency exchanges as President Vladimir Putin denounces digital currencies as “pyramid schemes” that can be used to finance terrorism and support money laundering.

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10/15/17 – Russian president Vladimir Putin calls for a state-issued cryptocurrency called the “cryptoruble.” While details remain scarce, the cryptocurrency is expected to serve as legal tender in Russia.

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10/16/17 – Ethereum successfully executes the first phase of its two-part fork called Byzantium, which enacts a batch of Ethereum improvement protocols, or EIPs, to make the Ethereum platform faster, lighter, and more secure.



10/24/17 – Bitcoin is forked at block 491,407 of its original blockchain, creating Bitcoin Gold. Bitcoin Gold aims to resolve the perceived issue that current Bitcoin miners have too much influence given mining has evolved to require expensive application-specific integrated circuits (ASICs) that only large companies can afford.

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10/31/17 – CME, the leading global exchange for options and futures trading, announces plans to launch Bitcoin futures by the end of the year, pending regulatory review.



11/8/17 – Segwit2x is called off after initial supporters of the controversial Bitcoin fork announce via email that it lacks sufficient consensus to proceed with the split to Bitcoin’s blockchain. Bitcoin’s price temporarily trades to an all-time high of ~$7,800 before falling to $7,200 in the 24 hours following the announcement.

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Update on key developments Cancellation of Segwit2x Bitcoin fork removes uncertainty After months of build-up in anticipation of the biggest potential change ever to Bitcoin’s blockchain, organizers of the controversial software update known as Segwit2x called off its implementation on November 8. In the immediate hours following the announcement, Bitcoin traded to an all-time high around ~$7,800, before falling to the ~$7,200 level approximately 24 hours later, as enthusiasts and institutional investors alike sought to sort out the implications arising from the decision. Arising from what is known as the New York Agreement, led by Digital Currency Group founder Barry Silbert, Segwit2x was a proposal signed in May 2017 to upgrade the Bitcoin blockchain, specifically by increasing its block size from 1 MB to 2 MB. While Segwit2x gained the initial backing of a large number of miners and exchanges, who claimed that Bitcoin’s blockchain needed to implement the Segwit2x update to further scale, support waned in the following months as developers and node operators expressed the risks involved with such a significant change to the network. Among those to back out of the New York Agreement included cryptocurrency mining pool F2Pool and South Korea’s largest Bitcoin community Seoul Bitcoin Meetup. Following months of speculation leading up to the planned upgrade at block 494,784, expected to occur around November 16, Mike Belshe, CEO and co-founder of Bitcoin wallet software provider BitGo, announced via email that Segwit2x would not proceed as previously planned under the New York Agreement. Among those to sign Belshe’s email included Blockchain CEO and co-founder Peter Smith, Shapeshift CEO and founder Erik Voorhees, and Bloq co-founder Jeff Garzik. While it remains to be seen whether the decision to call off Segwit2x will be a permanent one or be pursued again in the future, the November 8 decision at least temporarily removed a significant level of uncertainty regarding the future of Bitcoin. Immediate reaction from Bitcoin investors ranged from disappointment that current holders would not receive a “dividend” in the form of the newly-forked form of Bitcoin (Bitcoin holders received an equal amount of Bitcoin Cash upon Bitcoin’s earlier fork in August) to optimism that Bitcoin could continue to rally after putting to bed talks of the controversial change to the cryptocurrency’s blockchain network. Japan overtakes China as the #1 country by trading volume Perhaps the most notable development arising from increased regulation and uncertainty regarding ICOs and cryptocurrencies in China has been Japan’s rise as the definitive leader by Bitcoin transaction volume. According to CryptoCompare, Japan’s exchange market now handles 55% of Bitcoin’s trading volume, followed by U.S. exchanges at 24% and South Korean exchanges at 12%, compared to less than 1% for Chinese exchanges. Given China’s decision to ban ICOs and exchanges this past September, cryptocurrency traders have flocked to Japan in recent months, where currently 11 Bitcoin exchanges operate with approval from the country’s Financial Services Agency (FSA).

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Figure 7: Bitcoin volume by currency, as of 11/14/17

60%

55.4%

50% 40% 30%

24.4%

20% 11.9% 10% 3.2%

5.2%

0% JPY

USD

KRW

EUR

Other

Source: CryptoCompare, Canaccord Genuity

Hedge funds increasingly participating in ICO pre-sales As momentum for ICO funding has gained steam throughout 2017, hedge funds have increasingly begun to invest in pre-sales offered by startups pursuing initial coin offerings, often receiving preferential discounts and terms in the process. Today, it is believed that over 80% of ICOs engage in pre-sales, as startups seek to lock in initial funding from hedge funds before opening up their token crowd sales to a wider audience of investors. For example, in messaging app Kik’s recent ICO completed this past September, three ICO-focused funds together accounted for more than half of Kik’s ~$100M total raise via a pre-sale, receiving a 30% discount for the Kin tokens in the process. This growing practice of institutions demanding discounts on token pre-sales has been controversial as it relates to retail investors who participate in ICOs at a higher token offering price. However, proponents contend that such methods have accelerated the growth of low-quality ICOs, as it has provided a relatively easy avenue for startups to raise tens of millions of dollars, even those with minimal business progress. While some institutions have stated that they do not necessarily invest in ICOs with the intention of immediately exiting their position, this possibility seems to have the attention of regulators.

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Update on major cryptocurrencies Cryptocurrencies as a whole have continued to build momentum in the second half of 2017 and now have a combined market cap of over $200B. While Bitcoin has recovered all of its losses stemming from increased Chinese regulation in September and sits near all-time highs, others (e.g., Ethereum) have successfully navigated forks and other notable events to drive the total market cap of cryptocurrencies to new heights. Figure 8: Top cryptocurrencies by market cap, as of 11/14/17

$32.5B $3.3B

$8.0B $108.6B

$22.2B

$31.5B

Bitcoin

Ethereum

Bitcoin Cash

Ripple

Litecoin

Other


One of the most significant developments in 2017 has been the return to dominance of Bitcoin over all other altcoins, as Bitcoin now constitutes 53% of the total market cap of all cryptocurrencies. Meanwhile, Ethereum remains the closest competitor to Bitcoin by market cap with a market cap of $31.5B. We also note the meteoric rise of Bitcoin Cash, which recently overtook Ripple as the third-largest cryptocurrency and currently has a market cap of $22.2B. After launching as a fork of Bitcoin on 8/1, Bitcoin Cash’s market cap increased as much as sevenfold following the cancellation of the much-anticipated Segwit2x Bitcoin fork, as developers have begun to speculate that Bitcoin Cash will become more widely adopted given its larger block size (up to 8 MB, versus 1 MB for Bitcoin). We highlight below the top 10 cryptocurrencies by market cap:

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Figure 9: Top cryptocurrencies by market cap, as of 11/14/17

Name

YTD Performance

Price

Market Cap

$8,000

$6508.98

$6,000

May-17



Prior to the Segwit2x decision, Bitcoin had rallied following the CME’s announcement on 10/31 that it plans to launch Bitcoin futures by the end of 2017

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Ethereum successfully navigated its own fork, called Byzantium, in mid-October; it is expected to fork again, although a timeline has not been determined

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Parity, a wallet service company, announced on 11/7 that a vulnerability has frozen hundreds of millions of dollars of Ethereum

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Bitcoin Cash’s price skyrocketed from ~$300 to as high as ~$2400 in the days following the cancellation of Bitcoin’s Segwit2x fork before retreating to ~$1200

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Bitcoin Cash forked from Bitcoin on 8/1 and has a block size limit of 8 MB, compared to 1 MB for Bitcoin

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Ripple was launched in 2012 and focuses on payments between fiat currencies, cryptocurrencies, etc.

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Ripple’s price has hovered around ~$0.20 in recent weeks after the lack of any notable announcements from its highly anticipated Swell conference in mid-October

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Often considered the silver to Bitcoin’s gold, Litecoin was released by Charlie Lee, the brother of Bobby Lee, CEO of BTCC, China’s first Bitcoin exchange

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Litecoin traded to ~$65 from ~$60 after Coinone, the secondlargest South Korean exchange, added Litecoin on its platform in early November

Sep-17

$450

$328.59

$300

$31.5B

$150

$0 Jan-17

May-17

Sep-17

$1,600

$1322.85

$1,200

$22.2B

$800

Bitcoin Cash

Cancellation of Segwit2x fork on 11/8 initially led to all-time high of ~$7800 before significant pullback to ~$5500 level

$2,000

$0 Jan-17

Ethereum

 $108.6B

$4,000

Bitcoin

Comments

$400

$0 Jul-17

Aug-17

Sep-17

Oct-17

$0.50

$0.40

$0.206585

$8.0B

$0.30

$0.20

Ripple

$0.10

$0.00 Jan-17

May-17

Sep-17

$100

$61.23

$80

$3.3B

$60

$40

Litecoin

$20

$0 Jan-17

May-17

Sep-17


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Figure 10: Top cryptocurrencies by market cap, as of 11/14/17

Name

YTD Performance

Price

Market Cap

$600

$414.88

$450

Dash was created from a fork of Litecoin in 2014, and has transaction speeds of just several seconds, making it one of the fastest cryptocurrencies today



After trading below $300 in recent weeks, Dash has skyrocketed above $500 within a one-week stretch

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Monero was created in April 2014 and focuses on providing anonymity for its users



Key features include ring signatures, used to protect the identity of both senders and recipients, and stealth addresses, which are generated for a specific transaction and cannot be linked to prior transactions

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Often referred to as the “Chinese Ethereum,” NEO is the first decentralized, open-source blockchain platform and cryptocurrency launched in China



Like Ethereum, NEO utilizes smart contracts and supports the development of decentralized applications, or DApps

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NEM was launched in March 2015 in Japan by Makoto Takeyima, who also introduced the Hyperledger Project



Features include its proof-of-importance (POI) algorithm to timestamp transactions, and multi-signature accounts, which require a certain percentage of signatures before a transaction can be added to NEM’s blockchain



Ethereum Classic, the alternative version of Ethereum’s blockchain, was created following a fork in July 2016



As a fork of Ethereum, Ethereum Classic does not receive all of the updates to Ethereum’s blockchain, e.g. transition from a proof-of-work to proof-of-stake model

$150

$0 Jan-17

May-17

Sep-17

$160

$121.36

$120

$1.9B

$80

Monero

 $3.2B

$300

Dash

Comments

$40

$0 Jan-17

May-17

Sep-17

$50

$40

$28.45

$1.8B

$30

$20

NEO

$10

$0 Jan-17

May-17

Sep-17

$0.40

$0.189739

$0.30

$1.7B

$0.20

NEM

$0.10

$0.00 Jan-17

May-17

Sep-17

$30

$17.38

$20

Ethereum Classic

$10

$0 Jan-17

May-17

$1.7B

Sep-17


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Update on ICO market The topic of initial coin offerings continues to be perhaps the most controversial in the broader cryptocurrency space, as startups with often nothing more than a white paper continue to readily raise millions of dollars and break from the traditional venture capital fundraising model. While speculation persists that ICOs will face more significant regulation in the U.S. and abroad in the not-too-distant future, startups continue to pursue ICOs today, teaming up with celebrities (e.g., Floyd Mayweather, Paris Hilton) and cryptocurrency funds such as Pantera Capital in the process. Figure 11: 2017 ICO fundraising

$900M $800M $700M

$600M $500M $400M $300M $200M

$100M $0M Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Source: CoinSchedule, Canaccord Genuity

After eclipsing $800M in amount raised this past September, the ICO market cooled somewhat in October, raising ~$375M, according to CoinSchedule. Through October, companies have together raised ~$3.3B via ICOs in 2017 despite increased regulation and warnings about investing in initial coin offerings from some governments and outright bans from others. We highlight below selected ICOs (ICOs that have been self-reported by the companies on CoinSchedule) since 8/15/17 that have raised over $10M:

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Figure 12: Selected ICOs raising $10M+ (since 8/15/17), as of 11/14/17 Date Ended

Name

$ Raised

Token Price

% change in USD exchange rate

Company Overview

10/31/17

Enjin (ENJ)

$22,900,620

$0.023990

19.8%

Customizable virtual goods platform for gaming

10/30/17

Cryptopay (CPAY)

$17,950,455

NA

NA

Offers Bitcoin wallet and prepaid cards

10/25/17

BlockV (VEE)

$21,599,100

NA

NA

Platform enabling creation of digital objects on blockchains

10/23/17

Unikoin Gold (UKG)

$31,400,000

$0.187943

-9.8%

Fully-regulated and licensed e-sports bookmaker

10/20/17

Electroneum (ETN)

$40,000,000

$0.024541

-47.3%

Mobile app with token wallet and mining services

10/17/17

Request Network (REQ)

$32,500,000

$0.057330

-5.7%

Decentralized network for payment requests

10/16/17

Eidoo (EDO)

$26,771,007

$2.04

-14.3%

Multicurrency wallet and hybrid exchange

10/15/17

Paragon (PRG)

$183,157,275

$0.323955

-57.1%

To support the legal marijuana industry in the U.S.

10/12/17

doc.ai (NRN)

$11,058,297

NA

NA

AI-powered healthcare services platform

10/11/17

DomRaider (DRT)

$30,987,919

$0.034785

-46.4%

Decentralized network for auctions worldwide

10/10/17

LAToken (LA)

$19,600,000

$0.110825

-54.0%

Blockchain platform to create and trade tokens

10/10/17

Wolk Pre Sale (WLK)

$11,770,500

NA

NA

To build the next internet using decentralized databases

10/7/17

Maecenas (ART)

$15,730,640

$0.373615

-20.2%

To democratize access to fine art for all individuals

10/6/17

Power Ledger (POWR)

$26,454,022

$0.146313

215.9%

Allows users to sell surplus solar power to neighbors

10/6/17

FinShi Capital (FINS)

$21,420,275

NA

NA

Venture fund created on blockchain technology

9/30/17

REAL (REAL)

$11,046,562

$0.256335

-68.3%

Crowdfunding platform for real estate investments

9/26/17

Kin Kik (KIN)

$97,041,936

$0.000050

-54.3%

Social media chat app with 15M MAUs

9/22/17

PeerBanks (IRA)

$42,590,100

NA

NA

Allows companies to manage retirement accounts

9/20/17

ICON (ICX)

$42,750,000

$1.04

92.6%

Blockchain for ID verification, payments & exchange

9/20/17

ChainLink (LINK)

$32,000,000

$0.170898

-3.2%

Connects smart contracts to off-chain data and APIs

9/19/17

Bankera Pre-ICO (BNK)

$29,600,000

NA

NA

Bank platform offering payments, loans, deposits, etc.

9/16/17

KICKICO (KICK)

$20,143,130

$0.032311

-86.7%

Fundraising platform for ICOs, crowdfunding, etc.

9/15/17

KyberNetwork (KNC)

$48,000,000

$1.03

-40.5%

Allows for exchange and conversion of digital assets


2 14 November 2017

16


Figure 13: Selected ICOs raising $10M+ (since 8/15/17), as of 11/14/17 Date Ended

Name

$ Raised

Token Price

% change in USD exchange rate

Overview

9/15/17

Propy (PRO)

$15,000,000

$0.255121

-58.5%

International real-estate marketplace

9/15/17

ICOBox (ICOS)

$13,650,000

$44.18

8.7%

Facilitates ICOs crowdfunding for companies

9/14/17

Substratum (SUB)

$13,800,000

$0.104423

150.4%

Allows individuals to allocate spare computing resources

9/13/17

Blackmoon (BMC)

$30,000,000

$0.450344

-36.4%

Allows asset managers to create tokenized funds

9/11/17

Enigma Catalyst (ENG)

$45,000,000

$0.389165

-36.9%

Allows users to share data-driven investment strategies

9/10/17

Rivetz (RVT)

$19,710,000

$0.306566

-37.9%

Provides cybersecurity solutions for mobile

9/7/17

Filecoin (FIL)

$257,000,000

NA

NA

Allows users to share unused hard drive storage

9/6/17

Aventus (AVT)

$18,700,000

$2.40

-40.0%

Blockchain platform for ticketing companies

9/5/17

Viberate (VIB)

$10,714,285

$0.134466

-46.2%

Marketplace to match musicians with event organizers

9/1/17

ATB Coin (ATB)

$20,400,000

$0.600475

-45.8%

Investment platform to organize financial assets

8/31/17

Monetha (MTH)

$36,600,000

$0.072016

-73.3%

Allows merchants to accept digital token payments

8/31/17

Everex (EVX)

$26,442,734

$1.64

-9.4%

Platform to send, receive, and borrow money

8/31/17

Target Coin (TGT)

$20,711,412

$0.034582

-17.2%

Closed-end fund to invest in blockchain technology

8/27/17

DIMCOIN (DIM)

$14,005,746

NA

NA

Trading platform based on NEM’s blockchain

8/25/17

Centra Tech (CTR)

$18,522,078

$0.560738

69.8%

Allows users to spend digital tokens using credit cards

8/25/17

BitBounce (CREDO)

$11,330,707

$0.019845

-62.4%

Integrated tool to reduce spam emails

8/21/17

DMarket (DMT)

$10,929,925

NA

NA

Decentralized market to turn virtual items to real assets

8/18/17

Lampix (PIX)

$12,071,695

$0.074319

-28.8%

Blockchain to hold datasets of real-world objects

8/17/17

Agrello (DELTA)

$29,368,234

NA

NA

To build smart contract-powered legal agreements

8/17/17

Decentraland (MANA)

$26,203,082

$0.010505

-54.2%

Virtual reality platform powered by Ethereum blockchain

8/17/17

CoinDash (CDT)

$20,000,000

$0.034398

-30.3%

Cryptocurrency social trading platform

8/16/17

Loopring (LRC)

$45,000,000

$0.130133

36.3%

To facilitate trades across cryptocurrency exchanges

8/16/17

0x (ZRX)

$24,000,000

$0.187900

-12.3%

Protocol for the exchange of Ethereum-based assets


3 14 November 2017

17


Cryptocurrency valuation framework Below, we update our cryptocurrency valuation framework. For a detailed description of this framework, please see our whitepaper. Figure 14: Cryptocurrencies valuation framework: Digital Payments use cases and Store of Value C ryptocurrency Econom ic F ram ew ork Digital Paym ents Intra-country B2 C e-com m erce ($ B) Intra-country B2C e-commerce growth % N on-U.S. Intra-country e-com m erce U.S. Share Cryptocurrency ($B) share Cryptocurrency penetration Velocity of Intra-country e-commerce C ryptocurrency required ($ B)

2017E

2018E

2019E

2020E

2021E

2022E

$ 6 ,3 1 2 .2 13.0% $ 3 ,7 8 7 .3 40.0% $0.2 0.0% 2.0 $ 0 .1

$ 7 ,0 3 8 .1 11.5% $ 4 ,2 2 2 .8 40.0% $21.1 0.5% 2.0 $ 1 0 .6

$ 7 ,7 4 1 .9 10.0% $ 4 ,6 4 5 .1 40.0% $37.2 0.8% 2.0 $ 1 8 .6

$ 8 ,3 6 1 .2 8.0% $ 5 ,0 1 6 .7 40.0% $50.2 1.0% 2.0 $ 2 5 .1

$ 8 ,8 6 2 .9 6.0% $ 5 ,3 1 7 .7 40.0% $159.5 3.0% 2.1 $ 7 6 .0

$ 9 ,3 0 6 .1 5.0% $ 5 ,5 8 3 .6 40.0% $279.2 5.0% 2.2 $ 1 2 6 .9

C ross-border B2 C e-com m erce ($ B) Cross-border B2C e-commerce growth % Cryptocurrency ($B) share Cryptocurrency penetration Velocity of Cross-Border B2C e-commerce C ryptocurrency required ($ B)

$ 2 3 3 .2 19.0% $0.0 0.0% 4.0 $ 0 .0

$ 2 7 4 .4 17.6% $0.3 0.1% 4.0 $ 0 .1

$ 3 2 0 .9 17.0% $1.6 0.5% 4.0 $ 0 .4

$ 3 7 1 .0 15.6% $3.7 1.0% 4.0 $ 0 .9

$ 4 2 4 .0 14.3% $12.7 3.0% 4.1 $ 3 .1

$ 4 8 1 .2 13.5% $24.1 5.0% 4.2 $ 5 .7

$ 5 4 3 .8 13.0% $43.5 8.0% 4.3 $ 1 0 .1

$ 6 1 1 .8 12.5% $73.4 12.0% 4.4 $ 1 6 .7

$ 6 8 5 .2 12.0% $102.8 15.0% 4.5 $ 2 2 .8

M icropaym ents ($ B) Micropayments growth % Cryptocurrency ($B) share Cryptocurrency penetration Velocity of Cross-Border B2C e-commerce C ryptocurrency required ($ B)

$ 2 0 .0 18.0% $0.02 0.1% 11.2 $ 0 .0 0

$ 2 3 .4 17.0% $0.12 0.5% 11.4 $ 0 .0 1

$ 2 7 .1 16.0% $0.27 1.0% 11.5 $ 0 .0 2

$ 3 1 .2 15.0% $0.94 3.0% 11.7 $ 0 .0 8

$ 3 5 .9 15.0% $1.79 5.0% 11.8 $ 0 .1 5

$ 4 1 .2 15.0% $3.30 8.0% 12.0 $ 0 .2 7

$ 4 7 .4 15.0% $5.69 12.0% 12.0 $ 0 .4 7

$ 5 4 .5 15.0% $8.18 15.0% 12.0 $ 0 .6 8

$ 6 2 .7 15.0% $12.55 20.0% 12.0 $ 1 .0 5

$ 5 9 6 .0 3.5% $14.9 2.5% 11.1 $ 1 .3

$ 6 1 2 .4 2.8% $18.4 3.0% 11.3 $ 1 .6

$ 6 2 7 .7 2.5% $22.0 3.5% 11.5 $ 1 .9

$ 6 4 1 .8 2.3% $25.7 4.0% 11.6 $ 2 .2

$ 6 5 4 .7 2.0% $32.7 5.0% 11.7 $ 2 .8

$ 6 6 7 .8 2.0% $53.4 8.0% 11.9 $ 4 .5

$ 6 8 1 .1 2.0% $81.7 12.0% 12.0 $ 6 .8

$ 6 9 4 .7 2.0% $111.2 16.0% 12.0 $ 9 .3

$ 7 0 8 .6 2.0% $141.7 20.0% 12.0 $ 1 1 .8

$ 3 2 ,4 0 1 16.9% $48.6 0.15% 5.0 $ 9 .7 $ 1 1 .2

$ 3 7 ,0 9 0 14.5% $185.4 0.50% 5.0 $ 3 7 .1 $ 4 9 .4

$ 4 1 ,5 2 4 12.0% $311.4 0.75% 5.1 $ 6 1 .1 $ 8 2 .0

$ 4 5 ,9 5 6 10.7% $459.6 1.00% 5.2 $ 8 8 .4 $ 1 1 6 .7

$ 4 9 ,8 8 5 8.6% $997.7 2.00% 5.3 $ 1 8 8 .2 $ 2 7 0 .3

$ 5 3 ,6 1 0 7.5% $1,608.3 3.00% 5.4 $ 2 9 7 .8 $ 4 3 5 .2

$ 5 5 ,5 5 4 6.0% $2,499.9 4.50% 5.5 $ 4 5 4 .5 $ 6 4 8 .7

$ 5 6 ,6 9 3 4.5% $3,401.6 6.00% 5.6 $ 6 0 7 .4 $ 8 5 9 .4

$ 5 6 ,9 3 7 3.0% $4,555.0 8.00% 5.7 $ 7 9 9 .1 $ 1 ,1 3 2 .0

1 8 7 ,5 0 0 0.5% 60.0% 112,500.0 17.9% 33,640.9 22.1%

1 8 8 ,4 3 8 0.5% 60.0% 113,062.5 18.0% 33,977.3 22.0%

1 8 9 ,3 8 0 0.5% 60.0% 113,627.8 18.1% 34,317.0 21.9%

1 9 0 ,3 2 7 0.5% 60.0% 114,196.0 18.2% 34,660.2 21.8%

1 9 1 ,2 7 8 0.5% 60.0% 114,766.9 18.3% 35,006.8 21.7%

1 9 2 ,2 3 5 0.5% 60.0% 115,340.8 18.4% 35,356.9 21.6%

1 9 3 ,1 9 6 0.5% 60.0% 115,917.5 18.5% 35,710.4 21.5%

1 9 4 ,1 6 2 0.5% 60.0% 116,497.1 18.6% 36,067.6 21.4%

41,359 $40,200 $1,663 1.2% $ 2 0 .0

41,398 $40,200 $1,664 1.5% $ 2 5 .0

41,435 $40,200 $1,666 1.9% $ 3 1 .6

41,470 $40,200 $1,667 2.4% $ 4 0 .0

41,504 $40,200 $1,668 3.0% $ 5 0 .1

41,537 $40,200 $1,670 3.7% $ 6 1 .8

41,568 $40,200 $1,671 4.5% $ 7 5 .2

41,597 $40,200 $1,672 5.5% $ 9 2 .0

Personal Rem ittances ($ B) Remittance growth % Cryptocurrency ($B) share Cryptocurrency penetration Velocity of Remittances C ryptocurrency required ($ B) B2 B and other cross-border paym ents ($ B) Remittance growth % Cryptocurrency ($B) share Cryptocurrency penetration Velocity of Cross-border payments C ryptocurrency required ($ B) Total C ryptocurrency Required for Paym ents ($ B) Store of Value Gold above ground (tonnes) Gold above ground growth % Portion used for tech, industrials, jewelry Tech, industrials, jewelry Portion used for central bank reserves Central bank reserves Portion used for private value storage

1 8 6 ,5 6 7 60.0% 111,940.3 17.9% 33,307.8 22.1%

Gold leftover for private value storage (tonnes) Gold Price, USD / tonne ('000s) Gold available for private storage ($B) Cryptocurrency penetration (of total private value storage) C ryptocurrency required for Store of Value ($ B)

41,319 $40,200 $1,661 1.0% $ 1 6 .6

2023E

2024E

2025E

$ 9 ,6 7 8 .3 $ 1 0 ,0 1 7 .0 $ 1 0 ,3 1 7 .6 4.0% 3.5% 3.0% $ 5 ,8 0 7 .0 $ 6 ,0 1 0 .2 $ 6 ,1 9 0 .5 40.0% 40.0% 40.0% $406.5 $540.9 $742.9 7.0% 9.0% 12.0% 2.3 2.4 2.5 $ 1 7 6 .7 $ 2 2 5 .4 $ 2 9 7 .1

Source: Canaccord Genuity estimates

2 14 November 2017

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Figure 15: Cryptocurrencies valuation framework: Market share, supply, and discount rates

Total C ryptocurrency Required for Paym ents ($ B) C ryptocurrency required for Store of Value ($ B) Total value of cryptocurrency required ($ B)

2017E $ 1 1 .2 $ 1 6 .6 $ 2 7 .8

2018E $ 4 9 .4 $ 2 0 .0 $ 6 9 .3

2019E $ 8 2 .0 $ 2 5 .0 $ 1 0 6 .9

2020E $ 1 1 6 .7 $ 3 1 .6 $ 1 4 8 .3

2021E $ 2 7 0 .3 $ 4 0 .0 $ 3 1 0 .3

2022E $ 4 3 5 .2 $ 5 0 .1 $ 4 8 5 .3

2023E $ 6 4 8 .7 $ 6 1 .8 $ 7 1 0 .5

2024E $ 8 5 9 .4 $ 7 5 .2 $ 9 3 4 .6

2025E $ 1 ,1 3 2 .0 $ 9 2 .0 $ 1 ,2 2 3 .9

Total bitcoin required Share Total ethereum required Share Total Bitcoin Cash required Share Total Ripple required Share Total Litecoin required Share Total Dash required Share Total Other Cryptocurrencies required Share

15.3 55.0% 4.2 15.0% 2.8 10.0% 1.1 4.0% 0.4 1.5% 0.3 1.0% 3.7 13.5%

37.4 54.0% 11.1 16.0% 7.3 10.5% 3.1 4.5% 1.2 1.7% 0.8 1.2% 8.4 12.1%

56.7 53.0% 18.2 17.0% 11.8 11.0% 5.3 5.0% 2.0 1.9% 1.5 1.4% 11.4 10.7%

76.4 51.5% 26.7 18.0% 17.1 11.5% 8.2 5.5% 3.1 2.1% 2.4 1.6% 14.5 9.8%

155.1 50.0% 59.0 19.0% 37.2 12.0% 18.6 6.0% 7.1 2.3% 5.6 1.8% 27.6 8.9%

230.5 47.5% 97.1 20.0% 60.7 12.5% 34.0 7.0% 12.1 2.5% 9.7 2.0% 41.2 8.5%

319.7 45.0% 149.2 21.0% 92.4 13.0% 56.8 8.0% 19.9 2.8% 16.3 2.3% 56.1 7.9%

397.2 42.5% 215.0 23.0% 130.8 14.0% 84.1 9.0% 29.0 3.1% 24.3 2.6% 54.2 5.8%

489.6 40.0% 306.0 25.0% 183.6 15.0% 122.4 10.0% 42.8 3.5% 36.7 3.0% 42.8 3.5%

Supply of bitcoin mined (millions) - year end Growth rate

16.6

17.2 4.1%

Supply of ethereum mined (millions) - year end Growth rate

94.8

96.0 1.3%

Supply of Bitcoin Cash mined (millions) - year end Growth rate

16.6

17.3 4.1%

38,343.8

46,012.6 20.0%

7.6

7.9 4.1%

53.0

55.2 4.1%

Supply of Ripple mined (millions) - year end Growth rate Supply of Dash mined (millions) - year end Growth rate Supply of Litecoin mined (millions) - year end Growth rate

17.8 18.4 3.5% 3.2% Current price >> 97.0 97.4 1.0% 0.5% Current price >> 17.9 18.5 3.5% 3.2% Current price >> 52,914.5 59,264.2 15.0% 12.0% Current price >> 8.2 8.4 3.5% 3.2% Current price >> 57.2 59.0 3.5% 3.2% Current price >>

18.9 2.5% $6,508.98 97.7 0.3% $328.59 18.9 2.5% $1,322.85 65,190.7 10.0% $0.21 8.6 2.5% $414.88 60.5 2.5% $61.23

19.3 2.0% 97.9 0.2% 19.3 2.0% 70,405.9 8.0% 8.8 2.0% 61.7 2.0%

19.5 19.7 1.5% 1.0% Implied discount rate >> 98.1 98.3 0.2% 0.2% Implied discount rate >> 19.6 19.8 1.5% 1.0% Implied discount rate >> 73,926.2 76,144.0 5.0% 3.0% Implied discount rate >> 8.9 9.0 1.5% 1.0% Implied discount rate >> 62.6 63.2 1.5% 1.0% Implied discount rate >>

19.9 0.9% 17.8% 98.5 0.2% 31.8% 19.9 0.9% 27.0% 78,428.3 3.0% 28.0% 9.1 0.9% 32.3% 63.7 0.9% 34.5%

Source: Canaccord Genuity estimates

In our updated valuation framework, we account for 1) the gain in market share of Bitcoin Cash and 2) the higher prices for all six cryptocurrencies since our last published version in early October. Specifically, we project Bitcoin Cash’s share of the market cap of all cryptocurrencies to reach 15.0% by 2025 (up from 9.0%) given the recent speculation that Bitcoin Cash will become more widely adopted following the cancellation of Bitcoin’s Segwit2x fork to increase its block size from 1 MB to 2 MB. Meanwhile, our revised valuation framework now uses slightly lower discount rates for each of the top-six cryptocurrencies given their growing levels of general acceptance. Note: We reiterate that our valuation framework does not attempt to set a price target for the six cryptocurrencies in the future, but rather backs into their current values by taking into consideration their potential use cases, projecting their market share and supply in 2025, and applying the necessary discount rate to arrive at today’s prices for each cryptocurrency. We also note that our market share estimates for some currencies are over-simplified, as some of the top six cryptos are only designed to be used for a small subset of the use cases we lay out.

3 14 November 2017

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Notable private blockchain companies 







BitFury BitFury is one of the leading software and hardware providers to enable businesses, governments, and organizations alike to integrate blockchain technology into their systems. BitFury’s hardware solutions include ASIC chips and servers, while their software offerings include transaction processing, Lightning Network (an overlay network to Bitcoin’s blockchain enabling instantaneous microtransactions) and Platform as a Service (PaaS), which allows various organizations to digitize assets and securely transfer them via blockchain technology. BitFury was formed by a global team of experts in technology, security, and civil society, and has received funding from the likes of Blockchain Capital and Credit China FinTech Holdings.

BitPay BitPay is an Atlanta-headquartered Bitcoin payment service provider founded in 2011 by Tony Gallippi and Stephen Pair. BitPay works with businesses to accept Bitcoins as a form of payment, processing over 200K Bitcoin transactions monthly. In addition to payment processing, BitPay has expanded to build an open-source platform to build the next applications of Bitcoin in collaboration with Bitcore, while its BitPay secure Bitcoin wallet allows individuals to store their Bitcoin holdings.

Blockchain Blockchain is a leading software platform for digital assets that launched in August 2011. The company’s production blockchain platform has facilitated over 100M transactions among users in 140 countries, and currently processes ~160K transactions daily. In addition to offering its blockchain-related software platform, Blockchain also provides a variety of data on Bitcoin, including transaction volume, mining costs, and hash rates. Blockchain was co-founded by Nicolas Cary and Peter Smith, and has raised $70M from investors including Digital Currency Group, Lightspeed Venture Partners, and Mosaic Ventures.

Blockstack Founded in 2013 under the name Onename, Blockstack is a new, decentralized internet that allows users to run their own data and apps without remote servers. After becoming operational on the Bitcoin blockchain in late 2015, Blockstack became the first implementation of a decentralized Domain Name System, or DNS, on the blockchain, and later became blockchain’s largest non-financial system user by transaction volume. Blockstack was founded by Princeton graduates Muneeb Ali and Ryan Shea following a $5.45M raise from investors including Union Square Ventures and Digital Currency Group.

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







Blockstream Blockstream offers software and hardware solutions and provides consulting services to companies looking to integrate blockchain technology through its core software platform, Elements. Blockchain’s primary area of focus is in sidechains, a technology designed to extend the capabilities of Bitcoin’s blockchain across various use cases. Among sidechain’s unique features includes the ability for digital assets to be moved from one blockchain to another and thereby increase liquidity through a shared protocol. Blockstream is headed by Adam Back, Ph.D., its Chief Executive Officer.

Bloq Bloq is a Chicago-headquartered provider of blockchain technology solutions for global enterprises. Structured as an open-source model, Bloq works with companies to integrate blockchain for a variety of settings, including commerce, trading, security, identification, and supply chain. This past October, Bloq announced that it will launch the sale of its own cryptocurrency called Metronome in early December, to be utilized immediately for use cases such as payments and transfers. Among Bloq’s enterprise partners include Circle, Deloitte, and Microsoft.

Chain Chain is an enterprise-grade blockchain infrastructure focused on digitizing the world’s assets to enable a smarter and more efficient financial system by working with financial institutions to deploy blockchain networks. Founded in 2014 and based in San Francisco, Chain has raised over $40M in funding from Khosla Ventures and RRE Ventures, among other strategic partners. In May 2017, Citi announced a new integrated payment solution that allows for straight through payment processing and automates reconciliation leveraging Chain’s blockchain infrastructure platform. Among the benefits for Citi include direct access to global payments from Nasdaq’s Linq platform and increased operational efficiency and ease of reconciliation with real-time access of transactional activity on the blockchain ledger.

Coinbase Backed by investors including Andreessen Horowitz, Union Square Ventures, and Y Combinator, Coinbase is a digital wallet and cryptocurrency exchange that allows individuals to buy and sell digital currency. Using Coinbase, users are able to connect their bank account and debit/credit cards to exchange digital currency into and out of their respective local currency. Furthermore, Coinbase can be accessed via its mobile app in addition to its web browser, and offers insurance protection for digital currency stored in its servers. Coinbase supports Bitcoin, Ethereum and Litecoin transactions across 32 countries, and has supported over $20B in transactions amongst over 10M customers thus far, as it has become the most widely used digital wallet for individual investors.

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



ConSensys ConsenSys aims to reduce transaction costs and barriers to entry currently present when using traditional financial institutions, with a specific focus on the Ethereum platform. ConsenSys focuses on building decentralized applications and various developer and end-user tools compatible on Ethereum’s blockchain ecosystem, with the ultimate goal of enabling new services and business models to be developed within. Meanwhile, ConsenSys has also partnered with the likes of Microsoft to offer Ethereum Blockchain as a Service (EBaaS) to its enterprise clients and developers.

Digital Asset Backed by the likes of Goldman Sachs and JP Morgan, Digital Asset was created with a specific focus on developing a distributed ledger platform that meets the production requirements of the world’s largest financial institutions. Through a combination of a permissioned distributed ledger and powerful financial modeling language, Digital Asset is able to deliver flexible infrastructure for regulated financial institutions to share and process data in a secure manner. Digital Asset is led by CEO Blythe Masters, who had previously served in various roles during her 27 years at JP Morgan, and now counts the Australian Stock Exchange (ASX) and DTCC among its global clients.

 Digital Currency Group Digital Currency Group was launched in 2015 by Barry Silbert, an early investor of blockchain-related companies such as Coinbase, BitPay, and Ripple. Digital Currency Group is a venture capital company that operates three subsidiaries: Genesis Trading, a full-service institutional trading firm focused on digital currencies, Grayscale Investments, a digital currency asset management firm that also manages the publicly-traded Bitcoin Investment Trust (GBTC), and CoinDesk, a news site focused on blockchain and cryptocurrencies.

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Appendix: Important Disclosures Analyst Certification Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research. Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Sector Coverage Individuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoring analysts of the report. Investment Recommendation Date and time of first dissemination: November 14, 2017, 23:01 ET Date and time of production: November 14, 2017, 22:14 ET Compendium Report This report covers six or more subject companies and therefore is a compendium report and Canaccord Genuity and its affiliated companies hereby direct the reader to the specific disclosures related to the subject companies discussed in this report, which may be obtained at the following website (provided as a hyperlink if this report is being read electronically) http:// disclosures.canaccordgenuity.com/EN/Pages/default.aspx; or by sending a request to Canaccord Genuity Corp. Research, Attn: Disclosures, P.O. Box 10337 Pacific Centre, 2200-609 Granville Street, Vancouver, BC, Canada V7Y 1H2; or by sending a request by email to [email protected]. The reader may also obtain a copy of Canaccord Genuity’s policies and procedures regarding the dissemination of research by following the steps outlined above. Distribution of Ratings: Global Stock Ratings (as of 11/14/17) Rating

Coverage Universe # % Buy 564 59.94% Hold 264 28.06% Sell 21 2.23% Speculative Buy 92 9.78% 941* 100.0% *Total includes stocks that are Under Review

IB Clients % 40.25% 25.76% 9.52% 66.30%

Canaccord Genuity Ratings System BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months. HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months. SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months. NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer. “Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or the relevant issuer. Risk Qualiﬁer SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the stock may result in material loss. 12-Month Recommendation History (as of date same as the Global Stock Ratings table) A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month period may be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosuresmar.canaccordgenuity.com/EN/Pages/default.aspx

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General Disclaimers See “Required Company-Specific Disclosures” above for any of the following disclosures required as to companies referred to in this report: manager or co-manager roles; 1% or other ownership; compensation for certain services; types of client relationships; research analyst conflicts; managed/co-managed public offerings in prior periods; directorships; market making in equity securities and related derivatives. For reports identified above as compendium reports, the foregoing required company-specific disclosures can be found in a hyperlink located in the section labeled, “Compendium Reports.” “Canaccord Genuity” is the business name used by certain wholly owned subsidiaries of Canaccord Genuity Group Inc., including Canaccord Genuity Inc., Canaccord Genuity Limited, Canaccord Genuity Corp., and Canaccord Genuity (Australia) Limited, an affiliated company that is 50%-owned by Canaccord Genuity Group Inc. The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadian broker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity Inc., a US broker-dealer with principal offices located in New York, Boston, San Francisco and Houston, or Canaccord Genuity Limited., a UK broker-dealer with principal offices located in London (UK) and Dublin (Ireland), or Canaccord Genuity (Australia) Limited, an Australian broker-dealer with principal offices located in Sydney and Melbourne. The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon (among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analysts have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Banking activities, or to recommendations contained in the research. Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity’s policy on managing conflicts of interest, and information barriers or firewalls have been used where appropriate. Canaccord Genuity’s policy is available upon request. The information contained in this research has been compiled by Canaccord Genuity from sources believed to be reliable, but (with the exception of the information about Canaccord Genuity) no representation or warranty, express or implied, is made by Canaccord Genuity, its affiliated companies or any other person as to its fairness, accuracy, completeness or correctness. Canaccord Genuity has not independently verified the facts, assumptions, and estimates contained herein. All estimates, opinions and other information contained in this research constitute Canaccord Genuity’s judgement as of the date of this research, are subject to change without notice and are provided in good faith but without legal responsibility or liability. From time to time, Canaccord Genuity salespeople, traders, and other professionals provide oral or written market commentary or trading strategies to our clients and our principal trading desk that reflect opinions that are contrary to the opinions expressed in this research. Canaccord Genuity’s affiliates, principal trading desk, and investing businesses also from time to time make investment decisions that are inconsistent with the recommendations or views expressed in this research. This research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designated investments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. As a result, the designated investments discussed in this research may not be eligible for sale in some jurisdictions. This research is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. This material is prepared for general circulation to clients and does not have regard to the investment objectives, financial situation or particular needs of any particular person. Investors should obtain advice based on their own individual circumstances before making an investment decision. To the fullest extent permitted by law, none of Canaccord Genuity, its affiliated companies or any other person accepts any liability whatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this research. Research Distribution Policy Canaccord Genuity research is posted on the Canaccord Genuity Research Portal and will be available simultaneously for access by all of Canaccord Genuity’s customers who are entitled to receive the firm's research. In addition research may be distributed by the firm’s sales and trading personnel via email, instant message or other electronic means. Customers entitled to receive research may also receive it via third party vendors. Until such time as research is made available to Canaccord Genuity’s customers as described above, Authoring Analysts will not discuss the contents of their research with Sales and Trading or Investment Banking employees without prior compliance consent. For further information about the proprietary model(s) associated with the covered issuer(s) in this research report, clients should contact their local sales representative. Short-Term Trade Ideas Research Analysts may, from time to time, discuss “short-term trade ideas” in research reports. A short-term trade idea offers a nearterm view on how a security may trade, based on market and trading events or catalysts, and the resulting trading opportunity that may be available. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks. A short-term trade idea may differ from the price targets and recommendations in our published research reports that reflect the research analyst's views of the longer-term (i.e. one-year or greater) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. It is possible, for example, that a subject company's common equity that is considered a longterm ‘Hold' or 'Sell' might present a short-term buying opportunity as a result of temporary selling pressure in the market or for other reasons described in the research report; conversely, a subject company's stock rated a long-term 'Buy' or “Speculative Buy’ could be

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considered susceptible to a downward price correction, or other factors may exist that lead the research analyst to suggest a sale over the short-term. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm does not intend, and does not undertake any obligation, to maintain or update short-term trade ideas. Short-term trade ideas are not suitable for all investors and are not tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your salesperson for more information regarding Canaccord Genuity’s research. For Canadian Residents: This research has been approved by Canaccord Genuity Corp., which accepts sole responsibility for this research and its dissemination in Canada. Canaccord Genuity Corp. is registered and regulated by the Investment Industry Regulatory Organization of Canada (IIROC) and is a Member of the Canadian Investor Protection Fund. Canadian clients wishing to effect transactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity Corp. in their particular province or territory. For United States Persons: Canaccord Genuity Inc., a US registered broker-dealer, accepts responsibility for this research and its dissemination in the United States. This research is intended for distribution in the United States only to certain US institutional investors. US clients wishing to effect transactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity Inc. Analysts employed outside the US, as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. For United Kingdom and European Residents: This research is distributed in the United Kingdom and elsewhere Europe, as third party research by Canaccord Genuity Limited, which is authorized and regulated by the Financial Conduct Authority. This research is for distribution only to persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) (High Net Worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This material is not for distribution in the United Kingdom or elsewhere in Europe to retail clients, as defined under the rules of the Financial Conduct Authority. For Jersey, Guernsey and Isle of Man Residents: This research is sent to you by Canaccord Genuity Wealth (International) Limited (CGWI) for information purposes and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This research has been produced by an affiliate of CGWI for circulation to its institutional clients and also CGWI. Its contents have been approved by CGWI and we are providing it to you on the basis that we believe it to be of interest to you. This statement should be read in conjunction with your client agreement, CGWI's current terms of business and the other disclosures and disclaimers contained within this research. If you are in any doubt, you should consult your financial adviser. CGWI is licensed and regulated by the Guernsey Financial Services Commission, the Jersey Financial Services Commission and the Isle of Man Financial Supervision Commission. CGWI is registered in Guernsey and is a wholly owned subsidiary of Canaccord Genuity Group Inc. For Australian Residents: This research is distributed in Australia by Canaccord Genuity (Australia) Limited ABN 19 075 071 466 holder of AFS Licence No 234666. To the extent that this research contains any advice, this is limited to general advice only. Recipients should take into account their own personal circumstances before making an investment decision. Clients wishing to effect any transactions in any financial products discussed in the research should do so through a qualified representative of Canaccord Genuity (Australia) Limited. Canaccord Genuity Wealth Management is a division of Canaccord Genuity (Australia) Limited. For Hong Kong Residents: This research is distributed in Hong Kong by Canaccord Genuity (Hong Kong) Limited which is licensed by the Securities and Futures Commission. This research is only intended for persons who fall within the definition of professional investor as defined in the Securities and Futures Ordinance. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Recipients of this report can contact Canaccord Genuity (Hong Kong) Limited. (Contact Tel: +852 3919 2561) in respect of any matters arising from, or in connection with, this research. Additional information is available on request. Copyright © Canaccord Genuity Corp. 2017 – Member IIROC/Canadian Investor Protection Fund Copyright © Canaccord Genuity Limited. 2017 – Member LSE, authorized and regulated by the Financial Conduct Authority. Copyright © Canaccord Genuity Inc. 2017 – Member FINRA/SIPC Copyright © Canaccord Genuity (Australia) Limited. 2017 – Participant of ASX Group, Chi-x Australia and of the NSX. Authorized and regulated by ASIC. 14 November 2017

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All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to Canaccord Genuity Corp., Canaccord Genuity Limited, Canaccord Genuity Inc or Canaccord Genuity Group Inc. None of the material, nor its content, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express written permission of the entities listed above. None of the material, nor its content, nor any copy of it, may be altered in any way, reproduced, or distributed to any other party including by way of any form of social media, without the prior express written permission of the entities listed above.

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