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Telegram is holding a secretive second pre-ICO sale

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You have to admire Pavel Durov’s audacity.

Over the past few months, the CEO of Telegram convinced 81 accredited investors, including Silicon Valley giants Sequoia Capital and Benchmark, to give him $850 million in a presale of his company’s cryptocurrency in advance of an initial coin offering, or ICO. Now he’s trying to raise even more money from accredited investors before the coin gets offered to the public in a secretive second presale.

This week, investors got an email explaining that Telegram is doing another private presale, four sources with knowledge of the deal told The Verge.

The exact amount to be raised is still being determined, according to one source, but two other sources said Telegram is estimating it will be around the same size as the first round, which would bring the total raised to around $1.6 billion before the ICO even opens up to the general public. Telegram’s offering was already the largest ICO ever, dwarfing the previous record of $232 million. Telegram declined to comment on the second presale. Sequoia Capital declined to comment and Benchmark did not respond to questions.

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The change in Telegram’s plans comes as the company is under scrutiny for its proposed Telegram Open Network or TON, which promises to be an Ethereum-like ecosystem with apps, services, and a store for digital and physical goods. Critics say the proposal is short on technical details, and that Telegram’s high valuation is being driven by hype and speculation rather than the value of the technology.

How much money is Telegram raising total? Estimates have varied. The company seemed to revise its goals upward as interest in the offering surged. One cryptocurrency and blockchain investor, Carlos Mosquera of Solidus Capital, said the numbers presented by Telegram kept changing; he was offered different versions of the offer from different intermediaries. Discounts on the presale coins ranged from 30 to 80 percent of the expected public price, according to multiple investors who were pitched on the first presale. “A month and a half ago we got the pitch and the opportunity for Telegram,” Mosquera said. “We passed because we received two or three different terms and deals by the same ICO. None of the information was clear.”

Mosquera’s firm was not invited to participate in the second presale, but he said he isn’t surprised to hear that Telegram is looking for more private investor cash. “Nowadays the presales are hotter than the crowd sale itself,” he said.

Related: Secretive messaging app Telegram is selling a $2 billion crypto dream — but skeptics smell a ‘ploy’

It makes sense for Telegram to raise more private money if there is enough demand, multiple investors told The Verge. The first presale was rumored to be oversubscribed, and early investors are reportedly flipping their shares and making 2x returns on the secondary market.

The SEC has also been increasing its oversight of ICOs, which means Telegram may not make its public ICO available in the US,
CNBCreported
. That could be part of the reason why Telegram wants to get more money from accredited investors — meaning firms and individuals with annual income of $200,000 or a net worth of $1 million — because there are fewer regulatory requirements through that process than through an offering to the general public.

Telegram’s public ICO was expected to take place in March.. It’s unclear if the new second private offering affects the timeline for the public sale or how many coins will be available to the public at launch.

Telegram’s ICO is one of the most anticipated the cryptocurrency world has seen, and it’s the first to attract more traditional Silicon Valley venture capital firms. But observers are skeptical of its value offering.

Telegram’s ICO will fund a suite of blockchain-based products including file storage, a DNS service, and an ad exchange as part of the Telegram Open Network or TON, according to the 132-page “technical white paper” circulated to investors. Critics say the proposal makes ambitious claims, such as being able to process millions of transactions per second, without explaining how.

Christian Catalini, a professor and founder of MIT’s Cryptoeconomics Lab, is working on a study of about 1,500 ICOs with his team. “We actually document in our research paper that there has been a major transition from more technical white papers to the kind of white papers that look a lot more like sales pitches,” Catalini told The Verge.“There’s been less focus on technical details over time and, for some of these, much more on selling the vision. In the case of the Telegram one there is a lot that is being promised and not a lot of clarity on how that would be delivered.”

Matthew Green, cryptographer and professor at Johns Hopkins University, had a similar reaction to the white paper. “So to their credit, Telegram has shown that it can execute and get software written. That’s actually a big deal when it comes to blockchain projects,” Green said in an email. “That plus millions of dollars means they could pull something off. But I’ll be honest, the white paper reads like someone went out on the Internet and harvested the most ambitious ideas from a dozen projects and said ‘let’s do all of those but better!’ It feels unachievable, at least at the scale they’re aiming for now.”

Even if the Telegram team had included more technical details, not everyone is convinced it makes sense conceptually. Telegram is effectively proposing to act as a benevolent dictator — it will control a majority of its currency, at least to start — helping a system that will eventually be decentralized get off the ground.

“Blockchains are useful when there’s no central authority in command, or when there’s risk that the owner of the platform might fold,” Emin Gün Sirer, a professor at Cornell, expert on distributed systems, and co-director of the Initiative for Cryptocurrencies and Contracts, said in an email. “Yet Telegram ICO’s appeal stems from its reach to 200 million users, and its central vision over the future of the platform. If the owner folded, there would be little value to what remains. So their adoption of a blockchain, in fact, a whole family of blockchains, seems spurious.”

Others have speculated that Durov is not really raising money for a new blockchain-centric venture, but simply to keep Telegram afloat. Durov was reportedly self-funding the company with his earnings from selling VK.com, the Russian Facebook clone that he founded. “With growing user base, he would’ve eventually run out of money. Therefore he opted for an ICO as a mechanism to raise funds without getting outside investors into Telegram’s shareholder capital,” Gregory Klumov, CEO of the government blockchain company Stasis, told Bloomberg.

Charles Noyes, a quantitative analyst at the cryptocurrency VC firm Pantera Capital, said his team passed on Telegram’s private presale the first time around. (His firm did not get the offer for the second presale.) To him, the secretive Telegram ICO goes against the spirit of blockchain development.

“it’s very important in blockchain technology and specifically cryptocurrencies that you be very open with what you’re trying to do and have as many people as possible looking at it to see if they can find a flaw,” he said. The Bitcoin white paper was first published to a cryptocurrency mailing list, and its pseudonymous author Satoshi Nakamoto requested feedback. Not inviting outside scrutiny is dangerous, Noyes said. “When you operate the way they do, which is closed, with secrecy, not subjecting yourself to peer review, you basically open yourself up to the possibility that there is a trivial bug in it that destroys the network.”

Whether the platform functions well may not matter for early investors. Even with the lockup period that restricts them from selling their tokens right away, investors who bought their coins at a discount could see a significant return after the ICO opens up to the broader public and starts circulating on the TON network. Telegram can also promote its ICO to its users, who numbered 170 million in October 2017 according to one of the presale documents, and its app has become a hub for cryptocurrency chat groups.

“Telegram as a messenger may attract them to Telegram’s new network,” said Alan Woodward, a visiting professor at the University of Surrey, expert in cryptography and information security who has criticized Telegram in the past for using proprietary cryptography instead of commonly-accepted, peer-reviewed cryptography. “Something seems to have worked,” he wrote in an email, “in that they have raised a lot of money already.”

Additional reporting by Casey Newton and Lauren Goode

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‘Buzz’ ETF tracking social media talk launches amid Reddit manias in stocks

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The logos of Google, Facebook, Instagram, Twitter, Snapchat and TikTok displayed on a computer screen.

Denis Charlet | AFP via Getty Images

Is it time for an ETF that measures hype?

Measuring the buzz around stocks mentioned in social media is all the rage. Now, there’s an exchange-traded fund for that.

The Van Eck Vectors Social Sentiment ETF (BUZZ) selects 75 stocks with the most bullish social media sentiment and packages them into an ETF.  

This is essentially a momentum index, but instead of tracking stocks that are moving on price, BUZZ tracks stocks that are getting a lot of social media hype.

The ETF is based on the Buzz NextGen AI U.S. Sentiment Leaders Index. What goes in the index is based on an initial list of stocks that meet two criteria: those with a $5 billion minimum market capitalization and getting consistent and diverse mentions on social media over the past year. The 250-350 stocks that meet that initial criteria are ranked each month from highest sentiment to lowest, with the top 75 going in the index.

Not a Reddit meme stock ETF

If you’re looking for something that captures Reddit sentiment around small stocks like GameStop, you might be disappointed.

“This is not a Reddit meme stock ETF,” said Jamie Wise, CEO of Buzz Holdings and the originator of the index. “This is about the broader conversation around stocks mentioned on social media platforms. We are using broad social media sources, principally Twitter and StockTwits.” Wise said it also uses Yahoo Finance, Benzinga and Reddit.

How to determine “social media buzz?” Wise says the index uses natural language algorithms that examines whether the comment is positive, negative or neutral, then ranks each stock based on the degree of positive sentiment and breadth of discussion. That’s key to understanding the index: stocks are weighted by sentiment, not market capitalization, and no one stock can exceed 3% of the index. It is rebalanced every month. 

“We are aggregating the collective sentiment of the community” that comments on stocks on social media, Wise said.

Initially, the largest holdings include Twitter, DraftKings, Ford, American Airlines, and Facebook. Tesla is number 10. The $5 billion minimum market cap criteria would exclude Reddit names like Gamestop, Express or AMC Entertainment from the mix.

Wise says the stocks in the index are proof they are not chasing the latest Reddit craze. “These are not the kind of stocks that are being promoted by celebrities,” Wise said. “These are everyday stocks being promoted by people with a wide variety of viewpoints, and is not focused on a narrow group of Reddit names.”

Is social media popularity a good way to pick stocks?

Measuring stocks by price momentum has been around a long time, and many ETFs already do that. The largest, iShares Momentum ETF (MTUM), selects stocks based on price appreciation over six- and 12-month periods and low volatility over the past three years.

Measuring momentum based on social media hype has not been around that long. The index BUZZ is built on has been live only since December 2015.

Wise says the index has outperformed the S&P 500 in four of the last five calendar years.

BUZZ vs. Momentum (since inception: 12/18/15)

  • BUZZ index:                    up 215%
  • Momentum ETF (MTUM) up 119%
  • S&P 500:                        up 113%

 Source: Buzz Holdings

Much of that outperformance came in 2020. Wise says that is not an accident because social media has exploded in the last year and a half, corresponding with that outperformance.

“This shows that sentiment momentum has outperformed price momentum and market cap momentum” in the last five years, Wise said.

Can stocks be manipulated on social media?

Chat rooms are full of investors with many different motives, including some likely trying to manipulate stocks. 

Wise says the index’s focus on stocks with a market capitalization of more than $5 billion helps reduce the chances that stocks in the index could be manipulated. “The market cap size and volume of discussions taking place around these companies makes them difficult targets for manipulation by any bad actors,” a FAQ sheet provided by Van Eck states.

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Billionaire investor Ron Baron sells 1.8 million Tesla shares

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Billionaire investor Ron Baron sold 1.8 million shares of Tesla for clients since August despite believing the stock will increase to $2,000 over the next 10 years.

Baron, a longstanding Tesla shareholder, told CNBC’s “Squawk Box” on Thursday that his namesake firm sold the shares because they were becoming too large a percentage of some portfolios.

“It was painful selling every single share,” he said, adding that he personally has not sold any of his more than 1.1 million shares of the electric car maker. He said “risk mitigation” was appropriate for his clients regarding the sale of their shares of Tesla.

Baron Capital held more than 6.1 million Tesla shares as of Feb. 28. They were purchased at an average cost of $42.34 per share. The firm reported selling 1.8 million shares of Tesla from August through February. Baron told CNBC that 1.7 million of those shares were sold in the last six months. About 1.2 million of those shares were sold at $400 to $900 a share, according to the company.

Shares of Tesla are up 338% in the past year to $653.20 a share. Its market cap is about $619.2 billion.

Baron said he plans to retain his shares for “10 years at least,” saying he told Tesla CEO Elon Musk that he “would be the last out.”

“We’re looking for a lot more,” Baron said. “I think in 10 years our target is $2,000 a share.”

In June, Baron told CNBC he believed that “there’s 10 times more to go” on the upside on Tesla stock. Shares have since shot higher. Then in October, Baron predicted that Tesla would eventually become a $2 trillion company.

Baron has diversified his investments regarding electric and autonomous vehicles outside of Tesla. Most notably, he said his firm is an investor in privately held EV start-up Rivian – an upcoming rival to Tesla – as well as Cruise, an autonomous vehicle company that’s majority-owned by General Motors. Baron said his firm purchased more than 1.2 million shares of Cruise for $10 million in January.

Without naming any companies, Baron said he’s speculative of other EV start-ups. Several other companies have or are planning to go public through reverse mergers with special purpose acquisition companies.

“If you think all these companies starting up are going to make it, I think it’s a dream,” Baron said. “I think it’s astonishing they’re getting so much capital.”

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How much they spend, what life is like

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In 2009, my husband Vernon and I got married on the beach in Mazatlán, México. At our reception, we told each other that we would one day move there.

Of course, life happened, and that dream was pushed off until later, perhaps when we were ready to retire. We had three beautiful kids, two cars, a home in the suburbs of Chicago and a dreamy white picket fence.

Still, something was missing. We were working full-time jobs, including side hustles in the fitness industry, that gave us a combined income of close to six-figures. But we found ourselves increasingly frustrated at the amount of energy it took to simply get by.

Every day, we came home feeling tired and disheartened. What were we working so hard to achieve? What was all of this “stuff” for? The house, the cars, the student loans — everything was a series of bills to pay. This was not what we envisioned for ourselves.

We constantly dreamed of living on the beach and building our own businesses so we could have the flexibility to spend more time with our kids.

Then, in February 2016, I received the call that no daughter ever wants to receive. My mother had died — unexpectedly and alone — in Mazatlán, where she and my father moved to retire.

As I slid to the floor, nearly dropping my phone at the news, a sense of realization washed over me: Nothing, including tomorrow, was guaranteed. If we wanted to experience happiness, we had to take action.

Now or never: Leaving the U.S.

By October 2016, we had sold our home and cars, quit our jobs and downsized our lives into 10 suitcases and eight carry-on bags. With our three kids (then ages three, four and five), we booked a one-way flight to Mazatlán.

For two years, we lived in that beautiful, colonial city on the Pacific Ocean. My husband worked on building his consulting company, while I started my own copywriting business, which I still run today. Both businesses were profitable, and the financial freedom and flexibility allowed us to enjoy ourselves without being chained to someone else’s time clock.

Living abroad gives you a different perspective — one that encourages growth, compassion, self-awareness and a deeper understanding of other cultures.

We created a life we truly loved, full of activities, friends and cultural experiences, all just blocks from the beach. With our monthly expenses at around $1,500 (USD) per month, we spent significantly less than we ever did in the U.S.

  • Private school for all three kids: $425
  • Four-bedroom, 3.5-bathroom home rental: $475
  • Groceries: $250 to $300
  • Transportation: $100
  • Leisure activities: $100

We used any leftover money to eat out at nice restaurants, splurge on new clothes or pay for medical needs as they came up (which when they did, we paid out-of-pocket cash without any issues, as the cost of treatment in Mexico is significantly lower than in the U.S.).

We felt like we were finally living the American Dream — except we had to leave America to do it.

As a Black family, we never felt safer

Here’s a memory I’ll never forget: On one of our first days in Mazatlán, a policeman got out of his car and paused traffic to allow our family to cross a busy street. As we walked, he gave a warm smile to my husband, who nodded his head in return.

Once we reached the other side, my husband looked at me and said, “Wow.”

With that one word, I realized that my strong, kindhearted Black husband had never felt safer around a police officer than he did in that moment.

Gabriella M. Lindsay and her family in Mexico

Gabriella M. Lindsay

All our experiences with the police while living in Mexico were favorable. I’m sure locals might feel differently, but compared to the abrasive treatment we received from some police officers in the U.S., it was a welcome change.

We now had a chance to live peacefully without the fear that came with being Black in America. I no longer had to worry about my husband or sons being in the wrong place at the wrong time with someone who saw their skin color first, and their hearts second.

Next stop: Antigua

In 2018, my husband was offered a professorship at a medical university in Antigua, an island in the Caribbean West Indies.

We loved Mazatlán, but felt this was a unique opportunity we couldn’t pass up. Even though our expenses would go up, we knew that the income provided by the university, along with earnings from my copywriting business, would allow us to comfortably make ends meet.

So we said goodbye to our friends and set out with our suitcases for yet another adventure abroad.

Scenic overlook, Antigua

Gabriella M. Lindsay

Antigua is an island of about 97,000 people, 108 square miles, 365 beaches and a rich history. Here, we’ve once again created a life we love, free from the materialism that we were so desperately and vehemently sold in America.

The population is primarily Black (as a result of the Trans-Atlantic Slave Trade), so my family fits right in and feels very comfortable here. The pace of life is slow, the people are friendly, the beaches are serene, and the societal expectations are less demanding.

We now had a chance to live peacefully without the fear that came with being Black in America.

The median rent in our area is around $1,200. We live one block from the Caribbean Sea in a beautiful four-bedroom, five-bathroom home with a pool on a large plot of land, which we rent for significantly less than some downtown apartments in Chicago.

For all three kids combined, school tuition, along with swimming lessons, cost $800 per month. We don’t dine out as much because of Covid, and our monthly grocery bill is roughly $600.

Aside from friends, family, and the Cheesecake Factory, we don’t miss the U.S. all that much. We can get almost everything we need here.

We left America to discover something new, and in return we finally found happiness.

Most people here are very compliant when it comes to following the Covid guidelines. We sanitize, we mask, we distance. My husband is required to take a rapid Covid test twice a month in order to be on campus. He works from home whenever possible.

Leaving the U.S. was the best decision for our family



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