Tidbits in the News: Crypto Ponzi, Snow’s New Round, China’s Limit?

Some interesting things are happening in the world. Talks with North Korea about the Olympics are going well, Trump is in Davos, and the US government ends a rather lackluster shutdown.

But, we’re not here for the big news stories. We’re here for the details. Because the devil’s in the details. So let’s get started.

Crypto Currencies: New Home for Ponzi Schemes?

You have to love crypto currencies. As much as you don’t want to hear about them, they always find a way to make it into the news. This time, it’s with My Big Coin Inc, and the US Commodities Futures Trading Commission (CFTC), and the legal battle that’s about to ensue surrounding a possible Ponzi scheme. This comes at the heels of Bitconnect’s shutdown, after it, too, faced a maelstrom of criticism for its business model, which seemed eerily similar to a Ponzi scheme.

Now, Ponzi schemes are nothing new. If I may do a little PSA here, Ponzi schemes are not that difficult to spot. In theory. If someone offers you a guaranteed return, be suspicious. If someone offers you a bonus for bringing friends on board, be suspicious. If they offer both, run. The trouble is, with crypto currencies, all these tell tale signs are easy to miss, especially when they begin to talk about technologies and jargon.

What’s more, up until recently, the ridiculous growth trends of crypto currency markets have fueled the belief that these assets cannot go bust.

It seems the relative ignorance surrounding crypto currencies has created a breeding ground for con artists to flourish. Not just blockbuster ones, either. There are well known instances in South Korea, where con artists organize online gatherings to pump coin prices, only to sell out, and leave the stragglers in the dust. This, in other, regulated markets, would be categorized under pump and dump, and those who are involved could face criminal charges. Bitcoin does not have the same regulations that prevent people from doing this.

That’s not to say things are not changing.

There’s a large push, worldwide, to regulate crypto currencies, especially concerning the anonymity the instrument promises. This will prevent people from pulling scams like pump and dump, and open doors to taxation. It won’t, however, prevent people from pulling Ponzi schemes. The only way to prevent those is to be vigilant. After Bernie Madoff, we seemed well on track in educating people about this sort of scheme. With crypto currencies, it seems we may have just taken two steps back.

 

Asia’s Newest Unicorn?

They say Asians have crazy selfie game, whatever that means. One secret to their selfie game is an app from Naver called Snow, which started life as a Snapchat clone, but later dropped all social media aspects of the app and focused all its efforts on the camera app instead. Common sense would dictate that this isn’t a prudent move. The most valuable aspect to the business seems to be the social media part, not the camera. Well, common sense be damned, because Snow just raised $50M from Softbank Korea, and Sequoia China.

There are a few interesting details to this deal. First, the $50M cash infusion is for a 20% stake in Snow’s China business, now valued at $250M with this latest round. That raises the question, how much is this business actually worth? How big a part of the whole business was the China business? That’s a question we can make guesses on, but until a public listing, or a sale of the business unit to another entity, we’ll never know for sure.

Second, this seems to be an increase in valuation from their previous benchmark, which is back in 2016, when Line, another Naver company, injected the business with $45M. That deal was for 25% equity in Snow as a whole, which valued it at $180M at the time. Now, we’re saying the China business, alone, is worth $70M more than that. That’s all despite the omission of what seemed like a core aspect to their business — the social media part. Does this mean a fundamental shift in the market dynamics of social media in Asia? Probably not, but it might point to a potential exit strategy for the business as a whole. More on that later.

Third, why does Snow need all this money, when it’s under the direct wing of Korean internet giant Naver? This is a company that makes over $500M in net income per annum. It’s rather strange that Naver would refrain from growing this business without diluting the equity themselves.

All this summed up, it feels to me that Naver might be looking to either license the tech behind Snow to platform owners, or exit it altogether. I lean more towards the licensing route, more so than the exit, perhaps to Tencent, creators of WeChat, and Facebook (which might line up with the social media giant’s seeming goal of killing Snap). If an exit were to happen, it’ll most likely be an IPO, much akin to Line Corp., which is listed in both Tokyo and New York.

Snow isn’t a  profitable venture, yet, for any parties involved. This cash injection goes to prove that. But, unlike its new business partners, Naver doesn’t seem to see it as the next big thing. Or, perhaps, it’s more a reflection on its perceived role of a company builder. After all, it did give birth to Line, and operates its own startup accelerator based in Korea. It might even look to go the Google route, turning itself into a holdings corporation, free from the thematic ties to the internet and tech, which it may see as shackles holding it down.

It’s not like Naver doesn’t have a history of spinning off businesses into independent entities. It did it with Naver Webtoons, Naver Labs, even Hangame, which used to be reflected in the now defunct name NHN. If Naver does decide to go this route, then, things will become very interesting. Especially as its domestic rival in Korea, Kakao, is seeking a listing in Singapore. The two rivals are definitely looking to expand out of the limiting market conditions in South Korea. Their methodologies are very different. Kakao is looking to double down, while Naver wants to do everything under the sun. Which will win, only time will tell.

China Loses Its Appetite for Smartphones

Smartphone shipments in China dropped for the first time ever last year by 4% YoY. Should we be worried? Probably not. Everyone knew even China couldn’t keep up a growth trend forever on this front. Did it come sooner than anticipated? Perhaps. There’s a general sentiment that a market saturation wasn’t supposed to happen for another few years. That’s not to say the market is saturated right now. It’s more to say there are now signs that it may be happening sooner rather than later.

 

But, China reported a GDP growth of 6.9% for the year 2017, a measure the New York Times calls suspicious. Regardless, if this measure were to be believed, then the  market data might be an overall red herring. After all, it’s a measure of the number of units sold, not a dollar measure of the devices sold. I bring this up, because in recent years, Chinese manufacturers have been bringing more profitable, flagship models to market, as exemplified by Huawei’s Mate 10 Pro. This phone costs $800 USD, which is far more than what the company is asking for its other models.

I would take this report with a pinch of salt, much like the unemployment statistic that’s so often thrown around, without much context. That’s not to say an overall drop in volume isn’t something to be worried about. As mentioned before, it’s a sign of a potential market saturation, or a change in consumer attitudes. It definitely calls for a change in strategy concerning smartphone sales and promotion, but it doesn’t call for a change in product development strategy.

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