Bancor Rides the Crypto-currency Rollercoaster

Israeli-rooted firm made waves last month with a $156 million initial coin offering in the virtual currency Ether. 'We don’t think it’s a casino. The product is meant to help insurance companies hedge risk,' explains one executive

A collection of U.S. one dollar bills.
A collection of U.S. one dollar bills. Chris Ratcliffe/Bloomberg

Bancor, a company with Israeli roots, staggered the local high-tech industry in mid-June by raising $156 million in just three hours, in an ICO (initial coin offering) of digital virtual currency that it developed itself, called Bancor Network Tokens, or BNT. Investors paid for BNT using the crypto-currency ether, which was then trading at $391.

In total, Bancor raised 400,000 ether, the currency used in the Ethereum network, an open-source, public platform for online contractual agreements.

Investors were speculators from the world at large with a yearn for digital currencies of the type like ether and Bitcoin, which have been very successful so far. Ether, for example, started at $8 at the beginning of 2017. Bitcoin, which was trading for around $1,000 at the beginning of 2017, is now trading around $2,300. That’s big money.

The timing of Bancor’s issue was sublime. The buzz around digital currencies was peaking, it turns out. Since then, the market has cooled a bit and the value of the crypto-currency ether has been on a roller coaster.

Last week ether sank below $200. On July 19, it suddenly leaped from around $180 to about $260, then retreated to around $225. As of Thursday evening Israel time, ether was at $229.28, according to SkinCoin (a site to track crypto-currency market capitalizations).

In other words, the value of the ether Bancor raised had shrunk by over 40% since the ICO, in dollar terms.

“Supply and demand,” shrug virtual coin experts we asked about ether’s volatility. In other words, there is no reason.

Social network for crypto-currencies

Bancor has developed a platform based on “blockchain” technology, for the exchange and conversion of virtual currencies, quickly and without need for any middleman. In effect, it created a social network of liquidity for virtual currencies.

The company was founded in 2016 by four Israelis: CEO Guy Benartzi, product architect Eyal Hertzog, Chief Technology Officer Yehuda Levi and Galia Benartzi, who is in charge of business development.

There are two virtual currencies that rule the online roost: Bitcoin and ether. In its dreams, Bancor would like its coin, Bancor Network Tokens (BNT), to become a third major virtual currency. Meanwhile, to trade through Bancor’s trading platform, you have to use its BNT. Users buy BNT from Bancor using ether.

Because Bancor raised ether, the price of BNT correlates to that of ether. At the ICO, Bancor BNT was worth $4.40. As of July 19 it was at $2.26 — a collapse of 48%.

Bancor reported this week that it has added Invest.com, an investments advisory site owned by the Israeli high-tech investor Moshe Hogeg, to its network. The site will be launching a virtual currency called STX, using the Bancor protocol. STX is designed to be the currency used to participate in market prediction called Stox.

Ophir Gertner, among Invest.com’s founders and the mind behind Stox, explains it through tapping “the wisdom of the masses” to predict future events. “Studies have shown that to predict future events more accurately, they should be tradable. When people are risking their money, their forecasting becomes more accurate.”

Asked for an example, Gertler obliges.

“Let’s say a company is developing a product and wants to know if blockchain will be the main technology in its area in 2018. It goes into Stox and asks the masses: Will the main technology be blockchain-based at the end of 2018? Anybody who thinks it will can buy 100 coins that bet on it. The more people buy, the higher the price will rise, indicating that the probability of the event happening is higher,” he explains.

“Say that during the year, the regulators decide to impose restrictions on blockchain networks. That would lower the probability of the event and the price of the coin would drop.”

Isn’t it tantamount to a sort of mass bet?

“Not accurate. The blockchain enables you to analyze events and act based on the wisdom of the masses.”

To what extent is it like a casino?

“Regulation will determine that. We don’t think it’s a casino. The product is meant to help insurance companies hedge risks from all kind of events. You could equally call insurance a gamble, but it isn’t, because statistics and mathematics make it not a gamble.”

They chose to work with Bancor because they know it well, Bancor knows the business and, Gertler said, “We think the protocol they developed is suitable for companies with high liquidity. The more accessible it is, the more accurate the forecast will be.”

Bancor promises to provide liquidity to the virtual currency market, which could increase user traffic.

Communities based on a currency can enjoy the benefits of their shared economy, which remain inaccessible to others unless they join the community. O-Share is such a community: Its users exchange services, from legal counsel to yoga lessons, in exchange for their shared currency.

But crypto-currency companies are deeply vulnerable to hacker attacks and thefts.

CoinDash, a website that specializes in creating virtual currencies for social commerce, reported this week that hackers broke into their computers and stole $7 million worth of ether.

That hardly bolstered confidence in crypto-currency worlds, where people pay each other for goods and services in virtual coins.