SIRIN LABS: HIT BY A CRISIS OF TRUST AND LIQUIDITY ISSUES

In December 2017, Israeli crypto-startup SIRIN LABS raised 205,000 Ether (ETH) in its ICO to develop a blockchain-based mobile phone. Based on the conversion rate in Dec 2017, these ETHs were worth some $157 million. The company plans to ship its first batch of a few thousand phones soon. According to Bloomberg, the company is now considering abandoning hardware altogether and refocusing on shipping software for other phone makers, CEO Moshe HOGEG allegedly said in an interview. SIRIN LABS would have enough funds for just another six to 12 months of operations, he said. Well, that sounds like a record-breaking cash-burn rate.

To Have or Not to Have a Financial Issue

SIRIN LABS and HOGEG have since relativized HOGEG’s statement. A Sirin spokeswoman said that HOGEG referenced a hypothetical situation in which the company was not able to sell the device. However, despite the challenging market environment, SIRIN remains confident to reach profitability with its blockchain-based smartphone FINNEY. Allegedly 100,000 devices were already ordered by distributors. MOGEG provided a few statements on the matter on Twitter:

OK ok let’s get things straight, Sirin got 205,000 ETH, that’s around 17M today, thank God we managed risks and sold enough to get through this hard year and I think we have enough to become profitable, I’ve never said we’re pivoting, our distributors order book is >100K phones!— Moshe Hogeg (@moshehogeg) December 8, 2018

Actually, Moshe HOGEG provided excellent news in his tweet – the sale of 100,000 phones via its distributor channel. Assuming a discount of 50% on the phone’s retail price of $999 should generate some $50 million in revenue and cash for the company. For whatever reason, the market seems to have some issues with SIRIN LABS and its announcements.

Since the launch of its mobile phone on November 29, 2018, the SIRIN Coin (SRN) has lost around 50% of its market capitalization and is currently trading at just under $0.5. SRN has thus lost significantly more than the Bitcoin (BTC), which lost just under 17% in this period. Ether (ETH) fell by almost 22% during this period.

SIRIN LABS is one of the few ICO projects that has actually delivered the promised products to the market. Nevertheless, the company is punished by the market. This indicates both that the market environment is depressed and that the market does not believe in the FINNEY phone. This may be because the product itself is not considered to be good or because the market doubts the future of such products in general. It will probably be a combination of both factors that lead to the crisis of the SRN in the crypto market.

It’s a Matter of Trust

As a matter of fact, crypto markets are currently characterized by a similar depressive mood of doom as the Internet industry after the collapse of the New Economy in September 2001. Even good companies could no longer get money from investors, sales collapsed and more than 80% of the startups at that time left the market. The situation in the crypto market is similar today. SIRIN and Co. could disappear from the market despite all the money from investors.

In fact, HOGEG’s statement that SIRIN LABS will have burned the $157 within 18-24 months seems breathtaking. This would result in a monthly cash burn rate between $6.5 and 8.7 million. That, in turn, is breath-taking for a startup. Well, maybe SIRIN has not exchanged the cryptocurrencies it received in the ICO into FIAT because it hoped on increasing prices. Hope is over now and will be for many months.

Other rumors around SIRIN LABS say that the full 205,000 Ethers were actually not really available to SIRIN, but that this was only presented as such. In fact, Moshe HOGEG and his investment firm Singulariteam were involved in a number of ICOs and allegedly received hundreds of millions of investors. It could, of course, be that there were mutual shareholdings and that the net proceeds from the actual investor contributions were significantly lower. This would also explain the liquidity crisis of HOGEG’s crypto companies. It is known in the market, that STOX has severe liquidity issues despite a 33-Million ICO (read our article here). Hence, its market cap arrived at below USD 1 Million already.

The Absence of Disclosure Requirements

Public-listed companies in the stock markets are obliged to disclose their numbers, projects, and events in great detail. Most regulatory regimes have implemented comprehensive disclosure requirements to make sure that investors are correctly guided and protected.

Public-listed companies in the token and coin world, on the other hand, have no such obligations and hence no transparent investor guidance. That said, it seems that the market misses trustful SIRIN disclosures. In the absence of binding and supervised disclosure rules, investors find it difficult to evaluate the information correctly.