Why investors are bullish on ‘utility’ crypto Helium: ‘Literally the whole world is its addressable market’

March 22, 2022, 11:00 PM UTC

A peer-to-peer wireless network that doles out crypto tokens as people use it? Investors are intrigued.

Helium, dubbed “The People’s Network,” started out as a regular company in 2013 that pivoted into the crypto space in 2019, becoming a blockchain-powered wireless service that provides long-range connection to nearby Internet of Things (IoT) devices, like scooters and certain smart devices, through individually-owned hotspots. Owners of those hotspots earn Helium tokens (called HNT) the more it’s used, compensating them for their initial investment in the hotspot, which mines the tokens, and for hosting it. The Helium network transmits data over long distances with low power, and it’s becoming more popular (a recent New York Times feature detailing its real-world use case didn’t hurt).

The startup was cofounded by Shawn Fanning (the inventor of Napster), Amir Haleem, and Sean Carey.

Investors and crypto community members are optimistic about the utility token, including venture capital investors: Helium raised a $200 million Series D round in February. And according to one crypto fund manager, the network and token could have a long way to rise.

“It’s growing incredibly quickly. It has great … tokenomics,” or the economic structure and supply and demand dynamics of a token, Leigh Drogen, general partner and CIO at digital assets quantitative hedge fund Starkiller Capital, tells Fortune. “It has a huge addressable [market], literally the whole world is its addressable market.” He points to the war in Ukraine as one example of why “the concept of decentralizing access to the internet is obviously important, given the potential for things to go down in a centralized fashion.”

For Helium, “all of those things are moving up and to the right,” Drogen argues. Indeed, according to Helium’s tracker, there were over 75,000 new hotspots added in the last 30 days (and more than 660,000 in total all over the world). Helium now uses a variety of hotspot makers, and is also pushing into the 5G space, having partnered with hardware maker FreedomFi, which raised $9.5 million last week from the likes of Samsung and Qualcomm’s venture capital arms.

Though Starkiller Capital doesn’t assign price targets for tokens, considering where Drogen sees the opportunity, he thinks long term Helium could be “half or more the market cap of something like Verizon,” which is currently an over $200 billion company. Drogen’s Texas-based firm, which has roughly $50 million in assets under management, has previously held positions in Helium (it currently doesn’t hold any Helium tokens), and will likely re-enter one in the future, Drogen tells Fortune. In the past year, the Helium token has risen over 200%, according to CoinMarketCap (Helium doesn’t trade on big exchanges like Coinbase at the moment).

Drogen isn’t the only one bullish on Helium. Blockchain data platform Chainalysis’ CEO Michael Gronager recently told Fortune he believes Helium is “a little bit underrated.” And Bodhi Pinkner, research analyst at crypto investment firm Arca, notes the market opportunity is massive: According to a report by market research firm Facts and Figures, the global IoT market could be worth over $1.8 trillion by 2028.

Though the token hasn’t gotten the level of attention of some of its larger crypto peers, Edward Moya, senior market analyst at Oanda, believes Helium could “attract strong interest from a wide range of retail and institutional traders because it does have some value besides the speculative side of things,” he told Fortune.

Lately, Helium’s trading chart has looked a bit bumpy, with the token now back in the green over the past month. Drogen argues that Helium has been “thrown into a basket of assets with basically all the ARK [Invest] names,” and software and high-growth tech stocks, which have recently been on a rocky path. Although Drogen says he doesn’t “make calls like ‘that was the bottom,'” given tech’s broad rally since last week, “the odds are that it likely was” in those types of assets, adding that Starkiller Capital may start buying tokens like Helium “later this week if everything continues to hold a bid.”

What could deflate Helium

Apart from the market’s volatility, a few other things that could complicate Helium’s path higher.

One is the wary eye of the Securities and Exchange Commission. Reports including a February story from CoinDesk pointed out that an SEC crackdown could hit Helium, namely over whether its tokens could be considered a security offering, something that’s long been a quandary for the startup.

According to those like Todd Phillips, director of financial regulation and corporate governance at D.C.-based think tank Center for American Progress, “The thing about many crypto assets is they are structured in ways that … we don’t necessarily think of them as investment contracts, but they serve the same kind of purpose,” he tells Fortune.

The Supreme Court created something called the Howey Test, a list of four criteria used to determine if an offering needs to be categorized as a security (and therefore whether the issuer needs to file certain documents, like an S-1). Phillips believes some crypto tokens like Helium qualify. “I am undertaking some activity in exchange for you giving me a token, and I can go and sell that token on the secondary market, and the price of that token will be derived based on the issuer’s business model,” he explains.

There is precedent for concern: the SEC has gone after crypto projects in the past, like in 2020 when the SEC filed an action against Ripple Labs and two of its executives for allegedly raising money for an unregistered securities offering (its token XRP).

But according to Phillips, even if a certain crypto did qualify as a security, it doesn’t mean the SEC will have the manpower or will to pursue a case against them. He notes that the SEC has limited resources, and that “it is so easy to create these things and time consuming for the SEC to shut them down.”

Unsurprisingly, those in the crypto space are less convinced Helium could even be considered a security. Drogen notes that while he believes many cryptocurrencies actually are securities, Helium “legitimately is a utility token.” And Arca’s Pinkner argues from the company’s perspective, they’re “commoditizing internet connectivity” rather than selling securities.

Outside of regulatory clouds, Oanda’s Moya cautions investors that “anything that disrupts the performance of that wireless network is something that … could have a crippling effect on its valuation.” Plus, there’s also the question of whether telecom titans may come after Helium over whether Helium users are breaking their contracts, as reports including the New York Times‘s pointed out (On the flip side, the DISH Network actually partnered with Helium in late 2021 for its 5G network).

And, of course, “any market of that size attracts competition from multiple parties,” Arca’s Pinkner says, and Drogen agrees: “There are competitors coming into this space and Helium won’t be the only one.”

Even so, Pinkner believes “companies with adequate network effects are able to establish a moat if they’re able to scale sufficiently.”

“Arguably,” he adds, “Helium has achieved that scale.”

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