Future Foresight: Phoenix Group Co-Founder Bijan Alizadeh On Why He Continues To Look At The Crypto Space With Realistic Optimism
"We used to see Miami and Singapore as the main hubs for crypto entrepreneurship, but I strongly believe that the UAE is the third crypto hub of the world."
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.
Bijan Alizadeh, the co-founder of Phoenix Group, a global leader in the cryptocurrency and blockchain arena, and the founder of venture capital fund Cypher Capital, speaks with unshakeable confidence when he says, "We used to see Miami and Singapore as the main hubs for crypto entrepreneurship, but I strongly believe that the UAE is the third crypto hub of the world."
Here, I find it hard to decipher whether Alizadeh puts more of his trust in crypto or in the UAE, but it seems that the answer is a mixture of both. "I'm a big supporter of regulation, because it will help grow the crypto ecosystem," Alizadeh explains. "That is why I believe that people who live in UAE are lucky, because this government is in favor of implementing new ideas."
Indeed, Alizadeh has witnessed firsthand the UAE opening itself for blockchain-based businesses- from the Dubai Blockchain Strategy set by the Dubai Future Foundation in 2016, to the Dubai World Trade Centre turning into a comprehensive zone for virtual assets in 2021, and onward to the launch of the Dubai Virtual Asset Regulation Law in April 2022.
The Emirate of Abu Dhabi has been following suit, with the Abu Dhabi Global Market issuing a comprehensive crypto asset regulatory framework in 2018, and more recently, Abu Dhabi's Financial Services Regulatory Authority publishing guiding principles on its approach to virtual asset regulation and supervision.
But while Alizadeh has been privy to the advancements made in the crypto sector in the UAE as well as from a global perspective, he has also witnessed the challenging market conditions it is currently undergoing. And when I ask Alizadeh about his thoughts on these ongoing circumstances, he is both realistic and optimistic, but adds that he believes that regulation is the answer for the issues in the crypto space.
"Yes, there will be hurdles, but if you want the blockchain community to go from 3%-4% of the world population to 20%, you need regulations," Alizadeh says. "You need discipline. You need adult supervision. I also believe that governments now understand that blockchain is the future, and so, everybody is trying their best to come up with these regulations. Yes, it takes time. You cannot change a financial system that has worked for centuries overnight. But I believe everybody is working to the best of their abilities to reach and build a foundation, and then, from that founda- tion, you go step by step, and implement stuff around it."
This philosophy is emblematic of Alizadeh's own entrepreneurial story as well. From 2010 until today, Alizadeh and his business partner Munaf Ali have been pushing boundaries in crypto mining and blockchain-focused venture funding, creating an extraordinary business conglomerate in little more than a decade. Their story starts when Alizadeh, a graduate of electrical engineering from the American University in Dubai, teamed up with Ali in 2010 to work on real estate projects. Three years later, while Alizadeh was vacationing in Bali, Ali suggested that he met with a potential investor in one of their hotel development projects on the island.
This investor -whom Alizadeh recalls as being only 21 years old at the time-ended up becoming his introduction to Bitcoin, and with it, blockchain as well, and that further led to Alizadeh and Ali opening their very first account on the US-based cryptocurrency exchange and bank, Kraken, to accept a payment of US$400,000 from that young investor in Bitcoin. "A year later, Munaf called me and said the price of Bitcoin rose, and that our $400,000 was then worth $2 million," Alizadeh says. "We knew then we had to go into this business, and that it was the future of the financial system."
In 2015, Ali and Alizadeh established Phoenix Group, which is today a conglomerate of 23 businesses that operate nine mining facilities in the US, Canada, Russia, and the UAE, the last of which being where its joint venture with the Abu Dhabi government has built a $2 billion crypto mining farm that is now considered the biggest of its kind in the world. Meanwhile, other companies in the Phoenix Group act as mining hardware resellers and providers of hosting and other related services for all mined assets.
"We started in 2015 from a small warehouse in Dubai as a proof of concept, and we quickly started getting issues with cooling the premises during the UAE summers [crypto mining is an energy-intensive process], and so, we moved to Canada," Alizadeh says. "That is our flagship site in Winnipeg, Manitoba, which is still there. Then, I received a call from Abu Dhabi, and after a lot of research, we came up with a very unique solution to use only water to cool the equipment, which is now called hydro mining. At the time, it was a myth, but we ordered it, and our site on the Reem Island is now quite a unique site in the world. In finishing that, we have become one of the biggest mining companies in the world, as per capacity."
Now, there are a lot of environmental concerns associated with crypto mining, which makes use of a network of energy-hungry computers that validate Bitcoin transactions, as well as to compete to solve computational challenges and earn new Bitcoin. For his part, Alizadeh is well-aware of these issues, and doesn't turn a blind eye to them- which is why he is proponent of satiating crypto mining's need for power from renewable energy sources.
"About 95% of our power comes from hydropower plants, so we have no issue on that part," he says. "I think that in the future, Bitcoin and crypto miners need to be very careful, because the world is going to be carbon neutral by 2030 or 2035, so anyone investing in crypto mining should use electricity that is green, either solar, wind power, or essentially hydro."
The next chapter for Ali and Alizadeh was creating a venture capital arm under the Phoenix Group that aimed to invest in blockchain startups. "In 2019, one of our managers asked me to give him seed money to start investing in a blockchain project, and my immediate response was that we are a Bitcoin miner, that I'm a Bitcoin maximalist, and that I don't believe in anything else," Alizadeh recalls. "But he came back two-three times, and so, we started by investing $500,000 in a blockchain project that went really well. In six months, we increased the capital for Phoenix VC to $10 million, and the team has since invested in over 150 projects."
The success of Phoenix VC led Alizadeh to set up Cypher Capital, a $100 million early-strategy venture firm investing in crypto, blockchain, and other digital asset projects, in 2021. "We put in our own money," Alizadeh says. "We didn't raise money from outside sources. The idea with Cypher Capital is to invest in blockchain projects, with an eye on regional talent. If you get a regional talent-driven project, our Cypher Lab will try to help, essentially not only to fund them, but also with other business aspects, because few look at business the way we do. We are very structured, and this structure will help them avoid mistakes."
To this end, Cypher Capital opened its 10,000 sq. m. hub for crypto and blockchain startups in Dubai's Jumeirah Beach Residence neighbor- hood towards the end of 2022. "Essentially, it's a co-working place for all the talent here to get help from experts," Alizadeh explains. "At the same time, it is also a place to find fresh talent. Plus, if we see a project that has a potential, we will invest with them, or invite our partners or other venture capitalists to invest in them. So, it's a win-win story for the people. This concept was born in UAE, but eventually, we will expand it to Singapore and Miami."
Within its first year of operation, Cypher Capital has invested in about 40 projects, mainly in the gamefi, defi, and metaverse space, and Alizadeh says that their approach to investing is quite methodical." At the end of the day, it comes down to the level of due diligence that you do," he explains. "You invest in young talent, and at the same time, you invest in founders who already have a proven track record. That's essentially the way we do it."
Bijan Alizadeh, co-founder of Phoenix Group and founder of venture capital fund Cypher Capital. Source: BNC Publishing
However, Alizadeh does not deny that startup investing in general, and especially in the blockchain space, is high risk. "Someone once told me that investment and guarantee are two parallel lines that never touch each other," he says. "You cannot do an investment with a 100% guarantee from any risks. You can always do your due diligence, but market awareness is also very important."
At this point in our conversation, we touch upon the few sudden failures of crypto darlings over the past year, and Alizadeh again strongly highlights the importance of regulatory supervision, or as he puts it, adult supervision. "When a young entrepreneur gets access to $20 billion without any regulation, and then he runs a company that is worth $30 billion without any adult supervision, mistakes can happen," he explains. "When you start with a small mistake, then you need to cover it with a bigger mistake, then it becomes a domino effect, and that's where we are."
In Alizadeh's opinion, high valuations of blockchain projects and the relating inflow of huge amounts of capital in the sector have also proved to be cold winds contributing to the crypto winter. "We had inexperienced founders whose projects were valued at millions of dollars overnight," Alizadeh says. "They would start making mistakes, spending massive amounts of money on advertising or something unnecessary, but then, when the market situation tears, and there is no next round of funding, they start running out of cash, and the poor people who invested in their first round lost all their money."
It is thus in a bid to better navigate such uncharted territories that Alizadeh instructed his 25-strong Cypher Capital team to invest only in up to 30 projects per year. "It is because we want to be deeply involved in the progress of these projects, to be part of their success story," he says. "We look at how you spend your money (not that we tell you what to do), but because we are a billion-dollar entity with systems we can use those to help you structure your finances, and many other things. I think that's the key differentiator of Cypher Capital."
Many times through the course our conversation, Alizadeh proves to be balanced and grounded in his thoughts about the crypto industry, and after talking about his success stories in this space, he once again urges caution for anyone choosing to following his lead in this sector. "It's our job as business leaders in this field to educate people that they need to be careful," Alizadeh says. "Nothing comes without hard work. Nothing comes without proper due diligence and discipline, financial discipline. I think we'll see many success stories in Web3, the defi space, and many things in blockchain are emerging, while regulation is coming, so it's a very exciting time."
This enthusiasm about the blockchain space does not fall short of evidence either, and Alizadeh ends our conversation with some realistic optimism. "In Web2, we now have 20 million developers around the world, but in Web3, we have only 25,000. Imagine what will happen when this number grows," he says. "The other number I can tell you is that out of eight billion people around the world, only 300 million have crypto wallets, which is about 4%, so imagine what will happen when 10% or 15% of the world population has crypto wallets. Where we are right now is just the tip of the iceberg."