On Friday

For years Singapore has been a dynamic economy ready to embrace and commercialise business activities, which helps to explain why it has been able to export more than it imports, and therefore has had a positive balance of payments over the last ten years.

Hence, it ought to come as no surprise that Singapore has been active in the Blockchain sector.


Source: IIF, BIS, IMF

Northern Trust has started to work with BondEvalue, a debt market firm based in Singapore financial regulatory sandbox and has created a platform called BondbloX, which is a Blockchain-powered exchange designed to trade bonds that have been digitised. In a report released by the International Institute of Finance (IIF), it stated the global debt market will exceed $255 trillion in 2019. It was also claimed that the world debt market has risen by over $7.5 trillion in just the first six months of 2019. Northern Trust, the 10th largest custody agent globally, will provide custody services for BondbloX. BondEvalue is creating Digital Assets backed by high-grade bonds, which will enable retail investors to access to these bonds in a digital format. Usually smaller investors are not able to invest in these types of bonds, given the normally large minimum investments asked for.

JP Morgan has teamed up with Singapore’s Central Bank, the Monetary Authority of Singapore (MAS), to develop a Blockchain-powered cross-border payments solution. This project is part of the fifth phase of a Blockchain initiative, called Project Ubin, which started in 2016 looking at how to integrate Blockchain technology into payments and settlement. Sopnendu Mohanty, chief fintech officer of MAS, seemed to be hinting of what may be coming when he said.  “We hope this development will encourage other central banks to conduct similar trials, and we will make the technical specifications publicly accessible to accelerate these efforts. We look forward to linking up with more Blockchain networks to improve cross-border connectivity. This will be a big step forward in making cross-border transactions faster, cheaper, and safer.” Mohanty also said, “There is growing evidence now that Blockchain-based payments networks can enhance cost efficiencies and create new opportunities for business

Expect to see many more announcements in 2020 of projects and initiatives involving cross-border payments and the digitisation of bonds. Key financial centres, such as Singapore, will not wish to miss out on these developments. The use of Blockchain technology will shake up many of the incumbents, removing the need for many of the current intermediaries.

 

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Singapore

Last Friday

Therefore, it is of no surprise that investors have shown considerable interest in owning Cryptocurrencies such as Bitcoin and, indeed, have turned to use it in countries where there has been a loss in confidence in the economy, or the ruling government.

However, caution is required since there is a growing body of evidence that governments in many countries are suppressing and potentially shutting off the internet, including:

  • Egypt
  • China
  • Russia
  • Chad
  • Ethiopia
  • Kazakhstan
  • The Democratic Republic of the Congo
  • India
  •  Indonesia
  •  Sudan
  • Venezuela
Indeed, just this week Iran saw its government try and shut down the internet, to suppress its citizens who were rioting because of the recent 50% hike in petrol prices.







The ability to control and potentially shut down a country’s internet has to raise serious alarm bells if we are going to see further adoption of Blockchain technology.  For example, were a country to be using Blockchain technology and therefore reliant on the internet for medical records, financial services, transport and supply chains etc, then it would be, in effect, creating systemic risk for its economy. This vulnerability could be manifested by the government suppressing or, indeed, turning off the world wide web within its borders.

Blockchain technology is often cited as a way to be able to embrace the 1.7billion people in the world who are unbanked, as well as being able to provide provenance and traceability. However, many of these unbanked are citizens of countries which have a track record of manipulating the internet. Also, a significant number of goods that are imported from overseas markets into, typically, Europe and America emanate from several countries which exert undue influence over the unfettered use of the internet.

 

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2 Weeks Ago

Worldline, a huge Swiss-based global payments business with over 11,000 employees in 30+countries, has just made two announcements.

It has now agreed with WeChat, a subsidiary of the hugely successful Tencent in China, meaning that WeChat’s 800 million customers can now use WeChat to pay for goods and services using their mobile phone (just as they do in China). According to data from Nielsen, over 91% of Chinese tourists overseas use their mobile phone to pay for items. Therefore it is hoped that by enabling WeChat customers to be able to spend money using their phone they will, in turn, spend more than the CHF660 million Chinese tourists spent in 2018. These tourists already spend twice the amount ($288 billion) that American tourists do ($140 billion) while travelling, so any more convenient solution will surely be welcomed.
Worldline has also agreed to partner with Bitcoin Suisse so that cryptocurrencies can be used by its customers and accepted for payments both on and off-line. This announcement consolidates Switzerland’s continued interest and acceptance of digital assets, and arguably the Swiss are stealing a lead in the use of Blockchain technology and digital assets over many other countries. Switzerland now has over 800 companies working in, what is sometimes referred to as, ‘Crypto-valley’.
Given the various rumours regarding China looking to launch its digital currency, the close ties it has with the Chinese government and the massive adoption of WeChat in China itself, it will be interesting to see how quickly Worldline (with its worldwide payments network) starts to handle a Chinese digital currency. If Worldline is now embracing Bitcoin Suisse to process cryptocurrencies, surely it would be relatively straightforward to process a digital Chinese currency. The prize for Worldline and, indeed, for the Chinese is neither in Europe nor America but is to have a solution to target the 1.7 billion that the World Bank, itself, states remain unbanked - many of whom are based in faster-growing economies in Asia, Africa and South America. Those who historically have not had a bank account arguably do not need a bank, if they can receive and transfer payments on a mobile phone. In the same way, in many parts of Africa, the infrastructure of land telephone lines never had to be built, as mobile phone technology enabled Africans to communicate without these.
Meanwhile, Visa, MasterCard, American Express have also all partnered with WeChat so that tourists coming into China will be able to use the WeChat platform to pay for transport, hotels, food etc. To date, it had only been possible to use WeChat (and Alipay) if you had a Chinese bank account - now this will not be required. Alipay and WeChat, with 1.2 billion and 1.13 billion active monthly users respectively, have been truly embraced as being the two main methods for China’s citizens to pay without using cash. A digital version, which can be used globally and potentially at a lower cost, is no doubt appealing for users. Digital currency is also a powerful new monetary tool which can allow governments to track and monitor spending and also enables it to influence...


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Digitised

2 Months Ago

Is it any coincidence that almost the same day as the SEC’s press announcement about Block.one, a ‘posse’ of Crypto exchanges – Anchorage, Circle, Kraken, Bittrex, Greyscale, Genesis, DRW Cumberland and Coinbase launched an ICO rating service to help determine if an ICO is a security or not?

They have set up a Crypto Rating Council (CRC) and intend to publish ratings on ICOs on a 1 to 5 scale - 1 signifying a ‘Utility token’ has few or no characteristics consistent with a traditional regulated security i.e. Bitcoin A rating of 5, the CRC suggests that the token has many characteristics potentially of a security.

Mary Beth Buchanan, Kraken’s general counsel, was quoted in the WSJ as saying, “It does show the SEC what each exchange is doing to come to a decision.” However, the Crypto Council’s Frequently Asked Questions recent release stated, “The framework is the Council’s attempt to provide a consistent analysis which the members find useful but it is not legal advice and does not reflect the opinion of any member or outside counsel of whether any given asset is a security.”

Interestingly, the CRC has determined that XRP from Ripple (which is trying to compete with SWIFT) and which has always argued that it is a utility token, has been given a rating of 4. So, will this encourage regulators, in particular, the SEC, to look again at Ripple, on the basis that it is indeed a security token, and which potentially may have raised capital and not meet SEC regulations? After all, Ripple has been served a class action alleging that it has sold hundreds of $ millions of tokens without complying with the SEC security regulations.

At least the CRC is attempting to offer guidance and, no doubt, others will look to amend and try and improve on offering different guidance. This has to be welcomed, as opposed to ignoring this issue and waiting for the SEC to knock on their door which is the tact some organisations have currently taken.

 

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Block.one, according to a Security Exchange Commission (SEC) press statement, has been obligated to pay $24 million in penalties for conducting an unregistered securities sale by carrying out its Initial Coin Offering (ICO).

Block.one is the creator of EOS, which has issued over $4.1 billion of tokens, making it the largest ICO ever. Being fined $24 million (only 0.0058%) to get an SEC waiver looks like a stunning deal for Block.one, so it is of no surprise that within hours of this announcement EOS’s token price was up by 9%.

Block.one did not provide ICO investors with the information they were entitled to as participants in a security offering,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.  “The SEC remains committed to bringing enforcement cases when investors are deprived of material information, they need to make informed investment decisions.” 

As an aside, Block.one (according to a Bloomberg report in June 2018) was holding most of its current $2.2 billion in US Government bonds and 140,000 Bitcoins.

From this information, if you assume Bitcoin price is $8,200 then Block.one’s holdings are worth $1.19 billion which, added to the $2.2 billion of US bonds, ought to imply that EOS capitalisation ought to be at least $3.35 billion and not $2.9 Billion. No wonder Block.one was reported to be looking to buy back its stock. If Block.one did manage to buy back all the EOS tokens, then presumably Block.one’s ordinary shareholders could turn Block.one into a $450 million ‘cash shell’.

Given this Block.one ruling and the on-going battle that the SEC is having with Kik’s ICO, (a Canadian-based social message company), it is clear evidence that the SEC does indeed have teeth and is looking to pursue those ICOs which have broken US laws. Indeed, the SEC has just fined another company, Nebulous Inc, as it too is claimed to have violated SEC security regulations back in 2014. Interestingly, this shows that the SEC can take years to decide the action it wishes to pursue which is cold comfort for those organisations that carried out ICOs in the past.

 

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Institutions have historically been required to have assets that they manage on behalf of their clients, and which are held independently by a third party, a custodian.

Deloitte summarises that a custodian’s role is “to safeguard assets” and therefore it is only natural, as banks and asset managers look to invest in Cryptocurrencies and Digital assets, that custody services are being sought.

There is a selection of companies offering custody services such as Bitgo, Coinbase, Digital Asset Custody Company, Gemini, itBit, Kingdom Trust and Xapo. However, these companies are largely unknown by many traditional asset managers. Goldman Sachs and Fidelity are now offering custody services too, but what we are beginning to see are new custody service providers with well-known backers. Most importantly, they have the added protection of having the assets that they look after insured.

Anchorage, having received backing from the legendary Silicon Valley investment firm Andreessen Horowitz, has been offering insurance on all assets that it holds as a custodian. Anchorage has used insurance broker Aon to arrange its insurance cover.  Knox, in which Fidelity invested in 2018, is also offering full insurance on any Digital Assets that it provides custody services for. Knox is based in Canada and has arranged its insurance cover via insurance broker Marsh McLennan. Jennifer Hustwitt, a senior vice president at Marsh, recently commented that “Over the past six months, we have seen a net expansion of insurance capacity as the technology continues to mature and regulatory frameworks emerge.”

The provision of fully insured custodian services will prove to be extremely important if more asset managers are to have greater involvement in Digital Assets.

 

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The market for coffee is huge and is set to grow over the next few years. According to the International Coffee Organisation, Honduras is the world’s sixth-largest producer of coffee.

GrainChain, which is based in Texas in the USA, uses blockchain technology and describes its platform as being able to “facilitate prompt payment to suppliers and farmers, and the immediate availability of tradeable commodities to buyers. It attacks fraud and corruption through certification and accountability” GrainChain has signed up 12,000 Honduran coffee farmers onto its platform, enabling the farmers to get access to capital from banks, also connecting them to global shipping agents. GrainChain is also helping many farmers have access to banking services by automatically paying loans into their digital wallets (as previously they had been excluded from traditional banks, having had no credit history). According to Luis Macias, CEO of GrainChain, “Farmers can use these loans to purchase farming supplies from vendors and a portion of the credits in the digital wallets can also be redeemed for fiat currencies”. 

GrainChain’s Blockchain-powered platform offers greater transparency and so helps to build trust so that farmers can access cash, banks can have greater certainty of what is being produced and also how and when their loans will be repaid. GrainChain’s platform helps in the fair trade and organic certification process as well, while offering coffee drinks greater provenance tracking - this increasingly being demanded by customers.

Macias also said, “GrainChain’s biggest struggle came from the exporters and buyers, who did not immediately understand the benefits a smart contracts system might have to their supply chain. But after seeing the tech’s potential cost savings – cutting out middlemen, securing and paying off loans, reducing administrative overhead – they, too, signed on. Exporters additionally saw the opportunity to use the tech for additional profit. When they’re able to show buyers in Italy and Miami exactly where the coffee came from – the path that it took, the ingredients that were used, the fertilizers, everything – they saw it as a great marketing opportunity.”

 

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