On Tuesday

Blockstack has been given the green light from the Securities Exchange Commission (SEC), in America, to proceed with its Initial Coin Offerings (ICOs) under the Reg A+ regulations.

Reg A+ is as an alternative to an Initial Public Offering (IPOs), allowing businesses that have a shorter trading history a way to raise capital, with fewer disclosure requirements than a typical IPO. Many of these mini-IPOs have not performed well and some have been dogged by concerns over fraud, prompting both Nasdaq and the New York Stock Exchange (NSE) to raise their listing requirements for Reg A+ companies.

However, Blockstack is being heralded as the first approval from the SEC since it started it’s “crackdown” on Cryptocurrencies, in particular, ICOs, as many of the ICOs were perceived as being securities by the regulator. This is significant as it sets a precedent for other firms that wish to raise capital in the USA using Reg A+ regulations i.e. obtaining investments from non accredited investors – the general public. Blockstack has used the SEC approval, and in doing so, has raised $28 million via the sale of its digital token. Approval from the SEC did not come without a significant cost for Blockstack, as it spent $2 million to get approval for its ICO.

Blockstack’s achievement to gain permission from the SEC could prove to be an inflexion point for Cryptocurrencies, but investors will still need to be vigilant. However, are we now going to see other firms using this route to raise capital and get listed on Nasdaq or the NSE, as opposed to the various new Digital Asset exchanges currently being established?

 

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ICO
Regulators
Security
Digital Assets

Last Tuesday

There have been a number of interesting announcements around the use of Digital Assets with some interesting products and companies receiving the green light from regulators.

In Europe, we have seen a Luxembourg-based business called Argento emerge and, from the UK, The London Block Exchange has launched what it calls “the world’s first genuine bitcoin (BTC) bond”. This new bond being issued by LBX, which is regulated by the UK FCA, will enable institutional investors to buy a bond that has no exposure to fiat currencies. It will have its own International Securities Identification Number (ISIN) code, and its price will be on all Bloomberg terminals i.e. another example of Crypto being adopted and accessible to institutional managers.
In the UK, Token Market, which had been very active promoting Initial Coin Offerings, raising over £240 million for 30+ companies funded by 170,000 investors, has had approval from the FCA to issue its own Security Token Offering (STO). The Token Market STO goes live on 8th July 2019 and will pave the way for Token Market to launch further STOs - all of which will be subject to much greater regulatory scrutiny, compared to 5,597 ICOs that have been launched to date. Once again pioneers like Token Market, offering STOs in a regulated manner, will make it easier for institutions to be more engaged with this asset class  - not least because these Digital Assets will be backed by assets i.e. bonds, property, shares in companies. 
In February 2019, the London Stock Exchange invested into a UK-regulated company called Nivaura, which has now issued both digital bonds and equities using Blockchain technology. Euronext, a Dutch-based stock exchange that has over 1,300 companies listed with a market capitalisation of over €3.5 trillion, has invested €5 million into Tokeny, which is based in Luxemburg. This investment in Tokeny will compliment Euronext’s investment in Liquidshares, where it joined a consortium of 15 other organisations. Liquidshares is a post-trade Blockchain-powered solution, connecting asset managers’ and broker and custodians’ information systems, thus enabling them to more easily invest in and process listed and non-listed European SMEs.
However, the regulators are also showing some signs of caution, with the UK FCA announcing that it wanted to ban the sale of “Crypto derivatives” to retail customers. It is understandable that the FCA has taken this stance, as crypto derivatives are a highly-geared way in which to get exposure to, in this case, an unregulated asset – Cryptocurrencies. While many have generated high returns, Cryptocurrencies are themselves very volatile. Furthermore, the Cryptocurrencies which largely have been created via an ICO are typically not listed, nor traded, on regulated exchanges. However, as we see more STO’s being launched which can be admitted onto regulated exchanges, such as Token Market, it will be interesting to see if the FCA allows derivatives on these Digital Assets.

Meanwhile, in the USA, there has also been some caution and concerns being raised in particular about Facebook’s new Libra-Cryptocurrency, with the House of Democrats asking Facebook to halt developments until the regulators and congress have had the opportunity to review the potential risks. This is unlikely, as Libra has been established in Switzerland, which is...


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Regulators
Digital Assets

A Month Ago

In order for institutions to be fully engaged with Digital Assets, they are going to need a third party to look after their assets - a role which has historically been provided by custodians.

The regulators in most jurisdictions insist that the organisations that manage your funds have to be independent of the entity that physically looks after the assets.

The good news is that the options and choices for those looking for custody solutions for their Digital Assets continue to evolve. Metaco has announced that it is using Aon (the world’s second-largest insurance broker) and a group of Lloyds of London underwriters, as they are now able to offer “crime-protection” insurance for Digital Assets held in Metaco’s Crypto-wallet. This means that clients’ Digital Assets will be protected, both when their assets are stored “hot” - online, and “cold” – offline.

This is not the first time Aon has been involved in supplying insurance for Digital Asset custody providers, as it announced earlier this year it was working with Anchor labs in the USA. However, while AON claims to have 50% of the current insurance market for Digital Assets, other firms, as the chart above illustrates, are also active in offering insurance solutions for the custody of Digital Assets.

Another potential new custody provider for Digital Assets is 20/30. Robert Gaskill, from 20/30 (the first company to issue a Security Token, to be listed on the London Stock Exchange), recently told 20/30 is looking at an acquisition in the custody sector. 20/30 is considering buying a firm that integrates its current custody solution and so will offer full insurance for custody of Digital Assets provided by Lloyd’s of London.

Interestingly, we are seeing companies relocating from the Channel Islands (where being a trustee is a regulated function) to the UK, where currently trustee services are not regulated. The reason, no doubt, is that it will save these companies compliance costs. This means they ought to have lower professional indemnity insurance premiums and less capital tied up in the business, as not being regulated the capital adequacy rules are totally different. But why is this relevant?

Well, there are a number of people who believe there is no reason why a trustee could not, in effect, offer a very similar service as a custodian and, because the compliance cost-base is potentially less, trustees will be able to offer this service at a lower price. Assuming that the FCA does not insist that you need to be regulated to “look after” assets for regulated firms, could we see traditional custodians like BNY Mellon, State Street, Northern Trust, JP Morgan or Citigroup, to name a few, offering themselves as trustees as opposed to being custodians?

Given JP Morgan’s foray into the Digital Asset sector by launching the JP Coin, will this give it an advantage over its competitors, as it has potentially a deeper understanding of some of the challenges and opportunities being presented by Digital Assets?

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Regulators
Securities
Digital Assets
There are a number of organisations trying to convince investors of the merits of Tokenising different assets classes, on the basis that once it is possible to buy a fraction/share in a property or piece of art or a car, etc, it will enable smaller investors to participate and create a pool of liquidity.

While this sounds very plausible in practice, illiquid assets such as art, property, and classic cars tend to be the preserve of the very wealthy or institutional investors. These asset classes usually have little day to day liquidity, as these more sophisticated investors tend to buy and hold for the longer term. However, the jury is still out since by tokenising these illiquid assets, it will instead lead to other people actively buying and selling on a daily basis!

The Real Estate Investment Trusts (REITs) market started in the USA in September 1960, as a way of encouraging investors to participate in buying property in the USA. This REITs model has been subsequently copied by many other countries around the world.

The statistics below show it is estimated that 80 million people are exposed to USA REITs, which is valued to be over $3 trillion in size, with the majority REITs being quoted on a regulated stock exchange.

It is possible to buy a USA REIT at a discount of its asset value and, indeed, at the end of 2018, the discount of the median RIET was as large as 18%. Therefore, one has to question if there are potentially 80 million investors exposed to over $3 trillion of assets, which one can buy at a potential discount of 18% - how will tokenisation help?

The other popular misnomer has been how Initial Coin Offerings (ICOs) and the tokens they created will democratise capital. To put this a different way, ICOs offered the promise to enable smaller investors to have access to smaller exciting tech start-ups. These have historically been the preserve of wealthy-sophisticated investors and institutions, like Venture Capital and Private Equity Funds. In 2017, Naga, a German publicly quoted company, epitomised this by raising over $50 million from 63,000 people. Unfortunately, apart from a handful of tokens, there is relatively little liquidity in the secondary markets and exchanges for many of the organisations that have issued a token.

According to Coinmarketcap.com, there are less than 100 tokens that had a volume of more than $1million, after which the volumes fall dramatically to a few thousand over most 24-hour periods. But this really ought not to be a surprise, as there are relatively few investors who buy even quoted smaller companies. In the UK, there are 481 companies on the Alternative Investment Market (AiM), that have a capitalisation of between £2+ million, but less than £100 million, and another 272 companies listed on the main London market valued under £100 million. So, just in the UK, we can see there is plenty of choice for investors but, unfortunately, it is almost impossible for even these publicly-quoted companies to raise fresh capital. There are multiple reasons for this - lack of information about these smaller companies, difficulty in valuing the company, few tangible assets being owned and lack of institutional interest, etc. Often there is no liquidity to buy and sell these quoted smaller company shares. How familiar are these reasons cited as to why...


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Real Estate
Regulators
Digital Assets

2 Months Ago

The French Finance minister is trying to encourage other European countries to develop a set of rules as to how Cryptocurrencies are to be regulated and taxed, following France’s parliament passing legislation last week on how intermediaries handle these assets.

Known as the “Plan d’action pour la croissance et la transformation des entreprises,” (Pacte) it reportedly enables insurance companies in France to invest in Digital Assets.

France is keen to encourage tech innovation and different types of funding that Digital Assets have been using like Initial Coin Offerings. The French are keen to have some controls and regulations, to ensure that investors are protected from fraudulent activities from firms looking to create Digital Assets, but not to protect investors from losses should they occur.

Regulations vary wildly by country within Europe as there is no pan-European legislation. However, local regulators across Europe are imposing restrictions on platforms that do not have the correct permissions to offer brokerage services. The European Union has previously proposed that firms offering services in the Digital Asset sector be subject to its anti-money ‎laundering and countering terrorist financing regulations.‎

As more governments understand the transformational impact that Digital Assets are able to have on their economies, we are likely to see more jurisdictions formulating legislation to encouraging the adoption of Digital Assets. The alternative is, that because these assets are Digital, companies will base themselves in countries that are more accommodative.

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Cryptocurrency
Finance
Regulators
Digital Assets
https://uk.reuters.com/article/us-france-crypto...KKCN1RR1Y0

3 Months Ago

Over 100 organisations from a selection of different industries have signed up to the newly-founded International Association for Trusted Blockchain Applications (IATBA), spawned from a series of meetings held by the European Commission (EC).


The new members are developers, suppliers and organisations who are using Blockchain technology, to develop a "predictable, transparent and trust-based global framework".

The IATBA is relocating to Brussels, and it intends to work with governments and regulators to establish guidelines on interoperability (how each different Blockchain shares data) while promoting an open and inclusive global model of governance for the use of Blockchain technology. Members so far include traditional firms like IBM, Accenture, Barclays, BVVA and Deutsche Telekom, as well as companies active in the Digital Asset space, such as IOTA, Ripple, ConsenSys, and Cardona.

The EU has been monitoring Blockchain developments for a while, and in April 2018 it established the European Blockchain  Partnership that now has 29 members, with Hungary being the latest to join, as it believes the use of Blockchains will be at the heart of public services. To date, 141 Million Euros have been allocated by the EU to Blockchain related projects, and potentially up to 340 million Euros could be committed before the end of 2020, to explore how best to use this technology.

IBM has cited five reasons to use Blockchain – ‘greater transparency, enhanced security, improved traceability, increased efficiency and speed’. Interestingly, in a survey carried out by Capgemini, 93 per cent of UK companies, when asked why they were looking at using Blockchain technology, said it was to save costs (compared to a global average of 89 per cent). Secondly, 87 per cent was reducing risk followed by increasing revenues, at 85 per cent. 

The fact that organisations like IATBA, European Blockchain Partnership and established global brands like IBM, Facebook, Goldman Sachs, Fidelity Investments, Deutsche Telekom, Mercedes Benz, Jaguar Land Rover amongst others all exploring and promoting the opportunities that Blockchain technology offers, we will see more and more applications impacting on our everyday lives.


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Blockchain
Regulators
https://cointelegraph.com/news/european-union-l...dium=email
The Financial Action Task Force (FATF) was set up in 1989 to cover challenges like how to promote and recommend standards to maintain confidence in the global financial system including procedures to fight money laundering, and terrorist financing.

While these intentions are laudable the reality is why would someone carrying out nefarious activities using a Cryptocurrency that leaves a digital footprint, as opposed to cash that is widely accepted and not traceable. Is it fear of the unknow driving FATF?

Interestingly, according to the IMF there are 15 countries currently looking at launching their own Digital Currencies. A number of these countries say a reason to do this is to help governments curb their domestic “black economies” as a Digital currency offers greater transparency and traceability of money flows.


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Cryptocurrency
Regulators
https://news.bitcoin.com/countries-regulate-cry...ial-banks/

4 Months Ago

Guy Hirsch, Managing rector of eToro U.S., sees the increased interest and investments in Digital Assets as a clear “generation shift."

He stated via press release: “we’re seeing the beginning of a generational shift in trust from traditional stock exchanges to crypto exchanges. At the heart of this change are the asset classes themselves.

Younger investors’ experience with the stock market has seen a great deal of loss of trust, with the fall of Lehman brothers...” One of the benefits of people investing in digital assets is that companies can know who their actual shareholders are and so have a relationship with them, and reward so offer them shareholder perks e.g. discounts off goods and services. This is almost impossible when shares are held as they currently are, in nominee structures.

Potentially companies could have no need for share registrars saving them money, as shareholders records can be updated in Real Time, which in turn would help regulators know who owns what which at the moment is impossible for a listed quoted company.

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Asset Management
Blockchain
Crypto
Digital Currency
Investment
Regulators
https://www.ccn.com/bitcoin-is-the-gateway-drug...illennials

5 Months Ago

We have been asked on a number of occasions what are the repercussions if you do not comply with the regulator…

Well following a FBI investigation Homero Garza is now doing time for his involvement in an alleged scam where over $9million of other people’s money was lost. The other question often asked is ‘following the 2008 financial crash no one went to prison” but this is not true according The Financial Times 47 people have been sentenced to date. The lesson is the regulators have teeth and WILL use them and as we increasingly see more and more Security tokens being issued organisations need to ensure they are complying with the relevant regulations wherever selling a token…

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Law
Regulators
Security Token
https://bitcoinexchangeguide.com/fbi-gives-payc...tor-heist/
NASDAQ is the worlds 2nd biggest stock exchange developed a range of surveillance technology to ensure that good market practices are upheld and regulators and traders can have confidence in prices and general trading.

Such monitoring services are now being deployed by at least seven Crypto exchanges and one suspects many regulators will want to question what systems other Crypto exchanges have in place similar to what NASDAQ offers. Such surveillance systems are further signs of Digital Assets maturing and embracing the infrastructure required so that governments, regulators and traditional investors will draw comfort and be more engaged in this new asset class.

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Crypto
Regulators
Digital Assets
https://www.financemagnates.com/cryptocurrency/...ance-tech/
The FCA has released its long-awaited consultation paper into Crypto assets, exchanges, payment providers, wallets and firms involved in this growing market sector.

The report looks at the risks and potential challenges and opportunities that Crypto assets offer, as well as setting out thoughts for UK regulation and outlining the different activities that should be regulated. This consultation paper is a clear sign that the FCA is trying to offer those firms that are involved in this sector guidance to this new asset class and ought to help the UK keep at the forefront of the development of Digital Assets.

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Cryptocurrency
Regulators
https://www.fca.org.uk/publications/consultatio...yptoassets