Blockchain and Crypto Updates

Courtesy of Techemy and Brave New Coin, I’ve just been on another whistle-stop global tour: 5 cities, 4 countries, 3 continents in two and a half weeks….. Along the way, I caught up on some of the latest market and regulatory developments in Blockchain and cryptocurrency.

Giant billboard in Tokyo’s Ginza district

First, there was no hiding the fact that the past six-month “correction” in crypto markets has had an impact on trading volumes, investor appetite and institutional enthusiasm – as well as generating some regulatory noises. More on the latter below. At the same time, many of the first wave of Blockchain projects that attracted funding over the past 4 years are still at the development or test net stage, or only just launching their MVPs. Hence some investor caution on new token issuance.

Second, there are probably far too many Blockchain and crypto conferences – or rather, volume is diluting the quality of content, meaning too many sub-par events. There is no shortage of interesting topics and informed speakers, but the format and delivery of so many panel discussions and plenary sessions end up sounding tired and lacklustre.

Third, expect a crypto-backed ETF to be listed on a major exchange very soon. I even think it will come out of Europe, rather than the US, but that’s just a personal view. Such a product is going to help with investor diversification and will eventually enable retail investors to get exposure to this new asset class, even within their personal pension plans, without the same level of risk and volatility than direct holdings or spot trading.

Fourth, institutional investors are still looking for institutional products and services: proper custody solutions, robust benchmarks, hedging instruments, portfolio tools and risk analytics. One challenge is that the market is still trying to define crypto fundamentals – the sorts of analysis we take for granted in other asset classes (earnings per share, p/e ratio, yields, Sharp ratio, credit risk, etc.).

Fifth, Japan feels like a case of “two steps forward, one step back”. Just over a year ago, cryptocurrencies were formally recognised as a legal form of payment. Then in late 2017, the FSA issued the first batch of crypto licenses to qualifying exchanges. Japan continues to represent a significant portion of crypto trading (partly a legacy of retail FX trading, partly a result of regulatory restriction in other markets). But yet another exchange hack earlier this year prompted the regulator to put the industry on notice to smarten up, or face the consequences. Exchanges are subject to monthly monitoring, and the self-regulating industry body is undergoing a few changes. Plus, exchanges are no longer able to list privacy coins.

Finally, with the lack of legal clarity or regulatory detail around initial coin offerings (aside from blanket statements that “all ICOs are securities until proven otherwise”), there is still a lot of regulatory arbitrage. Certain jurisdictions are actively attracting new issuance projects to their shores, and positioning themselves as being “ICO friendly”. Ironically, even though the SEC in the USA has been particularly vocal about ICOs that may actually be deemed securities, it has not defined what constitutes a utility token (or made any announcement on the new category of security tokens). However, there have been some recent announcements out of the SEC suggesting that neither Ethereum nor Bitcoin are in fact securities. More interestingly, the State of Wyoming is looking to make Blockchain and associated crypto assets a major pillar of its economy.

NOTE: The comments above are made in a purely personal capacity, and do not purport to represent the views of Techemy or Brave New Coin, their clients or any other organisation I work with. These comments are intended as opinion only and should not be construed as financial advice.

Next week: Bad sports

Beyond Blocks, Tokyo

Thanks to my work with Techemy and Brave New Coin, Content in Context is currently on the road, attending various Blockchain and crypto events in Tokyo, Vienna, NYC and Chicago. The next few blogs will attempt to capture notes from the field.

Techemy CEO, Fran Strajnar presents on the new asset class of digital value

In Tokyo, the Beyond Blocks Summit was a stellar affair, with marquee blockchain projects and major investors presenting on stage, alongside cosplay characters, light shows, upbeat music and a crowd of crypto fanatics.

Given the significant developments in Japan’s regulatory framework for crypto-currency trading, there was a lot of interest in the presentations by bitFlyer, Quoine and Smart Contract Inc.

As with the recent APAC Blockchain Conference in Melbourne, there was a strong representation from China’s growing base of Blockchain projects (but not ICOs, of course), keen to demonstrate their infrastructure projects.

There was much debate about regulatory developments across Asia, made all the more interesting by the announcement that Monex is acquiring Coincheck, despite (or because of?) the recent hack on NEM tokens held on the local exchange.

Among international key speakers were Patrick Byrne from Overstock and tZERO, John Burbank of Passport Capital, and Techemy’s own Fran Strajnar – all looking to the future of this new asset class, especially so-called security tokens.

Interspersed throughout the two days were panel discussions and presentations on scaling, infrastructure, decentralized exchanges, stable coins and the future of ICOs.

Although this was only their second event of this kind, the Beyond Blocks team have quickly established themselves on the conference circuit.

Next week: Token Investment Summit, Vienna

 

Bitcoin – Big In Japan

I spent the past week in Tokyo on behalf of Brave New Coin, meeting with various participants in the cryptocurrency industry – from exchanges to brokers, from industry bodies to information vendors, from connectivity providers to technology platforms. Given its share of Bitcoin trading volumes, and the legal developments currently in motion, Japan is now the focus of attention as it navigates towards a fully regulated and orderly cryptocurrency market.

Bitcoin is now accepted in Bic Camera stores in Japan (Photo: Rory Manchee – all rights reserved)

On my previous visit to Japan, I commented on the extent to which it was still a cash economy – even major museums and galleries don’t accept plastic, and my pre-paid foreign currency card issued by a major Australian bank was only accepted at a limited number of ATMs: 7-Eleven, and Japan Post. But according to expats I spoke to last week, this situation has changed over the past couple of years.

One of the reasons I was given as to why Japan is taking a lead in regulating cryptocurrencies is its previous perception of having a somewhat lax approach to money laundering. Part of this might be explained by the limited technical integration and interoperability with the global banking system (somewhat akin to Japan’s approach to telecoms, where in the past, it was impossible for overseas visitors to use their mobile phones on the domestic network).

In addition, as China has cracked down on most things crypto, so has Bitcoin trading activity shifted to Japan. This growth in Bitcoin trading volumes can also be linked to Japan’s passion for retail forex trading, now expanding into crypto.

Earlier this year, the Japanese government passed legislation that recognises bitcoin as a legal form of payment. (Note: this does not mean that bitcoin is legal tender – shops do not have to accept it; but if they choose to take it as payment for goods and services, then it is no different to paying in cash or by credit card when it comes to things like consumer rights, for example.)

Later this month, the main regulator, the FSA is expected to announce new regulations to govern cryptocurrency exchanges and brokers. Currently, exchanges that accept Yen deposits for cash trading of crypto must be licensed as payment institutions. By the end of March 2018, my understanding is that all exchanges and brokers must be fully licensed to operate – for both cash trading, and futures and margin trading. Anywhere between 20 and 50 exchanges have applied for a license.

Currently, participants in the “legacy” securities and futures industry are either registered with the JSDA or the FFA. Likewise, it is expected that the FSA will appoint a similar self-regulating entity to have official oversight of the cryptocurrency markets, under the overarching authority of the FSA. However, there are two rival blockchain and cryptocurrency industry associations that are vying for this role – which is where things become a little political. One group claims to represent the “pure” crypto world, whereas the other might be seen to represent more of the traditional market. No doubt the FSA would prefer not to have to choose…

Key considerations for the FSA are retail investor protection, and market stability. The total market cap of all cryptocurrencies is now around US$150bn. If we assume that 10% of these assets are held in Japan, when compared to the total capitalisation of the cryptocurrency exchanges themselves, this creates a significant risk for the FSA should there be a market collapse or a run on Yen-based crypto deposits.

Equally, the FSA does not want to stifle innovation in an area of financial services where Japan is keen to take the lead. For example, Japan has witnessed a couple of bitcoin-denominated corporate bonds (more like privately syndicated short-term commercial paper) that demonstrate an investor appetite for this new asset class.

Meanwhile, in preparation for this new regulatory environment, and in anticipation of the increased interest by major banks and asset managers, there is a project underway to create an institutional-strength order management platform connecting banks, brokers and exchanges. I also heard of offshore fund managers looking to launch a crypto-based ETF for distribution in Japan.

Finally, at the risk of blowing our own trumpet, Japan’s leading financial vendor, Quick is now quoting the Bitcoin Liquid Index (BLX) alongside other FX data it distributes from around the world:

 

NOTE: The comments above are made in a purely personal capacity, and do not purport to represent the views of Brave New Coin, its clients or any other organisations I work with. These comments are intended as opinion only and should not be construed as financial advice.

Next week: Tech, Travel and Tourism

 

 

Idea over Form – Gehry vs Ando

Frank Gehry and Tadao Ando are two of the most famous architects in the world. Each has a distinctive style: Gehry produces organic and free-flowing designs, incorporating unexpected shapes, angles and materials to produce logic-defying structures that appear to float above the ground; while Ando creates solid concrete structures, very much tied to the earth (even buried within it), but ultimately deriving their form from the elements of space and light that they encapsulate.

Frank Gehry: "I have a dream" (image sourced from Archilovers.com)

Frank Gehry: “I have an idea” (Image sourced from Archilovers.com)

During my trip to Japan in late 2015, I had the pleasure of seeing examples of both their work: Gehry’s giant fish in Kobe and a show based on his recent project for the Fondation Louis Vuitton; and Ando’s series of galleries and museums that form part of the Naoshima Art Island project (including the Ando museum itself). It all came together at a major retrospective of Gehry’s work, “I have an idea” which, fittingly, is showing at 21_21 Design Sight in Roppongi, a building designed by Ando.

Interior of 21_21 Design Site (Photo © Rory manchee, all rights reserved)

Tadao Ando: Interior of 21_21 Design Sight (Photo © Rory Manchee, all rights reserved)

Despite the differences in their work, there are strong similarities, even commonalities – for example, they have both pushed aesthetic boundaries, and both have developed significant signature styles. They are also highly attuned to the use of space, light and materials. Their work is never pure ornament, everything has a purpose, even if it is “only” to maximise light or enhance the use of space. And their goal is to create a connection between the function of the building and its use or purpose. It’s architecture as facilitator, because it prompts, even demands, a reaction from the occupants: inhabitants, students, patients, patrons, visitors, employees.

For me, a key difference is how they appear to solve the problem of designing unique solutions for site-specific locations, while maintaining their distinctive styles. In his own words, Gehry starts with “an idea”, and then explores, extends and extrapolates the idea until he ends up with a design solution that lends itself to the desired outcome. His ideas may originate from the client brief, but the buildings always impose themselves upon their location, because in spite of the organic forms, they appear out of context (but not out of step) with their natural surroundings.

Whereas Ando’s work only truly reveals itself once the internal space has been created, usually achieved by removing the earth, and burying or submerging the building in the ground. From some angles, a number of Ando’s buildings have no visible superstructure, suggesting the intention is for them to be subsumed, even absorbed by the landscape. A few of his designs only “exist” when you are deep inside them, or when the natural light is used to achieve a specific effect.

Despite Gehry’s random designs and the somewhat chaotic nature of the iterative modelling process, he is actually a thorough technician; his design methodology has resulted in numerous software programs and other digital applications that are licensed for commercial use. The idea is a vital starting point, but the final form is more important.

By contrast, Ando’s singular use of polished concrete suggests a cold or even clinical approach to his practice; in fact, he is more of a purist in his search of form, and actually strives to establish a connection with and respect for nature. One senses that the form is actually subservient to the idea, however perfect the physical outcome.

Of course, idea and form are equally important, so I think the goal is to achieve a balance (not necessarily harmony) between the two. Even better is the creative tension where one continuously questions and informs the other. The best architecture is never fully resolved, and always asks more of us, however often we see it; mediocre buildings simply get ignored, or taken for granted. (And hopefully, the bad designs never get built…)

Next week: Is this The Conversation we should be having?