More musings on ICOs and cryptocurrencies

In the same week that SEC launched a spoof ICO (was anyone really fooled?), I attended two informational sessions about cryptocurrency that revealed much about the ignorance, greed, fear and misinformation that continues to plague this new asset class. Thank goodness that rational thinking still prevails…Much of the public dialogue around Blockchain, bitcoin and cryptographic assets has been along the lines of:

1. Everyone and their dog is trying to sell ICOs; so

2. FOMO is driving trading momentum; but

3. Price volatility deters many institutional investors; while

4. Regulators don’t really know what, where or how to regulate the industry.

But out of this uncertainty, clarity will emerge in the form of a new asset class, with appropriate regulatory structures, disciplined markets, and sophisticated investment products.

The first session I attended, described as a “Beginners’ Guide to Cryptocurrency”, felt a bit like one of those “get rich quick” seminars, where greedy (but unsuspecting) punters are sold the dream of timeshare apartments and highly leveraged equity warrants. While I can’t blame the audience (some of them knew no better), I would take issue with the presenter – the CEO and founder of a company in the process of launching an ICO. Admitting that they had limited technical knowledge of Blockchain, cryptocurrencies and token sales, the presenter also revealed limited knowledge of securities regulations and tax legislation when it comes to crypto and ICOs.

Meanwhile, the second session I was invited to attend (featuring representatives from brokers, exchanges, fund managers, Blockchain platforms and compliance experts) was far more informed. Even though some of the topics covered are still full of hypotheticals, the speakers all gave credible accounts of their respective positions. Compared to the first session, this forum gave me far more confidence that there are experts out there who know what they are talking about.

When it comes to cryptocurrencies and digital assets, I think the a reason why regulators, policy makers, traditional capital markets and advisers are often bamboozled is this is the first asset class in decades (if not centuries) that has not relied on a trickle down effect (in terms of production, distribution and exchange). In theory, anyone with access to Satoshi’s white paper, and who was capable of deploying the open source code, and who maintained a suitable CPU could have started mining, accumulating and trading bitcoin – and all without leaving their own home. And while it still forms a small proportion of total global capital assets, this industry has grown exponentially in less than 10 years.

Having developed the technology, identified the value proposition and established the asset class, the industry is now waiting for the appropriate regulatory tools so it can get on and build the infrastructure – from security tokens to atomic swaps, from Blockchain interoperability to custody solutions, from robust wallet integration to self-sovereign digital identity management.

Next week: Fear of the Robot Economy….

 

 

FinTech Exchange, Chicago

Now in its fourth year, Barchart’s FinTech Exchange* event seems largely designed to address the specific needs of the Chicago trading community: technology and data vendors; brokers and intermediaries; and commodities, futures and derivatives markets – with an emerging thread of Blockchain and crypto.

In fact, the Keynote Speaker, Dr. Richard Sandor, spoke of Blockchain as being as significant as the invention of double-entry bookkeeping, the launch of stock markets, the introduction of electronic trading, and the creation of financial derivatives combined.

Other topics included: the evolution of global financial markets; the threat or potential of enterprise Blockchain and FinTech solutions; the role of cryptocurrency exchanges; understanding big data and data analytics; deploying AI and machine learning within FinTech; and the rapid expansion of API solutions as products and services in their own right (not just as a means of data delivery).

There was also a panel discussion with the winners of the previous day’s Startup Exchange pitch event.

On behalf of Brave New Coin, I ran a series of round-table discussions on the current state of cryptocurrencies, token sales and digital assets; and the prospect of so-called security tokens (a topic which is sure to feature in this blog in coming months).

Finally, the notion of “alt data” is gaining attention, and not just among hedge funds. In part a by-product of big data (how to make sense of all this data), alt data is set to become the high-octane fuel for generating yield (if data is the new oil).

* Declaration of interest: Barchart syndicates Brave New Coin news and technical analysis content

Next week: Corporate purpose, disruption and empathy

 

CoinAlts Fund Symposium, New York

Following on from last week’s theme on Blockchain, crypto and asset management, the recent CoinAlts Fund Symposium in New York brought together various parts of the fund industry to discuss issues connected to crypto investment, portfolio management and back office solutions.

Although conducted under a veil of non-attribution, it wouldn’t be betraying any confidences to describe some of the key talking points. If anything, the main themes echoed much of what I have heard at similar events over the past 6 months: scaling transaction capacity and establishing Blockchain interoperability; building industry standards for this new asset class; and creating valuation models for new token issuance projects.

In addition, the conferences addressed operational matters such as crypto fund administration, audit, custody, taxation and client reporting. All the usual back office functions that are taken for granted in other asset classes.

What was particularly noticeable about this event was the lack of international participation. In fact, a number of the speakers almost berated the audience for choosing to ignore overseas industry, market and regulatory developments at their peril.

For example, on regulation, it was suggested that if the SEC doesn’t provide some constructive guidance on new token issuance (especially so-called security tokens), the USA could be left behind. Indeed, one industry representative stated that for his company, the USA is only their third largest market. Another presenter drew attention to the fact that South Korea (a leading marketplace for Blockchain and crypto) produces 15 times as many engineers as the USA, while the USA produces 40 times as many lawyers as South Korea.

A recurring theme throughout the day was that without formal standards, clearer regulation, and institutional-strength tools and infrastructure, major asset managers, pension funds and Wall Street firms will remain very cautious about investing in digital assets, whatever their current level of interest.

Next week: Startup Exchange, Chicago

 

Token Investment Summit, Vienna

To demonstrate how far Blockchain, cryptocurrencies and digital assets have permeated the traditional world of asset management, the Token Investment Summit in Vienna (organised by Crypto42 and hosted by the Vienna University of Economics and Business) covered a number of topics of particular interest to institutional investors.

Brave New Coin Head of Research, Rafael Delfin introduces the General Taxonomy for Cryptographic Assets

William Mougayer kicked the day off, discussing the need to define “Blockchain fundamentals”. In particular, some of the token jargon needs to be better explained (air dropping, locking, burning), and some industry practices (token definition, protocol design, staking, and on-chain governance) require more formal and consistent standards. Projects need to address their “Token-Market Fit”; chains need to think about their scaling and interoperability; and tokens need to deal with decentralized exchanges, post trade clearing, and asset classification.

Next, Rafael Delfin from Brave New Coin presented the General Taxonomy for Cryptographic Assets (covered here before), followed by pitches on behalf of Rigoblock (decentralized fund infrastructure), HydroMiner (green mining), Conda (equity tokens via a crowdfunding platform), Artis (time-based value or asset transfer on chain), Streem (“start & end” events only) and Ocean Protocol (the data exchange network from BigChainDB).

There was an overview of ICO regulation, comparing some of the developments in Germany (Bundes Block’s Token Regulation Paper), Austria (University of Graz’s KryptoStaat project), Switzerland (FINMA paper on ICOs) and Gibraltar (GBX token listing using a risk-based model).

Much of the day was given over to discussing compliance, taxation, accounting, token economics and investment research (such as token valuation models, correlation analysis and crypto returns). There was also a local case study on the Optioment scam, and the potential criminal and civil breaches.

Finally, a panel of VCs provided their perspective how to navigate this asset class, as the industry weighs up the recent wave of more speculative tokens, and moves to more structured capital gains, especially from so-called security tokens.

Next week: CoinAlts Fund Symposium, New York