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

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