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Blockchain Weekly Front Page: Regulations R Us

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The Blockchain Weekly Front Page is a CXO level briefing. Our mission is to serve the mainstream business community by selecting one major theme in the Blockchain Economy each week and three news stories to illustrate that theme. This is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world, in your email inbox each Monday at 7am CET. 

For more on the format please click here.

Last week our theme was Institutions moving into trading on Blockchain. A related theme is Regulation, which we cover this week.

Ten years ago on September 15th, the Lehman Brothers collapse rocked the entire world, triggering the financial crisis of 2008. It happened just 110 days before a new revolution was born: Bitcoin.

“The root problem with conventional currency, is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.“ —Satoshi Nakamoto

Bitcoin was born in a time, when the trust we showed in banks failed. For many, including myself, trustless money holds answer:

“I’ve developed a new open source P2P e-cash system called Bitcoin. It’s completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust.”

Could Bitcoin and blockchain have saved Lehman and averted the financial crisis? An accurate and immutable record of all of Lehman’s transactions on blockchain, in combination with smart contracts could of helped identify the abnormalities about the bank’s creditworthiness, alerting the right people ahead of time, so they could take necessary actions to prevent everything that followed.

Ten years later, while Bitcoin and the entire crypto ecosystem has reached a $195 billion dollar market cap, it has also reached a crossroads. It could achieve real-world adoption, but plenty needs to happen, most importantly, regulation and consumer protection.

In recent news two new stablecoins have been approved by regulators. The New York regulator approves Winklevoss, Paxos dollar-linked tokens. The first being the GUSD by Gemini, and the second PAX, Paxos Standard Token.

These two new coins work just like other fiat-backed stablecoins, They are pegged 1:1 with the US dollar. Before GUSD and PAX, there were a couple of others, Tether (USDT) and TrueUSD (TUSD).

But up to now, Tether has been plagued by controversy for its transparency. Many claim that Tether’s supply is not fully backed, by its dollar reserves. So, the emergence of fully audited, legal and licensed stable cryptocurrencies is big news, that will have a profound impact on the market.

Gemini Trust Company LLC, the issuer of GUSD, is registered in the US and is regulated by the New York State Department of Financial Services (NYDFS) and the US federal department. The company, promises to publish monthly capital verification reports issued by third-party accounting firms.

Regulated stablecoins are a new frontier of growth, because they tackle two major important issues:  trust and volatility.  The truth is that the USD isn’t going out of fashion, any time soon. The easier it is to send money around the world and to get into and out of crypto, the faster the crypto economy can grow.

In other news a US Judge Rules ICO Frauds Fall Under Securities Law. In Brooklyn, New York, District Judge Raymond Dearie affirmed securities laws could be pertinent in a case concerning two fraudulent ICOs. The defendant in the case supposedly misrepresented the amount of money the ICO as able to raise, claiming the company took in $2-4 million dollars, when the actual amount was closer to $300,000.

This is a landmark judgement, with far-reaching implications for the ICO market. The ruling creates a precedent that U.S. securities laws apply to ICO token sales.

The attitude toward ICOs is shifting around the world, and we’re seeing most countries take some kind of stance, ranging from official recognition to open defiance.

While we’ve been reading that the ICO Market Has Hit the Brakes, the reality is very different. Running an ICO is not longer a walk in the park, but investments in 2018 have been impressive. Collectively, ICOs in 2018 have already raised $11.7 billion, 10 times more than ICOs Q1-2 2017.

Initial coin offerings offer incredible opportunities and we can expect the market to continue to grow. But we can also expect consumer protection to be very high, in an effort to protect investors from bad actors and fraud.

Teams that plan ICOs should be very careful and make sure to be compliant with regulators. Even in absence of a well defined legal framework, they should take proactive steps, to avoid getting into hot water later on.

Last but not least for today, FBC Bitcoin Fund Now Eligible for Accredited Investor RRSP and TFSA Accounts.

First Block Capital announced FBC Bitcoin Trust, the first regulated Bitcoin fund that has achieved mutual fund status in Canada.

High-net-worth investors can now hold Bitcoin investments in their registered accounts, including registered retirement savings plans and tax-free savings accounts. The fund is available only to accredited investors and will offer the same easy and efficiency of trading as ETF funds. The trust is available on NEO Connect, under the ticker FBCBT. It has removed the 30-day redemption clause and has now enabled daily settlements.

The trust gives investors exposure to Bitcoin without having to acquire, hold, or manage the actual asset. The trust has been approved by the British Columbia Securities Commission (BCSC) and Ontario Securities Commission (OSC) and it marks the first and only product of its kind that is approved in Canada.

Currently, the FBCBT has approximately $20-million in assets under management, a significant drop from its peak of $40-million last year.

Despite the drastic decline in the price of Bitcoin, we can expect the price to go up. Currently around $6,500, BTC has settled down since price spike last December, that was mostly driven from speculation and the market getting ahead of itself.

Despite the overwhelming sense of a bear market, there is a lot going on everywhere around the world, which could trigger the next bull run in the coming months.

The Lightning Network continues to make advances and more channels open every day. The upgrade should allow Bitcoin to handle a far greater number of transactions and lower transactions fees. Then there is news like Bakkt which is set to launch this November. The platform, backed by ICE, Microsoft and Starbucks, will make exposure to BTC easier than ever before, for both retail and institutional investors.

Like anything else, trust and utility are two of the crucial factors that can drive the price of BTC. If people can trust Bitcoin and find ways of using it, you can count on the price to surge far beyond anything in the past.

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Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

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