Blockchain Weekly Front Page: 3 Bullish Signals during the Blockchain Bear Market.

DYXRqLFXUAAZ_Hy.jpg

Last week our theme was “Top VCs investing during crypto bear market.”

Our theme for this week is “3 Bullish signals during the Blockchain bear market.”

For more about the Front Page Weekly CXO Briefing, please click here.

On November 12th, the price of Bitcoin was at $7,195 and dropped to $5,975. This was the last drop before we saw its big bull run, a 228.9% increase, reaching an all-time high of $19,655 on December 17th.

The days of Bitcoin’s crazy volatility are over and Bitcoin has been as flat as it can be. Since June, it has had three dips between 9–10%, with its price hovering around the $6,500 mark for almost two months. This has been very unusual for one of the most volatile assets in history.

Bitcoin has matured to the point that it can be compared to traditional stock, fiar currencies, or commodities. Data from the CBOE, indicates that Bitcoin (BTC) is less volatile than the publicly-traded stocks, like Amazon (AMZN) , Netflix (NFLX), and Nvidia (NVDA), while its 20-day volatility is nearing that of Apple (APPL).

There are many signals that indicate a possible bull market:

JPMorgan is exploring a relationship with Bakkt. The article, suggests that while the bank may not be a first mover in Bitcoin, JPMorgan’s clients will eventually gain access to Bitcoin through Bakkt. Fundstrat’s Lee tweeted: “Great article on @jpmorgan potential use of Bakkt infrastructure. Highlights how Bakkt is providing the security/compliance/reputation needed to truly attract large financial institutions to crypto, previously concerned about reputation risk.”

Stellar, the nonprofit organization behind Stellar (XLM), announced on Tuesday that they will be doing the largest airdrop in crypto history. The airdrop will consist of $125 million worth of Stellar Lumens (XLM) to be distributed to users of the popular Blockchain. Blockchain’s blog post says the reason for the XLM giveaway is to thank the company’s “30M Wallet users” and to celebrate the addition of “full support for XLM in the Blockchain Wallet.”

Bitfury raised $80 million in closed funding round. Led by Korelya Capital, the private placement was joined by Macquarie Capital, Asian financial institution Dentsu Inc., European investment company Armat Group, European fund managers Jabre and Lian Group, Argenthal Capital Partners, insurance group MACSF and Mike Novogratz’s digital asset merchant bank Galaxy Digital.

Goldman Sachs, has started to sign up a small number of customers for its upcoming Bitcoin trading product. Citing a source familiar with the matter, The Block reports that the bank is on-boarding a “small number of clients” to actively trade the derivative, a futures contract but does not trade on an exchange. Additionally, the bank continues to consider launching custody services for crypto assets.

Fidelity, the 5th largest asset management company in the world, revealed its plan to offer custody services on cryptocurrency investments.

Again, Mike Novogratz made bullish predictions, that BTC could reach $9,000 by the end of 2018. but for Bitcoin to reach achieve this, it will need to pass $6,800. Indicators, like the relative price index, that measures speed and price changes, have jumped to 59.04, the highest level since September. 4th, showing Bitcoin to be more and more bullish.

The CBOE is planning on launching Ethereum futures later this year. Bitcoin Futures, in late 2017, had a important impact Bitcoin’s price spike. An Ethereum futures product could help solidify the mainstream adoption of crypto as investment vehicles.

Despite an enormous amount of bullish news the price of Bitcoin has remained flat for months now. Many think that Bitcoin’s price is being artificially kept low, so big players can get in the market.

While no one really knows if we are exiting the bear market, over the last year we’ve seen a lot of progress both in terms of regulations and  investments from institutional investors. The upcoming launch of Bakkt and the SEC’s decision on the pending Bitcoin ETF could trigger the next bull run.

The impact of these signals is highly speculative, but potentially they could affect Bitcoin and crypto trading, and drive more money to the market. Please keep in mind that this is not financial advice, just my opinion, but I think its safe to say that Bitcoin and the crypto market is looking more bullish and its only a matter of time before the bulls are loose again.

Image Source

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

Entrepreneurs try flying the Security Tokens plane while the plane is still being built

Boeing_747-8_Test_Planes_in_Assembly.jpg

This post, the 3rd in a series of 4, is written by Sheldon Freedman, a fintech and funds lawyer at Hassans in Gibraltar. Click here for last week’s post in this series

Editors note: the question of jurisdiction is in many entrepreneurs’ minds as we read headlines such as “SEC Charges EtherDelta Founder Over ‘Unregistered Securities Exchange”. Entrepreneurs (and the incumbents thinking about how to disrupt before being disrupted) know that timing matters and that Security Tokens are coming. They also know that flying the Security Tokens plane while the plane is still being built is scary and dangerous.

A security token is issued digitally on the blockchain, backed by tangible assets such as shares in a company, real estate or rights to cash flows. Security tokens are digital assets subject to securities regulation, with compliance required in the issuer jurisdictions as well as in investor jurisdictions – from initial offering by the issuer to all secondary trades among investors.  The path to issuing a security token is a long, uncertain, innovative process with advisors, lawyers, exchanges, platforms and regulators, as issuers are breaking into new regulatory territory, applying conventional securities laws to revolutionary security tokens. The regulatory situation currently is confusing because the incipient security token ecosystem is evolving. Regulators who are trying to find their way lack experience, with no model example to look to.

Editors note: in law, precedence is everything. It is very tough to be guided by precedence when everything is changing as something totally new and disruptive such as Blockchain appears.

The task of securities regulators is well known to facilitate the orderly, productive functioning of securities markets and to protect investors with fairness practices, disclosure and qualification thresholds. However, with the advent of electronic financial systems, global finance has become comprehensively regulated by laws and procedures pertaining to anti-money laundering, sanctions and anti-terrorist funding.

Editors note: some might see regulation as designed to protect consumers/retail investors. That is what it says on the tin. Some might cynically say regulators have been captured by incumbents who seek protection from disruptive new entrants (i.e. that regulation is designed to prevent innovation). Sheldon points to the concern of regulators – anti-money laundering, sanctions and anti-terrorist funding.

To appreciate the sheer comprehensiveness of this regulation, one need only remember one example – the experience of banking organization HBSC, which this writer represented as counsel. Originally known in 1865 as “The Hongkong and Shanghai Bank”, HSBC Holdings plc is today the largest bank in Europe, a global roll-up of banks headquartered in London.  Operating out of 3,900 offices in 67 countries, HBSC is the world’s 17th-largest public company, with the Americas, Asia Pacific and Europe each representing approximately one-third of its business. HSBC is the largest bank in Hong Kong and prints most of Hong Kong’s local currency in its own name. HSBC has frequently been named the world’s most valuable banking brand by industry rankers.

In the early 2000’s, as HBSC and other major institutions embarked on sprees of acquisitions of valuable global banking businesses, compliance with the relatively new anti-money laundering laws was not primarily on the minds of acquirers, who were in fact acquiring regulatory liabilities with businesses they were acquiring.  In 2012 HSBC was the subject of anti-money laundering enforcement hearings in the United States Senate Permanent Subcommittee on Investigations. HBSC was investigated for deficiencies in its anti-money laundering practices, which gave HBSC a permanent hangover from years of acquisition partying. The Senate subcommittee found HSBC had transferred $7 billion in drug crime-related funds from its Mexican to its US subsidiary, was disregarding terrorist financing links and was circumventing U.S. safeguards to block transactions involving terrorists, drug lords and rogue regimes. In one instance, “two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through HBSC’s U.S. affiliate accounts without disclosing the transactions’ links to Iran. The Justice Department charged, “HBSC officials repeatedly ignored internal warnings that its monitoring systems were inadequate”, exposing the U.S. financial system to “a wide array of money laundering, drug trafficking, and terrorist financing.” 

The Senate subcommittee also found HBSC provided financing and services to banks in Saudi Arabia and Bangladesh that were tied to terrorist organizations, while also clearing $290 million in “obviously suspicious travelers cheques” that benefitted Russians “who claimed to be in the used car business.”

Furthermore, the investigation showed how the bank’s regulator, the Office of the Comptroller of the Currency (OCC) failed to take a single enforcement action against HSBC despite numerous violations by the international bank.  Among them, failing to monitor $60 trillion in wire transfer and account activity, a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity, and a failure to conduct anti-money laundering due diligence before opening accounts for HSBC affiliates.

Editor’s note: incumbents, thinking about how to disrupt before being disrupted, are even more nervous than entrepreneurs about falling foul of regulators. Banks are licensed by governments. Having that license taken away is an existential threat.

Dozens of countries now adhere to their own anti-money laundering directives, and are additionally obligated by muscular international instruments and standards deploying sophisticated IT systems for anti-money laundering data collection and analysis, such as United Nations conventions against narcotic drug trafficking, organized crime and corruption, and FATF (the Financial Action Task Force on Money Laundering) formed by the G7 countries.

Editors note: in an era of increasing protectionism and nationalism, expect these regulators to get tougher. I will carbon date myself by saying I have an old passport, pre-Thatcher era, which has a stamp in it saying that I was approved by the Bank of England to take GBP50 out of the country. That story won’t sound so strange to our subscribers in China or India or other countries with exchange controls.

Security tokens and blockchain technology, with their opaque digital representations, high speed of transacting and decentralized record-keeping, present fierce challenges to anti-money laundering, anti-terrorist financing and economic sanctions efforts, demanding even higher standards of regulation than conventional securities. 

Due to the stigma that has attached to a stampede of low quality ICOs to date (most ICOs have been cryptocurrencies), there is an apparent emerging convention to term the issuance of security tokens “STOs” to distinguish issuances of security tokens from issuances of cryptocurrencies and utility tokens. 

Jurisdictions regulate STOs under their existing securities regimes, which are not sufficiently comprehensive or evolved to provide clarity to issuers, investors and regulators.  Innovation and improvisation are now the domain of intrepid issuers aiming to fashion a regulatory path with regulators, or to stealthily rely on existing exemptions.  Prof. Bhaskar Krishnamachari of the University of Southern California observes: “We are flying an airplane while we are still building it”. 

Editors note: entrepreneurs seeking to seize the day with early-mover advantage want to know whether the plane lacks seat-back entertainment (boring but safe) or lacks hydraulics (will crash unless pilot is really good and a bit lucky). The short answer is a) all startups have risk b) get good navigators to minimise that risk.

The US Securities and Exchange Commission (SEC), recognized global leader in securities regulation, has not offered anything regarding security tokens.  Security token issuers are attempting to effect conventional registrations with the SEC or to rely on Reg D exemptions and new crowdfunding provisions. It is not surprising the SEC has been slow to act.  A large organization with six independent divisions and 25 offices, sharing financial regulation with several other US agencies (CFTC, FINCEN, IRS, state regulators, etc), the SEC simply has not yet addressed security token offering regulation.  However, the SEC recently announced on October 18 the establishment of The FinHub, the SEC’s Strategic Hub for Innovation and Financial Technology tasked to address new distributed ledger-enabled securities. The FinHub replaces and builds on the work of several internal SEC working groups and is intended to serve as a resource for public engagement on the SEC’s FinTech-related issues and initiatives, including STOs. 

The FinHub will be staffed by top industry experts, led by Valerie A. Szczepanik, Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC’s Division of Corporation Finance.

The current situation is confusing and the ecosystem itself is evolving. Jurisdictions are trying to find their way, while there is no example to look to.

A small number of STOs are taking place in USA, such as:

  • Indiegogo – shares in Colorado resort (Aspen Coin)
  • Spin – electric scooter offering 125 million for investors to share in revenue
  • Blackmoon Financial Group -security token which tracks its lending fund

In the EU, similar to USA, STO issuers are seeking registrations and relying on conventional exemptions.  In the EU, exemption may be available for offerings of less than 1mm Euro per year, offerings to less than 150 people per member state, and to qualified sophisticated investors.

A UK example of a current STO is The Elephant (tokenized private equity platform).

A small number of STO’s are taking place in light-touch regulatory jurisdictions, such as Switzerland and Singapore, but these are smaller markets and their rules are not widely accepted by major countries.  Examples of STOs being carried out in Switzerland:

  • SwissRealCoin – Switzerland’s first real estate coin
  • Nexo – fiat loans
  • Lykke – offering security tokens representing equity in Lykke (which is building a financial asset marketplace)

An STO example in Germany is Brille 24 (eyewear).

An STO example in Lithuania is security tokens representing equity in Desico (which is building a financial asset marketplace)

Surprisingly absent in security tokens is South Korea. Despite being innovators in so many areas of blockchain, South Korean regulators currently seem more focused cracking down on bad ICOs than enabling compliant STOs.

Editor’s note: the Etherum ICO in 2014 was the Napster moment for the Securities business. Napster was free and illegal. Then in 2017, entrepreneurs went for the ICO gold rush, using the Ethereum platform. Like with Napster, the regulators cracked down. But market demand finds a way to leverage disruptive technology. The STO market awaits something like iTunes or Spotify – cheap (not free) and legal. It hears the music and wants to buy it.

Image Source.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is the author of The Blockchain Economy and CEO of Daily Fintech.

Watch this space. Subscribe to Daily Fintech to get the most signal with the least noise

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Weekly Front Page: Top VCs investing during crypto bear market

bitcoin-etf-2.jpg

Last week our theme was “Bridges across the Chasm to the Pragmatists.”

Our theme for this week is “Top VCs investing during crypto bear market.”

For more about the Front Page Weekly CXO Briefing, please click here.

A new study published last month, showed an increase in VC funding in cryptocurrency and blockchain projects. Almost $4 billion was raised during the first three quarters of 2018 by cryptocurrency and blockchain startups, a 280% increase compared to 2017.

Last year, ICOs raised $5.5 billion, but during 2018 we’ve been seeing a shift to private sales. Initial Coin Offerings have slowed down. In April 2018, we had 129 ICOs raising around $600M, down from 215 and $1.2B in December 2017. In terms of dollars, we see a similar downward trend, excluding Telegram‘s private sale and the year-long EOS ICO.

The cryptocurrency industry has realized that raising money from professional investors, like venture capital, hedge funds and other strategic investors can offer more advantages, in comparison to small retail investors. Also, ICOs have become an expensive proposition, with legal, marketing, and advisory expenses. Venture-funded private sales can cover expenses, before the ICO sells its token to raise cash for the company.

The potential impact of blockchain technology spans far beyond digital currency. With the security tokens heating up, traditional investors are acquiring tokens outright with pre-sales, SAFT contracts, and taking equity positions in blockchain companies before an upcoming ICO. Pre-sale rounds are held before public ICOs, offering discounted tokens to early investors.

While both traditional fundraising and ICOs have pros and cons, traditional investors have always been a great way to raise funds, as startups are put to the test to meet the standards and scale in order to go to the next level. While public ICOs have democratized how startups raise money, retail investors that participate in ICOs can be more demanding, seeking to make a quick buck on their investment.

Blockchain is attracting huge investment, with the big boys all over the place.  Household names like Andressen Horowitz, 500Startups, Future Perfect Ventures and angels like Tim Draper, Naval Ravikant, Roger Ver, and Barry Silbert have shown a continued and growing interest in funding blockchain projects. Some, like multi-billion dollar VC Andreessen Horowitz announced a new $300 million fund, specifically focused on digital assets like cryptocurrencies and blockchain startups.

In an interview to CNBC, Albert Wagner of Union Square Ventures said: “Investors are rationally pouring a lot of money into this sector, because I think people are seeing the winning blockchain here might be worth a trillion, or a couple of trillion dollars.”

main-qimg-c745c0c780f98e0fa7599555d6d68579.png

Earlier this month, CryptoKitties raised $15 million to build more blockchain cats. The investment was led by Venrock with Google’s GV and Samsung Next joining in.

Coinbase added another $300 million of investment at a valuation of over $8 billion, to accelerate the adoption of cryptocurrencies and digital assets. The round was led by Tiger Global Management, with Y Combinator Continuity, Wellington Management, Andreessen Horowitz, and Polychain also joining.

StarkWare, an Israel-based blockchain specialist which commercializes a zero-knowledge proof system, raised $30 million from high profile names within the cryptocurrency ecosystem, including Consensys, Coinbase Ventures, Intel Capital, Pantera, and Sequoia.

Most VC companies are looking for ways to get their feet wet. While traditional investors understand that cryptocurrency can be a rollercoaster ride, they also understand the opportunity cost of ignoring cryptocurrencies and blockchain is just too high. In a blog post last November, Russ Wilcox a partner at Pillar VC summed up well: “Today’s blockchain is like the Model T: an early, crude product that marks a profound change to come.”

Image Source

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

We are about to enter the Cambrian explosion era of Security Token platforms

2173970186_0ec56db430_m

This post is written by Sheldon Freedman, a fintech and funds lawyer at Hassans in Gibraltar. Security Tokens is a big, complex subject that requires legal, technical and commercial  knowledge. We found that rare combination in Sheldon Freedman, member of the Bars of New York, Ontario (Canada) and Israel, former FINRA-registered representative, and asked him to write a 4 part series, because Daily Fintech’s job is to explain complex subjects in an engaging way. This is the second post. Tune in (subscribe by email) to get the the rest of the series over the next 2 weeks.

Editors note: we are pleased we asked a lawyer to write these posts.  The technology is already here. The need has been here for a while (entrepreneurs want an easier way to raise early stage capital). With the crazy ICO market of 2017, the pendulum swung too far in the opposite direction, making it a lousy deal for investors and in many cases an illegal transaction. Maybe with Security Tokens we get the balance about right – quick easy capital raising that is legal and with adequate protections for investors. What is needed to make that happen is a) easier compliance with securities regulations b) an ecosystem of service providers who will help investors to separate the wheat from the chaff (find the quality offerings). That is  more about law and finance than technology, although the tech platform that empowers those securities lawyers and finance engineers will likely become dominant.

Bitcoin is an electronic currency built on blockchain, secured by cryptography.  Ethereum is an open-source, public, decentralized platform on the blockchain supporting the deployment of centralized applications.   Ethereum was created in 2015 by former Bitcoin Magazine co-founder, Vitalik Buterin, and Gavin Wood. 

Ethereum was built as a decentralized platform for the sole purpose to construct an electronic currency, which anyone could use.  Early adopters suddenly discovered by late 2016 that tokens could be created on Ethereum.  Now in 2018, a revolution is underway to tokenize all types of the trillions of dollars of assets, from pure financial assets (equity, debt, derivatives) to real estate to paintings to intangibles like copyrights by creating and exchanging tokens having the characteristics of securities.  The revolution is being waged by finance engineers, securities lawyers and blockchain technologists.

Ethereum innovated “smart contracts”.  Smart contracts are computer protocols that define the terms governing contracts and automatically enforce contracts in effecting transactions over the blockchain, creating certainty, transparency, decentralization and disintermediation of facilitators like legal advisors, notaries, escrow agents. “Decentralized applications” now provide for payment, operational crowdfunding platforms, gambling, and identity verification systems.  The “Ethereum Virtual Machine” is a runtime environment for smart contracts – a giant environment a giant environment for building bigger and more powerful smart contracts – allowing any user or developer to create applications.

Editors note: there are other platforms for running Smart Contracts but it is fair to say that Ethereum is now the standard against which competing platforms are judged.

Once security tokens are created or issued, the main principle is ownership: the purchase and exchange.  Thus the era of security tokens spawned by technological innovation is largely the domain of financial actors, and, accordingly, subject to the regulation of financial services, the most stringently regulated industry in all countries. Many industry experts estimate the development of tokenized securities now commencing is an elemental mix of 20% technology innovation and 80% regulatory compliance innovation.      

Todays’ security token issuing platforms primarily run on Ethereum, such as Polymath, providing end-to-end processing including management of the security tokens.  The Issuance and exchange of securities tokens can be effected by anyone utilizing existing platforms.   The adoption and proliferation of security token issuance and exchange are currently delayed by the enormously complex barrier of developing efficient securities compliance solutions.  In the weeks and months ahead, many state-of-the-art platforms are scheduled to launch which will provide vastly improved functional integration and automated, high-level compliance. 

Editors Note: the final post in this 4 part series will focus on where the puck is headed.

We have lived many decades under strict regulation of consumer banking, where banks effectively had a monopoly on centralized consumer finance from money transfer to savings accounts to credit cards and loans.  Disruptors such as Revolut and TransferWise have innovated with advanced, integrated technology and complex compliance mechanisms to breach barriers enabling the displacement of banks from consumer finance for the first time. Though barriers in the securities industries are much higher, they will likely be overcome by the innovation of technologists and financial service crowdfunders tokenizing securities.  Fuelled by the enormous scale of injected capital generated by crypto currency, these innovators will leap over traditional securities industry players, with Main Street disrupting Wall Street.

Editors Note: news about new securities token platforms will be emerging soon. The Daily Fintech model is to offer insight on public domain information, so we will wait until they are announced. This post gives you the context to understand these upcoming announcements.

 

Next week’s post will look at various jurisdiction regulatory regimes that govern the issuance and exchange of security tokens. Stay tuned

Image Source.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is the author of The Blockchain Economy and CEO of Daily Fintech.

Watch this space. Subscribe to Daily Fintech to get the most signal with the least noise

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Weekly Front Page: Bridges across the Chasm to the Pragmatists

crossing_chasm_bitcoin.png

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 “Cryptocurrency markets shrug off loss of confidence in Tether and equities correction.”

Blockchain and cryptocurrencies are in the early adopter stage. But it looks like we are getting closer, a lot closer to the point of Crossing the Chasm. Early adopters of a new product or technology are separated by a gap from the majority of users, but a recent story from HTC, is one of the signals that shows that the industry is reaching this point.  When we cross the chasm, we will start seeing a rise in the number of easy to use tools, aimed to every day consumers.

Well, Blockchain mobile phones are here! The HTC Exodus 1 will be the first blockchain phone, to bring dApps to consumers.

Past news about one exchange or another being hacked, is driving everyone to seek out solutions, in order to make cryptocurrencies safer. The new HTC phone will make it a lot safer, making it harder for someone to rip you off. It lets people store their blockchain data on a secure enclave. Cryptocurrency assets will be stored on a separate partition from the Android operating system, to improve the security of the crypto assets. Android phones pose security risks, to a wide assortment of malware and other threats.

The HTC phone will also come with a Social Key Recovery functionality. This will allow users regain access to funds in the case they lose or forget their private key. Users will be able to split their key among three to five people they trust. While uses won’t need their help to assign transactions, they will in the case they lose their phone.

The Exodus 1 will be able to run decentralized applications (dApps) and programs that operate on the blockchain. Also, the phone will be able to work like a node on  Bitcoin or Ethereum.

While we are still far and away from usable dApps, but if blockchain is going to go mainstream, we will need to see the widespread adoption of dApps. This is exactly what needs to happens if are to the realize the full potential of cryptocurrencies.

Stablecoins have been making the news in recent months.

Another important story this week is that Coinbase added support for Circle’s stablecoin. Last week we talked about Tether and other stablecoins and whether they will be able to hold their pegs over time.

This is the first time Coinbase has supported a stablecoin. Coinbase customers will now have the ability to purchase, receive, sell and send USDC tokens on Coinbase.com.

One of the unique twists to this story is that while customers can trade Bitcoin or Ether for USDC, exchanging USD/USDC will be risk free. Users will be able to buy 1 USDC for $1 or sell 1 USDC for $1, with no fees.

This is an important step, that opens up so many possibilities.

The use of stablecoins, like USDC or Tether, make it easier to send, store and use in dApps,. Stablecoins on exchanges let traders protect their portfolio, by easily exchanging their positions to safer crypto, that are not volatile. The USDC and other stablecoins are better suited for e-commerce, as merchants and consumers can use the digital currency without worrying about token price volatility. The support of USDC by Coinbase, will potentially draw more new investors and drive cryptocurrency use for payments.

The government of Kenya announced it will use blockchain to distributing new government-funded housing units, as part of its Affordable Housing Big Four Agenda. The new housing project, will publicly fund the building of 500,000 living units and use blockchain to fight corruption, theft and misuse of public funds.

Kenya is one of Africa’s leading countries regarding blockchain and cryptocurrency development. The Kenyan Distributed Ledgers and Artificial Intelligence Task Force was established earlier this year to focus on blockchain and how the technology could be utilized to improve outcomes in the public sector. The group includes local blockchain startups, experts, researchers and members of Kenyan regulatory bodies.

In many parts of the world, governments are responsible for providing basic and affordable housing. Blockchain provides an easy way to allow users to securely transfer the assets between parties and facilitates easy audit of user accounts.

The crypto industry is booming and expanding like never before. While cryptocurrency markets down by almost 65% since the beginning of the year, and skeptics say we’re in a bubble, there just is so much activity everywhere around the world. Still, much more remains to be done.

When the technology becomes less visible and more usable, we will be able to better communicate the values people will get from cryptocurrencies and blockchain. We are close to crossing, but we’re not there yet. Either way, crossing the chasm is not the end, but the beginning.

Image Source

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

Blockchain Weekly Front Page: Cryptocurrency markets shrug off loss of confidence in Tether and equities correction

shutterstock_773287936-860x430

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 “Big Old Money Bets on Bitcoin & Blockchain”.

Lately, Tether has been anything but stable. Earlier this week the USDT lost its peg to the dollar, after rumors surfaced about Bitfinex’s insolvency, driving is price down by eight cents, to $0.92.

In a post on Medium, Bitfinex has dismissed the rumors stating that “Stories and allegations currently circulating mentioning an entity called Noble Bank have no impact on our operations, survivability, or solvency.” Bitfinex was a customer of Noble Bank, based in Puerto Rico, and the banking institution has found itself practically on the brink of bankruptcy.

Tether (USDT) is eighth largest cryptocurrency, with a market capitalization of $2 billion. A crisis with Tether would cause serious ripple effects on the entire market. More than 21% of all crypto transactions are made up of USDT pairings. A loss of value would wipe out a billions of assets.

For months now, Tether has been haunted over transparency issues, ranging from its murky relationship to Bitfinex, to whether it USDT is fully backed by dollars and to what bank is holding these assets.

Tether is not the only stablecoin and the idea of a price-stable cryptocurrency has been around for a long time. There are basic types: fiat-collateralized, crypto-collateralized, non-collateralized and we have several examples in the market (TUSD, USDC, PAX).

Some of the newer ones, like the the Gemini dollar, are regulated by the New York Department of Financial Services. Now, if supply is a metric of success, Paxos, a new stablecoin, is taking an early lead, doubling its supply in circulation.

supply-780x450

The fact that cryptocurrencies can be very volatile, poses risks. Today, no retailer in their right mind would price their products based on Bitcoin or any other cryptocurrency. No employee would want to be paid in crypto.

There are many critics that doubt whether stablecoins will be able to hold their pegs, over time. Some argue that creating cryptocurrency backed by a fiat currency inherits the same problems as fiat, because its supported by the same old traditional banking system.

Stablecoins offer low volatility, and have the potential to unlock the future of cryptocurrencies. While many of today’s solutions look viable, its still a crapshoot, and very early to make any kind of predictions, both from a technology and regulatory perspective.

Over the last ten months, as prices have dropped, mergers and acquisitions have reached a record high in 2018. According to JMP Securities and data from PitchBook, crypto M&A activity has doubled this year and is expected to reach a total of 145 deals by the end of 2018. Since 2010, the industry only had 88 completed M&A transactions, according to PitchBook. Crypto’s busiest years were 2015 and 2017, with 23 deals, each year.

For any growing industry, mergers and acquisitions is a big part of the game. A lot of companies use M&A as means to grow faster. Mergers and acquisitions happen for all kinds of reasons, but most of them have economic motives. The crypto industry is witnessing a “land grab” for new and innovative technologies, access to markets, customers, intellectual property, and talented employees.

In March, Coinbase hired Emilie Choi, and right after it acquired Earn for around $100 million. Also, with exchanges being some of the hottest real estate in crypto, earlier this year, Circle, announced the acquisition of Poloniex.

In many cases, many of these startups and their coins will just fall short and disappear into the night, after spending huge amounts of money from investors. Everyone is trying to position themselves for a piece of the pie, but some times its like pulling a rabbit out of a hat. With are over 2,100 cryptocurrencies on Coinmarketcap.com, no one really knows what will succeed or what will fail.

Consolidation is still relatively low, since most of these platforms are still building their core products. We can expect to see more of it, as many of these platforms try to build ecosystems that combine utility and currency tokens.

There is even a blockchain startup for M&A, Lexit, which is trying to disrupt the way companies and their intellectual property are being bought, sold, and licensed. Who knows, we might even see cryptocurrencies being used to pay for shares or assets in an M&A transaction.

For now there is a a lot of repetition, just like in the early days of the Internet. But there will be some cases, where the merger could have a significant impact, both on the crypto world and beyond.

Image Source

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

Debt crisis and a weak currency – would India follow Venezuela in launching a digital currency?

In Q2 this year, the Reserve Bank of India banned cryptocurrencies. The ban announcement was met with mixed reaction, but largely disappointment from the crypto community. While the RBI and the Indian government are taking a lot of efforts to execute Blockchain based projects across the nation, that ban was disappointing.
Bitcoin-India-rupee-760x400
 In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. 
Earlier this week, @efipylarinou and I launched the second episode of our podcast on Blockchain and Financial inclusion on Rhetoriq. Lisa Nestor from Stellar Development Foundation discussed the challenges that Blockchain industry had in the Indian Market.
Stellar was known to be working with ICICI bank and other regional financial services players, with a view to bringing financial services to the rural population. The ban has now slowed them down, however, Lisa was confident that the research work they are doing with some of the Indian institutions should bear fruit in the long run.
Over the last 12 months or so, the Reserve Bank of India (RBI) has taken a Jekyll and Hyde approach to Blockchain and Cryptos. The stance that the Indian policy makers have taken regarding this space is confusing and conflicting. In the sense, RBI are a big no-no to cryptos where as the Indian government and other public bodies have embraced the technology in a big way.
Many technology giants (IBM, Microsoft), local government bodies and the crypto community within India have come together to create the Internet Blockchain Committee whose remit is to build a Blockchain ecosystem in India by working with the government, industry players and startups.
The RBI themselves are working on a digital currency, which they confirmed a few weeks ago. The digital currency is believed to be backed by the Indian Rupee, and the plan is to save about 7 Billion Indian Rupees annually.
The creation of a Rupee backed digital currency is not really going to make it stronger than the Rupee. However, with the creation and management of paper currency in India costing 7 Billion Rupees, combined with the advent of the new payments infrastructure well supported by the roll out of Aadhaar that brings economic identity, we now have enough motivation and a conducive environment for an RBI backed digital currency.
While all this work is being done, the ban on crypto exchanges still stand. This is being fought out in the supreme court of India, where the RBIs decision to ban cryptos is being challenged. However, I believe, just the binary stance against cryptos would push India a few steps behind jurisdictions who have taken a more collaborative approach to Cryptos.
One of the top crypto exchanges in India Zebpay have recently setup shop in Malta, and will be providing their services across 20 countries that doesn’t include India. With news from the subcontinent coming at a brisk pace, and with the INR hitting an all time low against USD, will RBI turn to digital currency?
In a recent survey conducted for bitcoin news, 80% of respondents preferred bitcoin as a safer haven than the Indian Rupee. The INR has been consistently losing about 10% per year over the last few years against the USD, and of course we know how volatile cryptos has been over the last 12 months or so. So while the results of the survey looks pretty skewed, it gives a view of the mindset of a generation that wants to now move on to digital currencies.
However, I wouldn’t be surprised if, after Venezuela, India becomes one of the first to go down the route of central bank backed digital currency. And that would still be just one step forward. Real progress would be when RBI lifts the ban against cryptos, and allows for innovation to find its feet with a collaborative approach.
Its time for the largest democracy in the world to truly embrace democracy – and move away from such absolutism.

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email


 

Crowdfunding, investing, & listing – DESICO for STOs

Interesting times! I am not referring to politics but financial markets both the traditional stakeholders and the disruptors. From Roubini lashing out on the crypto ecosystem, to Morgan Stanley gearing up to trade crypto derivatives, and Circle buying crowdfunding and broker-dealer Seedinvest.

The narrative around tokens has shifted Q1 2018. Utility tokens are no more darlings, STOs seem “the way to go” but pieces are missing still to satisfy the much-anticipated institutional appetite. #AndTheIronyIs that the ICO frenzy aimed to democratize early stage startup investing. It was supposed to allow retail to fund and participate in the startup tsunami that is building the winners of the 4th industrial revolution. Transparency and no gate-keepers were also promised.

#AndTheIronyIs it became about whales (the new gate-keepers) and now it is about crypto funds (the other new gatekeepers) and the conventional institutional money (e.g. the Ivy League US endowments[1]).

On the regulatory front, Europe seems to be leading with frameworks that try to not choke the blockchain early-stage innovation and at the same time provide some guidelines. The recent support from EU parliament of the Blockchain Resolution[2], is significant for several reasons. Switzerland, Liechtenstein, Malta, France, etc have also made progress on the regulatory front. Lithuania is one of the small Baltic countries which has attracted several Fintechs (even the Revolut unicorn) because it has been offered licensing and therefore EU passporting to these Fintech innovators.

In a September Forbes article[3] the Central Bank of Lithuania is singled out because of a new law allowing to invest in crypto assets through Security Token Offerings (STOs) in Europe. DESICO is referenced as it is taking advantage of this retail STO law and building a token platform for issuing, listing and trading security tokens in a fully compliant way.

DESICO has designed a different business model

desico image

The founders of the DESICO platform are Fintechers, founders of Finbee a P2P online lending platform. They saw a business opportunity to not only legally launch an ICO platform for early-stage startups in which both institutional but retail also can invest; they are also designing it to onboard revenue generating SMEs (not necessarily blockchain businesses) that need to raise capital. As Laimonas Noreika, the CEO of DESICO, said to TechStartups “Desico doesn’t want to focus on tokenizing pension funds, investment funds, or real estate projects.”

DESICO will filter companies for scams and will let the crowd vet projects on the DESICO platform. The costs of the entire ICO process will be cut to one third the current costs, and various service providers will be onboarding on the DESICO platform. Once the token sale is successful, the tokens will be listed on the DESICO exchange and investors will be able to trade (no waiting times, no exorbitant costs). Investors (both retail and institutional) will be legally able to buy the tokens on the DESICO platform. Any kind of security token issued on the DESICO platform will be fully compliant. With the support and backing of the Lithuanian Ministry of Finance, the Ministry of the Economy and the Central Bank of Lithuania, and under the crowdfunding law, any funding under 5million euros following the crowdfunding requirements is a legal security token.

The DESICO platform will be an end-to-end platform (for early startups and SMEs) to crowdfund, to list and trade on an exchange, and to invest. The founders are in the process of acquiring the three required licenses, a crowdfunding license, an e-money licenses, and brokerage licenses.

The DESI token is a security token and the sale starts on November 7. DESI token holders will receive a revenue share of 12.5% of DESICO’s gross income over the next 30 years. Payouts will be quarterly, with no cap on the revenues. It is a 30-year Revenue Participation Note that is callable after 5 years at any time.

DESICO revenues will come from primary and secondary market fees of the tokens issued and traded on the DESICO ecosystem. The primary fees will be paid by the security token issuers in a mix of fiat and project security (STO) tokens. Secondary market fees will come from the exchange activities.

DESICO is as close as it gets to the next generation of a crowdfunding platform with in-house liquidity. It’s design is for the crowd too, not only for institutional. It’s business model borrows elements from Angel list, as its revenues include security tokens issued on the platform. The founders know how to work with regulators and license providers and know how to build an investor base. For details, read thoroughly the white paper.

Disclaimer: I am an advisor to the DESICO platform.

[1] Report: Harvard, Stanford, MIT Endowments All Invest in Crypto Funds, Cointelegraph

[2] In the EU Blockchain Resolution we Trust, DailyFintech

[3] Institutional Investors Bet On Crypto Market With Tokenized Securities, Forbes

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Weekly Front Page: Big Old Money Bets on Bitcoin & Blockchain

pd5xsgh5yfc01.gif

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 “Decentralized Exchanges (DEX)”.

If you are still having doubts about cryptocurrencies, it looks like the old is meeting the new. Its been going on for a while now and in some cases not always getting a lot of coverage.

Last week in an announcement, Yale University invested in a $400 million in Paradigm, a crypto fund operated by veterans from cryptocurrency and finance industries.

Paradigm was created by Fred Ehrsam, Coinbase’s co-founder, Matt Huang, former Sequoia Capital partner, and Charles Noyes, an ex-employee from the Pantera crypto hedge fund.

The university has allocated 60% of its assets for 2019 in alternative investments, like venture capital, hedge funds, leveraged buyouts and now cryptocurrencies. Yale is among the few large institutions to invest in the cryptocurrencies, which has tumbled, since its rocket growth in 2017.

While in February, 96% of endowments and foundations responding to a survey by consulting firm NEPC said they don’t invest in digital currencies and didn’t expect to change their stance, a recent poll by Apeiron Ventures showed that around 40% of family offices are looking to invest or have already invested and view cryptocurrencies as a new asset class.

Crypto funds have been launching at a record pace, with more than 90 new crypto funds having launched this year alone. At this rate, there will be 120 new crypto funds launched this year. The total number of crypto funds is now approaching 500.

It has been reported that multiple high profile banking interests have also moved into cryptocurrency, most notably, George Soros, the Rockefellers, and the Rothschilds.

George Soros is looking to trade various cryptocurrencies and the Soros Fund Management venture internally approved the trading of virtual coins. In January of 2018, he described cryptocurrency as a bubble. With the price of Bitcoin at third of the price in December, Soros has turned into a believer. George Soros may be controversial, but when it comes to investments, he’s rarely wrong.

The Rothschilds connection to cryptocurrency has been documented in several articles. Last summer, the family purchased Bitcoin for the first time. In February, Tether accounts of Bitfinex were opened in the Dutch bank ING, owned by the Rothschild.

The Rockefellers have also joined the party. Venrock, the official venture-capital arm of the family, reportedly signed a partnership with Coinfund, a cryptocurrency investment fund, to back virtual tokens and blockchain business innovations.

In the past, bankers and large financial institutions have not a had a clear position, one minute bashing cryptocurrencies and the next praising them. I think they are starting to realize the attractiveness of Bitcoin and other cryptocurrencies, and their ability to hold value in a decentralized network, that is not dependent on the global economy.

For a while now, Bitcoin has been relatively stable in mid-$6,000 range. IMHO, Bitcoin stability is extremely healthy indication. The low volatility we’ve witnessed, is very important for large investors and in part we can probably can attribute the stability to institutional investors coming in.

In September, billionaire investor Mike Novogratz tweeted that the crypto market has already reached a bottom at $186 billion, and is ready for new rally:

“This is the BGCI chart… I think we put in a low yesterday. retouched the highs of late last year and the point of acceleration that led to the massive rally/bubble… markets like to retrace to the breakout..we retraced the whole of the bubble.”

Novogratz also said that a “Herd of institutional investors are moving into crypto”. The entrance of pension funds, academic institutions, and large-scale financial companies into the market could trigger FOMO, amongst institutional investors.

According to research conducted by Satis Group, crypto trading volume will grow by over 50% in 2019. In the United States, the volume of cryptocurrencies traded will overtake the trading volume of corporate debt this year. And even more significantly, the trend shows that crypto trading volume is set to reach 10% of the equity trading volume in the world’s largest economy and home to the globe’s biggest stock market. Currently, the volume of U.S. equities is estimated to be over US$74 trillion, while that of crypto trading is US$7.3 trillion.

But as most look at prices as a measure of performance, it’s certainly not the only way to look at things.

Adoption is a equally important, if not more important. Potentially, usage and adoption are what will drive prices up in the future. Crypto has being growing on all fronts. When we compare Internet and crypto adoption, we’ll see a steep upward trend for wallet growth.

chart-4.png

Bitcoin has been making significant steps with the Lightning Network. CoinGate, a payment processing gateway, recently announced its support for Lightning Network, across its entire merchant base. This could be a major boost to Bitcoin adoption, as CoinGate, will be  adding all 4,000 of its merchants to the off-chain system. In September the capacity of Lightning Network reached 100 BTC, according to data from monitoring resource 1ML. The network’s capacity six months ago, was as low as 3 BTC.

The articles we’ve been reading paint a completely different picture, not necessarily reflected by today’s crypto prices.

NYSE’s parent company introduced Bakkt, that will bring big brands, like Microsoft and Starbucks, into the market and drive the adoption at the merchant level. The UAE has a vision to be a world leader in the adoption of blockchain technology. The EU recently ratified its Blockchain Resolution. Leading giants, like IBM, MasterCard, Microsoft and others, are continuously applying and accumulating patents for crypto and blockchain. Facebook has put together a Blockchain team to develop the technology in their products. Walmart wants to store payment data on a blockchain. Revolut introduced a card allowing  its customers to receive cash back in Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and XRP. Over 90 central banks across the globe are engaging in research and development of the blockchain technology.

And these are just some of stories that have been floating in the news.

Bitcoin’s present stability was necessary. We needed a cooling period, during which a stronger base would be established, for the next bull run. This period is useful because it can be used to further develop the network and allow institutional capital to flow in. The entrance of some major institutional money, could spark more and more major organizations to invest at a large scale in cryptocurrencies. Ultimately this will benefit the entire crypto ecosystem and over time shoot prices upward, driving even greater adoption.

Image Source

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

Venezuela’s Petro: Does Blockchain deserve this?

May be you are tired seeing the Petro saga unfold and spam your social media feeds. May be you are thinking, there you go, the joke of the decade. May be you are angry that the PR nightmare that has affected Cryptos is getting worse with this.

I must confess, I had all these thoughts going through my head when I saw that video of the Venezuelan President, Nicolas Maduro talk about Petro. The question that popped on my head is, how can human greed create so much mess? Does Blockchain deserve this?

Philosophical points aside, I must share my brain dump of the thoughts I have around this episode. Let us start with where Venezuela are economically – and perhaps that will set the context.petro

Image Source

Venezuela’s currency Bolivar has been hit by hyper-inflation which is at about 16800%. What does this mean? An economist and an entrepreneur originally from Venezuela told me this week that he has had experiences of buying a property, and going to bed only to find the property value had depreciated by 30% the following day.

That is the reality on the ground when hyper-inflation hits. Its worse than the worst Bitcoin price action.

Venezuela has been hit with sanctions which meant they don’t have free access to world markets and in essence capital. They have historically relied on their oil reserves to bail them out.

Venezuela is one of the most crypto savvy nations in the world. Their per capita crypto usage is one of the highest across the world. Put all these points together, there can be a logical happily-ever-after finish with a state-backed-stable coin. And that is exactly what they have tried to do.

While that is the logical way forward to get back some economic sanity, it can only be fruitful if the transition from Bolivar to Petro was well executed. Well executed in this case would include words like integrity, transparency, governance, monetary policy etc.,

The Petro has its own Blockchain, and derives its value from oil, gold, diamonds and iron. 50% of the value is derived from oil, and the supply of the Petro has a cap. But the state owned oil firm PDVSA has debts which is almost 8 times the market cap of Petro. So, I would doubt the integrity behind the decision of using Oil as an asset to back the crypto.

While there were close to 200,000 global purchases of the crypto as per the government, there hasn’t been any audit of these purchases. That makes the decision sound like a scam. There have been several other complaints about the petro. But for me, if a state backed stable coin cannot demonstrate sound policy and principles behind it, it is prone to a major failure.

However, if this is a genuine attempt by the government to turn its economy around , and if it managed to succeed, it would become a case study for many emerging markets countries to follow. And it would be a stark warning to the global markets that an alternative capital market is born.

I really hope the anger from the crypto community is more with the HOW of this petro episode, rather than the WHAT and the WHY. If the fears of the sceptics are found to be baseless, this could be the best thing that could have happened to the world of Blockchain and Cryptos.


Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email