The Blockchain Association has called on the Securities and Exchange Commission (SEC) to issue more formal guidance on cryptocurrencies. As such, it has outlined a proposed regulatory framework based on previous SEC comments.
Through a post on Medium, The Blockchain Association attempts to codify language issued by the SEC’s Corporation Finance Direction William Hinman. Titled The Hinman Token Standard, Blockchain Association suggests the following guidance:
“A project should meet the standards for decentralization if it more decentralized than the Bitcoin or Ethereum networks on June 14th, 2018.”
The logic behind this statement stems from Hinman’s clarification in June 2018 that bitcoin and ethereum were not considered securities. It follows that if bitcoin and ethereum were sufficiently decentralized on that date, then other projects should aim to meet that standard.
“This uncertainty has a stifling effect on investment”
Further, the SEC chairman Jay Clayton publicly said: “I believe every ICO I’ve seen is a security.”
If cryptocurrencies are considered securities, they will be subject to much more stringent investor regulations. As the Blockchain Association explains, “we must know when tokens qualify as securities and when they do not so innovators know which regulatory regime applies.”
The contradicting statements and lack of clarity is stifling creativity and forcing promising startups out of the US.
“More decentralized than the Bitcoin or Ethereum networks on June 14, 2018”
The Blockchain Association’s proposed guidelines suggest the SEC stick to its conclusion that Bitcoin and Ethereum are sufficiently decentralized. Future policymaking should use this starting point as a foundation, they urge.
The association argues that this is a reasonable starting point with room for a somewhat centralized leadership when required.
Other proposals suggest implementing The Howey Testto cryptocurrency projects. The Howey Test outlines the definition of a security or investment contract and circles around the expectation of profit from a particular promotor or third-party.
There’s no other way to say it: 2018 was a true rollercoaster for the blockchain world.
While it started with a historic surge to an unbelievable crypto market capitalization of $900 billion at its peak, the market disastrously retraced by nearly 90% since those glory days.
Despite countless financial analysts and crypto experts predicting heights of up to $60,000 per bitcoin in 2018, the year, unfortunately, turned out to be one of the worst for the crypto market.
However, now it’s time to focus on the future. In order to effectively prepare yourself for the following year, you definitely want to take a look at the following sectors of the blockchain world.
1. Bitcoin Exchange-Traded Funds (ETFs)
Date to Watch: 27th of February, 2019 – VanEck and Solid X Bitcoin ETF Decision Date
Bitcoin ETFs have undoubtedly been one of the hottest topics during the past 12 months, especially since they are regarded as a potential catalyst for rapid price increases of bitcoin and other cryptocurrencies.
One ETF application, in particular, has been declared as a possible game-changer. The collaboration between investment firm VanEck, the blockchain company SolidX and the Chicago Board Options Exchange (CBOE). It is one of the few physical ETF proposals that is actually seen as promising by several financial experts.
If a trading vehicle of this kind was approved, the ETF issuer would need to actually buy real bitcoins from an exchange or, more likely, the over the counter (OTC). A potential ETF of this size requires tens of thousands of bitcoins, and the ensemble would need to acquire them, which could lead to a rapid increase in price.
Furthermore, an ETF would enable investors and traders to eventually trade bitcoin on a traditional stock exchange, which would also help the digital currency to gain popularity and availability.
Unfortunately, the US Securities and Exchange Commission (SEC) has not yet decided on the ETF submitted by VanEck and SolidX. The final decision has been postponed several times, however, the SEC announced an ultimatum on December 7, 2018. The Commission chose the 27th of February, 2019, as the day for either the approval or disapproval of the proposal.
Although dozens of established cryptocurrency specialists, like CNBC expert Bill Barhydt, believe that we will see an ETF approval in the following months, it remains to be seen if the SEC is convinced that the time is right to unleash the first physical Exchange-Traded Fund for Bitcoin.
“Security tokens, not utility coins, will attract significant amounts of Wall Street money next year.”
Security tokens or tokenized securities were definitely buzzwords that grew in the past 12 months in crypto. This is, of course, because tokenized assets are one of the most promising innovations in the blockchain sector, as they could disrupt the corporate and financial world.
Rohit Kulkarni, the managing director of SharesPost, one of the leading marketplaces for private securities, firmly believes that 2019 is going to be the year of tokenized securities. In a recent article on Nasdaq, Kulkarni stated that “security tokens, not utility coins, will attract significant amounts of Wall Street money next year.”
Despite missing regulations often being seen as a major stumbling block for the industry to grow, Kulkarni is confident that the space will mature in the near future. “We ultimately expect a more stable regulatory environment over the next six to twelve months,” he said.
In 2018, many companies already started engaging in the security token industry. Overstock, for example, became the first billion dollar company to start building their very own security token exchange, which is expected to open up trading during this year.
Moreover, Open Finance became the first U.S. based security token exchange that went live on December 13, 2018. With traditional stock exchanges, such as Switzerland’s and Malta’s main stock exchanges, forming partnerships to build security token exchanges, the industry is without a doubt worth to keep an eye on in 2019.
3. Nasdaq and New York Stock Exchange Get Involved in Crypto
Date to Watch: Late January – The expected launch of Bakkt.
The two biggest stock exchanges in the world will step into the crypto ring in 2019: the New York Stock Exchange and the Nasdaq.
Bakkt, a cryptocurrency exchange built by ICE, which is the parent company of the NYSE, planned to launch the first physical-backed bitcoin futures on January 24. Although the start has already been postponed several times, crypto enthusiasts still see the exchange as a potential game-changer for involving institutional investors into the market, due to the reputation and experience that is connected with its operator.
Meanwhile, Nasdaq is following Bakkt on its mission and recently announced it was working on Bitcoin future trading for 2019 as well. Further news from Nasdaq include the exploration of security tokens and a potential exchange for such assets in the following time.
While it is not yet certain what kind of future security token trading Nasdaq will be providing, it still shows that some of the biggest financial enterprises in the world are not scared of the overall bearish market sentiment of 2018. “The concept of having a digital currency that does allow for transfer of money across borders, that really transcends the banking system, and allows for a seamless transfer, is really really fascinating and one that we have to assume will become a part of the ecosystem of the internet,” Nasdaq CEO Adena Friedman commented on digital currencies such as bitcoin.
Fidelity: We’ll “make digitally native assets, such as bitcoin, more accessible to investors”
$1 billion in cryptocurrency was stolen in 2018 with high-profile crypto exchange hacks hitting the headlines. Keeping cryptocurrency on an exchange is risky. And, while holding bitcoin yourself in a personal wallet is safe, you risk losing the wallet.
That’s why custody and storage solutions will be a huge talking point in 2019.
As for institutional investors, bitcoin or storage solutions are seen as major hurdles for attracting the big fish to the crypto market. Most institutional investors are prohibited from investing in assets unless they are held in secure custody provided by highly specialized firms,
Coinbase and other blockchain companies already gave birth to novel crypto asset custodial solutions in 2018. Fidelity, an established asset management firm that administers its clients’ assets with a combined worth of about $7 trillion, also decided to “make digitally native assets, such as bitcoin, more accessible to investors,” and founded a new subsidiary that focuses on storing digital assets for its clients. According to CNBC, the company is already in the process of onboarding clients and is expected to launch its platform in early 2019.
Some say that we should even expect major banks to join Fidelity and Co. in providing services for storing bitcoin and other cryptocurrencies. As stated in several reports, Ripple CEO Brad Garlinghouse, at the Singapore FinTech festival in 2018, mentioned that banking institutions are about to offer blockchain asset custody solutions to their clients during the next year.
5. Over-the-Counter (OTC) Trading
The Circle Trade OTC desk
Circle reported $24 billion in OTC crypto trading last year
OTC or over-the-counter trading is another keyword that pops up here and there when scanning the blockchain related stories of 2018. OTC trading is the private buying and selling of cryptocurrencies, often in huge amounts, off the major exchanges.
Bitcoin OTC coverage has increased in the media and social networks, but the trading activity itself seems to have increased in 2018 as well.
With Goldman Sachs-backed Circle’s OTC trading platform recording $24 billion in OTC trading last year, it is regarded as a true money-making machine. “We have seen triple-digit growth enrolling in our OTC business. That’s a big growth area,” mentioned Jeremy Allaire, the CEO of Circle, in an interview with Bloomberg in October.
Consequently, some of the biggest cryptocurrency exchanges are now working on their own OTC trading desks or, in regard to Coinbase, quietly launched one in the matter of a few months.
Binance, on the other hand, decided to act in a different way, as its newly founded investment wing Binance Labs recently invested $3 million into a U.S. based OTC desk called Koi Trading.
With major exchanges moving into the OTC business, the field is likely to play a key role in the blockchain world during 2019.
Creating a “seamless experience for storing and managing digital assets”
Banking institutions around the globe are already experimenting with blockchain technology in order to improve cross-border trading and daily operations. In 2018, several achievements were made and they might give us an outlook of how the following 12 months could look like for banks.
The first real customer transactions between several big international banking institutions were conducted on the blockchain platform We.Trade on July 3, 2018. This event is considered a major milestone for blockchain adoption, as institutions across all industries were previously not interested in leaving their sandbox test environments.
While established banks are continuously pushing forward adoption of distributed ledger technologies, new players are also eyeing the creation of banks that are focused on blockchain assets.
Smaller offshore destinations in the Caribbean, e.g. Bermuda, recently announced an update of their banking legislation in favor of blockchain technology and assets. Additionally, a young enterprise called EQIBank, founded by previous bankers from HSBC, UBS and Credit Suisse, just opened their first customer accounts in December 2018.
EQIBank aims to provide a seamless experience for storing and managing both traditional and digital assets, as stated in a recent press release. This can definitely be considered as an upcoming trend since crypto startups around the world are currently applying for banking licenses in their countries.
7. The Cryptocurrency Insurance Industry
“The evolution is dramatic”
Insurance giants, such as MetLife and Allianz, are often regarded as notable blockchain researchers and adopters. Fair enough, considering that transparent ledgers and smart contracts seem to be the perfect enhancements for the daily business of an insurance company. The most promising use-cases include, but are not limited to, automating payments once the terms of a claim are met, increasing the transparency of transactions, storing information and enabling blockchain powered IoT processes.
Ryan Rugg, the global head of insurance at R3, believes the current evolution of insurance companies is a huge leap for the industry. “These developments would be innovative in any sector, but when you consider the processes underpinning the insurance industry have remained largely unchanged for hundreds of years, the evolution is even more dramatic,” Rugg explained in an article on BlockTribune. When talking about the future, Rugg further stated that “2019 will undoubtedly see the insurance industry enter the next stage of its digital transformation.”
“We need appropriate regulations to be put in place and enforced to safeguard the interest of investors”
2018 has definitely seen some considerable developments in terms of global blockchain regulations. With Malta officially becoming a blockchain island, smaller jurisdictions opening up to security tokens and the SEC finally cracking down on a majority of all the controversial ICOs, the blockchain space clearly advanced and is on its way towards becoming a matured industry. Still, there are countless regulatory issues left that hamper the global adoption of blockchain technology and services.
With 2018 as a foundation, we most probably will see exponential progress in the following year in the most important jurisdictions, such as the US and the EU. In fact, there are already several signs that validate this assumption. On October 18, the SEC announced the launch of a new FinHub, where regulatory approaches to novel financial technologies, like blockchain, are researched and evaluated.
After Singapore, Malaysia is another Asian country that wants to introduce new legislation for blockchain in the following year. “While some parties might still be skeptical of this space, there can be no doubt that we need appropriate regulations to be put in place and enforced to safeguard the interest of investors,” said Lim Guan Eng, Finance Minister of Malaysia. In Liechtenstein, the government is currently working on the Liechtenstein Blockchain Act, which should pave the way for institutional investors in 2019.
Further countries that are expected to unveil updated laws for blockchain include the United Arabian Emirates, Israel, Russia, Thailand and seven major states within the EU. The ball is finally rolling and global regulations in various areas of distributed ledger technology seem to be closer than ever before. We definitely have an exciting year ahead of us and might even be looking towards one of the most productive years for the blockchain industry ever.
To round out the year, we asked our Block Explorer writers to tell us what they’re most excited about for blockchain and crypto in 2019. In this piece, Ana Balashova looks at the startups hoping to take crypto mainstream, as well as the tokenization of assets and next-generation blockchain projects.
This year wasn’t all cuddly and fluffy for crypto. The fearsome bear entered the market and trampled everyone’s dreams of becoming a billionaire in a couple of months. And although crashes aren’t new to crypto, this year things are a bit different: many more people are involved and larger mainstream brands are embracing digital money as payment.
Banks, governments, and regulators are accepting the fact that bitcoin is here to stay. All of that makes me seriously enthusiastic about crypto in 2019. Here’s the list of the things I’ll keep my eye on:
Universal Crypto Solutions
Even though Coinbase has more than 20 million users and Blockchain.com boasts more than 31 million registered wallets, crypto is still far away from mass adoption. And the convenience of using it is still only appreciated by the more techy part of the population.
Real-life example: if my mom would like to purchase bitcoin she always has to ask me to do that. And she is quite capable of using traditional plastic cards or other financial services like money transfer through a mobile app on her phone.
So, there’s still room for improvement in creating those universal solutions, both for consumers and business. One that will work internationally and will allow seamless transactions from crypto to fiat and back. One that boasts a super intuitive interface and straightforward features. That’s why I am quite curious to follow Abra, Blockchain, Purse, Bread, Ethos, EOS Lynx, STK, Metal, PundiX, Request Network, Monetha and all the numerous projects in the field.
Securitization and Legal Clarity
Authorities of various countries are cooking up all sorts of crypto regulatory frameworks. The choice of crypto-friendly countries is growing (Malta? Gibraltar? Finland?) That alone makes the existence and the future perspectives for cryptocurrencies much more compelling.
Even without proper regulations, as much as $22 billion was raised in Initial Coin Offerings in 2018 according to Bloomberg’s numbers.
There are a lot of question marks about those projects. However, the development of the legal side of the story will most likely make a positive impact on the industry. Not to mention the whole new infrastructural solutions that have to be evolved to make it work: properly regulated crypto exchanges, platforms for legal Security Token Offerings, the whole bunch of wallets for securitized assets, etc.
That all adds up to bringing digital currencies from the world of tooth fairies and leprechauns to reality.
Making Blockchain Great Again
In spite of all the awesomeness of distributed ledger technologies, there is always someone to complain. The transactions on Bitcoin blockchain are getting too expensive, or Ethereum got all clogged again because of a popular token sale, Cryptokitties, decentralized exchanges vulnerabilities, and so on.
So all the tools and projects that are supposed to improve what we have so far and to solve all related problems – is something I am personally very interested in.
And, just to clarify, when I mention “problems”, I am talking about things like scalability,interoperability, transaction costs, blockchain developers education, etc. Some of the exciting projects working on these problems are EOS, Aion, Wanchain, Ethereum, POA network, Zilliqa, and others).
Tokenization of Assets
As we know, one of the first applications of blockchain technology was digital money. And the fact that it created so much convenience, transparency, and speed of actual ownership made “tokenization” a viable technology for other assets.
We could see gold -backed tokens (like OneGram, Goldmint, etc.), natural resources backed tokens (e.g. Petro, Venezuela’s controversial cryptocurrency backed by oil), and so much more than that.
With the further development of crypto-related regulations and taxes, more projects tokenizing real estate, pieces of art, rare cars, shares in Silicon Valley startups etc., will pop up.
And the fun has already begun. In October, Forbes announced the first tokenized real estate project in New York, ran by Propellr, the platform for digital assets management and Fluidity, the trading and tokenizing solution.
It’s already possible to purchase a share of ownership of off-campus housing for students at the University of South Carolina. The cost per share is $21,000. Currently, those are being sold by Harbor, the blockchain startup which raised $28 million of venture capital in a fully compliant security token offering earlier this year.
And if you are looking for more affordable ownership options, there’s something interesting offered by Brickblock. The project in development is a 50-unit residential property in the UK. The team is raising £3.35 million by selling tokenized shares valued at £34 per pop.
There are also some moves in the art world. 31.5% ownership of Andy Warhol’s “14 Small Electric Chairs” was recently sold at an auction run by blockchain startup Maecenas this summer. The total value of the sold tokens was $1.7 million with the total estimated worth of the artwork of $5.6 million.
Tokenization of Real Estate on Mars?
I trust that weirder things will find their way to fully compliant blockchain existence. And we might be able to purchase frozen brain cells and other vital organs, square meters and milliseconds in cryogenic cameras, a fraction of space trip tickets (or maybe partial ownership of a cozy industrial loft on Mars), and the list goes on. I can’t wait!
And what are you excited the most?Go ahead and share it in the comment section below.
“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change.”
The simple answer is that it can. The SEC may take up to 180 days to deliver an approval or disapproval. If required, they can also extend that period an additional 60 days.
With the VanEck and SolidX proposal submitted in July, the SEC is simply taking as much time as possible to consider all angles.
The SEC has also invited comments on the ETF, suggesting it is taking the review seriously.
The Delay Could be a Good Thing
The SEC is well within its rights to reject the bitcoin ETF proposal. You may remember the Commission rejected nine proposals back in August.
The fact that the SEC is taking the full time period to consider the VanEck proposal is a good sign.
There are pro-bitcoin commissioners involved in the decision, including Hester Peirce who said, “You all know that I am working on trying to convince my colleagues to have a bit more of an open mind when it comes to [crypto].”
SEC Concerns Remain
Having said that, the SEC still has major concerns over bitcoin ETFs. As the chairman of the SEC recently revealed, there are issues related to theft, market manipulation, custody, and money laundering that need to be addressed before we see an approval.
There is also concern over how ETFs track the price of bitcoin.
The three options include basing the price on crypto exchanges, bitcoin futures, and the bitcoin OTC market.
The SEC is nervous that exchanges are subject to manipulation. They think bitcoin futures are not yet mature enough, and OTC markets are difficult to track.
So there are big hurdles to overcome before the SEC approves any Bitcoin ETF proposal.
It Could Take Years
Speaking after the decision, Hester Peirce warned the crypto community not to place too much weight on the ETF approval.
“Don’t hold your breath. I do caution people to not live or die on when a crypto or bitcoin ETF gets approved.”
The Securities and Exchange Commission (SEC) has reminded crypto investors to be cautious about information posted to social media. According to the SEC, big social media accounts and “influencers” are often paid to promote crypto projects, tokens, and securities that might be fraudulent.
The reminder comes after the SEC fined two celebrities last week for promoting cryptocurrencies without disclosing they were paid to do so.
Boxer Floyd Mayweather Jr received $300,000 to promote three initial coin offerings (ICOs) to his large social media following, while DJ Khaled was paid $50,000 to promote Centra’s ICO. Neither individual disclosed to their followers that their endorsement was paid.
Mayweather was subsequently fined more than $600,000 and is banned from promoting securities for three years.
The SEC explained: “These cases highlight the importance of full disclosure to investors… With no disclosure of payment, Mayweather and Khaled’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.”
It’s a reminder to any crypto investor: do your own research. Don’t trust the opinions of others as you never know the true motivations behind their advice.
1/2 SEC ENF Co-Dir Peikin: “Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements…
2/2 … Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.” https://t.co/WzgvPU7Esg