This is my 2nd post for a new weekly series on the state of securities with a focus on fintech, Bitcoin, blockchains & distributed ledgers.
Here are some of the key developments, stories & updates from the digital securities industry over the past week.
“Poloniex Spins Out from Circle with New Backing & Global Focus”
This is an interesting and unsurprising move. The SEC has made clear that many ICOs / fundraisers were considered securities offerings.
Some of these were registered, some were unregistered and not offered in compliance with US law. In many cases the tokens raised are securities and trading them in the US would require registration as a broker dealer as well as having the securities need to be in compliance with SEC regulations.
What this means:
This means that many of the tokens traded on Poloniex have questionable status as securities. It seems it would be difficult for Poloniex to continue its current model and continue serving US customers while also complying with US law. Circle has spoken about regulatory matters in blog posts etc.
In my opinion the only way for companies to comply with US law is to:
1) Be fully SEC registered as a broker dealer.
2) Only deal in fully registered or compliant exempt securities offerings and complaint trading. OR
3) Only deal with instruments which are clearly not securities – this universe is very small. From our standpoint as a Registered Investment Advisor, the only instruments we think are not securities are those which:
A) Did not raise funds or ICO of any sort.
B) Did not have a premine or founders reward.
C) Are not centrally controlled
D) Do not meet the definition as an investment contract or other parts of the 1933 Act definition.
This list isn’t comprehensive and something could meet all these bullet points and still be a security. A company could raise money and have a token which is not a security. For example a game token, tokenized gift card or other instrument might raise money, but still not be a security.
This can be frustrating and confusing to many industry members. My personal advice: painful as it may be is to take a conservative approach and assume that all ICO / fundraised tokens are securities unless there is a compelling reason not to.
Poloniex and their affiliates likely had compliance as a key driver in their decision. Full medium article from Team Poloniex here.
“BNB-Based Crypto ETP Now Live on Swiss SIX Stock Exchange”
Binance’s native cryptocurrency (BNB) will now serve as the underlying asset to a new exchange traded product. They have partnered with fintech firm Amun to develop this USD- denominated ETP & initially this ETP is going to be backed by $20 million worth of BNB. Full CoinDesk article can be found here.
“Grayscale Wins Approval for First Public Digital Currency Index Fund”
Grayscale has received regulatory approval to list the first publicly traded digital currency index fund. This approval comes from the Financial Industry Regulatory Authority (FINRA) & this is their 4th publicly-quoted investment product. Grayscale managing director Michael Sonnenshein said “The idea behind the DLC is to give investors broad-based exposure to cryptocurrencies with one vehicle.” Full article here.
Grayscale has been doing great in raising assets and increasing exposure to digital assets through their products.
Libra continues to move forward in the face of adversity from government attacks
The Libra Association plans to move forward on a launch that will include 100 members. Recently both Visa & Mastercard have parted ways with the project, but the Association is still very confident they will continue to gain members until they reach that 100 member threshold. They also claim that 1,500 firms have expressed interest in joining the association. Full CoinDesk article can be found by clicking here.
I think the US government has overstepped its authority in its dealing with Libra to the point of harming innovation.
“Nasdaq Lists an AI-Powered Index of Crypto Market’s Top 100 Performers”
Nasdaq stock exchange lists an index of crypto’s top 100 coins in conjunction with their traditional market offerings such as the S&P 500 & the Dow. This is an important step in mainstream adoption. As the project manager Kirill Marchenko said, “We’ve become a more accessible and convenient financial instrument for all types of investors, not only professional.” Click here for full CoinDesk article.
“Telegram Responds to SEC: Gram Tokens Are Not Securities”
On 10/16 Telegram pushed back against the SEC by filing a response claiming their emergency injunction last week was unwarranted. They are arguing that their gram token is not a security, thus the SEC should not be allowed to intervene the way that they have. They are asking the court to deny the SEC’s injunction request. It’ll be interesting to see how this pans out, full CoinDesk article here.
“Top Fed Official Says US Central Bank ‘Actively’ Debating Digital Dollar”
Amidst concerns from Regulators that the dollar might be at risk of losing world reserve currency status, the U.S. central bank is actively exploring issuance of a digital currency. Federal Reserve Bank of Dallas President Rob Kaplan stated, “I still think for the foreseeable future, the dollar will be the world reserve currency, we’re able to refinance our debt at relatively low rates, but I don’t think we should take that for granted.” Full write-up here.
“Bermuda Now Accepts USDC Crypto for Taxes and Government Services”
On Wednesday 10/16 Bermuda announced that residents can now pay their taxes in cryptocurrency. They will accept payments in USD Coin for taxes, fees & other government services. This is a 1st for a Sovereign Nation & is a major leap in the battle for mass adoption. Regarding the announcement Circle had to say, “Hats off to Bermuda Premier David Burt, who continues to show more leadership on these issues and very much remains out ahead of other governments in the world.” We’ll have to wait and see if this pushes other nations to take similar measures. Full CoinDesk article.
That’s all for this week, check back in next week to learn all about what’s happening in the rapidly evolving digital securities industry! Feel free to leave any comments below & if you’re interested in following this weekly roundup be sure to click on “Notify me of new posts by email” underneath the comments box below to receive an alert for each new post.