ICOs and BTC


Well, what else?

There is other FinTech news in banking and payments, but capital markets got most of the FinTech attention in the last week.

Even my favorite noncrypto FinTech story ended with a crypto note. Nearly 200 people attended the initial meeting of Chicago’s FinTech Women (FTW), “The Future of FinTech is Female.”

It was a remarkable number, especially considering that most of the people who registered showed up on a Monday evening at Morningstar’s Chicago auditorium, as a light snow wafted in the Loop. By the end, panelists were encouraging women to get involved in crypto and to learn to trade, starting slowly.

Would that I had done the same, an all-too-common lament these days. As Lawrence Johnson, who heads FinTech engagement for Morningstar, put it at the start of another Morningstar panel last week, “These models hold great opportunities and possibly unintended consequences.”

The investment firm’s FinTech Forum featured two startups in the capital markets segment of FinTech, one in blockchain and the other in Initial Coin Offerings (ICOs). The Templum marketplace is designed for digital token offerings that comply with securities regulations, to distinguish it from ICOs, which are acquiring an increasingly dodgy reputation as fears mount over fraudulent token offerings.

Chicago FinTech Women initial launch event, Morningstar

ICOs have existed in a gray area of securities law, offered as a way to raise money outside of traditional securities and venture-capital channels. They are widely popular, highly speculative and, by many accounts, will revolutionize capital markets.

ICOs are not subject to U.S. securities regulations—yet.

The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are increasingly clear in their statements that ICOs are securities and will be treated accordingly. Last week SEC Chairman Jay Clayton’s “Statement on Cryptocurrencies and Initial Coin Offerings” stated:

By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws. Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved.

I have asked the SEC’s Division of Enforcement to continue to police this area vigorously and recommend enforcement actions against those that conduct initial coin offerings in violation of the federal securities laws.

For its part, the CFTC last week launched a digital currency resource page on its website to handle ICO questions and concerns.

When regulators conclude that ICOs are securities and not unregulated utility token offerings, they will face problems, suggests Vince Molinari, Templum cofounder and CEO of broker-dealer Liquid M Capital. “Utility tokens that are not fraudulent will have to be repackaged as securities,” he says.

In describing several filings Templum has made with the SEC over the last year to ensure that token offerings can be covered by existing securities laws, Molinari says that Templum seeks to fill gaps in the Jumpstart Our Business Startups (JOBS) Act. Signed by President Obama in 2012, the JOBS Act was designed to enable startups to use crowdfunding to issue securities and raise capital.

“Regulated token offerings can make the JOBS Act work,” Molinari says. They can meet anti-money laundering, know-your-customer, and other securities regulations while maintaining the flexibility of digital assets. “You don’t have to create a new rule book.”

As explained by Howard Marks, CEO at StartEngine and co-founder at Activision/Blizzard, in a Medium post, “The JOBS Act rescues ICOs. How?”

Companies raising capital with ICOs should carefully consider using the JOBS Act Reg D 506(c), Reg A+ or Reg CF for their tokens. Doing so will allow investors reassurance that they will be able to make informed decisions, and more importantly, it will protect the officers of the companies from violating securities laws.

ICOs are a revolutionary way for companies to raise capital from the newly minted cryptocurrency crowd and it needs to continue its staggering growth while embracing the JOBS Act nascent rules.

Templum intends to market regulated token assets in both initial and secondary markets, with blockchain startup BanQu as its initial offer.

BanQu is a blockchain-based service designed to connect the unbanked to the global economy. The cloud-based service puts the transaction history of people in extreme poverty on a permissioned blockchain so that they can build an identity history.

Poor farmers in war-torn countries generally do not have records of the transactions they make with the multiple brokers that buy and sell commodities to manufacturers. When they are forced from their land by war, their identities and transaction history are lost.

The chain of identity is important to the enterprises that buy commodities as well. “We sell software to enterprises trying to get visibility and traceability on the ‘last mile’ of their supply chains,” says Ashish Gadnis, BanQu co-founder and CEO. He also spoke at the Morningstar forum.

The transaction history that BanQu intends to build helps both the producers who need to build identity and the enterprises who want to trace commodities to their source. The transaction history helps poor producers build identity that they can control BanQu’s blockchain cloud.

“Identity on a blockchain is useless if it does not have transaction history,” Gadnis says.

Now for related links from the past week:

Duelling bitcoin futures go head-to-head as CME launches contract

The Financial Times covers the launch of CME Group’s bitcoin futures contracts, a week after Cboe’s launch of the same.

Bitcoin futures are no bubble bellwether

Last week, Bloomberg’s equity markets columnist Stephen Gandel wrote of the Cboe launch, “Bitcoin just passed its first major Wall Street test, but cryptocurrency bulls shouldn’t read too much into it . . . futures, despite the whole madness of crowds thing, are rarely predictive of the actual future. Instead, they are typically haunted by the past, which could be what is happening here.”

Rhetorical crypto thoughts: crypto markets, Fri Dec. 15, 2017

Rolf Hoefer, founder at Rhetorical Crypto Capital, provides a view of a “Wild West populated with strange cute animals.” Buried in his Medium post is a bit of what’s to come: bitcoin exchange-traded funds (ETFs). “To grow crypto-assets into a full-fledged, multi-trillion USD asset class, the next step after futures should be ETFs. The infrastructure is slowly developing.”

Bitcoin is a bit of a miracle at any price

“The trading range of $15,000 to $20,000 doesn’t seem crazy when you compare it with other assets,” writes Bloomberg columnist Tyler Cowen. “The real story of bitcoin is a heartening one of community. Less than 10 years ago, the bitcoin asset was worth virtually nothing, but a small group of people believed in it and worked tirelessly to promote it, and now the whole world is watching.”

Have cryptoassets created $0.5 trillion in social value?

Leaving aside a literal answer to the question, posed by Ethereum inventor Vitalik Buterin, Cowen writes in his blog, cryptoassets “by serving as efficient stores of value and by providing a new kind of insurance, they help people spend more money. And indeed that is what so much of finance is about, namely enabling higher levels of consumption.”