Here are some stories you might find interesting — and the links to find out more about them.
Deutsche Bourse sets up dedicated blockchain and crypto-assets unit
Source: Finextra, Cointelegraph
Date: 3 September 2018
The German stock exchange, the Deutsche Bourse, has for several years been investigating applications for blockchain in its value chain. Much of this has been experimenting with R3 Corda and Hyperledger technologies. Projects have included investigating the potential for technology-based settlements of securities with the Deutsche Bundesbank, co-operating with international central securities depositories in the use of distributed ledgers and smart contracts, and developing an operating model for securities lending (this last through its million Euro minority stake in HQLAx).
It seems that it is now moving closer to the adoption of blockchain technology rather than somewhat isolated ideation and exploration. It wants to coordinate its blockchain-based activities across the group and has set up a 24-person team to do this.
Blockchain has the potential to cut across key business areas such as pre-IPO listing, trading and clearing, settlement and custody, and data and analytics.
According to Jens Hachmeister, the team leader,
“The digital economy in general is heading for decentralization. In future, there will be more peer-to-peer governed marketplaces and less intermediaries. In that regard, blockchain has the potential to disrupt the capital markets infrastructure.”
(We have included this story to show that, regardless of the value of cryptocurrencies such as Bitcoin and ETH which during September showed declines worse than that experienced during the “dot-com bubble”, use-cases and applications of blockchain continue and are moving more and more into the mainstream.)
Billion Dollar ICO Industry Governed by Securities Law, Judge Rules
Big news out of the USA is that a federal judge has ruled that ICOs fall under the jurisdiction of securities laws.
In the US vs Zaslavskiy case, Maksim Zaslavskiy argued that the two ICOs he was part of were currencies and not securities and that the current ICO laws were very vague. However, the judge ruled that “Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract — a security — into a currency.”
This ruling has yet to be upheld by the jury, and there might be some complication in this case because Zaslavskiy was actually being accused of fraud: pushing cryptocurrencies with the false promise that they were backed by diamonds and real estate. The judge found that nothing of what had been promised — diamonds, real estate, coins, tokens or “currency of any imaginable sort” — had actually existed. In effect, what he ruled was that securities laws could be applied in the criminal fraud case against Zaslavskiy.
This latest judicial ruling really applies only to the case at hand, but many believe it might open the way for the SEC to be more aggressive in its future dealings with ICOs.
The previous measure applied by the SEC (Securities Exchange Commission) was the Howey Test:
A security is an investment contract in which a person
1) invests their money
2) in a common enterprise
3) with an expectation of profits
4) based on the efforts of others.
To be considered a security, an offering must meet all four prongs. The last two, that the investor expects to make a financial gain based on the work of others, have been especially applied in deciding whether an ICO is, in fact, a security.
The Looming Bitmain IPO
10 September 2018
Bitmain is the largest supplier of mining rigs and ASIC chips for cryptocurrency mining. In fact, it is thought to supply 80% of all mining equipment in existence. Co-founders Jihan Wu and Micree Zhan own 60% of the shares, with the balance being held by early investors like Sequoia Capital and IDG Capital.
So it may seem strange that it is rumored to be considering a traditional IPO rather than an ICO to raise funds and encourage investment. It is said to want to list on the Hong Kong stock exchange and to raise $3 billion.
An IPO, or Initial Public Offering, is the first sale of stock or shares in a private company to members of the investing public. Once it has done this it becomes a public company. It is able to register on local stock exchanges, be part of mergers and acquisitions and attract new investors and capital. At the same time, it becomes subject to often stringent laws and regulations.
An ICO, on the other hand, is a way of raising funds through investors who participate in a form of “crowdfunding”. Investors may acquire tokens or coins associated with the company, but they generally have no shares or stocks in the company and have no voting or other rights. It has become the most popular way for companies in the crypto and blockchain space to raise funds. ICOs have been banned in China, however, and this may be why Bitmain is not choosing this route.
There has been much speculation about the Bitmain move. Some believe that it has lost a lot of money (reported at $328 million) through its support of Bitcoin Cash over Bitcoin and that it needs to recoup these losses. (This loss may be even greater following the 30% drop in the Bitcoin Cash price during September.) Early investors may also be looking for a way to cash out their investments.
There is apparently also growing competition to the Bitmain market domination from mining companies Canaan Inc and Ebang International. Both of these companies have also announced IPOs. The Canaan IPO is backed by Morgan Stanley, Deutsche Bank AG, Credit Suisse Group AG and CMB International Capital and is expected to raise $1 billion. Ebang is also thought to be targeting $1 billion.
It is speculated that another reason for the Bitmain move is to give it sufficient funds and public profile to move into other business areas such as artificial intelligence.
There is some skepticism about how successful any of the IPOs will be, given the current crash in the Bitcoin price, together with plunging demand for the ASIC chips needed for mining Bitcoin, a drop in the Hang Seng Index, and the US-China trade war.
Time will tell.