NEO Global Capital Interview
If you’re reading this, chances are you have experience or are interested in trading or investing in cryptocurrency assets such as NEO Global Capital
Chances are pretty high that a majority of our readers have invested a number anywhere between $100 to $10,000 in a mixture of assets such as Bitcoin, Ethereum, Ripple, and NEO. There’s also a slim minority that has taken a walk on the wild side and invested in ICOs – some getting lucky, the bulk getting burnt.
Your decisions were likely fueled by news and impulse, and since your risk was relatively low, it didn’t take much convincing to place your orders
But what happens when that $100 to $10,000 figure is multiplied by 100x to 1,000x, in some cases 10,000x. And it’s your full-time job. And it’s not your money. The landscape changes a bit.
Cryptocurrency funds have a unique task ahead of them that involves navigating through a noisy and clamorous environment to get access to high-quality deal flows and investment targets. The stakes are much higher and reputation starts to matter.
CoinCentral connected with the team behind one of the world’s leading blockchain investment firms, NEO Global Capital, at their inaugural Boston meetup. The event featured heavy-hitting figures from organizations such as Arrington XRP Capital, Pantera Capital, Block72, and, of course, NEO Global Capital.
The NEO Global Capital Fund I has a high-octane diverse portfolio of blockchain projects such as Ontology, Bluzelle, Zilliqa, Trinity, Mainframe, and Top.
The following interview provides some serious insights into the mechanics behind running an international blockchain fund, especially in the bear market that is 2018, from NGC Founding Partner Roger Lim.
Can you tell us a bit more about what gives you a sense of a good investment opportunity? What specific traits are you looking for in the team, in the idea, in the technology?
NGC’s founding team has been involved in the blockchain industry since its early days, so we are fortunate to have worked alongside some of the early adopters of the technology. With time comes a better understanding of what industries are most in need of a digital overhaul, as well as where decentralized technologies will have the greatest impact, so our experience has certainly played to our advantage.
As such, we’ve developed a strong sense of which sectors will benefit most from blockchain; what stands out in terms of project founding team; and whether an idea is innovative and disruptive versus one that is similar to something that already exists and can really only offer incremental improvement.
That being said, NEO Global Capital has a well-rounded portfolio of investments, and we hope to continue supporting a variety of industries, including identity solutions; gaming; online content streaming; the financial services industry (i.e. banking, financing, payments, and exchanges); and so on.
We will also continue to invest in public chains, as well as privacy and security projects because we see them as strong examples of addressing a specific problem. Overall, it’s important to look at how competitive the market is for whatever that project is trying to solve.
Perhaps most importantly, we place a heavy emphasis on the strength of the team at the heart of a project: Does this project have strong leadership? What is their experience? Do they have high success rates from previous projects? A strong team is often the best indicator of whether or not a project will succeed.
Could you tell us a bit about the fund’s relationship with NEO?
Our affiliation with NEO is a strategic one that allows NGC to fulfill its position as a leading investment firm. While NEO Global Capital is a fully independent entity, we are long-term believers in NEO and have created a dedicated fund aimed at fostering the growth of the NEO Smart Economy ecosystem. Through strategic capital deployment, project incubation, and utilizing all of our available resources, we believe that we can help accelerate the growth of the overall crypto market.
The NGC Fund I seems to be a newer fund compared to the NEO Eco Fund. Can you explain what are the differences between the two funds, in terms of objectives and potential investment targets?
The NGC Fund I is our for-profit fund, where we invest in the most promising and innovative projects related to blockchain. Our wider interest is in advancing the industry, so we invest in projects that have strong use cases and can help drive the mainstream adoption of blockchain.
Our second fund is the NEO Eco Fund and our goal here is to promote the growth of the NEO Smart Economy ecosystem. In alignment with our belief in NEO, we occasionally invest in projects that would specifically benefit from NEO’s infrastructure.
Overall, the goal of both funds is to help startups create lasting competitive advantages in an industry that’s become very crowded, very quickly.
What kinds of short-term targets and goals do you typically agree with a startup firm once you have decided to invest? How do you go about agreeing on these targets?
Goals, objectives, and targets differ depending on the type of projects we are supporting. If it’s a public chain, for example, we would work with the project to identify gaps in the technical team, the roadmap, and milestones in advance of the mainnet launch. We are generous with our time for each of our investees; we want them to succeed, and if they wish to tap on the experience of any of our partners or reach out to our network, they have the full backing and support of the firm.
It tends to be typical that venture funds require a founding team to have a longer-term target that the company should be sold within a set period of time. Is it any different with NGC? What kind of timeframe do you work to for long-term goals, and how do you define long-term goals?
In general, token investments achieve liquidity a lot faster on exchanges than equity investments (months rather than years). Nevertheless, at NEO Global Capital we want all our investees to succeed whether we make a token or equity investment. We still hold tokens of many of our investments and we continue to work with them and expect them to continue their growth, development and to achieve the key business objectives over the coming years.
Are there any advantages to operating a cryptocurrency fund in a bear market?
In a way, bitcoin’s dramatic rise last year has solidified the blockchain industry: there is now an interest in blockchain and cryptocurrency that did not exist previously. As we move away from the crypto mania that ensued, the benefit of operating our crypto fund in a bear market is that most projects now come with good intentions.
This is not to say we have completely eliminated bad actors, but there were certainly more projects and players that emerged in the market at its peak when there was a greater opportunity for quick wins. Likewise, the current market allows investors to spend time researching, understanding a new technology or problem a project may solve — in a bull market, investors may act from a fear of missing out.
In addition to good valuations, the current market has produced stronger projects with experienced leadership teams, compelling use cases, and cutting-edge tech. We believe that the competitiveness of the market has not decreased in any way.
What separates a high-quality investment fund from a low-quality one?
A high-quality investment fund is one that makes educated and thoughtful investment decisions. One thing we are very proud of at NEO Global Capital is that our founding team comes from a varied background of crypto investment, traditional financial markets, emerging technologies, and mergers and acquisitions.
We would say that the best investment funds are those that are able to marry their crypto-specific knowledge with experience from more traditional verticals, thereby taking a more well-rounded and considered approach to investment.
A major component for any investor in the ICO space is access to deal flow. What gives NEO Global Capital an advantage here? Do you have any advice for smaller retail investors?
A strong reputation for helping projects post-investment is important and also entices more founders and entrepreneurs to want to work with us. We not only work closely with, but we welcome other funds to work with us to share deals, insights, and expertise. We strongly believe in collaboration and that a variety among blockchain investors (geographical expertise, background, and networks) brings diverse experience and immense benefits to a project.
As for retail investors, As Warren Buffet once said, “never invest in something you don’t understand” so definitely do your research, understand what you are investing in; and diversification is important. Cryptos are highly volatile and therefore risky, weigh up the risks before diving in.
Looking out on the wider market which is becoming very crowded. From the ICOs that have been completed so far in 2018, which ones stand out to you as being unique or otherwise interesting opportunities?
We think all the projects we have invested in have innovative teams and unique solutions to today’s problems within the industry. Ontology, for example, provides a solution to digital identity; Certik solves security problems in blockchain with formal verification; Hadron helps enterprises like NASA outsource their computation tasks with a large user and device population so that these tasks are done efficiently and timely. All hugely ambitious projects making immense progress and we look forward to supporting them in the future.
How does the NEO Global Capital team reach an agreement over which projects to invest in, or not?
While there are no hard and fast rules, a strong product, an effective business plan, and an ambitious, goal-orientated founding team would certainly be the cornerstone of what we consider a promising venture. Each of NEO Global Capital’s partners understands that investors are interested in seeing and investing in projects that are both unique and impactful, so we are often in agreement when it comes to whether to invest or not.
In your view, what is the outlook for the overall price of Bitcoin and cryptocurrencies over the next 12 months? What are the crunch points that may end up turning the markets in one direction or another?
If I had to hazard a guess – I would say Bitcoin could see new highs over the next 12-18 months. As regulations, standards, and infrastructure become more mature, I expect the market to react positively.
What would be your single best piece of advice for any founders of an ICO or blockchain startup?
As the blockchain space becomes increasingly noisy, a recommendation we always make to founders and entrepreneurs is to consider whether or not they really need blockchain. Focus on the problem you are trying to solve and decide if blockchain is truly the solution.
What is the outlook for NEO Global Capital as we move to the end of 2018 and beyond?
Our primary interest lies in advancing the industry of blockchain towards mainstream adoption, so as we move towards the end of 2018, we will continue to strive towards that goal by investing in the most innovative projects; sponsoring higher education initiatives; and facilitating conversation between industry leaders and business professionals that will address what the industry needs, where exactly the market stands, and what steps can be taken in the New Year to advance the industry as a whole.
In line with this, we’ve recently invested in several key blockchain-focused initiatives in higher education: most recently at Berkeley and the National University of Singapore. We also held our inaugural meetup in Boston to discuss project funding and development, best investment practices, and emerging industry trends. We plan to do more of this as we wrap up the year, and hopefully into 2019.
This article by Alex Moskov was previously published on Coincentral.com
About the Author:
Alex Moskov is the Editor-in-Chief of CoinCentral. Alex also advises blockchain startups, enterprise organizations, and ICOs on content strategy, marketing, and business development. He also regrets not buying more Bitcoin back in 2012, just like you.
When we think about industries set for disruption by blockchain, construction probably isn’t top of the list. After all, the traditional image of a building site seems far removed from crypto, coding, and hackathons. But there are potentially enormous benefits for putting blockchain and construction together.
This article will round up some of the possible use cases for blockchain in the construction industry.
Blockchain and Construction Supply Chains
A bad workman blames his tools, right? Maybe that’s a bit harsh, though. After all, the construction industry is dependent on the availability of quality supplies and tools, at the right time and in the right place. Given that the sector is highly fragmented with many different players, big and small, supply chains are a big deal.
Purchase orders, delivery notes, and invoices are often still paper-based. Firms frequently don’t know if the supplies they need are in stock when they start a project, which leads to delays and incurs costs.
These aren’t even the worst consequences. UK government contract Carillion collapsed at the start of 2018, affecting the jobs of around 43,000 people as a result. Sources pointed to its poor supply chain management as being a critical factor in the collapse, through lousy credit management and a lack of visibility over projects and required supplies.
The blockchain is already proving its ability to transform supply chains, in one instance through the partnership between Walmart and IBM. Using blockchain to manage construction supply chains could create a single source of truth regarding the availability and provenance of construction supplies, as well as tracking payments.
The industry is taking notice of this use case for blockchain and construction. Recent announcements have now confirmed that Probuild, one of Australia’s largest building firms, has partnered with US blockchain construction innovator Brickschain for managing its global supply chain. The announcement confirms that “Probuild has the vision that Blockchain, IoT and Big Data can revolutionize the construction supply chain.”
Blockchain and Construction Project Management
Construction projects rely on various parties to work together to complete a building based on pre-defined specifications. Each party expects payment based on work done. Therefore, the peer-to-peer connectivity of blockchain, combined with smart contract functionality, brings excellent opportunities to streamline construction project management.
One study into the potential of blockchain in construction project management found that “[o]n the construction site blockchain can improve the reliability and trustworthiness of construction logbooks, works performed and material quantities recorded.”
Industry publication Construction Manager (they don’t mess around with fluffy, ambiguous names in this business) also reported on the development of two prototype applications combining blockchain and construction.
TraderTransferTrust is a payment system built on blockchain that triggers payment only on the completion of work done. Physical proof of work, if you will. ConstructCoin is another project from the same development team. It aims to create a marketplace of information about the construction industry.
The Construction Blockchain Consortium (CBC) is an industry group set up by its members to investigate the potential for how blockchain and construction could play together. While the above use cases are transformational, the CBC outlines some cultural shifts that may occur in the industry as a result of using blockchain.
The building industry has become highly litigious. The CBC highlights how using blockchain to foster a culture of collaboration and ownership could help to reduce incidences of parties suing one another for shoddy work or delays in project completion. Further, the consortium believes that a less litigious environment “should encourage a less ‘defensive’ approach to decision making and thereby encourage innovation.”
Digitized Land Acquisition and Building Rights
In their paper about the future of smart cities, McKinsey points to the current bureaucracy involved in land acquisition and building rights as a barrier to agile construction. The paper goes on to explain how digitized solutions will speed up the process of obtaining land and building approvals.
Blockchain-based land registries provide a vast improvement over today’s paper-laden processes. Blockchain allows for speedier approvals with no loss of paperwork or waiting for multi-party signatures on physical documents.
Additionally, in countries, land disputes are all too common. A permanent, unalterable record of ownership has distinct advantages in proving ownership. India is among the countries that have been trialing the use of blockchain in land registrations.
Most buildings are subject to inspections at some point or another. Structures used by the public need checks to ensure adherence to safety standards. Building surveys often feature in sales of real estate, as they reveal any structural faults that may impact the valuation.
These inspections are often conducted in a fragmented way. An inspector or surveyor may have limited or no visibility of records from previous checks. This makes the process heavily dependent on the specific inspector, and errors or oversights may happen.
Blockchain offers the opportunity for a piece of real estate to come with its own permanent record of past inspections. Blockchain data is immune to tampering by any party who may have an interest in ensuring structure passes muster. Similarly, blockchain could also record any structural or maintenance work undertaken on the property over its life cycle.
More Agile Planning
Currently, there is a lengthy process to procure public funds for investment in infrastructure. Governments must justify the need to spend taxpayer funds on a particular initiative. This means that new infrastructure investment can take months or even years to come to fruition.
As we move towards the smart cities of the future, increased connectivity and availability of information could significantly speed approvals for new infrastructure investment. For example, a government body may quickly build a case showing increased traffic flows in a particular area, using sensor data from a blockchain. This enables faster construction investment in road improvements, traffic calming measures or other means.
Blockchain and construction may seem unlikely partners at first. However, like so many other sectors, construction depends on trust-based interactions with other parties along with solid record keeping. Therefore, assuming the industry can adapt, blockchain could provide significant value to the builders of the future.
This article by Sarah Rothrie was previously published on Coincentral.com
About the Author:
Sarah ran away from a corporate job so she could travel the world. After doing that, she found herself a much-loved new career as a freelance blockchain technology writer. She is now a full-time digital nomad, who travels the world while working on her laptop. In addition to writing and researching, she also runs her own websites – find out more at sarahrothrie.com. You can usually locate her somewhere near the food.
Institutional investors are getting into the Bitcoin market via OTC trading platforms. Currently, the OTC trading market is said to be over two times the size of regulated exchanges with some desks handling over $100 million a day in transactions.
However, the entry of more institutional players is huge news for the crypto industry. According to many crypto pundits, institutionalized investors are the missing element needed to kick-start the cryptocurrency price recovery journey. This is after the spectacular price dip that occurred at the beginning of the year, which dragged down the market into a bearish stretch.
According to a report by Bloomberg, institutional investors have already started to invest in the industry, with some buyers currently buying over $100,000 worth of digital currencies through OTC trading platforms. This is as revealed by Bobby Cho, head of trading at Cumberland, which operates an OTC trading platform under DRW Holdings LLC.
In his view, the crypto industry has been waiting for big institutionalized investors to jump on the bandwagon, most likely following a bitcoin ETF, to help prop up the flagging market. But apparently, the big investors are already here, and many are using the OTC crypto industry to make huge buys.
Established crypto mining firms are reportedly also utilizing OTC trading platforms to sell digital coins to institutional investors at higher prices instead of waiting for the rates to go up, and many have their own liquidity desks. According to the Bloomberg report, coins from mining companies apparently command a price premium of up to 20 percent of their prevailing market value. This is because they are what many digital currency investors consider as ‘unadulterated’ crypto assets.
Because the coins are brand new and untainted by illegal activity, they easily meet regulatory requirements imposed by government bodies.
OTC Markets Have Major Advantages for Investors over Crypto Exchanges
According to Cho, many investment firms are choosing to invest in the cryptocurrency industry at this time because of current market stability. It allows for better market prediction and risk evaluation.
Among the main advantages of using OTC trading platforms, especially for big investors, is that they generally have sufficient cryptocurrency liquidity to facilitate multi-million dollar digital coin orders. Moreover, buying millions of dollars worth of crypto on exchanges is hardly a straightforward process. Market movements arising from the huge transactions are also greatly subdued, and unlikely to sway prices by a significant margin.
Another noteworthy advantage is that cryptocurrency prices can be fixed beforehand by OTC trading entities, subsequently mollifying fears of sudden price slides and spikes, which could affect the final value of transactions.
This article by Elizabeth Gail was previously published on Coincentral.com
About the Author:
Elizabeth Gail is a crypto-enthusiast and a blogger. Her specialties include cryptocurrency news and analysis. When not writing about crypto, she’s out taking part in humanitarian endeavors across the world. You can reach out and engage with her on Twitter and Google Plus.
Well into the second half of 2018 and it’s been a white-knuckle roller coaster ride for most. With Ether shedding 44 percent of its value in just two weeks and the media speaking of a Bitcoin bubble, is it possible to lose faith in crypto but remain bullish on blockchain? Apparently; if continued corporate statements like the UBS blockchain endorsement are anything to go by. But can you really separate cryptocurrency and blockchain?
UBS Bullish on Blockchain, Bearish on Bitcoin
CEO of Swiss investment banking giant UBS, Sergio Ermotti, came out with a bold claim recently. He said that blockchain was “almost a must” for business. UBS blockchain support is nothing new, however. Neither is their stance that cryptocurrencies are risky and will probably never become mainstream currencies.
Yet, when it comes to blockchain, UBS changes its point of view. The bank believes that blockchain technology can help companies become more efficient and reduce their operating costs across the board, from healthcare to finance. This implies a separation between cryptocurrencies and the technology that they run on.
But is it possible to separate the two? Furthermore, since the original vision of Satoshi was to send peer-to-peer electronic payments without the need for a middleman, UBS blockchain support could be misplaced.
Disrupt or Be Disrupted
“While we are doubtful cryptocurrencies will ever become a mainstream means of exchange, the underlying technology, blockchain, is likely to have a significant impact in industries ranging from finance to manufacturing, health care, and utilities,” UBS wrote in October of 2017.
Adding that, “Just as [the] internet has transformed our lives with email, e-commerce, or smartphone apps, we believe blockchain as an infrastructure technology can power future disruptive technologies through distributive ledgers, smart contracts, tokens or identity management.”
So, what about cutting out the middleman? The centralized authority taking its fees? UBS blockchain research does acknowledge a certain level of risk, although they limit this to technological shortcomings and uncertainty as to which application will benefit the industry most. They fail to mention whether digital currencies will threaten fiat ones, or if central authorities will be cut out of the loop.
In fact, within the financial sector, UBS predicts that blockchain technology will have irreversible and positive effects. And UBS blockchain support doesn’t stop at words. The bank is also investing in research into distributed ledgers and smart contracts in its business model.
UBS currently holds a number of blockchain patents. Yet, despite Ermotti’s bullish stance, their blockchain activities are dwarfed by other large banks and credit card companies. The list includes American Express, BBVA, Mizuho Financial Group, Goldman Sachs, BNP, and Bank of America (who’s buying up blockchain patents like they’re expecting a war). Is this a bid to disrupt or be disrupted? Or a defensive maneuver to protect themselves against blockchain innovation?
Blockchain and Bitcoin Are One and the Same
Plenty of people criticize Ermotti’s point of view, seeing it as a convenient way of taking a politically acceptable view and a safe position. Leaving the door open without scaring away existing clients. Others believe that more than just convenience, it misses the point completely. After all, blockchain and cryptocurrency are one and the same.
Consider the Bitcoin network for a moment. The way it was created requires miners to believe that the value of the Bitcoin they are rewarded will increase over time (or at least, not decrease in value). Otherwise, there is no incentive or rational reason to invest in expensive mining equipment, electricity, and time.
So, for those like UBS that are skeptical of Bitcoin, but busy singing the praises of blockchain, they may not fully understand. In an interview with Malta’s Steve Tendon, a member of the country’s Blockchain Taskforce and author of Malta’s National Blockchain Strategy, he expressed his concern with viewpoints such as the UBS blockchain one.
He argued that many regulators and institutions tried to draw a distinction between blockchain and cryptocurrencies, viewing crypto as a bad thing because of its criminal associations and scams, but blockchain as a positive technology with infinite possibilities.
“There is no way you can have a smart contract platform that is as sophisticated as the one that Ethereum has implemented today (but there will be others in the future) unless you also have a cryptocurrency that is being used to “pay” for the computation. So the distinction between cryptocurrency and blockchains are really artificial: they are just two aspects of the same coin,” he said.
Ermotti and the UBS team may be making headlines with their views on transformative technology. Calling blockchain “crucial and disruptive” is all well and good. But frowning on Bitcoin at the same time may just be missing a trick.
This article by Christina Comben was previously published on Coincentral.com
About the Author:
Christina is a B2B writer and MBA, specializing in fintech, cybersecurity, blockchain, and other geeky areas. When she’s not at her computer, you’ll find her surfing, traveling, or relaxing with a glass of wine.
The meteoric rise of cryptocurrencies has taken the world by storm. Innovators, investors, users, and governments are scrambling to wrap their heads around cryptocurrency and the blockchain technology that they rely upon. The emergence of a new market and business model has created great opportunities for participants, but it also carries significant risk.
Cryptocurrencies present an inherently unique challenge to governments because of their new technology, cross-jurisdictional nature, and frequent lack of transparency. Governments are struggling to develop new ways to regulate cryptocurrencies, adapt existing regulations, and identify fraudulent schemes. Cryptocurrencies and their regulations are evolving before our eyes, and this article will provide a brief background on cryptocurrencies and an overview of where cryptocurrency regulations currently stand.
What are cryptocurrencies?
Cryptocurrency is, by any other name, a currency—a medium of exchange used to purchase goods and services. Or, as some have suggested, cryptocurrency is a “peer-to-peer version of electronic cash.” However, this currency has two qualities that distinguish it from traditional bills and coins.
First, cryptocurrency is a virtual currency that is created through cryptography (i.e. coding) and developed by mathematical formulas through a process called hashing. Second, unlike traditional bills and coins that are printed and minted by governments around the world, cryptocurrency is not tied to any one government and thus is not secured by any government entity. The fact that cryptocurrencies are not secured by a government authority has led to concerns from critics that this is the second coming of Tulipmania, because we are ascribing value to an otherwise valueless item. However, the potential for cryptocurrencies as a medium of exchange remains enormous.
What is blockchain?
Blockchain is the technology at the heart of most cryptocurrencies, and explaining the technology in detail would require a blog post of its own. What is important to know is that a blockchain is a record of peer-to-peer transactions categorized into blocks on a distributed ledger. Despite the obtuse terminology, blockchain functions similarly to a local bank authorizing and recording a transaction, but instead of only one party holding the entire ledger book, the transactions are recorded communally by member nodes, with each node being a computer in a peer-to-peer distributed network.
The blockchain can confirm a transaction within minutes, removing errors that exist when trying to reconcile and audit separate ledgers and transactions. Whenever a transaction takes place, the miners on the blockchain develop a new hash and digital signature to update the ledger and create a new “block.” This block, or recorded transaction, is time-stamped and encrypted and will remain on the blockchain for life.
Regulation in the US – Utility Tokens v. Investment Tokens
In the United States, there has been no federal regulation of cryptocurrencies. Instead, cryptocurrencies are often grouped into two non-binding categories: (1) investment tokens that fall under the purview of already existing U.S. securities laws like the Securities Act of 1933 and the Securities Exchange Act of 1934, and (2) utility tokens, which remain largely unregulated (for now).
Whether the tokens being offered in connection with a particular cryptocurrency are security tokens is decided on a case-by-case basis that even experienced securities lawyers can disagree upon. Tokens are usually analyzed under the four-part Howey Test below to see if the token is in fact a security. Securities must meet the following criteria:
- An investment of money
- In a common enterprise
- With an expectation of profits
- Predominantly from the efforts of others
Each characteristic of the token is analyzed against this framework to see if the cryptocurrency is in reality functioning as a new-age security. If it is, then regulators treat it as such, and cryptocurrencies must then be registered and handled with all of the same disclosures and precautions as any other security sold in the United States or to U.S. investors.
Cryptocurrencies can also be categorized as non-security utility tokens. These tokens purport to offer intrinsic utility and value and are typically instrumental in powering blockchain technology. These tokens function more like commodities than securities, and while they may act like currency in a fully functional network, they also have other values.
However, having a utility token with a properly formed and functioning network does not preclude said token from being labeled a security by the SEC. In, the Matter of Munchee, Inc., a purported utility token with a non-functioning network was labeled a security by the SEC. While labeling a token without a functioning network as a security – as it has no present utility – is not unexpected, the SEC also concluded that: “even if [Munchee] tokens had a practical use at the time of the offering, it would not preclude the token from being a security.”
After analyzing the Munchee Tokens under the Howey test, the SEC concluded that they were investment contracts because purchasers of the tokens had an expectation of profits predominantly from the efforts of Munchee and its staff. The SEC further concluded that Munchee had primed such expectations through its marketing efforts.
While this new case does not eliminate the distinction between utility and security tokens, it does caution that, when deciding whether a given token is a security, the SEC will look beyond utility at the character of the instrument and base their conclusion based on the terms of the offer, the plan of distribution, and the economic inducements held out by the token issuer.
So far only the state of New York has issued any kind of regulation specifically regarding cryptocurrencies: the BitLicense. BitLicense is New York’s attempt to control cryptocurrencies within its borders by requiring cryptocurrency businesses to register and comply with several different disclosure and financial obligations. The regulation has been divisive, and many businesses have rallied against its high costs. While a few companies have applied for and received the license, most other companies have simply left the state or stopped offering services to their residents.
Regulation Abroad – The Ever-Shifting Jurisdictional Question
The United States is not the only country grappling with how best to regulate cryptocurrencies. Many cryptocurrency businesses face daunting questions regarding which jurisdictions to form and to do business in. In the end, the question is quite difficult and fact-specific, requiring communication between legal counsel in different jurisdictions and taking into account nebulous and piecemeal country-by-country regulations. It is impossible to do a detailed analysis without knowing how a country’s existing securities laws, financial regulations, and banking regulations will operate (or will be adapted to operate) with cryptocurrencies. The fact that cryptocurrency-specific regulations are still developing does little to add clarity and makes the analysis even more challenging. Yet a few global trends are noticeable:
Some notable countries, like China, and South Korea, have suspended cryptocurrencies. These countries have cited the risk of fraud and the lack of adequate oversight in suspending cryptocurrencies and their exchanges, forcing cryptocurrency companies and exchanges to relocate.
Other countries, like Japan and Australia, have adopted disclosure and regulatory measures, or have companies register with the applicable government authority. Several countries have also tried to implement disclosure or registration regulatory regimes when it comes to cryptocurrencies, but such regimes are cumbersome and expensive to fledging companies.
Cryptocurrencies as Commodities
On the other hand, Switzerland and Singapore, two of the countries at the forefront of the cryptocurrency market, have simply stated that cryptocurrencies are assets, not currency and that they will treat them as such under existing regulations.
Ultimately, cryptocurrency regulation remains in its infancy. Piecemeal regulation has already begun around the world as governments enact new regulations to control and legitimize cryptocurrencies, fold cryptocurrencies into existing regulations, or ban them outright. These splintered attempts at controlling a global phenomenon will keep the cryptocurrency market volatile, and pose a challenge to innovators, investors, and users. They will continue to work in the cryptocurrency space while pushing for legislation and regulation that will remove ambiguity and legitimize cryptocurrencies. At the same time, they must grapple with the possibility that new regulations may be confusing, detrimental, or have negative inadvertent effects.
This article was previously posted on Upcounsel.com
Written by Gary Ross
About the Author:
Experienced corporate & securities attorney is eager to help you and your business reach its goals. My services range from fund formation and capital raising (e.g. Reg D offerings, crowdfunding) to contract negotiation and compliance with securities and other regulations. I have extensive experience with cryptocurrency and non-U.S. companies.
Prior to co-founding my firm, I worked in the law firms of Sidley Austin, Alston & Bird, and Holland & Knight. From 2009 to 2012, I served in the U.S. Department of the Treasury, where I oversaw financial agents engaged by the Treasury to provide asset management and other services relating to the Troubled Asset Relief Program (TARP).