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Weekly Newsletter

03/19/2018 - 03/26/2018

 

Binance Plans To Move to Malta After Warning From Japan 

Binance.jpg

Source: Quebec News Tribune


What happened?

Early last week, Binance received a warning from the Financial Services Agency (FSA) of Japan regarding its lack of an operating license within the country. Given the popularity of the exchange, the crypto community immediately started speculating what this meant for the market moving forward given reports that Binance had started expanding without official permission. Fortunately, Binance Founder Changpeng Zhao was able to comfort investors by stating there was “no conflict between Binance and the FSA” and that the company was working with authorities through this “warning”. Zhao went on to sit down with Bloomberg and announced that Binance would be moving to an office in Malta, where they would be working towards starting a “fiat-to-crypto” exchange. While he didn’t provide a time frame, he went on to state that the team is “very confident we can announce a banking partnership there soon” due to “Malta [being] very progressive when it comes to crypto and fintech”. This was supported by Malta’s Prime Minister tweeting out a welcome to the exchange as well as adding that Malta “aims to be the global trailblazers in the regulation of blockchain-based businesses”.
 

binance tweet.jpg

 
Why does this matter?

It isn’t surprising that the FSA is cracking down on cryptocurrency exchanges given the January hack at Tokyo-based exchange Coincheck (where $530 million worth of NEM was stolen). According to Bloomberg, Binance was among seven crypto exchanges to receive a warning letter in recent months from the FSA telling firms not to trade digital assets defined as securities under Hong Kong law. As we’ve mentioned in our newsletter countless times, regulatory uncertainty has led to many blockchain related businesses to take a step back and reassess where and how they operate. Malta’s move to enact regulation that is favorable to the world of crypto will certainly attract entrepreneurs who want to start diving into the space while hopefully also nudging other nations to follow in their footsteps. As we learned from the G20 conference (which we cover below), governments are being very cautious when it comes to regulating this disruptive technology so they don’t end up stifling innovation.

 
What’s the word on the street?

Binance moving to Malta is a huge signal to other nations as other countries like Lithuania and Belarus are also working towards creating a fintech-friendly regulatory environment in hopes of capturing a larger role for themselves in the growing blockchain and financial technology space. This just reinforces the utility of borderless currencies while displaying how countries who won’t play along will lose the upside from blockchain related organizations due to rules which some may see as “too strict”. Meanwhile, the crypto community continues to applaud Binance for their transparent communication through events like these as well as their intention to start a “fiat-to-crypto” exchange. Given Binance is the world’s largest cyrptocurrency exchange by traded value, it’s definitely worth keeping an eye on them this year.

 
Where can I read more?

Bloomberg: World's Biggest Crypto Exchange Is Headed To Malta
CoinTelegraph: Binance To Open Office In Malta After Japanese Regulator Warning
 
 

Asset-Based Coins to Replace Small-Cap Stocks

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Source: usethebitcoin.com


What happened?

Kevin O'Leary, a venture capitalist known as "Mr. Wonderful" on the television show Shark Tank, told CNBC in an interview last week that there is a "big deal coming in New York in the next three weeks" involving a $400 million coin offering for a "real asset you've heard of." O'Leary went on to say the coin will represent ownership in a hotel using an SEC-approved smart contract. O'Learly was unable to provide specific details surrounding the specific hotel at the time, but went on to state he believes asset-based coins will one day replace small cap stocks.

Why does this matter?

A $400 million coin offering is substantial, but the broader implications of a successful asset-based coin with regulatory approval is far more significant. It validates the use case for crypto as a means of asset ownership, which will have major impacts to traditional middlemen, like investment bankers, who take a healthy cut of the fundraising process. The on-going debate surrounding the legal definition of crypto assets may become more clear as more coin offerings target regulatory compliance before coming to market. 

What’s the word on the street?

Regulation is still widely viewed as a major headwind to crypto assets, which may be true for asset prices in the near-term. If Mr. Wonderful's hotel-backed coin offering goes through without any major issues, it could set a precedent for future crypto assets serving as securities rather than strictly utility-based. An SEC-approved smart contract would move this market one step closer to mainstream acceptance. Mainstream adoption, however, may take longer.

Where can I read more?

O'Leary Discusses Hotel ICO with CNBC
Reasons Why O'Leary's Coin Offering is Positive for Crypto
Kevin O'Leary Participates In Real Estate ICO


Regulatory Update

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The last week was another busy one in terms of crypto regulation. The Internal Revenue Service (IRS) reminded everyone to pay their capital gains coming from cryptocurrency trading. The note reiterated the 2014 Notice which classified virtual and digital currencies as property.
 
Tennessee officially recognized smart contracts under state law after Governor Bill Haslam signed a bill into law last Friday. The bill which passed through both chambers of the state legislature was first drafted in January. Tennessee joins Arizona, Florida and Nebraska* as states where smart contracts have the same legal thrust as traditional contracts under the law.
 
The Senate and House of Representatives in Maryland also announced two bills that appropriate funding to study and research blockchain technology. The Maryland Consumer Protection Commission is now mandated to study and prescribe regulatory actions later this year. The findings could potentially impact state and federal regulation in the future as it will be one of the largest public studies of the space to date. 
 
The Office of Foreign Asset Control (OFAC) indicated that they may include cryptocurrency websites on their blacklist. The list is made up of persons and entities with whom U.S. businesses and individuals are forbidden from interacting with. Typically the OFAC blacklist is made up of sanctioned or criminal entities. Though any definitive action has yet to be taken it is unclear how exactly any proposed rules would be structured. Financial institutions are required to conduct due diligence on any entities they conduct business with though this would be significantly harder with blockchain addresses. This is certainly a situation worth monitoring.
 
Shaktikanta Das, a former secretary of economic affairs in India, was quoted saying “Let us accept that it would not be possible to regulate it [bitcoin] effectively”. This is notable as he was originally tasked with setting up a government panel to study blockchain technology and recommend regulations. Though the policy impact of Das’ outlook is unclear, India has been hesitant to accept digital currencies as legal tender. The government regularly cites the fact that digital currencies do not have an asset base from which to derive value.
 
British Chancellor Philip Hammond announced a cryptocurrency task force that was tasked with regulating digital assets in the U.K. The City Minister, John Glen, was quoted saying “We remain agnostic and are engaged in trying to find the right narrative and the right level of regulation if that’s appropriate”. Additionally Glen went on record saying that there could be a “flourishing” crypto exchange in London if regulation leaves room for innovation. It is unclear what he meant by this as many digital asset exchanges operate without borders though employees and offices still retain physical location. 
 
*The Nebraska legislation has not yet made it to a floor vote
 

Anything Else?

Social Media Platforms Continue To Clamp Down On ICO Ads

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Source: AdWeek

Last week, we touched on Google banning ICO ads and how this impacts the market going forward. Predictably, Snap Inc. has followed in Google and Facebook’s foosteps and decided to start banning ICO ads as well. As we mentioned before, this can actually be positive for the space going forward given these bans are obviously targeting the obvious scams that were promising returns. The average investor within the crypto space at the moment probably does not rely on Social Media platforms like Snapchat for investment advice, so we didn’t see a huge reaction from this news throughout the week. 

Twitter followed this morning with a similar response, despite their CEO, Jack Dorsey, being in the news for his bullish view on Bitcoin. Jack, who is also CEO of the payment service Square, stated that he believes Bitcoin will become the world’s “single currency” within a decade despite the complications it currently has. This follows him announcing that Square will focus on interacting with cryptocurrencies more just last month.

Read more here: Twitter to Ban Cryptocurrency Ads

What we're watching this week:

What: Blockchain West Summit
When: March 26 - 28th, 2018
Source: Blockchain West

What: North American Digital Commodities Summit
When: March 26, 2018
Source: S&P Global
 

Things we're reading this week:

JP Morgan Considers Spinning Off Quorum 
Twitter CEO Believes Bitcoin to be 'Single Currency'

Colorado Lawmakers Propose Using Blockchain for Data Protection

Smart Contracts Now Recognized Under Tennessee Law

The Office of Foreign Asset Control Addresses Virtual Currencies

Anil Lulla