Tag: investor protection

Will 2019 be the year of STOs?*

It is past the middle of January. Time of the World Economic Forum in Davos, time of skiing, time of January blues and Siberian frosts, time of sitting by the fireplace with a good book and a glass of hot mulled wine… or, on the contrary, time of meditating under the shade of palm trees somewhere in Vietnam…  Hope you have had great winter holidays, because after the November market meltdown when bitcoin lost 36% of its value, we all needed some relaxation. But now it is time to look at the crypto market with a sober glance. June 2018 was the last month when the ICO market demonstrated stellar performance, and investors fueled more than $5.8 billion. For the rest of the year the ICO projects raised from $450 million to $1 billion per month. "The crypto gold rush has left behind too many casualties; many non-accredited investors and speculators were victims to really bad ICO punts. So many ICO projects performed so bad, exasperated the recent bearish market conditions, with some even reporting over 99% losses from their all-time high prices”Andrei PopescuCo-Founder of COSS.IO   “And we have warned you!” say regulators to thousands of investors who are nursing their wounds. To be fair, they did warn. ICOs are "vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raise in a short period of time," said the Monetary Authority of Singapore (MAS) as early as in August 2017. Still, so far regulators have done little to protect companies that deal with crypto assets and institutional investors that are ready to invest in them. An investigation carried out by the WSJ shows that $88.6 million has been laundered through 46 crypto exchanges since 2016. Few of the market participants noticed an event that may have far-reaching consequences for all of them. In November 2018, during the market meltdown, the first security token exchange, OpenFinance Network, was launched. It listed two of the earliest security tokens: Blockchain Capital (BCAP) and SpiceVC.  This launch marked the beginning of the new era of the security token industry. STOs are often defined by the formula: “ICO + Legal Compliance = STO” The basic difference between ICO tokens and security tokens is that the latter represent investment contracts. Paradoxically, but the very idea of such tool might be proposed by the SEC chairman Jay Clayton who said once: “I believe every ICO I’ve seen is a security”. Security tokens are digital assets that are subject to federal and global security regulations.  "I’m confident that STOs will be hugely popular by 2019 as they offer a familiar path for traditional investors to enter the space and an array of benefits compared to both the traditional finance sector and ICOs"Andrei PopescuCo-Founder of COSS.IO   Strangely enough, but STOs might be a by-product of the insufficient regulation. STO sales give some legal rights to investors. If an STO fails, its investors will be able to get some money back, because the issuer has some legal obligations. Besides, security tokens are traded on compliant trading platforms only. “With more than $256 trillion in real-world assets that have yet to be tokenized, STOs present a real alternative for companies and investors. Hosting an IPO is undoubtedly expensive. With an STO, companies can allow for investment through tokenization, which significantly cuts admin and legal costs while keeping the company and the process transparent. With improved regulations, STOs will become the more desirable choice for investors as increasing amounts of VCs and Family Offices eye-up the space, hoping to capitalize on the distribution power of ICOs with a legal, secure method of investing.”Andrei PopescuCo-Founder of COSS.IO   To put it differently, market participants decided to take the matter in their own hands, while regulators are trying to find a way to tackle money laundering in the crypto sector.  While the industry is experiencing barbarian growth, self-regulation takes the major role in terms of customer protection, and that’s risky, says Johnny Lyu, KuCoin VP. “After all it will be the market that’s the most powerful. And where there is a market, there are rules, and regulators. There is nothing wrong about regulations, it is to clean up the market.” In October, 2018 the Paris-based Financial Action Task Force (the global watchdog for money laundering) promised to set up its first rules on oversight of cryptocurrencies by June, 2019. “There is an urgent need for all countries to take coordinated action to prevent the use of virtual assets for crime and terrorism”, FATF says. Meanwhile, at least one country that has already legalized STOs. It is Uzbekistan. In 2018 Uzbekistan President Shavkat Mirziyoyev created Digital Trust fund to invest in blockchain-related startups and research and development. Now the Digital Trust is looking at STO and starting to build the framework for it, said Bobir Akilkhanov, its investment director. The Cryptonomos Blog wrote about the three Middle Asian countries (Kazakhstan, Uzbekistan and Kyrgystan) as they attempt to position themselves at the forefront of blockchain technology adoption.     * This article is based on the exclusive interviews with top-managers of several crypto exchanges. Cryptonomos is most grateful to Andrei Popescu, Co-Founder of COSS.IO; Johnny Lyu, KuCoin VP; Srdjan Mahmutovich, Kriptomat CEO; Jason Wang, CHAOEX CEO; Max Grain, Product Management Executive of Bitlish, and Alex Strześniewski, Business Development Director at CoinDeal.

Articles/January 22, 2019
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Crypto Regulations in 2019: What to Expect?

Bearing in mind the sensitiveness and volatility of the crypto market that we are witnessing right now, it can surely be said that next year regulators will stop being undetermined about crypto. Many countries, which have been implementing ambiguous and non-transparent policies so far, next year will likely take a holistic view of crypto.  So, what should we expect of 2019? Generally, governments will place due emphasis on two areas: taxation and investor protection. For the record, several countries like Poland and Japan already formulated crypto tax policies in 2018. In general, crypto regulations will become more widespread and harmonised. As you’ve already guessed, today we’ll talk about crypto and ICO regulations and how lawmakers are going to surprise the community in 2019.  Europe In October 2018, European regulators have explained that specific rules for crypto and ICO are on the way. Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said he was examining how ICOs fit into existing regulation and how they affect competition in the wider capital raising sector.  In addition, ESMA released a 2019 Annual Work Programme, which included a primary objective for the upcoming year:  “Achieve a coordinated approach to the regulation and supervisory treatment of new or innovative financial activities and provide advice to present to the EU institutions, market participants or consumers" Interestingly, the plans were revealed according to which ESMA is going to invest more than €1 million in order to develop a framework for overseeing cryptocurrencies and other fintech activities in 2019. However, in August 2018, the European Parliament’s Committee on Economic and Monetary Affairs published a proposal to impose new laws for ICOs in order to protect "consumers who are at risk from fraudulent activity taking place in this market". Speaking of taxation, French government recently claimed that it planned to boost its tax revenues by providing a regulatory cover for ICOs. It appointed a new tax force to draft regulations for ICO projects launching in the country. China  Turbulent approaches towards crypto have made China a hot topic for crypto community so far. However, in 2019 we should expect Chinese regulators to follow Japanese-like policies. An official from the Ministry of Industry and Information Technology in China recently confirmed that the authorities were working towards setting up national crypto-standards which would make decentralization and blockchain technology flourish. Li Ming, who is the director of the Blockchain Research Office at the standards institute under the Chinese IT Ministry, also revealed that a number of relevant government departments would be working toward establishing a nationwide ‘Blockchain and Distributed Accounting Technology Standardization Committee’. Malaysia  Malaysia is considered to be attractive for foreign investments as it has a highly diversified and robust economy. The country allows Bitcoin mining and trading with no restrictions.  However, the Central Bank of Malaysia recently issued a statement that Bitcoin is not considered to be legal tender and its users are poorly protected from fraudulent schemes and operational risks. The year 2019 is going to boost crypto development in Malaysian ‘hub’. According to local media, the government will enact regulations for cryptocurrency and ICOs in Q1 2019. This move is explained as a “part of the Securities Commission’s efforts to facilitate alternative fundraising avenues and new investment asset classes”. Looks like crypto investment flows are inevitable for Malaysia in the upcoming year.  World  Should we expect the international taxation in 2019? That is the question we all ask to ourselves. And it’s especially relevant in the context of recent meeting of G20 group leaders. In early December, they gathered in Buenos Aires to discuss global issues. One of the topics covered was cryptocurrency and how to regulate it in the best manner. According to the report, it is stated that G20 leaders are seeking to “build a taxation system for cross-border electronic services“. However, that’s controversial. While many are preparing their business for new taxes, others don’t even see any innuendo related to crypto. Gary McFarlane, a crypto analyst, thinks that it's not certain that the G20 focuses on crypto specifically:   "The G20 final communiqué doesn’t really add anything new. The statement in paragraph 26 of the communiqué talks about “the impacts of the digitalization of the economy on the international tax system”, but I think that has been misinterpreted by some as a call to tax cross-border transactions when in fact it is more a reference to finding solutions to global Big Tech corporations declaring their profits in low-tax jurisdictions". Most likely, in 2019 cryptocurrency will be losing one of its natural features – users’ anonymity. The pervasive AML and KYC procedures will be carried out in order to prevent money laundering, terrorist funding, exit scams, etc. However, if we want to operate in a stable and mature environment, we all have to make sacrifices. 

Articles/December 20, 2018
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