Michael Casey, chairman of coindesk’s advisory board and a senior advisor at MIT’s Digital Currency Initiative has a different view of the much-discussed ‘Bitcoin Bubble’. While most commentators present a ‘bubble’ as a harbinger of doom, he sees it as a positive situation.
He likens it to the late 1990s dot-com boom, and while he acknowledges that there are some who will disagree with him, he has suggested that what he refers to as the “Pets.com phenomenon” was a constructive event and that we should approach the ‘crypto bubble’ from the same perspective.
How does he reconcile the ‘boom and bust’ of the dot-com era with a positive outlook? Read on and find out.
Yes, he admits that many crypto coins will fail and people will lose money. But, he applies a theory from Carlota Perez, a Venezuelan theorist who wrote about the interplay between technology and capital markets in an influential book called “Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages.”
She claims that bubbles and their collapse are “an integral, in fact necessary, part of the economic dynamics through which transformational technologies take root in society.” Speculation, she says, is unavoidable element during time of technological transformation. Actually, the same could be said of gold, spices and tulips. As Casey puts it, “Whenever a new technology contains a wide-enough accepted promise that it can redefine core aspects of how our economy functions, people start throwing money at it.”
Why do we behave like this? According to the theory it’s because nobody really understands how things will turn out, and who the winners and losers will be. We just know that something big and important is happening, so we all get involved in wild and unstructured speculative behaviour.
Mike Casey believes we should see the ‘crypto bubble’ as “an affirmation that the technology we’re all so excited about it does indeed have huge potential even if it is still too nascent for major, disruptive deployment in the mainstream economy.”
How this will play out, nobody yet knows, but if Casey is right, we can be fairly sure that we’re on the road to building a transformational open-access platform that represents a collective evolutionary step – even if the bubble bursts along the way.
Parts of Western Europe have been at the mercy of the “Beast from the East”, an icy wind that swept down from Siberia bringing havoc in its wake. Now a different kind of chilling wind is blowing in from the USA as regulatory bodies talk about putting ICO token trading on ice for 12 months.
As Mike Lempres, chief legal and risk officer at Coinbase put it, “the market is being chilled.” As crypto entrepreneurs in the U.S. shiver, it seems that months of uncertainty about how the country’s regulatory bodies would approach “wanton market growth” is coming to a head, if perhaps not an end.
Events leading up to this include the SEC’s announcement last week that
it is investigating companies and startups associated with ICOs. As a result, which Brady Dale writes about at Coindesk, “entrepreneurs are largely surrendering on the idea that new cryptocurrencies created and sold to investors could be considered so-called ‘utility tokens,’ a term denoting a digital commodity meant to represent the share of a blockchain protocol.”
However, these companies still have a problem: as yet there are no registered broker-dealers capable of trading security tokens in the U.S. Furthermore, and this view comes from a number f ICO founders, when they do issue tokens under a Schedule D exemption, a 12-month lock-up is still required.
A statement from Nick Ayton, CEO of Chainstarter, who was in a panel discussion at the MIT Bitcoin Expo on 17th-18th March, addressed this issue. He predicted that the SEC will view all tokens as a security and stated: “Most exchanges are listing coins that are securities, and our view is a large number of these exchanges are going to be closed.”
Another voice at the conference, that of Gary Genseler, an MIT professor and former CFTC chair, said: “I think it is without a doubt that numerous exchanges will have to seek exemptions under alternative trading system [rules] because many of the exchanges, not all, have tokens that are securities trading on them.”
Currently, the problem is that even when companies want to comply with the rules, they still don’t know what the rules are. There is some knowledge about what is forbidden, but when it comes to avoiding the wrath of the SEC they are operating in the dark.
Munche is cited as the case that alerted some to what was coming from the SEC. This little known ICO received a bunch of subpoenas from the SEC, requesting information typically includes lists of investors, emails, marketing materials, organisational structure, amounts raised, the location of the funds and the people involved and their locations. In the case of Munchee, “what the federal regulators think of as a utility token and not a security token is so small, and the eye of the needle got even smaller,” said Joshua Klayman, legal counsel at Morrison Foerster.
What will be the end effect of this chill factor in the U.S? Well, Mike Lempres of Coinbase told Congress about one potential scenario if the United States doesn’t “provide a clear, thoughtful regulatory environment, the investment can very quickly move to other countries.” Perhaps that will encourage the government and its regulatory bodies to bring a little sunshine to its crypto companies.
The whole point of cryptocurrencies is that they only exist online; they’re never going to jangle like small change in your pocket. All of us involved in the crypto world know that online theft is a risk, albeit one that can be mitigated by storing crypto assets in cold storage. Now, with more people taking crypto security more seriously, and better security tools available, we find that the crypto thieves are taking their activities offline. How can they do that?
The answer is: they are targeting those wise investors who store cryptocurrency offline and, in addition to this, they are finding out the identity of these crypto investors and actually attacking them in the street. As Darryn Pollock in Cointelegraph writes: “A number of cases have been reported where Bitcoin owners are being attacked face-to-face by thieves and being forced to deposit huge amounts of digital currency into anonymous wallets.”
He also cites the case of a Russian businessman who was held hostage on the Thai island of Phuket and forced to log in to his BTC account and pay $100,000 for his release.
This is a shocking development, but there are some steps crypto owners can take to avoid a face-to-face mugging. For a start, never brag about your Bitcoin account balance. Don’t post online about how much you have made in an amazingly short period of time. Would you normally tell people how much you have in your bank account? No, we don’t discuss those things, even with close friends. So, why do it with a crypto account?
Another Russian (they seem to be particularly unlucky) called Pavel Rashin was attacked and robbed in his home. They took about $425,000. They didn’t come for his BTC, but he had publicised online that he had recently become a millionaire thanks to his crypto investments. That was enough to make thieves take an interest in him and as he has an online blog, he wasn’t that hard to find.
Of course, if you’re a famous crypto investor, it is impossible to stay out of the news and there have been some high profile kidnappings, including that of the director of a currency exchange in the Ukraine.
So, don’t talk about your crypto assets publicly. Then take a technical step by setting up a multisignatory wallet. Wallets that require confirmation from multiple addresses to make a transaction permit allow the controlling keys to be spread out to different deposit boxes, banks, safes, and other locations. Therefore, even if one key is compromised, you still have control over your funds.
And finally, if you are faced with theft – give them the crypto. Your life is always worth far more.
Chief Minister Fabian Picardo kicked off the event with a simple and clear message to all those in attendance:
”Gibraltar is open for business.”
Gibraltar Ahead in the Regulatory Space
With jurisdictions around the world trying to figure out how to regulate the blockchain industry, Gibraltar has already put in place a DLT regulatory framework based on best principles and is currently looking to release new accompanying regulations that focus on token sales within the jurisdiction. A bill is expected through the Gibraltar parliament in Q2 this year showing Gibraltar to be world-leading in this space.
The Minister for Commerce, the Hon. Albert Isola, whose Ministry has been driving the fintech and blockchain agenda in Gibraltar also addressed the full conference hall onboard. When talking about the jurisdiction’s continued development, the Minister made it clear that as a government, “we are not scared of innovation.”
He added that the government is looking to continue to operate with consumer protection at the heart of what they do.
With a wide variety of speakers in attendance, the focus was well and truly on regulations for blockchain and ICO, a sector that is booming and hit an astounding $3.7bn during the course of 2017.
Gibraltar Financial Services Commission on ICO Regulations
Sian Jones and William Garcia from the Gibraltar Financial Services Commission (GFSC) also gave a talk and answered questions from the crowd. The same event last year saw the GFSC present their DLT regulatory framework to attendees and the wider world, this year it was their proposed ICO regulations.
Sian Jones emphasised that the regulator would not be regulating individual ICOs but those that brought the token sales to market, adding that “it’s not the role of the regulator to approve any individual token offerings,” rather highlighting how regulations are implemented is as important as the rules themselves.
Sian added: “We as a regulator will not be setting a single code of practice that should be set by the market.”
A lot like the Gibraltar Blockchain Exchange (GBX) with its network of Sponsor Firms, the GFSC sees this emerging market needing the creation of “authority sponsors that are accountable to us [GFSC].” This format would encompass GBX, which already comes under the scope of the DLT regulations, effectively making it an ‘Authorised Sponsor’ which could open up many pathways of opportunity for the exchange.
During the presentations Q&A, the GFSC spoke of their core desire to embed consumer protection at the heart of their work, whilst being supportive of helping grow and develop this innovative industry: “Tokens as a new asset class are isolated from financial advice, but it is right that it should be regulated for consumer protection.”
The DLT Licence Experience
In the morning of the first day, GBX CEO Nick Cowan moderated the panel “The DLT Licence Experience to Date.” Joining Nick was Joey Garcia from Isolas, Anthony Provasoli from Hassan’s and Jay Gomez from Triay & Triay.
Nick prophesied 2018 to be “the year of the regulator,” pointing out that Gibraltar has the unique first mover advantage of having a regulator that truly understands this space, and is so accessible and open to dialogue. Nick began the panel by categorising the ‘DLT licence experience’ into three distinct areas, Government & Regulators, DLT advisors such as Gibraltar’s law firms and the users of DLT licences such as GBX, each with their own distinct experience.
Joey Garcia, who was a part of the working committee regarding the original DLT framework explained the reasons for a best principles approach by stating: “Let’s build a ground-up framework that is evolutional.” Nick complimented Joey’s sentiments by highlighting the collaborative nature of the DLT framework: “There is a trinity of bodies here, government, industry and users, coming together to find a solution”
The panel concluded that although Gibraltar has been successful in locating and nurturing emerging markets, such as e-gaming, it has seen an explosive reaction to its leading role with the DLT regulation.
Anthony Provasoli pointed out “3 years ago nobody knew where Gibraltar was, but that is very different today, especially in the last 12 months.” He also highlighted his experience on the perception of Gibraltar saying: “Clients love the fact they can come and sit down with the regulators and have an open discussion.” The panel’s experience echoed the Chief Ministers opening comment that Gibraltar is open for business.
The panel also touched on the subject of Brexit in relation to Gibraltar, which despite the outcome is making strides in placing itself strategically between Britain and the rest of Europe. Joey Garcia believes that due to the global connection of blockchain and the cryptocurrency market that Brexit would not have a negative impact, by saying: “High level, I don’t think it [Brexit] will affect this space.” It is a testament to that strategic approach of Gibraltar to pioneer itself in this emerging technology and become a forerunner ahead of the Brexit transition.
Challenges in the Current Crypto Exchange Landscape
Nick later participated in a panel entitled “The Crypto Exchange Landscape for 2018” moderated by Joey Garcia with Vitaliy Kedyk of CEX, David Honeyman from Lendo, and David Gyori of Banking Reports alongside Nick. The panel discussed the challenges of AML/KYC with current cryptocurrency exchanges, with Nick detailing how the GBX intends to create a new industry standard of governance and due diligence for token sales within a rules-based system that would gain access to a large pool of KYC cleared participants.
The question of centralised vs decentralised exchanges was debated, with a consensus forming that if blockchain technology is still in its early developments, then decentralised exchanges are far off in that timescale development. With the current challenges that existing exchanges face around AML/KYC, accountability and consumer protection, decentralised exchanges would not contain a solution. Vitaliy emphasised this by saying: “Decentralised exchanges can’t deliver the real user experience” which the panel agreed that if this space is to be adopted by mainstream consumers, the user experience would be of paramount importance.
Nick was invited to close the 1st-day proceedings of the conference. He championed Gibraltar for its bold stance on the global stage as a home for those businesses that are utilising DLT technology. Mirroring the success story of GBX and its successful completion of raising $27M in the RKT token sale, with the way Gibraltar fostered the exponential growth of the e-gaming industry a parallel to what we are witnessing in the blockchain space. Nick finished by telling the packed out audience that Gibraltar is open for business and made a call out to those looking to Gibraltar as a home for the business to “give us a chance”.
Blockchain Innovation in Gibraltar and Beyond
A key moment during the 2nd day of the conference came from Philip Young, the Marketing Director of GBX. Phil gave a presentation on the Blockchain Innovation Centre (BIC) an initiative set up by the Gibraltar Stock Exchange (GSX) to help create a hub of blockchain innovation in both Gibraltar and further afield. Phil gave the three bedrock tenants that would “Educate, Inspire, Connect.” Phil spoke of the BIC’s offer of a network of experts that would help select, fund, advise and guide blockchain-based startups in Gibraltar. Additionally, Phil proposed the idea of the BIC helping to establish educational programs seeking out universities both abroad and in Gibraltar to encourage collaborations.
Despite the heavy wind and rain hammering the Rock of Gibraltar, attendance was still high over the two-day event, with great networking opportunities between the panels and presentations. It was encouraging to see that more than 180 of the 300 attendees had travelled to Gibraltar for the event demonstrating that Gibraltar is quickly establishing itself as a global hub for all things crypto & blockchain.