Category: Initial Coin Offerings

What decision will the SEC make about Ethereum?

On By mehranmuslimiblogIn Ethereum, Fintech, Governments, ICO, Initial Coin OfferingsLeave a comment

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This week, Monday May 7th to be exact, the Security & Exchange Commission (SEC) started a series of meetings to decide whether Ethereum 9ETH) is a security. At the moment we’re not sure how the decision will turn out, but let’s think about what the SEC will be considering and how it might affect ETH owners.

If you’re an ETH owner, you might expect to see two extremes as a result of any decision: an unexpected high, or a devastating low. For example, if ETH is considered a security by the U.S. government, then there may be a negative, short-term price reaction. However, because Ethereum’s underlying technology, is borderless and does not depend on the opinion one country’s regulatory committee, its long-term prospects should be unaffected. And, if it is decided that it is not a security, then it is very likely that the long-term prospects of the technology and its financial standing within the community will prosper.

If no decision is made about the status of ETH we might see a major upsurge in the market, especially as Buterin and his developers have been talking up new solutions for scaling in recent days and while this might be a short-term uplift in the market, there is also reason to think it might become a long-term trend.

What is Ethereum saying?

For it’s part, ETH founders are sure that it is not a security. Joseph Lubin, one of the co-founders said prior to the SEC meeting this week: “We spent a tremendous amount of time with lawyers in the US and in other countries, and are extremely comfortable that it is not a security; it never was a security… many regulators that matter understand what Ethereum is.”

Will the SEC agree with Lubin’s assessment, and with the way other regulators claim to see it – that I what we’re waiting to find out.

 

 

Is the crypto market history repeating itself?

On By mehranmuslimiblogIn Bitcoin, Blockchain, Ethereum, ICO, Initial Coin OfferingsLeave a comment

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At the turn of the twentieth century, Jesse Livermore wrote a book titled “Reminiscences of a Stock Operator.” It’s about his life as a trader. One of the things he said back in 1900 was this:

 “When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.”

And he also wrote: “I used to think that people were more gullible in the l860’s and ’70’s than in the 1900’s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.”

Doesn’t this sound familiar? It does to me. It’s pretty much what people are writing about the cryptocurrency market. It’s a bubble, it’s a Ponzi scheme, it’s another boom and bust.

But the most important point he makes is this: that the game doesn’t change and neither does human nature.

The derivatives market provides us with a good example of the sameness between what is happening in crypto now and markets of the past. A derivative is “an arrangement or product (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset, such as a commodity, currency, or security.” Derivatives trading has been around since ancient Mesopotamia. For example, a tablet from 1809 BC documents a Mesopotamian merchant borrowing silver, promising to replay it with sesame seeds “according to the going rate” after six months.

The Briitish South Sea Company of 1711 led to a wave of new joint-stock companies with dubious business plans that created one of the first bubbles, alongside the Dutch tulip fever.

What emerged from this was the realisation that derivatives, and now the crypto market, need governance and regulation. Self-policing must be encouraged, and work in tandem with government-enforced rules. Bad actors must be kicked out of the market, just as they were in early days of the London Stock Exchange.

 

 

 

There’s another way to look at Crypto Tokens

On By mehranmuslimiblogIn Bitcoin, Blockchain, Ethereum, Fintech, ICO, Initial Coin OfferingsLeave a comment

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Crypto tokens, and their ICOs, have taken a fair amount of bashing in the media over the past few months, but a paper published by two researchers from MIT and University of Toronto, argues that utility tokens might have a “valuable price discovery role,” according to Coindesk. It also suggests that tokens that act as ‘true commodities’, which the report authors attribute to Bitcoin and Ether, could offer the same service.

When you look at crypto tokens form this perspective, it looks like consumers could turn out to be the biggest winners, provided the tokens are correctly designed.

The paper, called, Initial Coin Offerings and the Value of Crypto Tokens by Christian Catalini (MIT) and Joshua S. Gans (University of Toronto) explores how entrepreneurs can use initial coin offerings — whereby they issue crypto tokens and commit to accept only those tokens as payment for future use of a digital platform — to fund venture start-up costs. It makes interesting reading for ICO entrepreneurs, because as the paper’s synopsis states, “the ICO mechanism allows entrepreneurs to generate buyer competition for the token, which, in turn, reveals consumer value without the entrepreneurs having to know, ex ante, consumer willingness to pay,” amongst other things.

In fact, it goes so far as to claim that in the future, tokens will “empower consumers to choose an optimal price for a service collectively.” It also looks at the benefits of tokens, including the aforementioned benefits of entrepreneurs being able to test the token fundraising model with consumers to see how it goes. This could greatly minimise risk for ICO startups and their founders.

As we have seen, regulatory bodies like the SEC have started to show more interest in ICOs and the remarkable sums of money they are capable of raising. However, Gans, told Coindesk: “”The problem the regulators have is they don’t know what the goals are. Instead the regulators are coming in saying ‘I don’t really know how the market should be working, but it smells terrible.'”

This new paper and its authors want to start a new conversation about “the right way to think about tokens so that societies could rationally consider the correct approach to managing them.”

It’s a more helpful and sane approach than the ‘just ban them’ rhetoric that is coming from some corporate entities and other organisations. It is not against regulation; that is necessary for transparency and consumer comfort. As the guys admit, they have no idea how the ‘token economy’ will play out, but they have laid the groundwork for more research and more balanced thinking. That’s a good start.

 

 

 

The ICO Chill Factor

On By mehranmuslimiblogIn Bitcoin, Blockchain, Ethereum, Fintech, ICO, Initial Coin OfferingsLeave a comment

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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.