October 1 – 7, 2019 | Canadian Fintech, Institutional Developments, and More
3iQ Research Group consolidates the top five cryptoasset stories of interest to investment advisors and our investors.
Canada Needs to Take More Chances With Fintech
October 2 – An article on Financial Post has suggested that Canadian regulators and lawmakers have been too cautious and slow to adapt to fintech, putting Canada at risk to falling further behind other world leaders such as China and India in consumer adoption. According to Ernst & Young’s 2019 Global Fintech Adoption Index, Canada is 14 points behind the global average of 64% for consumer fintech adoption. While fintech adoption in the United States is 18 points behind the global average, the country hosts a vibrant startup funding ecosystem and maintains a historically aggressive approach towards legislative changes. “Despite numerous government consultations, fintech-related legislative changes have been rare and slow-moving, and some proposed rules — like the CSA / IIROC framework for crypto-asset trading platforms — may increase regulatory costs rather than reduce entry barriers,” said the article.
Canadian Bitcoin Mining Firm Hut 8 Gets Uplisted to the TSX
October 3 – The Canadian bitcoin mining company Hut 8 (TSXV:HUT) has announced that it will become the first crypto-focused company to list shares on the Toronto Stock Exchange. Hut 8 will begin trading on the Toronto Stock Exchange on October 8, 2019. In a recent press release, Hut 8 announced that it had met all the necessary requirements to uplist to the Toronto Stock Exchange from the TSX Venture Exchange, apart from raising money through a public prospectus. The company has so far raised over $100 million CAD through private placements and debt. “The TSX is the fourth-largest exchange in North America and one of the largest in the world. Being listed on the TSX will broaden the investor audience for Hut 8 and the hope is that will lead to more investor interest and liquidity for the shares,” said Andrew Kiguel, the CEO of Hut 8.
October 6 – Jeff Dorman, the Chief Investment Officer of Arca Funds, has provided an insightful overview on what it takes to run a crypto-focused investment fund. Jeff Dorman is a CFA charterholder and has spent 18 years on Wall Street and in fintech before pivoting towards crypto-centric fund management. Dorman notes that starting a successful crypto fund can be incredibly complex as service providers, systems, tools, and valuation techniques are essentially “brand new”, meaning the fund company is working with an “incomplete deck” as it attempts to increase its assets under management (AUM). Dorman highlights that operational processes are the most time-consuming factors for starting a successful crypto fund. In traditional asset management, operations teams may evaluate new service providers around three times per year. Within crypto fund management, Dorman notes that the evaluation of service providers occurs around three times per week, as there are “no incumbents that dominate” and the “barriers to entry as a service provider are near zero”. Dorman claims that managing risk in a crypto fund can be exhausting, as crypto markets are open 24/7 and momentum doesn’t necessarily stop at the end of a typical trading week. “While 24/7 trading is a feature and not a bug of crypto investing, there are some benefits to the legacy financial system’s trading hours. Even the worst weeks come to an end, allowing the market to collectively reset. In crypto, there is no reset (unless forced upon participants manually), so momentum has no natural off switch,” said Dorman.
Institutional Interest for Cryptoassets is Growing as Exposure Increases
October 6 – A comprehensive report from BlockFi has analyzed institutional activity towards cryptoassets within the United States. The report pulled data from hundreds of funds across the country by analyzing SEC-required filings of business activities for mentions of cryptoasset terminologies such as “bitcoin”, “crypto”, or “digital currency”. The report notes that of the 40,000 total registered investment advisors in the country, 10,500 of them manage private funds such as private equity funds, VC funds, or hedge funds. Surprisingly, only 201 of these funds have cryptoasset-related exposure. Of the 201 private fund managers invested in cryptoassets, 18 of them have a total wealth of over $1 billion USD. Combined, these 18 managers have $286 billion in assets under management (AUM). While institutional interest in the cryptoasset sector has been growing, it’s still in its relative infancy, as just $3-5 billion USD in AUM from these managers has moved into cryptoassets thus far.
Bitcoin Trading Volume in Hong Kong Hits New High as ATMs Run Out of Money
October 6 – While protests in Hong Kong continue to escalate, residents are beginning to report that many ATMs across the region are now empty. Long lines are also beginning to form around ATM machines across Hong Kong as residents have attempted to withdraw cash from their bank accounts. There has been a recent surge in concern that China has been following several protestors in Hong Kong by tracking their digital payments. Kyle Bass, a Chief Investment Officer at Hayman Capital Management, noted on Twitter that the scenarios are beginning to look a lot like “bank runs”, as there is fear that China could pass an emergency bill which could freeze a Hong Kong citizen’s assets arbitrarily. To coincide with banking fears across the region, there has been a recent surge in bitcoin trading volume within Hong Kong. LocalBitcoins, an over-the-counter (OTC) trading platform, saw the highest ever trading volume in Hong Kong this past week, suggesting that some residents are choosing to move their assets to bitcoin in efforts to protect themselves.
3iQ Corp. (“3iQ”) is the first Canadian investment fund manager to agree to terms and conditions with the Canadian securities regulatory authorities which permit 3iQ to manage a multi-cryptoasset investment fund available to Canadian accredited investors. 3iQ provides accredited investors with exposure to bitcoin, ether, and litecoin through its 3iQ Global Cryptoasset Fund.
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