October 15 – 21, 2018 | AML Standards, Ethereum Art & More Crypto News
3iQ Research Group consolidates the top five cryptoasset stories of interest
to investment advisors and our investors.
Now It’s Crypto’s Turn for ‘Legalization’
October 17 – Now that Canada has legalized the recreational use of marijuana, Canadian regulators may get back to addressing the compelling changes that crypto and blockchain have brought to our society. Given the parabolic rise in popularity of marijuana and cryptocurrency investments, along with surging valuation arguments and a growth in use and regulation, it is no surprise that millennial investors are drawn to them. However, unlike marijuana, regulated funds that hold cryptocurrencies such as bitcoin are still not directly accessible by Canadians, and having direct ownership of cryptocurrencies still poses a challenge for investors looking to take a stake in the next potential technology rush. Realizing returns in Canadian dollars with cryptocurrencies has become arduous and intensive on crypto exchange operations since many are based overseas, and major Canadian banking institutions still don’t offer custodial services or crypto consumer products of their own.
Unlike the marijuana market, in which over 90 equities are traded on Canadian stock exchanges, real cryptocurrencies are still largely difficult to profit from, as they are difficult to access on bank brokerage platforms and retail trading outlets. “Hopefully we will see that the government will turn their spotlight to bitcoin and other cryptoassets”, said Fred Pye, the President and CEO of 3iQ Corp.“ We believe in the foreseeable future cryptocurrencies and the blockchain technology will have positive economic impacts, as marijuana has. We hope millennial investors will focus on the ‘high’ of progressive technologies too.”
AML Watchdog Plans First Cryptocurrency Rules by June
October 19 – The Financial Action Task Force (FATF) is an inter-governmental body with headquarters in Paris, founded in 1989 with the objective to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF has said that global jurisdictions need to bring in licensing schemes and more regulations for cryptocurrency exchanges and other wallet providers under their new rules that are expected to be released in June 2019. The news follows a meeting held by the FATF last week that packed over 204 global jurisdictions discussing crypto regulations and other matters relating to digital assets. Back in July 2018, G20 member counties were eyeing an October 2018 deadline for advancements in anti-money laundering (AML) standards surrounding cryptocurrencies.
The G20 meeting sought a “vigilant” monitoring of cryptocurrency exchanges and wallet providers, and the FATF was called-upon to determine if their existing AML standards could be applied to the crypto industry. In a statement released last Friday, the FATF group said that “as part of a staged approach, the FATF will prepare updated guidance on a risk-based approach to regulating virtual asset service providers, including their supervision and monitoring; and guidance for operational and law enforcement authorities on identifying and investigating illicit activity involving virtual assets.”
Goldman Bets on Crypto Custody with Billionaire Mike Novogratz
October 18 – The major investment bank Goldman Sachs and former billionaire partner Mike Novogratz of Galaxy Digital have recently invested in a crypto custody service called BitGo. Through a recent series B fund round, BitGo has raised $58.5 million USD. Goldman Sachs and Novogratz together contributed approximately $15 million USD as client interest continues to increase for cryptocurrencies. In total, BitGo has now raised $70 million USD through its funding rounds as the firm looks to grow its custody service in the US. The endorsement from the two firms with strong Wall Street ties may help BitGo attract more institutional clients and high net-worth individuals.
Goldman Sachs is considering a crypto custody service of their own due to the increasing demands they have seen from clients, and perhaps the lack of traditional market players offering the service already. While this isn’t Goldman Sachs’ first crypto initiative, the major investment bank has been warming up to crypto-related financial services and products over the past year. The leading investment bank indirectly bought a major cryptocurrency exchange earlier this year, Poloniex, through their backed startup, Circle. Mike Novogratz has also commented on Fidelity Investments’ recent announcement of releasing a cryptocurrency custody solution that is aimed at institutional investors, noting that these crypto custodians need further testing before they can obtain mass interest based on increasing investor trust.
How the Art Industry Could Help Raise Crypto Prices
October 19 – Ethereum, the second largest cryptocurrency by market capitalization, is expected to get a boost from a wide range of existing asset classes, particularly those surrounding art and other related sectors. “It would be reasonable to believe that Ethereum will hit $500 by the end of 2018 and go on an overall upward trajectory throughout 2019,” said Ian Mcleod of Thomas Crown Art, which is the leading art-tech agency in the world. Utilizing Ethereum’s blockchain to create an immutable and effective supply chain for art pieces may be a good use of the technology.
“The art world is likely to be one of the biggest adopters as blockchain can authenticate artwork,” added Mcleod. “It’s an ideal use-case for distributed ledger technology as it offers the ability to store a permanent, immutable record of artwork at the point of creation which can be used to authenticate registered works by any party.” Mcleod also notes that “Ethereum is already light years ahead of Bitcoin in everything but price – and this gap will become increasingly apparent as more and more investors jump into crypto.”
October 10 – Despite the retracement in cryptocurrencies this year, merger and acquisition (M&A) activity by cryptocurrency companies and other companies hunting for blockchain technology is setting record highs. In total, blockchain and crypto-related M&A’s have increased more than 200% when annualized so far this year. The M&A data was provided from PitchBook and then compiled by JMP Securities. The PitchBook data included majority investments, partial liquidations, and full acquisitions. As of last Monday, total blockchain and crypto-related deals have topped 115, and by the end of the year, that number is expected to hit 145. Last year, there were only 47 deals completed despite the price of bitcoin surging over $20,000 USD.
While JMP Securities doesn’t have deal size data, since many of them were private, the company said that most of the M&A deals were “global” and “relatively small”, with most at less than $100 million USD.
As cryptocurrencies dwell in oversold conditions, most crypto and token prices are still correlated to bitcoin, regardless of the technology and underlying values of the projects. Due to these factors, there has been a disconnect in terms of value and valuation, and many of these projects and companies are being invested in at discounted prices. “You’re seeing a mispricing of assets,” said Satya Bajpai of JMP Securities. “Even for great businesses, the value of the token remains correlated to bitcoin, which can create an ideal opportunity for strategic acquirers.”
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