October 29 – November 4, 2018 | Bitcoin Anniversary, Morgan Stanley & More Crypto News
3iQ Research Group consolidates the top five cryptoasset stories of interest
to investment advisors and our investors.
3iQ Announces OSC Filing of a Non-Offering Preliminary Prospectus of “The Bitcoin Fund”
October 31 – 3iQ Corp. announced on October 31st that it publicly filed a non-offering preliminary prospectus for “The Bitcoin Fund”, to create the first regulated vaulted bitcoin fund in the world. The company emphasized the importance of establishing a regulated fund that is available to all Canadian investors.
3iQ Corp. believes it has addressed all regulatory concerns relating to custody, valuation, Anti Money Laundering (AML) and Know Your Client (KYC) compliance as well as banking and trading operations. If approved by the securities regulator, this non-offering prospectus is expected to lead to a syndicated closed end fund prospectus offering.
“We have worked very hard to achieve an investment product that provides a simple and secure way for Canadians to make an investment in this innovative technology and asset class,” said 3iQ Corp. President and CEO Fred Pye. “The Bitcoin Fund allows 3iQ, as manager, to acquire and store bitcoin in the safest and most compliant way possible.”
“Canadians are currently investing in bitcoin through many facilities, none of which are as regulated and secure as our fund will be,” said Howard Atkinson, Chairman of 3iQ. “We believe that our regulators should be ready to accept a regulated fund. As many Canadians invest directly in cryptoassets already, it is in the public interest to invest in these assets through a regulated fund.”
“Bitcoin is approaching its 10th anniversary. After being intensely scrutinized by institutional investors, we are seeing a growing interest by them in bitcoin. The Bitcoin Fund seeks to give retail investors an institutional quality, regulated investment product available through multiple distribution channels,” said Shaun Cumby, Chief Investment Officer (CIO), who is responsible for investment relationships, trading and risk management. “The Bitcoin Fund has the most rigorous compliance controls possible across trading and custody and is an initiative that Canada should have to stay at the forefront of blockchain innovation.”
October 31 – Although the infamous price surge of bitcoin in late 2017 propelled it to the mainstream spotlight, the cryptocurrency itself is hardly a new idea. Last Wednesday was the 10th anniversary of the “Bitcoin: A Peer-to-Peer Electronic Cash System” white paper that was written by the pseudonymous “Satoshi Nakamoto”, which outlined plans for how Bitcoin could work. Little is known about the creator of Bitcoin, and even 10 years later, it is still unclear on who or what entity created the cryptocurrency. The white paper itself was published shortly after the start of the 2008 financial crisis. Since the 2008 crisis, Bitcoin usage has been on the rise, and has become a popular way for people around the world to send a form of money for virtually no cost. Bitcoin was also programmed to only ever have a maximum mined supply of 21 million coins, making for a compelling story using just ordinary supply and demand economics.
Satoshi Nakamoto described a process on how new Bitcoin could be created and called it “mining”. Due to the maturation of the mining market, competitive mining now requires powerful application-specific integrated circuit (ASIC) computers to solve Bitcoin’s complex cryptographic problems. Back in 2008, when the cryptocurrency was in its infancy and mining was less competitive, anybody with a home computer could attempt to mine. Today, home computers would have a tough time competing to solve the cryptographic puzzle. Just months after the white paper was published, Satoshi Nakamoto mined the first block of Bitcoin, generating 50 Bitcoins. “The invention of Bitcoin and the underlying blockchain [that supports it] has allowed us all to reimagine money,” said Maya Kumar, an executive of an application that helps its users buy Bitcoin. “We are seeing a new parallel financial system being built in real time.”
Morgan Stanley Report Says Crypto is an Institutional Asset Class
November 1 – According to a newly released report from the major US investment bank Morgan Stanley, there is a growing interest in Bitcoin and other cryptocurrencies from institutional investors, yet retail buyers continue to dominate and operate in the sector. Morgan Stanley had previously classified Bitcoin and other altcoins as a new institutional asset class in their previous report back in 2017. The new report, titled “Bitcoin Decrypted: A Brief Teach-in and Implications” was released to clients on October 31. The report provided an overview of the last six months of cryptocurrencies and brought up insights about its observable trends such as cryptocurrency pairings, stablecoins, and ICOs.
The findings highlighted the researchers’ observations of how the cryptocurrency market has rapidly evolved since the inception of Bitcoin. Notably, the report delves into the rise of fiat-pegged “stablecoins”, which are becoming more frequently used as a pairing instead of actual fiat currencies such as the US dollar. The report notes that a growing amount of trade volume found on cryptocurrency exchanges had been found on crypto for crypto pairings, as there are relatively few exchanges involved in the trade of crypto for fiat. However, the research report suggested that many stablecoins won’t survive in the long-term. The stablecoins that would survive would more than likely have lower transactional costs, superb liquidity, and clear regulatory oversight.
Only 25% of Bitcoin Moved Between Addresses in the Past Six Months
October 31 – Despite the downturn in cryptocurrency prices so far in 2018, only about 25% of all Bitcoins were moved between wallet addresses over the last six months. Back in 2017, roughly 50% of all Bitcoins were actively moved between wallets. The data was provided by Coin Metrics, a cryptocurrency research firm. The last time Bitcoin movement activity was this low was back in 2015, which was prior to a price surge that lasted well into Q4 2017. Coin Metrics also notes that historically speaking, a large amount of Bitcoin doesn’t ever trade hands – as upwards of 40% of all Bitcoin outstanding are either lost or are held in cold storage. Approximately 25% to 35% is “semi-liquid”, meaning they often only come online during bull runs, and approximately 30% are traded during bear markets. It is also important to note that Bitcoin has a maximum supply of 21 million coins and can never be increased.
“I think it helps us assess ‘true liquidity’ in the idealized, global order book sense,” said Nic Carter, the co-founder of Coin Metrics. “To some degree, I think it lets you roughly calibrate the effect of future inflows.” Using data from CoinMarketCap.com, the daily trading volume of Bitcoin is down about 80% from its peak in January, putting it somewhere around $4 billion USD. “That does not mean there is a liquidity issue,” said Gil Luria, the director of institutional equity at DA Davidson & Co. “Four billion of volume a day means almost any investor in Bitcoin can liquidate their entire position within one trading day.”
November 1 – Nasdaq has released a new paper on Thursday saying it has spent decades developing tools and other methods to police currencies, securities and other markets – now it believes it can use these same tools to help stop price manipulation and other scams from happening in crypto markets. “Regulators, brokers and exchanges have surveillance teams that monitor activity constantly and advanced technologies to help capture and analyze abusive behaviors including pump-and-dump schemes, insider trading, wash trading as well as spoofing and layering,” said the paper.
Global authorities worry that crypto markets are susceptible to frauds that can take advantage of fast price swings due to the lack of government regulation. Nasdaq is now licensing its market-surveillance technology to crypto exchanges in hopes to combat bad behavior. One major exchange, Gemini, founded by Cameron and Tyler Winklevoss, is now using Nasdaq’s surveillance tools. Although Nasdaq was approached around two years ago by cryptocurrency exchanges, it wasn’t until the major price surge last year that demand grew for their surveillance technology. “We’re now getting approached every week or two,” said Tony Sio, Nasdaq’s head of exchange and regulator surveillance. “We won’t work with all of these firms though since a lot of them are quite early stage or not reputable yet.”
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