3iQ Research Group consolidates the top five cryptoasset stories of interest to investment advisors and our investors.
Leading Cryptocurrency Exchanges Form Rating Council to Rate Digital Assets
September 30 – Crypto exchange operators in the United States have teamed up to create a digital assets rating system that rates cryptocurrencies and other digital tokens on how close they are to being classified as securities. The 5-point rating system determines if a digital asset would fall under US securities laws as guided by the US Securities and Exchange Commission (SEC). The rating system was established by an organization set up by the crypto exchanges, known as the Crypto Rating Council. Several high-profile exchanges are included in the council, including Coinbase, Circle, and Kraken. In addition to exchange operators, other founding members of the council include Genesis Global Trading, Grayscale Investments, Bittrex, DRW Cumberland, and Anchorage. “The result of the analysis is a score which makes it easy for members to synthesize the analysis across many tokens and make their own, independent business decisions about whether or how to support an asset,” said Coinbase in a blog post.
Read the full article from Wall Street Journal here.
Bank of Canada: The Economics of Cryptocurrencies – Bitcoin and Beyond
September 27 – The Bank of Canada has published its latest working paper on bitcoin and cryptocurrencies. The report, labeled “The Economics of Cryptocurrencies—Bitcoin and Beyond” outlines how the largest crypto networks, like Bitcoin, are less likely to be vulnerable to malicious attacks due to “costly mining”. Smaller crypto networks, such as Monacoin and Zencash, have suffered 51% attacks, as those networks do not generate enough mining rewards to dis-incentivize attacks. In addition, the report suggests that Bitcoin could be improved as a retail payments system if it switched to a “proof of stake” network, rather than the “proof of work” system in which it operates on today. “For Bitcoin, we find that the cryptocurrency is not only extremely expensive in terms of its mining costs, but also inefficient in its long-run design. However, the efficiency of the Bitcoin system can be significantly improved by optimizing the rate of coin creation and minimizing transaction fees. Another potential improvement is to eliminate inefficient mining activities by changing the consensus protocol altogether…Our analysis finds conditions under which PoS can strictly dominate PoW and even support immediate and final settlement,” said The Bank of Canada in its working paper.
Read the full working paper from the Bank of Canada here.
JPMorgan Says ICE/Bakkt Launch and Leveraged Retail Positions Tanked Bitcoin
September 28 – JP Morgan has suggested that bitcoin’s 20% drop last week was likely fueled by the Intercontinental Exchange’s (ICE) new futures contracts and the unwinding of leveraged long positions on retail trading platforms. ICE, through its subsidiary Bakkt, launched its physically settled bitcoin futures last Monday. While the introduction of physically settled bitcoin futures have been seen a strong positive for the maturation of cryptocurrency markets, the futures contracts enabled holders to hedge exposures, contributing to the downswing in bitcoin prices. “It may be that the listing of physically settled futures contracts (that enables some holders of physical Bitcoin e.g. miners to hedge exposures) has contributed to recent price declines, rather than the low initial volumes,” said JP Morgan in its report. In addition, leveraged long bitcoin positions on the popular retail trading platform Bitmex also likely contributed to the sharp price declines due to forced liquidations.
Read the full article from Bloomberg here.
Crypto Funds are Growing and Outperforming Bitcoin
September 28 – Crypto Fund Research has released a new report which suggests that crypto funds are continuing to make strides in the market, as 239 new funds entered the market in 2018. It is expected that in 2019, the number of new crypto funds would decrease. The total number of crypto funds operating around the world is now 812, and of the 812 crypto funds operating today, 421 are venture capital funds, and 369 are crypto hedge funds. The remaining funds are either exchange-traded funds or private equity funds. While the number of crypto funds has been increasing over the last several years, the assets under management (AUM) are much lower than what traditional funds manage in the financial sector. 444 crypto funds have less than $10 million USD in AUM, and 209 funds have between $10-50 million USD in AUM. Interestingly, crypto funds outperformed bitcoin through 2018 and 2019, despite lagging behind 2017. During the drawdown of cryptocurrency prices in 2018, crypto funds returned -46%, while bitcoin returned -76%.
Read the full article from CoinTelegraph here.
Canadian Crypto Custodian Obtains Insurance Which Covers Full Value of Client Assets
September 24 – The world’s largest insurance broker, Marsh & McLennan, recently arranged a unique insurance program for the montreal-based crypto custodian KNØX. The custodian has been provided an insurance policy which covers the full value of a client’s assets. In contrast, existing insurance policies which cover cryptoassets are shared across multiple clients of the custodian, meaning there would not be coverage pertaining to a total loss of a client’s cryptoassets. For example, a crypto custodian that holds $1 billion in client cryptoassets may advertise a $100 million insurance policy, meaning it is only 10% insured. If a client was to lose $100 million, they may be reimbursed just $10 million. “Often we see people purchase an insurance policy and then hold in the aggregate funds well above the limit of that insurance policy. So for us, it was an important guarantee that when a customer is on-boarded to our platform, the full value of their assets is insured,” said Alex Daskalov, the co-founder and CEO of KNØX.
Read the full article from CoinDesk here.
3iQ Bitcoin Trust (Class A) : NAV as at September 27, 2019
Underlying cryptoasset prices sourced from Bloomberg.View charts and more fund data at https://www.theglobeandmail.com/investing/markets/funds/FBCBT.CF/performance/
3iQ Global Cryptoasset Fund (Class A): NAV as at September 27, 2019
Underlying cryptoasset prices sourced from Bloomberg.View charts and more fund data at https://www.theglobeandmail.com/investing/markets/funds/TIQ101.CF/performance/
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.