Crypto and blockchain continue with slow but steady progress
Since the last publication of a crypto/blockchain report across Global Fund Media’s sites in August, news has come that Fidelity Investments, which administers more than USD7.2 trillion in client assets, has launched a company dedicated to digital assets.
Fidelity Digital Asset Services will handle custody for cryptocurrencies such as bitcoin and will execute trades on multiple exchanges for investors such as hedge funds and family offices.
“Our goal is to make digitally native assets, such as bitcoin, more accessible to investors,” said Abigail Johnson, Fidelity Investments Chairman and CEO.
Huhnsik Chung, a partner at Stroock & Stroock & Lavan LLP in New York, commented on the move from Fidelity saying: “This is demand driven. Hedge funds and others have been looking for a custody solution for these assets – as they exist in the cloud with a key providing access. The lack of such services has stifled the growth of the digital asset class. Entry of Fidelity lends creditability to the asset class and there has been much demand for a custody service and trading platform.”
Since Global Fund Media last published on the Crypto & Blockchain space, pressure has been gathering on the sector for the development of quality infrastructure. In the last iteration, firms such as Silver 8, Veridium, Kryptoin, JP Integra, Protos Asset Management and DMS Governance displayed their skills in the crypto space, and supported development of formal infrastructure for this new asset class.
This edition sees them joined by Swisscom Blockchain, an initiative run by three founders with an extensive background in consulting with Ernst & Young, and joint ventured with Swiss telecoms giant Swisscom, plus Crypto Finance AG’s Crypto Fund.
Since the last Crypto & Blockchain Special Report, in the UK, crypto assets have not had such a good run, with the publication of the UK Treasury Committee’s unanimously agreed upon report from the Digital Currencies inquiry which saw Rt Hon Nicky Morgan MP, Chair of the Treasury Committee, commenting that crypto assets exist in the ‘Wild West’.
The report found that problems including volatile prices, hacking vulnerabilities, minimal consumer protection, and anonymity aiding money laundering. At a minimum, regulation should address consumer protection and Anti-Money Laundering (AML), the committee said.
Blockchain was deemed currently slow, costly and energy-intensive, but there was potential for data storage uses.
The report said: “There are a number of examples of blockchain being deployed in the financial services industry and supply chain management. The Committee is supportive of good innovation, but notes that blockchain should not be pursued for its own sake. Rather, Government and industry should identify what problems exist and consider whether blockchain offers the most appropriate solution. The Committee recognises that blockchain technology may have the potential to solve problems caused by a lack of trust in data integrity and may be a more efficient method of managing certain types of data in the long term, offering higher levels of security than centralised databases.
“However, at present – although small scale uses for blockchain may exist – the Committee has not been presented with any evidence to suggest that universal applications of the technology are currently reliably operational.”
In answer to this, Jamie Burke, CEO of Outlier Ventures (OV), a firm that was launched in 2014 as the first European VC focused on blockchain technologies and has since extended activities into North America, said: “We completely agree with the Committee’s view that there would be benefits from greater regulatory oversight in this area, and that the implementation of an appropriate and proportionate regulatory environment for crypto assets could position the UK well to become a global centre for this activity.
“However, we have concerns that the report fails to account for the broad spectrum of possible functions for crypto assets. For example, adopting a one-size fits all approach to the regulation of ICOs (such as, through treating all crypto assets in the same way as equity or debt under the Regulated Activities Order) isn’t necessarily appropriate. Such an approach risks ‘throwing the baby out with the bathwater’ for those crypto-assets that have serious use cases for advancing say a particular industry, or digital ecosystem.”
The path to the launch of a crypto ETF has not got any smoother since the publication of the last crypto report either. The SEC has now knocked back nine applications to list a crypto ETF from the great and the good, including VanEck and Silicon Valley darlings, the Winklevoss twins. Even the merest rumour that Coinbase was in talks with BlackRock about establishing a crypto ETF whipped up excitement in the industry.
BlackRock, the world’s biggest provider of ETFs, is rumoured to have been investigating blockchain and cryptocurrency but the potential launch of an ETF based on these assets was pretty thoroughly dismissed by BlackRock CEO Larry Fink, who stated that his clients had ‘zero interest’ in trading cryptocurrency.
More bad news came in September when the SEC suspended the trading of Bitcoin Tracker One (CXBTF) and Ether Tracker One (CETHF) issued by XBT Provider AB in Sweden, the closest thing to crypto ETNs available in the market, citing a lack of current, consistent and accurate information which has resulted in confusion amongst market participants regarding these financial instruments.
Mike Venuto, CIO of Toroso Investments and co-founder of the TETF index, which is designed to mirror the ETF industry, commented on the news, saying: “I think this is a normal reaction by the SEC. They haven’t shut down the tracking shares, they took a pause to clarify the messaging. It makes sense, most of the media misunderstood what these tracking securities actually tracked. Additionally, many of the custodians like TD and Schwab had not made them available yet anyway. Fidelity was the most progressive in allowing access and trading to these securities even before the tracking stocks were issued. This is a tracking security of an ETN listed in Europe that is designed to track specific crypto assets. That clarity was lost in the US media.”
All of these developments and news since August this year make it extra clear that in order for the crypto/blockchain industry to continue to develop, it needs firms such as those featured here to build sensible infrastructure and practical offerings. n