The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
News Item 1: Announcing Coinbase Index Fund
Decrypted: For people looking to get in on cryptocurrencies, without having to bet on a single one, index funds can provide the simplest alternative to get exposure to cryptocurrencies.
Coinbase launched a weighted index fund for digital currencies listed on the company’s exchange, GDAX, currently including Bitcoin, Ethereum, Bitcoin Cash and Litecoin. The index fund will only be available to accredited US. investors. The fund will have a $10,000 minimum and charge a 2% annual management fee with no performance fee. Investments can be made in USD or any of the included digital currencies.
Our take: While crypto index funds are relatively new, index investing has been around for a while and is one of the most important financial innovations of 20th century. It allows everyday investors an easy way to enter a market, by putting money in a targeted asset class.
Basically, crypto index funds work the same way as the traditional index funds. They basically pool money from retail and institutional investors and invest the money in specific instruments.
An investor could bet on a single coin, like Ethereum, Bitcoin, Litecoin, Bitcoin Cash, but there is plenty of risk with that. Potentially that coin could tumble. It’s a lot safer, especially for investors with less knowledge of the space, to spread out their risk across multiple assets. With crypto being as volatile as it is, most investors want vehicles that can help them diversify their risk and lower the volatility of their portfolio.
Coinbase isn’t the first to develop a passive crypto fund. Some have already created similar crypto index funds like Bitwise and Grayscale Investments, while others like Iconomi let investors create their own custom-weighted crypto asset array.
In December, Bitwise Asset Management launched HOLD 10, a passively managed index fund of the top 10 cryptocurrencies by inflation-adjusted market capitalization. The Bitwise crypto fund raised $4 million, backed by investors including Keith Rabois, David Sacks and Naval Ravikant. The index holds and weights the top 10 cryptocurrencies by inflation-adjusted market capitalization, taking into account the supply inflation schedules for the next five years.
Last month, Grayscale Investments launched the Digital Large Cap Fund, designed to give investors exposure to the five largest cryptocurrencies based on market capitalization. It already had trusts in place for Bitcoin, zCash, and Ethereum Classic. Now it also plans to offer four new single-currency crypto funds for Bitcoin Cash, Ripple, Litecoin and Ethereum.
One of the first indexes in the market is Bittwenty. According to a post by its founder on bitcointalk.org, “I wanted to create a tool that allows anyone to invest in the global economic growth of cryptocurrencies without a headache.”
The ICONOMI Digital Assets Management Platform is a new and unique service that allows anyone from beginners to blockchain experts to invest in and manage digital assets. The platform offers a broad set of unique and intuitive tools to invest in and manage various digital assets and combinations of digital assets called Digital Asset Arrays. Arrays can consist of any number of underlying digital assets. For example, you could design a diversified array to maximize value stability or a higher-risk array tuned to aggressively pursue maximal gains.
While the ones I mentioned here might better known, here is some more that might be worth looking at:
- AgreCoin: a platform that works to compile the top 6 coins in the market at any given point, and makes them into their own fund.
- Symmetry Fund: offers investors the opportunity to gain exposure to the cryptocurrency market without the complexities of personally trading it themselves.
- Digital Developers Fund: a fund that invests in a spread of digital assets such as domain names and cryptocurrencies.
As cryptocurrencies gain popularity, more and more people want to get in on the crypto market. In October, Coinbase surpassed Charles Schwab in number of customer accounts. Charles Schwab reported 10.6 million active brokerage accounts for October, in contrast with 11.7 million users in October for Coinbase, the leading U.S. platform for buying and selling bitcoin.
But the reality is that crypto is still pretty technical and hard for people to approach. Buying a single token or index is an easier and less-stressful approach. The question that weighs heavy for most, is when and what to buy. Putting everything into one coin at one time isn’t a great strategy. it’s very risky.
While in 2017 a large number of crypto hedge funds popped up, for the average investor, affording minimums or having the right contacts to get into a hedge fund can be a real challenge.
This is where cryptocurrency index funds come in. Crypto Index funds enable investors to track the performance of the crypto market without having to study each cryptocurrency separately. They serve as a great alternative to portfolio diversification for any investment.
Decrypted: In an announcement this week Ripple said that it’s working in a partnership with a consortium of 61 Japanese banks, on an application that will enable customers to settle cash transfers instantly around the clock, the latest effort to apply blockchain technology in finance.
The consortium of Japanese bank will release “MoneyTap” an instant domestic payments mobile app, using Ripple’s technology in the fall of 2018. The new mobile app will allow customers of these banks to conduct internal transactions 24 hours a day and seven days a week, without the usual time restrictions imposed by traditional bank transfers. To do this, customers can use their bank account number, phone number or QR code.
Our take: This is an important development for Ripple. Its take them another level because this application is adopted by a group of banks in Japan, that represent more than 30% of all banks in Japan.
To say Ripple (XRP) is going to be unstoppable in 2018 isn’t that far-fetched. After all, Ripple is one of the best performers in the cryptocurrency market on year-over-year returns. Ripple was the best performing cryptocurrency of 2017, with a staggering 36,000% increase from the beginning of the year. XRP is currently ranked 3rd on Coinmarketcap.com.
One attractive element of the Ripple ecosystem pulling in financial institutions from around the world lies in the ease with which banks could handle domestic and cross-border financial obligations. The Ripple gives banks and other payment institutions cheap and faster ways of remitting money locally and across borders.
Blockchain technology eliminates the need for centralized clearing operations, relying instead on all members of a network to confirm transactions based on their own decentralized copies of that network’s transaction history.
Ripple is everywhere. Its running successful pilot programs, with 100+ financial institutions, including Korean and Japanese banks.
What does Ripple do? They have 3 products : xCurrent, xRapid, and xVia.
- xCurrent is their flagship product. It gives banks the ability to efficiently move money across borders. It uses RippleNet, the Ripple blockchain, but does NOTuse XRP. Banks like this software because it allows them to save money and time when sending payments, without introducing much risk or changes to their workflow.
- xRapid helps banks improve liquidity when trading in emerging markets. It is the only Ripple product that does use XRP. Banks like it because it helps them free up mountains of money they’re stuck sitting on, but dislike it because it introduces unknowns — such as the volatility of XRP.
- xVia is still in development and scheduled to come out in early 2018. It’s similar to xCurrent, but allows entities besides banks (such as corporations and payment providers) to send money through banks. xVia also does NOT use XRP.
Banks seem to be waking up to the idea that blockchain technology is essential, especially where speed, integrity and transparency of transactions are concerned. That’s why Woori, one of the largest banks in South Korea said it had run trial tests on Ripple’s XRP token. According to media reports, Woori could be on the way to implementing large scale payments or remittances using the Ripple cryptocurrency within 2018. Woori believes Ripple (XRP)’s near-instant speed makes it far better than Swift, which can take up to 3 days to finalize inter-bank transactions.
If all goes well, Ripple’s blockchain payments system could carry its first real funds between Japan and South Korea in 2018. Eventually, the banks aim to send money by using Ripple’s virtual currency, known as XRP, cutting costs an estimated 60% compared with conventional methods.
Ripple is an amazing company, but it has uphill battle to against the established financial industry. Ripple has definitely found a problem worth solving and banks across the world are experimenting with Ripple technology. Even if Ripple fails to capture the entire SWIFT market, it could still offer valuable products to banks.
What about XRP ? Well it’s a currency is designed for RippleNet to function efficiently. While it has no utility for the general public, I expect it to have a stellar year, when you consider partnerships like the Japanese bank consortium and the rumors that Coinbase might list Ripple on its exchange.
Decrypted: Bitcoin and other cryptocurrencies have plunged since Wednesday, after the SEC in the US. issued a warning that exchanges where you can buy and sell the virtual currencies are potentially unlawful:
“The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. Many platforms refer to themselves as “exchanges,” which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange. Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges.”
The investor alert represents the SEC’s latest effort to herd the multibillion-dollar U.S. market for raising funds in cryptocurrencies into a zone that the government regulates. The SEC has said many tokens issued through initial coin offerings are securities.
Obviously, the news was not well received by many investors because the confidence in the marketplace was shaken and the price dropped for most of the major cryptocurrencies.
Our take: A federal crackdown may be looming over the cryptocurrency world. The SEC questioned the standards used by platform operators when choosing which assets to trade. The regulatory body also suggested the operating framework of some online platforms lacks the integrity of exchanges governed by federal rules.
As cryptocurrency has significantly gained steam over the last couple of years, governments and traditional financial regulatory agencies have struggled to come to terms with how to address the wild west nature of digital assets. A main point of contention among regulators is that most of the Initial Coin Offerings (ICOs) used by startups strongly resemble stock offerings. As such, their reasoning goes, cryptocurrencies should be treated as securities and both the coins and the ICOs should fall under federal regulation.
At least one US exchange, Bittrex, has released a statement responding to the announcement, claiming that it has taken measures to ensure that it is compliant.
“Bittrex uses a robust digital token review process to ensure the tokens listed on the exchange are compliant with U.S. law and are not considered securities,” the company said. “Bittrex is committed to helping advance the United States’ global leadership in this emerging industry, and we look forward to continuing our proactive dialogue with the SEC and other regulators on how to build a secure, fully-regulated environment for blockchain that encourages innovation and economic growth.”
The SEC didn’t name any specific exchange or give us a timeframe when they will be setting up plans for enforcing the regulations. It remains to be seen to what degree the SEC will enforce this policy moving forward, as well as whether it will seek any penalties against exchanges for past violations.
With dozens of ICOs raising billions in capital, and Bitcoin climbing to record highs, concerns about the possibilities for money laundering and fraud have grown. In many jurisdictions, the regulatory response has been to simply ban ICOs and cryptocurrency activity all together. In general, regulators in the US are encouraging of innovation in this space, and have laid out a bright vision of true disintermediation and adoption of blockchain technology.
It will be interesting to see what happens with regulation and how the marketplace will react to it. Ultimately, this could provide a level of stability to the market and also lead to exchange partially insuring customer deposits on their sites.
For the SEC the biggest thorn is ICOs, and from their statements it’s pretty clear that they consider every token a security. Practically, anyone thats continues to offer for sale or sell ICO-issued tokens is violating their warnings and can be found at fault and potentially face retroactive enforcement action in the future.
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