United Nations Calls Bitcoin and Crypto ‘New Frontier’ in Finance

In a year-end report on the global economy, the United Nations calls cryptocurrency a “new frontier” in digital finance. According to the UN, crypto and blockchain technology at large have the potential to create new and revolutionary business models that cut red tape and dramatically increase efficiency.

This is not the first time the UN has expressed its interest in digital assets. In May, the United Nations Office for Project Services (UNOPS) revealed its collaboration with IOTA to “explore how IOTA’s innovative technology – which provides an open-source distributed ledger for data management – can increase the efficiency of UNOPS operations.” UNOPS is also exploring Ripple’s suite of cross-border payment solutions, according to a report from the Association for Financial Professionals from late 2017.

The new report from the UN, called the “World Economic and Social Survey 2018”, dives into the advantages of crypto, blockchain and distributed ledger technology.

Here’s a look at the highlights.

Crypto Represents “New Frontier” in Digital Finance

“Cryptocurrencies represent a new frontier in digital finance and their popularity is growing. The decentralized networks for cryptocurrencies, bitcoin being a well-known example, can keep track of digital transactions. They enable value to be exchanged and can give rise to new business models which would otherwise require significant regulatory and institutional commitments.

Blockchain and Crypto Have Many Use Cases

“For example, a value token called climatecoin is being considered as a basis for creating a global market for carbon emissions, allowing peer-to-peer exchange of carbon credits and a direct connection with the Internet of Things. It would then be possible for devices to calculate their own carbon emissions and purchase carbon credits to offset those emissions.

There are also proposals for using blockchain technology as a distributed ledger of real-world information on property registration, personal identity, and provenance of food and medicines, among many other types of data. The United Nations and the World Identity Network are exploring ways to register the identities of children on a blockchain as a means of combating child trafficking.”

Innovation Comes From Inherent Trust

“The innovativeness of this system lies in the way in which the various parts combine to create the trust and guarantees that the traditional financial system derives from institutions and regulation. The incentives align the interest of participants towards contributing to the system’s security.

In contrast, the traditional system relies on a complex armature of reporting, oversight and implicit or explicit guarantees, ultimately backed by the reputation of the central authority. As such, the blockchain technology presents the possibility—a first in the field of finance!—that trust in institutions backed by government can be replaced by trust in computer code.”

You can check out the full report here.

Author: Daily Hodl Staff
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SEC Slaps $50,000 Fine on Delaware-Based Crypto Investment Fund

On December 7, 2018, the United States Securities and Exchange Commission (SEC) issued a cease and desist order and a penalty of $50,000 against Delaware-based crypto assets fund firm CoinAlpha Advisors LLC.

SEC Hits Crypto Fund for Violating Securities Law  

According to the filing published on the commission’s website, the SEC charged CoinAlpha Advisors LLC for acting as an unregistered securities dealer. Additionally, the filing highlights that the accused company violated SEC laws by offering securities through interstate commerce.

Reportedly, CoinAlpha LLC was established in July 2017 to act as manager of the investment fund dubbed CoinAlpha Flacon LP. The fund was launched in October 2017 with the sole purpose of investing in digital assets.

From October 2017 to May 2018, the investment fund managed to raise over $600,000 from twenty-two investors spread across multiple U.S. states. As part of the investment, investors gained limited partnership interest in the crypto-focused investment fund. The SEC filing states:

“Through this offering, the investors purchased limited partnership interests in the Fund in exchange for a pro rata share of any profits derived from the Fund’s investment in digital assets.”

The order notes that CoinAlpha filed for a “Notice of Exempt Offering of Securities” a month after it was set up. However, the request for exemption was turned down by the securities regulator citing that the firm was not eligible for such an indemnity.

Additionally, the agency pointed out a number of irregularities in the CoinAlpha’s know-your-customer (KYC) system. The SEC states that the investment fund failed to ensure the status of the accreditation status of its investors.

CoinAlpha Cooperates with the SEC

Notably, CoinAlpha agreed to halt its offering after being contacted by the securities regulator in October 2018. Furthermore, the Delaware-based fund cooperated with SEC to get its website, offering strategy materials, and social media posts audited.

The commission reached an agreement with CoinAlpha by imposing a $50,000 fine and instructing the firm to reimburse all its investors, to which the company has agreed. The filing read:

“Respondent further voluntarily reimbursed all fees it had already collected, surrendered all rights to future management and incentive fees, unwound the Fund, and made payments to ensure that no Fund investor suffered a loss. During the Commission staff’s investigation, Respondent retained a third party who determined that all 22 investors were accredited investors.”

Recently, the SEC has been aggressively pursuing crypto-related firms and individuals. Just a week back, the commission fined American professional boxer Floyd Mayweather Jr. and music producer DJ Khaled for illegally promoting crypto projects. Both celebrities paid a combined penalty of over $750,000.

Author: Pratik Makadiya
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Is Crypto Its Own Asset Class? Industry Experts Weigh In

Crypto’s role in finance is growing, but the technology is still new, and there are hurdles to clear. That was a key takeaway in a discussion between four crypto and blockchain leaders at the Global Financial Leadership Conference.

Pointing out that Apple has more cash on its balance sheet than the entire crypto industry has in market cap, BitMEX founder Arthur Hayes says crypto has not yet reached asset class status unto itself.

“Could it become a bona fide asset class in the next ten years? Maybe. The jury’s still out on whether or not Bitcoin is actually secure over the long run. It’s been a decade, which is pretty good, but it’s still an experiment. But it’s looking like it could be a new way of raising capital sending value around the world.”

Reddit co-founder Alexis Ohanian, who now runs an early-stage venture fund, said he applies crypto to his investment portfolio, but that there’s still plenty of risk.

“As an asset class, I aim for about 10 percent of my net worth in crypto, and my bet simply being if this future that we hope for technologically pans out, this will be a really material investment, but it’s still tremendously risky.”

Finance Gets Into Crypto

Several established exchanges and financial firms have launched crypto products, including Fidelity’s recent announcement of a crypto trading platform. Panelists, which included Dan O’Prey of Digital Asset, says these products are well-thought out despite many of them coming online during a bear market for major crypto assets like Bitcoin.

“They’re probably looking at the long-term trend here. This isn’t just a ‘What’s the price today, and what’s the interest,” says O’Prey. “They’re building out the infrastructure to enable access that their customers want to see.”

Each of the panelists agreed that the applications of crypto and, more broadly, blockchain to the financial system will have a real impact on some existing systems.

“The real projects, such as the one that the ASX (Australian Stock Exchange) has, they’re literally replacing their entire post-trade system for equities with a distributed ledger with a Digital Asset platform. As the hype dissipates, people will focus more on what’s real, what business problems can we actually solve.”

There’s also reason for confidence for crypto adapting to the financial industry because of who is building the technology. Many of the key startup founders in the space have found previous success in technology, and many come from the financial world, says Ohanian.

“The real interesting infrastructure solutions that are being built now for the enterprise are usually coming from founders who have spent time in finance, who already have the relationships there. Who were tapping into their r/bitcoin subreddit during work hours with their wheels spinning trying to figure out a way to do their job better, cheaper, faster.

Cryptos Decentralized?

Moderator Laura Shin asked if the decentralized legacy of cryptos might find friction with adapting to the largely centralized world of finance.

“What I think has always been true in technology, is users will gravitate towards the better user experience,” says Ohanian. “I think what we’re going to see in the next 10 years is going to look a lot more like traditional finance just done better, cheaper, faster than the Utopian crypto future.”

“I think with decentralization, people often get caught up with thinking that’s the goal,” added O’Prey. “Censorship-resistant cash was the goal, and decentralization was a requirement in order to achieve that goal.”

Author: Seeking Alpha Team
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You Don’t Have to Own Crypto to Make Money Off of It

To make his fortune on cryptocurrency, Jake Benson doesn’t have to choose a winner among the hundreds of firms hawking digital tokens. He just needs to do their taxes.

Benson is following the ’49er model — as in 1849. Like industrious shopkeepers during the California Gold Rush, he’s offering the digital equivalent of picks and shovels. In his case, accounting services.

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The world of digital currency is poised to draw billions of dollars from institutional investors if it can provide boring back-office services like custody banking and trading systems along with tax accounting. While the functions are essentially the same as in traditional businesses, crypto presents unique challenges.

“Just to name one difference, the number of decimal places in a crypto asset can be up to 18-plus digits,” said Benson, whose Libra back-office firm caters exclusively to the crypto crowd. “That fact alone actually breaks a lot of accounting systems.”

Hundreds of firms like Benson’s are competing to sell the nuts and bolts of the burgeoning market. Startups financed by venture capital and token sales are fighting for advantage as the field begins to get crowded. Like the sellers of mining implements during the Gold Rush, they plan to profit whether or not Bitcoin and other cryptocurrencies turn out to be digital treasure.

Traditional Solutions

“What really excites me is this whole picks-and-shovels approach,” said David Wills, chief operating officer of Caspian, a Hong Kong-based provider of crypto trading systems and related technologies for hedge funds. “As long as the asset class has a pulse, those companies will be the ones to succeed.”

If established firms such as State Street Inc. and Bank of New York Mellon Corp. decide to do business with the virtual-currency world, it would lend credibility to the industry even if the firms aren’t that knowledgeable about crypto, said Morgan Hill, a partner at the $30 million Turing Funds in New York.

“There are no off-the-shelf solutions from traditional finance,” Hill said. “Everything is still getting pieced together. The expertise in this space are people who got in early and have learned the pitfalls.”

At a trio of crypto conferences in New York last month, hundreds of companies clamored for one of two things, Hill said: investors in their initial coin offerings or customers for their back-office businesses.

Almost all the companies are startups, and most have yet to create what Hill calls an “MVP” — a minimum viable product. A few, like Libra, Benson’s firm, have been around a few years and are adding clients and staff as demand surges. The trick is to get customers to stay, said Caspian’s Wills.

Creatures of Habit

“Human beings are creatures of habit,” Wills said. “Once a trading system is built into your operational workflow, it’s hard to remove it. In crypto, there are many different levels of workflow that need to be in place.”

Wills said Caspian is planning to sell a so-called utility token that can be used to pay trading fees. It will also be used to compensate developers of applications available through Caspian’s system.

Since money managers are required to keep customer assets secure, a pressing need is a custodial bank. Custody banks such as BNY Mellon and State Street would fit the bill, but they haven’t committed to crypto.

Job Opening

That leaves the job open for digital-money companies. Omega One, an agency brokerage for cryptocurrencies that’s opening an office in Bermuda, says it will work with insurers and the island’s government to set up a custody business there.

“Bermuda has an incredibly strong legal, technical, reputational jurisdiction for financial services in general, but particularly for custody of assets and reinsurance,” said Alex Gordon-Brander, Omega One’s chief executive officer.

Today’s crypto scene looks a lot like the birth of the dot-com boom in the mid-1990s, Gordon-Brander said.

“Obviously, not everybody survives the cut,” he said. “But it’s clear that the revolution is happening and the leaders are emerging.”

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Author: Rob Urban
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