Euromoney receives an email from Daniel Masters, executive chairman of CoinShares, a pioneer of exchange-traded products for investing in bitcoin and other cryptos, urging us to email the UK’s Financial Conduct Authority (FCA).
Back in July, the UK regulator announced it was consulting on a proposed ban on the sale to retail investors of derivatives and exchange-traded notes referencing crypto assets.
The FCA considers these products ill-suited to retail consumers due to the underlying assets having no reliable basis for valuation; the extreme volatility in prices; the prevalence of market abuse and financial crime, including cyber theft, in the secondary market for cryptos; inadequate understanding by retail consumers and the lack of a clear investment need for products referencing them.
This strikes me as perfectly obvious.
But CoinShares reckons it will harm its business. It claims the FCA’s analysis of crypto assets and these associated instruments demonstrates a lack of understanding of their functionality and value and the motivations for investors to seek them out.
Masters, who years ago headed the global energy and trading business at JPMorgan, provides me with a pre-drafted reply to the FCA voicing my/his objections to the proposed ban and urges me to send it before early October.
I decide not to.
The company launched TrustVault earlier this year as a way for individuals to safely store the keys which identify them as the owners of crypto accounts and their assets and also to send and receive cryptos on their mobile phones in about one second.
Batlin previously worked at BNY Mellon and at UBS, where he began work on the utility settlement coin, now rechristened as Fnality, a bank consortium-backed effort to build digital cash as the payments leg for future tokenized securities transactions conducted on distributed ledger.
In September, Trustology announced a service for business customers. This offers a fully hosted, flexible crypto asset custodial wallet. Benefits include multi-asset accounts, blockchain-agnostic security tools such as white/blacklists, multisig rules, and instant transfers anytime and anywhere.
The new solution also supports meeting regulatory and compliance obligations with robust built-in know-your-customer, anti-money laundering and ID verification processes, including personal info, documentation, politically exposed person, sanction and adverse media checks, and ongoing suspicious activity reporting.
Well, that’s what the press release tells me anyway.
We may see some alternative investment funds taking a little exposure to crypto, but unless the underlying has $1 billion equivalent in liquidity, it’s not really worth their while- Alex Batlin, Trustology
I ask Batlin if this new service makes it easier for conventional institutional investors to buy crypto or for conventional securities to trade in tokenized form.
But it seems that is not the vision.
“I do not think that many old assets will go onto the new blockchain infrastructure,” Batlin tells Euromoney. “However, new instruments, for example new types of bonds as smart contracts incorporating corporate actions, could trade on blockchain.
"In the conventional financial system, in order to establish a new asset, you would need to convince central securities depositories, central clearing counterparties, exchanges, broker dealers, transfer agents in multiple countries. All that is hugely expensive and time consuming. What we are doing is reducing the cost and time to do all that and building institutional-grade custody and wallet tools that are also available to retail.”
It’s likely, though, that the big users will be dedicated crypto investors.
“What you find is that a lot of the crypto hedge funds, for example, are 15 people not bound to any single location that want to trade on their mobiles and they need institutional-grade tools to do that,” says Batlin.
He suggests: “We may see some alternative investment funds taking a little exposure to crypto, but unless the underlying has $1 billion equivalent in liquidity, it’s not really worth their while.”
He sees a bright future, though, for utility tokens, which fell out of favour during the brief vogue for initial coin offerings that were little more than a new form of equity and which securities regulators are now claiming authority over.
“For network effect businesses, utility tokens are a very good way to incentivize participants and they are a very different asset class, with diversification benefits and protection both against equity supply dilution and money supply inflation.”
This may be true. But it seems to Euromoney that we are as far away as ever from conventional institutional asset managers allocating any portion of the funds of pension plan sponsors or individual investors for which they have fiduciary responsibility to crypto assets.
Trustology’s TrustVault account supports major crypto assets from bitcoin to ether to ERC-20 tokens. It works on ethereum, an open, public, decentralized blockchain, built to allow for programmable decentralized apps which might be new financial assets.
Banks and conventional asset managers prefer private permissioned blockchains restricted to known users. Batlin believes in decentralization. “We often hear the objection: ‘how can you have a financial market system with no central operator?’ Well, what about the internet? That has no central operator. But it works pretty well for individuals and for institutions.”
Back at my desk, I take a call from the in-house head of blockchain innovation at one of the big banks and ask him about this. He says: “Let me ask you: how much of ethereum does Vitalik Buterin [its 26-year-old Russian-Canadian co-founder] control?”
I start to explain that, obviously, I have absolutely no idea, but the banker interrupts. “Are you sure he couldn’t close it down tomorrow if he wanted to?”