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The Chamber of Digital Commerce (CDC), a digital currency advocacy group, has appointed former Wall Street executive Blythe Masters to its board of advisors.
“I am pleased to bring my experience in financial services to work with the chamber on achieving its goals of advocating policies that promote public trust and confidence in financial infrastructure and fostering the deployment of new technologies to reduce risk and settlement latency.”
Masters will work alongside James Robinson, co-founder at venture capital firm RRE Ventures; and Jason Weinstein, former head of the Department of Justice’s (DOJ) criminal division; to help foster key relationships between the Washington DC-based trade association and traditional finance institutions.
Perianne Boring, founder and president of CDC, noted that although digital currencies and blockchain tech are leading the next generation of commerce, the lack of regulatory clarity continues to be one of the industry’s greatest challenges.
“With the team we have assembled, we are working to educate policymakers to help shape their familiarity and understanding of these technologies,” she said.
Ex-JP Morgan Chase & Co executive Blythe Masters has joined bitcoin trading platform Digital Assets Holdings LLC as chief executive.
Coinsetter has launched Project High Line, a blockchain-based technology that it claims will improve Wall Street’s “outdated” trading system.
The New York-based firm says that the project will help to attain a “stark transparency”, replacing Wall Street’s current settlement rails with a traceable blockchain-based peer-to-peer (P2P) system, giving market participants further control of their assets.
The High Line Project’s “On-Blockchain Settlement” will also enable clients trading on the exchange to view their funds on the blockchain in near real time, without the need for an intermediary.
“Coinsetter’s Project High Line is an important application of blockchain technology that reforms outdated clearing and settlement rails, just as the High Line Park, built over outdated railway infrastructure, has forever revitalised downtown New York and increased its value.”
The exchange says that the project is a “shift from the status quo on Wall Street”, which aims to solve the problem of having to place trust in an exchange or intermediary.
The news comes after Coinsetter announced that it intended to divide a 10% stake in the company’s business among interested market makers willing to add liquidity to its order book at the end of last year.
For many entrepreneurs, one of the most compelling use cases of blockchain technology is the potential for it to enable new marketplaces that remove traditional hurdles associated with investing and crowdfunding.
The growing number of public crowdsales has been widely covered as of late. With these crowdsales, companies sell a branded bitcoin fork as a way to finance the early development of cryptocurrency-related projects. The popularity of many of the early crowdsales has sparked a conversation about where the burden of consumer protection lies.
It appears that burden, at least for the moment, falls on the consumer to do their own analysis of a project’s legitimacy, team, technology and likelihood of success.
Despite the current situation, it is inevitable that this burden will, in some form, eventually land on the companies or the platforms that support them.
Legal questions regarding cryptocurrency crowdsales are uncertain right now. To avoid classification as a security, tokens sold to buyers are often said to represent future access to a company’s technology.
The motivation to participate in cryptoequity crowdsales varies from investor to investor. While some possess a genuine interest in advancing a crowdsale-fueled through their support, other investors simply aim to buy low in order to sell for a higher price.
Yet the nature of how all of these tokens are eventually classified remains uncertain for the time being.
What is often predictable about an industry that lacks legal and regulatory clarity, however, is that the participants in that industry may be tempted to take minimal steps to protect themselves from potential liability. This is not surprising, as establishing measures and policies to protect consumers costs money and affects the bottom line.
Such actions are shortsighted. Regulation, particularly in the financial services industry, is generally a reaction to current problems in the market.
Rules are written to address problems that exist. Therefore, how an industry conducts business today has a direct result on how that industry will be regulated and required to conduct business in the future.
The prepaid card industry is a good example of how this battle between innovators and regulators has played out in the past.
Prepaid debit cards are a fast-growing form of non-cash payment. For years, particularly in the early to mid-2000s, prepaid card programs were largely unregulated and issuers were able to essentially write their own rules.
Card programs imposed fee structures that punished cardholders for inactivity, charged them each time the card was used and allowed for premature expiration if the card was not used regularly.
These fees were included in card agreements that accompanied the physical cards. However, the terms were often printed on inside packaging and not accessible to a consumer prior to purchase.
As the prepaid card market developed, legislators took notice of the developing industry problems and began crafting laws to address them.
A formal reaction came in 2009 with the passing of The Credit Card Accountability Responsibility and Disclosure (CARD) Act.
The CARD Act restricted dormancy or inactivity fees and prohibited expiration dates of less than five years. The fees imposed also were required to be conspicuously stated for the consumer to easily understand.
This type of consumer protection will be required for cryptocurrencies where fees are not obvious. This will affect cryptoequity and the onramps to it, including bitcoin debit cards, bitcoin ATMs and wallet services.
When the markets went sideways, the walls came crashing down. Given the far-reaching consequences of the financial panic – and the public uproar that followed – the federal government was compelled to take some form of action.
This resulted in the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd Frank) Act, which sought to bring about increased transparency to the derivatives markets and reduce the amount of speculative investments on large-firm balance sheets.
Though imperfect by some measures, the law indicates a congressional interest to legislate previously untouched sectors of the US economy. The cryptocurrency industry is not immune from the tendency of the federal government to investigate – and create rules – for new and controversial financial systems.
Regulators have already targeted companies in the crypto space, efforts fueled largely by the consequences of mismanagement.
It can be argued that at least some portions of the New York Department of Financial Services’ proposed BitLicense program were inspired by the shortcomings of Mt Gox and other first-generation virtual currency companies.
These companies lacked adequate compliance programs, measures to combat security breaches and fraud and disaster plans. Emerging bitcoin industries such as crowdfunding with cryptoequity would do well to get ahead of regulatory issues.
History tells us that, like with prepaid cards, investment banks and first-generation bitcoin companies, a regulatory reaction to crowdsales is inevitable, but probably premature today.
Each of these industries operated for years without interference from the government.
Legislators need data points and there aren’t enough yet. Crowdsales are in their infancy, and more issues will be exposed as the market matures.
In the meantime, crowdsales desperately need some adult supervision, and it must come from within. The leaders in this space – highly publicized projects raising money via crowdsale and the platforms that support them – need to lead by example.
The bar has been set – projects like Ethereum have invested impressive amounts of time and resources to ensure that the formalities of a typical financing were not lost on the informal nature of a crowdsale. Most of these efforts were dedicated to informing the market; educating them on both the product and the potential risks.
Crowdsales have already generated tens of millions of dollars for their respective projects and this industry will only continue to grow as more technology projects seek non-traditional forms of financing.
Setting a good precedent now may inspire these future crowdsales to follow suit. It’s becoming easier for consumers to identify and avoid crowdsales that disregard a framework adopted by a majority of the market, so it’s in the best interest of everyone involved to keep each other honest.
This article was co-written by Andrew Beal, an attorney at Crowley Corporate Attorneys in Los Angeles. Andrew represents virtual currency companies, has been a strategic advisor to several successful crowd sales, and is a frequent speaker on the surrounding legal issues.
Disclaimer: The views expressed in this article are those of the author(s) and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
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Noted investment services provider and research firm Wedbush Securities has announced its first investment in the bitcoin ecosystem, contributing an undisclosed sum to newly launched US bitcoin marketplace Buttercoin.
One of the more vocal research institutions on the subject of bitcoin globally, Wedbush has long been bullish on digital currency while largely refraining from issuing any direct financial support to the ecosystem.
Dahl suggested that the partnership was months in the making, noting that his company reached out to inquire about Wedbush’s interest in serving as a market maker on Buttercoin in January.
According to Dahl, though slow to fruition, the partnership could do much to encourage interest from other institutional players it is currently courting.
“Buttercoin is in talks with other institutional players including market makers, prop shops and hedge funds,” Dahl said.
Dahl predicted that should current trends continue, bitcoin could be more widely adopted in portfolios as diverse as pension funds or university endowments in the coming years, and that it intends to capture this growth on its platform.
However, he indicated that such a development is contingent on federal and state governments providing the needed regulatory clarity for the industry.
Dahl positioned the partnership with Wedbush as the start of a long-term partnership between the two firms.
In exchange for conducting activities it’s marketplace, Dahl said Wedbush would receive a discount from its standard trading rates. Such an incentive, he indicated, will also be available to other large players that use its market.
“The more volume they process the greater the discount,” Dahl added.
Notably, the move coincides with an uptick in announcements from active US-based bitcoin trading services providers.
Palo Alto-based Mirror, which recently rebranded from Vaurum, announced this summer that it will leverage nearly 30,000 BTC purchased at auction by investor Tim Draper to fuel the growth of its platform.
Similarly, New York exchange Coinsetter announced a plan last week to draw more market makers to its order book, offering 10% of the company to interested firms and suggesting liquidity is now a top priority for US-based bitcoin trading startups.
It’s been a bumper year for bitcoin hedge funds. While the entry of big money from Wall Street into the bitcoin markets is discussed with equal measures of glee and rage in the community, some big-money financiers are already making moves in the cryptocurrency markets.
We’re not talking about Barry Silbert’s Bitcoin Investment Trust or the Winklevoss twins’ bitcoin index fund. No, there’s a new class of funds running money for wealthy individuals, families and institutions, aimed to get these sophisticated investors into the bitcoin game.
Here’s a roundup of the new bitcoin funds so far:
The Global Advisors Bitcoin Investment Fund, which goes by the catchy acronym GABI, has claimed the title of the world’s first regulated bitcoin hedge fund. That said, it’s regulated in Jersey, the British Crown dependancy that is one of the world’s top tax havens. The fund is due to launch on 1st August, according to Newsweek, and will seek clients in the UK, Europe and the Middle East.
The GABI Fund is run by Daniel Masters, a former energy trader at Shell and JP Morgan, where he rose to run its global energy trading division in the late nineties. In 1999, Masters also co-founded Global Advisors, a Jersey-based commodities hedge fund.
The new fund hasn’t made public its planned fund size, or its likely trading approach, but Newsweek’s Leah McGrath Goodman reports that Masters is bullish on bitcoin’s long-term future and is attracted to the money-making opportunities in its current price volatility.
So what does regulation mean for GABI? According to the Jersey Financial Services Commission, “certified funds” like GABI must adhere to a code of practice established by the regulator that are designed to protect clients. This includes demonstrating the existence of financial resources and adequate insurance, setting up risk-management systems and being subject to future guidance from the commission.
Future guidance for bitcoin funds will be forthcoming, as the commission’s Financial Crime Strategy Group is due to make recommendations on the risks linked to cryptocurrencies by the end of the year.
Pantera Capital brings some serious Wall Street pedigree to the table. The fund, which buys bitcoin as an asset, but also acts as a venture capital backer to bitcoin startups, is packed with a roster of high-profile names from high finance. Its principal is Dan Morehead, a former chief financial officer and head of macro trading at the legendary hedge fund Tiger Management.
Pantera’s fund size is about $150m, which is three times larger than Secondmarket’s Bitcoin Investment Trust, according to regulatory filings. It’s fuelled by money from large institutional investors like Fortress Investment Group and venture capital firms Benchmark Capital and Ribbit Capital. Pantera also counts Mt. Gox and Ripple creator Jed McCaleb among its executives.
The firm put its sizable bankroll to use in search of early-stage company deal flow – even flying bitcoin startups to Lake Tahoe in private jets to be wined and dined, according to Bloomberg News. Pantera emerged as a backer of current top exchange (in terms of US dollar trading) BitStamp, having put in $10m.
It’s unclear how well Pantera has done with its bitcoin holdings so far. However, we do know that Fortress lost some $3.7m on a $20m bitcoin investment in 2013, according to the Wall Street Journal, before throwing its cryptocurrency lot in with Pantera.
One group of traders hoping to cash in on the persistent price differences among various bitcoin exchanges is Bitcoins Reserve. Calling itself a “cryptocurrency arbitrage fund“, Bitcoins Reserve hopes to buy low on one exchange and sell high on another, using automated trading software that it has developed itself.
The fund, a subsidiary of a British Virgin Island-incorporated firm called Chesham Group Ltd, says in its prospectus that it has returned 765% in the 12 months ending April 2014, beating bitcoin’s price movement by more than 200 points.
Bitcoins Reserve is a relative minnow compared to other companies in this article; saying it wants to have just $5m under management by year’s end. The firm hasn’t publicly disclosed its current fund size. It’s worth noting that Bitcoins Reserve was the victim of a phishing attack earlier this month, losing 100 BTC to the scam.
This San Francisco-based fund began to build a public profile when it was named as an investor in ASIC manufacturer BitFury‘s hefty $20m round at the end of May. The firm is stocked with technology startup pedigree, with Jonathan Teo, who led investments in Twitter and Instagram, as a partner at Benchmark Capital, holding the post of chairman.
Binary also trades on its own account and for clients, however, deploying a range of trading strategies, including arbitrage, according to managing partner Harry Yeh, who’s based in Vancouver. Yeh wouldn’t say how much he has under management, although he said the fund’s clients tended to be accredited investors.
Another hedge fund that’s making big investor promises is New York-based Coin Capital Partners. The fund launched in May, promising “hedge fund industry best practices” and “investment grade” exposure to bitcoin.
Coin Capital intends to court accredited investors under the scrutiny of the Securities and Exchange Commission, and says it employs a straightforward buy-and hold-strategy for investors with a “long-term bullish stance” on the bitcoin price.
The firm is run by Samuel Cahn, a lawyer and investment manager who previously managed an arbitrage fund, who told trade title FINAlternatives that his fund has been seeded from a family office. His partners in the fund are brothers Sigmund and Drew Sommer. Coin Capital has not disclosed its fund size.
Falcon Global Capital is bringing both financial firepower and its powers of professional persuasion to bear for its clients. The firm, which isn’t a wheeling and dealing hedge fund, but rather an asset management vehicle for investors to buy and hold bitcoins, has also launched a lobbying initiative on Capitol Hill to raise awareness of bitcoin among legislators. Falcon’s co-founder is Brett Stapper, himself a federally registered lobbyist.
Falcon, like the other funds listed here, targets accredited investors looking to buy relatively big chunks of bitcoin, but who don’t want the hassle of procuring the coins themselves, or the risk of losing them through a security oversight. The company buys bitcoin for its clients, with the smallest order being $25,000, and uses London startup Elliptic for its insured storage services.
Disclaimer: This article should not be viewed as an endorsement of any of the companies mentioned. Please do your own extensive research before considering investing any funds in these products.