Part of the appeal of crypto and Bitcoin is that it allows investors to very easily buy into an asset, whereas investing in publicly-traded stocks often requires an investor become accredited first, or invest a substantial minimum amount to get started.
Popular crypto investing app Abra has announced they will be offering a way to use Bitcoin to collateralize stock and ETF contracts, enabling investors to invest in stocks that otherwise might not be available to them. The news already has the industry buzzing about the potential implications of Bitcoin used as a bridge into traditional assets.
Abra Launches Investing in Stocks and ETFs Using Bitcoin
Crypto investing app Abra has announced that investors can soon invest in “stocks, ETFs, commodities, cryptocurrencies, and fiat currencies,” all using one app.
The app is available in 155 countries. Abra intends to start with “popular US stocks and ETFs,” but will add more global assets in the future.
Like investing in Bitcoin itself, Abra’s new options require just a $5 minimum and the company is charging zero fees on trading traditional assets during 2019 for those that sign up for early access.
Abra’s stocks and ETFs will be offered through crypto-collateralized contracts using Bitcoin. An investor will need to own Bitcoin to use as collateral in order to gain exposure to another asset – stock, bond, ETF, and more – and when the contract is settled, the new value of the asset will be converted back into Bitcoin holdings.
Crypto Industry Optimistic Over Bitcoin Involvement
Following Abra’s announcement, “crypto Twitter” began discussing the implications the news has on the crypto industry and on the future of Bitcoin. The collective comments from top industry figures shows just how optimistic the industry is over Bitcoin’s use as a settlement layer enabling exposure into more traditional investment assets.
🚀 Abra announces the ability to invest in stocks and ETFs using Bitcoin
Ryan Selkis, the founder of Messari – a brand recently at the center of an XRP market cap controversy – believes that the news is “much, much bigger news” than the Bitcoin Lightning “torch” that swept Twitter over the past couple of days, even attracting the attention of Twitter and Square CEO Jack Dorsey.
Morgan Creek Digital founder Anthony Pompliano commented that it’s now no longer an “if, but rather a when,” referring to the inevitable tokenization of stocks, bonds, commodities and more that analysts believe could occur thanks to the emergence of crypto.
This is HUGE!!!!!!!!!!!!!!!! All #bitcoin-based!!!!!! Kudos to @billbarhydt & team for lassoing traditional financial assets into Bitcoin, instead of trying to pigeonhole Bitcoin into the status quo—as so many other #crypto companies are doing. Best wishes for tremendous success! https://t.co/ZXs0lhqs8Z
Both Atlantic Financial CEO Bruce Fenton and co-founder of the Wyoming Blockchain Coalition Caitlin Long called the news “huge.” Long later added that it “expands the BTC owner universe” by opening up stocks to people in countries with low economic activity who otherwise wouldn’t be able to buy into these traditional assets.
Citing the vice chair of SET’s board of governors, Pattera Dilokrungthirapop, — аlso chair of the Association of Securities Companies — the report revealed that the national stock exchange plans to apply for a digital asset operating licence from the country’s Ministry of Finance within the year.
According to the plan, SET’s member securities firms will be able to apply to become brokers and dealers for trading on the new digital asset exchange.
As a representative of the securities industry, Dilokrungthirapop stressed that there are a number of securities firms that are interested in broker and dealer activity with digital assets as a class, but are not necessarily looking to enter cryptocurrency markets.
Dilokrungthirapop further stated:
“Securities firms are currently waiting for the SET to apply for a licence. For us, digital assets are expected to grow in the future as investors gain more understanding of this asset class.”
Jirayut Srupsrisopa, chief executive of Thai crypto exchange Bitkub, noted that a digital asset exchange from SET would have the advantage of leveraging the stock exchange’s already existing trust and capital. The exchange also expressed interest in partnering with SET for its digital asset venture.
Recently, the much-anticipated digital assets platform Bakkt — created by the operator of the New York Stock Exchange (NYSE) — entered into an agreement to acquire certain assets in futures commision merchant Rosenthal Collins Group (RCG).
Earlier in January, Estonia-based DX Exchange launched its digital trading platform offering tokenized traditional stocks on the Ethereum (ETH) blockchain.
Estonia-based cryptocurrency and tokenized stock exchange DX.Exchange has reportedly patched a critical vulnerability that leaked sensitive user data.
Estonia-based cryptocurrency and tokenized stock exchange DX.Exchange has reportedly fixed a critical vulnerability that leaked sensitive user data.
Technology news website Ars Technica reported on the security leak Jan. 9, citing an anonymous trader who conducted a security analysis of DX.Exchange.
According to Ars Technica’s article, a trader, who wished to remain anonymous due to legal concerns, noticed that the exchange was sending sensitive data of other users to their browser. After examining the data, the trader has reportedly found that the data included other users’ authentication tokens and password reset links:
“I have about 100 collected [authentication] tokens over 30 minutes, […] if you wanted to criminalize this, it would be super easy.”
The authentication tokens were reportedly formatted in the JSON Web token standard and could be easily decoded with the use of online tools, obtaining full names and email addresses of the exchange’s users.
According to Ars Technica, the trader has explained that the tokens could grant access to their associated accounts, as long as the user hasn’t manually logged out after the token was leaked.
The trader has also reportedly found a way to permanently backdoor an account by using the platform’s programming interface, which would grant them access even after a user has logged out.
Furthermore, Ars Technica reported that some of the login data leaked by the platform belongs to the employees of the site. The article explains the severity of the issue:
“In the event that such a token gave unauthorized access to an account with administrative privileges, the hacker might be able to download entire databases, seed the site with malware, and possibly even transfer funds out of user accounts.”
Ars Technica itself has reportedly checked and confirmed the presence of the vulnerabilities discovered by the trader, obtaining what it described as a large number of authentication tokens through the publicly available programming interface.
Ars Technica contacted the DX.Exchange, and according to the article, the leak has now been fixed. However, the company declined to comment on its intentions to warn the users about the now-patched vulnerability:
“Ars sent a response asking if DX.Exchange planned to reset all user tokens or passwords and to notify users that a leak exposed their names and email addresses. So far, the officials have yet to respond.”
As Cointelegraph reported Jan. 3, DX.Exchange leverages Nasdaq’s Financial Information Exchange (FIX) protocol and allows its users to trade tokenized stocks of major companies, including Google, Facebook and Amazon.
As of press time, DX.Exchange has not responded to Cointelegraph’s request for commentary.
The United States government could regulate crypto assets and tokens differently than stocks and traditional assets.
The United States government could regulate crypto assets and tokens differently than stocks and traditional assets by altering the existing regulatory framework on securities.
On Dec. 22, CNBC reported that two congressmen — Warren Davidson and Darren Solo — have introduced a bipartisan bill entitled “Token Taxonomy Act,” in an effort to prevent over-regulation in the cryptocurrency space.
“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space,” said Davidson.
When passed, what sort of impact could the bipartisan Token Taxonomy Act have on the cryptocurrency and blockchain sector?
More clarity, exactly what the industry needs
In a statement, the Blockchain Association — a Washington, D.C.-based non-profit trade association that represents many of the biggest companies in the cryptocurrency industry such as Coinbase, Circle and Digital Currency Group — said that the bill provides a definition to crypto assets and digital tokens that exclude them from being recognized as a security.
By providing a clear guideline on the regulatory nature of tokens and digital assets, the bill encourages blockchain projects to remain within the U.S. market and contribute to the growth of the local cryptocurrency and blockchain sector.
The vast majority of token sales and ICO projects — apart from a select few like Telegram that have reportedly conducted a private token sale with the approval from the U.S. Securities and Exchange Commission (SEC) — have disallowed investors in the U.S. to participate in token sales due to the ambiguity in existing securities laws.
Even projects such as 0x (ZRX) that have been listed by a U.S.-based strictly regulated cryptocurrency exchange Coinbase, which clears the project from being considered a security, did not allow investors in the country to contribute to the ICO.
“With these terms clarified, we can police bad actors while encouraging the good ones, giving US-based innovators the framework they need to build next-generation technologies and services here rather than doing that valuable work overseas,” the Blockchain Association said.
The bill also offers clarity on the taxation policy surrounding cryptocurrencies for the first time in the market’s history, eliminating the friction between blockchain networks and users.
Currently, users in the U.S. are required to declare capital gains taxes on all cryptocurrency transactions — small or big — because the Internal Revenue Service (IRS) of the United States federal government has recognized cryptocurrencies as a form of property.
Although the bill does not aim to alter the recognition of cryptocurrencies as a property, it imposes an exemption for capital gains taxes on transactions that do not exceed $600, deeming them as tax-exempt exchanges.
“Also, this legislation includes provisions that would address issues with the tax treatment of tokens. In 2014, the IRS declared that ‘virtual currencies’ be treated as property, which means capital gains taxes need to be calculated for all transactions. This adds tremendous friction to decentralized networks. The legislation addresses this by providing a de minimis exemption for gains less than $600 and allowing for tax-exempt like-kind exchanges.”
Decentralization is key
The bill does not encourage the SEC and other enforcement agencies to acknowledge all types of tokens and ICO projects as non-securities. It still allows the SEC to exercise authority over tokens that are considered securities, based on a newly established definition and guideline.
On June 14, the SEC’s Director of the Division of Corporate Finance Bill Hinman said that a key factor in determining whether a token is considered a security under existing regulations is the level of decentralization of the project.
If a blockchain network is sufficiently decentralized and no central party has control over the majority of the project’s elements, including its monetary policy and development, the SEC director said in a speech that the native token of the blockchain network cannot be considered a security under existing regulations. Hinman said:
“If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede.”
On that front, the SEC and the lawmakers behind the bill are in agreement that, as long as a security is sufficiently decentralized, it should be able to continue on without the interference from the authorities.
When passed, the bill is expected to allow both the token issuers and investors to better evaluate whether a token is recognized as a security or not, based on the newly amended securities policies. The bill could also encourage more companies to register with the SEC to distribute securities through the issuance of tokens in a private sale.
In the upcoming months, the Blockchain Association, the companies represented by the non-profit organization and U.S. regulators are set to cooperate in improving the bill and move it forward to gain the approval from the House and the Congress.
For a bill that has only been in the making for several months, the Blockchain Association said that it is not perfect in many ways. But, throughout 2019, industry leaders, experts and lawmakers will work together to solidify policies surrounding the cryptocurrency and blockchain space.
“Like all legislation in the early stages, we expect this bill isn’t perfect yet. However, what excites us is that it was proposed by a bipartisan team, demonstrating a vision for innovation and responsibility that is shared across the aisle. With the new Congress starting in January, we hope digital tokens will be an idea that we can build upon. We want to work together to debate the key issues, ensure adequate consumer protection, and work toward advancing legislation that represents our collective views,” the association stated.
Crypto tax policy reform needed
Cryptocurrencies like Bitcoin are fundamentally, structurally and conceptually different than stocks and traditional forms of assets. As such, the Bitcoin market behaves and moves differently than most stocks with extreme volatility and rapid price movements, mostly because the market is open for 24 hours a day for investors in the global digital asset exchange market.
The problem with cryptocurrencies — or with any emerging asset class in its infancy — is that an investor could record a 300 percent gain on paper by the year’s end and lose all of the profits in the following year.
Because losses are not carried across to the next year and crypto taxes are calculated in the same way as stocks and properties, the mismanagement of a cryptocurrency portfolio could lead to a big tax bill for investors.
On Dec. 21, the Wall Street Journal reported that investors could use certain strategies to lower taxes on cryptocurrency investments, such as selling and repurchasing crypto assets.
Without the implementation of such strategies, the aggressive approach of the IRS to collect taxes from crypto investors — as seen in the federal court order that demanded Coinbase to provide information on about 13,000 cryptocurrency trading accounts worth more than $20,000 between 2013 and 2015 — could affect many investors in the future.
Currently, the IRS is evaluating tens of thousands of trading accounts that traded between 2013 and 2015 to potential charge capital gains taxes on cryptocurrency investors. Investors that do not have the know-how on reducing tax rates could get hit hard by the IRS in the future, especially given that the tax policy around crypto remains identical with that of stocks and properties.
If the bill gets passed and a new definition is provided to crypto assets, most areas of the asset class, including taxation, are likely to be altered.
From 2017 to 2018, Bitcoin increased by around 1,900 percent, from $1,000 to $19,500. Since then, Bitcoin has dropped to $4,000 by around 85 percent. For an asset class that tends to increase and decline in value by margins that are not comparable to the stock market, it is impractical to rely on the same tax policies.
Even major projects are shutting down
On Dec. 13, Basis — a stablecoin project financed by some of the largest venture capital firms in the world, such as Andreessen Horowitz and Bain Capital Ventures — announced that it will shut down its operations and return the $133 million it raised to its investors.
Dissimilar to other widely adopted stablecoins like Circle’s USDC and Gemini’s GUSD, Basis incorporates an algorithm and alters the supply of the token to adjust to the price of other major crypto assets, like Bitcoin and Ethereum.
In an official statement, the Basis team said that, ultimately, the closure of the project came down to the securities law of the U.S.
“As regulatory guidance started to trickle out over time, our lawyers came to a consensus that there would be no way to avoid securities status for bond and share tokens (though Basis would likely be free of this characterization). Due to their status as unregistered securities, bond and share tokens would be subject to transfer restrictions, with Intangible Labs responsible for limiting token ownership to accredited investors in the US for the first year after issuance and for performing eligibility checks on international users.”
Based on the statement of Basis, it is likely that the SEC and the lawyers of the project deemed it was not sufficiently decentralized, as the development is led by a team of developers hired by the company.
Basis was considered a promising algorithm-based stablecoin project. But, inefficient regulatory frameworks and securities policies that consider crypto assets in the same way as stocks and traditional assets limited the scope of the project.
For the long-term growth of the cryptocurrency sector, the bipartisan bill is crucial in defining cryptocurrencies in a new manner to facilitate the development of blockchain technology and encourage innovation in the space. Jake Chervinsky, a government enforcement defense and securities litigation attorney at Kobre & Kim, said:
“The Token Taxonomy Act would provide exactly the type of regulatory clarity the crypto industry needs. Legislation like this is orders of magnitude more important than non-binding guidance from agencies like the SEC.”
While the time frame of the approval of the bipartisan bill is uncertain, industry leaders and experts remain generally optimistic in the first initiative led by the members of Congress to regulate cryptocurrencies efficiently.
The fourth largest European stock exchange, SIX Swiss Exchange, will list the world’s first multi-crypto exchange-traded product next week.
Switzerland‘s principal stock exchange SIX Swiss Exchange will list the world’s first multi-crypto-based exchange-traded product (ETP) next week, the Financial Times (FT) reported Saturday, Nov. 16.
Backed by the Swiss startup Amun AG, the first global multi-crypto ETP will be listed under index HODL, and will track five major cryptocurrencies: Bitcoin (BTC), Ripple (XRP), Ethereum (ETH), Bitcoin Cash (BCH), and Litecoin (LTC).
According to the article, each cryptocurrency will acquire a certain market share within the upcoming ETP, with Bitcoin accounting for around half of the ETP’s assets. The rest are set to be divided in fractions, with 25.4 percent in now-second cryptocurrency XRP, and 16.7 percent in Ethereum, while Bitcoin Cash and Litecoin will acquire 5.2 and 3 percent of the market, respectively.
Amun’s co-founder and chief executive Hany Rashwan commented that the upcoming ETF is organized in a way to comply with the same strict policies that are required by traditional ETPs. According to Rashwan, this will provide a well-regulated tool for trading cryptocurrencies for both institutional and retail investors that are limited in the field by crypto-unfriendly environments.
The Amun ETP index will be managed by the German index unit of investment management firm Van Eck, according to major Swiss news agency Finews.com. While Amun AG is based in the Swiss “crypto valley” town of Zug, it is reportedly a branch of Amun Technologies, a U.K.-based fintech company. The firm first announced their plans to introduce a crypto ETP in late September this year, according to Bloomberg.
According to Amun’s official website, SIX Swiss Exchange is the fourth largest stock exchange in Europe with a market capitalization of $1.6 trillion. On Wednesday, Nov. 14, head of securities and exchanges at SIX Thomas Zeeb claimed that blockchain-based digital exchanges will entirely replace conventional ones in “about ten years,” citing a large interest in cost advantages of the technology by brokers, banks, and insurance firms.
ETPs represent a type of security that is priced derivatively and trades intraday on a national securities exchange, based on investment tools such as commodity, a currency, a share price, or an interest rate, according to New York City-based investing and finance website Investopedia. ETPs can reportedly be actively managed funds, including exchange-traded funds (ETFs), and others.
Some experts have predicted that adoption of Bitcoin ETFs will be a “way bigger deal” than a cash settlement Bitcoin futures contract, and hence will be a bigger basis for the growth of crypto markets.
In Sweden, XBT Providers already have a Bitcoin ETP called Coinshares, which has attracted around $1 billion since 2015 when it was listed on major Swedish exchange Nasdaq Stockholm.
Recently, the U.S. Securities and Exchange Commission (SEC) stopped accepting public feedback on their Bitcoin ETFs policy review, following the previous denial of nine applications to list and trade various BTC ETFs from three companies, including ProShares, Direxion, and GraniteShares.