Full Steemit Ahead State of Affairs
Your road-map for a decentralized world
Feb 2018 / Volume 1
COIN SPOTLIGHT: RIPPLE / XRP
The Future of futures
04
21
CONTENTS
06
15
25
de/Central MAG 3
Photo Source:pixabay.com
From the Editor's Desk NEWS The Future of Futures Staff Letter FINANCIAL Coin Spotlight: Ripple Strategy: Baby Steps LEGAL State of Affairs OPPORTUNITIES FULL STEEMIT AHEAD
2 de/Central MAG
4 de/Central MAG
Here we are! The first issue of de/Central. I guess you call this our “genesis block”. The world of cryptocurrency is so vast that it’s really hard to know where to start. That’s why the team put together de/Central. Our motto is “your road-map for a decentralized world” and that’s exactly what we strive to provide. We unequivocally feel that decentralization and cryptocurrency are the wave of the future. With the number of coins and the vast applications possible through blockchain technology it’s hard to argue with that sentiment. It’s a worldwide movement and paradigm shift. Paradigm shifts are often hard to accept and even harder to navigate. If nothing else we want to give a starting point. We’re on the precipice of something that can revolutionize finance and even the playing field for “regular” people. The shift is already in full swing. We want our readers to be able to maximize their benefit from it. Think about the Internet in its infancy(mid-late 90s). Blockchain tech and the attached cryptocurrencies are in a similar phase currently. I had a conversation with a few team members and initially I wanted to help drive adoption of the crypto ecosystem. That goal morphed a bit as the first issue came together. We realized it’s not about making crypto mainstream. As the technology evolves that will happen anyway. It’s social evolution and social evolution can’t be stopped(maybe moderately slowed). What we’re here to do is help people understand the changes and how it affects them as it becomes mainstream. With this goal in mind we can help crypto become the mutually beneficial system that it was originally intended to be by the cyberpunks who pioneered it. People can’t effectively benefit off of something they don’t understand. I’m not saying you have to know exactly how a node works or know offhand how many MB are in each block of every token. How many of us know exactly how the Internet works on more than just a surface level? Most everyone knows how to use it though. The more you know about it the more effective you are at using it however. de/Central is here to facilitate that knowledge. We’ve broken de/Central into 5 sections to help our readers navigate the cryptosphere. News" looks at the newest developments in blockchain technology as well as the acceptance of it. "Financial" examines the cryptocurrencies and market trends that allow us all to make educated decisions and profit from the exchanges. "Legal" focuses on the regulation of blockchain tech. "Opportunities" gives user-friendly and easy to understand breakdowns of how regular people can use cryptocurrency to their advantage. Finally security focuses on how to stay safe while on your crypto journey. This is a new industry to most and we won’t sugarcoat it; there’s still plenty of scams out there. We’re always open to feedback as hearing from our readers allows us to improve the service we provide. Thank you for your support and we look forward to seeing our readers make the most of decentralization. Cheers to your success! Ken Taylor Editor de/Central
Editor's Desk
NEWS
The future of Futures
"Bitcoin could hit $100,000 in 2018."
6 de/Central MAG
By Ken Taylor
The volatility in the cryptocurrency markets continues to be a roller coaster. It appears that the crypto economy is at an important crossroads.
The NASDAQ is assessing how to offer cryptocurrency futures in a way that none of its competitors have so far managed, the CEO of the stock exchange told CNBC. Adena Friedman confirmed earlier reports that the NASDAQ is looking into Bitcoin futures, but did not give a time-line for a launch or if it will definitely happen. "We are continuing to investigate the idea of a cryptocurrency futures (contract) with a partner and we continue to look at the risk management around that, making sure we are putting the right protocols in place, making sure there's proper demand, and that the contract is different from what's already out there," Friedman told CNBC. Rivals the Cboe and CME Group have both launched Bitcoin futures contracts in the past few months. But speaking during an interview at Sanctuary in Davos, Switzerland, Friedman said that the NASDAQ will offer a different type of contract. The NASDAQ CEO explained the Cboe and CME offerings operate by tracking the price of Bitcoin and operate in reference to its future price. But, the NASDAQ wants to offer a contract different from what Cboe and CME Group have. "What we might look at is more of a total return futures, so it's a little bit of a different construct," she said, adding that it meant it was "more of an investment than a tracking stock." This suggests the product might track a spot rate rather than any future price "We will have to see whether it makes sense at the end of the day, proper client demand, and on a risk-management side 'do we feel confident?,' in which case we would look to go to the CFTC (Commodity Futures Trading Commission)," she said. Bitcoin had a huge rally in 2017 but has so far got off to a tepid start this year. Cryptocurrencies across the board recently suffered a huge sell-off and are only just now beginning to rebound. Many have been avid detractors of cryptocurrencies in the past year. J.P. Morgan CEO Jamie Dimon famously called bitcoin a "fraud" while legendary investorWarren Buffett told CNBC that digital currencies will come to a "bad ending." Many more have talked up the potential of cryptocurrencies in 2018. Julian Hosp, co-founder of TenX, a firm that wants to make it easier for people to spend virtual currencies, told CNBC in December that bitcoin could hit $60,000 in 2018, but could crash first. And Dave Chapman, managing director of cryptocurrency trading firm Octagon Strategy, said thatbitcoin could hit $100,000 in 2018. This internal staff letter sent in January 2018 from the SEC could give us the direction that the federal government will take towards crypto in 2018. accusam et justo duo.
Adena Friedman confirmed earlier reports that the NASDAQ is looking into Bitcoin futures, but did not give a time-line for a launch or if it will definitely happen.
de/Central MAG 7
The Sanctuary in Davos, Switzerland, Friedman said that the NASDAQ will offer a different type of contract. The NASDAQ CEO explained the Cboe and CME offerings operate by tracking the price of Bitcoin and operate in reference to its future price. But, the NASDAQ wants to offer a contract different from what Cboe and CME Group have. "What we might look at is more of a total return futures, so it's a little bit of a different construct," she said, adding that it meant it was "more of an investment than a tracking stock." This suggests the product might track a spot rate rather than any future price. "We will have to see whether it makes sense at the end of the day, proper client demand, and on a risk-management side 'do we feel confident?,' in which case we would look to go to the CFTC (Commodity Futures Trading Commission)," she said. Bitcoin had a huge rally in 2017 but has so far got off to a tepid start this year. Cryptocurrency across the board recently suffered a huge sell-off and are only just now beginning to rebound. Many have been avid detractors of cryptocurrencies in the past year. J.P. Morgan CEO Jamie Dimon famously called Bitcoin a "fraud" while legendary investor Warren Buffett told CNBC that digital currencies will come to a "bad ending." Many more have talked up the potential of cryptocurrencies in 2018. Julian Hosp, co-founder of TenX, a firm that wants to make it easier for people to spend virtual currencies, told CNBC in December that Bitcoin could hit $60,000 in 2018, but could crash first. And Dave Chapman, managing director of cryptocurrency trading firm Octagon Strategy, said that bitcoin could hit $100,000 in 2018. This internal staff letter sent in January 2018 from the SEC could give us the direction that the federal government will take towards crypto in 2018. (>.>)
A letter from Dalia Blass Paul Schott Stevens President & CEO Investment Company Institute Timothy W. Cameron Asset Management Group – Head Securities Industry and Financial Markets Association
A Letter: Engaging on Fund Innovation and Cryptocurrency-related Holdings
de/Central MAG 9
Dear [Mr. Stevens/Mr. Cameron]: As you know, the U.S. investment fund market is one of the most robust, varied and successful markets for investment products in the world. Its success can be attributed, in significant part, to the commitment of fund sponsors to responsible innovation and continuous improvement of the products they offer. This commitment is especially important because many of America’s Main Street investors rely on registered funds to help them build toward education, retirement and other important goals. Flexibility to innovate is also a key feature of the Investment Company Act of 1940. As the Division with primary responsibility for regulatory policy regarding registered funds, we seek to foster innovation that benefits investors and preserves the important protections that Congress established in the 1940 Act. Over the years, dialogue between fund sponsors and the Division has facilitated the development of many new types of investment products that have expanded choice for investors. Exchange-traded funds and money market funds are notable examples. Recently, the growth in cryptocurrencies and cryptocurrency-related products has attracted significant attention, and we have seen interest among sponsors in offering registered funds that would hold these new digital products. As we have in the past, the Division stands ready to engage in dialogue with sponsors regarding the potential development of these funds. We believe, however, that there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors. We appreciate that proponents of cryptocurrencies and related products have identified a range of potential benefits. We are also aware that critics of cryptocurrencies have raised various concerns regarding transparency of information, trading, valuation and other matters related to the nature of the underlying assets. In addition, the innovative nature of cryptocurrencies and related products, as well as their expected use and utility in our financial markets, means that they are, in many ways, unlike the types of investments that registered funds currently hold in substantial amounts. In light of these considerations, we have, at this time, significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy the requirements of the 1940 Act and its rules. To facilitate the start of our dialogue, we have identified below a number of these questions, and we invite you and any interested sponsors to engage with us in detail on these. While we have identified the questions below, we note that the cryptocurrency markets are developing swiftly. Additional questions may arise from these developments. Valuation Mutual funds and ETFs must value their assets on each business day in order to strike a net asset value (“NAV”). Appropriate valuation is important because, among other things, it determines fund performance, what investors pay for mutual funds and what authorized participants pay for ETFs (and what they receive when they redeem or sell). Would funds have the information necessary to adequately value cryptocurrencies or cryptocurrency-related products, given their volatility, the fragmentation and general lack of regulation of underlying cryptocurrency markets, and the nascent state and current trading volume in the cryptocurrency futures markets? How would funds develop and implement policies and procedures to value, and in many cases “fair value,” cryptocurrency-related products? How would funds’ accounting and valuation policies address the information related to significant events relevant to cryptocurrencies? For example, how would they address when the blockchain for a cryptocurrency diverges into different paths (i.e., a “fork”), which could result in different cryptocurrencies with potentially different prices? How and when would funds recognize such information in their NAV? What policies would a fund implement to identify, and determine eligibility and acceptability for, newly created cryptocurrencies offered by promoters (e.g., an “air drop”)? How might a fund account for those holdings if the fund chooses to claim such cryptocurrencies? How would differences among various types of cryptocurrencies impact funds’ valuation and accounting policies? How would funds consider the impact of market information and any potential manipulation in the underlying cryptocurrency markets on the determination of the settlement price of cryptocurrency futures? Liquidity A key feature of open-end funds, such as mutual funds and ETFs, is daily redeemability. Funds must maintain sufficiently liquid assets in order to provide daily redemptions. Under the new fund liquidity rule, rule 22e-4, funds will be required to implement a liquidity risk management program. Under the rule, among other things, funds must classify their investments into one of four liquidity categories and limit their investments in illiquid securities to 15% of the fund’s assets. A fund’s liquidity classifications should be informed by the market depth of its holdings (that is, whether trading varying portions of a position in a particular portfolio asset is reasonably expected to affect the liquidity characteristics of that investment) as well as other relevant market, trading and investment-specific considerations. What steps would funds investing in cryptocurrencies or cryptocurrency-related products take to assure that they would have sufficiently liquid assets to meet redemptions daily? How would funds classify the liquidity of cryptocurrency and cryptocurrency-related products for purposes of the new fund liquidity rule, rule 22e-4? For example, would any of these products be classified as other than illiquid under the rule? If so, why? How would funds take into account the trading history, price volatility and trading volume of cryptocurrency futures contracts, and would funds be able to conduct a meaningful market depth analysis in light of these factors? Similarly, given the fragmentation and volatility in the cryptocurrency markets, would funds need to assume an unusually sizable potential daily redemption amount in light of the potential for steep market declines in the value of underlying assets? How would a fund prepare for the possibility that funds investing in cryptocurrency-related futures could grow to represent a substantial portion of the cryptocurrency-related futures markets? How would such a development impact the fund’s portfolio management and liquidity analysis? Custody The 1940 Act imposes safeguards to ensure that registered funds maintain custody of their holdings. These safeguards include standards regarding who may act as a custodian and when funds must verify their holdings. To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules? We note, for example, that we are not aware of a custodian currently providing fund custodial services for cryptocurrencies. In addition, how would a fund intend to validate existence, exclusive ownership and software functionality of private cryptocurrency keys and other ownership records? To what extent would cybersecurity threats or the potential for hacks on digital wallets impact the safekeeping of fund assets under the 1940 Act? While the currently available bitcoin futures contracts are cash settled, we understand that other derivatives related to cryptocurrencies may provide for physical settlement, and physically settled cryptocurrency futures contracts may be developed. To the extent a fund plans to hold cryptocurrency-related derivatives that are physically settled, under what circumstances could the fund have to hold cryptocurrency directly? If the fund may take delivery of cryptocurrencies in settlement, what plans would it have in place to provide for the custody of the cryptocurrency? Arbitrage (for ETFs) ETFs obtain Commission orders that enable them to operate in a specialized structure that provides for both exchange trading of their shares throughout the day at market-based prices, and “creation unit” purchases and redemptions transacted at NAV by authorized participants. In order to promote fair treatment of investors, an ETF is required to have a market price that would not deviate materially from the ETF’s NAV. In light of the fragmentation, volatility and trading volume of the cryptocurrency marketplace, how would ETFs comply with this term of their orders? Have funds engaged with market makers and authorized participants to understand the feasibility of the arbitrage for ETFs investing substantially in cryptocurrency and cryptocurrency-related products? How would volatility-based trading halts on a cryptocurrency futures market impact this arbitrage mechanism? How would the shutdown of a cryptocurrency exchange affect the market price or arbitrage mechanism? Potential Manipulation and Other Risks In a recently issued statement, Chairman Jay Clayton noted that concerns have been raised that cryptocurrency markets, as they are currently operating, feature substantially less investor protection than traditional securities markets, with correspondingly greater opportunities for fraud and manipulation. The Commission has also discussed concerns relating to the risk of fraud and manipulation in cryptocurrency markets in orders denying exchange proposals to list the shares of commodity trusts that would hold cryptocurrency. In addition, a number of recent media reports have highlighted a range of possible vectors for potential manipulation of cryptocurrency markets. Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets. How have these concerns informed your responses to the foregoing questions concerning, for instance, valuation and liquidity? How would you weigh these concerns in considering whether offering a proposed fund is appropriate for the wide range of investors, including retail investors, who might invest in the fund? Would investors, including retail investors, have sufficient information to consider any cryptocurrency-related funds and to understand the risks? Have you discussed with any broker-dealers who may distribute the funds how they would analyze the suitability of offering the funds to retail investors in light of the risks discussed above? Are there particular challenges investment advisers would face in meeting their fiduciary obligations when investing in cryptocurrency-related funds on behalf of retail investors? * * * The resolution of many of the questions we have raised in the context of a product seeking to register under the 1940 Act will also be important to the ongoing analysis of filings for exchange-traded products and related changes to exchange listing standards by the Division of Corporation Finance, the Division of Trading and Markets and the Office of the Chief Accountant. In addition, questions concerning what regulatory structure or structures apply to the market for the underlying instrument will be relevant to the requirements of both the 1940 Act and the Securities Exchange Act of 1934, including applicable accounting, audit and reporting implications. We have been and will continue working closely with the other Divisions and Offices as we analyze these significant issues. The preceding questions have focused on specific requirements of the 1940 Act and its implications for registered offerings of funds intending to hold cryptocurrency or related products. There may be registered offerings under the Securities Act of 1933 by entities holding similar products and pursuing similar investment strategies. Those entities would have to comply with the registration and prospectus disclosure requirements of the Securities Act. Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission. I appreciate your assistance in sharing our views on this subject with your members. We look forward to engaging with you and your members on these important questions, and we invite you to contact Barry Miller at (202) 551-6725.
10 de/Central MAG
Valuation Mutual funds and ETFs must value their assets on each business day in order to strike a net asset value (“NAV”). Appropriate valuation is important because, among other things, it determines fund performance, what investors pay for mutual funds and what authorized participants pay for ETFs (and what they receive when they redeem or sell). Would funds have the information necessary to adequately value cryptocurrencies or cryptocurrency-related products, given their volatility, the fragmentation and general lack of regulation of underlying cryptocurrency markets, and the nascent state and current trading volume in the cryptocurrency futures markets? How would funds develop and implement policies and procedures to value, and in many cases “fair value,” cryptocurrency-related products? How would funds’ accounting and valuation policies address the information related to significant events relevant to cryptocurrencies? For example, how would they address when the blockchain for a cryptocurrency diverges into different paths (i.e., a “fork”), which could result in different cryptocurrencies with potentially different prices? How and when would funds recognize such information in their NAV? What policies would a fund implement to identify, and determine eligibility and acceptability for, newly created cryptocurrencies offered by promoters (e.g., an “air drop”)? How might a fund account for those holdings if the fund chooses to claim such cryptocurrencies? How would differences among various types of cryptocurrencies impact funds’ valuation and accounting policies? How would funds consider the impact of market information and any potential manipulation in the underlying cryptocurrency markets on the determination of the settlement price of cryptocurrency futures? Liquidity A key feature of open-end funds, such as mutual funds and ETFs, is daily redeemability. Funds must maintain sufficiently liquid assets in order to provide daily redemptions. Under the new fund liquidity rule, rule 22e-4, funds will be required to implement a liquidity risk management program. Under the rule, among other things, funds must classify their investments into one of four liquidity categories and limit their investments in illiquid securities to 15% of the fund’s assets. A fund’s liquidity classifications should be informed by the market depth of its holdings (that is, whether trading varying portions of a position in a particular portfolio asset is reasonably expected to affect the liquidity characteristics of that investment) as well as other relevant market, trading and investment-specific considerations. What steps would funds investing in cryptocurrencies or cryptocurrency-related products take to assure that they would have sufficiently liquid assets to meet redemptions daily? How would funds classify the liquidity of cryptocurrency and cryptocurrency-related products for purposes of the new fund liquidity rule, rule 22e-4? For example, would any of these products be classified as other than illiquid under the rule? If so, why? How would funds take into account the trading history, price volatility and trading volume of cryptocurrency futures contracts, and would funds be able to conduct a meaningful market depth analysis in light of these factors? Similarly, given the fragmentation and volatility in the cryptocurrency markets, would funds need to assume an unusually sizable potential daily redemption amount in light of the potential for steep market declines in the value of underlying assets? How would a fund prepare for the possibility that funds investing in cryptocurrency-related futures could grow to represent a substantial portion of the cryptocurrency-related futures markets? How would such a development impact the fund’s portfolio management and liquidity analysis? Custody The 1940 Act imposes safeguards to ensure that registered funds maintain custody of their holdings. These safeguards include standards regarding who may act as a custodian and when funds must verify their holdings. To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules? We note, for example, that we are not aware of a custodian currently providing fund custodial services for cryptocurrencies. In addition, how would a fund intend to validate existence, exclusive ownership and software functionality of private cryptocurrency keys and other ownership records? To what extent would cybersecurity threats or the potential for hacks on digital wallets impact the safekeeping of fund assets under the 1940 Act? While the currently available bitcoin futures contracts are cash settled, we understand that other derivatives related to cryptocurrencies may provide for physical settlement, and physically settled cryptocurrency futures contracts may be developed. To the extent a fund plans to hold cryptocurrency-related derivatives that are physically settled, under what circumstances could the fund have to hold cryptocurrency directly? If the fund may take delivery of cryptocurrencies in settlement, what plans would it have in place to provide for the custody of the cryptocurrency? Arbitrage (for ETFs) ETFs obtain Commission orders that enable them to operate in a specialized structure that provides for both exchange trading of their shares throughout the day at market-based prices, and “creation unit” purchases and redemptions transacted at NAV by authorized participants. In order to promote fair treatment of investors, an ETF is required to have a market price that would not deviate materially from the ETF’s NAV. In light of the fragmentation, volatility and trading volume of the cryptocurrency marketplace, how would ETFs comply with this term of their orders? Have funds engaged with market makers and authorized participants to understand the feasibility of the arbitrage for ETFs investing substantially in cryptocurrency and cryptocurrency-related products? How would volatility-based trading halts on a cryptocurrency futures market impact this arbitrage mechanism? How would the shutdown of a cryptocurrency exchange affect the market price or arbitrage mechanism? Potential Manipulation and Other Risks In a recently issued statement, Chairman Jay Clayton noted that concerns have been raised that cryptocurrency markets, as they are currently operating, feature substantially less investor protection than traditional securities markets, with correspondingly greater opportunities for fraud and manipulation. The Commission has also discussed concerns relating to the risk of fraud and manipulation in cryptocurrency markets in orders denying exchange proposals to list the shares of commodity trusts that would hold cryptocurrency. In addition, a number of recent media reports have highlighted a range of possible vectors for potential manipulation of cryptocurrency markets. Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets. How have these concerns informed your responses to the foregoing questions concerning, for instance, valuation and liquidity? How would you weigh these concerns in considering whether offering a proposed fund is appropriate for the wide range of investors, including retail investors, who might invest in the fund? Would investors, including retail investors, have sufficient information to consider any cryptocurrency-related funds and to understand the risks? Have you discussed with any broker-dealers who may distribute the funds how they would analyze the suitability of offering the funds to retail investors in light of the risks discussed above? Are there particular challenges investment advisers would face in meeting their fiduciary obligations when investing in cryptocurrency-related funds on behalf of retail investors? * * * The resolution of many of the questions we have raised in the context of a product seeking to register under the 1940 Act will also be important to the ongoing analysis of filings for exchange-traded products and related changes to exchange listing standards by the Division of Corporation Finance, the Division of Trading and Markets and the Office of the Chief Accountant. In addition, questions concerning what regulatory structure or structures apply to the market for the underlying instrument will be relevant to the requirements of both the 1940 Act and the Securities Exchange Act of 1934, including applicable accounting, audit and reporting implications. We have been and will continue working closely with the other Divisions and Offices as we analyze these significant issues. The preceding questions have focused on specific requirements of the 1940 Act and its implications for registered offerings of funds intending to hold cryptocurrency or related products. There may be registered offerings under the Securities Act of 1933 by entities holding similar products and pursuing similar investment strategies. Those entities would have to comply with the registration and prospectus disclosure requirements of the Securities Act. Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission. I appreciate your assistance in sharing our views on this subject with your members. We look forward to engaging with you and your members on these important questions, and we invite you to contact Barry Miller at (202) 551-6725.
de/Central MAG 11
Liquidity A key feature of open-end funds, such as mutual funds and ETFs, is daily redeem-ability. Funds must maintain sufficiently liquid assets in order to provide daily redemptions. Under the new fund liquidity rule, rule 22e-4, funds will be required to implement a liquidity risk management program. Under the rule, among other things, funds must classify their investments into one of four liquidity categories and limit their investments in illiquid securities to 15% of the fund’s assets. A fund’s liquidity classifications should be informed by the market depth of its holdings (that is, whether trading varying portions of a position in a particular portfolio asset is reasonably expected to affect the liquidity characteristics of that investment) as well as other relevant market, trading and investment-specific considerations. What steps would funds investing in cryptocurrencies or cryptocurrency-related products take to assure that they would have sufficiently liquid assets to meet redemptions daily? How would funds classify the liquidity of cryptocurrency and cryptocurrency-related products for purposes of the new fund liquidity rule, rule 22e-4? For example, would any of these products be classified as other than illiquid under the rule? If so, why? How would funds take into account the trading history, price volatility and trading volume of cryptocurrency futures contracts, and would funds be able to conduct a meaningful market depth analysis in light of these factors? Similarly, given the fragmentation and volatility in the cryptocurrency markets, would funds need to assume an unusually sizable potential daily redemption amount in light of the potential for steep market declines in the value of underlying assets? How would a fund prepare for the possibility that funds investing in cryptocurrency-related futures could grow to represent a substantial portion of the cryptocurrency-related futures markets? How would such a development impact the fund’s portfolio management and liquidity analysis? Custody The 1940 Act imposes safeguards to ensure that registered funds maintain custody of their holdings. These safeguards include standards regarding who may act as a custodian and when funds must verify their holdings. To the extent a fund plans to hold cryptocurrency directly, how would it satisfy the custody requirements of the 1940 Act and relevant rules? We note, for example, that we are not aware of a custodian currently providing fund custodial services for cryptocurrencies. In addition, how would a fund intend to validate existence, exclusive ownership and software functionality of private cryptocurrency keys and other ownership records? To what extent would cybersecurity threats or the potential for hacks on digital wallets impact the safekeeping of fund assets under the 1940 Act? While the currently available bitcoin futures contracts are cash settled, we understand that other derivatives related to cryptocurrencies may provide for physical settlement, and physically settled cryptocurrency futures contracts may be developed. To the extent a fund plans to hold cryptocurrency-related derivatives that are physically settled, under what circumstances could the fund have to hold cryptocurrency directly? If the fund may take delivery of cryptocurrencies in settlement, what plans would it have in place to provide for the custody of the cryptocurrency? Arbitrage (for ETFs) ETFs obtain Commission orders that enable them to operate in a specialized structure that provides for both exchange trading of their shares throughout the day at market-based prices, and “creation unit” purchases and redemptions transacted at NAV by authorized participants. In order to promote fair treatment of investors, an ETF is required to have a market price that would not deviate materially from the ETF’s NAV. In light of the fragmentation, volatility and trading volume of the cryptocurrency marketplace, how would ETFs comply with this term of their orders? Have funds engaged with market makers and authorized participants to understand the feasibility of the arbitrage for ETFs investing substantially in cryptocurrency and cryptocurrency-related products? How would volatility-based trading halts on a cryptocurrency futures market impact this arbitrage mechanism? How would the shutdown of a cryptocurrency exchange affect the market price or arbitrage mechanism? Potential Manipulation and Other Risks In a recently issued statement, Chairman Jay Clayton noted that concerns have been raised that cryptocurrency markets, as they are currently operating, feature substantially less investor protection than traditional securities markets, with correspondingly greater opportunities for fraud and manipulation. The Commission has also discussed concerns relating to the risk of fraud and manipulation in cryptocurrency markets in orders denying exchange proposals to list the shares of commodity trusts that would hold cryptocurrency. In addition, a number of recent media reports have highlighted a range of possible vectors for potential manipulation of cryptocurrency markets. Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets. How have these concerns informed your responses to the foregoing questions concerning, for instance, valuation and liquidity? How would you weigh these concerns in considering whether offering a proposed fund is appropriate for the wide range of investors, including retail investors, who might invest in the fund? Would investors, including retail investors, have sufficient information to consider any cryptocurrency-related funds and to understand the risks? Have you discussed with any broker-dealers who may distribute the funds how they would analyze the suitability of offering the funds to retail investors in light of the risks discussed above? Are there particular challenges investment advisers would face in meeting their fiduciary obligations when investing in cryptocurrency-related funds on behalf of retail investors? * * * The resolution of many of the questions we have raised in the context of a product seeking to register under the 1940 Act will also be important to the ongoing analysis of filings for exchange-traded products and related changes to exchange listing standards by the Division of Corporation Finance, the Division of Trading and Markets and the Office of the Chief Accountant. In addition, questions concerning what regulatory structure or structures apply to the market for the underlying instrument will be relevant to the requirements of both the 1940 Act and the Securities Exchange Act of 1934, including applicable accounting, audit and reporting implications. We have been and will continue working closely with the other Divisions and Offices as we analyze these significant issues. The preceding questions have focused on specific requirements of the 1940 Act and its implications for registered offerings of funds intending to hold cryptocurrency or related products. There may be registered offerings under the Securities Act of 1933 by entities holding similar products and pursuing similar investment strategies. Those entities would have to comply with the registration and prospectus disclosure requirements of the Securities Act. Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission. I appreciate your assistance in sharing our views on this subject with your members. We look forward to engaging with you and your members on these important questions, and we invite you to contact Barry Miller at (202) 551-6725.
Potential Manipulation and Other Risks In a recently issued statement, Chairman Jay Clayton noted that concerns have been raised that cryptocurrency markets, as they are currently operating, feature substantially less investor protection than traditional securities markets, with correspondingly greater opportunities for fraud and manipulation. The Commission has also discussed concerns relating to the risk of fraud and manipulation in cryptocurrency markets in orders denying exchange proposals to list the shares of commodity trusts that would hold cryptocurrency. In addition, a number of recent media reports have highlighted a range of possible vectors for potential manipulation of cryptocurrency markets. Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets. How have these concerns informed your responses to the foregoing questions concerning, for instance, valuation and liquidity? How would you weigh these concerns in considering whether offering a proposed fund is appropriate for the wide range of investors, including retail investors, who might invest in the fund? Would investors, including retail investors, have sufficient information to consider any cryptocurrency-related funds and to understand the risks? Have you discussed with any broker-dealers who may distribute the funds how they would analyze the suitability of offering the funds to retail investors in light of the risks discussed above? Are there particular challenges investment advisers would face in meeting their fiduciary obligations when investing in cryptocurrency-related funds on behalf of retail investors? * * * The resolution of many of the questions we have raised in the context of a product seeking to register under the 1940 Act will also be important to the ongoing analysis of filings for exchange-traded products and related changes to exchange listing standards by the Division of Corporation Finance, the Division of Trading and Markets and the Office of the Chief Accountant. In addition, questions concerning what regulatory structure or structures apply to the market for the underlying instrument will be relevant to the requirements of both the 1940 Act and the Securities Exchange Act of 1934, including applicable accounting, audit and reporting implications. We have been and will continue working closely with the other Divisions and Offices as we analyze these significant issues. The preceding questions have focused on specific requirements of the 1940 Act and its implications for registered offerings of funds intending to hold cryptocurrency or related products. There may be registered offerings under the Securities Act of 1933 by entities holding similar products and pursuing similar investment strategies. Those entities would have to comply with the registration and prospectus disclosure requirements of the Securities Act. Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission. I appreciate your assistance in sharing our views on this subject with your members. We look forward to engaging with you and your members on these important questions, and we invite you to contact Barry Miller at (202) 551-6725.
12 de/Central MAG
Sincerely, Dalia Blass Director / Division of Investment Management U.S. Securities and Exchange Commission
"So the question for those that use cryptocurrency is does the future of futures affect you positively, negatively, or not at all? Do you see an opportunity to make money off of both markets simultaneously or is this Wall Street’s way to get into crypto? Many believe Wall Street getting into crypto is tantamount to Wall Street trying to control crypto. Traders form your strategies now... They sure are." >.> -Ken Taylor
The preceding questions have focused on specific requirements of the 1940 Act and its implications for registered offerings of funds intending to hold cryptocurrency or related products. There may be registered offerings under the Securities Act of 1933 by entities holding similar products and pursuing similar investment strategies. Those entities would have to comply with the registration and prospectus disclosure requirements of the Securities Act. Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them. In addition, we do not believe that such funds should utilize rule 485(a) under the Securities Act, which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically. If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission. I appreciate your assistance in sharing our views on this subject with your members. We look forward to engaging with you and your members on these important questions, and we invite you to contact Barry Miller at (202) 551-6725.
de/Central MAG 13
FINANCIAL
Photo Source: kaboompics.com
"The world’s only enterprise blockchain solution for global payments"
Coin Spotlight: Ripple Ripple appears to be a safe option for investors, compared to other competitive currencies.. BY: dardar via Steemit
Ripple has been attracting TONS of attention over the last few months. As of a few days ago, Ripple(XRP) ranks second in the cryptocurrency market after Bitcoin @ $2.25 as of right now, with a market capitalization of about $87 billion. The currency utilizes blockchain technology, but differs from other currencies in terms of regulation. As a blockchain-backed platform, Ripple(XRP) is designed to facilitate transfer of funds in banks. According to Marcus Vandea, the CEO of Playfold, this aspect alone is enough to enhance the value of its digital currency, XRP. “Ripple’s value lies in its relatively unique stability and attractiveness to the banking system. If more and more institutions start to adapt to this token, it will keep rising. The current excitement around cryptocurrencies is broadening from Bitcoin to other coins, and XRP is right up there with the most popular ones.” Vandea says. Ripple is focusing on powering the entire financial sector via instant transactions at a lower cost. Through blockchain, Ripple offers a smooth experience for financial institutions to transfer funds globally. Ripple is already working with several leading financial companies across the globe, and as Alexey Shmonov, CEO of HOQU observes, this is a move that will possibly translate to a boost in value of its cryptocurrency in the coming year. “In my opinion, the Ripple founders have some very good connections in the banking sector and are influencing the representatives of the latter to adopt it. This makes it a very promising project and its prospects for 2018 seem solid,” Shmonov says. Moving into the future, there are anticipations that Ripple will solve the liquidity problem in cross-border payments. Banks and other payment service providers could use XRP to make multi-currency payments as a way of cutting costs. Should its adoption reach this level, we’ll see more value on its currency. But there is a high possibility that financial institutions could use Ripple XRP as a holding currency as they acquire high valued currencies as Tom Marchesello, the CEO of IvyKoin, notes. Even so, several things could slow down the process value appreciation for Ripple(XRP). For example, the number of XRP units in circulation could hinder better performance for Ripple in 2018. “I see no case for it to appreciate in value. There are too many units issued so is very hard to move the pricing on Ripple. They were discounted below $1 for most of 2017 until November because they had a lot of legal problems in 2014 to 2016 which finally resolved. New management is now in place by November. So the rise was from 24 cents to $1 because they finally formed a corporate management that did not suck,” Marchesello adds. There are about 38 billion XRP billion coins in circulation, which is among the highest in the coin market. So what does all this mean for Ripple? Let's take a look into the tech behind Ripple a little more and get to know it. In a world where it’s now possible to hold money in digital ledgers, Ripple’s place is unique. This is because unlike most cryptocurrencies, it does not take the place of banks. Rather, it’s designed to support banks in utilizing the evolving crypto technology, blockchain. During the first half of 2017, the price of Ripple XRP increased by about 4000%. Considering its broadening networks and partnerships with banks, Ripple is set to continue on this trajectory in the coming year. “Ripple has gained so much traction because it is applying technology to work with real-world financial institutions. It has 100+ financial institutions partnering with it and there are over 7,000 FDIC insured banks in the US alone,” notes Ash Shilkin of IvyKoin, and Founder of Change Financial Ltd But this untapped market isn’t the only opportunity awaiting Ripple. There are many digital currency investors and traders who are not yet aware of Ripple despite its underlying revolutionary technology. However, with the recent inclusion of XRP on the Bloomberg Terminal and possible listing on Coinbase, this is likely to change. These platforms will boost awareness of the currency among the investor community in 2018 and increase its demand. Beyond this, Ripple appears to be a safe option for investors, compared to other competitive currencies. This means investors who want to shield themselves from the uncertainty of the crypto market will most likely opt for Ripple. More growth awaits Ripple should institutional investors enter the Ripple network and the currency gains popularity among the community of cryptocurrency investors like Ethereum and Bitcoin. This will heighten its demand leading to HIGHER PRICES in the upcoming year. It is the time to get in or HODL what you have.
“Ripple’s value lies in its relatively unique stability and attractiveness to the banking system. If more and more institutions start to adapt to this token, it will keep rising. The current excitement around cryptocurrencies is broadening from Bitcoin to other coins, and XRP is right up there with the most popular ones.”
16 de/Central MAG
As of Feb. 27 2018
(XRP) Price Website Message Board Chat Chat 2 Source Code
"Ripple provides one frictionless experience to send money globally using the power of blockchain. By joining Ripple’s growing, global network, financial institutions can process their customers’ payments anywhere in the world instantly, reliably and cost-effectively. Banks and payment providers can use the digital asset XRP to further reduce their costs and access new markets." -Ripple
in utilizing the evolving crypto technology, blockchain. During the first half of 2017, the price of Ripple XRP increased by about 4000%. Considering its broadening networks and partnerships with banks, Ripple is set to continue on this trajectory in the coming year. “Ripple has gained so much traction because it is applying technology to work with real-world financial institutions. It has 100+ financial institutions partnering with it and there are over 7,000 FDIC insured banks in the US alone,” notes Ash Shilkin of IvyKoin, and Founder of Change Financial Ltd But this untapped market isn’t the only opportunity awaiting Ripple. There are many digital currency investors and traders who are not yet aware of Ripple despite its underlying revolutionary technology. However, with the recent inclusion of XRP on the Bloomberg Terminal and possible listing on Coinbase, this is likely to change. These platforms will boost awareness of the currency among the investor community in 2018 and increase its demand. Beyond this, Ripple appears to be a safe option for investors, compared to other competitive currencies. This means investors who want to shield themselves from the uncertainty of the crypto market will most likely opt for Ripple. More growth awaits Ripple should institutional investors enter the Ripple network and the currency gains popularity among the community of cryptocurrency investors like Ethereum and Bitcoin. This will heighten its demand leading to HIGHER PRICES in the upcoming year. It is the time to get in or HODL what you have. (>.>)
de/Central MAG 17
Legal
The bills cover a wide range of purposes, from increasing transparency in State operations to protecting consumers from added taxation. Some have been very specific, defining Blockchains and smart contracts, while describing the technology as “immutable” and providing “uncensored truth.”
"At least eight US States have worked on bills accepting or promoting the use of Bitcoin and Blockchain technology this year, and a couple of them have already passed them into law."
State of Affairs
Ken Taylor
The most recent State in the union to pass legislation concerning blockchain technology was Vermont, which passed Senate Bill 135 in both the Vermont House and Senate on Friday. The part that pertains to Blockchain technology calls for any "fact or record" verified through the use of a blockchain to be "authentic." This gives Blockchain-notarized documents, including those on the Bitcoin blockchain, added legal bearing in a court of law. The bill is currently waiting on the Governor’s signature before officially becoming law. The State of Arizona also recently passed a bill, one that explicitly defines and supports blockchain technology for public use. On March 29th, the State Governor signed House Bill 2417 into law, enacted immediately. The legislation defines both Blockchains and smart contracts, while declaring that all data tied to a blockchain is "considered to be in an electronic format and to be an electronic record," which is acceptable for use by the state. The bill received nearly unanimous support from legislators, with only one vote against the legislation in the Senate, and none against in the House. Despite the bipartisan support, previous Arizona blockchain-related legislation, House Bill 2216, blocked the use of Blockchain technology. HB 2216 has not yet passed, but has very little opposition, and makes it a felony to subject citizens to having their guns tracked on a blockchain. In Maine, Senate Bill 950 instigates a 90-day field study to learn the effects of, “Using Blockchain Technology in Conjunction with Paper Ballots in Maine Elections.” The House and Senate have both forwarded the bill, so it does not need to be voted on to be passed. Results from the study must be presented to the Senate in December. Nevada’s Senate Bill 398 recognizes and authorizes “the use of blockchain technology” and smart contracts by Nevada residents. While reserving the right to use Blockchains and smart contracts, the legislation mainly serves as a way to ensure that State government will not prevent residents from doing so. No governmental entity, Bill 398 declares, can impose taxes or fees on Blockchains or on smart contracts. Nor can any government department License or issue permits for using them. The young bill is still in committee after a first reading to the Senate on March 20,. Despite the State of Hawaii recently re-classifying cryptocurrency-using businesses as Money Transmitters, forcing Coinbase to stop doing business within the state, the Hawaiian state legislature is close to passing House Bill 1481. The tourism focused bill considers several ways in which Bitcoin and blockchain technology can help the State develop economically. “Digital currencies such as Bitcoin have broad benefits for Hawaii,” the bill reads. While awaiting a vote by both branches, the bill has passed several committees. Illinois House Resolution 120, known as the “Blockchain Task Force Resolution,” was simultaneously created in both the House and Senate as a joint resolution calling for a deep investigation into the technology. The official statement calls for the creation of “the Illinois Legislative Blockchain and Distributed Ledger Task Force,” to study how and if the State of Illinois, county governments, and municipal governments can benefit from a transition to a blockchain based system for recordkeeping and service delivery. The legislation has passed a House vote and is now waiting on a Senate vote. January’s North Dakota Senate Bill 2100 is one of the few bills to mention Bitcoin, calling for a specific study to consider “the feasibility and desirability of regulating virtual currency, such as bitcoin.” While it was passed unanimously in the Senate, a nearly-unanimous House vote against it has followed soon after. A bill from California, Senate Bill 741, only mentions Bitcoin momentarily, as it authorizes organizations to hold charitable raffles. “A raffle ticket shall not be sold in exchange for Bitcoin or any other cryptocurrency,” the bill stated, in what may be the first time Bitcoins have been specifically outlawed by a State congress from being used in a specific way. The bill is still in committee. On the federal level, no bills have been submitted. However, in September 2016 the US House of Representatives proposed the non-binding Resolution 835, promoting economic growth nationally. While the document is not a bill and cannot become law, it calls on Congress to create a national policy for specific technology, including digital currencies and blockchain. (>.>)
“A large portion of Hawaii's tourism market comes from Asia where the use of Bitcoin as a virtual currency is expanding. Hawaii has the unique opportunity to explore the use of blockchain technology to make it easier for visitors to consume local goods and services and to drive the tourism economy.” - Hawaii House Bill 1481
22 de/Central MAG
"’Blockchain technology’ means distributed ledger technology that uses a distributed, decentralized, shared and replicated ledger, which may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable and auditable and provides an uncensored truth.” - Arizona House Bill 2417
cryptopunk Noun Person who knows how to use cryptocurrency, is familiar with anonymizing protocols and tools.
