Crypto Bytes – a short briefing on some of the week’s developments in the crypto currencies world

FCA confirms proposals in the event of a no-deal Brexit

Facebook and Telegram are just the start of global brands launching digital assets
Facebook, with 1.5 billion active daily users, has $110 billion in cash on its balance sheet and Telegram has 300 million users globally and has raised $1.7 billion from its ICO. Both of these companies have the capital and critical mass to create a digital currency that can achieve meaningful adoption rapidly. Details about Telegram’s plans are still scant but Facebook is rumoured to have over 50 staff working on their project, which is headed up by a senior ex-PayPal director and they are looking to launch Facecoin in 2019. These global brands will be joined by more and more corporations who will increasingly realise the cost savings available by using digital assets as well as using them as a way to attract customers and rewarding loyalty to encourage clients to make repeat purchases.

(Source: “Facebook and Telegram Are Hoping to Succeed Where Bitcoin Failed”, available at https://www.nytimes.com/2019/02/28/technology/cryptocurrency-facebook-telegram.html/).

Blockchain technology has the potential to wipe Luxembourg off the map of the fund distribution and administration market

This punchy headline was in a report by Deloitte analysing the potential impact that Blockchain could have on the second largest mutual fund market in the world. The ability for Blockchain to increase transparency and to reduce the number of intermediaries (transfer agencies, custodians, settlement agents, administrators, fund accounting, etc.) and thus reduce the cost of managing your savings and pension funds. It is rather ironic that regulators like the SEC and governments have been very cautious about using Blockchain and crypto currencies due to the risks that they may present. However, it could be compliance that drives greater adoption, as they realise the cost savings, improved resilience (as data is not held in one location), greater transparency and being able to treat customers fairly. Digital assets that are able to (i) track who owns what in real time; (ii) calculate dividends, interest payments and rental income entitlement based on the number of minutes one holds an investment, (iii) trade 24/7, are all highly attractive advantages which Blockchain technology and digital assets offer the mutual fund industry. Indeed, one survey last year claimed costs savings could be $1.9 billion globally, having index funds that automatically adjust and manage themselves, having funds that manage themselves using smart contracts and funds that could be priced and traded continually are just some of the changes that are coming…..

(Source: “Impacts of the Blockchain on fund distribution”, available at https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/technology/lu_impact-blockchain-fund-distribution.pdf).

French President Macron encourages Europe to use Blockchain to innovate its agriculture industry

France is currently looking at new regulations, Pacte Bill, for France-based companies that will potentially make using ICOs to finance their business much easier as it aims to stimulate its economy. Emmanuel Macron said this week, “Blockchain can bring transparency to agricultural production and distribution to assuage mounting consumer concerns about products’ provenance and sustainability.” Blockchain is gaining increased traction in many countries as it can help improve supply chain management and offers superior produce tracking and provenance. A report issued in 2018 forecast that Blockchain in the agriculture market could be worth over $400 million by 2023.

Walmart has been using Blockchain technology for a while for all its green leaf products as it aims to offer customers the ability to know where and when products have been grown. In February 2019, the Chinese government issued a new framework to promote the use of Blockchain in the agriculture sector.

(Source: “French President Affirms Europe’s Inclusion Of Blockchain For Agriculture And Food Tracking Is A Big Deal”, available at https://bitcoinexchangeguide.com/french-president-affirms-europes-inclusion-of-blockchain-for-agriculture-and-food-tracking-is-a-big-deal/)

US-based Signature Bank to offer services to crypto firms in Bermuda

Signature Bank of New York has announced that it is now offering bank accounts for businesses based in Bermuda that deal in digital assets. There are believed to be over 60 companies that initially this will be of great assistance to, as despite the Bermuda government changing its law, no locally-based bank offers accounts in the crypto sector. However Signature Bank claims that it is signing up companies which are also not involved with crypto.   The lack of banking facilities is a major hurdle facing businesses that deal in digital assets globally as it is extremely difficult to open a bank account in many jurisdictions around the world.  In the UK, Clearbank which is the first bank in over 250 years to be granted clearing bank status, is one of the few banks to offer bank accounts to firms engaged in digital assets, but the company needs to be FCA-regulated or in the process of applying to the FCA in order to be accepted by Clearbank.

(Source: “US-based Signature Bank to Offer Services to Crypto firms in Bermuda”, available at https://coinfomania.com/signature-bank-services-to-crypto-firms-in-bermuda//)

London Stock Exchange invests and joins the board of a FinTech firm tokenising equites and bonds

Nivaura has secured $20 million of fresh capital, with investors including The London Stock Exchange (LSE), Santander and the law firm Allen and Overy. LSE will also have one of their staff joining the Nivaura board.

In 2017, Nivaura was the first company in the world to issue a bond for a client using a Blockchain while in the UK FCA Sandbox and it claims that the cost of issuing bonds could be reduced by over 60% by using Blockchain technology. It has recently been followed by BVVA in Spain who issued a bond using Blockchain technology to raise $160m. If it proves to be so much cheaper to access the debt markets using Blockchains then bonds could become an option for SMEs to raise capital, which in turn could be competition for the Peer 2 Peer lenders

(Source: “London Stock Exchange Leads $20 Million Bet on Blockchain to Cut Out Custody Middlemen”, available at https://www.forbes.com/sites/michaeldelcastillo/2019/02/27/london-stock-exchange-leads-20-million-bet-on-blockchain-to-cut-out-custody-middlemen/#3eae9a486e46)

Mastercard, Amazon and Accenture partner to offer transparent Blockchain supply chains 

Accenture announced a new Blockchain supply chain initiative to encourage farmers to be more sustainable  and enable customers to have greater visibility of where and how products are grown. Because Blockchains create a record of events that cannot easily be altered by a third party, it allows one to track produce have come from, a feature that Everledger has been using for a couple of years to track diamonds, whom are also part of this new initiative.  Tara Nathan, executive vice president, humanitarian & development at Mastercard, said “The purpose of Blockchain is to enable corporate customers, governments and non-profits to monitor small farmer activity and address accountability, waste and information transparency”.  Increasingly, organisations are being challenged as to where they are sourcing their supplies – Pacifical uses a Blockchain to track tuna fishing,  The GoodChain launched with very similar functionality to reward farmers, backed by ScanTrust and Cambio Coffee.

(Source: “Mastercard, Amazon and Accenture Partner To Establish Transparent Blockchain Supply Chain”, available at https://www.forbes.com/sites/leslieankney/2019/02/25/accenture-mastercard-and-amazon-partner-to-establish-transparent-blockchain-supply-chain/#23f4e3cd1f81).  

Survey suggests millennials trust Bitcoin more than the stock market

Guy Hirsch, Managing Director of eToro U.S., sees the increased interest and investments in digital assets as a clear “generation shift.” He stated via press release: “we’re seeing the beginning of a generational shift in trust from traditional stock exchanges to crypto exchanges. at the heart of this change are the asset classes themselves. Younger investors’ experience with the stock market has seen a great deal of loss of trust, with the fall of Lehman brothers…”

One of the benefits of investing in digital assets is that companies know who their actual shareholders are and so have a relationship with them, and offer them shareholder perks e.g. discounts off goods and services. This is almost impossible when shares are held as they currently are, in nominee structures. Potentially, companies could have no need for share registrars so saving them money, as shareholders records can be updated in real time, which in turn would help regulators know who owns what which at the moment is impossible for a listed quoted company.

(Source: “Bitcoin is the ‘Gateway Drug’ to Stocks and Commodities for Millennials”, available at https://www.ccn.com/bitcoin-is-the-gateway-drug-to-stocks-and-commodities-for-millennials)

A smartphone for developing markets that pays you back in crypto

Electroneum are selling for $80 an Android smartphone that allows you to mine ETN cryptos and earn digital Aassets while on the go. This is great example of how developing markets can get engaged with this fast-growing sector while breaking down the barriers to enable greater financial inclusion in emerging economies. It has claimed it is possible to earn as much as $3 a month, which when you consider according to the World Bank over 10% of the world survive on $1.90 a day, this could be equivalent to a 5% increase in one’s monthly income. The ETN tokens can be mined even without active internet and be used to buy more airtime, shopping on e-commerce outlets or topping up data bundles.

(Source: “Electroneum Launches Groundbreaking Smartphone M1 Which Pays You Back”, available at https://www.businesswire.com/news/home/20190225005078/en/Electroneum-Launches-Groundbreaking-Smartphone-M1-Pays/)

Mercedes using Blockchain for supply chain 

Mercedes Benz has been actively involved in investigating using Blockchain technology since 2017. It has been looking at how tokens can be used to nudge and reward drivers with a Mercedes coin to improve fuel consumption, how Blockchain can be used by leasing and finance companies to keep track of a vehicles history and ownership and now Mercedes are looking at improving its global supply chain management using Blockchain technology.  Initially, Mercedes say it will focus on documentation to make it more consistent. Mercedes’ supplier contracts include clauses relating to working conditions, human rights, environmental protection, safety, business ethics and compliance. Adherence to these obligations and sustainability, in particular, is logged on a Blockchain, so any deviations become evident.  Many of the world’s car manufactures are working on projects using Blockchain in their supply chain as they are complex and spread worldwide often operating on just in time basis to minimise the need to hold too much stock and components.

(Source: “Mercedes-Benz Cars develops blockchain prototype for sustainable supply chains”, available at https://www.greencarcongress.com/2019/02/mercedes-benz-cars-develops-blockchain-prototype-for-sustainable-supply-chains.html)

Artificial Intelligence  ICO raises $6million in 10 seconds

ICOs are still being used as a method to fund small businesses as demonstrated by Fetch.AI, who attracted over 19,860 people register to buy and successfully raised $6 million from 2,758 investors in 10 seconds. Fetch.AI, based in Cambridge in UK, have said they were aiming to get as many people involved as possible so they limited the maximum number of tokens one could buy to only $3,000. It is likely we will see a lot more firms using digital assets to raise relatively small amounts of capital from platforms like Binance and Token Market.

(Source: “The Fetch.AI token sale on Binance Launchpad”, available at https://cryptonomist.ch/en/2019/02/15/binance-launchpad-token-sale/).

Claire Cummings

Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.

If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.

Phone: 0207 585 1406
Email: claire.cummings@cummingsfisher.com

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