The Solidus Brief: Digital Asset Market Surveillance, Compliance & Regulation News – July 2019 –

  • Solidus Labs
  • 07.11.19

All the crypto compliance news you need to know from the past few weeks

Top Headlines:

  • FATF’s guidelines were officially adopted by G20 nations, leading to intensified discussion of regulation and compliance in the crypto space.

  • For the first time, the U.S. SEC approved a security token offering under regulation A+. The approval of Blockstack’s $28 million STO means it will be available for non-accredited investors and is seen as a potential harbinger for additional STOs.
  • According to research by major investment house Fidelity, 22% of institutional investors are already engaged with Crypto. Financial advisors (74%) and family offices (80%) view the characteristics of digital assets most favorably.

But First, a Few Solidus Updates

Solidus’ CMO, Chen Arad (middle), at CryptoCompare speaking with Binance, Kraken and Financial Times
Head of Sales, Salomé Laborde (in red dress), at Fintech Junction alongside Bit2C, Celsius and Finance Magnates

Regulation, Legislation and Enforcement

  • For the first time, the Securities and Exchange Commission approved a security token offering (STO) under regulation A+. While STOs have been previously issued by various companies under Regulation D, Blockstack’s $28 million offering is the first to receive Reg A+ approval, opening it to non-accredited investors. Getting the issuance approved reportedly took 10 months and cost Blockstack $2 million. The approval is a potential harbinger for additional Reg A+ STOs.
During their Japan summit, G20 nations welcomed and officially adopted FATF’s crypto guidelines

Europe:

  • After IMF Managing Director Christine Lagarde was tapped for the presidency of the European Central Bank, many wonder whether her comments back in April, alleging that crypto assets are “shaking the system,” may mean the EU will soon be more inclined to accommodate digital assets.

  • In a widely lauded speech, Bank of England Governor Mark Carney called for enablement of the digital economy that could support new finance, and laid out the United Kingdom’s plans to support this process.
  • EuropolBritish and Dutch police arrested six individuals for cloning a prominent crypto exchange in order to steal $27 million from its users.
  • UK based broker TP ICAP will soon begin selling CME’s Bitcoin futures.

  • UK regulators approve Prime Factor Capital as the first crypto hedge fund approved as a full-scope alternative investment fund manager.

Elsewhere:

  • Brazil requires crypto exchanges to inform regulators about user transactions; The country’s 5th largest bank plans to use Tezos Blockchain for STOs worth as much as $1 Billion.

Our take:

Regulation is gradually moving from talking and deliberation to action, with significantly more enforcement  cases, formation of international standards like FATF’s guidelines and materialization of licensing regimes. As the stakes of non-compliance increase, so does the benefit of good behavior, due diligence and transparency. The result is increasing demand from institutional and retail investors for credible crypto services, which we at Solidus are experiencing as increased demand for crypto-native compliance and market surveillance tools.

Bank of England Governor Mark Carney. Called for further enablement of digital assets in lauded speech

Market Integrity and Manipulation Concerns

  • During its annual summit, CryptoCompare released an extensive study of crypto market integrity concerns, and proposed a new methodology to rank exchanges. The report also includes due diligence recommendations. Among the key findings:

    • Volume-based rankings can be highly misleading. Instead, the report suggests a “Trusted Volume” framework whereby investors can calculate market volumes based on their risk appetites

    • There is a positive correlation between due diligence scores and market quality scores

    • There is a relationship between factors like the exchange’s funding, geographic location, MSB licensing, number of employees and market integrity rankings

    • Measuring an exchange’s quality by focussing on trading patterns is still very challenging

  • A report by Alameda Research explores ways some exchanges are allegedly reporting fake volume, and concludes that close to 70% of volume traded in major arenas is manipulative. Some of the findings include:

    • 68% of cryptocurrency trading volume is fake

    • Trading volume for many exchanges showed clear evidence of wash trading

    • Some exchanges are creating replicas of trading history, printing the same numbers delayed by a few seconds in order to present volume

    • Some exchanges are sneaking in large, fake transactions amid a flurry of smaller ones

    • Some exchanges are printing transactions that fall in the middle of the bid and ask prices

A new proposed methodology for assessing market integrity. Source: CryptoCompare

Our take:

The industry continually comes to terms with the disturbing levels of trade manipulation and the need for additional transparency. It’s increasingly clear new frameworks, tools and rules are necessary to measure and improve market integrity. We’re proud to be leading this effort – alongside companies like CryptoCompare – as co-chairs of Global Digital Finance’s Market Integrity Code of Conduct Working Group.

Adoption and Industry Growth

  • Research by Fidelity Investments reveals strong indications of increased institutional involvement in digital assets and sheds light on investor preferences. 22% of institutional investors, according to Fidelity, are invested in digital assets already. Among institutional crypto investment firms, 72% are keen on investing in products that hold digital assets, while 57% choose to directly buy cryptoassets. Financial advisors (74%) and family offices (80%) view the characteristics of digital assets most favorably. Simultaneously, Fidelity’s international arm follows its U.S. entity in beginning to explore blockchain investments.
  • Blockchain startups have raised a total of $822 million during the first half of this year.
  • Bank of International Settlements Chief switches from criticizing crypto to acknowledging Central Banks will likely need to issue their own digital currencies.

  • Goldman Sachs explores creating a digital coin after CEO David Solomon reiterates undeniable disruptive potential of blockchain and cryptocurrencies.

  • Coinbase launches cryptocurrency debit card in Spain, Germany, France, Italy, Ireland, and Netherlands.

  • The largest bank in South Korea, KB Kookmin, prepares to launch a digital asset custody offering.

  • Crypto asset manager Bitwise partners with Swiss fintech startup to launch multi-crypto-based ETP attempting to assist non-U.S. investors in obtaining diversified exposure to the crypto markets.

  • Xetra, a Deutsche Börse-operated trading venue, lists first blockchain company.

GS CEO David Solomon says the firm is conducting “extensive research on the concept of tokenization.”

Other mainstream players increasing their engagement with blockchain and digital assets this past month include: BudweiserKodakAppleMicrosoftTargetUS Federal Government, VisaAmazonMajor Brazilian Bank BradescoGeneral MotorsFDA with IBM, Walmart and MerckThe State of Rhode IslandSamsungJapan’s 100 Major BusinessesItaly’s BanksSalesforceLVMHCentral BanksWalmart China,Germany’s Political PartiesGoogle, and another 50.

Our take:

Interest from institutional investors and mainstream corporations in both digital asset and blockchain investments and integrations is growing at an accelerating pace, as the market is still getting over a prolonged bear market. A stable bull market may lead to growth and adoption becoming exponential.

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