CRYPTOCURRENCIES AND THE MAINSTREAM – BRIDGING THE GAP TO MASS MARKET
ADOPTION
Defining the intangible, balancing innovation with the application of ‘good old’ regulation, and managing crypto’s emergence into the mainstream of financial services beyond its statistical systematic significance.
During the course of 2017, Gibraltar has become a leading light in the cryptocurrency space which, during the same period, has experienced its own ‘mini’ industrial revolution. It is certainly not ‘mini’ by reference to the spectacular growth the space has seen, or the amount of activity and buzz it has generated, but ‘mini’ only because the diminutive, in relative terms, group of people who have been involved and the amount of time we’re talking about. As at the submission of this article, the market cap of all alt coins/crypto currencies reported by
coinmarketcap.com stood at over $220bn shared amongst well over 1,200 coins/cryptocurrencies – by way of illustration of the explosion of this space, at the turn of the year, global market cap stood at just $17bn - an astounding 1,300% growth in less than eleven months. Bitcoin dominance stands at approximately 57%.
The burgeoning nature of this industry means that investor protection and the general lack thereof, is a hotly debated subject, part of which debate is the distinction between utility and security tokens. In simple terms, if a token looks like, acts like or smells like a security token, then it IS a security token. If it qualifies as such, the tokenisation of the security does not operate to take the product out of the scope of the key regulations governing such financial instruments. In the EU (which, of course, Gibraltar will be leaving, kicking and screaming, in 2019), relevant regulations are the Prospectus Directive, MiFid, AIFMD and the 4th AML Directive.
In the American context, falling within scope of the SEC’s reach is, of course, a principal concern of many token developers, particularly where the developers seek to market the token to US investors – in fact, US utility token creators favour referring to their fundraising initiatives as ‘token generation events’, avoiding the ‘ICO’ nomenclature for fear of being found guilty by association of promoting a security in breach of regulations.
The distinction between utility/security is the basis of many of the official statements we have seen from regulators around the world this year, the most recent of which came from ESMA in mid-November. The European regulator issued timely advice to both investors and firms operating in the space, timely because, for the first time, advertising spend on the online search terms ‘Buy Bitcoin’ exceeded the spend on ‘Buy Gold’ as crypto appeared to accelerate its drive towards the mainstream, spurred in no small measure by the eye-watering, headline-grabbing performance of, for example, Bitcoin Cash.
So what makes a token a utility token? Key considerations are, amongst others, the nature of the participation that the token bestows on the token holder, whether the token grants any kind of governance action on the company in the vein of participation rights and whether the token entitles the holder to a payment of profit or other revenues from the company, whether distributed autonomously by the promoter’s blockchain or otherwise.
24 | ADMISI - The Ghost In The Machine | November/December 2017 BITCOIN
DOMINANCE STANDS AT APPROXIMATELY 57%.
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