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European Commission statement on regulating virtual currencies and ICOs

On 13 November 2018, the EC published a statement by Valdis Dombovskis, its vice-president, at a European Parliament debate on regulating virtual currencies and initial coin offerings (ICOs).  Points of interest include:

  • The Commission considers that cryptoassets and ICOs present both opportunities and risks. While it is still early days and the technology has a long way to go, it believes that cryptoassets are here to stay.
  • The Commission considers that cryptoassets cannot be separated from the underlying blockchain technology, as blockchains are chains of cryptoasset transactions. Pursuing the opportunities of blockchain implies that it takes an interest in both the advantages and risks of cryptoassets.
  • The Commission supports agrees with the assessment of the Financial Stability Board’s (FSB) that cryptoassets do not currently pose a financial stability risk however, this may change if the market grows quickly.
  • The market remains volatile and presents significant investor protection and market integrity risks. Warnings to investors may not be sufficient. Rules of the road are needed, both to protect investors and increase market integrity and to provide legal clarity and certainty for a legitimate cryptoasset eco-system.
  • The Commission has already expanded the scope of EU anti-money laundering legislation to cryptoasset exchanges and wallet providers through the Fifth Money Laundering Directive ((EU) 2018/843)
  • The main question for financial regulators is whether cryptoassets are financial instruments and are therefore covered by financial regulation. The next question is whether that regulation is suitable and addresses the risks, while enabling the opportunities.   The Commission is assessing this with the European Supervisory Authorities (ESAs), which are expected to present their conclusions by the end of 2018. Following this, the Commission will assess the possible way forward.

Banks complete first syndicated loan on blockchain

Spain’s BBVA and two partner banks have completed the first syndicated loan on the blockchain, demonstrating how blockchain technology can be used to simplify and expedite these types of transactions.  BBVA used a private blockchain network to arrange a $150m syndicated loan for Red Electrica, the Spanish grid operator, with co-lenders MUFG of Japan and BNP Paribas of France. Legal advisers also had access to the system which allowed all parties to exchange information instantly.  BBVA noted that use of the blockchain technology allowed the syndicated loan process to be completed in about a day or two, versus two weeks using traditional process. In additional to saving time, use of the blockchain also saved on costs as transaction details are automatically recorded using the blockchain technology.  

Look at issuing digital currency, IMF head tells central banks

Christine Lagarde, head of the IMF, has advised that central banks should consider issuing digital currency in order to “fill the void” left by the decline of cash.  Ms Lagarde noted that the use of digital currencies could aid financial inclusion due to greater numbers of people switching from traditional bank notes and coins to using digital currency.  However, there are fears about financial stability if consumers were to be given direct access to digital central bank money as presently central banks issue electronic currency only to banks.  Ms Lagarde noted these concerns and stated that the case for digital currency should be investigated “further, seriously, carefully and creatively”.

IMF publishes staff discussion note on central bank digital currencies

On 12 November 2018, the IMF published a staff discussion note titled “Cashing Light on Central Bank Digital Currencies”.  The note discusses how central banks should adapt to digitalisation of economic activity and proposes a conceptual framework to assess the adoption of central bank digital currencies and how such digital currencies might be designed, along with a discussion of costs and benefits.

Regulation trips Canada’s stock exchange blockchain test  

Stock exchanges throughout the world are considering whether distributed ledger technology (DLT) could make their computer systems more efficient, reliable and secure.  Canada’s central bank utilised an 8-week pilot project to test DLT trading infrastructure. The pilot program demonstrated, however, that the regulatory, legal and monetary policy issues, rather than the DLT technology itself, that would make implementation challenging and a switch to DLT would need to be judged on a cost-benefit basis.

NYSE Parent Company Reveals Launch Date for Bitcoin Futures on Bakkt Platform

The parent company of the New York Stock Exchange (NYSE), Intercontinental Exchange (ICE), has announced the launch date for Bitcoin (BTC) futures on its platform Bakkt will be 12 December 2018.  The product will be physically-settled and cleared by ICE Clear U.S., Inc. The notice from the company states “Each futures contract calls for delivery of one bitcoin held in the Bakkt Digital Asset Warehouse, and will trade in U.S. dollar terms. One daily contract will be listed for trading each Exchange Business Day.” 

Binance launches research arm for “Institutional-Grade Research Reports”

Cryptocurrency exchange Binance has launched a new division dedicated to industry analysis.  The new division is called Binance Research and is “focused on the creation of institutional-grade research reports” and aims to “increase transparency and improve the quality of information available within the crypto space”.  

Canadian bank opens deposit box for cryptocurrency firms

VersaBank announced Thursday that its new VersaVault project had successfully completed beta testing. The digital-only bank plans to offer the virtual lockbox to cryptocurrency exchanges and crypto investment funds to store digital assets.

How to invest in crypto — without actually buying any crypto

While less money has been flowing into cryptocurrencies such as bitcoin (BTC), ether (ETH), and ripple (XRP), there has been an increase in demand for investment opportunities in companies that play integral roles in the infrastructure of the global crypto-economy.  These opportunities include “crypto” investments for equity investors, technology “blue chips” with blockchain involvement, financial stocks with crypto involvement, blockchain pure play stocks, and digital asset funds.

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