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2019 cannot be worse for cryptocurrencies

The Geneva Management Group believes the underlying technology, blockchain, has untapped value.
Increased regulation of the crypto space will give investors confidence in the asset class and ensure that legitimate operators gain a greater share of the market. Picture: Bloomberg News

The year 2018 has been a terrible one for cryptocurrencies, which have been on a race to the bottom that shows no real sign of abating. Even for a market accustomed to turbulence, losses of 80% or more are somewhat unsettling.

Almost all of the top 100 tokens by market cap listed on crypto analytics site CoinMarketCap are in the red for the year – the impact is especially so for Bitcoin, the first and still most popular digital currency.

Despite this rather dire situation, Mathieu Saint-Cyr, MD of the Geneva Management Group (GMG)’s crypto unit, believes that 2019 will be a better year for cryptocurrencies. He is quick to point out though that cryptocurrencies as we know them (Bitcoin and Ethereum for instance), are just one of many possible applications that can be derived from the underlying blockchain technology.

Security token offerings

He believes 2019 will see the advancement of new applications, also underpinned by blockchain, that have the potential to be of far greater value to investors. For example, he references security token offerings, a relatively new way of raising funds for a start-up business. This is in some ways similar to a traditional business that is going public through an initial public offering because the token is considered a legally binding investment contract that gives investors access to a share of the company, a regular dividend or a voice in the business decision-making process.

This is a step forward from the initial coin offering (ICO) boom and bust of 2018. Investors poured billions into acquiring tokens that do not generate equity or any other kind of asset from the company. Instead, they are issued as an IOU or coupon which owners can exchange for future products or services. But in most cases there were no future products or services – the underlying company went bust and the investor was left with the puff of a good idea.

“These tokens [security tokens] are based on something tangible, like bonds or real estate,” says Saint-Cyr. He cites as an example Crowdlitoken, a real-estate-backed crypto coin registered and regulated in Switzerland.

“The regulator in Switzerland is very proactive,” he adds. Earlier this year the regulator issued a set of guidelines that harmonised the regulatory regime; it focused on which tokens would be classified as securities and how crypto companies can be compliant while carrying out ICO activities.

Blockchain-based assets

In October Crypto Fund AG became the first company to get the green light from the Swiss Financial Market Supervisory to offer a wide range of blockchain-based assets to institutional investors in the country. This empowers the fund to legally act as an asset manager that can offer investment advice and issue an array of investment products that “track bitcoin and other cryptocurrencies,” including Swiss-based funds.

It is this trend towards increased regulation of the crypto space, also happening in other jurisdictions, that Saint-Cyr believes will ensure that legitimate operators gain a greater share of the market and that investors will gain confidence in the asset class.

Depending on where you stand, the news in November that the US Securities and Exchange Commission had ruled that two companies, CarrierEq (Airfox) and Paragon Coin, conducted illegal ICOs is a setback or step forward for the nascent industry. Both companies have agreed to return funds to harmed investors, register the tokens as securities, file periodic reports with the commission, and pay penalties.

Saint-Cyr does not see it as a setback. “After a year like this year, if people want cryptos to reach a mass adoption stage they will need to follow the same guidelines and regulations that other asset classes are following.

Strong effort globally

“I think we are moving into a new phase. History is filled with people investing in new products or asset classes that go bust. Look at tech stocks in the 2000s, or property speculation in 2008. The same has happened with cryptocurrencies. Now there is a strong effort around the world to add a layer of regulatory protection. This may prevent some of the excesses we saw in the last year. One way to protect people is to establish clear guidelines and regulations. 

“My hope is really that the public will see ICO 2018 as bubble that has been replaced by something more fundamental, with practical and useful applications. That will be the condition for this new asset class.” 

GMG will not develop crypto assets. Instead, the company is responding to the interest coming from its clients who are high-net-worth individuals and interested in blockchain and cryptocurrencies for the portfolio diversification opportunities and peer-to-peer settlement options, among others.

“Our investors are looking for trading, analysis, corporate services, fund formation, and management assistance,” he says. “In the process of providing them with support, we want to demystify this world for others, such as relationship managers and compliance officers.”

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COMMENTS   12

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Perhaps crypto currencies will follow the cycle that tech stocks had – started off with a bang then collapsed and finally found their feet before becoming intrenched in our daily lives! Time will tell.

@MactheKnife……Exactly… !

Crypto is not going away – the whales are going to be piling in soon.

Lets check in again in a years time

After Steinhoff fell from 60’s to late teens, a couple of clever people – as in C level asset managers thought that it’s down 80% and a bargain so went in leveraged long. That was R14 ago so Steinhoff lost, as percentage of capital at risk, again what it lost after the bolt from the blue. It can again lose 80% from current levels.

Same for crypto

Adriaan Nuwoudt had the Kubus scheme in the 80’s. Boxes full of Kubus glasses have been sitting in every second garage for 3 decades. The new generation will throw them out to make space for the crypto mining hardware. An optimist is someone who advertises his used crypto mining hardware on Gumtree.

Very well explained.

Why would some very powerful governments allow competition to their currencies?

If they did nothing to them then it was because they knew that the Crypto currencies would implode by themselves.

@TheSpeculator…Nope

You dont understand crypto then

Sure, its overheated and resetting itself – fantastic !!

Lets check in again in a years time my friend

@Realitybites maybe your understanding of the “modern” monetary system is lacking. Governments have a monopoly on the issuance of currency. The financial system, tax collection and the stability of the banking system depends on them enjoying full control over the monetary system. The US Fed believes that the sovereignty of the USA is at stake if alternative currencies become popular. Christine Lagarde became involved in the issue when the IMF began to debate the threat of crypto currencies.

You don’t compete or fight with that lady. She has deeeeep pockets man!

HODL!

You cannot compare crypto to real estate. The definition of an asset is something which will most likely cause economic benefit (income or gains) to flow to the owner of the asset. With real estate there is rental income. With crypto there is nothing, no income. The reason why the real estate bubble burst is because there is a scientifically consistent method in determining values, and when the income flows from the properties did not support the valuations, the correction occurred. With crypto there is no income, so no true scientific or consistent way to determine value. Value is purely driven by speculation and emotion. Everything about crypto is summed up nicely by the statement in the third last paragraph:” My hope is….”.
That’s all there is right now with crypto….hope.
The bottom is zero, not $3,400 I’m afraid.

“2019 cannot be worse for cryptocurrencies” – YES, it CAN.

Fiat currencies are based on trust. This is one thing that is being eroded in a big way. People, especially youngsters, losing trust in all spheres, medical, government, economic system, world order. Never bet against technology, ask Buffet. Not saying btc is the be all and end all, but dismissing it as nothing but a fad is foolish. The Wales out there are accumulating, check the wallets…

why it will get worse….blockchain does not belong to bitcoin…banks can and will build their own blockchain… banks can already do quick transactions if they want too. because of this current currencies will stay…nothing supports bitoin but speculation

End of comments.

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