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.
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.”