Our weekly list of announcements about how capital markets and regulators are engaging with digital assets.
FINRA issues notice for digital asset reporting
FINRA reminded members to keep the regulator informed about current and planned activities relating to digital assets by the end of July 2019. Last year, the US broker-dealer watchdog issued a notice that encouraged firms to inform the regulator if the firm, or its associated persons or affiliates, engaged, or intended to engage, in activities related to digital assets, including digital assets that are non-securities.
The types of activities of interest to FINRA include purchases, sales or executions of transactions in digital assets; purchases, sales or executions of transactions in a pooled fund investing in digital assets; creation of, management of, or provision of advisory services for, a pooled fund related to digital assets; purchases, sales or executions of transactions in derivatives (e.g., futures, options) tied to digital assets; participation in an initial or secondary offering of digital assets (e.g., ICO, pre-ICO); creation or management of a platform for the secondary trading of digital assets; custody or similar arrangement of digital assets; acceptance of cryptocurrencies (e.g., bitcoin) from customers; mining of cryptocurrencies; recommend, solicit or accept orders in cryptocurrencies and other virtual coins and tokens; display indications of interest or quotations in cryptocurrencies and other virtual coins and tokens; provide or facilitate clearance and settlement services for cryptocurrencies and other virtual coins and tokens; or recording cryptocurrencies and other virtual coins and tokens using distributed ledger technology or any other use of blockchain technology.
ICE’s Bakkt testing bitcoin futures
Intercontinental Exchange’s crypto custody venture Bakkt has initiated user acceptance testing for its bitcoin futures listed and traded at ICE Futures US and cleared at ICE Clear US. It will support the ICE Futures US launch of daily and monthly margined futures for bitcoin by bringing regulated custody as part of the futures contract.
Features of its crypto custody offering include: block trades; a fee holiday through the end of the year to encourage trading; market maker incentive programs to encourage liquid markets; and integrations with independent software vendors and regulated brokerage platforms.
Grayscale Investments Q2 report shows institutional investors at 84%
Digital asset manager Grayscale’s AuM nearly tripled from $926 million to $2.7 billion amid a crypto resurgence. Quarterly returns for industry benchmark products Grayscale Bitcoin Trust and Grayscale Digital Large Cap Fund were 178.8% and 147.6%, respectively. This quarter, institutional investors comprised the highest percentage of total demand for Grayscale products (84%) since the firm began publishing the report in July 2018.
Inflows nearly doubled quarter-over-quarter, from $42.7 to $84.8 million, which the fund said demonstrates the recent rally in digital asset prices is supported by fresh investment and despite the fact that the Grayscale Bitcoin Trust was temporarily closed to new investment throughout May and June.
Binance releases Q2 institutional investor research
In its first-ever survey, Binance Research analyzed typologies and views from the largest VIP and institutional clients that use some of the services offered within the Binance ecosystem.
Long-term investing is one of the most popular strategies for large and institutional clients. Despite this, lending and borrowing platforms are not yet widely used, with non-custodial decentralized platforms being barely explored. On the other hand, decentralized exchanges have been experimented by most participants, yet, as of today, are not widely used owing to their lower liquidity (than centralized exchanges) and steeper learning curve.
Stablecoins are used by nearly all market participants, with USDT (Tether) being the “go-to stablecoin”. Amidst the recent turmoil regarding Tether, many investors have been exploring alternative offerings, particularly USDC and PAX.
Regarding methods of storage, the clients with large Asset under Management (over $25 million) store (at least partially) their digital assets in cold wallets and/or through the use of dedicated third-party custody services, in addition to the use of exchange platforms for trading. For large clients (i.e. capital dedicated specifically to cryptoasset investing & trading volumes above USD 5 million), “cold wallets” was almost always selected as one of their answers.
Regulations, both local and global, seem to be the key indicator that investors look for as it was ranked both the largest risk and key growth driver for the future of the cryptocurrency and digital asset industry. Furthermore, new product offerings (such as brokerage services and the creation of new derivatives markets) also are expected to be key drivers of the future growth for this industry.
From the perspective of large market players, bitcoin is expected to maintain its dominance by the end of 2019, with its market cap expected to represent 40% to 60% of the industry total cap. Finally, cryptoasset initiatives by companies like Facebook, Samsung or JP Morgan are not seen as future growth drivers for this industry.
SCMP: China central bank developing digital currency
China’s central bank is conducting research to issue the country’s own sovereign digital currency, a move in parallel with similar efforts ongoing in Russia, even as the government has doubled down on banning the use and exchange of bitcoin and other cryptocurrencies.
“What the central bank have in mind is a centralized digital currency among all,” Yao Qian, who leads the research at the People’s Bank of China (PBOC), told the South China Morning Post, when asked to reconcile the PBOC’s research with the country’s crackdowns. “As money has evolved from the barter system to its metallic and paper forms, it is now going digital.”
“Virtual currency is easier to trace, allowing the central bank to monitor its velocity and the whereabouts of the money and improve its monetary policies accordingly,” he said, adding that big data, artificial intelligence and machine learning will also play a bigger role in analyzing risks and strengthening regulatory intervention.