January 2019


 

Cryptalgo Development Status

 

INSTITUTIONAL CRYPTO AND SECURITY TOKENS SECONDARY TRADING AND LIQUIDITY PLATFORM

The development of our OEMS is progressing with new user-interface functionalities added on a regular basis. The highlights for this month include:

  • order book and trade simulator displays are now available for user-specified exchanges;
  • new trading ticket module;
  • a new “block pricing chart” that shows the size and depth of arbitrage opportunities per currency pair; and
  • “trade from chart” orders.

These important features will allow, for example, users to quickly refresh consolidated order books across those exchanges they have specified. This can be useful if an investor is targeting to buy or sell currencies on a certain exchange because of inventory, arbitrage, trading costs or other operational reasons. As another example, the “block pricing” chart gives users an immediate, graphic representation of how an arbitrage should be implemented (i.e. at what price difference and in what size). The trade-off between price difference and order book depth (the greater the price difference, the thinner the liquidity) is an important factor to optimise, and this chart provides users with a tool to do this.

Below are screenshots from the system displaying the new functionalities:

User specified exchanges for order book views and trade orders

New trade ticket

Block pricing chart showing arbitrage opportunities (size and depth)

“Trade from chart” orders

 

 

 

 

Security Tokens – Update

 

Coindesk reported that tZERO’s security token platform went live on January 24th. tZERO offers companies to list their tokens on its platform, which is what we are planning to do in the near future when the market matures. At this point, and following the news, it is worth providing an update on the security token market. Last year we witnessed increased regulatory pressure on ICOs. Regulators raised concerns that some coins were de facto securities, and in some cases ordered issuers to repay money that was raised through ICOs. With this regulatory shift, issuers started looking at raising new funds through compliant security token offerings.

Security tokens are regulated tokens that represent tangible or intangible assets or securities and provide similar rights and ownership benefits as traditional securities. 

Proclaimed benefits of security tokens include the removal of expensive intermediaries (traditionally investment banks) in capital raising efforts, which will allow for lower fees, faster access to public capital markets, and the ability for small companies to obtain funding from new sources in small denominations, creating liquidity that would otherwise have been unavailable to them.

Nevertheless, the expansion of security tokens faces hurdles. The regulatory environment is uncertain and there is a lack of consensus between jurisdictions. Security token offerings represent an increased regulatory burden on the issuer, which has to assume responsibility for compliance and underwriting, two key requirements investment banks used to take care of. Marketing efforts, traditionally covered by brokers, are equally essential and issuers are not equipped for this role either.

During 2018 we saw the first issuance of security tokens, including BCAP (Blockchain Capital), SCI (Science Blockchain) and Aspencoin. Both BCAP and SCI are tokenized investment funds, while Aspencoin are tokens backed by real estate.

In parallel to new security tokens, popular token issuing platforms have emerged: these include Polymath (SEC compliant), Harbor (ERC20- based, focused on real estate), OpenFinance and again tZERO.

Going forward, the success of security tokens will require regulators to provide concrete guidance on what constitutes a security, as well as who can participate in investing and trading security tokens.

 

 

 

Cryptocurrencies Market Update

 

January saw cryptocurrency markets slide lower as volatility receded. Bitcoin was trading at USD 3,595 on January 27th, down -6.3% since the end of December. Overall market capitalisation (top 200 coins) fell by -7.8% to USD 117 billion. Bitcoin’s market dominance rose to 54% confirming its position as a safe haven in bearish markets, while market shares of Ripple and Ethereum (the number two and three coins in the table) both declined (to 11% and 10%, respectively). Bitcoin’s one-month annualised volatility fell to 48%, from 83% at the end of last month.

The notable change in the top ten cryptopcurrency table is the rise of TRON, which finished up +45% this month and stands in eight position (from tenth a month earlier), surpassing Stellar and Bitcoin SV. Tron’s recent price rally has been put down to a rise in the use of tron blockchain protocol for DApps, while it has been further boosted by the upcoming BitTorrent token sale, which will run until February 3rd. The token sale allows investors to use either Tron or Binance coin to purchase BitTorrent tokens. BitTorrent is a professional version of the file-sharing software which features unlimited downloading with file conversion, anti-virus, and an HD media player.

Data sources: Bloomberg, www.coinmarketcap.com

24 hour trading volumes were stable during January, closing at USD 16.1 billion, unchanged compared to last month. TRON saw an increase of +330% in the USD volume of coins exchanged in one day. Trading volumes on the Bitcoin Blockchain (a measure that filters out transactions within exchanges) continued to slip, from USD 380 million to USD 190 million (-50%).

 

Data source: www.coinmarketcap.com, www.blockchain.com

 

 

 

Other Cryptocurrency Market News

 

According to a Coindesk article on January 24th, Galaxy Digital is raising USD 250 million to build a credit fund that will offer loans to crypto firms. The loans will be collateralised by assets such as tokens, crypto mining devices and property.

The FCA – the financial regulator in the UK – has published a consultation paper, “Guidance to cryptoassets”, which outlines how cryptocurrencies and other digital assets would be regulated in the United Kingdom under a new regulatory framework. They propose that digital assets be divided into three categories: exchange tokens, security tokens, and utility tokens. The proposed regulation would apply to firms who issue cryptoassets, market cryptoassets products and services, buy and sell cryptoassets, hold and store cryptoassets, provide financial advice on cryptoassets, manage cryptoassets within funds, and run cryptoasset exchanges. The consultation is scheduled to close in April; subsequently a Policy Statement is to be published during the summer.

Anchorage, a crypto custody provider, announced on January 23rd the launch of their new crypto storage solution aimed a large investors. Anchorage is backed by Andreessen Horrowitz. Anchorage’s distinction is that its solution will not put assets in cold storage. Instead it will be a “faster alternative allowing investors to put their cryptocurrencies to work”, but it is not exactly clear how this will work.

In a similar move, Swiss bank Vontobel announced on January 14th that it was going to offer institutional clients crypto depositary services. The bank is using Geneva-based fintech firm Taurus to provide the digital asset vault.

Finally, ESMA, the European Securities and Markets Authority, has published guidance on how to protect investors and market integrity with respect to crypto-assets. A key consideration is the legal status of crypto-assets, as this determines whether financial services rules are likely to apply, and if so which, and hence the level of protection to investors. The report outlines ESMA’s position on the gaps and issues that exist in the rules when crypto-assets qualify as financial instruments, and the risks that are left unaddressed when crypto-assets do not qualify.

 

 

 

 

 

Disclaimer: the information contained herein is being furnished for discussion purposes only and may be subject to completion or amendment through the delivery of additional documentation.  This communication does not constitute an offer to sell or the solicitation of an offer to purchase any security, future or other financial instrument or product. Information is presented as of the date and, if applicable, time indicated. CRYPTALGO does not accept any responsibility for updating any such information. Any historical or simulated results presented herein should not and cannot be viewed as an indicator of future performance. Market views and opinions are current opinions only. CRYPTALGO is not an adviser as to legal, taxation, accounting, regulatory or financial matters in any jurisdiction, does not act as fiduciary or financial, investment or commodities trading advisor for any of its counterparties, and is not providing any advice as to any such matter to the recipient.  The recipient should discuss such matters with the recipient’s advisers or counsel and make an independent evaluation and judgment with respect to them.

Past performance may not be a reliable guide to future performance.

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