Coin News

The U.S. Securities and Exchange Commission (SEC) has been relatively stringent in its views of both security and utility tokens. The organization is seeking to label all virtual tokens originally distributed through initial coin offerings (ICOs) as securities, which would subject them to very strict regulatory practices and potentially have massive repercussions on their prices.

One of those tokens is ether, which was originally distributed and marketed through presales. Members of the Venture Capital Working Group — an organization comprised of lawyers, investors and cryptocurrency experts working to block the SEC’s decision — argue that ether has become so decentralized, it can no longer be looked at as a security, and should thus be exempt from securities-related laws. Ether is the world’s second-largest cryptocurrency by market cap after bitcoin.

April 26, 2018, marked an important step in the fight for “token rights.” A congressional hearing with testimony from the SEC’s Division of Corporation Finance (the organization directly responsible for establishing token policies) took place to potentially develop more reasonable approaches toward token sales and their classifications.

Minnesota Representative Tom Emmer led the discussion with SEC division head William Hinman. Throughout the hearing, Emmer voiced his support for cryptocurrency entrepreneurship and innovation, stating, “People tend to fear what they don’t know. If people sailing the oceans at the time of Columbus had believed the world is flat, we wouldn’t have had the great discoveries of the New World.”

The discussion marks a new attitude amongst SEC members. Chairman Jay Clayton has reported in the past that he wants to see all tokens registered through ICOs be classified as securities in the future, but Hinman assured listeners that representatives are trying to view the situation openly and see which entities might exhibit utility-based behaviors.

During the hearing, Rep. Emmer asked Hinman, “Is it possible that a utility token would not be a security because it’s not done for capital formation?”

Hinman replied that it ultimately was possible, as there are tokens that do not have the “hallmarks” of a security. Additionally, he stated that many fundraisers are intended to “develop networks” where a token is strictly intended for use as a buying mechanism for goods or services.

“We can certainly imagine a token where the holder is buying a token for its utility, not as an investment,” Hinman continued. “Especially if it’s a decentralized network where it’s used, and not central actors where there would be information asymmetries where they would know more than token investors.”

In a recent panel discussion during the Distributed: Markets Conference in Chicago, Tennessee blockchain lawyer Gray Sasser of Frost Brown Todd explained that while the SEC has been relatively straightforward in saying where tokens should fall, it has not done a good job of guiding distributors or token builders.

This has been a recurring point of concern. Emmer echoed this sentiment, asking how regulation in the U.S. can be better clarified for U.S. investors. He queried whether it was possible to assist crypto-related business developers to better understand their contributions to tokens that may not be securities, thus avoiding SEC enforcements.

Hinman — likely referring to the Venture Capital Working Group — replied that one of the steps the SEC was taking was “meeting with participants that have these ideas of a token that shouldn’t be regulated as a security” and working with them on how they should be structured. Hinman pointed out that the SEC is heavily engaged in academics, industry and other departments to better explore how everything might work, and that in the long run, the U.S. is “pragmatic” in its support of new technology.

Unfortunately, the hearing also shed light on the lack of education among American leaders concerning cryptocurrencies. Some comments and questions arose, for example, that referenced bitcoin as a security despite the asset already being established as a commodity by the Commodity Futures Trading Commission (CFTC).

Figures like Aaron Wright — director of blockchain project Cardozo — took to Twitter to express their thoughts and concerns. Wright says that the hearing was amongst the most significant and fulsome commentaries delivered by the SEC regarding token regulation, but that there was also “superficial appeal” to treating bitcoin and related tokens as securities, as many of them are still seen as “speculative assets.”

“I hope that we don’t [go] down that path,” he wrote. “These types of arguments could conceivably gain legs, given the heavy emphasis by some that tokens in some way mutate. Certain tokens could start as a commodity and then mutate into securities as networks consolidate and begin to exhibit less utility. There’s no logical boundaries for these types of arguments so they become dangerous and likely will have unforeseen consequences.”

On the other hand, nonprofit research and advocacy association Coin Center was very positive about the hearing, commenting that the SEC’s views were generally the “right approach” when it came to examining tokens’ usefulness and decentralization to decide whether tokens were securities or utilities.

“It’s awesome to hear the SEC’S Director of Corporation Finance testify that they are looking at these issues with a similar perspective,” said Peter Van Valkenburgh, the organization’s director of research, on the Coin Center blog.

Over the last few weeks, bitcoin has had its fair share of ups and downs. The volatility has chopped up many of the public bulls and bears alike as the market has struggled to find a consistent direction for more than a couple of weeks at a time. The market is currently in an interesting space as many macro trends have been broken. One major trend that was broken last week was the macro demand line shown below:

Figure 1: BTC-USD, 12-HR Candles, Macro Supply Line Broken

The break of the supply represents a macro change of character for the market and is undoubtedly a bullish signal. After bottoming around $6,500, bitcoin had a very strong, sustained rally for a 40% market value increase over a relatively small amount of time. Currently, the market is experiencing some turbulence as we test well known resistance points where lots of overhanging is present. Our current price level is the beginning of the hypodermic trend we saw late last year as we broke free of the parabolic envelope shown below:

Figure 2: BTC-USD, 12-HR Candles, Hypodermic Trend Breakthrough

The Hypodermic Trend is where the FOMO, irrational buying began and left many investors holding underwater positions. This FOMO resulted in tons of overhanging supply and I don’t expect us to make any upward progress without a solid fight from the bitcoin bears.

This recent markup came about as a result of a solid accumulation phase on the 2-HR time frame that lead into reaccumulation and has now pushed us into a new trading range that is currently testing the overhanging supply. The figure below outlines the micro accumulation leading into our current trading range:
Figure 3: BTC-USD, 2-HR Candles, Micro Markup into New Trading Range

Our current trading illustrates the presence of supply by the sellers:
Figure 4: BTC-USD, 60-Min Candles, Current Trading Range

It is unclear whether this current trading range is distribution (top of the rally) or reaccumulation (temporary stop before a resumption of the uptrend), but what is clear is the presence of supply. And the presence of supply makes total sense given the current price level.

Whether the market is going to move up or down remains to be seen, but key price levels to watch are near the bottom of our current trading range in the $8,600s. A breakdown of that price level would likely send us retesting our macro lows in the $6,000s. If this current trading range breaks down, that will be an incredibly bearish signal as that indicates the overwhelming presence of supply in the market. If we manage to test the $6,000s, I find it highly unlikely that we rally without establishing new lows once again.

If we manage to establish a clear reaccumulation trading range and break upward, I expect to see resistance around the 50% Fibonacci value shown below:
Figure 5: BTC-USD, 12HR Candles, Macro Resistance

Summary:

1. A major macro downtrend broke last week that marks a potential, new macro uptrend.
   
2. A large amount of supply is present as we test the current price levels that also match the hypodermic breakout of last year’s parabolic trend.
   
3. We are in a trading range and are testing supply as the market decides whether we will move up or down. Key price levels exist just above our trading range. If we reject those price levels and our current trading range, expect to see a retest of the macro low in the $6,500 range.
   

As institutional capital in the crypto space increases regularly, the need for blockchain technology and related enterprise support is at an all-time high, and several companies are working hard to provide both as the arena expands.

One of those companies is Coefficient Ventures, a crypto fund set on financing blockchain systems worldwide. Thus far, the company has made over 25 investments in companies and applications like Filecoin for decentralized storage; Raiden for scalability; and Zeppelin to improve smart contract capabilities.

Speaking with Bitcoin Magazine, founding partner Chance Du described how she sees a central role for blockchain investment across all sectors of the global economy.

The global financial industry features significant flaws in its current design. Two billion of the world’s people have virtually no access to financial services, while an additional four billion have very limited access. Du says she began investing in blockchain technology in 2017 because she believes it can remove these barricades and allow for a “more accessible and democratized” financial infrastructure.

“The internet has been an extraordinary conduit for uploading, exchanging and disseminating information,” she explains. “However, until 2009, if you wanted to go and exchange value online, there was no way to do that. Whether it was data, money, the title to your car or home, you had to do it in a way that didn’t involve legacy institutions such as banks, governments and clearing houses. With blockchain technology, people can have bank accounts in their pockets. They no longer need these legacy institutions that have kept so many consumers out. Blockchain technology offers a value protocol which allows for the frictionless exchange of value.”

Hoping to assist businesses that can remove financial pain points from our monetary systems, Coefficient Ventures also offers extensive start-up support. Its current advisory portfolio includes projects like TomoChain, which seeks to build blockchain and crypto-based partnerships between national markets; IoTeX, a decentralized network for the Internet of Things; and Havven, a payment network and stable coin system based in Australia. Du says the next step involves collecting capital from accredited investors to fund these projects and incentivizing contributors to “build tools and services” to facilitate them.

As with all business enterprises, challenges have emerged that have made it hard for start-up VCs to stay on track. Du notes that the financial industry is a relatively saturated space, with hundreds of crypto funds and traditional VC funds joining the “ICO investing race” every day. Competition is extremely fierce, and carving out the right business strategies isn’t always easy.

Regulation and the constant changes it presents has also made things difficult. Du says one of her main goals is to see the cryptocurrency arena thrive and she recognizes the necessity to adhere to ever-changing regulations in order to bring further legitimacy to the space.

“We must keep a close eye on every country’s regulatory environment and adjust our strategies accordingly,” Du says. “Token exchange listings, for example, are directly affected by regulatory shifts. Many exchanges are not allowed to list any new tokens during strict regulatory days, and we’ve had to find alternatives for fund liquidity.”

One strategy that has worked for Du involved turning to decentralized exchanges or DEXs. Users’ own wallets are utilized to transfer and collect funds, and transactions are published directly on the blockchain, thus eliminating several risks one might encounter through centralized platforms.

“We are also considering tokenizing our own fund, but we must be cautious to remain in compliance with the SEC,” she continued. “I think the whole world is watching the moves of the SEC. They’ve proven quite adequate when it comes to dealing with emerging technologies like cryptocurrencies. I believe once the SEC has figured out how to treat crypto, other countries will mirror its moves, but right now, governments don’t seem to understand them well enough yet.”

While hostility still seems to exist toward digital assets, Du suggests legislative systems will eventually adapt to become more accepting. She even compares cryptocurrency to Uber, which in the beginning, she states, was the object of speculation amongst those who felt it was breaking certain legal barriers.

“Uber got tons of legal challenges in the beginning, and it drove regulation once it was adopted by the masses,” she explained. “The demand of Uber from the public was so high that the local laws were forced to adapt. The same will happen for cryptocurrency.”

In the end, Du believes that blockchain and digital assets present advantages often missing from traditional finance mechanisms.

“Traditional VCs have burdens in the new game because of the old investing philosophies they carry,” she says. “Things don’t work the same way, anymore. Compared to traditional VCs, new crypto funds move fast and understand the underlying value of crypto projects.”