Crypto Industry Report #7
Balzers (LI), 5 November 2019
This week, our blockchain experts assessed the following headlines:
Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
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Bitmain: IPO application filed with the SEC and co-founder Micree Zhan ousted
According to a report published last week from Tencent News, Bitmain filed an application for an IPO with the SEC. In addition, a transcript of a meeting was verified by CoinDesk confirming the sudden ousting of Bitmain co-founder Micree Zhan.
The IPO will be sponsored by Deutsche Bank and the amount expected to be raised by the IPO has not yet been specified. The SEC review process will last one or two months and it will involve three rounds of enquiries. Previously, Bitmain’s planned $3 billion IPO in 2018 on the Hong Kong Stock Exchange (HKSE) was not successful. The application lapsed in March 2019 and it was not re-filed.
Regarding the ousting of Bitmain’s co-founder Zhan, Jihan Wu informed all employees about this and returned as chairman and executive director after having stepped down previously from day to day management in December 2018.
Assessment
Bitmain’s support and involvement with Bitcoin Cash is expected to be an obstacle for the IPO application filed with the SEC. In addition, following the $3 billion failed IPO in Hong Kong, it seems that Bitmain is shifting the focus to the US now with the new IPO application and also with the recently announced launching of the world’s largest mining farm in Texas. However, Bitmain will face competition since a rival mining firm, Canaan Creative, also filed recently an IPO with the SEC. To increase the chance of a US listing, Bitmain has hired Zheng Hua, who is the former representative of Nasdaq China.
Nonetheless, Bitmain has been losing market share of their mining equipment and also its mining pool dominance has declined. Bitmain’s top mining pools, BTC.com and Antpool, have lost the top positions and now Poolin and F2pool are the largest mining pools measured by hashrate. Bitcoin’s price raise in 2019 has benefited Bitmain, which otherwise may not had been able to continue operations.
After being ousted, Bitmain co-founder Zhan started to approach lawyers to start a legal battle. In fact, it is not clear how he was removed from the company given that he was the chairman and also the largest shareholder. Jihan Wu had previously stepped down from managing the business and he suddenly returned as chairman, which may have been a decision to try to ensure the long term success of Bitmain given the current difficulties.
Bitmain’s new IPO and its expansion in the US as well as the potential consequences of the legal battle with co-founder Zhan, could have important implications for the broader blockchain industry given that Bitmain runs some of the largest mining pools and it is a major supplier of mining equipment.
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Swiss crypto bank gets Singapore banking licence following a previous licence obtained from FINMA
Sygnum announced in a blog post last week that they have received a capital markets services (CMS) licence from the Monetary Authority of Singapore (MAS). Recently, Sygnum also received a banking and securities dealer licence from the Swiss Financial Market Supervisory Authority (FINMA) as the first Swiss company to receive the title of cryptocurrency bank.
Sygnum will focus on accredited investors and institutions with a multi-manager fund, also known as a fund of funds, which will be available soon in both Singapore and Switzerland. This first product would allocate investment across a portfolio of managers of crypto assets focusing on different and uncorrelated investment strategies.
Assessment
The CMS licence will now allow Sygnum to begin asset management activities in Singapore. Being based in both Switzerland and Singapore financial centres would allow Sygnum to leverage and complement services in both locations, thus benefitting their institutional and private qualified investors. The licence obtained in Singapore in only regulated by MAS and has no relation with Sygnum operations in Switzerland, for which the bank previously receive a licence from FINMA.
In addition, a potential expansion to Hong Kong and Europe could make Sygnum a major player in the industry in the coming years. In fact, a large number of clients already contacted Sygnum regarding custody, trading of crypto assets and fiat to crypto exchange among other services, which shows a clear demand for these type of products.
Sygnum has also attracted significant people from the banking industry. A former UBS CEO, Peter Wuffli, has joined the board of directors. The advisory council includes a BlackRock vice-chairman, a previous MAS regulator and two board members of Singapore sovereign wealth fund (GIC). These advisors and board members could support accelerating Sygnum’s expansion both geographical and in terms of products and services offered.
The licences obtained in Switzerland and Singapore confirm that they are two of the leading countries globally for the blockchain industry. In addition, these licences show that crypto assets are becoming more institutionalized and the infrastructure and regulations required to meet institutional investors’ requirements are gradually being developed.
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Argentina’s central bank bans Bitcoin purchases with credit cards to further protect foreign reserves
Last week, it was announced that the Central Bank of Argentina (BCA) will forbid citizens from buying Bitcoin and other crypto assets through credit, debit and pre-paid cards from November 1, 2019. This information was released in Communication 6823 of the central bank. Following this ban, the remaining option for Argentine citizens to purchase cryptocurrencies is through bank transfers.
Recently, the BCA also imposed sudden controls regarding USD purchases by reducing the previous limit of $10k per month to only $200 through online channels and $100 in cash. The actions from the central bank follow an increase of popularity of cryptocurrencies in the country in parallel with a high volatility and devaluation of the Argentine peso.
Assessment
The central bank is aiming to further control and reduce the access to the USD, in order to protect Argentina’s foreign reserves. The $10k USD limit was actually a recent reduction of the monthly limit to purchase USD and now it has been further decreased to just $200 and $100 with cash. Argentina’s president, Mauricio Macri, lost power recently to a more leftist government led by Alberto Fernandez who has become the President of Argentina. This change of government has led to an acceleration of foreign reserve outflows. Nonetheless, the USD purchase limits are a temporary measure until December 2019, although if the situation does not improve the limits are likely to continue.
Buying Bitcoin with credit cards could allow to exchange these Bitcoins for USD, therefore the recent ban is likely to be a further control of access to the USD. The ban is targeted at credit card issuing companies, not directly at retail users.
The Argentine peso has suffered a large inflation this year of over 50%. The sudden actions from the central bank to limit dollar purchases actually led to a spike in Bitcoin trading. Therefore, the ban to buy crypto assets with credit, debit and pre-paid cards is likely to be a measure to control this sudden increase in Bitcoin trading following the recent dollar limit purchasing policy. The BCA is aiming to block or greatly reduce the entry of dollars into Argentina to have a stronger exchange control.
Argentina has one of the largest cryptocurrency adoption globally and Bitcoin also has a premium value in the country. Large exchanges like Houbi are planning to launch fiat gateways and develop their presence in Argentina. The hedge against the inflation of the peso, the complicated and volatile economic situation with the new government and the currency controls with the monthly USD purchase limits are likely to accelerate crypto adoption and awareness in the country.
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Tencent to lead drafting of international blockchain-based invoice standards
As reported by Global Times, Chinese internet giant and the parent company of WeChat, Tencent, will lead a draft of the first international standard for blockchain-based invoices. Tencent will collaborate with the taxation bureau in Shenzhen and the China Academy of Information and Communications Technology to draft the standard. The three entities will be responsible for discussing and revising the draft before it is approved and published. The project, called "General Framework of DLT-Based Invoices" has already received approval from China’s taxation regulators and also support from countries such as the UK, Switzerland, Sweden and Brazil.
Assessment
This project shows that Tencent is looking closely at the blockchain technology and getting involved in its development in terms of supporting with international standards. In addition, this project will improve the international cooperation and also bring more awareness about the advantages of the technology. The standard could contribute to the future infrastructure of the blockchain and token economy.
Blockchain-based invoices are an important use case for the technology to distribute and aggregate information for commercial transactions among a group of permission entities. These type of projects are likely to trigger the development of the technology and encourage other similar projects. Since Tencent started testing blockchain e-invoices in 2018, over ten million have been issued and also over seven thousand companies have been registered in China to use this type of invoices, which shows an important interest and demand. The total value of the invoices is approaching $1 billion and this service has been applied in several areas like finance, insurance, parkings and hotels.
In addition, the Chinese president, Xi Jinping, recently commented about the advantages of blockchain technology and claimed that China aims to be the global leader and will apply this technology for several use cases. These comments from China’s president are believed to have led to the recent Bitcoin rally and to the increased interest in China about crypto assets and blockchain.
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Chinese cryptocurrency mining giant files for $400 million IPO in the US
According to a Form F-1 registration with the SEC, Chinese cryptocurrency mining giant Canaan Creative has filed an application for an IPO to become a publicly traded company in the US. The IPO is aiming to raise $400 million as mentioned in the Form F-1 registration. In addition, Canaan Creative is planning to be listed on the Nasdaq exchange under the ticker CAN. A previous IPO draft request was filed with the SEC in July, but the formal Form F-1 was not public until last week.
Assessment
If the IPO application is successful, Canaan could become the first publicly traded Chinese mining firm in the US. However, Bitmain, which is the other major Chinese Bitcoin mining firm, has also filed an application with the SEC for an IPO. It seems that following the failed IPO attempts in Hong Kong, Chinese mining firms are now shifting to the US. According to the SEC filing, Canaan earned $394 million in revenue in 2018 with a positive net income. However, in 2019 the mining firm has experienced a significant loss.
The SEC Form F-1 filed by Canaan is a special filing required for the registration by foreign issuers of certain securities and it is also called a Registration Statement. In particular, this form is necessary when no other forms are authorized or exist and it is part of the Securities Exchange Act of 1933.
The Bitcoin halving event, which will happen in May 2020 is expected to have a major impact in the crypto markets and in particular for mining firms. Therefore, given that miners’ revenues will be reduced by half after the halving event, it seems that the major mining pools are aiming to raise enough capital to sustain operations in anticipation of the upcoming halving event.
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Our weekly Crypto Industry Report news ticker provides you with the latest information on the global crypto industry – picked and analysed by our blockchain experts.
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