Crypto Industry Report #18
Balzers (LI), 4 February 2020
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.
|
|
Bank Frick begins offering custody and trading services for Bitcoin Cash
Bank Frick announced last week that Bitcoin Cash (BCH) has been included among its supported crypto assets.
As part of the offering, both custody and trading services will be provided for Bitcoin Cash. Clients will now be able to securely store their BCH in cold storage and trade within a fully compliant environment.
This announcement confirms Bank Frick’s leading and pioneer position within the European blockchain banking sector.
Assessment
The Bitcoin Cash offering was designed with a focus on mining firms, institutional clients and also large investors in cryptocurrencies.
Clients will be able to acquire BCH using several supported fiat currencies such as USD, EUR or CHF. This could allow the clients to have an additional option to further improve the diversification of their portfolios and to better manage their risks and exposure to the crypto asset class.
In addition, clients will benefit from the flexibility to trade their BCH once a day through Bank Frick. Regarding the custody for BCH, Bank Frick keeps the private keys in cold storage providing the highest level of security.
As a pioneer bank offering crypto related services, Bank Frick began offering custody and trading for several leading crypto assets since 2018. Currently, apart from the newly supported BCH, Bank Frick also offers custody and trading for several other crypto assets including BTC, LTC, XRP, ETH, ETC, XEM, QTUM and XLM.
Recently, the Blockchain Act came into force in Liechtenstein, which is currently the most comprehensive blockchain regulatory framework globally. Bank Frick has positioned itself as the leading bank in Liechtenstein to support clients relocating to the country to benefit from the regulatory clarity provided by the Blockchain Act.
In addition, with the launch of an informational microsite about the Blockchain Act and a marketing campaign in the Crypto Valley in Zug, Bank Frick is confirming its position as the leading blockchain Bank in Europe.
Bitcoin Cash is currently the fourth largest crypto asset by market capitalisation. There are scheduled hard forks for the network in May and November and, in addition, a halving event is expected before bitcoin’s halving in May.
However, Bank Frick provides monitoring and updates for this type of events such as hard forks and all clients are informed in advance regarding any potential disabling of trading or deposits and withdrawals during a hard fork. This continuous monitoring and communication with clients further differentiates Bank Frick from its competitors by providing the best possible services to its clients.
Back to top
|
|
Singapore’s Payment Services Act comes into force: new AML requirements for crypto businesses
The Payment Services Act 2019 (PSA) came into force last week in Singapore. Crypto businesses in the country will have a month to register with the Monetary Authority of Singapore (MAS) and then a grandfathering period of six months will be provided to apply for a payment institution licence.
The regulations define Digital Payment Token (DPT) services, which cover all crypto exchanges and companies in Singapore, and it requires compliance with anti-money laundering (AML) and counterterrorist-financing (CTF) rules.
The PSA was passed in January 2019 and the regulatory framework for digital payment token services is amongst the pioneers globally to regulate crypto businesses and exchanges.
Assessment
With the PSA regulations, Singapore confirms its leading role within the blockchain industry, similarly to other countries like Switzerland or Liechtenstein with the Blockchain Act that came into force on 1 January, 2020.
A crypto focused bank obtained banking licences in both Singapore and Switzerland recently, which indicates that Singapore is amongst the preferred countries within the crypto industry.
The regulations regarding anti-money laundering (AML) and the counter financing of terrorism (CFT) are becoming increasingly relevant for crypto assets.
In Europe, the Fifth European Anti-Money Laundering Directive (AMLD5) came into force on January 10, and some countries like Germany implemented stricter regulations than the AMLD5 requirements, while other countries like the Netherlands did not meet the deadline and there will be a delay to implement AMLD5.
Moreover, the Financial Action Task Force (FATF) recommendations were also implemented by some EU countries given the delay of the AMLD5. The new Payment Services Act of Singapore aligns with the FAFT recommendations and it covers crypto asset transfers and exchanges, custody and brokering of crypto transactions.
The additional compliance costs introduced by these new regulations may lead some crypto companies to relocate to other jurisdictions or to merge with other businesses. Due to the AMLD5 implementation in the EU, some crypto businesses already announced that they were relocating to other countries.
Singapore recognises the potential benefits of digital payment token services, however due to some characteristics of crypto assets like being anonymous or the possibility to do international payments, there are significant risks introduced related to money laundering and terrorism financing, so this new regulation aims to reduce those risks.
The PSA regulation could allow continuous innovation of the crypto industry in Singapore while also increasing the trust and better protecting customers. Following the PSA, crypto businesses will now need to obtain licences such as payment institution licence or money-changing licence.
In addition, they will need to comply with other regulations such as the Securities and Futures Act for example. Moreover, the PSA will replace some other existing regulations in Singapore.
Singapore is following the strategy of other countries, like Germany or Liechtenstein, of providing regulatory clarity to the crypto industry and thus increasing the trust. As the crypto industry and crypto assets continue growing gradually, other countries may decide to also improve their regulatory framework in order to remain competitive and attract crypto businesses.
Back to top
|
|
Bittrex obtains an insurance policy of up to $300 million covering external theft and internal collusion
Last week it was announced that approval was obtained by Bittrex for a $300 million insurance policy protection for its cold storage.
The insurance covers crypto assets held in the cold storage and this is reportedly the largest insurance coverage offered until now by a cryptocurrency exchange. The policy covers the crypto assets in the case of internal collusion or external theft.
The insurance was underwritten by Arch Syndicate 2012, with the support of other syndicates based in Lloyd’s of London, which is amongst the largest insurance markets globally. For this insurance Bittrex collaborated with Marsh, a leading insurance broker.
Assessment
Insurance is an important requirement for institutional investors that may be considering diversifying into the crypto asset class.
In fact, some investors may be limited to invest in crypto assets due to regulatory requirements regarding insurance. Therefore, the growth of insurance policies for exchanges, custodians or self-custody devices could accelerate the professionalisation of the industry and attract traditional asset managers and investors.
Other major custodians and exchanges like Bakkt Warehouse, Coinbase or Gemini, recently announced large insurance covers as well.
However, it seems that until now the $300 million insurance offered by Bittrex is the highest level provided, which indicates that insurance companies are gradually considering offering larger insurance covers once they understand and analyse the risks involved.
In addition, self-custody hardware devices such as Ledger vault also announced recently an insurance at no additional costs for customers, mentioning the complexity for clients of Ledger vault to obtain a similar insurance by themselves.
The underwriters of Bittrex’s $300 million insurance policy said that they decided to approve the insurance once the internal security and compliance protocols of Bittrex were demonstrated.
Moreover, they mentioned that they appreciated that Bittrex’s technology is being using by other crypto exchanges.
The collaboration of large insurance brokers and companies like Marsh for this project and other similar crypto insurance projects, indicates that gradually the underwriters are becoming confident to provide large insurance for crypto businesses, which is positive for the overall crypto industry and larger insurance policies may be announced in the coming months.
Back to top
|
|
Increased demand from institutional investors: Coinbase Custody International launches in Ireland
Coinbase announced that a new entity called Coinbase Custody International was launched in Ireland.
Institutional custody services will be offered and, in addition, it was mentioned that all the staking activities of Coinbase would be transferred to the new entity. In the announcement, it is claimed that Coinbase Custody International will offer the same standard of crypto storage as Coinbase Custody.
Through the new launched entity, it will be possible to provide better services to European clients by complying with local regulations and providing local staff to support clients.
Assessment
Coinbase Custody is one of the leading crypto asset custodians with over $8 billion in assets under custody, an amount that raised significantly following the acquisition of Xapo.
In addition, Coinbase offers other services like retail and institutional crypto exchanges or Coinbase commerce to facilitate the integration of payments for merchants. Coinbase previously received an e-money licence in Ireland but the new entity, Coinbase Custody International, is separated from Coinbase.
Demand from institutional investors was mentioned as a key reason to launch the new entity.
Coinbase Custody had previously provided services to European clients, however it seems that with the new entity the goal is to be closer to the clients and to provide an improved service.
Moreover, Coinbase mentioned that Europe is their fastest growing market, so this factor with the raising client demand and better regulatory clarity were likely the main motivations for the launch of Coinbase Custody International.
Coinbase has recently added support for several staking tokens. Since staking is a relatively new concept within the crypto industry, there is a lack of regulatory clarity regarding staking rewards or their taxation for example.
Clients that store staking tokens with Coinbase are able to earn staking rewards for participating in the networks’ consensus and block production mechanisms.
However, due to the lack of regulatory or tax clarity, international investors may not want to stake with Coinbase Custody since it is based in the US. Also, US clients may hesitate to participate in staking if there is no legal clarity about the topic in the country.
Therefore, it seems that in addition to better serving European clients, the new entity Coinbase Custody International will offer all staking services and provide better clarity for international clients on topics like taxation of staking rewards.
This could lead to an increase of staking assets under custody and also to a growing awareness regarding staking and the legal requirements for those investors receiving staking rewards.
Back to top
|
|
Leading crypto companies join the Proof of Stake Alliance to increase the regulatory clarity regarding staking services
The Proof of Stake Alliance (POSA) was launched in August 2019 as a lobbying organisation based in New York, to accelerate the regulatory clarity regarding staking services and to better educate lawmakers about the advantages of proof of stake (PoS).
Some of the initial members included Tezos and recently Coinbase Custody and Bison Trails also announced last week that they were joining the association to support with the lobbying efforts.
Both crypto companies, Bison Trails and Coinbase Custody, are also part of the Libra Association, which is being led by Facebook.
Assessment
While there were already leading crypto companies as part of the POSA, Coinbase Custody and Bison Trails could help to accelerate the mission of the lobbying group. Both are part of the Libra Association and Coinbase Custody is among the largest crypto custodians.
Moreover, Coinbase recently launched a new entity in Ireland called Coinbase Custody International with the aim, amongst other goals like better serving European clients, to move all staking services there.
Therefore, it seems that having more regulatory clarity regarding staking services is becoming relevant within the crypto industry and for major crypto businesses like Coinbase. It is likely that with the growing influence of the POSA group, the regulatory clarity around staking services could improve in 2020.
While there is a growing staking trend with the upcoming launch of Ethereum 2.0 and other new protocols, the legal clarity surrounding staking is not well developed yet.
In particular, how securities laws should be interpreted for staking services or how staking rewards should be taxed remains unclear.
Some of the goals of the organisation are to represent in Congress and in regulatory agencies the interest of PoS protocols, to educate about the advantages of PoS, to support developing best practices and to help designing the regulatory framework for staking assets and services, in particular regarding taxation and securities laws.
The first working group of the organisation was involved in the discussion of taxation frameworks for staking assets and rewards, and it was held in Washington DC with US lawmakers.
Given the innovation and new concepts introduced by staking services, the role of the POSA to accelerate the development of a regulatory framework is important. However, it may take some time until lawmakers fully understand staking assets and services and a clear legal framework can be developed.
Back to top
|
|
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.
Browse our Crypto Industry Report Archive
|
|
|
|
