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SEC Approves 19b-4 Forms of First Batch Ethereum ETFs

Regulation | May 23, 2024

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Regulatory Milestone:  SEC Approves the first batch of 19b-4 Forms of Ethereum ETFs

On May 23, 2024, the U.S. Securities and Exchange Commission (SEC) cleared a major hurdle in approving 8 Ethereum Exchange-Traded Funds (ETFs), which would allow investors to gain exposure to Ethereum through a regulated financial product.

The ETPs include:

  1. Grayscale Ethereum Trust
  2. Bitwise Ethereum ETF
  3. iShares Ethereum Trust
  4. VanEck Ethereum Trust
  5. ARK 21Shares Ethereum ETF
  6. Invesco Galaxy Ethereum ETF
  7. Fidelity Ethereum Fund
  8. Franklin Ethereum ETF

As reported by Reuters, although the applications for a rule change to list new products has been approved by the SEC, still need the SEC's approval of ETF registration statement details and S-1 filings related to investor disclosures before they are able to begin trading. Unlike the exchange filings, there is no set time frame in which the SEC needs to decide on those statements. Two sources familiar with the process said that "...many issuers are ready to launch but the corporate finance division of the SEC has indicated that it is likely to request changes and updates in coming days and weeks."

The SECs order basically states that they are comfortable that the proposed ETPs can legally and competently operate in a regulated environment while protecting investors and the integrity of the marketplace.

See:  Ether Jumps on Increased Odds of Spot ETF Approval

This approval of these ETFs are expected to boost the credibility and adoption of cryptocurrencies while providing a safer, more convenient investment avenue for both institutional and retail investors. Ethereum, currently trading around $3,700, could see substantial price increases. Analysts suggest that the approval could nearly double Ethereum's price​.  Grayscale Investments, one of the key players, plans to convert its Ethereum Trust into an ETF, which currently holds 2.5% of all circulating Ether, amounting to $5 billion in assets​.

Outlook

With the U.S. presidential election on the horizon, cryptocurrency regulation is becoming a key issue, which might influence further positive regulatory changes.


NCFA Jan 2018 resize - SEC Approves 19b-4 Forms of First Batch Ethereum ETFsThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Uniswap’s Ready For SEC Battle. Responds to Wells Notice

DeFi Legal Battle | May 23, 2024

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Uniswap Legal War with the SEC: A DeFi Test Case

Concurrent to the recent passing of the FIT21 bill by the U.S. House, the ongoing legal battle between Uniswap and the U.S. Securities and Exchange Commission (SEC) is a monumental test case for decentralized finance (DeFi) with regulatory implications and challenges facing open-source financial systems globally.  The SEC has accused Uniswap of operating an unregistered securities exchange and claims that its UNI token constitutes an investment contract. On the other hand, Uniswap counters these allegations by emphasizing the decentralized nature of their protocol.

Uniswap argues that its software is autonomous, enabling peer-to-peer transactions without the need for intermediaries. This, they claim, exempts them from the definition of a securities exchange.  Uniswap’s protocol has demonstrated remarkable efficiency and security, facilitating over $2 trillion in trading volume without significant security breaches. This achievement highlights the potential for DeFi platforms to provide efficient, secure, and transparent financial services, potentially surpassing the capabilities of traditional financial systems.

Legal Precedents and Weak SEC Case

Uniswap’s legal team, which includes former high-profile SEC officials, is focused on the perceived weaknesses in the SEC’s case. They argue that historical court decisions have often favored technological innovation over restrictive regulations. This precedent suggests that the courts may lean towards supporting Uniswap’s position, recognizing the transformative potential of decentralized technologies.

See:  SEC Issues Wells Notice to Uniswap. Another Legal Showdown

Uniswap asserts on their most recent blog post 'the fight for DeFi continues' that the SEC accusations are weak:

"These assertions assume that value represented in a specific digital file format is a security – and that the SEC can unilaterally extend the definitions of exchanges, brokers and contracts to the point of meaninglessness. A token is a file format, like a PDF. The Protocol is a general purpose computer program that anyone can use and integrate, like TCP/IP. And the hundreds of thousands of users who received UNI tokens for their participation in the protocol’s early days received the token for free, with no contract, and without expectations of profit solely from the efforts of Uniswap Labs."

Response to SECs Wells Notice

Uniswap made several key arguments in their 43 page wells notice response defense against the SEC's allegations.

  • Uniswap argued that their protocol is decentralized, autonomous software enabling peer-to-peer transactions without intermediaries, which means it does not fit the definition of a securities exchange.
  • The UNI token is primarily a governance token that allows holders to vote on protocol changes, not an investment contract.

See:  Avi Eisenberg Trial: DeFi’s Legal Boundaries Tested

  • Uniswap Labs does not control or maintain the protocol, akin to how no single entity controls Bitcoin.
  • Uniswap does not solicit users to engage in trading activities or provide investment advice.
  • Uniswap does not take custody of user funds, which negates the claim of it being a clearing agency.
  • Citing previous court decisions that favored technological innovation, Uniswap argued that their protocol does not meet the statutory definitions of an exchange, broker, or clearing agency under the SEC's current regulations.
  • Uniswap asserted that the SEC lacks the congressional authority to regulate the protocol as an exchange under the major questions doctrine, which requires clear authorization from Congress for such significant regulatory actions.
  • They claimed the SEC failed to provide fair notice that their conduct could be considered unlawful, as required under due process principles.
  • Uniswap emphasized that an enforcement action would harm the public interest by stifling innovation, forcing companies offshore, and depriving U.S. investors of the benefits of decentralized finance.
  • They highlighted the economic impact and the protocol’s efficiency and cost-saving benefits for users, arguing that these innovations should be encouraged rather than penalized.

These arguments collectively aim to demonstrate that Uniswap's operations are fundamentally different from traditional financial intermediaries and should not be subject to the same regulatory framework.

Impact of FIT21 on Uniswap vs. SEC Case

The recently passed Financial Innovation and Technology for the 21st Century Act (FIT21) does have implications for the Uniswap vs. SEC case. Here’s how it might impact the case.

See:  SEC Issues Wells Notice to Robinhood Over Crypto

  • The FIT21 Act includes establishing criteria to determine the level of decentralization for blockchain networks and clarifying that an asset delivered pursuant to an investment contract is not necessarily a security itself​
  • There's also a provision for certifying the decentralization of blockchain networks, which involves public comments and SEC review.  The act’s emphasis on decentralization might favor Uniswap's stance that their operations do not fit traditional definitions requiring SEC registration.
  • Joint SEC and CFTC oversight could introduce a more balanced regulatory approach, potentially reducing the SEC’s unilateral enforcement power. Uniswap could benefit from this dual-agency oversight, leveraging CFTC’s more commodity-focused perspective on digital assets.
  • Additionally, the Blockchain Regulatory Certainty Act (BRCA), provides legal certainty for non-custodial entities so developers and infrastructure providers that do not custody or control user funds, ensuring they are not considered money transmitters​.

Conclusion

The Uniswap vs SEC battle is one for the ages that tests the application of traditional securities regulations to new and innovative technologies like DeFi.  The crypto world is watching and the outcome along with the potential enactment of FIT21 will establish significant precedents for the future of DeFi regulation and influence compliance strategies globally.


NCFA Jan 2018 resize - Uniswap's Ready For SEC Battle. Responds to Wells NoticeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Ether Jumps on Increased Odds of Spot ETF Approval

ETF News | May 21, 2024

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Ether Jumps 20% on the Implications of a Spot Ether ETF Approval

As reported on Coindesk, on Monday Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart have raised the approval odds for a spot Ether ETF from 25% to 75% after indications that the SEC might be adopting a more favorable stance towards these applications. They later clarified that their revised odds pertain to 19b-4 filings specifically. The SEC's decision on the VanEck spot Ether ETF is expected on May 23rd.  The price of ETH jumped 10% on the news since it was previously largely assumed that approval of a spot ETF was an uphill battle, with the price of ethereum currently trading at a 20% premium in the $3,800 range compared to yesterday.

Also worthy of noting is that according to an on-chain analyst, Ethereum's market capitalization of $440 billion just surpassed Mastercard's market cap of $427 billion.

The Potential Impact

The approval of a spot Ether ETF could be a game-changer for the broader cryptocurrency market. Unlike futures ETFs, a spot ETF holds actual Ether, making it more attractive to institutional investors seeking secure and regulated exposure to digital assets. The ease of access and regulatory compliance of a spot ETF are likely to attract substantial institutional funds. With Ether's market cap approaching $400 billion, a spot ETF could add billions in value.

See:  Consensys Sues the SEC Over Ethereum’s Status

Approval of a spot Ether ETF would be an 'eye opening' change in regulatory attitudes towards Ethereum digital currency. The SEC's cautious stance and efforts to classify ETH as a security has been a barrier, while also often citing concerns over market manipulation and investor protection. A successful ETF could demonstrate that these risks are manageable reflecting a growing confidence in regulatory frameworks adapting to include digital assets.

The introduction of a spot Ether ETF is expected to significantly enhance market liquidity. By providing a regulated and easily accessible investment vehicle, the ETF would attract a broader range of investors, from retail to institutional. Increased liquidity generally leads to reduced price volatility, making Ether a more stable investment.

Technical and Security Considerations

A spot Ether ETF must address several technical and security concerns to gain regulatory approval and investor confidence. Key considerations include secure custody of Ether, typically utilizing cold storage solutions to prevent hacking, and transparent price tracking with robust auditing mechanisms. Approximately 95% of the ETF’s Ether could be held in cold storage, minimizing hacking risks. Regular audits by third-party firms would ensure the integrity of the holdings.

See:  BlackRock Launches New Fund on Ethereum, Bullish on Tokenization

Prometheum has launched a timely Ether custody service, treating ETH as a security in compliance with existing financial regulations. This move aligns with the company's commitment to regulatory adherence and aims to provide a secure custody solution for institutional investors.

Conclusion

Institutional investors and market participants are closely watching the developments surrounding a potential spot Ether ETF.  Hedge funds, asset managers, and other institutional players are likely positioning themselves by increasing their exposure to Ether in anticipation of the ETF’s approval.


NCFA Jan 2018 resize - Ether Jumps on Increased Odds of Spot ETF ApprovalThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Corporate Venture Capital in Canada: Insights and Challenges

Corporate Venture Capital | May 17, 2024

Deloitte and BDC State of Corporate Venture Capital in Canada 2024 - Corporate Venture Capital in Canada: Insights and Challenges

Image: The State of Corporate Venture Capital in Canada 2024, Deloitte and BDC

The State of Corporate Venture Capital (CVC) in Canada 2024

Published this week, "The State of Corporate Venture Capital in Canada," produced by Deloitte Ventures in collaboration with BDC Capital, highlights the potential for growth and innovation that CVC can bring to Canadian corporates, startups, and the broader economy. However, it also underscores significant challenges and areas where Canada lags behind its international counterparts, particularly the United States.  Read the release

Key Findings

  • Despite the growing number of CVC initiatives, only 6% of Canadian public companies with over $1 billion in annual revenue participate in direct VC investments, compared to 40% of similar U.S. companies​​. This stark contrast highlights the need for greater engagement by Canadian corporates in venture investing.  Slower adoption.
  • CVC offers a "triple win" of strategic benefits for corporates, startups, and the economy. Corporates gain access to new technologies, markets, and diversified profit streams. Startups benefit from the resources, expertise, and brand recognition of large corporates. The economy enjoys job creation, productivity gains, and competitive innovations. For example, Deloitte Ventures' $150 million initiative aims to catalyze growth in important verticals such as fintech and worktech, fostering innovation and job creation​​.

See:  AI Metamorphosis in Venture Capital

  • Canadian CVCs have seen significant growth in deal activity, nearly tripling between 2019 and 2022. However, this momentum slightly waned, with a drop in the total number of deals from 141 in 2022 to 68 in 2023​​. This fluctuation suggests the need for sustained efforts to maintain and grow CVC participation.
  • Canadian CVCs are active on the global stage, with 53% of their deals in 2023 involving foreign companies. This reflects the smaller size of the Canadian market and the necessity for Canadian corporates to look globally to stay competitive​​.
CVC participation rate Canada vs US - Corporate Venture Capital in Canada: Insights and Challenges

Image: Figure 6 from The State of CVC in Canada 2024 (Deloitte/BDC)

Food for Thought

The report is a thorough examination of the current landscape and potential future of CVC in Canada. However, there are some notable exclusions that would have been interesting to discuss:

  • The report does not address why CVC in Canada significantly lags behind the U.S. Understanding these reasons is crucial for developing strategies to close the gap. For instance, the participation rate of U.S. public companies in CVC is approximately six times higher than that of Canadian companies​​.

See:  Insights and Challenges of Raising Capital via Reg A+

  • The report lacks a detailed analysis of the financial performance (ROI) of CVC initiatives in both Canada and the U.S. which one would think is what investors including CVCs would be interested in knowing. For many corporates, financial returns are the primary driver of investment decisions.
  • The report could have benefited from direct feedback from the 94% of Canadian publicly traded companies that do not have a VC subsidiary? Understanding their reasons for not engaging in CVC could provide valuable insights for encouraging broader participation. A direct survey of these companies could reveal barriers such as risk aversion, lack of expertise, or insufficient capital​​.

Richard Remillard, President of RCG Group and Board Director NCFA Canada says it well:

" This Deloittte paper prepared in conjunction with BDC points to some revealing information about the state of corporate venture capital(CVC) in both the US and Canada. Unsurprisingly, Canada trails significantly behind the US on this front. The paper notes that a mere 6% of publicly-traded Canadian corporations have CVC's versus 19% of those in the US. This gap has long been noted and decried by venture capital industry participants, including BDC. Where the paper is lacking is in identifying the source(s) of this weakness in the Canadian risk capital ecosystem. It could be a function of Canada simply not having a substantial number of publicly-traded firms compared to the US - and, many of the latter having received venture capital funding previously. Another factor might be the greater corporate concentration in Canada than in the US that is visible in many industries from banking to telecom, airlines, retail grocery and rail transportation. Or, it could be the business culture in Canada, long considered more risk averse than it is south of the 49th parallel. As well, and importantly, it could simply be the result of the relative lack of transparency about the return on investment(ROI) of the CVC segment of the venture capital asset class to say nothing of the relative illiquidity of venture investments. ROI is missing in action in the Deloitte paper which does spend some time and effort in discussing the overall benefits of investing in tech in Canada - a curious omission. Finally, the paper would have been strengthened if some of the 94% of corporations in Canada had been canvassed about their decision(s) to avoid the CVC route or to get out of the asset class, as some have done in years gone by, in light of the internal management challenges pertaining to remuneration of CVC managers relative to managers in the parent firm."

Outlook

Corporate Venture Capital holds promise for Canada. This requires addressing the barriers to entry, providing clear financial performance metrics, and fostering a culture that values long-term strategic investments. By doing so, Canada can unlock the potential of its startups, drive economic growth, and become more competitive on the global stage.

Download the 32 page PDF report --> here


NCFA Jan 2018 resize - Corporate Venture Capital in Canada: Insights and ChallengesThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Valour Inc. Launches First Yield-Bearing Bitcoin ETP

DeFi | May 15, 2024

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Innovative Yield-Bearing Bitcoin Exchange Traded Products (ETPs) by Valour Inc.

Valour Inc., a subsidiary of DeFi Technologies, is partnering with the Core Foundation to launch the world's first yield-bearing Bitcoin (BTC) Exchange Traded Products (ETPs). This innovative financial product aims to provide investors with returns directly from blockchain operations, specifically through Core Chain's block rewards, without the need to move Bitcoin off its network.

  • Unlike traditional passive Bitcoin instruments, this ETP provides active yield, deriving income from blockchain operations without transferring the underlying Bitcoin off the network.
  • The collaboration utilizes the Core Chain, a Bitcoin-powered, EVM-compatible blockchain that integrates Bitcoin miners and stakers into its security protocol. This strategy enhances the utility of Bitcoin and introduces new investment mechanisms within the blockchain ecosystem.

See:  Coingecko 2024 Report: Investing in Tokenized RWAs

  • As part of the initiative, Valour Inc. will manage a validator node on the Core Blockchain. This involvement boosts the blockchain's security and efficiency and also positions Valour to capitalize on validator commissions, strengthening its role in the decentralized finance (DeFi) sector. The strategic commitment is further underscored by Valour's plan to stake $100 million in Bitcoin with the Core Chain. This significant investment demonstrates confidence in the platform's stability and the long-term viability of yield-bearing Bitcoin assets.

Who is Involved

The key players involved in this initiative include:

  • DeFi Technologies: The parent company of Valour Inc., which specializes in bridging the gap between traditional capital markets and decentralized finance.
  • Valour Inc.: The subsidiary of DeFi Technologies that developed the ETP.
  • Core Foundation: Collaborates with Valour to leverage the Core Chain technology for the ETP.

Why It's Important

This development is significant because it represents a novel integration of traditional financial mechanisms (like yield from investments) with the emerging technologies of blockchain and cryptocurrencies. By offering a yield-bearing ETP, Valour Inc. not only enhances the utility of Bitcoin as more than just a speculative asset but also promotes its use in more diverse financial portfolios. 

See:  Canada’s Proposed Mutual Fund Crypto Regulations 2024

As these ETPs blend the boundaries between decentralized finance and conventional financial systems, they might influence future regulatory frameworks and market structures.


NCFA Jan 2018 resize - Valour Inc. Launches First Yield-Bearing Bitcoin ETPThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Canada’s Proposed Mutual Fund Crypto Regulations 2024

Crypto Regulations | May 14, 2024

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Strategic Update on CSAs Proposed Crypto Regulations for Mutual Funds

On January 18, 2024, the Canadian Securities Administrators (CSA) published proposed amendments aimed at enhancing investor protection by refining the frameworks under which mutual funds can engage with cryptocurrencies, specifically "Notice and Request for Comment – Proposed Amendments to National Instrument 81-102 Investment Funds Pertaining to Crypto Assets".

Main Changes and Impact

  1. The proposed regulations would only allow mutual funds classified as 'Alternative Mutual Funds' to invest in cryptocurrencies exclusively. This classification aims to limit exposure to the volatile crypto market to more sophisticated investment vehicles that are better equipped to manage higher risks.
  2. A significant aspect of the new rules is the requirement for all crypto investments by mutual funds to be made in assets traded on recognized, regulated exchangesSo, at this point that would only include Bitcoin (BTC) and Ethereum (ETH) as qualifying crypto assets that would be available for trading. This measure seeks to reduce the risks associated with unregulated markets and enhance the overall stability of the financial ecosystem.

See:  Resurgence of Cryptoassets in Canada’s Investment Landscape

By mandating investments in regulated venues, the regulations aim to shield investors from the unpredictable nature of many crypto assets.  The move is expected to foster a more stable and reliable market environment.  While the regulations are primarily protective, they also pose questions about potential limitations on innovation and the growth of Canada's crypto market.

Perspectives and Reactions

While regulators view these changes as a necessary step to ensure the safety and integrity of the financial market, there's a balance to be struck between protective oversight and stifling regulation.  The Investment Executive published a piece citing 'industry pushback on proposed crypto holdings - only for alt funds?'

1. Investor Advocates (Ontario Securities Commission's Investor Advisory Panel)

"[Investments in non-exchange traded crypto assets present too much risk...]"

See:  Canada to Enforce Cryptoasset Reporting by 2027

Advocates emphasize the need for strict regulations to protect retail investors from the inherent risks of non-exchange traded and non-fungible crypto assets. They support the CSA's proposals as a way to safeguard investor interests against speculative and volatile investments.

2. Alternative Investment Management Association (AIMA)

"[These stringent provisions may stifle market and product development...]"

AIMA argues that restricting crypto investments to assets traded on regulated exchanges might limit market opportunities to major cryptocurrencies like Bitcoin and Ether, thereby hindering broader market and product development.

3. Investment Industry Association of Canada (IIAC)

"[Investors may be better protected if they are able to gain exposure to cryptoassets through a regulated investment product...]"

See:  CRA Pursues $54 million in Unpaid Crypto Taxes

IIAC suggests that regulated investment products offer better protection for investors than direct purchases of cryptoassets, advocating for more flexible regulations that can include a broader array of crypto products.

4. 3iQ Corp (Toronto-based fund manager)

"The outright prohibition of lending activities is a brute force approach that removes the ability for asset managers to innovate in Canada...[Leaning in to providing regulated products will actually better protect consumers...]"

3iQ emphasizes the importance of regulated products in protecting investors, especially in light of the recent high-profile failures in the crypto market. They advocate for regulations that do not stifle innovation but instead support the development of safe investment options.

5. The Canadian Blockchain Consortium

"The Canadian cryptoasset industry requires separate statutory oversight (and potentially an independent regulator) instead of integrating trading platform requirements into existing securities legislation...”

See:  BRICS Announces Launch of Blockchain Payment System

This segment criticizes the proposed regulations for being overly restrictive, potentially stifling innovation and limiting growth in the Canadian crypto market. There is a significant concern that these constraints could push investors towards less-regulated markets.

Outlook

As these rules transition from proposal to enforcement, they will reshape how crypto investments are perceived and handled in Canada.  At the National Crowdfunding & Fintech Association (NCFA Canada), we believe that an appropriate balance between innovation and regulation must exist for healthy and sustainable markets while maintaining Canada's competitiveness in the global fintech industry.  We advocate for regulations that support the development of safe investment options and globally competitive products without stifling innovation.


NCFA Jan 2018 resize - Canada's Proposed Mutual Fund Crypto Regulations 2024The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Implications of Wisconsin’s $100M Investment in BlackRock Bitcoin ETF

Institutionalization of Crypto | May 14, 2024

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State of Wisconsin invests almost $100 million into BlackRock's spot Bitcoin ETF in Q1

An SEC Form 13F filing on Tuesday confirmed that the U.S. State of Wisconsin purchased shares in BlackRock's Bitcoin ETF worth almost $100 million.  Further, the institutional investment board also disclosed the purchase of $63.7 million worth of shares of Grayscale's Bitcoin Trust (GBTC) so a total of almost $165 million has been invested to date.

See:  Resurgence of Cryptoassets in Canada’s Investment Landscape

The institutional appetite for investing in spot Bitcoin ETFs and cryptocurrencies generally has been growing, reflecting a significant shift in the perception of cryptocurrencies as a viable asset class. This shift is largely driven by the potential for cryptocurrencies to offer diversification, high returns, and inflation hedging capabilities.

What Are the Implications?

When a state decides to invest in Bitcoin, it can have several implications, both financially, politically, and legally. Here are some key considerations

Financial, P0litical and Social

  • States might invest in Bitcoin as a diversification strategy to hedge against economic instability and currency devaluation. Bitcoin, with its limited supply, is sometimes viewed as digital gold that could potentially hold value better than traditional fiat currencies during economic downturns.
  • Bitcoin has shown the potential for high returns compared to traditional investments. States investing in Bitcoin could potentially reap significant profits if the market performs well.
  • Bitcoin is known for its price volatility. This can pose a substantial risk to public funds, especially if large amounts are invested or if the timing of the investment aligns with a market downturn.

See:  2024 Budget: Crypto ETFs & Registered Accounts Consultation

  • Investing in something as volatile as Bitcoin can be controversial. Public perception and opinion might vary widely, with some viewing it as a progressive step towards modernizing state assets, while others might see it as gambling with public funds.
  • Investing state funds into any speculative asset, including Bitcoin, does indeed pose a risk to taxpayer money. Losses could potentially impact state revenues and, by extension, public services and infrastructure projects.

Legal and Compliance

  • The lack of a comprehensive legal framework around cryptocurrencies adds another layer of risk. Changes in regulation could adversely affect the value of the investment, or worse, restrict the ability to liquidate the position favorably.
  • A state investment in Bitcoin could influence or accelerate regulatory frameworks for cryptocurrencies. It might push for clearer laws and regulations due to the state’s vested interest in the stability and legality of such investments.

See:  Challenges in Global Crypto Regulations – Lessons from Dubai

  • State investments require high levels of transparency and accountability. The management of a cryptocurrency investment might necessitate new approaches to public financial management, including how gains or losses are reported.

Conclusion

The move to invest in BlackRock's Bitcoin spot ETF is likely a calculated risk to potentially increase state revenues but also introduce the risks associated with Bitcoin’s price volatility and push for regulatory clarity.  Ultimately, it's a tight rope act that requires careful consideration of the balance between potential gains and the responsibility of managing public funds prudently.


NCFA Jan 2018 resize - Implications of Wisconsin's $100M Investment in BlackRock Bitcoin ETFThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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