Singapore is the crypto sandbox that Asia needs

Singapore Blockchain Week happened this past week. While there have been a few announcements from companies, some of the most interesting updates have come from regulators, and specifically, the Monetary Authority of Singapore (MAS). The financial regulator openly discussed its views on cryptocurrency and plans to develop blockchain technology locally.

For those who are unfamiliar, Singapore historically has been a financial hub in Southeast Asia, but now has also gradually become the crypto hub of Asia. Compared to the rest of Asia and the rest of the world, the regulators in Singapore are well-informed and more transparent about their views on blockchain and cryptocurrency. While regulatory uncertainties still loom over Korea and Japan, in Southeast Asia, the MAS has already released its opinion “A Guide to Digital Token Offering” that illustrates the application of securities laws to digital token offerings and issuances. Singaporean regulators have arguably been pioneering economic and regulatory standards in Asia since the early days of the country’s founding by Lee Kuan Yew in 1965.

Singapore is the first stop for foreign companies in crypto

In the past, I’ve said that Thailand is one of the most interesting countries in crypto in Southeast Asia. Nonetheless, for any Western or foreign company looking to establish a footing in Asia, or even for any local company in any Asian country looking to establish a presence outside of their own country, Singapore should be the first stop. It has become the go-to crypto sandbox of Asia.

There are a number of companies all over Asia, as well as in the West, that have already made moves into the country. And the types of cryptocurrency projects and exchanges that go to Singapore vary widely.

A few months ago, a Korean team called MVL introduced Tada, or the equivalent of “Uber” on the blockchain, in Singapore. Tada is an on-demand car sharing service that utilizes MVL’s technology. The Tada app is built on MVL’s blockchain ecosystem, which is specifically designed to serve the automotive industry, adjacent service industries, and their customers. In this case, MVL was looking to test out its blockchain projects in a progressive, friendly jurisdiction outside of Korea, but still close enough to its headquarters. Singapore fulfilled most of these requirements.

Relatedly, Didi, China’s ride-sharing company, has also looked to build out its own blockchain-based ride-sharing program, called VVgo. VVgo’s launch is pending, and its home is intended to be in Toronto, Singapore, Hong Kong or San Francisco. Given Singapore’s geographic proximity and the transparency of its regulators, it would likely be a good testing ground for Didi as well.

This week, exchanges such as Binance and Upbit from Korea have also announced their plans to enter the Singaporean market. A few days ago, Changpeng ZhaoCEO of Binance, the world’s largest cryptocurrency exchange, announced the launch of a fiat currency exchange that will be based in Singapore. He also mentioned his company’s plan to launch five to ten fiat-to-crypto exchanges in the next year, with ideally two per continent. Dunamu, the parent company of South Korea’s largest crypto exchange Upbit, also just announced the launch of Upbit Singapore, which will be fully operational by October.

The team at Dunamu mentions how they are encouraged by MAS’s attitude towards cryptocurrency regulation and the vision of the country’s government to establish a strong crypto and blockchain sector. They also believe Singapore could be a bridge between Korea and the global cryptocurrency exchange market.

From a high level, the supply of crypto projects and trading volume in Singapore is certainly strong, and the demand also appears abundant. Following China’s ICO ban in late 2017, Singapore has become home to many financial institutions that can serve as potential investors for ICOs.

As recently featured on the China Money Network, Li Dongmei wrote that:

What is supporting such optimism is the quiet preparation of capital on a massive scale getting ready to act the “All In Crypto” mantra. “In recent months, there have been over a thousand foundations being established in Singapore by Chinese nationals,” said Chen Xianhui, an agent specialized in helping Chinese clients to register foundations in Singapore. Most of these newly established foundations are used setting up various token investments funds.

Singapore has become the first choice when crypto companies from both the West and the East are initially scoping out their market strategies in Asia, and companies want an overarching idea of what’s going on in the cryptocurrency world in the region.

In fact, it’s often the case that Southeast Asian crypto companies and leaders gather in Singapore before they go off and do crypto businesses in their own countries. It’s the place for one wants to tap all of the Asian crypto markets in one single physical location. The proof is in the data: in 2017, Singapore ascended to the number three market for ICO issuance based on the number of funds raised, trailing the United States and Switzerland.

Crypto is thriving due to regulator openness

The Monetary Authority of Singapore (MAS) takes a very practical approach to crypto. Currently, MAS divides digital tokens into utility tokens, payments tokens, and securities. In Asia, only Singapore and Thailand currently have such detailed classifications.

While speaking at Consensus Singapore this week, Damien Pang, Singapore’s Technology Infrastructure Office under the FinTech & Innovation Group (FTIG), said that “[MAS does] not regulate technology itself but purpose,” when in conversation discussing ICOs in Singapore. “The MAS takes a close look at the characteristics of the tokens, in the past, at the present, and in the future, instead of just the technology built on”.

Additionally, Pang mentioned that MAS does not intend to regulate utility tokens. Nevertheless, they are looking to regulate payment tokens that have a store of value and payment properties by passing a service bill by the end of the year. They are also paying attention to any utility or payment tokens with security features (i.e. a promise of future earnings, which will be regulated as such).

On the technology front, since 2017, Singapore authorities have been looking to use distributed ledger technology to boost the efficiency of settling cross-bank financial transactions. They believe that blockchain technology offers the potential to make trade finance safer and more efficient.

When compared to other Asia crypto hubs like Hong Kong, Seoul, or Shanghai, Singapore can expose one to the Southeast Asia market significantly more. I believe market activity will likely continue to thrive in the region as the country continues to act as the springboard for cryptocurrency companies and investors, and until countries like Korea and Japan establish a clear regulatory stance.

The 21-day bitcoin challenge

There is a documentary series currently airing on iQiyi, China’s Netflix equivalent, about a Chinese bitcoin enthusiast who attempts to survive 21 days by merely living on 0.21 bitcoin, or $1,300, without any help or donations.

He You Bing is traveling and carrying nothing with her, and she has to retrieve food, housing, and basic necessities all through bitcoin transactions done on her phone. Interestingly, she is also doing this challenge in some of China’s largest cities including Beijing and Shenzhen.

Her name is something of a nom de guerre – a nickname, with “You Bing” directly translating to “having a disease,” and the whole name alludes to the girl’s over-enthusiasm for bitcoin.

It’s a fascinating time for making this attempt. In the last few weeks, there have been numerous reports of China’s crypto bans – including Beijing and Shenzhen banning public cryptocurrency-related speeches, events, or activities, as reported by the Wall Street Journal. Also included in the purported ban were a number of WeChat media accounts that promoted cryptocurrencies, which have been permanently blocked. Furthermore, Beijing blocked access to the websites of over 120 offshore exchanges in the mainland and banned large crypto purchases through popular Chinese payments platforms Alipay and WeChat transactions.

Given the sheer number of these bans, readers who live outside of China may be led to think that there is a bleak outlook for the cryptocurrency environment on mainland China. But He You Bing’s Bitcoin challenge reveals a refreshing perspective on the crypto awareness of people living in these local cities as well as the power of WeChat. $1,300 may not sound like much for 21 days of travel in the U.S., but in China, where a cheap meal costs just $1, it can go a long way. The real question is, will people accept bitcoin?

Finding acceptance with bitcoin

Through daily video-log like documentaries, Bing is filmed running around asking different business vendors whether they accept bitcoin. The vendors, varying from small hole-in-the-wall eateries to employees from large chain stores like Uniqlo, express their reactions that are telling of their preconceived notions, or lack thereof, of bitcoin and cryptocurrency. Similar to the U.S., people’s attitudes vary from ignorance and distrust to welcoming. It’s eye-opening to see how different Chinese people think about bitcoin.

On the first day of her challenge, Bing arrives in Beijing, where she wants to go to an amusement park. The entrance fee is 2 Chinese Yuan, or around 30 cents in USD, but the park didn’t accept bitcoin. Bing also asked several fast food restaurants whether they accepted bitcoin so she could buy food, but neither of them did.

As she approaches these vendors, rather than paying in bitcoin, she often has to explain what a bitcoin is in the first place, and finds very little success along the way. One feat on her first day is that she was able to find an unlocked Ofo bike, a dockless bike that can be unlocked and paid for with one’s cellphone. With it, she biked around in an attempt to reach out to more vendors. By the end of the first day, Bing didn’t succeed in finding a food place that accepted bitcoin, and she subsisted on four packets of ketchup and food samples from a supermarket. She slept in a 24-hour McDonald’s on her first night.

The second day, Bing foraged for food. She grabbed fruits from wild trees. Her food intake for the second day consisted of some fruits on a tree and someone else’s leftover burger at a McDonald’s. She ended up getting a stomach ache and threw up, sleeping in another 24-hour McDonald’s. 

Bing was becoming hopeless by the third day. She was on the the verge of fainting and the filmmakers sent her to a hospital. At this point, the challenge had gathered some attention, and supporters were able to contact the filmmakers. They then brought Bing food and she paid for it by bitcoin. On the third night, she slept in an art gallery.

It’s not the currency, it’s the community

Bing’s story soon spread and people started finding her through WeChat where they would offer to exchange bitcoin to fiat. At that point, the challenge would have become too easy, so the filmmakers changed the rules so that Bing had to transact offline and exchange Bitcoin with people in real life.

On the sixth day, Beijing was having the Forum on China-Africa Cooperation Summit, so the filmmakers moved to Shenzhen to continue the challenge. The audience started getting suspicious of the filmmakers, asking whether they were related to scam projects. The filmmakers said that they were approached by crypto projects but that they declined them. By then, six support groups in WeChat had been created to support Bing, with every WeChat group having 500 people (500 is the max number of people one can have in a WeChat group). These chatroom participants included bitcoin believers, real estate agents, and advertising salesmen.

Despite the current ban on crypto activities, the documentary shows that bitcoin is alive and well in China within digital communities, albeit not prevalent in the physical world. Most of Bing’s days are documented on iQiyi. And her encounters are telling of what is actually happening in China when it comes to cryptocurrency and mobile technology adoption. Notably, Bing was able to get through living in China simply through her phone. The power of WeChat brought her supporters directly to her.

By day seven, Bing got in contact with some of her WeChat supporters and was able to purchase face wash from them. The next day, she found a restaurant that accepted bitcoin. She got someone to buy her clothes at Uniqlo by exchanging bitcoin with them and then also found someone who was willing to book a hotel for her by exchanging bitcoin.

Gradually, Bing’s bitcoin challenge started a small movement, where her supporters would also approach shops to ask whether they accepted bitcoin and relay the information to her.

On a daily basis, the filming team recorded how many business and pedestrians Bing reached out to and the number of successful bitcoin transactions she made. From the initial ten days to now, Bing has gradually gained confidence. She now has a strategy on how to find people to exchange her bitcoins and what to exchange them for. Over time, the number of inquiries Bing did increased from ten to twenty a day to over a hundred per day. The number of successful transactions was still only a handful a day, however.

Bing’s story continues, and she is now at day 19. She and the filmmakers have migrated to the southern city of Guangzhou. As she assimilates into this new lifestyle, Bing found people to exchange Bitcoin to fiat with her to purchase her train tickets, her hotel rooms, and her meals. Nonetheless, more often than ever, the pedestrians and small business vendors she approached were ignorant, skeptical, and did not want to be part of the filming.

Finding utility in bitcoin

Recently, China Daily covered Bing’s challenge. The documentary has gotten some media attention in China, and companies and institutions have asked to donate and sponsor the filmmakers. They have claimed that they have turned them all down.

In the last year, the narrative around bitcoin has gradually centered on becoming a “store of value” in the U.S. given the increasing transaction costs on the blockchain. Bitcoin transaction prices have increased from 30 cents at the beginning of 2017 to $40 at end of 2017 during the peak of bitcoin prices. As a result of such large fluctuations in fees, transactions no longer happened as frequently as before. Bitcoin’s transaction cost is now back down to about 60 cents this year.

However, as the market has come down in the last few months, bitcoin has once again become a “safe haven” for individuals to go to, and as a result, bitcoin now makes up more than 56% of the total cryptocurrency market cap, up from 34% at the beginning of January 2018.

Bing still gets people suspecting that she is trying to scam them. Since the rise of crypto prices and bitcoin reaching almost as high as $20,000 at the end of 2017, there have been numerous scam coins coming out everywhere. In China, there are often obscure and random coins that appear with no real value-add, no relationship to any blockchain, and are devised purely to fool non-savvy citizens who think they can make a quick buck. In fact, one of the purposes of Beijing’s ban on commercial venues hosting cryptocurrency events was aimed at purging coins from scamming the public.

Bing will continue and finish her bitcoin challenge, but the greater challenge is on all of us in the blockchain community to continually improve this technology for broader consumption.

ICOs are increasingly just for venture capitalists

The rollercoaster-get-rich ICOs of 2017 are over — crypto companies are waking up to the idea that VC investors aren’t so bad after all.

Companies used initial coin offerings (ICOs) to raise some $5.5 billion in cryptocurrency-based funding last year. As an emerging investment system with no regulation, nearly anyone was allowed in. The knock-on effect was that many who rode the wave made huge profits, often into the millions of U.S. dollars, as a 10X return seemed to become the minimum standard among those getting crypto-rich.

The trend went into overdrive in 2018, when the price of Bitcoin hit a peak of nearly $20,000 and Ethereum notched $1,200. ICO funding hit $6.3 billion in only the first three months of the year, as noted by Coindesk, but, fast forward six months and a new trend has emerged. Public ICOs, which allow anyone to invest, are increasingly replaced by a new approach of limited, private sales that consist only of accredited investors and close connections. Many ICOs today include no public sale component, with retail investors forced to wait until a token is listed on an exchange.

Private sale only

Telegram’s huge $1.7 billion ICO best exemplifies the change.

ICOs in 2017 began to include a private pre-sale before the ‘open’ public sale stage, the idea being to attract big bucks and in some cases give incentives like discounts. But Telegram opted to keep its entire sale public. It also stuck to accepting money from accredited investors in the U.S. — those who are legally certified to make investments — rather than opening its doors to anyone wanting to own a piece of its token sale.

That’s a trend that has been repeated in other ICOs, including the recent $32 million “seed” round for Terra and its stable coin project. Terra co-founder Daniel Shin explained to TechCrunch that it will hold a second round of private sale investment, but that’ll be reserved for investment professionals and others in the network.

Legally, of course, this makes absolute sense.

The SEC is steadily increasing its crackdown on ICOs, and it has long been standard for companies planning ICOs to overlook citizens of the U.S, China and often other countries where the legalities are unclear from taking part in the sales. But, actually, the rationale of private sales goes beyond legalities.

Professional investor benefits

The crypto industry has woken up to the reality that getting your capital from a handful of professional investors can be more advantageous than a bunch of regular people.

For one thing, dealing with a dozen investors is far easier than a Telegram group that numbers tens of thousands. Professional investors are more accustomed to giving a company money and letting it use it independently, but retail investors in the crypto space tend to be more demanding and unrealistic as they seek a quick return on their money. While liquidity is a major appeal for all in an ICO, VCs tend to hold a longer-term approach than retail investors who look to flip and move to the next money-making opportunity. Or, in times of downturn such as right now, investors have deeper pockets to ride out recessions.

There’s a popular refrain that ICOs mean not having to deal with “Evil Venture Capitalists”, but a community of retail investors is demanding in its own way. Plenty of ICO projects waste time and precious resources putting out mundane press releases that are devoid of news just to produce something that they hope will placate their thirsty community of retail investors, and miraculously give their token a price jump. For example, inking a “strategic partnership” with the American Chamber of Commerce Korea isn’t news — getting actual sales is.

This kind of distraction and allocation of resources makes no sense when you are setting out building a company or a product, which ultimately the founders of these projects are doing. As any experienced founder or investor will say, retaining focus is key in those early times.

Added to that, professional investors can actually help with the building by leveraging their network. Whether that is assisting on hiring in the competitive blockchain industry, introducing potential customers — American Chamber of Commerce Korea eat your heart out — bringing on other investors, etc.

That’s why in the aforementioned case, Terra opted to bring four crypto exchanges into its private sale — no doubt their influence will be key in building what remains a hugely ambitious project. Other companies that raised large ICOs, including TenX and MCO, have publicly expressed interest in holding new investment rounds to bring in professional VCs. That’s because money alone won’t open doors, but often connections can.

To recap: professional VCs can be more trusting, less of a distraction and more useful, but there are some instances in which a more open public approach should be a part of an ICO. That’s when it comes to building a community.

The exception: Community

The term “community” has been thoroughly bastardized by ICOs, but there are some projects that — at least on paper — can benefit by allowing specific types of people, people that will use the product, to get involved early.

Huobi, the exchange, developed a token for its users earlier this year, while chat app Line is also minting a token that it hopes will be used as part of its messaging platform. In both cases, neither company held an ICO, but they did use a crypto token to build a community.

Civil, the startup hoping to ‘fix’ media using the blockchain, is holding an ICO that’s open to members of the public. That’s also a community play, as the CVL token will be required to create newsrooms on its platform, and also to interact with them, such as challenging stories written by reporters.

Other technical projects out there are doing the same — focusing squarely on the community they are building for and adopting lower target figures for their ICO fundraising.

The technology space is so vast that there are exceptions, but it is certainly notable that there are relatively few credible projects planning ICOs that include retail investor participation. A report co-authored by PwC shows that the general pace of ICO investing settled in Q2 2018. If you ignore outliers such as Huobi, Telegram and EOS — the $6 billion project that fundraised for a year — then activity has certainly settled down after an explosive 12-months of growth.

Increased stability is likely to mean that the trend of private sales continues. Traditional VCs are launching dedicated crypto funds and those in the crypto space are formalizing investment vehicles of their own, all while the SEC and other regulators across the world intensify their gaze on ICOs. VC capital is likely to play a more pronounced role in funding ICOs than ever before.

That’s not to say that the retail investment phase is over. Speaking at TechCrunch Disrupt last week, Coinbase CEO Brian Armstrong sketched out his vision of the future in which all company cap tables are “tokenized.”

He foresees retail investors across the world being free to invest in security tokens that operate as a more accessible offshoot to traditional investment systems like the New York Stock Exchange, the NASDAQ etc. Whether that extends to participation in ICOs themselves remains to be seen.

Coinbase CEO Brian Armstrong believes retail investors have a big future in the crypto market

Disclosure: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Tokens can better incentivize startup employees than equity

Token structuring and tokeneconomics are among of the most important considerations when designing a blockchain. When thinking about how best to distribute these tokens, founders often think about how the tokens will impact external stakeholders such as their investors, the community, and stakers (people that can mine or validate block transactions according to how many coins he or she holds). But token economies are also bringing disruption to organizations internally, especially when it comes to HR and compensation.

If the tokens are structured properly for a blockchain, external stakeholders will be directly aligned with the goal of the project. Those incentives can encourage participation on the blockchain platform and/or drive token demand with community-building and marketing. Similarly, if internal stakeholder incentives are structured correctly, the project could accrue long-term value by motivating employees to work towards the same goal, while reducing adversarial behavior and also bad actors.

For any blockchain company to succeed long-term and scale, it’s inevitable that they need to structure their tokens to retain and reward the best employees sustainably. This is as important it not more important than incentivizing external token holders.

How does an employee look at tokens vs equity? 

Currently, equity in the form of stock options is widely distributed as part of compensation packages amongst startups. When employees join a company, they are usually offered a combination of cash and stock options. The options become a way for the employees to meaningfully participate in a company’s upside should they succeed. Often, employees can negotiate between taking a higher cash comp or higher options amount, depending on their risk appetite.

There are many ways tokens and equity are similar. For one, both assets motivate individuals to align their goals with that of a company’s. If the company becomes more successful, the value of its tokens and equity should theoretically go up. Nonetheless, one of the downsides of stock options is that they usually require a liquidity event for an employee to convert them to paper money. Historically, that was when a company went public and the employee could convert their options into stocks and then sell them in the public markets.

However, in the last decade, with the increasing amount of private capital and subsequent larger private fundraising rounds, companies are taking way longer to IPO. Companies such as Dropbox took eleven years from founding to IPO, while Airbnb has been around ten years and still hasn’t gone public. As a result, private companies started doing option buybacks to provide liquidity for their employees. Simultaneously, this phenomenon has caused the secondary market to thrive in Silicon Valley.

Token liquidity changes the game

One of the largest differences between tokens and equity is that tokens are immediately liquid, assuming that they have already been listed on an exchange. To put simply, equity options only prove their value at the end, whereas tokens have certainty values from the beginning.

Now in cryptocurrency and blockchain companies, employees could get paid in tokens in lieu of equity or cash, primarily outside of the U.S. Many tokens have a liquidity advantage over equity. For example, it can be immediately sold upon reception, assuming that the token has been listed on an exchange and there is enough trading volume.

This is also one of the reasons why exchanges are so important for the cryptocurrency space because 1) it’s one of the easier ways to gauge the value of a company given that the industry has yet to figure out a proper valuation methodology, and 2) it provides immediate liquidity for employees who have been burned by the hopes a billion dollar company not coming to fruition and all the options going to zero.

For an employee looking for a job in a technology-based company, consider two companies that are exactly the same, with the same team quality and same targeted industry, but one company has a token incentive structure instead of an equity incentive structure, and the token is already traded on an exchange. Why would the employee ever want equity? With tokens, you’d still share the upside in the company’s success, but also have immediate liquidity.

Additionally, outside the U.S., often employees can also get paid in tokens or stable coins in lieu of cash to take advantage of tax benefits given the lack of regulatory sophistication. That may change very soon, however. Token structure, therefore, is a disruption to a company’s internal structure and we will share some examples below of how that’s already affecting a number of Chinese crypto companies.

Token incentives will disrupt traditional ways of compensating employees

These changes to employee compensation have already become popular in places like China, where a number of Chinese blockchain companies have started on the foundation of distributing tokens as compensation. Companies like Ontology, NEO, Huobi, and Binance pay their employees in their own tokens. Many of these teams operate worldwide but they are able to manage hundreds of people, often with just a handful of HR staff, through a shared incentive structure.

In the case of Neo, the original founding team, in fact, didn’t have anyone with a computer science background. When they were looking for developers, they would pay tokens to people to do development work for them. For Ontology, it was even more extreme. The founding team initially set up the Ontology Foundation. They didn’t want to hire people, so instead, they listed out a list of things that needed to be developed and paid tokens to all the developers who contributed.

Binance, similarly, paid their employees in tokens. They would then use their quarterly profits to burn tokens, which subsequently boosted the value of the remaining tokens. It is possible that partially due to these effective token incentives, Ontology has been the best performing token this year while Binance continues to hold the lead in the exchange space.

China has taken a lead here compared to the U.S. partially because of regulatory uncertainties, but there are examples in America as well of these changing compensation norms. In the early days of cryptocurrency when it was (even more) wild west, Consensys got started by compensating their employees in tokens until their first legal hire came along. That story is similar to Coinbase, where initially a number of first employees were given the choice of being paid in coins and/or cash.

Token compensation also seems to be particularly powerful incentives for Chinese blockchain companies, more so than their U.S. counterparts. Maomao Hu, Partner at Eigen Capital and CTO of Calculus Network, talks about the psyche of the young generation of Chinese developers: “Being Chinese, Chinese engineers, especially the young ones, have a hunger that you only see in some parts of Silicon Valley, and that’s like everyone. They are just doing 80 hours 100 hour weeks because they hate being poor and they hate not having an opportunity and they don’t have other ways to get an opportunity, and that’s like everyone.”

It may also be that because there have been fewer technology cycles in China, and the rise of the largest technology companies happened only in the last decade, equity compensation remains a relatively new concept to local citizens. With token compensation introduced, this is the first time for many Chinese people to be able to participate in a company’s upside so directly.

Despite their growing popularity, these incentive schemes are still early and experimental, and there are unforeseen risks associated with token issuance as compensation. In particular, the appeal of short-term, quick gains from tokens is ever more attractive. If wrongly incentivized, people could end up spending time hyping up their tokens instead of building product, allowing employees to cash out quickly without producing.

As a result, serious founders of new token-based companies should be aware of such short-sightedness when designing employee token incentives. They can potentially introduce long-term token vesting schedules, and also hire people who care about driving long-term value. For CEOs, this is going to be an increasingly important role they will have to take in the token economy. I’m certain though that the next set of large unicorns will be coming from tech companies with great token incentives structures, in or outside of the U.S.

Coinbase plots to become the New York Stock Exchange of crypto securities

The future of Coinbase looks something like the New York Stock Exchange. That’s according a vision laid out by CEO Brian Amstrong who was interviewed on stage at TechCrunch Disrupt in San Francisco today.

Coinbase is known for being the most popular exchange for converting fiat currency into crypto — most of the largest traded exchanges are crypto-to-crypto — but he foresees a future in which it plays host to a growing number of cryptocurrencies as it becomes standard for companies to create their own token, which runs alongside equity as an alternative investment system.

“It makes sense that any company out there who has a cap table… should have their own token. Every open source project, every charity, potentially every fund or these new types of decentralized organizations [and] apps, they’re all going to have their own tokens,” Armstrong said.

“We want to be the bridge all over the world where people come and they take fiat currency and they can get it into these different cryptocurrencies,” he added.

That tokenized future could see Coinbase host hundreds of tokens within “years” and even potentially “millions” in the future, according to Armstrong. That’s a big jump on the five cryptocurrencies that it currently supports today, and it would make it way larger than financial institutions like the New York Stock Exchange, which is actually a Coinbase investor and is getting into Bitcoin, or the NASDAQ.

One of the critical pieces of making this vision a reality is, of course, regulation. This week at Disrupt, others in crypto space have argued that a lack of clarity around crypto regulation is costing the U.S. as innovation and startups are being developed in overseas markets. As the founder of a U.S.-based crypto startup that is valued at over $1 billion and is hiring hard, Armstrong doesn’t subscribe to that thesis but he did admit that there is “a big open question” over whether the majority of the new rush of tokens he foresees will be securities or not.

Still, Coinbase has made moves to add security tokens to its portfolio with the acquisition of a securities dealer earlier this year.

“We do feel a substantial subset of these tokens will be securities,” he said. “Our approach has always been to be the most trusted [exchange] and the easiest to use. So we want to be the legal compliant place where you can start to trade these tokens that are classified as securities.”

“Web 1.0 was about publishing information, web 2.0 was about interaction and web 3.0 is going to be about value transfer on the internet because now the web has this native currency and so applications can be built that instantly tap into this global economy on the internet,” Armstrong added.

How international can crypto become? The Coinbase CEO thinks that the total number of people in the crypto ecosystem can reach one billion within the next five years, up from around 40 million today.

You can watch the full video from Armstrong’s interview below.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Goldman CFO: the story about us dropping Bitcoin trading was ‘fake news’

It sometimes feels like the price of Bitcoin rises and falls on the turn of a speculative dime, and yesterday we saw one such moment come to pass, when it was reported that Goldman Sachs was planning to drop a plan to build a Bitcoin trading platform, causing the price of the cryptocurrency to crash. But today, at TechCrunch Disrupt, the CFO of Goldman Sachs described the story as “fake news,” and said that in fact the bank is still considering how to offer services that involved physical Bitcoin, but that it has not yet set a timeline for it.

“I was in New York yesterday and I was co-chairing our risk committee, and I saw the news article,” said CFO Marty Chavez, referring to the report yesterday. “It wasn’t like we announced anything or that anything had changed for us… I never thought I’d hear myself actually use this term, but I’d really have to describe that as fake news.”

As Chavez described it, Goldman Sachs had been building a Bitcoin trading platform modelled on a commodities futures trading platform, where there is never any Bitcoin traded, but more the promise of how the currency might move.

“Our institutional clients said, ‘We would love for you to clear these new Bitcoin-linked futures contracts offered by the exchanges,’ so we’ve been doing that, and then clients since May [started to ask], ‘We would like for you also to provide us liquidity and trade the principal as principal the futures contracts, not just clear them,’ and so we’ve been doing that, the next stage of the exploration, what we call ‘non-deliverable forwards.’

“These are derivatives, over the counter derivatives,” he continued. “They’re settled in U.S. dollars and the reference price is the Bitcoin U.S. dollar price established by a set of exchanges, the same one that’s referenced in the futures contracts, and we’re working on that now because the clients wanted physical Bitcoin — something tremendously interesting and tremendously challenging. From the perspective of custody, we don’t yet see an institutional grade custody cases custodian solution for Bitcoin.”

While companies like Coinbase are trying to tap into that demand by offering custodial services aimed squarely at institutional money, but Goldman itself still has no timeline for when its own offering might be ready.

“We’re interested in having that exist, and it’s a long road and so I would just be speculating. Maybe someone who was thinking about our activities here got very excited that we would be making markets as principal and physical Bitcoin, and as they got into realizing that that’s part of the evolution but it’s not here yet.”

Bitcoin — and the crypto market generally — suffered significant price losses this week off the back of reports of Goldman’s aborted plans, but that wasn’t the sole trigger. Reuters also reported that EU is looking into regulating crypto and is preparing a report that proposes to regulate exchanges and ICOs.

Bitcoin hit a record valuation of nearly $20,000 in January, and it has struggled to return to those highs during the rest of this year. The cryptocurrency was priced at $6,536 at the time of writing, some way short of a months-long high of $8,266 on July 26, according to information from Coinmarketcap.com.

Crypto market crashes after Goldman reportedly scraps trading plans

The crypto market is down significantly today, practically across the board of all coins, following a report that claims Goldman Sachs has backed down on plans to start a dedicated cryptocurrency trading desk.

Bitcoin is down over five percent in the last 24 hours, but ‘altcoins’ have been hit harder. Ethereum (down 14 percent), XRP (down 13 percent), EOS (down 16 percent) and Litecoin (down 11 percent) are seeing bigger drops, according to data from Coinmarketcap.com.

Business Insider reported this week that Goldman has backed down on its aspiration to enter crypto trading due to continued uncertainty around regulation. That’s according to sources, although it does appear that the bank is holding off making a full-on commitment to crypto.

“At this point, we have not reached a conclusion on the scope of our digital asset offering,” a Goldman spokesperson told Reuters in a statement.

Added to that, there may also be some concern around a Reuters reported that claims the EU is looking into regulating crypto. The organization is said to be preparing a report that proposes regulation of crypto exchanges and ICOs.

95 of the top 100 cryptocurrencies have dropped in valuation over the last 24 hours

Goldman has never gone public with its intention but reports first surfaced of its plans back in December 2017. That period was one of the peaks for crypto. During a bull run in December and January, the value of Bitcoin touched almost $20,000, that’s a record high and significantly higher than today’s price of just under $7,000.

So, in addition to regulatory concerns, the fact is that there is ongoing uncertainty around Bitcoin and the crypto more generally from an investment perspective. While it is worth noting that, counter to that, many in the industry believe price stability has many benefits because it allows a stronger focus on technology and product, it is clearly a problem for banks like Goldman which are ultimately focused on making money.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Chat app Line to raise $1.33BN via convertible bonds to double down on financial services

Move over stickers and games: Japanese messaging app firm Line has announced it’s raising around 148.1 billion yen ($1.33BN) through convertible bonds to fund aggressive expansion into the financial services business, Reuters reports. 

Line said it plans to spend most of the money on promoting its Line Pay service and for other new financial services by the end of 2021.

The messaging platform has been involved in payment offerings for some years, launching Line Pay at the end of 2014 — to let users make payments through the app at affiliated online and offline stores by registering their credit cards.

Line Pay also supports p2p payments between users of the platform, which has some 164M monthly active users in Japan, Taiwan, Thailand and Indonesia.

While popular in parts of Asia, the messaging platform has failed to grow usage beyond its core regions — unsurprisingly given how fiercely competitive the space is — with the likes of China’s WeChat and Facebook owned WhatsApp standing in its way. But while user growth has stalled, Line has managed to grow revenue from its existing user base. And doubling down on financial services looks to be its growth strategy going forward.

It has recently started experimenting with crypto — announcing the forthcoming launch of a cryptocurrency token (called Link) late last month, and developing its own blockchain to power it, in what looks to be a bid to drive user engagement on its platform. Though it has long used a digital currency (Line Coins) on its platform.

Earlier this year Line also announced the launch of a Singapore-based crypto exchange, called BitBox.

It’s not doing an Initial Coin Offering (ICO) for the Link token launch, presumably to side-step the legal questions around token sales. So the convertible bond sale looks to be its alternative (traditional) route for raise funds for the push to grow its financial services business.

In a statement today Line said it would issue zero coupon convertible bonds maturing in 2023 and 2025.

Reuters reports that a portion of the bonds will be issued to its South Korea-based parent Naver Corp to maintain its ownership above a certain level.

It added that Naver’s stake would fall to 70.42 percent from the current 72.86 percent when all the bonds are converted into stock.