Looking back on a week when the SEC brought an abrupt halt to Telegram’s planned TON launch, several prominent members of the Libra Association pulled out due to regulatory pressures, Alipay quickly corrected an official announcement suggesting Chinese users could onboard to Binance using the app.
Coinbase was granted an e-money license in Ireland to further its European ambitions and doubts emerged over whether the founding members of proposed Libra fork OpenLibra actually had any involvement in the project. Oh, and the Bitwise ETF got rejected.
SEC Step in to Stop TON
October was meant to be the month that messaging app Telegram finally launched its long-awaited TON blockchain, following a much-publicized $1.7 billion private raise for its native GRAM tokens. The project is regarded as a big step forward for crypto adoption due to both the app’s existing user base and the innovation of the TON protocol.
Telegram Messenger, created by the enigmatic Durov brothers, has a global user base of more than 350 million. The token would be fully integrated into the app, supported by a dynamic sharding structure to provide the required scalability. The SEC stepped in at the 11th hour amid concerns over investor protection, preventing GRAM tokens from being issued to US investors.
Libra Loses Founding Members
In June, when Facebook released the whitepaper for its Libra project, a major source of credibility for the proposal was the group of blue-chip companies that would be actively participating in consensus. It’s been somewhat of a blow therefore that four of the group initially announced have officially distanced themselves from the project, joining two others that had previously backed out. Visa, Mastercard, eBay and Stripe were concerned around the level of regulatory scrutiny they would face as a result of their involvements. Other businesses, including Uber, Lyft and Anchorage have reinforced their interest in running nodes on the network should it launch.
Coinbase Granted E-Money License
Europe can be a difficult market for crypto-related companies. Operating across multiple jurisdictions with varying degrees of support and antipathy towards cryptocurrencies brings a level of uncertainty that’s prohibitive to offering a consistent service across the region. Coinbase has made big strides however after being granted an e-money license by the Bank of Ireland. The company announced Dublin as its regional HQ earlier this year and can now use the license to standardize and enhance the services it offers to European customers.
Libra and Telegram Run Into Troubles…is This ‘Good for Bitcoin’?
In technology circles, being first to market isn’t always desirable. History is littered with companies that have pioneered a new market, only to run into a litany of issues around infrastructure, regulation, public awareness and other factors that impede them from establishing market dominance. It’s then typically the likes of Apple, YouTube and Facebook that come along just as the market’s ripe.
This week, two of the most eagerly anticipated projects in the crypto space, Libra and Telegram, are finding the old rules don’t quite apply to crypto. The two projects are largely seen as means through which hundreds of millions – maybe even billions – of new users can be onboarded to digital currencies through the apps they use every day. However, each are finding that their pre-existing success a hindrance for gaining a foothold in the space rather than an enabler.
Regulatory unease over what crypto means for everything from consumer protection through to government sovereignty is bringing a level of scrutiny that exceeds what each were prepared for. Libra has now had six of its founding members – interestingly four from the payments space – pull out after reports that involvement would bring increased government surveillance into other areas of their operations. Telegram, on the other hand, brought an abrupt halt to operations following a hard shoulder from the SEC on issuing GRAM tokens to US investors who’d participated in the private sale via SAFT. Telegram had planned to go live with its mainnet later this month.
The question this raises is whether we can expect an ossification of the crypto landscape to those early in the industry. We know that the SEC does not consider either Bitcoin or Ethereum to be securities. Bitcoin is classed as a commodity, in part because of the asset’s ‘immaculate conception’. Evidence suggests Ethereum is viewed the same way by regulators, as the CFTC affirmed last week, despite Ethereum raising via an ICO in 2014.
Even EOS, a more recent addition to the space, received the thumbs up to continue operation from the regulator. While EOS’s ICO token (released on Ethereum) was deemed a security – thus incurring a $24 million fine – there was no indication given that the native EOS token would be required to cease trading.
While other base layer protocols are yet to receive judgement from the regulator, the precedent set so far seems to generally bode well. This is reinforced with a move towards greater self-policing in the industry. Just a couple of weeks’ ago, some of the most influential businesses in the space, including Coinbase, Kraken and Circle, joined forces to create the Crypto Rating Council.
The body aims to provide independent ratings for projects to deem whether or not they could be considered securities. Based on its initial set of ratings, early projects such as Bitcoin, Litecoin and Monero are considered ‘safe’ in this respect. Holders of Ripple, Maker and Polymath on the other hand may not rest so easy.
While sanctions and fines may come, what all the existing projects have at their advantage is that they are already in the market and are being actively traded. The regulator’s key aim is to protect consumers and recognizes that trying to shut projects down is not only practically difficult, but itself risks harming retail investors who have bought the tokens from exchanges.
What’s easier for the regulator is to stop projects before they even go live. For Libra and Telegram, this is a huge – and potentially unmovable – obstacle in their way towards becoming leaders in a new and exciting industry.
Tweets of the Week
The Block’s Larry Cermak points out that despite the launch of the Crypto Rating Council, Coinbase still has trouble identifying securities:
Coinbase announced a couple of days ago that it's adding Grams to their custody offering. Today, the SEC announced Grams are securities. How could the Crypto Rating Council not prevent this? Shocker!! https://t.co/FTTTbSMO7Z— Larry Cermak (@lawmaster) October 11, 2019
Travis Kling sums up the macro-economic tailwinds that could help drive Bitcoin’s success:
Equities are at/near all-time highs.— Travis Kling (@Travis_Kling) October 9, 2019
Bonds all-time highs.
Real estate all-time highs.
Venture Cap/PE all-time highs.
Precious metals multi-year highs.
...All made possible by QE.
A compelling argument can be made that BTC is the most undervalued asset in the world today.
Gnosis’ Martin Koppelmann stokes the Bitcoin-Ethereum rivalry in calling out those who criticize what Ethereum has achieved to date:
If you think Ethereum is not a “world computer” then let me brake it to you: Bitcoin is also not a “peer-to-peer electronic cash” system as stated in the whitepaper.— Martin Köppelmann (@koeppelmann) October 9, 2019
The Week’s Best Content:
Recommendation 1 – Protocols As Minimally Extractive Coordinators
Placeholder VC’s Chris Burniske emphasizes the ways in which projects building crypto projects are distinct from conventional understandings of ‘businesses’.
Recommendation 2 – The Invisible Protocol Thesis
Outlier Ventures’ Jamie Burke argues that in the quest for decentralization, projects shouldn’t lose sight of what’s really needed to gain mass adoption.
Recommendation 3 – The Investment Case for Bitcoin
VanEck provides insight into what makes Bitcoin an attractive addition to an investment portfolio.
Wednesday 16 October, 6pm
One of the earlier London Bitcoin meetups, Coinscrum’s monthly social is back to connect crypto enthusiasts from various walks of life.