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Malta Financial Regulator Looks to Bolster Cryptocurrency Industry

Malta Financial Regulator Looks to Bolster Cryptocurrency Industry

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October 06, 2018 11:39

Having earned the reputation of “Blockchain Island”, Malta is taking steps to preserve the industry by investing heavily in supervisory technology in order to protect the blockchain industry.
Such investments according to authorities are aimed at ensuring that the inherent risks associated with virtual currencies are kept at a minimal level in Malta.
There Is Work To Do
Having shown a friendly appeal to the blockchain industry and already seeing an influx of activities into the Island, the Malta Financial Services Authority (MFSA) believes that it has its work cut out already. After being heavily criticized over the years for failing to protect victims of the collapsed La Valette Property Funds, the institution appears unwilling to permit any loopholes this time around.
Christopher Buttigieg, head of the Malta Financial Services Authority’s securities and markets supervision unit noted the huge risks involved in environments with large flows of money. Therefore, the establishment is working in advance to block any vulnerability to criminals, money launderers, terrorists, among other bad actors.
The limited number of nations that are open to blockchain and cryptocurrency activities in relation to the expanding nature of the industry implies that these nations will be experiencing a high density influx of activities. Several startups, ICOs and even conferences are moving their activities to nations like Malta.
Working Ahead
Apart from the direct monetary risks involved, the need to ascertain the required standards for projects that seek to host their base in such nations will go a long way in defining the society.
Therefore, the extent of MFSA’s activities in achieving a tight system for a sanitized ecosystem cannot be overemphasized.
Malta recently enacted three pieces of legislation covering blockchain and cryptocurrencies. Hence, the efforts of MFSA to tighten the regulatory system ahead of the industry’s expected expansion.
Apart from the La Valette Property Funds scenario, the regulatory institution has also undergone heavy criticism following alleged breaches at Pilatus Bank and other financial institutions. Hence, it is facing increased pressure, along with the Financial Intelligence Analysis Unit, from the European Banking Authority, the European Parliament and the European Central Bank.
These are some of the scenarios that Buttigieg noted that his institution has learned from and would work towards avoiding any chance of reoccurrence. He also explains that MFSA has gone beyond other regulators, and that Malta has already adopted the Fifth Anti-Money Laundering Directive, well before the 2019 deadline.
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India Shuns Bitcoin Legalization, Excludes Crypto Firms from Fintech Sandbox

India Shuns Bitcoin Legalization, Excludes Crypto Firms from Fintech Sandbox

India Shuns Bitcoin Legalization Again, Excludes Crypto Startups from Fintech SandboxIndia’s central bank gives the cold shoulder to the crypto sector, again. | Source: Shutterstock Get Exclusive Analysis and Investing Ideas of Future Assets on Hacked.com. Join the community today and get up to $400 in discount by using the code: “CCN+Hacked”. Sign up here. Get Exclusive Analysis and Investing Ideas of Future Assets on Hacked.com. Join the community today and get up to $400 in discount by using the code: “CCN+Hacked”. Sign up here.By CCN.com: The Reserve Bank of India (RBI) has published its official document on a draft framework for fintech regulatory sandbox entitled “Draft Enabling Framework for Regulatory Sandbox.” The document explicitly excluded crypto assets like bitcoin, demonstrating a lack of intent to regulate the local crypto market.“The entities may not be suitable for RS (regulatory sandbox) if the proposed financial service is similar to those that are already being offered in India unless the applicants can show that either a different technology is being gainfully applied or the same technology is being applied in a more efficient and effective manner,” the document read, listing crypto assets, crypto trading, and ICOs as excluded areas.India’s central bank excludes the crypto sector from its sandbox | Source: RBIThe draft framework essentially eliminates crypto-related businesses and bitcoin exchanges from the fintech market, which the government of India has expressed its intent on supporting.Will Bitcoin Legalization in India Ever Happen?The current stance of India on bitcoin and crypto regulation is unexpected given that many major governments in Asia including the likes of Japan, South Korea, Singapore, Hong Kong, and others have taken the approach of regulating the crypto market.The central bank of India has prohibited local banks from working with cryptocurrency exchanges, eliminating fiat-to-crypto trading in the local market.The policy of the RBI has left the overwhelming majority of crypto businesses in India in disarray, most of the entities involved with crypto either shutting down their services or moving out of the crypto market of India.A relatively large number of governments in Asia have regulated the crypto market to prevent money laundering and to place a lid on speculation to protect investors.South Korea, for instance, had been reluctant towards introducing cryptocurrency regulations for an extended time frame because the government feared that the introduction of regulatory frameworks may lead investors to accept the cryptocurrency market as an acknowledged, regulated, and legitimate sector.Ultimately, the authorities of South Korea and other countries like Japan ended up regulating the crypto market to ensure investors can invest in a safe environment wherein exchanges are licensed, user funds are protected, and the market can operate in a transparent manner.It is more difficult to prevent money laundering and the usage of cryptocurrencies in an unregulated market than a strictly overseen market because most major cryptocurrencies like bitcoin are not anonymous by nature.Why India is Taking Such a Hard Stance on CryptoThe RBI’s exclusion of crypto from its regulatory sandbox framework clearly demonstrates the lack of intent of the authorities in India to acknowledge cryptocurrencies as an asset class and as a payment system.A central bank could consider cryptocurrencies a threat as they enable users to initiate peer-to-peer transactions and circumvent the services provided by banks.However, in January, the Financial Stability Board, an inter-governmental body involving the government of India said that cryptocurrencies like bitcoin do not pose a threat to the global financial system.At the time, Nischal Shetty, CEO of WazirX, an Indian cryptocurrency exchange, told Quartz that India most likely does not see cryptocurrencies as a priority and as an asset class that does not need regulation in the near-term.“Sometimes, no regulation is not bad news. It probably means that the government of India does not see cryptocurrencies as a matter of immediate concern, or something that needs to be regulated right away. This at least means that fears of a ban are not imminent,” Shetty said.An issue with the approach of the RBI is that if the government of India does regulate the crypto in the future, which still remains uncertain especially after the release of the draft regulatory sandbox framework by the RBI, it will be difficult for the local crypto market to recover and re-establish infrastructures that previously existed. About The AuthorJoseph YoungHong Kong-Based Finance and Cryptocurrency Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the crypto and fintech space since 2012.
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This Startup Could Sell You Crypto Tokens—With SEC Backing

in many cases, deservedly so. Sure, there were blockchain projects with sound dreams and solid business plans. But as the bitcoin bubble swelled in late 2017, ICOs became synonymous with predation: get-rich-quick schemes that involved taking money from anyone who was willing, in return for worthless crypto tokens.Since then, the Securities and Exchange Commission has…

This Startup Could Sell You Crypto Tokens—With SEC Backing

in many cases, deservedly so. Sure, there were blockchain projects with sound dreams and solid business plans. But as the bitcoin bubble swelled in late 2017, ICOs became synonymous with predation: get-rich-quick schemes that involved taking money from anyone who was willing, in return for worthless crypto tokens.

Since then, the Securities and Exchange Commission has been trying to clean up the mess. The rules are vague, but this much has become clear: Most ICOs are securities offerings, and require all the protections and disclosures of selling stocks. That basically takes them off the table for ordinary investors. Blockchain startups now typically fund themselves with sales of shares (or tokens) to so-called accredited investors, institutions, and wealthy individuals.

But now one blockchain startup thinks it’s found a way to get you and me involved again in token sales—with the SEC’s blessing.

“I hate the term ICO,” says Muneeb Ali, cofounder and CEO of Blockstack, which is building a platform for decentralized apps. Last week, the company filed an application with the SEC to sell its tokens, called Stacks, under an exemption called Regulation A+. The pathway came into being as part of the JOBS Act passed by Congress in 2012, and allows businesses to raise $50 million each year from ordinary investors. Blockstack believes that, if approved by the SEC, it would be the first to use the exemption to sell a crypto token.

Tucked in the filing was a disclosure about another Blockstack investor: Harvard Management Company, which oversees the university’s endowment. It’s listed alongside two other investors that together hold a stake valued at about $11 million, purchased in an earlier token sale (Harvard’s exact share wasn’t disclosed). Though a few big institutions, including Yale and two Virginia pension plans, have invested in crypto-focused funds, Harvard’s involvement is unusual in that it appears to have taken a direct interest in the tokens of a blockchain network. Harvard Management Company declined to comment.

Why look to ordinary investors when you’ve already got Harvard signed on? The answer relates to how decentralized projects grow.

Token sales are a necessary evil in the blockchain world. In addition to raising cash, they’re a good way to get lots of people involved with your decentralized network—users and developers who then have a stake in seeing it grow. As long as the tokens have some concrete use, the idea is that they’ll become more valuable as the network expands, bringing returns to the original investors. In this way, ICOs helped blockchains like Ethereum initially get off the ground.

When the SEC cracked down on ICOs, established blockchains like Ethereum and Bitcoin appeared to get a free pass. As SEC director of corporate finance William Hinman put it last year, Ethereum was “sufficiently decentralized,” with a large community and no central entity, to make its token more like a commodity such as gold. But the SEC’s definition of decentralization was vague, leaving companies that hadn’t yet launched wondering if they’d get the same pass.

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“That’s a risk I’m not willing to take,” says Ali. So he’s attempting to use Regulation A+ to get around the bind. Ali started Blockstack as a research project four years ago while working on his PhD at Princeton. The vision was grand: to rebuild the internet in a decentralized fashion, with applications reborn with more user privacy and control. Google Docs is replaced by Graphite Docs, for example; Afari looks a little like WhatsApp. In place of Google Cloud or AWS, the apps work with the help of a constellation of computers on the Blockstack blockchain. The company gives developers the tools to build apps on the platform and lets them roam free.

But it’s early days. So far Blockstack is home to about 80 applications, but only a few thousand people are using them. As my colleague Tom Simonite wrote last year, apps like Graphite Docs are perfectly usable, and come with some privacy comforts. But the ecosystem is glitchy; what’s the good of a collaborative document editor if none of your collaborators are using it? Ali believes that in time, more high-quality apps will attract those users. But it’s a challenge, he admits, when developers can easily build on Android or iOS and know they’ll be in front of a billion or more potential customers. Ali plans to use the money raised through the Stacks offering to increase the incentives for developers.

Blockstack has gotten this far by selling tokens valued at $47.5 million to accredited investors, including Harvard. With the SEC’s crackdown, restricting offerings in this way has become a more popular choice for blockchain startups, says Peter Van Valkenburgh, director of research at Coin Center, a blockchain think tank. Typically, companies sell their tokens to venture capitalists and large institutions with the expectation that their project will go live someday and the platform will be deemed “sufficiently decentralized,” as Ethereum was. That would allow the early investors to resell their tokens widely. But it’s a risky bet, and doesn’t let you bootstrap your community from the start. “You’re cutting out a lot of users for your token because an accredited investor is going to be a rarefied person and not necessarily using the token on your platform,” says Van Valkenburgh.

Blockstack’s proposed offering, Ali says, is intended to help the company get to that point of decentralization a bit faster. It hasn’t been approved yet, but Ali is optimistic. The SEC declined to comment. “It seems like we’re getting close to the finish line. I think it’s a big deal for [the SEC], because as soon as they approve a project it sets a precedent for what they’re looking for.” Otherwise, he says, they’ll look to offer their tokens elsewhere, blocking customers from the US.


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