LONDON, January 17 2019 – Baker Botts’ lawyers predict that institutional involvement and regulation will be key trends in the international crypto-asset sector during the course of 2019. They also highlight several roadblocks which are hindering development. Aside from these roadblocks, sector interest and investor sentiment remain high and there is cautious optimism for the crypto-asset sector in 2019.
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Regulation and Standards Outlook
2018 saw several more nimble jurisdictions such as Malta, Gibraltar and Switzerland implementing law and/or regulation and issuing guidelines for crypto-assets. 2019 is likely to see larger jurisdictions following suit. France is currently developing Initial Coin Offering legislation, the USA is undertaking a bipartisan initiative and the UK Crypto Asset Taskforce is commencing regulatory consultations.
In the current absence of regulation, industry standards are being published by organisations such as Global Digital Finance. These provide ‘best practice’ guidelines for, amongst others, token sales and exchange platforms against which companies can benchmark.
Institutional Involvement Outlook
It is highly likely that other institutional players will back crypto-assets publicly, particularly as organisations are recognising crypto-assets as a potential investment opportunity.
Any such announcements are welcome as additional institutional involvement will bring a level of experience and maturity from which the sector can benefit.
A much-anticipated example is Bakkt, an Intercontinental Exchange company, which is due to launch a Bitcoin Daily Futures Contract, tradeable on ICE’s platform, and warehousing for delivered Bitcoin on 24 January 2019. Once operational, this is likely to set the precedent for further regulated projects.
Initial Coin Offering and Security Token Offering Outlook
Although 2018 was a record year for ICOs, quality varied significantly, and many lacked an adequate underlying business product with little accountability for teams behind the ICOs. Consequently, many ICO projects failed or were found to be fraudulent – with deadcoins.com suggesting that over 900 ICO projects are no longer active.
Security tokens provide an alternative to this as they are offerings which will be compliant with securities law and regulation and will include detailed information memoranda, as compared to the flimsy ‘white papers’ included with many ICOs.
It is anticipated that security or asset tokens will tokenise large illiquid assets, such as real estate or media libraries, and provide rights in relation to businesses, akin to equity, or portfolios akin to unit trusts.
As security or asset tokens will be related to tangible and legitimate assets or enterprises, with the added benefit of liquidity, they are likely to be a popular alternative to traditional investment products.
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