Recently, Harbor, a blockchain startup focused on tokenizing securities, such as real estate, fine art or private equity, launched its initial offering – the sale of a $20 million students dorm near the University of South Carolina. According to the company, the property will be split into 955 tokens valued at $21,000 each, for a total of $20 million.
New Age for Private Securities Investments
It is undeniable that it is profitable to invest in real estate, as well as others illiquid assets, such as company equity, investment funds, or fine art. Unfortunately, there are no easy ways to make money, and this isn’t an exception. Investing in real-estate might sound easy at first, but that quickly changes. Some even say that investing in real-estate is harder than in stocks and they would be right — the mountains of paperwork required are just mindboggling.
The other downside is that even if you do manage to get through the tedious process successfully, you will most likely end up selling it for less than its actual value. According to some researchers, illiquid assets are estimated to get about a 20–25% reduction to their value. But what exactly are illiquid assets?
To put it simply, “illiquid refers to the state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.” This is usually due to the lack of willing buyers for the given asset.
Tokenizing Securities
The issue with tokenizing securities is that it takes a lot of work to comply with their regulations. To help with the tedious processes and solve the illiquidity issues of those assets, Harbor is building a protocol that ensures each token transaction complies with the securities laws all over the world.
Joshua Stein, the chief executive officer of Harbor, said that “At any given moment we can tell the issuer the exact person or entity who owns what and when.” Since this is required by law, the company demands new customers to go through a “know your customer,” or KYC process. Besides that, setting up an account on their platform is as easy as opening up a brokerage account.
Stein believes that the “Tokenization of private securities can bring liquidity to trillions of dollars of traditionally illiquid assets.”
The Mega-Dorm You’ve Probably Never Dreamt Of
The building, owned by Convexity Properties, is a 14-story complex that has “world-class amenities,” or at least that how it is described on the website. The rooftop of the build is complemented with a pool, a hot tub, and a 2,200 square foot fitness center.
With the initial sale of Harbor, the property owner intends to raise a minimum of $15 million. On the company’s platform, investors will be able to exchange USD, Bitcoin, and Ethereum for the tokenized securities.
Institutional money coming to crypto has become almost a kind of prayer, touted by Twitter influencers and news outlets alike.
Make no mistake – all the signs point to a major influx of institutional investment in the crypto space, with CBOE applying for ETF approval and Goldman Sachs greenlighting Bitcoin futures. It’s happening – the real question is not if, but when, and it’s far less straightforward to answer.
The market has once again taken an upturn over the last week after a recent bearish trend saw prices decline across all currencies. Before the slump, the announcement that Coinbase was launching a custodial service catered towards institutional investors directly preceded an average of 11% price bump on average across all crypto assets, indicating the pivotal role the ability for institutions to invest now plays in the market.
After another decline, the announcement that ETFs may be approved saw another bullish surge. In this article we’ll take a look at some of the major ways institutions will be able to enter the market and what that means for the more casual retail investors.
Coinbase
Coinbase’s custodial service could be a pretty big deal, and it’s already live offering cold storage, an institutional-grade broker-dealer and reporting services, and a client coverage program. Coinbase is also in the process of onboarding hedge funds.
Beyond that, the exchange announced earlier this month that it has the green light to go ahead with three key acquisitions aimed at enabling the exchange to become a federally regulated platform through which investors can trade cryptocurrencies classified as securities. This is huge, as it could help save those currencies from total damnation by enabling them to exist and be traded legally under SEC jurisdiction.
The Financial Industry Regulatory Authority approved Coinbase’s purchase of Keystone Capital Corp., Venovate Marketplace Inc. and Digital Wealth LLC in July 2018. Cryptos classed as security tokens may now soon be offered through the exchange and help place the exchange under more direct federal oversight which may further attract institutions.
Coinbase can now operate as a broker dealer, an alternative trading system and a registered investment adviser, greatly expanding the current business model.
“Being approved to take ownership of these licensed entities is one more step toward our ultimate goal of allowing our customers to trade securities tokens on our platform,” said a Coinbase spokesperson. “There are many more steps and conversations needed with regulators before this journey’s complete.”
Coinbase rival Circle Internet Financial Ltd., said last month that it will apply for registration as a brokerage and trading venue with the SEC so it can help investors buy and sell tokens deemed to be securities as well. The firm also plans to seek a federal banking license to provide more services to customers.
BlackRock Explores Crypto
Bitcoin prices climbed 5% after asset management giant BlackRock announced that it was setting up an assessment group to investigate cryptocurrencies and blockchain technology. This news is somewhat at odds with previous statements made by the company, such as when CEO Larry Fink stated that Bitcoin was an index of money laundering.
The news follows a report by Fortune magazine that hedge-fund billionaire Steve Cohen’s VC firm Cohen Private Ventures invested in Autonomous Partners, a cryptocurrency-focused investment fund.
Mati Greenspan, senior market analyst at eToro, said ““It definitely is causing some excitement. The idea of big financial firms moving into crypto certainly isn’t new, and this is a trend we’ve been noticing gaining strength since November.”
Japan’s SBI Launches Crypto Exchange
Japanese financial giant SBI Holdings announced that it now has a live in-house crypto exchange despite months of delays following security issues.
VCTRADE is the name of the exchange which is is currently only open for users who have pre-registered with the platform in October 2017, the company announced – it is expected to be available for a wider public in July of this year.
SBI will focus on trading XRP through VCTRADE at first and then add support for Bitcoin and Bitcoin Cash at a later stage.
SBI Holdings currently deals in remittance technology which may explain the focus on Ripple at the moment. The firm’s first wholly-oowned subsidiary – SBI Virtual Currencies -was started in 2016 and was the country’s first crypto exchange that is fully backed by a major financial institution.
The platform later completed business registration with Japan’s Financial Services Agency (FSA) in September 2017 but announced in February of this year that the opening would be delayed due to security concerns amid the Coincheck hack.
Goldman Sachs
Though at first GS was reluctant to enter the crpyto space, customer demand turned the tide and turned the banking giant towards crypto. The investment bank is now looking to expand its recently established Bitcoin futures trading desk into services for direct cryptocurrency trades.
On June 20, Goldman Sachs COO David Solomon told Bloomberg:
“We are clearing some futures around Bitcoin, talking about doing some other activities there, but it’s going very cautiously. We’re listening to our clients and trying to help our clients as they’re exploring those things too.”
Solomon also told Bloomberg that the firm must “evolve its business and adapt to the environment.”
Andreessen Horowitz
Major Silicon Valley investor Andreessen Horowitz has launched a new $300 million fund focused on cryptocurrencies.
The fund will be caled a16z and will feature former federal prosecutor and Assistant U.S. Attorney Kathryn Haun as one of its co-leads. Haun has also been named as the firm’s latest general partner.
Andreessen Horowitz is a well-known crypto investor and provided early capital funding for Coinbase in the early days.
General partner Chris Dixon indicated in the post that the crypto-fund would take a decidedly long-term tack in its investments.
“We’ve been investing in crypto assets for 5+ years,” he wrote. “We’ve never sold any of those investments, and don’t plan to any time soon. We structured the a16z crypto fund to be able to hold investments for 10+ years.”
“We plan to invest consistently over time, regardless of market conditions. If there is another ‘crypto winter,’ we’ll keep investing aggressively.”
Dixon went on to say that the firm would focus on assets with a real, non-speculative use case.
“We want services powered by crypto protocols to be used by hundreds of millions and eventually billions of people. Crypto tokens are the native asset class of digital networks, but their value is driven by the underlying, practical uses cases.”
When Will Things Change?
Here’s the thing – while this all sounds like such drastic change, the reality is that it may take years for institutional investment to make a difference. Things happen very quickly in the crypto space, but the world of traditional finance moves at a slower pace.
In the below interview, BlockTower CEO Ari Paul estimates that it will be around 5 years before major firms change the crypto landscape forever, stating that the majority of crypto investors are still retail investors who don’t necessarily know what they’re doing.
Paul also states that there are only around 15 major firms currently involved in cryptocurrency, and that the rest are only testing the waters. This, however, can be seen as a good thing – as the investing expert points out, major traders will make competition even fiercer for retail traders.
For casual crypto traders, now may be the best time ever to be involved in the space, before trained experts with unlimited resources really up the standards. For investors, on the other hand, the advice is the same as always – wait it out, and hope that the influx of institutional money will create a long-term sustainable bull run in the nascent crypto market.
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