Their token sale leverages the SEC’s Regulation A+ crowdfunding exemptions which allow companies to sell equity as securities through a crowdsale with looser rules around who can invest. Companies wishing to take advantage of Regulation A+ must aim for two tiers: either a $20M round or $50M round within 12 months. Regulation A+ was introduced in 2012 under the JOBS Act.
Blockstack will sell a total of 295 million STX at $0.30 each. In a release, the company said: “The net proceeds of the offering will be used to accelerate the development of its decentralized computing stack and app ecosystem.”
Muneeb Ali, co-founder and CEO of Blockstack, mentioned: “We’ve been working with securities lawyers to create a legal framework that can enable blockchain protocols to comply with SEC regulations….This can potentially set a precedent for others in the industry, not just for public offerings, but also as a path to launch new public blockchains and establish a path to bootstrapping decentralized ecosystems.” A recent tweet by him can also be seen here.
As a New York based firm, they have been critical of how crowdsales are done, so they are working closely with regulatory bodies.
Current investors include more than 800 people so across Foundation Capital, Union Square Ventures, Winklevoss Capital, Blockchain Capital, and recently Harvard University, amongst some others.
Anthony Pompliano, a co-founder and partner at Morgan Creek Digital tweeted about the Harvard investment in particular.
The SEC filing letter notes explicitly three people from the Harvard Management advisory board as investors: “The token advisory board consists of seven members. Three of the members, Charlie Saravia, Zavain Dar and Rodolfo Gonzalez are designees of affiliates of the Harvard Management Company, Lux Capital and Foundation Capital, respectively, limited partners of the QP Fund which have purchased an aggregate of 95,833,333 Stacks Tokens; the board also consists of four independent members, Koen Langendoen, Arvind Narayanan, Arianna Simpson and Catherine Tucker.”
It’s not clear how much of the 95.83 million STX were purchased by the Harvard affiliated, but it’s certainly a step in the right direction.
This, in combination with other successful SEC-compliant security tokens such as Nexeo, which gives dividends to investors, in addition to the general STO hype, may be signs of more institutional interest.
Many institutional investors are keeping their eyes out for security token offerings (STOs) throughout 2019. These STOs will offer tokenized securities which may be real estate backed, gold or commodity backed, or simply backed by a profiting business model. These security tokens may provide dividends to investors, grant them ownership and voting rights, and force the company to be obligated to comply with stricter, existing regulatory securities laws. All investors will need to go through KYC/AML processes and all ownership of these tokenized securities are confirmed publicly, yet anonymously on public blockchain ledgers.
PayPal was part of an extension to a series A funding round in Cambridge Blockchain, an identity and data management platform that keeps sensitive data secure and private for large institutions using shared ledger technology.
The specific amounts invested by PayPal were not disclosed by any part, but SEC filings indicate that Cambridge Blockchain raised a total of $3.5 million from several investors over the course of nine months. Note that PayPal invested as part of an extension stage to a series A round, whereas the main series A round raises $7 million. The total then would be $10.5 million.
Another notable investor in Cambridge Blockchain is HCM Capital, VC arm of Foxconn, the manufacturer for Apple’s iPhones.
A PayPal spokesperson emailed Coindesk about the investment saying: “We made an investment in Cambridge Blockchain because it is applying blockchain for digital identity in a way that we believe could benefit financial services companies including PayPal. Our investment will allow us to explore potential collaborations to leverage blockchain technology.”
Unlike platforms such as BitPay, Square, or other point of sale services, Cambridge Blockchain does not compete with PayPal’s business efforts. Partially why this seemed to be an excellent first investment in the blockchain sphere for PayPal. PayPal can have a direct use for Cambridge Blockchain’s business efforts. They indeed hold sensitive user information, and the more secure options they have for handling user data, the better.
To get more detailed about Cambridge Blochain’s mission – it is to store, share, and validate data using blockchain technology. Their systems can run on public or private ledgers. They are working to improve the processes around user onboarding of personal data which included KYC processes, vetting of financial bank accounts, and other counterparties.
Some clients can be institutions who hold lots of sensitive personal information and companies with non-personal, but still sensitive data. They currently have 15 full-time employees and is part of the Decentralized Identity Foundation, a foundation effort which includes top companies such as the Enterprise Ethereum Alliance, IBM Blockchain, Hyperledgers, and others.
The industry is ultimately enthused to see PayPal make investments in the space. If they truly understand the power of blockchain, then it would only be wise for them to get involved. Until this point, cryptocurrency enthusiasts have been against PayPal and what they represent, but maybe their image can change now.
Speaking of PayPal, ex-cofounder Elon Musk recently made some waves on Twitter with crypto-related tweets. On April 2, 2019, he made his Twitter bio the CEO of Dogecoin, along with a string of tweets about how Dogecoin is the best cryptocurrency. You can still his tweets if you go to his feed. The real Dogecoin creator is Jackson Palmer, but we did not see any comment by him on the matter.
“The number of clients that opens up in New York is quite a substantial opportunity. We definitely have a backlog of clients that we would like to onboard that we were waiting for this approval to move forward with.”
Considering that most hedge funds regulated by the SEC cannot invest on behalf of their clients because Bitcoin is not seen as a security, the industry hopes that this opens doors for institutional investors to reliably gain exposure to the cryptocurrency markets.
Tagomi currently supports Bitcoin, Ethereum Litecoin, and Bitcoin Cash and has approved other cryptocurrencies as well. Additionally, they plan to add functionality for margin trading, shorting, and lending, while aggregating liquidity from OTC markets.
One of their investors, in particular, BitOoda, commented to CCN.com further pressing the advantage to institutional investors:
“BitOoda has worked very closely with Tagomi over the past year and has tremendous respect for Greg, Jenn, Marc, and the rest of the team. We’re excited to see their hard work paying off and regulators recognizing the need for these institutional-quality solutions. The NYDFS approval is significant because it grants Tagomi access to New York-based financial institutions and funds.”
The BitLicense is very difficult to attain, requiring lots of paperwork, surety bonds, funds, and legal assistance. Both Shapeshift and Kraken have spoken out against the BitLicense in the past, mentioning that it inhibits innovation and will leave the state of New York behind during this blockchain discovery phase. New York residents are generally not free to use most exchanges, as a large majority do not have the BitLicense, and are thus, not regulated to operate in New York.
Some firms who were granted the BitLicense are Genesis Global Trading, Coinbase, Bitflyer, Ripple, Xapo, Circle (Poloniex), Square Inc, and Robinhood. As our research tells, this is it. There are under 10 firms that have been granted the New York Bitlicense.
BitOoda even announced their opinion about virtual currency regulation by saying: “A major obstacle preventing greater cryptocurrency adoption is the lack of a fair, transparent, and secure marketplace for larger players. Firms like Tagomi and BitOoda are mitigating the market issues on a daily basis by offering client-focused agency services and acting as regulated entities, while firms such as BitGo and Fidelity are building institutional trust on the custody side.”
The Washoe County digital marriage certificate program uses the Ethereum blockchain to store marriage certificates primarily due to the fact that Ethereum is the largest smart contract enabled blockchain which makes performing functions like this easy and secure. Bitcoin’s blockchain is optimized for secure monetary transactions, while Ethereum is known as a turing complete blockchain that can run decentralized applications.
Phil Dhingra of the San Fransisco based Titan Seal claims that people are happier with the service. Rather than waiting up to 10 business days for a marriage certificate, couples can now receive it digitally via email within 24 hours. When certificates are written to the blockchain it is known as “Proof of Marriage” a similar lingo to the technical Proof of Work and Proof of Stakes aspects of blockchain technology.
This is not the first time the industry has seen marriage on the blockchain. David Mondrus, the founder of Trive News, married his wife Joyce back in 2014. This made waves in the industry.
The Spotlight on Ethereum
There are several companies that are taking advantage of Ethereum’s blockchain and other networks like it. Many refer to these types of blockchains as “dApp platforms” short for decentralized application platforms, or smart contract platforms. Ethereum has a virtual machine as well as their own programming language, Solidity, which allows developers to create smart contracts to launch applications.
Smart contracts are basically pieces of software, mostly acting like middleware, which can perform very specific functions. In a nutshell, smart contracts are automated, executable contracts. Automating the functions of an escrow is one common use case for smart contracts.
Ethereum is also known as the catalyst for the ICO (initial coin offering) craze which began in 2017. An ICO is when projects issue tokens, at a certain rate, to raise funds to support their initial efforts as a company.
Civic is one example of a company taking advantage of Ethereum’s blockchain. They issued tokens through an ICO raising a reported $33 million. Entrepreneur Vinny Lingham, also a South African Shark Tank host, is the founder of CIvic. Civic is a secure identity management platform for users to upload and secure their identities. The end goal is to make KYC processes more streamlined and give people back control over their identity data. For example, if a bank, credit company, or doctor’s office is onboarding you as a client, they generally need to retrieve your data from several different agencies which can be timely and costly. If your data is on a verifiable and reliable application such as Civic, then you can permission another party to have access to your data – virtually instantly.
Even after a long, down trending market, there remains lots of activity in the blockchain space. The fundamentals are high, and the technology is not going anywhere. With prices sitting at where they are, many are keeping a close eye at the best time to enter the market.
Amongst Bitcoin investors, capitulation is the word of the year. Declining from ~$20,000 to ~$4,000 at the time of this writing leaves speculators wondering if 2019 is a year for the bulls. With Bitcoin being a new, relatively low volume asset class gaining steam, fundamentals play a seemingly exaggerated role with price action, and technical analysis is gradually becoming more reliable.
Bitcoin Technical Analysis Going into 2019
Generally, capitulation refers to a time when holders are indefinitely committed to holding and panic sellers have cut their losses, forming a true bottom in the market. Using technical analysis, we want to find the support for this bear run.
Before the 2018 Bull Run
To find true support, it is important to understand the long-term movement from $1,000 to $20,000. The year 2017 showed this meteoric price increase and prior to this bull run, the price was gradually increasing from $700-$1,000. As seen in the chart below, the entire year of 2017 was a continual, irrational bull run filled with hype and over-valued ICOs, with substantial, original support at $1,000. The volume during 2017 was unprecedented, which means that lots of buyers and new investors were buying in all the way up to $20,000 per Bitcoin. Once Bitcoin broke ~$2,000 there was virtually no resistance – and it showed.
Now, let’s look at the other side of the mountain, 2018.
The Ending of the 2018 Bull Market
Throughout the entire year of 2018, the market has yet to find its support. Each day news outlets and influencers have been calling bottoms, but with no avail.
Zooming in closer to at three-month view shows signs that a bottom is finally approaching.
Here we can get a bit more technical. As of November 14th, the price dropped from ~$5,800 to ~$3,800 within 10 days. This is a near 35% dip after experiencing a year-long ~80% price decline for the asset. After hitting a low of $3,288 it bounced back to $4,384 with significant volume. This strong bounce back of over $1,000, coupled with noticeably high volume, is a reliable indicator that sellers have sold, and buyers are ready to buy. At this time of this writing, Bitcoin is trading at $3,844. Ultimately, if the price breaks below $3,288 again, then there is no reason that we will not see the $1,000 support which was held before the bull run, by core believers.
On the other hand, if this new price point introduces new buyers to the market, then we will most likely stay sideways for at least 6 months. The reasoning behind this is that it should be assumed that there are many holders still holding big losses, waiting to sell along the way up, anywhere from current price back up to $20,000. Only at the point which the price breaks $20,000 can we say there is no resistance, until then, it may be a long road back to the top with resistance at each price point along the way.
While technical analysis plays an important role in predicting Bitcoin’s price, the volatility is so extreme that there is arguably just as much, or more merit to understanding the fundamentals. With some legal clarity, things can turn around quick.
Bitcoin Fundamental Analysis 2019
To reiterate, looking at the chart for the years of 2017 and 2018 show a seemingly irrational price increase and decrease. To confirm your beliefs, it was irrational, the price increase was mostly based on lots of hype and investors treating Bitcoin like a lottery ticket. ICOs were raising billions of dollars, and investors were putting no thought into their investments.
Reasons for the Price Decline
Let’s understand a couple of causes for the price decline, so then we can understand what will cause a price increase. Amongst several factors at play, I can narrow it down to two main reasons for the price decline: ICOs and regulation.
ICOs are initial coin offerings where project issue tokens in exchange for Bitcoin or Ethereum, primarily. Whether ICOs were ill-intentioned or not, many proved to be unsuccessful in finishing their product. As a result, many projects are selling the funds raised back to fiat. In doing this, the fiat value of Bitcoin will decline. It is assumed that even ICOs which raised Ether during their crowdsale could easily have sold Ethereum to Bitcoin, then back to USD for greater liquidity and less impact on price. With billions of dollars sent to unsuccessful projects, many of them are liquidating and moving on with their lives.
Now, the positive effect of this is that crypto investors are more mature and cautious with their investments. ICOs are still happening and they are an excellent way to raise funds. The industry is now focused more on actual adoption, practical usability, and experienced teams. Ultimately, this should bring about a more consistent industry, with more reliable charts and less volatility. The massive hype in the market is gradually becoming a thing of the past.
This was another major disappointment for 2018. Investors and speculators have been hoping for ETFs, tax reforms, and more legal clarity around Bitcoin and cryptocurrencies in general. Due to the instability of Bitcoin’s price ETF proposals have been denied by the SEC. Without an ETF, a majority of equity-based hedge funds and institutional investment firms cannot invest in Bitcoin, despite their clients asking them to include it in their portfolios. These funds are regulated by the SEC, and unless they are an FX or commodity fund, they legally cannot advise or purchase Bitcoin directly. Instead, they must rely on another investment vehicle, such as an ETF, which is a security, to speculate on the Bitcoin market.
The second is taxes and legal clarity. There are significant flaws in how Bitcoin and cryptocurrencies are taxed. Simply put, each trade is a realized gain or loss, whether or not an investor has sold back to USD. This means that if you purchase Ethereum using Bitcoin, then this is a taxable event, owed in USD to the IRS. An investor would then need to sell some of their cryptos to USD, which is another taxable event, simply to pay taxes. These conversions significantly hurt profits for traders.
Additionally, if an ETF is approved in 2019, and taxes favor the trader more, then it is likely that 2019 will have a bull run beyond $20,000 with major institutional money flowing in from banks, hedge funds, asset managers, prime brokerages and high net worth individuals. If this does not happen, then our best bet for a bull run is to rely on the startups building practical, needed products for businesses and retail customers. Until then, it is likely that we will stay sideways with a less volatile year for Bitcoin.