French firms have formed an association to foster the sustainable growth of the cryptocurrency investment sector and weigh in on its governance. Among other things, they hope to build on progressive regulations such as the French decree that allowed crowdlending securities called minibons to be legally registered on the blockchain.
Facing the Cryptocurrency Frenzy
Blockchain powered Initial Coin Offerings (ICO) are multiplying, pushing the numbers and valuation of cryptocurrencies to an all-time high of more than 900 crypto-coins with a cumulated value of more than $85 billion ‒ growing at a compound annual growth rate of 180%.
The endgame of this crypto-asset frenzy is unknown. Is it a bubble waiting to burst or are we witnessing the birth of the Amazons, Google and Facebooks of the future global, open, and distributed computing environment that blockchain enthusiasts herald?
Whatever you choose to believe, it is hard to ignore that entrepreneurs, technical talents, and funding are moving to blockchain and cryptocurrencies. The stakes are increasingly high. As Vitalic Buterin, the founder of Ethereum stated: even if crypto-currencies like bitcoin, ether, and litecoin had only a stored-value function, it might be that the world needs this type of asset.
The founders and early entrants of the blockchain ecosystem like to paint the long-term vision of a blockchain-powered distributed global computing that will break monopolies and create openness, inclusion, decentralization, disintermediation, transparency, democracy, simplicity… a vision some might find strangely reminiscent of the Web 1.0’s.
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In the meantime, however, these forerunners are painstakingly building ecosystems around blockchain-powered cryptocurrencies. While based on a strong common base, each ecosystem has its own transaction rules and governance. Despite being decentralized autonomous organizations (DAO) ruled by code rather than by a central administration, these ecosystems are actively, and more or less democratically governed by their major stakeholders. The various debates about forking, i.e. making different changes in the code and splitting the community of the large bitcoin and Ethereum’s ecosystems attest of this governance. The famous mantra “code is law” must be accompanied with a few provisos: code is written by people, code can be flawed, even great code may need to evolve.
As Initial Coin Offerings (ICO) enable startups to raise funding by the 100s of millions of dollars, major players in the investment industry cannot but get involved or at least closely monitor this evolution. As Doug Ellenoff of New York City based law firm of Ellenoff, Grossman & Schole recently put it in these columns, even if a firm has concerns, or precisely because it may have concerns about ICOs, it is important to get involved to “work with the industry to ensure a successful outcome.”
Managing Cryptocurrency Investments
The successful outcome of cryptocurrency investments is definitely the aim of the French Cryptocurrency Management Association (Association Française pour la Gestion des Cybermonnaies’).
The founding members of the French Cryptocurrency Management Association are asset management firm Eiffel Investment Group, law firm Gide, audit and consultancy firm PwC, asset servicing CACEIS and bitcoin exchange Paymium. They invite all relevant firms to join them and help weigh in to shape the future of cryptocurrency investments as a new asset class.
In more detail, the association aims at:
- Being a permanent source of information in the field of cryptocurrency investment management.
- Contributing to the dialogue between investors, financial management professionals, public administrations and all the parties involved in the development of cryptocurrencies.
- Promoting a high level of ethics, transparency, and security among members.
- Participating in the preparation of any documentation, study, report on investment in cryptocurrencies.
- Organizing or participating in symposia, seminars, congresses that can promote the sustainable development of cryptocurrencies.
- Supporting the technical and professional training of its members and their staff.
There are many ways to invest in crypto-currencies:
- Venture investment in crypto-currency and blockchain startups
- Investing in cryptocurrency investment funds
- Participating in Initial Coin Offerings (ICOs) financing blockchain startups
- Buying crypto-currency to hold
- Trading ICO’s tokens on secondary markets
- Investing in crypto-currency derivatives and hedge funds
- Investing in blockchain-based markets
Taking Up Regulatory Issues
During the association’s launch event on July 18, the association invited guest speakers and members to present some of the issues it addresses. These included many governance and regulatory issues such as:
- Securing ICOs, clarifying the status of tokens as securities: In an ICO, a startup issues asset units called tokens that live either on a generalist blockchain such as Ethereum’s or on the startups’ own standalone blockchain, such as in the case of Tezos, a $232 million ICO. These issuances are unregulated crowdfunding issuances. The status of the tokens, their value, the rights attached to them, their tradability are freely defined by the startup. The situation could be explosive as many naive retail investors currently invest in ICOs with unrealistic expectations driven by the overall frenzy.
- The status of cryptocurrencies as currencies: Most States nowadays recognize cryptocurrencies as an asset class and only a small minority ban them. However, the legal status of crypto-currencies often differs from one jurisdiction to another. In the US, for example, the tax treatment of bitcoins depends upon how they are used: bitcoin bought and held for capital gains are subject to capital gain taxes, bitcoin earned by miners are taxed as income. Within Europe, the status of cryptocurrencies differs from one country to the next with Germany considering bitcoin for example as a “unit of account”, a means of exchange with private money status, whereas other countries such as Luxembourg consider it as digital money that should be handled by properly regulated payment firms.
- The legal value of cryptocurrency-based transactions: Cryptocurrency-based transactions are immutably recorded and time-stamped in the distributed ledger that records all blockchain transactions. However, these transactions still have, for the time being, limited legal force. Blockchain transactions and smart contracts do not (yet) have the same legal status, enforceable against third parties, as classically authenticated transactions and contracts. In this context, the French law that recently legalized the trading of crowdlending securities called minibons is a première as it gives legal force to the registration of minibons on the blockchain.
These are a few of the issues that the association intends to address.
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French firms generally believe that their local environment is favorable to taking the leadership in blockchain developments. Confirming this sentiment at the launch of the association were the presence of Franck Guiader, Head of FinTech, Innovation and Competitiveness at the French Markets and Securities regulator (Autorité des marchés financiers, AMF), which demonstrated the French regulator’s engagement, and the presentation by Eric Larchevêque, CEO of Ledger, one of the leading cryptocurrency technologists, who attested of the French engineering skills.
Therese Torris, PhD, is a Senior Contributing Editor to Crowdfund Insider. She is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She has covered crowdfunding and P2P lending since the early days when Zopa was created in the United Kingdom. She was a director of research and consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French personal finance blog, Le Blog Finance Pratique.