Paxos scores licensing approval in Abu Dhabi

Report: Can Bitcoin Replace Gold As a Safe Asset?In light of the substantial increase in Bitcoin (BTC) prices this year, a report from KB Financial Group in South Korea examined the potential for BTC to replace gold as a safe asset.©Pexels/Michael SteinbergThe study delves into the factors behind the recent BTC price surge and emphasizes the need for caution when considering BTC as an alternative to traditional safe assets.3 drivers behind BTC surgeFrom January 1 to March 31 this year, BTC experienced an impressive return of 71%. This surge can be attributed to three main factors: an anticipated increase in liquidity due to market expectations of unchanged or falling interest rates; central banks supplying liquidity to mitigate risks in the traditional banking system; and concerns over the potential delisting of cryptocurrencies should the US court’s decision on the Ripple-SEC case classify XRP, Ripple’s native token, as securities, prompting investors to shift their focus to BTC.The report suggests that the current BTC boom is more likely a result of short-term arbitrages and social conformity, given the greater information asymmetry in the crypto market, which lacks the disclosure system present in traditional stock markets.Persisting risk factorsLast month, blockchain tracker Whale Alert spotted a transfer of 11,125 BTC from an anonymous address to Binance. The primary reason for moving assets from a private address to an exchange address is to sell them, indicating that investors should keep a watchful eye on Bitcoin trading volumes, particularly for any signs of large sell-offs.Data from the crypto data analysis platform Glassnode revealed that the percentage of the BTC supply that was active over a year ago reached an all-time high of 68% in late March. Historically, such an increase has been associated with falling BTC prices.This year, the BTC supply is set to grow due to the US government’s liquidation of seized BTC. As detailed in a March 31 Cointelegraph article, the US government seized 51,352 BTC in a case related to Ross Ulbricht, the creator of the online black market Silk Road. The government has already sold 9,861 BTC, with the remaining amount expected to be liquidated in four additional portions throughout the year.Binance, the world’s largest crypto exchange by trading volume, has been struggling to find banks in the US to store client funds after crypto-friendly banks Silvergate and Signature closed their doors.Need for cautionAlthough various media sources often portray BTC as a safe asset, the report advises caution in accepting these claims. Although some liken BTC to “digital gold,” the two assets share little in common beyond their finite and scarce nature. In fact, gold and BTC diverge significantly in terms of social consensus, intrinsic value, price volatility, and investor protection.Gold serves as a highly liquid asset with applications in both jewelry and industrial goods, in addition to its role as an investment vehicle. In contrast, BTC’s intrinsic value is still debatable. The price volatility of BTC is also a concern, as evidenced by its 71% spike in the first quarter of 2023, compared to gold’s modest 8% increase. Additionally, gold investment products are regulated by law, whereas BTC is not. The report thus recommends treating BTC as a high-risk product and incorporating it into a diverse investment portfolio.It is worth noting that since the outbreak of the COVID-19 pandemic, the crypto market has demonstrated a stronger correlation with the global stock market in response to negative signals. This trend can be partially attributed to the growing presence of institutional investors in the crypto market, who often sell risky assets first to secure liquidity in the face of unexpected shocks.

At the Foresight 2024 Hong Kong Summit on Aug. 11, Gary Tiu, director and head of regulatory affairs for OSL, a crypto market custodian, exchange and prime brokerage, outlined in a panel discussion that the crypto exchange-traded fund (ETF) market in the Chinese autonomous territory is challenged insofar as it lacks market incentives.Photo by Cecelia Chang on UnsplashThe intermediary problemTiu’s company hosted the event, alongside Foresight News and crypto publication The Block, who reported on Tiu’s comments. The OSL executive said that when it comes to funds and structured products in Hong Kong, there’s a “very rich layer of intermediaries— brokers, banks, private banks, retail banks, etc.” involved. Tiu explained that they make a lot of money from the distribution of such products, resulting in unlisted products being marketed far more effectively by comparison with listed products. It’s against that backdrop of misaligned incentives that Tiu identifies challenges for crypto ETFs on the public markets in Hong Kong. He stated: “So I think the incentive system in Hong Kong is one of the reasons why ETFs do have a bit of a hard time growing as a financial instrument.” In the case of ETFs, the OSL executive explained that equity brokers take just a few basis points in commission, only about 1-2% of what they make on the sale of structured products. Bias against Bitcoin and EtherTiu is also of the belief that cryptocurrencies like Bitcoin and Ether have a reputational problem among Hong Kong’s investment community, stating: “I think there is still a bit of a bias in the eyes of the regulators and also in the eyes of the financial institutions, that somehow bitcoin ETF is just this unique class of risk that you need to be extra cautious about.” Chen Zhao, who heads up the digital assets section of Hong Kong-based independent financial advisory firm Fosun Wealth, chimed in with his own concerns. According to Zhao, the crypto ETF products currently marketed in Hong Kong are lacking in terms of the depth of dealers and brokers offering the products. Zhao explained that there are three main types of market participant active on the Hong Kong markets, namely western institutions, Hong Kong-based institutions and their counterparts from mainland China.  Zhao stated: “Chinese brokers and dealers, they’re not allowed or they choose not to deal with the product, and for the western financial institutions, they don’t have the necessity of dealing the products because they acquire more fees and incentives, and have easier access to the U.S. ETFs.” While progress is far more modest by comparison with the U.S. market, the Hong Kong crypto ETF market continues to develop, with spot Bitcoin and Ethereum ETFs setting a record trading volume last week. In the same week, Mox Bank, a subsidiary of British banking multinational Standard Chartered, launched trading services relative to spot Bitcoin and Ethereum ETF products in Hong Kong. Last month, OSL CEO Patrick Pan, anticipated that an Ethereum ETF product that incorporated staking would launch in Hong Kong within six months. Many commentators have suggested that institutional interest in Ethereum ETFs will begin in earnest once a yield-producing staking product hits the market.

The Legal Future of South Korea’s Crypto Industry: Necessary Legislation and SystemsA recent National Assembly symposium organized by South Korea’s Digital Asset Policy Forum brought experts together to discuss the challenges and prospects of the implementation of the Virtual Asset User Protection Act at the National Assembly Members’ Office Building in Seoul on Tuesday.Photo by Tingey Injury Law Firm on UnsplashInternational modelsReferences were made to global examples, such as the Markets in Crypto-Assets Regulation (MiCA) — the world’s first standalone virtual asset legislation enacted in the EU — which ensures transparency, disclosure, authorization, and supervision of crypto-asset transactions. However, unlike the capital market, MiCA does not impose regular disclosure reporting requirements or corrections on them. Firms in Japan, on the other hand, are asked to provide disclosure under autonomous regulation through the Japan Virtual and Crypto Assets Exchange Association (JVCEA).Notably, in its recent Policy Recommendations for Crypto and Digital Asset Markets Consultation Report, the International Organization of Securities Commissions (IOSCO) states that it is “seeking to encourage optimal consistency in the way crypto-asset markets and securities markets are regulated within individual IOSCO jurisdictions, in accordance with the principle of ‘same activities, same risks, same regulatory outcomes’.” This principle refers to the concept that any crypto-asset activity that has a similar function and poses similar risks to those in the traditional financial system — such as operating a trading platform or providing custody services — is subject to regulation that ensures equivalent outcomes, as defined by the UK Parliament.The IOSCO report also suggests that crypto-asset service providers (CASPs) should disclose information regarding ownership and control of crypto-assets, issuer and business-related information, issuer management teams, transaction history and operational description of crypto-assets, token ownership concentration, transfer protocols, and a given CASP’s treatment of the client crypto-assets and their respective rights and entitlements during events like hard forks and airdrops.Hurdles to overcomeExperts at the forum reflected these considerations in their sentiments. Han Suh-hee, a lawyer at Barun Law Firm, emphasized that it is important to determine what kind of information should be disclosed. She argued that it is necessary to discuss to what extent information about virtual asset issuers should be disclosed and whether mandating firms to disclose their financial and business conditions is efficient.In particular, Han underlined the need to consider the differences between virtual assets and stocks when establishing a framework for the disclosure of virtual assets holdings. Unlike stocks, virtual assets possess distinctive characteristics like their borderless and decentralized nature, unclear issuer backgrounds, and the ability to conduct peer-to-peer (P2P) transactions.Lee Han-jin, a lawyer at Kim & Chang Law Firm, added that the enactment of Korea’s Virtual Asset User Protection Act was aimed at establishing a system directly targeted at regulating virtual assets and virtual asset service operators (VASPs) — a significant development from the Financial Transaction Reporting Act, which had until now been the only legal framework responsible for regulating VASPs along with other entities like casino business operators. Virtual assets are now subject to a more systematized regulatory approach.However, he said that the Virtual Asset User Protection Act still has its setbacks because it is undergoing a two-stage legislative process. Lee criticized the fact that the same definition of VASPs outlined in the Financial Transaction Reporting Act had been brought over, which limits their identity to transaction intermediaries, wallet operators, and custodians while overlooking their other roles like crypto management, crypto deposits, and crypto collective investments.Lee also pointed out another weakness: the scope of prohibition on using undisclosed information and market manipulation is broader in the Virtual Asset User Protection Act than in the Capital Markets Act. He argued that enforcement decrees should stipulate the definition of insiders and exceptional cases when deliberating on the prohibition of insider virtual asset trading.Lee thus emphasized the need for a clear definition of virtual assets in the Virtual Asset User Protection Act, as it is yet unclear whether they are objects or assets. All things considered, he believes there must be a law that can encompass blockchain-based decentralization, outline the similarities and differences between digital assets and financial products, and accommodate new services that utilize smart contracts.“We are in the process of creating a regulatory system similar to those being adopted in other countries based on their respective markets,” said Lee Seok-ran, head of the Financial Innovation Bureau at the Financial Services Commission (FSC). “Unlike the stock market, which is equipped with regulations to prevent fraudulent transactions and misconduct, virtual assets are traded on multiple exchanges, so we are considering how to interpret unfair trading activities and conduct market surveillance.”She explained that the commission is prioritizing user protection measures and subordinate regulations. “I believe we will be able to create a system for subordinate regulations on disclosure once an overall global trajectory is established. But before that happens, we are working on guidelines for defining unfair trading activities with regulators and the Digital Asset eXchange Alliance (DAXA).” Unfair trading activities associated with virtual assets include not only those conducted on exchanges but also under other circumstances.The FSC officer said that the financial authority is set to establish legal criteria to distinguish cases such as false statements in white papers of crypto projects. She added that enforcement decrees will define both the conditions for restricting deposits and withdrawals on crypto exchanges and the corresponding limits.