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Can SAFTs Create a Self-Regulated Cryptocurrency Market?

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The Chinese government’s recent ban on initial coin offerings (ICOs) has reignited the debate on how crypto-assets should be regulated. In the United States, lawmakers are grappling to define ICOs from a tax, legal and securities perspective. To this day, no one is certain how this new crowdfunding model will be treated.

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ICOs mirror initial public offerings by allowing companies to raise money via Ethereum-based token sales. Their growth has occurred in lockstep with the broader cryptocurrency market, which has seen enormous uptake since the start of 2017. However, the key challenge for market participants has been predicting how the regulatory environment will evolve to keep pace with crypto-based crowdfunding.

The murky regulatory environment surrounding token sales has hastened the need to bring the cryptocurrency ecosystem to maturity. Recognizing the limitations of existing frameworks, the crypto community came together to create standard legal agreements for the ICO market. These efforts led to the creation of the Simple Agreement for Future Tokens (SAFT) project, which aims to streamline the verification and investor accreditation process. The open source movement is uniting technology companies, legal experts and members of the blockchain community to converge on a framework that gives rise to a self-regulated cryptocurrency market.

The Rise of SAFT

In its simplest form, a SAFT promises investors future tokens at a fixed price. It can be structured so that investors receive their tokens when the network launches or via inbuilt vesting that encourages their continued support.

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SAFTs were modelled after the Simple Agreement for Future Equity (SAFE) protocol, which was created by Y Combinator to reduce the complexity of funding early stage startups. Whereas SAFTs promise investors future tokens, the SAFE guarantees future equity.

While SAFTs certainly fall under the ICO umbrella, they are structured to provide much more regulatory certainty. This is what people mean when they say SAFTs are creating a self-regulated crypto market.

Unlike plain ICOs, which sell tokens to pretty much everybody, the SAFT structure limits participation to accredited investors as defined by Rule 506(c) of the SEC’s Regulation D. This list includes high net worth individuals, high-income earners and multi-million-dollar trusts, among others. This is the demographic to which SAFT is designed to serve. By meeting these and other requirements set out under Rule 506(c), startups can theoretically raise an unlimited amount of money via crowdfunding and advertise their sale over the internet.

Uniting the Blockchain Community?

Because SAFT is open source, it can be used by anyone. It’s therefore no surprise that a budding startup community leveraging SAFTs has already emerged. Their goal is to create a more secure way for investors to access the ICO market. This will serve as an important stopgap until new laws are crafted and implemented.

Members of the blockchain community have already encouraged regulators to join the SAFT movement. At the time of writing, the only ruling on digital coin offerings has come from the Securities and Exchange Commission (SEC). Earlier this year, the agency ruled that the tokens offered by ‘The DAO’, an ether-based venture capital fund, were securities and therefore subject to national securities laws. The SEC maintains that not every token will be defined as a security, but determined on a case-by-case basis.

Other regulators expected to chime in on the digital token debate are the Commodity Futures Trading Commission, Internal Revenue Service and the Financial Crime Enforcement Network. Internationally, financial regulators in Singapore, Hong Kong, Korea, Russia and Canada are also exploring whether ICOs should be regulated as securities.

Just How Big Have ICOs Become?

The amount of money raised by startups via initial coin offerings approached $800 million in the second quarter, data from CoinDesk recently revealed. By mid-2017, ICOs had already outpaced early venture capital funding. That’s a significant achievement given that ICOs were barely heard of just 12 months ago.

The growth and widespread adoption of ICOs mirrors the massive explosion in cryptocurrency over the past nine months. Before 2017, the cryptocurrency market was synonymous with Bitcoin, which was officially launched in 2008 as the brainchild of Satoshi Nakamoto, the person or entity who designed its original reference implementation. While Bitcoin continues to lead the pack in terms of overall capitalization, nearly a dozen altcoins have surpassed the $1 billion mark in the past few months. Ethereum is among those, and is currently ranked second in terms of overall capitalization. The crypto market is collectively valued at over $140 billion, although this figure is prone to wild fluctuations.

Bitcoin has been the world’s best-performing currency in six of the past seven years. As of early September, it appears likely that the cryptocurrency asset class will retain that title over fiat currencies.

The Beginnings of a Self-Regulated Market

The ICO ban initiated by China dealt a major blow to the cryptocurrency market, with ether prices plunging as much as 30% in the days following the decision. There’s a general fear that China’s attack on ICOs marks an end to the first era of digital token offerings. At first glance, the decision appears to have set a bad precedent for an industry still finding its footing.

At the same time, China’s unique context makes the ruling hardly surprising. Beijing has zero tolerance for any activity that will undermine its financial stability. This is especially true at a time when policymakers are steering their economy away from export- and investment-dependence toward a model that is based on services and consumption. The People’s Bank of China has already intervened in the cryptocurrency market on several occasions, probably as a backhanded attempt to manage capital flight from the country. (Cryptos are a popular way for mainland investors to diversify away from a volatile yuan, which fell to more than eight-year lows against the dollar in 2016.)

While the Chinese ban may stifle blockchain development in the short run, it will only embolden industry players to converge on a new model for self-regulating this space. From a regulatory perspective, the combination of identity verification and investor accreditation offered by SAFT has several advantages, including greater token compliance and more clarity for entrepreneurs. These features make SAFT well positioned to become the industry standard. By giving accredited investors an easy onboarding platform, SAFT opens token crowdfunding to a large segment of the market, leading to vastly greater adoption than we’ve seen through the early stages of the ICO hype.

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Crypto Market Reaches Historic Milestone as Ether, Ripple Surge

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The cryptocurrency market reached a historic milestone Wednesday, as the combined sum of all coins in circulation peaked above half a trillion dollars for the first time. The gains were mainly driven by Ethereum and Ripple XRP, a pair of high-profile altcoins that have been on investors’ radar for some time.

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Global Crypto Market Cap

The combined value of cryptocurrencies in circulation broke above $500 billion on Wednesday for the first time ever. According to CoinMarketCap, the overall market peaked around $512 billion at around 15:17 UTC.

At last check, the total market capitalization was around $498.5 billion. That represents a gain of 29% over the past seven days and 144% over the past month.

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As the following chart illustrates, bitcoin’s dominance has declined sharply since February as altcoins proliferated. At the start of the year, bitcoin represented nearly 95% of the global cryptocurrency market in terms of value. That figure fell to a low of 39% in June, and has since moderated around 60%.

Ethereum has seen its percentage rise the most relative to bitcoin. At its highest, ether accounted for nearly one-third of the market value, according to CoinMarketCap data.

Ether, Ripple Step Up

Earlier in the day, Hacked reported that ether prices surged past $700 for the first time in a renewed show of strength. The gains were largely driven by positive headlines out of Switzerland after UBS, Barclays and others announced they would be leveraging Ethereum’s smart contracts to meet new stringent regulatory requirements.

At press time, ether was trading right around $700. That translates into a total market cap of $67.2 billion.

Ripple XRP also climbed to new highs Wednesday as prices peaked a hair shy of 50 cents U.S. Ripple was last seen trading at 0.4841, having more than doubled in the span of a week. In fact, Ripple’s gains have been so dramatic that it overtook Litecoin in overall market cap. Ripple’s market is currently valued at $19.1 billion, placing it fourth among active crpyptos.

The recent gains in the altcoin universe highlight the importance traders are placing on the news headlines. It also sends another clear signal that the cryptocurrency market is about much more than just bitcoin. In the case of Ethereum and Ripple, each system provides its own unique advantages that go beyond just transactions.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

 

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Technical Analysis: Volatility on the Rise Again, as Ripple and Ethereum Hit Targets

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Ripple has been the star of today’s session in the cryptocurrency segment, as the only major coin on a long-term buy signal in our trend model continued yesterday’s break-out, and surged to a new all-time high. The currency cleared the $0.425 level that marked the top in May, and after the more than 6-month long consolidation phase, it promptly neared the $0.50 level.

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While the short-term momentum indicators are now stretched, the coin is still in an encouraging long-term setup, although the best period to buy already passed. The coin could be dragged lower in the case of the expected broad correction in the segment, but we expect XRP to outperform in the coming period, with support levels found at the prior high and below that in the range between $0.30-$0.32.

XRP/USDT, 4-Hour Chart Analysis

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Ethereum has been the other top coin on the rise, as the second largest digital currency surged past the final range projection target of the break-out two weeks ago at $685 in the aftermath of the launch of the BTC futures on Monday. The ETH token is now also on a sell signal on all time-frames, and we advise investors and investors to wait for the next major correction to establish new positions. Support levels are now found at $575, $500, $480, and $400.

ETH/USD, 4-Hour Chart Analysis

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Cryptocurrencies

Trade Recommendation: Syscoin

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The price bounced from the support zone formed by the uptrend line and SMA50. MACD and DMI support upward movement. If the price breaks the resistance level and the previous swing high, we’ll get a signal confirming that the market is going to move higher. Pending orders for buy can be placed at 0.00002550 level with stop orders at 0.00002150 level. Profit targets are 0.00003000 and 0.00003800 resistance levels. If you don’t use leverage, trading volume for this trade is up to 5% from your deposit.

Market: SYSBTC
Buy: 0.00002550
Stop: 0.00002150
Profit Targets: 0.00003000 and 0.00003800

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The trading signal is based on Poloniex chart.
Disclaimer: The analyst does not have investments in Syscoin.

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