Standard Kepler

Five Trends to Keep an Eye on in 2019

12/31– 1/6

Standard Kepler Research Five Trends to Keep an Eye on in 2019
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WEEKLY RECAP

  • Total market cap. reached $131bn (a 1.6% increase), and 7 day trading volume slumped 7.1% for top 100 crypto


WEEK AHEAD

  • 7 Jan: Trade talks b/w China and U.S. in Beijing
  • 11-12 Jan: ETCV and ETN forks


THOUGHTS OF THE WEEK

Firstly, 2019 is touted as the year of security token offerings (STO), yet we view this hype as highly premature. When the technology is discounted, security tokens are securities and must be regulated as such. Issuers must register with regulators or apply for exemptions. The development of STOs depends on clear regulatory definition of security tokens, as well as global consensus. Early entities issuing STOs may be of limited attractiveness to investors, and secondary trading is initially only expected in smaller jurisdictions.

Secondly, we further foresee more stringent crypto regulations and enforcement against operators and developers of unlawful smart contracts. The EtherDelta ruling set a precedence, holding the smart contract creator responsible for operations executed under U.S. SEC jurisdiction. We expect enhanced international regulation to make crypto a recognised “sector” under financial markets, driving regulations surrounding financial crypto instruments and taxation.

Thirdly, regulators are expected to determine the future of BTC ETFs in 2019. These are viewed as potential gateways for traditional institutions into crypto markets, yet we are cautiously pessimistic about their near future approval. Attention should be paid to the 27 February decision on VanEck’s application. This application attempts to address price manipulation concerns by relying on a surveillance sharing agreement with a significant BTC-related market. It is also worth noting that BTC ETF approval would help develop industry standards for crypto custodians who would play a crucial role in  ETF share redemption.

Fourthly, permissioned blockchains could be a component in central bank issued digital currencies (CBDC). These enable new consumer payment systems (securing public access to risk free central bank money in countries with low cash usage), and more efficient systems for inter-bank settlement. The central banks of Singapore, Sweden, Canada, Japan, and the EU (among others) are currently evaluating CBDCs.

Lastly, early warning indicators have for some time shown signals of a possible near future contraction of traditional markets (see Chart of the Week). This may divert the attention of central banks and cause delays to the actual adoption of CBDC. While a bear run might generate interest in alternative storages of value such as Bitcoin, it is also likely to contract investment into other aspects of crypto blockchain, such as STOs, equity funding, and market trading.


CHART OF THE WEEK

Early Warning Indicators for Stress in Domestic Banking Systems

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