June 12, 2022 | Issue 19
EXPERTISE IS ALWAYS RELATIVE
I began learning about crypto last April when the graphic artist Beeple sold an NFT at Christie's for $69M. I had never heard of NFTs and I wondered how an artist could make so much money selling a jpg. That spark of curiosity led me to learn. I listened to podcasts and watched videos, documentaries, and interviews about crypto. I took online classes, read books and journals, and subscribed to paid and free publications.
I also discovered two family connections who helped me understand the basics. One is a savvy investor and the other is an industry insider who works at one of the top crypto exchanges.
Fast forward a year and I am writing a weekly crypto newsletter, giving presentations, and writing a column, two times a month, for Inman called "Crypto Corner."
When I speak with crypto professionals, I'm a little bit beyond newbie status. When I am introduced to an audience, I'm called an expert.
Expert? How did that happen?
I found a new field that was intriguing, interesting, controversial, widely covered in the media, and had the potential to radically change real estate.
I want to keep learning and share what I learn. If you have questions, please call or text. If you work at CØMPASS, participate in our crypto Workplace group, ask your sales manager to invite me to speak to your office. If you don't work at CØMPASS, I'm happy to speak with you and your colleagues. Hope you had a great weekend. Have a productive week and stay crypto curious! Rich Hopen richard.hopen@compass.com | 908.917.7926 PS. You can find all CNR newsletters here.
CRYPTO NEWS
▸ Crypto Legislation Introduced by Senators Cynthia Lummis, R-WY, and Kirsten Gillibrand, D-NY
The senators introduced the Responsible Financial Innovation Act which proposed a regulatory framework for digital assets in the US.
The bill's legislative purpose is to "encourage responsible financial innovation, flexibility, transparency and robust consumer protections while integrating digital assets into existing law."
There are several significant aspects to the bill. First, it's bipartisan. The extreme political divisions on the Hill are not conducive to the Democrats and Republicans cooperating on anything. Yet, these two senators came together to introduce a comprehensive bill that addresses many thorny issues.
Second, future discussions about regulating crypto are likely to be framed in the context of this bill. This includes not just legislation, but reports and recommendations from the executive branch agencies and departments that are due to the President over the next six to twelve months.
Third, the bill tackles complex crypto issues and does not shy away from supporting the nascent crypto industry. This is not a surprise given the power of its lobby.
As reported in Bloomberg, political donations from the crypto sector in 2021 and the first quarter of 2022 has exceeded contributions by internet companies, pharma, and the defense industry.
The bill tries to strike a balance between protecting consumers and promoting the crypto innovation.
Sen. Gillibrand wrote, "As with any new technology, there are real risks to consumers, businesses, national security, and our financial system. These risks make sound regulation key."
She warned that if the US does does not develop a clearly defined regulatory framework, digital asset companies would leave the country. "The bottom line is that is is absolutely critical that the US plays a leading role in this new frontier."
Here are the key portions of the legislation.
● Security or Commodity?
One hot issue is how to characterize a digital asset.
Securities & Exchange Commission Chair Gary Gensler takes an expansive view and has said that most cryptocurrencies meet the legal test of being a security. Securities are tradable financial instruments like stocks and bonds.
However, cryptocurrency exchanges and issuers have disagreed and declined to register with the SEC.
The bill solves this dispute by defining when a digital asset is a security or commodity.
Commodities are tradable goods that typically fall into four groups – energy, metals, livestock, and agriculture. The bill gives the Commodity Futures Trading Commission (CFTC) authority to regulate "digital collectibles and other unique digital assets."
A digital asset would be a security if it is debt, equity, or provides profit sharing. Otherwise, the digital asset is a commodity and the parties would not be saddled with the registration, potential liability, and costs of complying with the securities rules.
The CEO of the crypto trade industry group Association of Digital Asset Markets, Michelle Bond, commented, "We're really excited about this bill, and we think it landed in a really great place."
● Stablecoins
Stablecoins are cryptocurrencies tied to a stable currency, like the US dollar. It represents about ten percent of all cryptocurrencies.
Last month, one stablecoin, TerraUSD crashed and over $18 billion in value vanished.
The legislation requires that stablecoins maintain 100% in reserves so that a stablecoin holder could redeem the coin with an equivalent amount of US dollars.
● Study Energy Consumption
Digital assets that are created by crypto "miners" using the "proof of work" methodology, consume a lot of electricity. The bill directs the Federal Energy Regulatory Commission to study asset mining and innovations to harness existing and renewable sources.
Crypto commentators do not expect any crypto legislation to advance in either the Senate or the House until after the mid-term elections.
▸ SEC Investigating TerraUSD
The SEC responded to the collapse of TerraUSD stablecoin that rocked the crypto world in May. Bloomberg reported that SEC is investigating Terraform Lab for violating rules that protect investors. TerraUSD allegedly failed to back up its stablecoin with adequate US dollar reserves.
▸ Galaxy Digital Holdings CEO Predicts Two-Thirds of Crypto Hedge Funds Will Fail
Bloomberg reported that Mike Novogratz, CEO of Galaxy Digital Holdings Ltd., said hedge funds invested in cryptocurrencies are going to restructure or fail.
Novogratz pinned the drop in crypto prices on the Federal Reserve's removal of stimulus. Galaxy Holdings was also heavily invested in TerraUSD, the stablecoin that collapsed last month.
▸ Treasury Deputy Discusses Unhosted Crypto Wallet Rules US Treasury Dept. Deputy Secretary Wally Adeyemo spoke about the government's security concern of allowing people to hold crypto anonymously. Crypto holders can either allow their
crypto exchange to hold their crypto as a custodian, or they can hold their own crypto on an unhosted wallet. Adeyemo said, "Unhosted wallets are effectively just addresses on a blockchain. It can be difficult to determine who really owns and controls them, creating opportunities to abuse this heightened anonymity." The Treasury may include a plan to regulate unhosted wallets when it submits its crypto plan to President Biden as required under the President's executive order.
▸ Jack Dorsey Announces New Decentralized Platform
Jack Dorsey, co-founder of Twitter and founder/CEO of Block, presented a proposal for a decentralized web platform that keeps personal data from third parties. "It lets devs focus on creating delightful user experiences, while returning ownership of data an identity to individuals."
CRYPTO CLASS – TITLE ON THE BLOCKCHAIN
The title insurance industry protects parties in a real estate transaction by scrutinizing public records for “defects" in the title.
Defects include outstanding mortgages, judgments, liens, ownership claims by neighbors, prescriptive easements (use of land by others over time creating a permanent right), claims by unknown heirs of a previous owner, forgeries, falsified documents, and clerical errors.
According to ALTA, 25% of all residential real estate transactions have title issues that need to be resolved before closing. Title insurance professionals and attorneys correct the problems.
Title insurance policies protect lenders and owners against title defects. Even if property records move to the blockchain, title insurance is still needed.
Generally, data on a blockchain is more secure because it’s decentralized. It’s also transparent if it resides on a single blockchain and if all historical property records were properly added.
Migrating data to the blockchain will require support from all real estate industry participants and will be a major investment of resources.
Cook County, Illinois and Burlington, Vermont were two communities that demonstrated the possibility of recording property transactions on blockchain. However, paper copies needed to be filed with the local recorder’s office.
[For more info, read Why Blockchain Technology Won’t Replace Title Insurance]
INFLUENCERS - People to follow
Joseph Lubin – @ethereumJoseph
Joseph Lubin is the cofounder of Ethereum and founder of ConsenSys, a blockchain software technology company. ConsenSys develops software for the Ethereum blockchain.
RESOURCES – Books, websites, podcasts, articles Vitalik Buterin, Ethereum founder, gave a 25-minute presentation in 2016 on Ethereum's structure. CRYPTO WORD – AIRDROP When promoters of a new project issue free crypto tokens to encourage community action.
OH, ONE MORE THING –
Thanks for reading! See you next week.
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