August 28, 2022 | Issue 30 ARE YOU EDUCATING ME OR SELLING ME? For 30 weeks I've been writing about crypto. The news is always interesting and writing about it educates me or reinforces what I have already learned. I am happy that others are writing and presenting to agents about crypto. However, I'm often puzzled by the style and approach of the handful of entrepreneurs who are trying to bring crypto to real estate. After being immersed in the nascent crypto industry for for about 10 months and witnessing the massive disruption inside the crypto world, anyone predicting how real estate will utilize crypto is either deluding themselves or is trying to convince you to buy their service or course. Crypto and real estate are driven by macro economic conditions. Accurately predicting the economy, real estate market, or crypto is not possible. Be wary of the crypto entrepreneur who shows you a roadmap or timeline of crypto adoption by home sellers, buyers, and agents. Instead, educate yourself and do it at a comfortable pace. Every week, I give you the news highlights with links to learn more. I'm also available to answer your questions. 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. PPS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me.
CRYPTO NEWS
▸ Crypto Investors Looking For Assurances – Tether Is Taking Its Time
It has been a long, painful summer for crypto investors and one lesson has been taught repeatedly – investor beware.
In 2021, the Commodity Futures Trading Commission (CFTC) settled an enforcement action against Tether for falsely claiming that its crypto tokens were backed by US dollars. Tether paid a $41 million penalty.
Knowing the type of reserves that back up Tether would be extremely valuable to investors. One way to do this is through a financial audit.
Tether, the largest stablecoin, has been promising to provide an audit since 2017. However, it has only provided an "attestation" of its reserves and liabilities.
An audit can provide a much better look into a company's financial condition than an attestation. According to a Wall Street Journal article, there is only a "thin cushion of equity" and a 0.3% drop in assets could make Tether insolvent.
▸ Senate Ag Committee Hearing in September on Crypto Exchanges Crypto publication, The Block, reported that the Senate Agricultural Committee is drafting a bill that will be discussed at hearing in September. The bill establishes that crypto exchanges will report to the Commodity Futures Trading Commission (CFTC).
Given the upcoming mid-term elections, the likelihood of a crypto bill becoming law is very slim. However, the value of the hearing is to become part of a comprehensive crypto bill in the next legislative session which will begin January 2023.
▸ Who Owns Your NFT? Alex Thorn of Galaxy Digital said that NFT holders may not own the intellectual property rights of their NFTs. Instead, that would be retained by the NFT creator. In a comprehensive report by Galaxy Digital which examined NFT license agreements for the top NFT collections, Galaxy Digital concluded the following: ● The vast majority of NFTs convey zero intellectual property ownership of their underlying content. ● Many issuers, including the largest Yuga Labs, appear to have misled NFT purchasers as to the intellectual property rights for the content they sell. ● Only one NFT collection in the top 25 by market capitalization (World of Women) attempts to confer intellectual property rights to the purchasers. ● The Creative Commons license renders NFT ownership obsolete from a legal perspective as it moves the intellectual property fully into the public domain. ● Without improvements in the on-chain representation and transfer of intellectual property rights from NFT issuers to NFT token holders, the expansive vision of Web3 will remain unrealized.
CRYPTO CLASS – Is Crypto a Security or Commodity and Why Does It Matter?
A security is the legal category that covers stocks and bonds. There are several components that define a security.
First, it is fungible. This means that the asset is tradable and interchangeable because there is nothing inherently unique about it. For example, US currency is fungible. One $10 bill is just as valuable as another $10 bill or equal in value to two $5 bills or 40 quarters. Non-fungible assets include homes, cars, and in the crypto world, NFTs (non-fungible tokens).
Second, a security is a negotiable financial instrument that has monetary value.
Securities can represent – (1) ownership in a corporation as stock (equity), (2) creditor relationship in a corporation or governmental body (bond), or (3) rights to ownership by an option.
Securities were first regulated in the Securities Act of 1933 with the purpose of protecting the public by ensuring that potential investors received accurate financial information from those selling securities. Later, the Securities & Exchange Commission (SEC) was created to develop and enforce the regulations. There was a lot of uncertainty as to whether or not an asset met the legal definition of a security. In 1946, the US Supreme Court interpreted "security" in a landmark case, Howey vs SEC. Howey states that an investment is a security if it meets a four-prong test: 1) There is an investment of money. 2) The investment is made into a “common enterprise.” 3) The investors expect to make a profit from their investment. 4) Any expected profits or returns are due to the actions of a third party or promoter. With this broad understanding of a security, what is a commodity? Commodities are basic goods used in commerce often referred to as “inputs in the production of other goods or services.” There are four basic groups – energy, metals, livestock, and agriculture. Trading commodities is usually through “futures” contracts on exchanges. Common tradable commodities include wheat, soybeans, livestock, coffee, sugar, cotton, corn, frozen orange juice, crude oil, natural gas, gold, and silver. “Futures” are contracts that obligate parties to buy or sell an asset at specific date and price. Commodity futures are regulated by the Commodity Futures Trading Commission (CFTC). Is Crypto a Security or Commodity? It depends on whom you ask and what criteria they are using. SEC Chair Gary Gensler is taking an expansive view that most cryptocurrencies are securities. Many legislators disagree and believe that most cryptocurrencies fall under CFTC's jurisdiction. And a bi-partisan bill introduced in June 2022 by Sen. Cynthia Lummis (R, WY) and Kersten Gillibrand (D, NY) sought to exempt some crypto currencies out of SEC's jurisdiction and create new concepts for some digital tokens issuers. The reason why this is a major issue for crypto issuers and crypto exchanges is because security regulations are burdensome, costly, and will hinder the US from becoming the global leader in growing the industry. Industry advocates want consumer protection and regulation because without it, there won’t be widespread adoption. This will happen through the legislative process and when regulatory agencies begin publishing reports, policies, guidelines, and draft regulations followed by public comment.
INFLUENCERS - People to follow Mark Cuban – @mcuban Billionaire entrepreneur, TV celebrity, owner of NBA team Dallas Mavericks, owner of film distributor Magnolia Pictures, and crypto evangelist. Cuban tweets regularly on crypto and is very bullish on Ethereum.
RESOURCES – Books, websites, podcasts, interviews, articles, videos Documenting Bitcoin is a Twitter account that has images, videos, and links that are educational and entertaining. It's a fun Twitter account to scroll when exhausted by the weight of the crypto world.
CRYPTO WORD – Node A computer that connects to a blockchain network. OH, ONE MORE THING – Super relevant to VC-funded crypto ventures. (Turn on sound)
Thanks for reading! See you next week. Go to Crypto News for Realtors to read previous issues.