2019: What a Year in Crypto!

New Year’s greetings! Let’s celebrate what a great 2019 it was for crypto … Don’t let the fake news convince you otherwise. 😉

Yes, prices rose and fell violently. Some people made money, and some lost. Timing was very important. But Bitcoin is higher today than this time last year by 90%. Despite the gains Bitcoin continues to scare anyone looking to use it as a store of value… none of that is new.

What made it a great year for crypto was the explosive growth that cryptocurrency networks experienced in Asia, Europe, Africa and the United States.

The global Bitcoin network is growing in institutional circles at the fastest pace in its existence. The power of blockchain technology (and cryptocurrency, its first killer app) is catching on like wildfire all around the world.

With better regulator clarity, it shouldn’t be surprising that the pace of “crypto-normalization” is increasing. You can read our favorite highlights from 2019 below:

Growth is Booming in Asia

    • China now has nearly completed digitizing its currency and has recently enacted laws supporting Blockchain Technology and educating its citizens as to its benefits.
    • Japan’s largest bank, Mitsubishi bank offers cryptocurrency custody and trading services.
    • South Korea and Singapore are courting Cryptocurrency firms as are Malta and Liechtenstein.
    • “Blockchain” is the fastest growing job skill in Singapore, and among the top 3 in China, Japan, Taiwan, South Korea, Hong Kong and Vietnam, according to LinkedIn studies.

Growth is Booming in Europe

    • Germany trades cryptocurrencies alongside equities on exchanges.
    • In Switzerland and the UK, cryptocurrencies can now be banked for safekeeping with some of the country’s most iconic banks.
    • France is attracting Cryptocurrency focused firms with preferential tax laws.
    • The EU’s Financial Regulatory Authority FATF has issued clear anti-money laundering in the form of its “travel rule” which governs purchase and sale of “virtual assets” and requires reporting on crypto transactions greater than $1000.

Growth is Booming in the USA

    • Over 100 Fortune 500 companies announced projects related to Blockchain Technology and/or  Cryptocurrency.
    • Futures and Options on Bitcoin and other cryptocurrencies have launched and have seen rapid growth.
    •  JP Morgan Successfully launched a digital Currency.
    •  Fidelity Investments now offers Bitcoin custody and trading.
    •  A new regulatory framework is in front of congress Read about it here.

Even More Growth with Regulatory Clarity

We now have SO MUCH more clarity into the trajectory of institutional crypto adoption. We are brimming with confidence that we are on the right path. We subscribe to the adage that markets will behave like voting machines in the short-term, but like weighing machines in the long-term.

We aren’t letting the short-term price of Bitcoin or any other asset cause us to turn a blind eye to the paradigm shift that is happening right in front of us.  We foresaw many of the regulatory developments of 2019 and positioned our funds correctly (such as excluding “privacy coins” from our universe). Seeing the poor performance of the coins that we excluded has further validated our research and investment processes.

That is not to say it has been easy sledding. The MVIS CryptoCompare Digital Assets 10 Indexwhich tracks large cap cryptocurrencies (and to which we benchmark our flagship large-coin product Blockchain Momentum, LP), returned an underwhelming +9% for the year. The MVIS CryptoCompare Digital Assets 100 Small-Cap Index (the benchmark we use for our small-coin fund, Fifth Khagan, LP) fared even worse, ending down -33%.

We are happy to say that unlike our indices, both of our strategies remained positive for the year with net performance of around +45% and +15% respectively (unaudited and subject to change).

In 2019, our investment process added more than 25 percentage points of alpha on average verses our indexes. Our traders, analysts and “Blockchain Insider” group are delivering and deserve recognition. 

Other firm highlights for the year included meeting with the IMF in Washington DC, improving the client experience with Daily NAV reporting and online account access and getting a chance to sit down with our favorite financial news anchor, Maria Bartiromo to share our ideas about how blockchain technology will rebuild the world’s financial infrastructure and what has caused the United States to fall behind China in the race to shape the future of finance.

In 2019 our team welcomed one new baby, heated a pool with Bitcoin Miners, opened an office in Massachusetts and enjoyed traveling around the country sharing best practices for safe cryptocurrency investing.

We will look back fondly on 2019 but are excited for what lies ahead for cryptocurrency and blockchain in 2020. The future looks bright!

The 2010s Belonged to Bitcoin: So What’s in Store for the 2020s?

Bitcoin: Asset of the Decade

Bitcoin pessimism seemed in vogue at the end of 2019, as the largest cryptocurrency tumbled 30% from September 2 to December 31. However, at decade’s end, one thing is clear: The 2010s belonged to Bitcoin.

Bitcoin volatility deterred some investors, with alternating spikes and plummets of hundreds and even thousands of dollars within only a few hours. However, these types of price movements can be considered a maturation stage for emerging stores of value (see this Forbes article outlaying the Bitcoin-Gold comparison).

It’s helpful look past the day to day volatility to see the true success that Bitcoin has had in the last year and decade.

In January 2019, Sarson Funds’ John Sarson called bottom for the crypto winter as Bitcoin hovered around $3,600. Bitcoin finished the year strong, with a return on the year of nearly 100%, making it the highest returning investment of 2019, far beating the 31% return of tech stocks for the year.

While Bitcoin’s returns are impressive for 2019, however, they are minuscule when considering Bitcoin’s overall ROI.

Over the past decade, Bitcoin returned 8,900,000%. That’s right, if you invested 1 dollar in Bitcoin in 2010, you would have roughly $89,000 in your pocket right now. If that hasn’t caught your attention, why should you invest? Bitcoin is still in its infancy.

Looking forward, 2020 holds vast potential for Bitcoin. On May 13th 2020 is Bitcoin’s next scheduled halving. The halving of a coin is particularly important for price changes of a crypto (What is halving? Read about it in a Sarson Funds article here).

In short, a cryptocurrency halving event is when the mining rewards are cut in half, therefore decreasing the rate that the supply increases, making the coin more scarce. The halving of Bitcoin in 2020 is important because its last halving in 2016 began the historic bull run that put demand for Bitcoin at its all-time high of $20,089 in December 2017.

While it’s impossible to predict the halving’s effect on Bitcoin’s price, what is known is that 2020 will provide Bitcoin with a plenty of factors that could highly impact its price range in the coming years.

Based on what was seen after 2016, Sarson Funds is hopeful. 

Sarson Funds’ Second Bold Bitcoin Prediction Predicated on Rising Geo-Political Instability and Increased Regulatory Clarity

Cryptocurrency Manager John Sarson: As international political uncertainty casts ominous clouds over an otherwise positive economic narrative, one thing is certain about the state of digital assets – you will not see Bitcoin under $7,000 USD again.

John Sarson, the Managing Partner of Sarson Funds, went on record with his 2020 Bitcoin prediction in a Tweet over the weekend. According to Sarson, as international political uncertainty casts ominous clouds over an otherwise positive economic narrative, one thing is certain about the state of digital assets – you will not see Bitcoin under $7,000 USD again.

In a memo to investors last Friday, Sarson noted that the combination of improved regulatory clarity at home and political instability abroad are creating a supportive environment for the world’s largest digital asset. “We [now] have so much more clarity into the trajectory of institutional crypto adoption with firms like JP Morgan issuing their own digital currencies and Fidelity offering Bitcoin custody and trading,” Sarson said.

Looking ahead to 2020, one significant sign of encouragement, according to Sarson Funds, is developments on Capitol Hill, particularly the proposed Crypto-Currency Act of 2020, a draft House bill sponsored by Rep. Paul Gosar (R-AZ), which Sarson claims has broad support among financial firms looking to keep pace with Asian and European rivals.

Sarson Funds Chief Marketing Officer, Jahon Jamali cites US digital asset leadership as “of vital national strategic interest.” Jamali cautioned that beyond escalating tensions in the Middle East, it is China’s national blockchain technology initiatives that most directly threaten America’s global financial leadership saying, “Washington needs to step up and lead – the US must not lose the Blockchain Wars.” Comments that gain urgency and validity when considered with respect to Jamali’s background as former US intelligence officer.

This is not the first time Sarson Funds came out with bold New Year guidance for cryptocurrency investors. One year ago, while Bitcoin’s price hovered around $3600, Sarson publicly went on record with a press release stating that the price bottom was in for Bitcoin and that 2019 would herald renewed investor interest and growth for the digital currency.

Fast forward a year, and Bitcoin is up nearly 100%. During that time the Indianapolis and Boston based-firm focused on its core mission: educating Wall Street about blockchain technology and cryptocurrency investment strategies. From a nationwide speaking tour, presenting to investor groups and CFA Societies connecting thousands of financial advisors with transparent cryptocurrency educational resources, Sarson Funds believes increased regulatory advances will yield even further accelerated growth for digital assets in the new decade. Time will tell if Sarson’s predictions hold true again, with Bitcoin’s price trading just 3% above Sarson’s $7000 floor at the time of the announcement we may have our answer fairly quickly.

See the Press Release here.

A Breakdown of the Crypto-Currency Act of 2020: What Investors Need to Know

Cryptocurrency Act of 2020 - What Investors Need to Know - Infographic

Introduced in draft form to the House of Representatives on Friday, December 20, 2019, the much anticipated Crypto-Currency Act of 2020 makes significant progress towards clarifying the regulatory framework surrounding Digital Assets.

You can read the entire bill here and find our analysis below.

Click here to download the Sarson Funds Crypto-Currency Act of 2020 Investor Infographic (above).

Crypto-Currency Act of 2020 Summary:

The legislation does not create any new regulatory agencies.  It separates Digital Assets into three broad categories and assigns an existing regulatory body to each of the below categories:

Crypto-currencies: These tokens are defined as representations of US currency and are “reserve-backed digital assets” such as “stablecoins” that are collateralized by synthetic or physical assets held in a “correspondent banking account.” This category would be the smallest of the three categories.

Regulator: Financial Crimes Enforcement Network (FinCEN)

Coins Included:  TrueUSD (TUSD), USD Tether (USDT), Paxos Standard, (PAX),  USD Coin, (USDC)

Crypto-commodities: These tokens are based on commodities or other “economic goods or services.”  We believe this would encompass all  “Utility Token” blockchain projects such as those related to medical records, identity, webservices etc.

RegulatorCommodity Futures Trading Commission (CFTC)

Coins Included: Digix, Gold, Tezos, Binance Coin, Cosmos

Crypto-securities: These are tokens that represent “debt, equity, and derivative instruments that rest on a blockchain,” including those governed by “smart contracts and collateralized by other [digital assets].”  We believe that this would include smart contract platforms such as EthereumEOS, and others, especially when used to transact value (as opposed to record data). Bitcoinand other “value transfer” cryptocurrencies would fall into this category.

RegulatorSecurities and Exchange Commission (SEC)

Coins Included: Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash, EOS, Tron

A Rapidly Closing Door for Privacy Coins:  

The Act requires that, “each agency shall issue rules to require each crypto-currency (including synthetic stablecoins) to allow for the tracing of transactions [emphasis added] in the crypto-currency and persons engaging in such transactions in a manner similar to that required of financial institutions with respect to currency transactions.

Regulator:                   Financial Crimes Enforcement Network (FinCEN)

Top Coins Included:      Monero,  Zcash, Dash, Verge, Horizon

The proposed legislation is a welcomed move forward as it provides a protective framework for businesses and institutions seeking to grow their engagement with cryptocurrency technology.  The Act’s final provision regarding “transaction traceability” provides long-awaited  safeguards against money laundering and criminal financial activity – the enabling of which was a criticism that cryptocurrency proponents have heard from the likes of Bill Gates and Donald Trump and have long sought to shed.  This requirement would bring the United States into cohesion with Europe’s FATF’s new“travel rule” which requires reporting on crypto transactions greater than $1000 and would effectively be a death-blow for privacy-centric cryptocurrencies in the United States.

Speaking on behalf of ourselves and other firms building businesses around cryptocurrencies, we applaud Representative Paul Gosar (R-AZ) and his team for the well written legislation.  It is in line with recommendations that we have been offering since 2017 and that we believe are the foundation upon which crypto-businesses in the United States will be built.

You can learn more about how regulation is shaping the adoption of Cryptocurrency by checking us out at www.sarsonfunds.com/education.

Christmas Comes Early to Cryptocurrency Firms: The Crypto-Currency Act of 2020

Cryptocurrency Act of 2020

The much anticipated Crypto-Currency Act of 2020 was introduced in draft form to the House of Representatives on Friday, Dec 20, 2019.

Hardly six pages in length, the proposed Bill makes significant progress towards clarifying the regulatory framework surrounding Digital Assets, though we hope lawmakers remove the atrocious hyphen within “Crypto-Currency” prior to a vote by the full House floor.

Speaking on behalf of ourselves and other firms building businesses around cryptocurrencies, we applaud Representative Paul Gosar (R-AZ) and his team for the well written legislation.

You can read the bill here and find our analysis below.Cryptocurrency Act of 2020

Crypto-Currency Act of 2020 Summary:

The legislation will not create any new agencies, but rather assigns an existing regulatory body for oversight based on a newly proposed federal classification of Digital Assets into three broad categories. Those categories and their corresponding federal regulator are below:

    • Crypto-commodities: These tokens are based on commodities or other “economic goods or services. We believe this would encompass “Utility Token” blockchain projects such as those related to medical records, identity, webservices etc.Regulator: Commodity Futures Trading Commission (CFTC)
    • Crypto-securities: These are tokens that represent “debt, equity, and derivative instruments that rest on a blockchain,” including those governed by “smart contracts and collateralized by other [digital assets].”  We believe that this would include smart contract platforms such as Ethereum, EOS, and others, especially when used to transact value (as opposed to record data). Bitcoin and other “value transfer” cryptocurrencies would fall into this category.Regulator: Securities and Exchange Commission (SEC)
    • Crypto-currencies:  These tokens are defined as representations of US currency and are “reserve-backed digital assets” such as “stablecoins” that are collateralized by synthetic or physical assets held in a “correspondent banking account.” This category would be the smallest of the three unless expanded to include tokenized real assets such as Gold and Real Estate based cryptocurrencies.Regulator: Financial Crimes Enforcement Network (FinCEN)

The Bill continues saying, “each agency shall issue rules to require each crypto-currency (including synthetic stablecoins) to allow for the tracing of transactions in the crypto-currency and persons engaging in such transactions in a manner similar to that required of financial institutions with respect to currency transactions.

The proposed legislation is a welcomed move forward, as it provides a protective framework for institutional allocation as well as safeguards against money-laundering and criminal financial activity – a cloud that cryptocurrency proponents have long sought to shed.

We anticipate this to be the official (and long anticipated) death-blow for privacy-centric cryptocurrencies such as Monero and Zcash that had historically run afoul of regulators with their claims of anonymous financial transactions.

 

China Lands First Blow in Global Blockchain Wars

As lawmakers jockey to chastise technology leaders like Facebook’s Mark Zuckerberg (for the dastardly future crime of earning potential profits by providing a payment service to millions of people), America’s greatest economic foe, China, has quietly built a substantial lead in the race for leadership in technology’s newest battleground: Blockchain Technology.

This was an exciting week for cryptocurrency holders. Bitcoin prices surged as much as 40% Friday after China’s Xi Jinping urged his fellow citizens to “seize the opportunity” afforded by blockchain technology. The Chinese leader’s statements on blockchain are believed to be his first in-depth remarks on the technology. His comments stressed the importance of stepping-up research on the standardization of blockchain to increase China’s influence and rule-making power in the global arena.

2019 has been a busy year for China. While the United States bemused itself with bipartisan bickering, China quietly pursued global leadership in blockchain technology. During the year, China successfully moved nearly their entire population off of paper money and onto digital currency solutions. This change affected Chinese citizens of all economic levels. Even panhandlers on the streets of Beijing no longer solicit coins and bills, they instead display their QR code for donations to their digital bank accounts.

China’s central bank also announced a verification system this week called the Certification of FinTech Products that will certify 11 types of financial technology hardware and software widely used for digital payments and blockchain services. This initiative follows a year-long public education campaign where China’s central bank published and disseminated pamphlets and other educational materials heralding the benefits of digital currencies and explaining the capabilities of blockchain technology to streamline commerce and fight corruption.

China’s intention of dominating this new technology has been made clear – first with covert foundational initiatives and now overtly with President Xi’s announcements and the sponsoring of these programs. This is all advantageous for a command economy like China, which can now recapture lost innovation through streamlined implementation, a phenomenon now materializing. Washington’s struggles with endless equivocation and ineffectiveness reflects the Western world’s general indecisiveness, allowing China to establish itself as the global blockchain technology and cryptocurrency leader.

Blockchain technology stands poised to rebuild the way that data, digital assets and currencies move around the globe. The global financial landscape will be restructured to reflect the immutability and instant transferability of blockchain-based assets and currencies. Gone are the days of waiting for third-party transaction validations. Goldman Sachs, Fidelity, IBM, The Bank of England, The Bank of Japan, the ECB, the Federal Reserve and the IMF have all commented on the inevitability of this changing paradigm, but no operator has gone as far as the Bank of China to position itself as a leader for this coming reality.

The Chinese government has moved forward with formal policy to ready itself and its population for a digital economy, passing a new law (effective January 1st) aimed at “facilitating the development of the cryptography business and ensuring the security of cyberspace and information”. Among other things, this law also makes it illegal to falsely claim that blockchain technology is fraudulent. The new legislation, and indeed President Xi’s comments, were anticipated by many as China readies the country for the launch of its state-backed cryptocurrency – which is expected as soon as December.

When we finally see the inner workings of China’s national cryptocurrency, we can be certain that its blockchain architecture will likely be a long way from the decentralized, trust-less principles upon which Bitcoin, Ethereum and other public blockchains are based.

China’s interest in the space appears to have had a positive impact on already established cryptocurrencies like Bitcoin, by adding global legitimacy to the cryptocurrency industry overall. Only time will tell the true cost of America’s war on its innovators. China has taken the first steps toward dominating the future of the internet and of finance. The first shots in the “Blockchain Wars” have been fired and America barely noticed.

John Sarson

Managing Partner & CIO

Institutional Cryptocurrency Adoption Grows as CME Bitcoin Futures See Record Growth.

CME Group Inc, the world’s largest futures exchange, continues to see record growth in Bitcoin Futures.

According to the recently released CME Report, greater Bitcoin market adoption led to robust volume of 5,534 contracts traded per day in Q3, +10% vs. Q3 2018 and higher than all previous quarters except Q2 2019.

Importantly, the report noted, institutional flow remained strong with 454 new accounts added, compared with 231 added in Q3 2018 (+97% growth).

CME noted that this means Bitcoin futures can provide right-sized liquidity when your need it, allowing market participants globally to efficiently hedge bitcoin risk on a trusted platform.

These were some of the notable highlights from CME’s report:

  • Average daily volume (ADV) was 27,670 equivalent bitcoin or ~$289M notional value
  • Record OI of 6,128 contracts (30,640 equivalent bitcoin) achieved on July 1
  • Record number of LOIH, or entities that hold 25+ BTC, hit a record high of 56 on July 9.
  • ~50% of BTC volume was traded outside the U.S., with ~26% coming from APAC and ~21% from EMEA.
  • 3,400+ unique, active accounts have traded since launch

*CME Reports that’s data is accurate as of 09/30/2019.

These New IRS Tax Guidelines Are a Must-Read for Cryptocurrency Investors

The Internal Revenue Service continued its discovery and adoption of cryptocurrencies and digital assets into the United States financial system by issuing long awaited updates on the treatment of “hard forks” and “air drops.”

With the release of IRS Ruling 2019-4, the agency provides guidance on how cryptocurrency holders can account for their digital asset holdings.

Read the full IRS Guidance (Rul. 2019-4) here.

TREND SPOTTING: Tokenized Investment Funds

Evil Ratings CBS
Cointelegraph recently reported the proposed launch of a $25 Million ‘tokenized’ movie venture fund led by iconic American actor Wesley Snipes. This is the first blockchain project launched by Snipes, who is best known for his roles in Demolition Man, The Blade Trilogy, Passenger 57 and other lauded high-budget action films. The development fund focuses on projects produced directly by Snipes and his production studio, Maandi House, so we classify this as a rare yet appropriate use of celebrity endorsement.

This is not the first venture fund to be tokenized. Boston-based CosimoX holds the bragging rights for the first tokenized venture fund.

Tokenization reduces the administrative costs associated with on-boarding many small individual investors. It also streamlines the distribution of fund proceeds. Tokenized funds can appeal to large groups of people that share a specific common trait (in this example fans of Mr. Snipes), but may not be sufficiently affluent to stroke the six-figure checks traditionally associated with movie venture funds.

Once tokenized on a blockchain, unlimited number of investors can participate in the funding of the world’s next great action movie….

Wait there is more: Tokenized funds, depending on the regulations of the country in which they are domiciled, can offer investors immediately open secondary markets – creating a nice liquidity feature for investors where one previously did not exist.

At Sarson Funds, we predict that tokenization of investment funds will continue to grow in popularity, because of the cost-savings and investor base expanding benefits offered to fund sponsors.

Sadly, US-based operators (and investors) stand poised to lose out on the growth of the Tokenization industry as funds like Mr. Snipes’ select countries like Liechtenstein for their progressive blockchain regulations.