The Troubling Questions:
What is the value of these companies based on?
In some instances, the numbers appear to be based on the value of the companies’ own coins or tokens and their perceived value, which unlike the asset itself, seems to be somewhat virtual.
How are the tokens being utilized?
The use of these tokens as any form of collateral, leverage, or borrowing clearly puts the holder at risk, notwithstanding that the issuer may well stand to benefit from the risk taken rather than the “owner” that bought the token.
And then the timing…
The most recent crypto bull market, which took off in 2020, coincides very much with the realities of the COVID pandemic, and it's important to appreciate the mindset at the time. The merits of the new digital economy were and remain valid; however, it was presented in unusual and unsettling times.
The timing seemed right for this new brand of digital providers to move fast – raising money, soliciting investors, and opening their platforms for business with little regard for regulatory issues.
From an investment perspective, interest rates were at historic lows, and it was risk-on as investors looked for new opportunities. Enter the new digital economy. Blockchain, transparency, easy access, and the face of crypto, namely Bitcoin, were breaking all-time highs on a regular basis. Cryptocurrencies shone a light on an unsettled financial space. Digital, crypto, and blockchain were replacing traditional bricks and mortar financial household names. A Perfect Storm?
One glaring constant: Lack of clarity?
Although it’s universally accepted that the digital economy is here to stay, the mechanisms, or workings thereof, are not necessarily that clear. Who distinguishes between the exchange and the platform, the provider or the issuer, and which coins and tokens fall under the crypto umbrella? Which are securities? The industry is not always self-explanatory, and it became evident that even the players themselves blurred the lines. All this activity with no recognized regulatory body, and hence, no consumer protection protocols in place.
Where to now? What are the solutions?
This current crisis involves private companies which operate under their own rules and guidelines in many regards. This has led to negligence, at the least, and in some cases, blatant fraudulent business practices within many of these companies. Murky waters, indeed.
Regulation cannot be murky
What has become imperative is for the traders to have a choice: conduct their digital finances with an unregulated business, thereby giving up the right to protections, or choose an SEC-regulated company with full government protections. In light of what we are seeing, the decision has become an easy one.
While it may seem hard to detect such platforms, it's actually pretty simple. There are very few that actually fully operate under the US regulatory bodies. Notably, INX is a pioneer in working with checks and balances. Back when other players enjoyed the big numbers coming in, INX worked tirelessly and had to spend millions before onboarding the first client. In the midst of the pandemic, it invested in its future rather than being tempted to start operating and getting income immediately, it invested millions in order to get a prospectus from the SEC and a broker-dealer license and therefore positioned the company to become a fully regulated entity under the US regulators whereby it could operate in a safe and secure environment for the long term - protecting both the clients and the company.
INX holds an audited and segregated reserve fund, does not use customer assets, and does not, in any way, shape, or form, leverage or re-invest a customer’s assets. These were all put in place to make sure customers are safe, and a future that opens a wealth of opportunities to all can be secured. What we’ve seen lately in other companies would likely have never occurred in this regulated environment.
As history has taught us after greed has caused mayhem and anarchy, order will be restored as rules, regulations, boundaries, and enforcement procedures are put in place and ultimately become the order of the day. INX is indeed a pioneer in this regard!
The Clear Answer:
The company’s long-term vision is now becoming more critical than ever. The INX.One platform is the first and only platform in the digital space that trades both digital securities and cryptocurrencies under proper FINRA, SEC, and state licensing.
Recently, WSJ reporter Paul Vigna drew a direct line between a model outlined by the SEC’s Chairman that allows for the side-by-side trading of both cryptocurrencies and security tokens and the INX. One platform: “This model is exactly the kind of thing Gary Gensler has been talking about,” he writes and adds that in fact, it is now possible to offer digital assets that conform to existing laws.
Although the chronic failure of these unregulated companies has been worrying, it is at the same time comforting to know that this is not a reflection of the digital economy - the secure responsible alternative does exist.
This post is commissioned by INX and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.