Alan Howard Behind the $1 Billion Crypto Hedge Fund

Elwood Asset Management, a UK-based investment firm owned and founded by hedge-fund billionaire Alan Howard, is planning to launch a $1 billion venture in the cryptocurrency hedge fund space, according to a report published by The Financial Times on August 30th.

Elwood Chief Executive Officer Bin Ren disclosed to the Financial Times that the firm was working on a platform that would tailor portfolios of cryptocurrency funds for institutional investors.

According to the report, the new platform aims to address the volatility and security risks often associated with the crypto hedge funds. CEO Ren claimed that the objective was to provide investors with a selection group of vetted crypto funds have passed robust due diligence so that market participants can avoid “blow outs.”

Whilst the details of the new venture have yet to be finalized, it is noted that the platform would allow investors to specify their terms such as the risk level they are willing to take, the returns they expect, as well as their liquidity terms. In addition to that, it will also determine the potential correlation with other assets owned by the investors. As a result, investors will get portfolios specifically tailored to their needs.

Besides the fees the investors need to pay to access the underlying funds, they would also have to pay a certain fee to Elwood for using the new platform.

“I see this as a very big growth opportunity,” Ren said, adding that the new platform-style product could ultimately manage over $1 billion of assets.

Meanwhile, Elwood has been screening crypto hedge funds and has already identified up to 50 that “probably satisfy our due diligence.”

The new platform builds on Elwood’s previous work in the crypto space. Earlier this year, the investment firm launched the Elwood Blockchain Global Equity Index. The index, which is calculated by index provider Solactive AG, stimulates investment into both crypto and blockchain projects.

Elwood had also indicated it was planning to increase its cryptocurrency offerings as it announced the launch of a blockchain exchange-traded fund in partnership with Invesco, which would be listed on the London Stock Exchange.

Last month, Invesco Japan launched the Japanese domestic ‘Invesco Global Blockchain Equity Fund’, offering Japanese investors exposure to digital assets and blockchain technology. The fund will track the performance of the Elwood Blockchain Global Equity Index.

Prior to this, there had been other reports that also suggested Elwood was planning to launch a range of cryptocurrency products targeting institutional investors. Moreover, Alan Howard himself has a host of crypto investments under his belt, including in EOS developer Block.one as well as the ICE-owned digital assets platform Bakkt.

The new venture follows other billion-dollar-plus investments in the space. For reference, Telegram’s blockchain, TON, which is expected to be released in the coming months, raised over $1.7 billion.

R3 With Dubai Startup Target Sukuk Securities Market

Blockchain company R3 announced its partnership with Dubai fintech startup Wethaq, with the goal to build a next generation financial market base for Islamic markets.

According to the news, Wethaq is targeting Islamic Financial Markets and is aiming to use R3 Corda’s blockchain to manage the pre-sale, issuance, management and financialization of Sukuk securities. The Sukuks are an Islamic financial certificate, similar to the western bond, which comply with Islamic religious law known as the Sharia.

Based on the International Islamic Financial Market Annual Sukuk Report 2019, the total issuance of Sukuk reached $123.15 billion in 2018, showing a 5% increase from $116.7 billion in 2017. In addition to that, it has been estimated that the total sukuk issuance in 2019 would be the same as the previous year.

Although charging interest may be prohibited under the Sharia Law, rent is not. As a result, some Sukuk monetary certificates function like bonds (‘ljara’). However, instead of paying interest, these Sukuks are sometimes issued at a discount and are tied to an asset which is then leased. Most of the lease payment goes to the investors.  Therefore, at maturity, they yield a capital gain. This makes Sukuk securities, one of the most sought-after investments.

Similarly to bonds, Sukuks have somewhat manual issuing processes. Therefore, Wethaq began working on a proof-of-concept for a blockchain solution to the Sukuk management, which would not only comply with Sharia, but have the distributed ledger operate as a registry plus the central securities depository.

The solution aims to digitize Sukuk using Corda which will lead to decreasing both the cost and time of issuance, a process that currently involves input from a number of institutions. For instance, the decentralized platform seeks to take on the roles of a registrar, CSD, trustee-delegate, paying agent, calculation agent and transfer agent.

Furthermore, by standardizing the digital assets with global financial architecture, it could lead to wider distribution, and therefore more issuers and investors. Overall, it would help improve interoperability and establish a network for customers, providers, and regulators to communicate.

On that note, the CEO of R3 David E. Rutter has stated that blockchain is currently driving an unprecedented period of innovation across capital markets, with more assets undertaking complete digitization.

He further added:

“Saudi Arabia and the wider Middle East region are areas where we see huge potential for Corda to modernize the economy and our partnership with Wethaq is a step towards achieving that.”

Mohammed Alsehli, the CEO of Wethaq, also comment on the partnership with R3 as well as the goals of the firms. He stated:

“In building the next generation of financial market infrastructure for Sukuks we have found a valuable and trusted partner in R3 and its Corda Enterprise software. Our joint focus is on building world-class financial infrastructure in Saudi Arabia, in alignment with the Kingdom’s Vision 2030, and the UAE, pursuant to their ambitious fintech agenda, before we expand to the entire Middle East and South-East Asia.”

Alibaba and Tencent Among the First to Receive China’s Digital Currency

As China’s central bank gets ready to launch its own cryptocurrency, it has been reported that seven institutions will be amongst the first to receive state-issued cryptocurrency.

According to a report published on August 28th, former global head of financial strategy for China Construction Bank Paul Schulte, together with another anonymous source, have disclosed the information and have confirmed that seven institutions will be indeed be the first ones to receive China’s CBDC, which they are calling DC/EP — short for Digital Currency/Electronic Payments.

The first beneficiaries of China’s CBDC are Alibaba, Tencent, China Construction Bank, the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China and Chinese banking association Union Pay. An eighth beneficiary is said to join the other seven, however its name hasn’t been disclosed yet.

According to the sources, the seven institutions will be responsible for “dispersing the cryptocurrency to 1.3 billion Chinese citizens and others doing business in the renminbi (China’s official fiat money).” Notably, China’s central bank “hopes the currency will eventually be made available to spenders in the United States.”

Meanwhile, this strategy reminds of other similar projects relating to cryptocurrency distribution, namely Facebook’s Libra initiative. For instance, Facebook’s planned Libra cryptocurrency will be backed by a basket of currencies issued by central banks with support from companies such as Mastercard and Uber in the United States, Vodafone in England and Mercado Pago in Argentina.

Another similar potential project has been reported last week by the Bank of England governor Mark Carney who suggested the idea of a new currency backed by a number of central banks to replace the U.S. dollar as the global reserve currency.

Moreover, China may issue its CBDC before Facebook rolls out Libra, according to official sources. The anonymous individual confirmed that the technology behind the cryptocurrency has been ready since last year and it could launch as soon as November 11th, which is knows as Singles Say – China’s busiest shopping day.

When launched, Libra’s announcement actually sparked discussions among Chinese financial regulators, encouraging the CBDC designer to rethink various models which can involve more non-governmental institutions in the development and issuance process. Many regulators, including the PBOC, have reiterated the need for Libra to be put under central bank oversight to prevent potential foreign exchange risks and protect the authority of monetary policy.

The Chinese officials recognize the difference between cryptocurrencies such as Bitcoin and CBDC. They claim that the CBDC is very different from Bitcoin. The ledger is centralized and the ledger must adopt real-name verification and residents will be able to exchange the digital currency in commercial institutions.

Following this news, neither People’s Bank of China nor any of the seven institutions have responded to requests of denial or confirmation. However, it aligns with key statements made by Mu Changchun, deputy director of the Paying Division of the People’s Bank of China (PBOC) and the new head of China’s cryptocurrency research lab at a speech on August 10th at the China Finance 40 Forum.

At that time, Mu described the central bank’s “two-tiered” system, where the bank would create the cryptocurrency and a small group of trusted commercial businesses would “pay the central bank 100% in full” to be allowed to distribute it.

He stated at that time:

“The central bank’s digital currency can be circulated as easily as cash, […] which is conducive to the circulation and internationalization of the renminbi.”

Facebook Hires Lobbying Firm to Support the Libra Launch

Social media giant Facebook has hired a Washington-based lobbying firm in an attempt to influence U.S. lawmakers over its Libra cryptocurrency project, according to a report from O’Dwyer PR.

Citing lobbying registration documents filed with Congress, the report revealed that FS Vector will now support the social media giant on issues related to blockchain policy.

Founded last year, Washington-based FS Vector is an advisory firm that specializes in regulatory compliance, public policy, as well as business strategy for the fintech, cryptocurrency, blockchain and financial services sectors.

According to the report, FS Vector partner John Collins will lead the Facebook account. Prior to this job, he served as former vice president of international policy at the American Bankers Association’s international subsidiary, the Bankers Association for Finance and Trade. He also worked as Senior Professional Staff for the U.S. Senate Committee on Homeland Security and Governmental Affairs and led Congress’ first work into digital currencies in 2013.

FS Vector joins a number of other lobbying companies, which include the Sternhell Group, the Cypress Group, Davis Polk, Baker Hostetler and the OB-C Group. Facebook has also recently hired UK Standard Chartered lobbyist Ed Bowles as its London-based director of public policy.

Earlier this month, the social media behemoth also hired Susan Zook of Mason Street Consulting, a former aide to Senator Mike Crapo (R-Idaho), the chairman of the Senate Banking Committee – to lobby for Libra.

The news follows as Facebook is getting pressure from U.S. lawmakers over its planned global cryptocurrency project. Primarily, lawmakers are concerned over user privacy and trust, especially since the company has been previously found violating user’s privacy.

Facebook formally disclosed the details of the Libra initiative in June, which could potentially bring the world’s “unbanked” billions into the digital economy by allowing anyone to safely buy, sell or send money to others via Facebook. The proposed digital currency, which has yet to meet regulatory approvals, is set to launch sometime next year.

Meanwhile, Facebook‘s recent visit to Switzerland’s financial authorities has received even more scrutiny from U.S regulators, such as the firm has notably chosen to register the Libra Association in Switzerland.

At a hearing before United States House representatives in mid-July, chief of Facebook’s Calibra wallet service David Marcus had claimed that the choice had “nothing to do with evading regulations or oversight,” arguing instead that the jurisdiction is an international hub conducive to doing business.

Also in July, U.S. lawmakers drafted a bill – “Keep Big Tech Out Of Finance Act” – which aims to prohibit large platform utilities from being a financial institution or being affiliated with a person that is a financial institution, and for other purposes.

Crypto Banks Appear in Switzerland With First Two Licenses Awarded

FINMA, the Swiss financial watchdog has approved banking and securities dealer licenses to two new “crypto banks”. SEBA and Sygnum are two companies entirely focused on working with blockchain-based products and have been cleared to operate at the same level as traditional banks, making them effectively the first crypto banks.

First Licenses Awarded

FINMA published the announcement on Monday, this being the first time it has issued such licenses blockchain-focused companies. The awarded licenses allow SEBA Crypto Sygnum to provide services to institutional customers as well, marking a major milestone for the digital asset industry.

SEBA says it will be operational in October once it fulfils secondary criteria requested by FINMA. It plans to offer corporate and asset management services for the new asset class.

Sygnum, headquartered in Zurich, is working with the German stock exchange, telecoms operator Swisscom and other partners to list and trade tokenised securities on a distributed ledger technology platform.

“Being awarded the banking and securities dealer licence from FINMA is a significant milestone, and an important step towards the institutionalisation of the digital asset economy”, said Manuel Krieger, co-founder and CEO of Sygnum Switzerland.

AML Restrictions Extend to Crypto As Well

At the same time, the Swiss Financial Market Supervisory Authority (FINMA) issued rules on how to apply anti-money laundering regulations to the banks “where the inherent anonymity of blockchain technology presents increased risks”.

The watchdog agency clarified that the existing rules to check money laundering will apply to virtual asset service providers (VASPs) including exchanges, wallet providers, and trading platforms.

This restricts the transfer of tokens to people the bank knows. According to the guidelines, the blockchain-based service providers are obligated to verify the identity of their customers, to establish the identity of the beneficial owner, and to take a risk-based approach to monitor business relationships.

“FINMA-supervised institutions are thus not permitted to receive tokens from customers of other institutions or to send tokens to such customers. This practice applies as long as information about the sender and recipient cannot be transmitted reliably in the respective payment system.”

The Swiss financial centre has for the last couple of years been gearing up to provide a blockchain-based infrastructure to trade the new digital assets. The Swiss stock exchange operator SIX plans to launch a new platform next year while several start-ups have also sprung up in Switzerland.

Following these initial license awards, other companies are expected to take advantage with applications already submitted by Bitcoin Suisse, Crypto Finance and Lykke.