Grasshopper Capital Daily: ICOs Are In Trouble

Coinbase Index Fund
Yesterday Coinbase announced the start of the Coinbase Index Fund. The fund will track four coins: BTC, LTC, ETH, and BCH. As Coinbase adds more tokens to its platform, those tokens will be added to their index. The fund charges a 2% management fee which will rebalance once a year. Based on its current methodology, it'll be heavily weighted towards BTC (62%). The fund is only available to accredited investors which requires a minimum investment of $10,000.

This is one of many "index fund" products we have seen emerge in the space. Just to name a few: BitwiseCrypto20, and Grayscale. Grayscale manages slightly over ~$2B, but I expect Coinbase's product to easily surpass Grayscale's AUM. Coinbase has significant reach in the retail space and many institutional investors are familiar with the Coinbase brand. This will be an easy way for institutional investors to get their feet wet. If the fund achieves significant traction, this could lead to the individual tokens appreciating substantially.

Getting High at Cryptocurrency Conferences
Wired wrote this:

ON THURSDAY AFTERNOON, an employee of fintech company Cindicator stopped by a conference called Crypto Sanctum held at Beneville Studios in New York’s Flatiron neighborhood. Organized by a group called “The Decentralists” and a crypto project called IOVO, the Crypto Sanctum promised to “connect people with right opportunities in the fast moving crypto and blockchain space.” Tickets cost $500. At the event the Cindicator employee ate lunch, which included sushi and tea, and chatted with a few attendees before leaving for a nearby meeting with her boss.

An hour into that meeting, she could barely speak. She noticed the room was spinning and it was a struggle to stand up. “I realized I was totally wasted,” she said. At first she thought it was sleep deprivation—she hadn’t had a good night’s sleep—but that had never given her the spins like this. She told her boss she couldn’t work anymore because she felt stoned and didn’t know how, which she says was embarrassing to admit.

The Cindicator employee remembers walking home, but doesn’t remember the route she took. In subsequent days, several of the event’s 200 attendees discussed similar experiences on Telegram, the crypto world’s preferred messaging service. One attendee said he thought he’d gotten food poisoning. Another said she’d experienced panic attacks. A third reported he had heard the food was infused with marijuana but felt the dosage was “certainly heavy.”

If people wonder why the cryptocurrency industry sometimes gets a bad vibe. This is why! I don't really understand why conference organizers would slip cannabis into people's food and drinks without telling them. There is no upside. Hopefully, this is a onetime incident. 

ICOs Are Money Transmitters
A money transmitter is a business that provides money transfer services. For each state you conduct business in, you must have a license. If you don't, you could go to jail for 5 years. FinCen wrote a letter to Senator Ron Wyden stating that ICOs are subject to money transmitter laws:

A developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply.

This means that a company who wants to issue an ICO in the United States would need to obtain proper licensing in each state plus engage in strict KYC/AML compliance. Marco Santori, President of Blockchain, tweeted:

What a nightmare this is. SEC says "all ICOs" its seen are sales of securities, but FinCEN says they are "generally" money transmission. But by law, they can't be both. As an industry, we must do a better job of educating our governments.

If you want to dive deeper into this, Coin Center wrote a great piece about money transmitter laws pertaining to ICOs. Check it out!

Some Other Things I Read Today

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