Institutional investors are still staying away from the cryptocurrency. CyberTrust tries to connect both worlds and maximize the benefits.
Institutional investors like mutual funds, hedge funds, pension funds, index funds, commercial banks, and endowments funds are reluctant to invest in bitcoin and cryptocurrencies with concern over volatility & security.
Institutional investors generally face fewer protective regulations as they are more likely to do research and often prohibited from buying risky securities. This is why many institutional investors feel more comfortable to invest their money in assets like gold and equities.
Cryptocurrencies are different from other currencies. Due to the decentralised nature of cryptocurrencies, the network is instead controlled by its users. Cryptocurrencies are strings of cryptographic code, they are not securities. This means they are not regulated by the main financial regulators, such as the Securities and Exchange Commission (SEC) and therefore cannot be held by traditional mutual funds or most exchange traded funds. Though lately SEC said that the offering and sale of digital tokens (ICO) are subject to the requirements of the US federal securities law.
For that reason, cryptocurrency will remain a niche for retail investor that still not meet certain requirements to be considered by institutional investors.
Another concern is that digital currency assets can be hacked or stolen. The potential of hacker attack is a risk that has a strong impact on institutional investors. The biggest hacks are Mt. Gox in 2014 where hackers took roughly $350 million in bitcoins and the Bitfinex hack in August 2016 which lost around $72 Million worth of bitcoins. In fact more than 30 percent of all bitcoin exchanges were hacked. Poor security measures and operating practices caused multiple exchanges to fold in recent years.
There have been growing efforts to make connection between both institutional investors and cryptocurrency world. Internet entrepreneurs, Cameron and Tyler Winklevoss, have been trying to get regulatory approval for a bitcoin exchange-traded fund (ETF). But in March this year the application was rejected by the Securities and Exchange Commission (SEC). While the SEC has granted a request to review its decision of disapproving Winklevoss application, the decision is still pending.
Another solution is Bitcoin Investment Trust (GBTC) from Grayscale Investment. GBTC derives its value solely from the price of bitcoin. GBTC made only to certain qualified investors, who are “accredited investors” as defined under Regulation D of the -Securities Act of 1933, as amended.
The problem is only qualified accredited investors can buy GBTC. It could suffer a liquidity problem if there is a market panic. It is quite difficult to short GBTC. The Over-the-Counter Markets website shows persistently low short interest in GBTC generally, no more than 15,000 shares on a vehicle with almost 2 million shares outstanding. It’s generally very difficult to find shares of OTC-listed stocks to short. This custodian risk should lead GBTC shares to be less desirable than buying actual Bitcoins. Currently GBTC only supports Bitcoin while there are many potential cryptocurrencies like Ethereum which increased at a significantly larger rate than Bitcoin with market cap to over $29 billion.
CyberTrust wants to make sure that investors trade on a regulated and known platform with authorised, stable and safer environment. Their platform allows institutional investors to have a proxy ownership in cryptocurrencies. It provides both physical & technological safety. All crypto assets are stored in hyper-secure, underground, ex-military bunker in Switzerland supported by COLD VAULT and offline storage.
CyberTrust will act as a traditional custodial bank for crypto assets. CyberTrust’s approach is based on technologies and methods which have been in use by large financial institutes for decades.
Luxembourg, World’s Second Largest Investment Fund Center
SEC has stated that the exchange where the underlying asset is traded needs to be linked with law enforcement, and the underlying assets within the securitisation structure needs to be exchanged within the existing regulatory, settlement and judicial framework. CyberTrust is based in Luxembourg and therefore able to provide a “pass-through tax” structure. But more importantly, CyberTrust turns cryptocurrency into securitisation, this way institutional investors will have legal claim to its underlying crypto assets. Each Crypto Note will have a registered International Securities Identification Number (ISIN).
Securitisation is at different stages of development around the world. Many countries have regulated the securitisation and all of its aspects. While a few other countries still drafting the most suitable regulations. It aims to simplify the current framework and make the securitisation more appealing and easier to carry out.
The liberative legislation and openness of Luxembourg have made it the second largest investment fund centre in the world after the United States and the premier private banking centre in the Eurozone. Over the years, the Luxembourg government has modernized and created specific regulatory frameworks for alternative investment funds, venture capital investment funds, international pension funds, specialised investment funds, covered bond issuing banks and securitisation vehicles.
Luxembourg has attracted lots of banks, insurance companies, investment fund promoters and specialist service providers from all over the world. In fact, financial sector is the largest contributor to the Luxembourg economy.
CyberTrust is the first company that creates tokens that can fuel the securitization process, called CABS (Crypto-Asset Backed Securitized). This CABS token is like a proxy for crypto securitisation premium. It can provide investors with the means of identifying and profiting from trends that are as of yet unexploited in the cryptocurrency marketplace.
Unlike GBTC, CyberTrust will not only securitise Bitcoin but also securitise the 2nd most popular cryptocurrency Ethereum (ETH) and the 3rd, Bitcoin Cash (BCH). In the future CyberTrust will look into products like sovereign bonds denominated in Bitcoin, Amazon stock denominated in Ethereum or Facebook equity denominated in Litecoin.
CABS permits accredited investors purchasing Tokens to securitise major cryptocurrencies up to 35%+ bonus to the current BIT premium. Effectively, ITO participants can pay as little as a 6.3% premium to securitise 1 BTC, as opposed to paying a 84% premium to Grayscale.
Another advantage is arbitrage opportunity, such as shorting crypto notes while going long in raw cryptocurrency itself. It is the process of simultaneously buying an investment vehicle at a lower cost and selling it at a higher price and profiting from the difference in prices.
CABS tokens provide access to use an open securitisation platform, whilst owning these tokens gives token holders the ability to securitise BTC, ETH or BCH and sell it to institutional investors. This represents an outstanding arbitrage opportunity and it should be noted that currently no other such vehicles for ETH and BCH exist.
The more liquid an investment is, the easier it is to obtain and the less volatile it is. The more people playing the game, the faster the price will converge to some equilibrium and with less volatility.
To overcome a lack of liquidity, CyberTrust will partner with Bancor to integrate CABS token into their protocol. Allowing instant liquidity to all CABS tokens to be liquidated to other currencies without need for 3rd party exchanges.
CyberTrust is an open securitisation platform. Therefore, to allow the community to participate in the creation of new crypto derivative products on its platform, CyberTrust will hold an Initial Token Offerings (ITO) on November 27th, 2017.
CyberTrust could change the way cryptocurrencies are perceived and potentially open the floodgates for more institutional fund money.