Crypto-currency crackdown spreads from Dubai to London

A computer screen displays a site featuring cryptocurrency token sales in Berlin on Nov. 26, 2017. Bypassing oversight of any kind, Initial Coin Offerings (ICOs) have sprung from nowhere to become a hugely popular way for start-ups to raise funds online, offering self-created digital ‘tokens’ or coins to any willing buyer. (AFP)
Updated 28 November 2017

Crypto-currency crackdown spreads from Dubai to London

NEW YORK: When US entrepreneur Bharath Rao looked around for the best place to raise money for his crypto-currency derivatives trading business, the US did not make his list. Instead he chose the East African island nation of the Seychelles to sell the trading platform’s tokens.
Rao, a San Diego-based technology veteran who has worked for major Wall Street banks, is not alone.
Confronted with national regulators’ intensifying scrutiny of digital currency fund-raising, known as initial coin offerings, many entrepreneurs are moving businesses to locations more welcoming to crypto-currencies and known for low taxes.
Dozens of start-ups have flocked to Singapore, Switzerland, Eastern Europe and the Caribbean this year, according to interviews with entrepreneurs and company registration data made available to Reuters.
Like bitcoin, the best-known crypto-currency created in 2009, the coins use encryption and a blockchain transaction database enabling fast and anonymous transfer of funds without centralized payment systems.
The numbers compiled by crypto-currency research firm Smith + Crown show how national regulators’ attempts to curb coin sales may just shift business elsewhere.
The US leads with 34 digital currency start-up registrations so far this year, but that reflects Silicon Valley’s role as a technology hub and the depth of US financial markets rather than a welcoming regulatory climate.
Singapore registered 21 entities, up from one in 2016, followed by 19 in Switzerland, up from three last year, according to Smith + Crown. Central Europe saw 14 companies registered this year, compared with one in 2016, and the Caribbean hosted 10, up from two last year.
“The data affirms our sense that Switzerland and Singapore remain go-to locations, but the US could remain for companies raising large amounts of money,” said Matt Chwierut, Smith + Crown’s research director.
Switzerland does not have specific rules on digital coin sales, but some parts of an offer may fall under existing regulations, the Swiss Financial Market Supervisory Authority (FINMA) said in September.
So far, four of the five largest token sales, raising a total of over $600 million, were carried out by firms registered in Zug, a low-tax region south of Zurich known as the “crypto-valley” of the world.
In contrast, China and South Korea banned digital coin sales this year and regulators in the US, Malaysia, Dubai, UK and Germany warned investors that current scant oversight exposed them to risks of fraud, hacking or theft.
Soaring registrations in “friendly” jurisdictions show how hard it is for national watchdogs to regulate digital coin sales. It is a challenge regulators are beginning to recognize.
“We are talking to other regulators, and we know that there are a lot of bilateral discussions taking place,” the Dubai Financial Services Authority told Reuters.
The US Securities Exchange Commission declined to comment about the migration of coin issuers to remote jurisdictions.
The UK’s Financial Conduct Authority and Securities Commission Malaysia reiterated their stance that digital coin sales are high-risk, speculative investments and that retail investors should be aware of that.
A spokesman for Germany’s Federal Financial Supervisory Authority (BaFin) told Reuters “hopping” within the European Union would be “largely futile” since the EU supervisory authority has adopted the same stance as BaFin on the issue.
The Dubai regulator pointed out that seeking out friendly jurisdictions was not unusual, but regulators still needed to warn about the inherent risks in digital coin sales.
Financial regulators from South Korea and China were not immediately available for comment.
In the US, the SEC’s July 25 ruling that digital coins should be regulated as securities had a short-lived chilling effect on the crypto-currency market. Short-lived, because many US startups thought they could avoid such scrutiny by selling “utility tokens,” which gave buyers access to products or services rather than a stake in the company.
Still, concerns that regulators’ views might evolve have made potential US coin issuers consider sales overseas.
“Our lawyers certainly think regulations on utility tokens could change. So for safety, the ICO should be done outside the US,” said Arran Stewart, co-founder of Job.com, an online employment platform which plans a token offering in the Cayman Islands in February.
In fact, out of 15 start-ups interviewed by Reuters, only one, Airfox, sold digital tokens in the US, raising $15 million last month. Others have either carried out a coin sale overseas or are planning one.
Rao, who started Leverj, a decentralized crypto-currency futures trading platform, said he picked the Seychelles for fund-raising because of its openness to crypto-currencies.
“It has not issued anything negative on crypto,” Rao said.
Digital coin sales soared to about $3.6 billion by mid-November, compared with just over $100 million in the whole of 2016, according to Autonomous NEXT, which tracks technology in the financial services industry. Typically, issuers publish a “white paper” describing their business plan and the news of new coin sales spread via online forums and websites tracking new offers. Investors pay for them with bitcoins or ether — two most widely accepted crypto-currencies — via a company’s website.
The ease with which start-ups can raise millions of dollars with little scrutiny in as little as minutes has alarmed regulators, but without a unified approach they hold little sway over that new funding market.
“It’s very difficult for governments to work together in any organized fashion,” said Lewis Cohen, a partner at Hogan Lovells in New York, which has a team of lawyers specializing in blockchain.
“Different jurisdictions will look at token sales through different lenses and it would be very difficult to get on a completely harmonized place.” Nimble and lightly-regulated crypto-currency companies can straddle borders with ease.
For example, BANKEX, which aims to convert illiquid assets into tokens to be traded on its crypto-currency platform, is registered in Delaware and plans a coin offering in the Cayman Islands this month, said the company’s CEO, Igor Khmel.
Hogan Lovell’s Cohen said that while it would be foolish to shut token sales down, they should be regulated, or self-regulated.
“We may need to have some guard rails,” he said.
“I don’t think it’s really fair for legitimate platforms that are trying to create new and innovative business models to be thrown in with other less scrupulous parties who may see token sales as a way of making a fast buck.”
— REUTERS


GM energizes Chinese electric micro car market

The Wuling Hong Guang MINI EV, below. (Supplied)
Updated 22 min 23 sec ago

GM energizes Chinese electric micro car market

  • Trend toward a new segment of EVs in the country following changes to government subsidies

BEIJING: When 32-year-old photographer Jaco Xu needed a run-around car for work in the eastern city of Hangzhou, the price tag on the latest micro EV from GM’s China joint venture overcame his qualms about electric vehicles.

Xu paid 38,800 yuan ($5,735) for his tiny two-door Wuling Hong Guang MINI EV, while the basic model retails for just 28,800 yuan ($4,200), making it China’s cheapest EV.
“It feels pretty good. The price is so low and the appearance is simple and beautiful,” said Xu. “Why would I hesitate at that price?“
Launched in July, the Wuling MINI is heading a trend toward a new segment of EVs in China following changes to government subsidies — smaller vehicles with less range between charges, but a super-cheap price tag.
Despite basic features — no safety air bags, optional air-conditioning and a driving range of less than 200 km (125 miles) due to a smaller battery — buyers have been enthusiastic.
SGMW, GM’s venture with partners SAIC Motor Corp. and Guangxi Automobile Group, sold about 15,000 of the vehicles in August, making it China’s top-selling EV for the month, surpassing Tesla’s popular Model 3.
The venture plans to expand manufacturing capabilities of the new model, turning out cars at its plant in Liuzhou as well as its existing facilities in Qingdao, said Zhou Xing, SGMW’s branding and marketing director.
“We positioned this model as a ‘people’s commuting tool’,” he said, speaking ahead of the Beijing auto show that starts on Saturday. “Customers can drive their cars to work every day.”
The target market includes people like Xu who are looking for a city run-around as a second car, rural buyers who want a vehicle to move goods and young first-time buyers who are motivated by price.

HIGHLIGHTS

● GM JV micro car is China’s best-selling EV in August.

● Wuling MINI EV targets new EV buyers, sells from $4,200.

● Leads trend to smaller cars, batteries after subsidy cuts.

Total sales of new energy vehicles — including electric, plug-in hybrid and hydrogen fuel-cell vehicles — are expected to reach 1.1 million vehicles in China this year, about 5 percent of total auto sales. The micro car represents a shift in what typifies a mainstream electric vehicle, as policymakers push for increased EV production and sales have been bolstered by restrictions on petrol-fueled cars.
In response to government requirements to win generous EV subsidies, automakers over the past decade have developed higher energy-density battery systems to allow cars to drive for longer with a single charge.
Tesla’s Model 3, which has a range of more than 400 km, has been the market leader in China for most of 2020, retailing for about $43,000, about 10 times the cost of the Wuling MINI.
However, China cut subsidies heavily in 2019 and is now asking for higher EV power efficiency to save energy. Automakers, in turn, are planning more smaller EVs with a moderate driving range aimed at customers who can charge cars easily, industry executives said.
The economics are skinny. Wuling MINI will not get EV subsidies due to its short range. For SGMW, the cheap price tag means it makes very little money at best, according to insiders.
EVs, however, generate green credits for SGMW that can be used to offset negative credits of other companies like SGM, its sister venture which is expanding a lineup of bigger SUVs under Buick, Chevrolet and Cadillac marques.
“Selling micro EVs in China makes more sense this year,” said a product planning official at a GM rival. “Subsidies have become a less important factor of pricing as government has already cut a lot, while green credits are expected to become more expensive,” the official said.
Bidding to reverse a sales decline due to a slower economy and stiff competition, GM expects EVs to make up more than 40 percent of its new launches in China over the next five years.
The Detroit automaker is revamping plants in Shanghai, Wuhan and Liuzhou under its two Chinese JVs to enable production lines making gasoline cars to turn out EVs, public documents detailing its constructions plans show.
For now, the Wuling MINI is the cheapest EV, but it faces competition from the cheapest models from rivals BYD and BAIC BluePark.
Great Wall Motor and Toyota’s China partner GAC are also planning more electric models with a range below 400 km, company officials said this month.
And startup Kaiyun Motors is trying to radically lower the price of its new electric pickup truck Pixel to about 20,000 yuan for urban delivery services, although these EVs will be sold without batteries, allowing consumers to swap them.