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CFA’s MidWest Chapter’s Young Professional’s Committee Hosts Educational Event:
“Stock Market Sustainability, Crypto Currencies Fact & Fiction, 2018 Outlook”
By Nora Schweighart, partner, Faegre Baker Daniels, LLP
Does anyone have a sudden urge to invest in cryptocurrencies? Nora Schweighart, moderator of the CFA Midwest Chapter Young Professional (YoPro) Educational Event on March 6, sure does. Titled “Stock Market Sustainability, Crypto Currencies Fact & Fiction, 2018 Outlook,” the event, hosted by Faegre Baker Daniels, LLP, included a lively discussion among Nora, the audience, and expert panelists Christopher Gersch and Wulf Kaal.
Chris, Chairman, CEO, and Founder of Altimus Capital, LLC and frequent expert guest speaker on currency and commodity products for CNBC, Bloomberg, CNN, and Fox Business News, shared his insights on private equity investment in renewable energy, including two of his portfolio companies, Verde Solutions and Blox Capital. Gersch discussed his passion for microgrids (a localized group of electricity sources, such as neighborhood solar panels, that can operate connected to the traditional centralized electrical grid (macrogrid), but can also disconnect and function autonomously if necessary or desirable), which are enabled by Ethereum-based smart contracts. He also discussed investing in renewable energy as a tax-planning strategy for so-called “Bitcoin Billionaires,” who face hefty tax obligations on account of massive appreciation of their cryptocurrency investments. For example, Verde Solutions and Blox Capital offer cryptocurrency millionaires the opportunity to invest in renewable energy projects (solar and wind) to take advantage of federal and state investment tax credits (ITCs).
On the topic of volatility of cryptocurrency investments, Gersch noted that large fluctuations in the value of cryptocurrencies make it risky for individuals to invest, but offer opportunity to institutional investors, citing the launches of Bitcoin futures contracts on the Chicago Board Options Exchange and the Chicago Mercantile Exchange. Gersch made the important point that, while cryptocurrencies and blockchain technology have the capacity to improve humanity and solve problems that couldn’t be solved before, it is their lucrative investment potential that drives rapid innovation. You can’t have one without the other.
Wulf Kaal, a leading expert on blockchain applications, initial coin offerings, smart contracting, and private investment fund regulation and compliance and a co-founder of Semada, an autonomous crypto platform that facilitates certainty of outcomes, security, and efficiency for Ethereum-based smart contracts, enlightened the audience with a discussion of cryptocurrency basics followed by commentary on topical matters affecting the crypto industry. Comparing them to a giant ledger, Kaal described blockchains, the technology underlying popular cryptocurrencies such as Bitcoin and Ethereum, as decentralized, autonomous systems that allow secure transactions between pseudo-anonymous parties. He explained that blockchain technology has the potential to disrupt many core societal institutions, such as traditional banks and stock trading platforms, which rely on centralized systems to facilitate transactions, by enabling secure, pseudo-anonymous peer-to-peer contracting. No need for an intermediary. Called “decentralization” or “disintermediation,” one effect of this shift away from centralized systems could be allowing the “unbanked” population (billions of people worldwide who do not have access to a traditional bank account or financial institution) critical access to basic financial services, which is key for reducing poverty. Another effect is decreased transaction costs across a wide array of services and industries.
Crypto infrastructure may very well become the standard in which the world operates, but we aren’t quite there yet. Kaal discussed challenges the crypto industry is facing, including massive hacks such as the one experienced by The Decentralized Autonomous Organization (“DAO”) in 2016, the problem of security vs. scalability, the lack of legal remedies for smart contracts that don’t execute as the programmers intended, and regulatory inconsistencies across jurisdictions. On the last point, Kaal specifically cited Switzerland, Gibraltar, and, more recently, Singapore, as jurisdictions in which the cryptocurrency regulatory environment is the least hostile. This facilitates certainty in crypto investing and trading. He noted that guidance on cryptocurrency regulation from the United States Securities and Exchange Commission has been lacking in clarity and remains subject individual interpretation, making it difficult to advise crypto businesses on U.S. law.
In the end, one theme came through loud and clear: blockchain technology is here to stay, and we must be prepared to adapt to the ways it will shape society in the years to come. The CFA Midwest Chapter thanks Nora, Chris, and Wulf for the enlightening and informative discussion and Faegre Baker Daniels for hosting the event.