Article author: Echo, MetaEra
Source: MetaEra
Recently, MetaEra's US section was launched. MetaEra launched a series of "High-end Dialogue" interviews. We will continue to talk with industry elites and leaders to explore the development and future of Web 3.0. This interview is honored to have invited Wall Street heavyweights, Samara Alpha Management CEO Wilfred.
This article is compiled based on interviews conducted throughout the UK.
About Samara Alpha Management
Samara Alpha Management is a hedge fund management company on Wall Street that focuses on digital assets, providing investors with opportunities for digital product Alpha. The company combines traditional finance with innovative investment, and its investment philosophy is to protect and disperse seeds, just like the "Samara" in its name, which symbolizes new life, growth, adaptability and perseverance.
Highlights
●The concept of “helicopter seed investors” is to support the growth of seed funds through funds and existing platforms.
● Wall Street’s recognition of Bitcoin heralds the mainstreaming of cryptocurrency and the legalization of assets.
● As the regulatory environment improves, operating costs for cryptocurrency companies in the United States may decrease, thereby promoting more innovation and business growth.
● Companies need to be cautious when issuing tokens to ensure they do not cross the red lines of securities regulations in order to maintain market compliance.
● US policy trends may lead the global financial system to transform into a more open and decentralized Web 3.0 era.
● Unlike traditional stock exchanges like NASDAQ or NYSE, cryptocurrency exchanges in the U.S. are not considered exchanges under securities laws. Instead, they are classified as money transmitters or money service businesses (MSBs).
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MetaEra: Could you briefly introduce Samara Alpha Management and Samara Asset Group, and its business scope in Web 3.0?
Wilfred: Of course. Samara Alpha Management is an asset management company focused on the Web 3.0 sector. Samara Asset Group is one of our holding companies. It mainly focuses on investing in Bitcoin-related companies and innovative technologies in the field of decentralized finance.
The origins of Samara Asset Group can be traced back to a German billionaire, Christian Angermayer, who established a family office called Apeiron Investments. Around 2018, he and Michael Novogratz (CEO of Galaxy Digital) founded Samara Asset Group. At that time, they firmly believed that global finance had the potential to be decentralized and democratized, and hoped to use Bitcoin as an asset class and invest in cutting-edge technology. This vision was one of the backgrounds for the establishment of Samara Asset Group.
In 2022, Samara Alpha Management gradually became a cryptocurrency hedge fund, playing the role of a platform, working with more than 200 cryptocurrency hedge fund managers to provide a multi-strategy, multi-manager operating model. We also manage independent accounts and help companies grow. Currently, we are working with two partner companies, Animous Technologies and Boreal Capital, as their seed investors.
"Samara Seed Investors" can be understood in this way. Metaphorically, just like a tree spreads seeds through the wind, our hedge fund platform provides the necessary support to help fledgling funds thrive. This concept is the cornerstone of our establishment of Samara Capital. Samara Asset Group, as one of our investments, supports Samara Alpha Management. In addition, we have a risk management system called Syl (Sylvanus Technology) to manage the risks in our portfolio and assist our fund managers in risk analysis.
In summary, we have three main entities: Samara Alpha Management, Sylvia (Sylvanus Technology), and Samara Asset Group, which are jointly committed to growing with the Web3 industry.
MetaEra: Samara Asset Group plans to issue up to $32.8 million in bonds to expand its Bitcoin holdings. Can you talk about the motivation behind this move?
Wilfred: This announcement is primarily about Samara Asset Group. Our motivation for this move is primarily to strategically expand our balance sheet and enhance our financial management capabilities in the Bitcoin direction. By issuing up to $32.8 million in secured debt, we can strengthen our financial position to invest in new asset managers. This move is actually part of our "seed management strategy".
The bonds we plan to issue will target high net worth individuals holding Euros. The proceeds from these bonds will not only strengthen Samara's balance sheet, but also allow us to continue investing in emerging technologies, especially in innovative areas such as blockchain technology and Web 3.0. This strategic move is consistent with our vision to be at the forefront of the financial industry's evolution towards decentralization and democratization.
MetaEra: In the United States, federal agencies such as the SEC, CFTC, and FinCEN have a significant impact on the cryptocurrency market. Can you elaborate on the specific roles and influences of these agencies in compliant crypto-financial operations?
Wilfred: This is a complex topic. In the United States, we have a multi-layered regulatory environment and agencies, including state, federal, and industry-specific regulations. Let’s break it down:
The SEC, or the Securities and Exchange Commission, is a federal regulatory agency that is primarily responsible for protecting investors, maintaining market efficiency, and facilitating capital formation. In the context of cryptocurrencies, the SEC’s focus is determining whether a particular token or ICO is a security. They use tests like the Howey test to make this determination, which is critical in distinguishing between securities and futures commodities. This classification is important because it determines whether a token falls under the jurisdiction of the SEC or CFTC.
Under the supervision of the SEC, especially during the tenure of Gary Gensler, the SEC has taken active enforcement actions against crypto projects in the United States, which has actually prevented many innovations from taking root in the United States. Companies that issue tokens must ensure that they ensure that their tokens do not constitute securities unless the tokens have been registered in accordance with relevant securities regulations. If a token is determined to be a security, it falls under the supervision of the SEC, which will face strict regulations and enforcement.
The CFTC, or Commodity Futures Trading Commission, is more relaxed. It focuses on preventing fraud and manipulation in derivatives markets, including futures, options and swaps, which often involve more sophisticated investors. The CFTC has deemed Bitcoin and Ethereum commodities rather than securities and regulates futures contracts and other derivatives based on cryptocurrencies, but does not directly regulate the spot market. Businesses that offer cryptocurrency trading or margin services must comply with the CFTC's rules.
FinCEN, or the Financial Crimes Enforcement Network, is a federal regulator under the Treasury Department that focuses on combating money laundering. It enforces Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations and monitors money service businesses, including cryptocurrency exchanges and payment processors. FinCEN's focus is different than the SEC or CFTC; it is more focused on money transmission licenses and the regulation of businesses operating within the cryptocurrency space.
All money service businesses are required to register with FinCEN and implement AML and KYC procedures. FinCEN has a considerable influence in the cryptocurrency industry, arguably more so than the other two agencies. For example, if you operate a Bitcoin ATM, you must register with FinCEN. Any US-facing cryptocurrency industry business, retail or otherwise, needs to register with FinCEN.
In addition, there are state-level regulations to consider. Approximately 35 states in the United States require businesses involved in cryptocurrencies to hold an MTL (Money Transmitter License), which makes the regulatory environment quite complex.
This complexity explains why operating a cryptocurrency business in the United States is quite expensive, both from a legal compliance and setup perspective.
MetaEra: Can you give us a detailed introduction to the legal basis and requirements that compliant cryptocurrency exchanges must meet in the United States?
Wilfred: Of course, the landscape of cryptocurrency exchanges in the United States is defined by a series of specific laws and regulatory requirements at both the federal and state levels. Unlike traditional stock exchanges such as NASDAQ or the New York Stock Exchange, cryptocurrency exchanges in the United States are not considered exchanges under securities laws, even if you are Coinbase. Instead, they are classified as money transmitters or money service businesses (MSBs).
To operate in compliance, cryptocurrency exchanges must adhere to a comprehensive set of legal and regulatory requirements. For example, they must implement transaction monitoring to ensure that funds are not coming from or going to sanctioned countries like North Korea, or from hacked wallets.
At the federal level, exchanges must register with FinCEN and comply with anti-money laundering and know-your-customer (KYC) regulations. Each listed token must be evaluated to determine if it is a security. If a token is deemed a security, it must be registered with the SEC and traded on an alternative trading system (ATS), which is generally not possible for cryptocurrency exchanges because the SEC will sue exchanges for trading securities without a license. This often results in the token being considered a non-security by default, thus falling under the CFTC's regulatory purview, which is generally easier for operators to deal with.
However, if an exchange operates under the jurisdiction of the CFTC, it may need to register as a Swaps Execution Facility or be designated as a Designated Contract Market, which involves more technical and strict regulation, especially when it comes to margin operations.
At the state level, approximately thirty-five states require a money transmission license (MTL). The most stringent state license is New York's BitLicense, which is specifically for the cryptocurrency industry. Obtaining a BitLicense can take several years and is costly, which has led many exchanges to choose not to stay in New York and move to more lenient states such as Florida or Texas.
Setting up a cryptocurrency exchange in the United States involves numerous rules and regulations. It is a rather complex and laborious process, and there are even ongoing reporting requirements, audits, and the need to build trust and capital. The above is roughly how cryptocurrency exchanges operate within the US legal framework.
MetaEra: According to a report by Fortune Business Insights, the North American cryptocurrency market will grow at a compound annual growth rate of 10% between 2021 and 2028. What factors do you think are driving this growth, and will this growth trend continue in the future?
Wilfred: Indeed, the growth of the North American cryptocurrency market is an important topic. I haven’t read the report, but I can offer some insights based on current trends.
The cryptocurrency market is often compared to the gold market. The market, including physical gold and financial instruments like ETFs, is worth about $3 trillion. Now, considering that the U.S. already has ETFs like the Bitcoin ETF, the total market cap of cryptocurrency ETFs is now slightly larger than that of gold ETFs. Gold ETFs are valued at about $74 billion to $75 billion, while cryptocurrency ETFs are valued at $76 billion to $78 billion. This is quite a big increase, especially considering that the Bitcoin ETF was only launched this year, less than eleven months ago.
Bitcoin itself accounts for about half of the market cap. I think the cryptocurrency market has the potential to reach $3 trillion to $4 trillion in the 2028 or 2030 timeframe. After all, it's now at $1.2 trillion, and I think the actual number may be higher than that because it doesn't include various market factors.
We have seen financial innovations like Solana and Ripple ETFs enter the market, which shows that traditional financial products are increasingly accepting cryptocurrencies. Companies like MicroStrategy and Tesla are also significant holders of Bitcoin, with MicroStrategy holding approximately 420,000 Bitcoins. With the new government in place, we can expect a more relaxed regulatory environment for cryptocurrencies, which could significantly drive market growth.
Technological advancements in blockchain, such as Bitcoin’s second-layer solutions, will also drive the market higher. These factors, coupled with macroeconomic factors such as inflation and Bitcoin’s role as a potential hedge against inflation, are driving the growth of the cryptocurrency market’s market capitalization. The mentality of increasing Bitcoin holdings to hedge against inflation is gaining traction, especially as new governments consider the potential impact on national balance sheets.
In summary, a combination of financial innovation, technological advancement, and macroeconomic factors is driving the growth of the cryptocurrency market, and this trend is likely to continue or even accelerate in the future.
MetaEra: According to analysis, Trump's victory has transformed the regulatory environment for cryptocurrencies from a headwind to a tailwind. It is reported that the new government is expected to amend or repeal many relevant laws, bringing a new relaxed regulatory environment to the cryptocurrency industry. How do you think this shift will affect compliant crypto financial businesses in the United States?
Wilfred: Indeed. Previously many cryptocurrency businesses left the US due to strict regulations, choosing jurisdictions such as the Middle East or Europe. However, with the new government expected to take a more friendly stance towards cryptocurrencies, we can expect this trend to reverse. The geopolitical stability of the US and the status of the US dollar as a global reserve currency make the US market extremely attractive for capital inflows.
This relaxed regulatory framework could lower barriers to entry in the future, making it easier and cheaper for entrepreneurs to run cryptocurrency businesses within the United States. It would also encourage more startups and social investors, as well as traditional financial players, to enter the market. Regulatory uncertainty has always been a significant concern for institutional investors when considering investing in crypto. A lighter regulatory touch could ease these concerns and promote confidence in investing in crypto assets.
In addition, a more relaxed regulatory environment may also stimulate innovation and the development of decentralized finance and Web3 applications. We may see an increase in financial products built on blockchain technology, such as tokenized mortgages and treasuries.
The impact could even extend beyond U.S. borders. If the U.S. takes the lead in relaxing cryptocurrency regulations, it could set an example for other countries, given the U.S.’s historical leadership in securities and financial regulation. This could lead to a global shift in the way cryptocurrencies are accepted and integrated within the traditional financial system.
Overall, the expected regulatory changes could significantly impact U.S.-compliant cryptocurrency finance businesses by lowering barriers to entry, encouraging innovation, and promoting a more integrated and global approach to digital assets.
MetaEra: After Trump's victory, the Republican Party controls the Senate and the House of Representatives, and is expected to promote a number of crypto-related bills, including the Bitcoin Strategic Reserve Act. What impact do you think this strategic reserve bill will have on the US and even global cryptocurrency markets?
Wilfred: After Trump's election victory, there has indeed been a renewed focus on cryptocurrency-related legislation, and bills such as the Bitcoin Strategic Reserve Act have begun to attract attention. From multiple perspectives, such a strategic reserve bill has the potential impact on the US and even global cryptocurrency markets in many ways.
First, the Bitcoin Strategic Reserve Act is intended to establish a strategic reserve of Bitcoin as a supplementary means of value storage, enhance the U.S. balance sheet, and ensure transparent management of the federal government's Bitcoin holdings. This move would mark a major shift in the way the United States views and interacts with cryptocurrencies, and could increase the legitimacy and acceptance of Bitcoin as an asset class.
The bill proposes to acquire approximately 1 million bitcoins, which is about 5% of the total bitcoin supply, similar in size and scope to the gold reserves held by the U.S. This acquisition could have a significant impact on the bitcoin market, as it would significantly increase demand for this fixed-supply cryptocurrency, potentially leading to a rise in bitcoin prices.
Globally, the creation of a strategic reserve of Bitcoin by the United States could encourage other countries to follow suit, recognizing the potential of cryptocurrencies as reserve assets and as a hedge against economic uncertainty and currency instability. This could lead to a wider acceptance and integration of Bitcoin in the global financial system.
Moreover, the implementation of the Bitcoin Strategic Reserve Act could help prolong the hegemony of the U.S. dollar by diversifying national assets and strengthening the dollar’s position in the global financial system. Given that Bitcoin has the potential to appreciate faster than inflation or debt growth, it could also serve as a stabilizer for the existing global financial system.
But some people are concerned about the environmental impact of Bitcoin, mainly due to its controversial high energy consumption and carbon footprint. As the cryptocurrency market grows, scrutiny of its environmental friendliness is also increasing, which will bring environmental considerations to the forefront of the discussion, which may affect the acceptance and perception of Bitcoin as a strategic reserve asset.
MetaEra: Recently, there have been growing calls for Bitcoin to be “strategic reserves”, “company reserves”, and “government reserves”. What do you think of this popular “reserve” phenomenon? In addition, what do you think of the debate caused by this phenomenon: identity or income? Centralization or decentralization?
Wilfred: When considering Bitcoin as a reserve asset, one must think about its volatility. In the foreign exchange world, we have a basket of currencies from the G10 economies as well as emerging economies, and the volatility of each currency is very different. For example, the volatility between the Mexican peso and the US dollar can be between 10% and 60%. This volatility is an important consideration for reserve assets. After all, no one wants a significant fluctuation in the balance sheet.
If you are a manufacturer in Argentina, selling products to the United States, you don't want to see huge fluctuations between the Argentine Peso and the US dollar; you definitely want to have a more stable asset to hedge against exchange rate risks. The same is true for China, everyone prefers to use a more stable currency to manage exports and imports.
In the context of corporate reserves, this involves how you view corporate financial management. Companies like MicroStrategy hold a large amount of Bitcoin, about 420,000, which is a considerable number. The volatility of MicroStrategy's Bitcoin holdings is over 100%, which raises questions about corporate financial risk tolerance. Usually, corporate finance prefers low risk, but MicroStrategy shows high risk tolerance, which is very interesting. Tesla is another example, but they hold a smaller amount, about 10,000 Bitcoins. This also shows how the company's board of directors views Bitcoin as a long-term store of value.
For government reserves, we have seen countries like El Salvador adopt Bitcoin as a reserve asset, which is part of their treasury. The reason El Salvador did this is that their currency, the Colón, is very volatile. For developing countries, stability is crucial, and Bitcoin may not be the right choice due to its volatility. However, now, globally, people are starting to see a paradigm shift in Bitcoin as a store of value that could play a reserve role in the financial system.
We are moving towards a hybrid financial system, where you may have both traditional financial assets and physical currencies, as well as cryptocurrencies such as Bitcoin. This is happening today. More and more people are beginning to consider Bitcoin in their asset allocation based on specific application scenarios and their recognition of its value storage function.
In terms of the debate between identity and profit, centralization and decentralization, Bitcoin can occupy both ends. It can be a centralized asset that is mined worldwide, or it can be used as a reserve for governments and corporations.
MetaEra: Trump nominated crypto-friendly Paul Atkins as SEC Chairman. What is the immediate impact of this nomination on the market? How do you think this will shape the future of compliant crypto financial business in the United States?
Wilfred: The immediate impact of Paul Atkins’ nomination as SEC Chairman was significant. The market reacted positively to it, with the price of Bitcoin soaring to the $100,000 mark within a day or two of the announcement. This is very indicative of the market’s view of Atkins.
Paul Atkins is an experienced businessman with a strong reputation on Wall Street. He is a well-known supporter of cryptocurrencies, which is consistent with Trump's campaign promise to embrace the cryptocurrency industry. Paul Atkins has devoted a lot of energy to opposing excessive regulation, such as the Dodd-Frank Act and the systemic risk designation of large banks. He has been publicly critical of the additional capital requirements imposed on systemically important financial institutions (SIFIs) under these regulations.
Paul Atkins is also known for his focus on reducing disclosure burdens and simplifying regulatory policies, which suggests that he may be inclined to take a more relaxed and clear business-friendly approach to cryptocurrency regulation. His nomination is seen as a great positive for the cryptocurrency market because it suggests that the regulatory environment will move in a more lenient and clear direction.
The appointment of Paul Atkins could be a big game changer in terms of the future of compliant cryptocurrency financial business in the U.S. After all, his experience and stance on regulation are already there. He may allow us to see a more balanced approach: promoting innovation while providing necessary supervision.
