How Far Behind is the United States from a Regulatory Perspective and What Can it Do to Catch-Up to or Surpass Smaller Nations?

July 15, 2019

Bill Taylor, Chief Investment Officer, Fintek Capital LLC, discusses what the United States could do to keep (or even bring) digital asset funds onshore. Bill focuses on some of the strengths of the US and obstacles facing smaller jurisdictions. In this segment, Bill also discusses the significance of the accredited investor rule, pending federal legislation to broaden the definition of accredited investors and tokenizing collectibles.


Dara Albright: Bill, as far as timing is concerned, how far behind are we or when do you anticipate the U.S. catching up?
Bill Taylor: You'll see some adaptions of rules, and I think we will catch up probably six months to a year-and-a-half from now. That’s still spotting a lot of other countries—whether it be Switzerland, Gibraltar, or others—a very big head start. For example, in Japan bitcoin is used already for all of its legal tender. You can buy airline tickets with it. You can buy everything. Korea and China, basically everything is cashless right now, but they're starting from a much lower infrastructure base. So how long will it take us to catch up? It’s anybody's guess. It will come in dribbles of probably defining digital assets as a class and letting that be the hub, the leaders of it, before we get into the others.

On the time basis, moving overseas sounds really good. The problem that we had with the fund is we needed to move offshore. That sounds really wonderful, but as more funds came on and wanted to do it, and more people wanted to do and found they couldn't in the U.S., they found that they needed to move overseas. So you have this whole group of people who want to be regulated, do things correctly and move out there. This flood of people start out and they go to Switzerland and Gibraltar and they got really busy. All of a sudden it may be cheaper to do over there, which it is, except for Switzerland, but the other ones are cheaper to set up. They're cheaper to do what they're doing. But everybody flocked there, which means they got all bogged down timing wise.

And in some jurisdictions, Gibraltar specifically, Gibraltar's a country of 35,000 people with 45 people unemployed. They don't have a workforce. All of a sudden their workload goes up exponentially. They don't have workers or people on the administrative side, the tax management side, the legal side to handle all the new business. The time that you would have saved setting it up became almost a detriment because they could do it at that quick, but all of a sudden they got busier and it got harder to do. It strung out the process much longer than we envisioned. We are actually looking at coming back on shore but changing a few things. Like I mentioned, we can't do digital gold, physical gold, but you can do digital or you can do a digital token offering using a gold ETF and a crypto overlay. It's basically 99.9% the same thing. And you come under normal securities laws here in the U.S. As you redefine these things and we play within the rules as our SEC and everything else changes some rules this way, some of the funds and other people move off shore and will budge the other way off their mandate, and they'll meet somewhere in the middle. A lot of the business may come back on shore, but it won’t be in its intended design. It'll be pretty much right on.

DA: That's interesting. What exemption or what would you do under the SEC? Would you use a RegA+? What would be the most appropriate channel?
BT: I don't know why you'd even need that. We talk about accredited investors in Gibraltar. It's called an experienced investor fund. It’s the same thing as an accredited investor here, but they have to have that. But as explained to me by my legal team over there, an accredited investor is not necessarily an experienced investor. You might have $20 million, but you've never been in the market or been in a hedge fund or an alternative investment. An experienced investor may have traded a lot, but they may not meet the criteria for an accredited investor here. Their process over there is to be more market friendly to market to people here. Our process here is more regulatory to protect consumers rather than let them have an opening here and there.

For example, let's say that you like wine. Do you meet the definition of an accredited investor? Maybe yes, maybe no. You have a collection. You might have $100,000 in wine. You can tokenize that digital asset, which we'll define as wine as the digital asset. We can tokenize that and put it out there, but you can't buy it. You can buy wine, but you can't buy collectible wine because you're not an accredited investor. Why not? Why can't you have the same things? I can buy gold, I can go Google and buy a gram of gold and they'll send it to me. I can put it under my pillow. But if digitized, we don't know what it is here. So it's the same thing. Why do you have to have accredited investors? Why do you have to go through an offering per se with that? Why can’t you just do a normal token offering for any investors and they're buying a token that's backed by a physical asset, whether it be wine, real estate, metals, whatever the case may be. And there's no reason you shouldn't. DA: I think that that is the future. And actually, interestingly enough, there is legislation that's sitting in the Senate, as we speak, to broaden the definition of the accredited investor—to make it more knowledge-based, experience-based, as you had just stated as opposed to financial-based. That will be interesting to see how it unfolds.
BT: It should, and that's a good step in the right direction. But how long will that take to get through committee? That’s one of the problems. If you go to Gibraltar, Switzerland, anywhere else, they don't have that cumbersome committee work. They can make decisions and enact legislation to accomplish the same things in a fraction of the time that we would wind up doing here.

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