BY Risen Jayaseelan - June 14, 2018
Risen's Quick Take 0
Paying crypto for listed equities is some way off
A VC firm in the US has bought a small block of shares in a listed company by paying for it in altcoins. Some argue that this is a watershed deal that would pave the way for cryptocurrencies to be used to acquire assets like stock and shares in traditional markets.
But hold your horses. Let’s examine this more closely.
In a nutshell, what happened was a Seattle-based venture capital firm called Pithia Inc bought more than 5% of a company called Digital Town listed on the US OTC Market exchange. Pithia paid for those shares with a token called RHOC. The value of the transaction was around US$1.2mil. RHOC tokens are created by RChain, a blockchain ‘ecosystem’ player of which Pithia is a part of.
In order to do this transaction, Pithia made a Schedule 13D filing with the US’ Securities Securities and Exchange Commission (SEC), listing cryptocurrency as the sole payment method for this investment. In their article, Crypto News Review stated that Pithia claims to have “opened the door” to crypto investments in public companies. They quote Tamara Rogers, general counsel at Pithia in a Medium post: “This deal is truly the first of its kind — buying stocks with cryptocurrency is the first major change in this space in decades, if not centuries. We also demonstrated the importance of following all SEC guidelines. They’re not out to “get” the blockchain industry as some may have you believe. They’re here to create a level playing field for all parties and protect both investors and enterprises.”
But here are some caveats.
Firstly, this was done on the US OTC Market and not Nasdaq or NYSE. Secondly, the 13D filing is for a private placement of shares, which means it is likely to have taken place off market, in other words, outwith the system using brokerages linked to the stock exchange. If so, then it is possible that such transactions are done purely on a willing buyer and a willing seller entering into a contract. What that also means, is that payment can take any form, a piece or land or even a horse or a cow. Whatever suits the parties.
Things would be different if the transaction went through the brokerage system linked to the stock exchange. That would mean the broker would have face the challenge of accepting crypto only to change it into fiat for settlement with the exchange.
And before that happens, one big issue that needs to be figured out is “crypto-custody” meaning, how will the crypto be stored safely. Monies going into the buying and selling of shares are safely stored in trust accounts of participating banks.
No doubt, that archaic way of payments has a lot of high cost and other inefficiencies.
That is why there is a need for blockchain, smart contracts and crypto to play its role. But we are not there yet.
On a more positive note, the journey to get there is not difficult, technically speaking. Stock exchanges and brokerages are already trading foreign currency denominated shares so it is not rocket science to move for full settlement in crypto. Hopefully the Pithia-Digital Town case will act as a catalyst.