Luxembourg companies from small to large are taking strides in the realm of virtual assets. This market is still under construction and regulatory and infrastructural elements are still pending. Several companies were represented at the recent Luxembourg For Finance Digital Capital Raising webinar, along with a representative of Luxembourg’s financial regulator CSSF.
Representing one of the larger firms active in this area, Benjamin Duve, a director at the BNY Mellon’s Digital Asset unit, emphasised his firm’s over 200-year-old history. “Innovation is not new to the organisation,” he said.
While BNY Mellon’s clients say they want the latest in technological developments like virtual assets, they’re more interested in what they can do for them than the technology, he said. “They don’t really say ‘DLT-based infrastructure’, for example, but they’d like the benefits it promises.”
A client request
BNY Mellon announced early last year it would be one of the first major industry players to offer integrated digital asset custody to its clients. “It was an ask of our clients,” Duve said.
Duve said he sees regulation as a process. “It looks like we will see asset class by asset class, bit by bit moving and trying out to be properly handled as digital assets.”
Tobias Seidl, the co-founder leading on product strategy and regulatory matters at STOKR, a Luxembourg alternative marketplace, reminded the event of the initial intent for cryptocurrencies to establish a trusted framework allowing parties to transfer values with no middleman. The other main aspect of such assets, he said, is instant settlement.
Not about the technology
STOKR has attracted some 10,000 new investors. Seidl agreed with Duve of Mellon that the interest he sees isn’t mostly about the technology.
STOKR is most proud of its Bitcoin mining node. Noting there was no financial instrument allowing investing in Bitcoin mining, they developed one. STOKR securitised the “hash rate mining contract” that is the underlying asset, then issued and tokenised notes representing that hash rate.
Seidl expressed misgivings about regulation. There’s much talk about the coming MiCA “markets in crypto-assets” regulation forming part of the European Commission’s “digital finance package”. Seidl said he sees “a tendency to over-regulate this market”. He expressed optimism that as more people enter the market and use Blockchain technology, there will be better understanding of the true underlying risks.
Positive view on regulation
Jean-Baptiste Graftieaux is CEO for Europe of Bitstamp, a “crypto exchange” set up in 2011 and in Luxembourg since 2016 that makes available some 15,000 digital assets.
Graftieaux said that his firm has held a positive view of regulation since its inception as part of its effort to attract institutional investors, accounting for over 80% of its trading volume.
The firm now has both a payment institution license (PIL) and a virtual asset service provider (VASP) registration.
Graftieaux said his firm is seeing more and more blockchain projects, including from institutional players. He also sees venture capitalists (VCs) getting into the field as well as more and more regulation.
The VC view
Solenne Niedercorn-Desouches, a long-standing expert in the private banking and portfolio management industry, represents one of those VCs. She is an executive director at the Luxembourg-based VC firm Fabric Venture.
Niedercorn-Desouches highlighted three investments: FTX Trading, a crypto asset derivatives exchange. It raised USD900 million and is currently valued at USD18 billion. French-based firm Sorare, offers a fantasy sports non-fungible token (NFT) game. After raising USD680 million it is now valued at of USD4.3 billion. The third and “most incredible one” is MoonPay, allowing cryptocurrency purchase with traditional payment methods. It raised USD555 million. Only three years later, it was valued at USD3.4 billion.
Asked whether particular skills or approaches are needed for a VC to invest in such projects, Niedercorn-Desouches pointed out that “there is so much cash available that entrepreneurs can really decide by whom they want to be supported and backed.”
Many questions prompted FAQ
Karen O’Sullivan, the CSSF’s head of the innovation payments, market infrastructures and governance division explained that a December CSSF FAQ on virtual assets was meant to deal with the large number of questions. She explained that they wanted a document that can easily be updated.
O’Sullivan pointed to one aspect of this: cryptocurrencies can’t be held in bank current account, but can in a securities account, since they’re not legal tender.
O’Sullivan was clear about the basic CSSF message for banks and investment funds. “The rules are there, the same rules apply. And it’s really a question of adapting those rules to a new type of assets. But ultimately, the rules are the same.”