Article Author: Echo, MetaEra

Source: MetaEra

Recently, the MetaEra U.S. section has been launched with great fanfare. MetaEra has introduced the "High-End Dialogue" series of interviews. We will continue to engage with industry elites and leaders to explore the development and future of Web 3.0 together. In this issue, we are honored to invite a heavyweight figure from Wall Street, Wilfred, CEO of Samara Alpha Management.

This content is based on a full English interview.

Introduction to 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 investments, with the investment philosophy of protecting and diversifying seeds, just like the "Samara" (winged fruit) in its name, symbolizing new life, growth, adaptability, and perseverance.

Key Insights

● The concept of "helicopter seed investors," which supports the growth of seed funds through capital and existing platforms.

● Wall Street's recognition of Bitcoin heralds the mainstreaming and legitimization of cryptocurrencies.

● With the improvement of the regulatory environment, the operational costs for cryptocurrency companies in the U.S. may decrease, promoting more innovation and business growth.

● Companies issuing tokens must be cautious to ensure they do not cross the line of securities regulations to maintain market compliance.

● U.S. policy trends may lead the global financial system towards a more open and decentralized Web 3.0 era.

● Unlike traditional securities exchanges like Nasdaq or the New York Stock Exchange, U.S. cryptocurrency exchanges are not considered exchanges under securities law. Instead, they are classified as Money Transmitters or Money Service Businesses (MSB).

Main Text

MetaEra: Could you briefly introduce us to Samara Alpha Management and Samara Asset Group, and their business scope in Web 3.0?

Wilfred: Of course. Samara Alpha Management is an asset management company focused on the Web 3.0 space. Samara Asset Group is one of our holding companies, primarily focused on investing in companies related to Bitcoin and innovative technologies within decentralized finance.

The origin 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. They firmly believed that global finance has the potential to become decentralized and democratized, hoping to position Bitcoin as an asset class and invest in cutting-edge technologies. This vision is one of the backgrounds for the establishment of Samara Asset Group.

In 2022, Samara Alpha Management gradually became a cryptocurrency hedge fund, playing a platform role and collaborating with over 200 cryptocurrency hedge fund managers to provide a multi-strategy, multi-manager operational model. We also manage independent accounts and support the growth of companies. Currently, we are collaborating with two partner companies, Animous Technologies and Boreal Capital, to become their seed investors.

The concept of "helicopter seed investors" can be understood this way. Metaphorically speaking, just as a tree spreads its seeds through the wind, our hedge fund platform provides the necessary support to help nascent funds thrive. This concept is the cornerstone of our establishment of Samara Alpha Management. Samara Asset Group, as one of our investments, supports Samara Alpha Management. Additionally, we have a risk management system called Syl (Sylvanus Technology), which manages the risks in our portfolio and assists our fund managers in risk analysis.

In summary, we have three main entities: Samara Alpha Management, Sylvia (Sylvanus Technology), and Samara Asset Group, all committed to growing alongside the Web3 industry.

MetaEra: Samara Asset Group plans to issue bonds of up to $32.8 million to expand its Bitcoin holdings. Could you discuss the motivation behind this initiative?

Wilfred: This announcement is primarily related to Samara Asset Group. Our motivation for taking this initiative is mainly to strategically expand our balance sheet and enhance our financial management capabilities in the direction of Bitcoin. By issuing secured debt of up to $32.8 million, we can strengthen our financial position to invest in new asset managers. This initiative 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, particularly in innovative fields like blockchain technology and Web 3.0. This strategic initiative aligns with our vision of being at the forefront of the financial industry's evolution towards decentralization and democratization.

MetaEra: In the U.S., federal agencies like the SEC, CFTC, and FinCEN have significant influence over the cryptocurrency market. Could you elaborate on the specific roles and impacts of these agencies in compliant crypto financial businesses?

Wilfred: This is a complex topic. In the U.S., we have a multi-layered regulatory environment and agencies, including state-level, federal, and specific industry regulations. Let's break it down:

The SEC, or Securities and Exchange Commission, is a federal regulatory agency primarily responsible for protecting investors, maintaining market efficiency, and facilitating capital formation. In the context of cryptocurrencies, the SEC's focus is on determining whether specific tokens or ICOs are securities. They use tests like the Howey Test to make this determination, which is crucial for distinguishing between securities and commodities. This classification is important because it determines whether a token falls under the jurisdiction of the SEC or the CFTC.

Under the SEC's regulation, especially during Gary Gensler's tenure, the SEC has taken aggressive enforcement actions against U.S. crypto projects, which has actually stifled many innovations from taking root in the U.S. Companies issuing tokens must ensure that their tokens do not constitute securities unless the token has been registered according to relevant securities regulations. If a token is deemed a security, it falls under the SEC's jurisdiction, which comes with strict regulations and enforcement.

The CFTC, or Commodity Futures Trading Commission, is relatively more lenient. It focuses on preventing fraud and manipulation in the derivatives market, including futures, options, and swaps, which typically involve more sophisticated investors. The CFTC has classified Bitcoin and Ethereum as commodities rather than securities and regulates futures contracts and other derivatives based on cryptocurrencies but does not directly regulate the spot market. Companies providing cryptocurrency trading or margin services must comply with CFTC rules.

FinCEN, or the Financial Crimes Enforcement Network, is a federal regulatory agency under the Treasury Department focused 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 differs from that of the SEC or CFTC; it is more concerned with money transmission licenses and the regulation of businesses operating in the cryptocurrency space.

All money service businesses must register with FinCEN and implement AML and KYC procedures. FinCEN has considerable influence in the cryptocurrency industry, arguably more than the other two agencies. For example, if you operate a Bitcoin ATM, you must register with FinCEN. Any cryptocurrency business targeting the U.S., whether retail or otherwise, must register with FinCEN.

Additionally, there are state-level regulations to consider. Approximately 35 states in the U.S. require businesses involved with cryptocurrencies to hold a Money Transmission License (MTL), making the regulatory environment quite complex.

This complexity explains why the costs of operating a cryptocurrency business in the U.S. are quite high, both from a legal compliance and setup perspective.

MetaEra: Can you elaborate on the legal foundations and requirements that compliant cryptocurrency exchanges must meet in the U.S.?

Wilfred: Certainly. The landscape of cryptocurrency exchanges in the U.S. is defined by a series of specific legal and regulatory requirements at both the federal and state levels. Unlike traditional securities exchanges like Nasdaq or the New York Stock Exchange, U.S. cryptocurrency exchanges are not considered exchanges under securities law, even if you are Coinbase. Instead, they are classified as Money Transmitters or Money Service Businesses (MSB).

To operate compliantly, 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 customer identification (KYC) regulations. Each listed token must be assessed to determine whether 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 often impossible for cryptocurrency exchanges because the SEC would inform exchanges that they are trading unregistered securities. This typically leads to tokens being defaulted as non-securities, thus falling under the CFTC's jurisdiction, which is generally easier for operators to manage.

However, if an exchange operates under the CFTC's jurisdiction, it may need to register as a Swaps Execution Facility or be designated as a Designated Contract Market, which involves more technical and stringent regulation, especially when margin operations are involved.

At the state level, about thirty-five states require a Money Transmission License (MTL). The most stringent state license is New York's BitLicense, which is specifically tailored for the cryptocurrency industry. Obtaining a BitLicense can take years and is costly, leading many exchanges to choose to leave New York and move to more lenient states like Florida or Texas.

Establishing a cryptocurrency exchange in the U.S. involves numerous rules and regulations, making it a complex and labor-intensive process, with ongoing reporting requirements, audits, and the need to build trust and capital. This is a general overview of how cryptocurrency exchanges operate within the U.S. legal framework.

MetaEra: According to a report by Fortune Business Insights, the North American cryptocurrency market is expected to grow at a compound annual growth rate of 10% from 2021 to 2028. What factors do you think are driving this growth, and do you believe this growth trend will 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 provide some insights based on current trends.

The market capitalization of the cryptocurrency market is often compared to that of gold. The market capitalization, including physical gold and financial instruments like ETFs, is about $30 trillion. Now, consider that the U.S. already has ETF products like Bitcoin ETFs; the total market capitalization of cryptocurrency ETFs has now slightly surpassed that of gold ETFs. The valuation of gold ETFs is around $74 billion to $75 billion, while the market capitalization of cryptocurrency ETFs is about $76 billion to $78 billion. This is quite significant growth, especially considering that Bitcoin ETFs only started this year, and it's been less than eleven months.

Bitcoin itself accounts for about half of the market capitalization. I believe the cryptocurrency market could reach $3 trillion to $4 trillion by 2028 or 2030. After all, it has already reached $1.2 trillion, and I think the actual number could be even higher, as it does not include various market factors.

We have seen financial innovations like Solana and Ripple ETFs entering the market, indicating that traditional financial products are increasingly accepting cryptocurrencies. Companies like MicroStrategy and Tesla are also significant holders of Bitcoin, with MicroStrategy holding about 420,000 Bitcoins. With the new government coming into power, we can expect the regulatory environment for cryptocurrencies to become more lenient, which could significantly drive market growth.

Technological advancements in blockchain, such as Bitcoin's layer two solutions, will also drive the market higher. These factors, combined with macroeconomic factors like inflation and Bitcoin's potential as a hedge against inflation, are driving the growth of the cryptocurrency market's market capitalization. The mindset of increasing Bitcoin holdings to combat inflation is gaining attention, especially with the new government's considerations of the potential impact on the national balance sheet.

In summary, the combination of financial innovation, technological advancements, and macroeconomic factors is driving the growth of the cryptocurrency market, and this trend may continue in the future, possibly even accelerating.

MetaEra: Analysis suggests that Trump's victory has shifted the regulatory environment for cryptocurrencies from headwinds to tailwinds. Reports indicate that the new government is expected to amend or repeal many relevant laws, bringing a new lenient regulatory environment for the cryptocurrency industry. How do you think this shift will affect compliant crypto financial businesses in the U.S.?

Wilfred: Indeed. Many cryptocurrency businesses previously left the U.S. due to strict regulations, opting for jurisdictions like the Middle East or Europe. However, with the new government expected to take a more friendly stance towards cryptocurrencies, we can anticipate a reversal of this trend. The geopolitical stability of the U.S. and the dollar's status as the global reserve currency make the U.S. market highly attractive for capital inflows.

In the future, this lenient regulatory framework may lower barriers to entry, making it easier and cheaper for entrepreneurs to operate cryptocurrency businesses within the U.S. It will also encourage more startups and social investors, as well as traditional financial participants, to enter the market. Regulatory uncertainty has always been a significant concern for institutional investors when considering investments in cryptocurrencies. A lighter regulatory touch can alleviate these concerns and foster confidence in investing in crypto assets.

Moreover, a more lenient regulatory environment may 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 government bonds.

The impact may even extend beyond U.S. borders. If the U.S. takes a leadership role in easing 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 shift in how cryptocurrencies are accepted and integrated within the traditional financial system globally.

Overall, the anticipated regulatory changes could significantly impact compliant cryptocurrency financial businesses in the U.S. by lowering barriers to entry, encouraging innovation, and promoting a more integrated and global approach to digital assets.

MetaEra: After Trump's victory, with the Republican Party controlling both the Senate and the House, it is expected to push forward several crypto-related bills, including the Bitcoin Strategic Reserve Act. What impact do you think this strategic reserve act will have on the U.S. and global cryptocurrency markets?

Wilfred: Following Trump's election victory, there has indeed been renewed attention on cryptocurrency-related legislation, with bills like the Bitcoin Strategic Reserve Act (BITCOIN Act) beginning to gain traction. Analyzing from multiple angles, the potential impact of such a strategic reserve act on the U.S. and global cryptocurrency markets is multifaceted.

Firstly, the Bitcoin Strategic Reserve Act aims to establish a strategic reserve of Bitcoin as a supplementary store of value, enhancing the U.S. balance sheet and ensuring transparent management of federal government Bitcoin holdings. This initiative would mark a significant shift in the U.S. perspective and interaction with cryptocurrencies, potentially increasing the legitimacy and acceptance of Bitcoin as an asset class.

The act proposes the acquisition of approximately 1 million Bitcoins, which would account for about 5% of the total Bitcoin supply, comparable to the scale and scope of the U.S. gold reserves. This acquisition could have a significant impact on the Bitcoin market, as it would substantially increase demand for this fixed-supply cryptocurrency, potentially driving up Bitcoin prices.

Globally, the establishment of a Bitcoin strategic reserve by the U.S. could encourage other countries to follow suit, recognizing the potential of cryptocurrencies as reserve assets and as hedges against economic uncertainty and currency instability. This could lead to broader acceptance and integration of Bitcoin within the global financial system.

Furthermore, the implementation of the Bitcoin Strategic Reserve Act could help extend the dollar's hegemonic status 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.

However, there are concerns about the environmental impact of Bitcoin, primarily due to its long-debated high energy consumption and carbon footprint. As the cryptocurrency market grows, scrutiny over its environmental friendliness is also increasing, which could bring environmental considerations to the forefront of discussions and potentially affect the acceptance and perception of Bitcoin as a strategic reserve asset.

MetaEra: Recently, there has been a growing call for Bitcoin to be considered as a "strategic reserve," "corporate reserve," and "government reserve." What are your thoughts on this trending "reserve" phenomenon? Additionally, how do you view the debate it has sparked: identity or profit? Centralization or decentralization?

Wilfred: When considering Bitcoin as a reserve asset, one must think about its volatility. In the world of foreign exchange, we have a basket of currencies from G10 economies and emerging markets, each with varying degrees of volatility. For example, the volatility between the Mexican peso and the dollar may range from 10% to 60%. This volatility is an important consideration for reserve assets, as no one wants significant fluctuations in their balance sheet.

Suppose you are a producer in Argentina selling products to the U.S.; you wouldn't want to see huge fluctuations between the Argentine peso and the dollar; you would certainly prefer to have a more stable asset to hedge against exchange rate risks. The same goes for China, where everyone tends to use more stable currencies to manage exports and imports.

In the context of corporate reserves, this involves how you view corporate financial management. Companies like MicroStrategy hold a significant amount of Bitcoin, around 420,000, which is quite a large number. The volatility of MicroStrategy's Bitcoin holdings exceeds 100%, raising questions about the company's financial risk tolerance. Typically, corporate finance prefers low risk, but MicroStrategy demonstrates a high-risk tolerance, which is quite interesting. Tesla is another example, but they hold a smaller amount, around 10,000 Bitcoins. This also reflects the board's view on Bitcoin as a long-term store of value.

Regarding 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 is doing this is that their currency, the colón, is very unstable. Stability is crucial for developing countries, and Bitcoin, due to its volatility, may not be the right choice. However, globally, people are beginning to see Bitcoin as a paradigm shift in value storage, which may lead it to 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 fiat currencies, as well as cryptocurrencies like Bitcoin, which is happening today. More and more people are beginning to consider Bitcoin in their asset allocation based on specific application scenarios and recognition of its value storage function.

As for the debate between "identity and profit, centralization and decentralization," Bitcoin can occupy both ends. It can serve as a centralized asset, with mining operations occurring globally, and it can also act as a reserve for governments and corporations.

MetaEra: Trump's nomination of the crypto-friendly Paul Atkins as SEC chairman has immediate implications for the market. How do you think this will shape the future of compliant crypto financial businesses in the U.S.?

Wilfred: The direct impact of Paul Atkins being nominated as SEC chairman is significant. The market reacted positively, with Bitcoin prices soaring past the $100,000 mark within a day or two of the announcement. This clearly indicates the market's perception of Atkins.

Paul Atkins is an experienced businessman with a strong reputation on Wall Street. He is a well-known supporter of cryptocurrencies, which aligns with Trump's campaign promise to embrace the crypto industry. Paul Atkins has invested considerable effort in opposing overregulation, such as the Dodd-Frank Act and the systemic risk designation for large banks. He has publicly criticized the additional capital requirements imposed on systemically important financial institutions (SIFIs) under these regulations.

Paul Atkins is also known for his focus on reducing the burden of information disclosure and simplifying regulatory policies, indicating that he may lean towards a more lenient and business-friendly approach to cryptocurrency regulation. His nomination is seen as a significant boon for the cryptocurrency market, as it suggests that the regulatory environment will move towards a more tolerant and clear direction.

Regarding the future of compliant crypto financial businesses in the U.S., Paul Atkins's appointment could represent a major game changer. After all, his experience and stance on regulation are already evident. He may provide us with a more balanced approach: promoting innovation while providing necessary oversight.