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 invite Wilfred, CEO of Samara Alpha Management, a heavyweight on Wall Street.

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.

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 indicates the mainstreaming and legitimization of cryptocurrencies.

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

● Companies issuing tokens need to exercise caution to ensure they do not cross the legal line regarding securities regulations to maintain market compliance.

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

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

Body

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

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

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. They were convinced that global finance had the potential for decentralization and democratization and hoped 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 transitioned into a cryptocurrency hedge fund, serving as a platform collaborating with over two hundred cryptocurrency hedge fund managers, providing a multi-strategy, multi-manager operational model. We also manage independent accounts and support the growth of companies. Currently, we are working with two partner companies, Animous Technologies and Boreal Capital, to become their seed investors.

The 'seed investor' concept can be understood this way. Metaphorically speaking, just as a tree spreads seeds through the wind, our hedge fund platform provides the necessary support to help nascent funds thrive. This concept is the cornerstone of establishing Samara Capital. Samara Asset Group, as one of our investments, supports Samara Alpha Management. Additionally, we have a risk management system called Syl (Sylvanus Technology) that manages risks in our portfolio and assists our fund managers with 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 up to $32.8 million in bonds to expand its Bitcoin holdings. Could you discuss the motivation behind this initiative?

Wilfred: This announcement primarily concerns Samara Asset Group. Our motivation for taking this action is mainly 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 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 move 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 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 cryptocurrency financial businesses?

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

The SEC, or the U.S. 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 focuses 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 commodity futures. This classification is essential as it determines whether a token falls under the SEC or CFTC's jurisdiction.

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 prevented 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 in compliance with 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 markets, including futures, options, and swaps, which typically involve more complex investors. The CFTC has classified Bitcoin and Ethereum as commodities rather than securities and regulates cryptocurrency-based futures contracts and other derivatives, 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 regulating businesses operating in the cryptocurrency space.

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

Additionally, there are state-level regulations to consider. About 35 states in the U.S. require businesses involved in cryptocurrencies to hold an MTL (money transmission license), which complicates the regulatory environment.

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

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

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

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 wallets that have been hacked.

At the federal level, exchanges must register with FinCEN and comply with Anti-Money Laundering and Know Your Customer (KYC) regulations. Each token listed must be assessed to determine if it is a security. If a token is deemed a security, it must register with the SEC and be traded on an Alternative Trading System (ATS), which is typically not feasible for cryptocurrency exchanges, as the SEC would warn exchanges against trading unlicensed securities. This usually leads to tokens being defaulted as non-securities, thus falling under the jurisdiction of the CFTC, which is generally easier for operators to handle.

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 stringent regulation, especially concerning margin operations.

At the state level, about thirty-five states require money transmission licenses (MTL). The most stringent state license is New York's BitLicense, which is specifically targeted at the cryptocurrency industry. Obtaining a BitLicense can take years and be costly, leading many exchanges to choose not to continue operating in New York and instead 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 quite complex and labor-intensive process, with ongoing reporting requirements, audits, and the need to build trust and capital. This broadly outlines 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 do you think are the factors 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 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 ETF; 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 between $76 billion and $78 billion. This is quite a significant growth, especially considering that Bitcoin ETFs just started this year, just under eleven months ago.

Bitcoin itself accounts for about half of the market capitalization. I believe the cryptocurrency market could reach $30 trillion to $40 trillion within the 2028 to 2030 timeframe. After all, it has already reached $1.2 trillion, and I think the actual number may be even higher since it does not include various market factors.

We have already seen financial innovations like Solana and Ripple ETFs enter 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 in power, we can expect a more relaxed regulatory environment for cryptocurrencies, which may significantly drive market growth.

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

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

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 relaxed regulatory environment for the cryptocurrency industry. How do you think this transition will affect compliant cryptocurrency 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 a global reserve currency make the U.S. market very attractive for capital inflows.

In the future, this relaxed 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 been a significant concern for institutional investors when considering investments in cryptocurrencies. A lighter regulatory touch can alleviate these concerns and strengthen confidence in investing in crypto assets.

Furthermore, 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 government bonds.

The impact could even extend beyond U.S. borders. If the U.S. takes a leadership role in relaxing cryptocurrency regulations, it could set an example for other countries, given America's historical leadership in securities and financial regulation. This could lead to a shift in how cryptocurrencies are accepted and integrated within traditional financial systems 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, the Republican Party controls both the Senate and the House, which is expected to push forward several cryptocurrency-related bills, including the Bitcoin Strategic Reserve Act. What impact do you think this strategic reserve bill will have on the U.S. and global cryptocurrency markets?

Wilfred: After Trump's electoral victory, there was indeed a renewed focus on cryptocurrency-related legislation, with bills like the (Bitcoin Strategic Reserve Act) (BITCOIN Act) starting to gain attention. Analyzing from multiple angles, such strategic reserve legislation could have multifaceted potential impacts on the U.S. and global cryptocurrency markets.

First, the (Bitcoin Strategic Reserve Act) aims to establish a Bitcoin strategic reserve as a complementary means of value storage, enhancing the U.S. balance sheet and ensuring transparent management of the federal government's Bitcoin holdings. This initiative would mark a significant shift in the U.S. view and interaction with cryptocurrencies, potentially increasing the legitimacy and acceptance of Bitcoin as an asset class.

The bill proposes acquiring approximately 1 million Bitcoins, 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 leading to an increase in Bitcoin prices.

Globally, establishing a Bitcoin strategic reserve in 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 wider acceptance and integration of Bitcoin within the global financial system.

Moreover, 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 may appreciate faster than inflation or debt growth, it could also serve as a stabilizer for the existing global financial system.

However, some may worry about Bitcoin's environmental impact, 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 may bring environmental considerations to the forefront of discussions and could affect the acceptance and perception of Bitcoin as a strategic reserve asset.

MetaEra: Recently, there has been a growing call for Bitcoin to be included in 'strategic reserves,' 'corporate reserves,' and 'government reserves.' How do you view 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 instance, the volatility between the Mexican peso and the U.S. dollar can range from 10% to 60%. This volatility is a significant consideration for reserve assets, after all, no one wants their balance sheet to experience significant fluctuations.

Imagine 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 currency risk. China is the same; everyone tends to use more stable currencies to manage exports and imports.

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

For government reserves, we have already 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 highly unstable. For developing countries, stability is crucial, and Bitcoin, due to its volatility, may not be the right choice. However, now, globally, people are beginning to see Bitcoin as a paradigm shift in value storage, which may 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 alongside cryptocurrencies like Bitcoin. This is happening today. An increasing number of people, based on specific application scenarios and recognition of Bitcoin's value storage function, are starting to consider it in their asset allocation.

In terms of the debate between 'identity and profit, centralization and decentralization,' Bitcoin can occupy both ends. It can serve as a centralized asset, mined globally, and also as reserves for governments and corporations.

MetaEra: Trump's nomination of the crypto-friendly Paul Atkins as SEC chairman, what immediate impact does this nomination have on the market? How do you think this will shape the future of compliant cryptocurrency 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's price soaring past the $100,000 mark within a day or two of the announcement. This strongly reflects 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, aligning with Trump's campaign promise to embrace the cryptocurrency industry. Paul Atkins has devoted significant effort to oppose excessive regulation, such as the Dodd-Frank Act and systemic risk designations 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 focusing on reducing disclosure burdens and simplifying regulatory policies, indicating that he may lean towards a more lenient and clear business-friendly approach to cryptocurrency regulation. His nomination is seen as a significant positive for the cryptocurrency market, as it suggests that the regulatory environment will evolve towards a more tolerant and clear direction.

Regarding the future of compliant cryptocurrency financial businesses in the U.S., the appointment of Paul Atkins could be a significant game-changer. After all, his experience and stance on regulation are evident. He may show us a more balanced approach: promoting innovation while providing necessary oversight.