BX3 Capital On How Crypto Regulations Impact Money Managers

ValueWalk’s interview with Mike Minihan, partner at BX3 Capital. In this interview, Mike discusses his and his company’s background, shares his views on bitcoin, investing in Bitcoin and gold, advice to his clients entering the crypto space, if Facebook’s Libra is a PR stunt, how crypto regulations impact money managers, and the Token Taxonomy Act.

Crypto Regulations Impact

PIRO4D / Pixabay

Can you tell us about your background?

The lion’s share of my career experience has been in International Taxation. I spent a number of years at Big 4 accounting firms KPMG and PwC before starting a boutique international tax consultancy named “WTP Advisors” in 2004.  I sold that firm in 2014, and spent three years transitioning the business to the new owners.  In 2018, I joined BX3 Capital as a Partner.

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When did you start your firm and what does it do?

BX3 started in early 2018.  I joined in April 2018.  The firm has multiple practices.  BX3 Capital is responsible for compliantly helping our clients raise capital for their projects.  In addition, the business has a service side named BX3 Consulting.  Finally, BX3 Law helps our clients get ready to raise capital, by preparing offering documents and regulatory filings, and we also act as general counsel for a number of our start-up clients.  Within BX3 Consulting, we offer accounting and tax services, as well as earned media marketing and public relations.  The function of all of the service lines is to help our businesses get to the point where they will actually be ready to raise capital from investors, and then actually get out there make the connections that will help our clients fund their projects.

When did you get into cryptocurrencies?  

I got involved in the crypto space on the service side, helping nascent companies that were using blockchain for their projects develop international tax structures that made sense in the context of the businesses they were starting.

What is your view on bitcoin?

In some ways, I see bitcoin in the same way that I see an iPod.  Both are brilliant pieces of engineering that paved the way for industries of new technology and better solutions to problems we may not have even realized that we, as a society, had.  As the iPod was not the right long-term solution for storing and streaming music, so I think Bitcoin will run its course, and give way to new ideas that were inspired by it.

How do you value a new currency or asset like bitcoin - how do you decide if you want to buy, sell or hold it?  

I am literally the world’s worst investor.  I would only answer this question if everyone was warned that they should do the exact opposite of what I do.

What about Bitcoin alternatives like gold and cash?  

Many people put Bitcoin and gold in similar asset classes.  I am not quite in that camp yet.  Gold is a safe store of value, but gold is generally less volatile, and usually MUCH less volatile than Bitcoin.  Most everyone I know who is buying Bitcoin is buying as a speculator.

Why about ether and other big cryptos?  

For the most part, the people I know who are investing in Ether, etc. are speculating.

Are your clients getting into cryptos what do you advice them to do? 

Our clients in the crypto space are largely using native cryptos in the form of stable coins, and in certain cases, as a utility to operate on a platform.  We have a couple of clients who are considering raising capital using a digitized security, but for the most part, our institutional investor network has expressed preferences for traditional security raises in the form of debt and equity, rather than tokenized debt or equity.

I would think more conservative investors would look down on crypto investment suggestions, is that the case among your clients?  

Not really. It’s not that they look down on it, as much as they think it is not mature enough yet as an investment platform.  Pointing to liquidity issues, and all-too-regular news stories about hacks and security breaches, our clients have been shying away from crypto investments until they see larger players adding some stability to the markets.  But they are definitely not looking down on it.  On the contrary, they like a lot of the fundamental ideas, and are willing to listen to most pitches involving crypto-friendly platforms.

Big talk about libra many saying its just a PR stunt what do you think? 

I think the opportunity that Facebook has created for itself is entirely too massive for this to be a PR stunt.  Whether they can actually execute their ideas is another story.  I think it is more likely that a smaller player will be able to get to market much more quickly because Facebook’s missteps with its core business have shone an unfriendly spotlight, emanating from Washington DC, on Libra.

Is it really a crypto or more like a money market account? How would Facebook make money off of it?  

I suppose it is a little bit of both, and I think the way to make money is ultimately via transaction fees.

Do you think the SEC is taking the right approach to crypto regulation? What could they do better?  

I think the SEC’s fundamental goal of protecting the investing community is being served, but at a cost.  The real cost is that there is new technology that can transform the way that society interacts, and the US will miss out on being the leader in this space because many firms are afraid of organizing and developing here due to regulatory uncertainty.  The guidance that the SEC has provided to date is, in some ways, MORE complicated than the rules we were already trying to interpret.  Several countries have developed common sense rules around crypto that are worth a look.

How do crypto regulations impact those managing money like yourself?

We don’t manage money, but crypto regulations impact our business to the extent inadequate regulations, coupled with regulation by enforcement, have put a wet blanket on an industry that has actually requested that it be regulated.

Do you think Jay Clayton is focusing on the right aspects? 

I think the areas of focus are adequate.  My issues are more around speed of development and interpretation of the rules that govern crypto.

What about FINRA and the CFTC?  

FINRA seems to be anti-crypto, rather than open to the idea that there is a new asset class that can be traded with MORE transparency, and LESS human interaction, and open up the capital markets to a broader group of investors who have historically been underserved.

If you could pass one crypto related piece of legislation what would it be?  

I think we need to start somewhere, and the Token Taxonomy Act proposed by Senators Davidson and Soto is a good start.  My feeling is that we need to pass SOMETHING that tells the world that the US can be a thought leader in this space.  This should only be a start though, and should be used as a stepping stone toward more comprehensive rules that don’t interfere with the development of new technology.

About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver