Security Token Offerings: Interview with
Patrick Springer,former Managing Director at Morgan Stanley and now on advisory board of Polybird Global Exchange.
1) Can you tell us about your background briefly and what you’re doing now?
“I have an extensive background working as an investment specialist helping institutional investors make investment decisions in global equity markets.
I managed three different regional equity franchises for Morgan Stanley in New York, leading sales teams in US Equities, Pan-Asian equities & emerging markets, and Japanese equities. I have detailed experience evaluating business models and bringing many international and US companies public. I am fluent in Japanese and speak some Mandarin.”
2) You spent more than 20 years at Morgan Stanley, latterly as Managing Director. Morgan Stanley has put out mixed signals about blockchain, at times likening it to the dot-com bust, at times praising it.
“I no longer work for Morgan Stanley, so I am not representing their views. But I would say that Wall Street companies will adopt aspects of blockchain if:
1) it is an asset that their core clients want to trade with them, such as Bitcoin futures, and
2) if Blockchain technology will give them significant cost savings and/or market share opportunities
With regards to the former, the demand for bitcoin futures and ETFs by core institutional investors has still not been determined yet. The damage from the crypto meltdown in 2018 plus the numerous regulatory issues will take time for the market to digest.
On the latter, large incumbents in trading, settlement, and payments already have such large market shares and current systems are reasonably efficient for existing uses that there is not a lot of incentive to be an aggressive first-mover. Blockchain is inherently disruptive, so the Wall Street majors will move into blockchain only when new types of competitors, security concerns, or new products make the investment attractive.”
3) Were you involved at all in their Blockchain initiatives? How did you first come into contact with the technology?
“As a markets-focused investment specialist at Morgan Stanley, I spent a lot of time talking to investors and our research team in 2016 and 2017 about where blockchain technology and cryptocurrencies fit in as an investment theme for institutional investment, but I did not play any roles in the company making decisions about crypto investments.
I became materially involved with Blockchain technology when I met Harish Gupta, CEO and co-founder of Polybird Exchange, last summer.
4) What will 2019 hold for the industry in your opinion? Will Morgan Stanley play a role and/or other institutions?
Despite the crash in cryptocurrency and ICO prices, Blockchain-based securities are here to stay. I say that because there is increasing confidence in stable coins, and there will be new types of Blockchain securities for investors to look at. Tokenized assets, meaning digital tokens of real assets will begin, creating opportunities in many different types of asset markets.
Institutional and accredited (investors with at least $1 million in net worth) investors will be attracted to an emerging asset class of tokens that provide ownership interests more easily or provide streams of income in a secure manner. Over time, bulge bracket players will look to provide investment solutions for their clients. Fidelity’s commitment and movement in the space is something to keep an eye on.”
5) What is the significance of the SEC’s stance on the majority of cryptocurrencies as securities? Has this made it harder/easier for you to navigate the waters of crypto?
“ICOS and tokens that came to market without the appropriate dialogue with and understanding from the SEC, FINRA, and other regulators, created a negative branding for all participants in the “crypto” space. The regulatory outlook is indeed very challenging given that everyone, including the regulators, is in new territory. But we see the market for digital assets as an opportunity to make assets more transparent, more tradable, and more efficient, which regulators will ultimately appreciate.”
6) What will 2019 bring in terms of regulation?
“I think there is a lot of demand from both the crypto and investment community for the regulators to provide additional guidelines and more clarity on the type of offerings and marketplaces that they will support. But it is hard to say when that will transpire.”
7) Can you give us any hardline predictions? What are the main drivers to look for in 2019? When is the bull market coming for crypto?
“A bull market for crypto will come again when all the speculators have exited, i.e. when investors who believe in the greater fool theory of selling the same asset to someone but at a higher price, all leave. It will also come again when there is a great shakeout in the number of cryptocurrencies and utility tokens – there is no value to having an unlimited number of digital currencies sprouting from numerous forks.
However, it is also important to remember that Bitcoin plays a very important function in countries around the world that are bankrupt or have a deep currency crisis. As bitcoin laps time and makes good on its promise to cap the amount of coins it can print, mainstream investors may take a renewed look at it again.”
8) How feasible is the tokenization of publicly traded companies on the Blockchain?
“It’s entirely feasible, but the use case for doing it has to be fully developed and thought out. Currently, equities of public companies in major economies like the US trade and settle very efficiently. Liquidity varies by security but that depends on the underlying interest in the fundamentals of that security.
Tokenizing a currently existing security does not necessarily mean that there will be sufficient demand and liquidity for it. In the United States markets, there are many overseas ADRs that have very low liquidity. In Japan, for example, there used to be many US companies listed on the Tokyo Stock exchange, but there was very little demand there and eventually, most companies pulled their listings. There needs to be a use case.”
9) Do you think this will be one of the first mainstream use cases for cryptocurrencies? If not, what will be?
“Digitized or tokenized asset offerings which are done in compliance with local regulators will certainly be a key catalyst for mainstream investors to
see the value of blockchain securities. I also think that stable coins that can successfully establish themselves as a means of cross-currency payment with ultra-low fees would also be a major catalyst.”
10) When do you think that the tokenization of assets/securities will begin?
“Tokenization of assets began last year in my view with the offering by Harbor of South Carolina real estate.
The tokens are available on their website. When more tokens and issuers come to market, a market place all need to develop.”