Commodities Investment

AI and pension funds: Is AI a safe bet for retirement investment?

Some pensions funds that experimented with emerging assets like cryptocurrency have lost millions of dollars.

Pension funds are in a perpetual crisis worldwide, with low demographic rates in many countries foreshadowing a dim future for such investments, combined with young people’s lack of faith in the continued existence of social security models.

In order to stay afloat, many pension funds have strived to remain apprised of new investment opportunities, including cryptocurrencies. According to a 2022 study published by the CFA Institute, “94% of state and government-sponsored pension funds are invested in one or more cryptocurrencies.”

But pension fund interest in volatile cryptocurrencies has not come without consequences.

In April 2023, Ontario Teachers’ Pension Plan (OTPP) backed off from investing in the cryptocurrency sector after losing $95 million on its stake in FTX.

Artificial intelligence (AI) and digital assets share a similar hype.

For better or for worse, this relationship could affect them.

CFTC calls ETH a commodity in Binance suit, highlighting the complexity of classification

The suit claims Binance used Ether as a commodity in its financial products, experts explained, which says little about the basic nature of the coin.

The United States Commodity Futures Trading Commission filed suit against Binance on March 27 for violations of the Commodities Exchange Act and CFTC regulations. Those violations included transactions with Ether (ETH), according to the suit. This claim, at first glance, touched on a notable point of contention between the CFTC and Securities and Exchange Commission.

The CFTC claimed in its suit that Binance engaged in transactions with “digital assets that are commodities including bitcoin (BTC), ether (ETH), and litecoin (LTC) for persons in the United States.” That was not a new position for the agency. The CFTC claimed ETH was a commodity in its suit against FTX in December, and Chair Rostin Behnam stated his opinion that ETH and stablecoins were commodities as recently as March 8 in a Senate hearing.

The CFTC position on ETH was fairly uncontroversial before the Ethereum Merge. After Ethereum moved to a proof-of-stake consensus mechanism, SEC Chair Gary Gensler commented on staking coins, saying that “from the coin’s perspective, […] that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others.”

Gensler’s comment brought on a slow wave of reactions. In February, for example, Ethereum co-founder and crypto entrepreneur Joseph Lubin told Cointelegraph , “Staking is not a security,” and it would be a “terrible path for the U.S.” to make it so. He added that he thought the U.S. courts would agree with him and that “there would be a tremendous outcry from not just the crypto community but different politicians and certain regulators” if ETH were classified as a security.

The CFTC case against Binance does not rest on the nature of ETH as much as the nature of Binance products, however, limiting its applicability to the larger argument.

“In this particular case, ETH is being treated as a ‘commodity’ rather than a ‘security,’” Timothy Cradle, director of regulatory affairs at Blockchain Intelligence Group, told Cointelegraph. “The complaint references securities as they relate to swaps.” Cradle added:

“The economics of an offering including ETH could still change the definition applied to the token. For example, ETH staking could still be construed as an investment contract, and as such a security.”

Some transactions, such as mixed swaps involving ETH, could be subject to regulation by both the SEC and CFTC, Cradle said, but that “would not necessarily define ETH itself as a security as mixed swaps also include commodities and currencies.”

This more complex approach to regulation would not necessarily imply cooperation between the two agencies. Yankun Guo, a partner at law firm Ice Miller, said of the situation in a statement to Cointelegraph:

“It shows that both the multifaceted nature of how tokens function and how they are used can cause them to fall under multiple agencies’ jurisdictions. […] I wouldn’t be surprised to see a similar lawsuit by the SEC naming all the same tokens except BTC as securities.”

Silver lining

The CFTC suit against Binance states that ETH is a commodity

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— sassal.eth (@sassal0x) March 27, 2023

Magazine: Can you trust crypto exchanges after the collapse of FTX?

Indonesia to launch national crypto exchange in 2023: Report

The platform comes as a part of the plan to shift the regulatory oversight from the commodities agency to the securities authority.

As a part of its reform of crypto regulation, Indonesia will create a crypto exchange in 2023, according to reports. The platform is planned to be launched prior to a shift of regulatory power from commodities to securities authority.

On Jan. 4, the head of the Commodity Futures Trading Regulatory Agency of Indonesia (Bappebti), Didid Noordiatmoko, stated that a crypto exchange should be set up this year. The move comes as a part of broader financial reform launched in December 2022.

In accordance with the reform, in the next two years, the crypto oversight will be taken from Bappebti, a commodities-focused agency, by the Financial Services Authority (FSA).

The Financial Sector Development and Reinforcement bill (P2SK) was ratified by the House of Representatives of Indonesia on Dec. 15 to become the primary legal reference in the financial service sector. Explaining the shift of authority from Bappebti to the FSA, cemented by the bill, Suminto Sastrosuwito, a head of Financing and Risk Management of the national finance ministry, claimed that:

“In fact, crypto assets have become investment and financial instruments, so they need to be regulated on an equal basis with other financial and investment instruments.”

Indonesia imposed a blanket ban on crypto payments starting in 2017, while trading in digital assets has largely remained legal in the country. In the first days of January, Noordiatmoko revealed that the value of crypto transactions in the country fell by half in 2022 — from 859.4 trillion Indonesian rupiahs ($55 million) to 296.66 trillion ($19 million).

In December, Bank of Indonesia Governor Perry Warjiyo announced the release of the conceptual design of a digital rupiah — a currency the equivalent of the country’s fiat — which will be made available for public discussion.

Bitpanda aims to entice crypto investors to TradFi by adding commodities

The exchange now allows crypto investors access to traditional investments such as natural resource commodities like precious metals.

The Vienna-based fintech unicorn Bitpanda is harkening back to the ways of traditional finance (TradFi) through new offerings on its exchange platform.

By adding commodities to its list of available investment options, Bitpanda aims to provide its users to benefit from short-term price fluctuations in more traditional instruments, such as oil, natural gas and wheat.

Bitpanda CEO Eric Demuth told Cointelegraph that due to investor demand, the line between TradFi and decentralized finance (DeFi) is becoming more blurred every year:

“People want to be able to trade multiple asset classes simply, safely and conveniently, and TradFi is catching up to that idea.”

In both financial realms, there are lessons to be learned about what benefits consumers most. TradFi is taking notes from DeFi in terms of accessibility, while DeFi has lessons to learn from traditional financial mechanisms as far as risk mitigation:

“TradFi has focused on expanding its accessibility, and that is driving a convergence. There is still some way to go before [it] can claim to have the same level of usability and accessibility offered by fintechs.”

With estimates of more than 300 million crypto users as of this year, traditional and DeFi traders are most likely on the road to some middle ground.

As major institutions around the globe caught on to the crypto investment, opening up trading opportunities to assets like commodities on a digital asset exchange could also serve as a gateway to traditional instruments for crypto investors:

“Crypto investors tend to be very involved in tradable markets. They also appreciate the simplicity offered by platforms that allow them to make quick and easy investments into multiple asset classes.”

Demuth says if platforms can offer the accessibility and simplicity of crypto trading, but with listings which include assets from TradFi investment possibilities widen.

Though he also stressed that in such instances an emphasis must be placed on educating about the pros and cons of each asset within the parameters of their place within the financial world.