CRYPTO for your THOUGHTS? Is a new asset class emerging?

An insightful perspective on cryptocurrencies, blockchain
and the possibility of an emerging new asset class?
TM
CRYPTO
FOR YOUR
THOUGHTS?
FEB
2021
PANGEA
PRIVATE FAMILY OFFICES
PANGEA Private Family Offices
TM
www.pangeaprivatewealth.com
PANGEA Thought Leadership

OVER 4500
CRYPTOCURRENCIES EXIST
TODAY...
According to the Journal of Risk and Financial Management,
there are currently over 5,500 cryptocurrencies worldwide.
By comparison, the United Nations recognizes 180 paper
currencies that are used as legal tender in 195 countries
around the world.
One report from the U.N. Conference on Trade and
Development recommended that the dollar, euro, yen, and
other national currencies be succeeded by a new "global
currency." However, in all of its 218 pages of analysis and
charts, one curious aspect of this report was that the U.N.
didn't seriously contemplate a new currency that would be
based on something other than paper money.
Nobel Prize-winning economist Joseph Stiglitz, who
previously chaired a U.N. expert commission that considered
ways of overhauling the global financial system, has
advocated the creation of a new reserve currency system,
possibly based on Special Drawing Rights (SDRs). Could
cryptocurrencies play a role in this development?
In the cryptocurrency race for global dominance, there will
be a small island of winners in an ocean of losers as the top
20 cryptocurrencies currently make up nearly 90% of the
total market. Bitcoin is considered the preeminent
cryptocurrency in the world. It was created in the midst of
the 2008 global financial crisis — but no one knows who
made it. Significant mystery surrounds Bitcoin's creation to
this day.
PANGEA Private Family Offices 2
5,500
TM
SATOSHI NAKAMOTO (Google this name)

BLOCKCHAIN BEFORE
BITCOIN
In his original Bitcoin white paper, Satoshi Nakamoto defined an electronic coin –
the Bitcoin – as “a chain of digital signatures” known as the ‘blockchain’.
The blockchain enables each coin owner to transfer an amount of currency directly
to any other party connected to the same network without the need for a financial
institution to mediate the exchange.
Here's another way to explain how blockchain works:
I have an apple. I give it to you. We both know without a doubt that the apple is
now in your possession.
What about a digital apple? If I send it to you, how do you know I didn’t send a
copy to someone else?
We could keep track in a ledger.
But couldn’t someone make changes to that ledger? Not if that ledger was open
source, and thousands of people had the ledger themselves. And every time
another exchange is made, it is checked against all of the thousands of ledgers
held by people all over the world. It would be very difficult to cheat the system,
right?
That is how blockchain works. Every transaction is checked against the thousands
of ledgers held by people all over the world. And the people who are verifying
these transactions earn a fraction of bitcoin for their work.
“The blockchain is an incorruptible digital ledger of
- Don and Alex Tapscott, Blockchain Revolution
economic transactions that can be programmed to record not
just financial transactions but virtually everything of value.”
TM

Blockchain is a foundational
technology: It has the potential to
create new foundations for our
economic and social systems.
- Harvard Business Review
HOW
BLOCKCHAIN
WORKS
4
TM

THE CRYPTOCURRENCY TRANSACTION
CYCLE
TM
The illustrations below depict the difference between the current centralized banking
network compared to the emerging decentralized Bitcoin network.
vs.
Decentralized network
e.g. The Bitcoin network
Centralized banking network
i.e. The traditional monetary
system.

BLOCKCHAIN
BEYOND
BITCOIN Blockchains come in many
different types. In addition to the
Bitcoin blockchain, a number of
other independent blockchains have
emerged in recent years. None
has yet achieved the same scale
as Bitcoin but they do offer other
benefits, such as increased speed,
larger data capacities, different
consensus methods or more
advanced functionality.
Companies around the world are
already using blockchain technology
to track items through complex
supply chains.
Bitmain, a Chinese company that
produces integrated circuit chips for
crypto mining, is considered the
largest blockchain organization in the
world by valuation.
6
By the end of 2024, it’s expected that
corporations will spend $20 billion per
year for blockchain technical services.
More than 20 countries have adopted
or at least researched the concept of a
national cryptocurrency.
About 90% of U.S. and European banks
started exploring blockchain’s
potential since 2018.
TM

2 / COINBASE
Robinhood's pre IPO valuation: $20B
3 / ROBINHOOD
Coinbase’s pre IPO valuation: $28B
4 / RIPPLE
Block.one's pre IPO valuation: $4B
5 / BLOCK.ONE
OTHER NAMES TO WATCH:
Kraken
Circle
Binance
BitMEX
Canaan Creative
*List based on currently available data
1 / BITMAIN
Bitmain's pre IPO valuation: $40B to $50B
Ripple's pre IPO valuation: $10B
TM
Bitmain is estimated to control as much
as 80% of the market for bitcoin mining
equipment.
In 2020, Coindesk, an information leader
in crypto and blockchain news, included
Bitmain in its list of the 50 most
innovative and consequential projects in
the blockchain industry. Coindesk
referred to Bitmain as the "Behemoth of
Bitcoin Mining" and claimed that Bitmain
remains at the centre of the crypto
economy.
Coinbase is one of the biggest exchanges
worldwide with more than 35 million
people in over 100 countries using the
platform to buy, sell, store, use and earn
crypto currency.
Robinhood, the stock trading
organization that made news headlines
earlier this year with the Reddit -
GameStop mayhem on Wall Street,
launched its crypto offering in 2018,
leaning into the blockchain space.
BIGGEST
BLOCKCHAIN COMPANIES
IN THE WORLD

TM
government regulation
of cryptocurrencies
around the world
Australia, Canada, and the Isle of Man recently
enacted laws to bring cryptocurrency transactions
and institutions that facilitate them under the
ambit of money laundering and counter-terrorist
financing laws.
Some jurisdictions have gone even further and
imposed restrictions on investments in
cryptocurrencies, the extent of which varies from
one jurisdiction to another.
Some (Algeria, Bolivia, Morocco, Nepal, Pakistan,
and Vietnam) ban any and all activities involving
cryptocurrencies.
Qatar and Bahrain have a slightly different
approach in that they bar their citizens from
engaging in any kind of activities involving
cryptocurrencies locally, but allow citizens to do
so outside their borders.
There are also countries that, while not banning
their citizens from investing in
cryptocurrencies, impose indirect restrictions
by barring financial institutions within their
borders from facilitating transactions involving
cryptocurrencies (Bangladesh, Iran, Thailand,
Lithuania, Lesotho, China, and Colombia).
A limited number of the countries regulate
initial coin offerings (ICOs), which use
cryptocurrencies as a mechanism to raise
funds.
Of the jurisdictions that address ICOs, some
(mainly China, Macau, and Pakistan) ban them
altogether, while most tend to focus on
regulating them. In most of these latter
instances, the regulation of ICOs and the
relevant regulatory institutions vary depending
on how an ICO is categorized.

Israel
Bulgaria
Switzerland
Argentina & Spain
Denmark
Taxed as asset
Taxed as financial asset
Taxed as foreign currency
Subject to income tax
Subject to income tax and losses are
deductible
Corporations pay corporate tax,
unincorporated businesses pay income
tax, individuals pay capital gains tax
TM
cryptocurrencies and taxation
Governments are challenged by how to
categorize cryptocurrencies and the specific
activities involving them for purposes of
taxation. This matters primarily because
whether gains made from mining or selling
cryptocurrencies are categorized as income
or capital gains invariably determines the
applicable tax bracket.
Mainly due to a 2015 decision of the
European Court of Justice (ECJ), gains in
cryptocurrency investments are not subject
to value added tax in the European Union
Member States.
Most countries are in the process of devising
taxation rules for cryptocurrency activity.
Currently, the mining of cryptocurrencies is
exempt from taxation. However, in Russia
mining that exceeds a certain energy
consumption threshold is taxable.
Examples of
cryptocurrency
taxation
COUNTRY TAX CATEGORY
United
Kingdom

TM
Governments issuing their own
national cryptocurrencies
Not all countries see the advent of
blockchain technology and
cryptocurrencies as a threat, albeit
for different reasons.
Some jurisdictions, while not recognizing
cryptocurrencies as legal tender, see a
potential in the technology behind it and
are developing a cryptocurrency-friendly
regulatory regime as a means to attract
investment in technology
companies that excel in this sector.
In this class are countries like Spain,
Belarus, the Cayman Islands, and
Luxemburg.
Jurisdictions that have or are
launching national cryptocurrencies
Marshall Islands
Venezuela
The Eastern Caribbean Central Bank (ECCB)
member states
Lithuania
Ecuador
China
Senegal
Singapore
Tunisia
Estonia
Japan
Palestine
Russia
Sweden

Possibility of an emerging new
asset class?
TM
Digital currency (Argentina, Thailand, and Australia)
Virtual commodity (Canada, China, Taiwan)
Crypto-token (Germany)
Payment token (Switzerland)
Cyber currency (Italy and Lebanon)
Electronic currency (Colombia and Lebanon)
Virtual asset (Honduras and Mexico)
Some of the terms used by countries to reference cryptocurrency include:
In the United States, the Securities and Exchange
Commission (SEC) has taken the view that the U.S.
securities laws apply to cryptoassets such as those
issued in ICOs if they are securities. A “security” is
defined by U.S. statutes and includes many
instruments including stocks, bonds, transferable
shares and investment contracts. Both the SEC and
U.S. federal courts frequently use the "investment
contract" analysis to determine whether unique or
novel instruments or arrangements such as
cryptoassets are securities subject to the federal
securities laws.
In the UK, the Financial Conduct Authority (FCA) conducted research to explore the motivations of
cryptoassets consumers. The research focused on awareness, understanding and purchasing habits
and the findings highlighted consumers’ motivation for such purchases as seeing them as “a fast
track to easy wealth” (FCA, 2019). Around the same time, the Dutch Authority for the Financial
Markets (AFM) conducted research on the profile of Dutch cryptoassets investors. The research found
that the main reason financial consumers wanted to invest in these assets was to make money.
Academics in the UK have explored the relationship between financial literacy and attitudes to
cryptocurrencies in 15 markets. The research demonstrated that financially literate consumers are
more likely to be aware of these assets, yet they are not likely to own cryptocurrencies (Panos and
Karkkainen, 2019).
One interesting aspect of the fast-growing cryptocurrency market is the fluidity of the terms used to
describe the different products that fall within this category. While the various forms of what are
broadly known as “cryptocurrencies” are similar in that they are primarily based on the same type of
decentralized technology known as blockchain with inherent encryption, the terminology used to
describe them varies greatly from one jurisdiction to another.

Crypto-currencies provide users
a fast, secure, and cheap
medium of exchange.
JOURNAL OF RISK
AND FINANCIAL
MANAGEMENT
12
The crypto-market is still in its infancy,
but it is growing up rapidly, with leading
crypto-currencies already showing
numbers close to those of real
coins/assets traded in mature markets.
As such, the crypto-assets are also
becoming interesting alternative
investments...
- Journal of Risk and Financial Management
TM

PWC estimates that the total AuM of crypto hedge funds globally increased to over US$2
billion in 2019 from US$1 billion the previous year.
The percentage of crypto hedge funds with an AuM of over US$20 million increased in 2019
from 19% to 35%.
The average AuM increased from US$21.9 million to US$44 million, while median AuM
increased from US$4.3 million to US$8.2 million.
The median AuM at fund launch is US$2 million, indicating that funds have generally seen a
4X increase in AuM in 2019.
13
CRYPTO
ASSET? A LOOK AT
CRYPTO
HEDGE FUNDS
The most common investor types
(almost 90% of all investors)
are either family offices (48%)
or high-net worth individuals (42%)
TM

a closer look
at crypto hedge funds
TM
Source: PWC 2020 Crypto Hedge Fund Report
Source: PWC 2020 Crypto Hedge Fund Report

Major institutional players like Stanley Druckenmiller, BlackRock, Bill Miller, and Jack Dorsey
have acknowledged that bitcoin is not going away, and is becoming a reserve asset and
validating the digital gold thesis, according to Garrick Hileman, head of research at
Blockchain.com.
For a long time, institutional investment in bitcoin was hampered by strict investment
mandates and regulatory compliance. Now that bitcoin has been formally recognized by
many regulators, and regulated accordingly, this issue is far less of an obstacle than it used to
be.
Harvard University, Yale University, Brown University and the University of Michigan are among
schools whose multibillion-dollar endowments have begun buying cryptocurrency directly on
exchanges.
Larry Fink, CEO of BlackRock (one of the world’s largest asset managers with over $7.4 trillion
dollars in assets under management) while speaking to former Bank of England Governor
Mark Carney at the Council on Foreign Relations said the nascent cryptocurrency asset class
can possibly “evolve” into a global market asset.
15
A CRYPTO FUTURE...NOW?
Bitcoin's market cap could hit $1 trillion in 2021
as its growing reserve currency status drives
adoption higher, a cryptocurrency expert says
- Business Insider, December 2020
At the writing of this
report, Bitcoin's market
cap at over USD $1 trillion
is larger than JP Morgan,
Bank Of America &
Citigroup combined.
TM

https://www.statista.com/statistics/863917/number-crypto-coins-tokens/
https://www.travelex.com/currency/current-world-currencies
https://www.worldatlas.com/articles/how-many-currencies-are-in-the-world.html
https://www.reuters.com/article/us-dollar-reserves-un-idUSTRE65S40620100629
https://www.cbsnews.com/news/united-nations-proposes-new-global-currency/
https://news.un.org/en/story/2009/09/312132
https://www.businessinsider.com/bitcoin-history-cryptocurrency-satoshi-nakamoto-2017-12#in-2008-the-first-inklings-of-bitcoin-begin-to-
circulate-the-web-1
Nik Custodio, “ExplainBitcoin Like I’m 5”
https://blockgeeks.com/guides/what-is-blockchain-technology/
https://fortunly.com/statistics/blockchain-statistics/#gref
https://www.investopedia.com/news/crypto-mining-giant-bitmain-going-public-4050-billion-valuation/
https://www.businessinsider.com/robinhood-hires-goldman-sachs-lead-ipo-20-billion-valuation-report-2020-12
https://medium.com/swlh/why-robinhood-is-a-dark-horse-in-the-crypto-industry-539fb9b29675
https://cryptobriefing.com/crypto-unicorns-top-10-valuable-blockchain-companies/
https://hbr.org/2017/01/the-truth-about-blockchain
https://markets.businessinsider.com/currencies/news/bitcoin-market-cap-could-hit-1-trillion-2021-crypto-expert-2020-12-1029908224
https://www.coindesk.com/money-reimagined-bitcoin-vs-gold-narratives
https://www.btctimes.com/news/blackrock-ceo-says-bitcoin-can-evolve-into-global-market
https://finance.yahoo.com/news/900b-bitcoins-market-cap-larger-184035539.html
https://globalnews.ca/news/7650644/bitcoin-market capitalization/#:~:text=Bitcoin%20hits%20US%241%20trillion,Globalnews.ca
https://www.ft.com/content/0a6507e9-d3f4-4319-bffb-eb915260e388
report references
HARVARD
https://www.bloomberg.com/news/articles/2021-01-26/harvard-and-yale-endowments-among-those-reportedly-buying-crypto
https://online-learning.harvard.edu/course/introduction-blockchain-and-bitcoin?delta=0
MIT
http://blockchain.mit.edu/
BERKLEY
https://www.technologyreview.com/2018/04/09/3066/in-blockchain-we-trust/
https://scet.berkeley.edu/wp-content/uploads/BlockchainPaper.pdf
UNITED NATIONS
OECD
US LIBRARY OF CONGRESS
DELOITTE
PWC
PRINCETON
https://spia.princeton.edu/system/files/research/documents/Felten_SoK.pdf
https://www.loc.gov/law/help/cryptocurrency/cryptocurrency-world-survey.pdf
https://www.oecd.org/countries/malaysia/2019-cryptoassets-in-asia.pdf
https://unite.un.org/sites/unite.un.org/files/cryptocurrencies_dbhtechnovation.pdf
https://www.pwc.com/gx/en/financial-services/pdf/pwc-elwood-annual-crypto-hedge-fund-report-may-2020.pdf
https://www2.deloitte.com/us/en/insights/topics/understanding-blockchain-potential/global-blockchain-survey.html
https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-what-is-blockchain-2016.pdf
BLOCKCHAIN RESEARCH, CRYPTO NEWS, BUSINESS REPORTS
TM

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