VMIL willing to take the plunge with cryptocurrency

Victoria Mutual Investments Limited, VMIL, is awaiting guidance from financial regulators to determine whether it can provide an avenue for its clients to trade cryptocurrencies, which it views as an emerging asset class.

Both the Bank of Jamaica, BOJ, which regulates the foreign exchange market and payment systems, and the Financial Services Commission, FSC, which overseas securities traders, would be involved in developing the rules and regulations.

Cryptocurrenices are notoriously volatile with no underlying assets, generally, and central banks around the world are mostly wary of their potential impact on monetary systems. Some, including Jamaica, are developing and issuing their own central bank digital currencies as legal tender.

The Jamaica Stock Exchange, JSE, has been laying the groundwork for the introduction of cryptocurrency trading for more than two years, but there is now expectation that it could happen by yearend.

“There is a lot of work to get the Jamaican market excited about and understanding crypto,” said VMIL CEO Rezworth Burchenson in response to a query at the company’s annual general meeting this week.

The price of bitcoin, the largest cryptocurrency with the biggest name recognition, has been climbing to new highs this year, but hasn’t sustained its rise. Bitcoin rode to US$64,900 on April 14 of this year, but is now back to around US$38,000. Its market value of US$1 trillion at mid-April is now down to US$710 billion.

These developments in the cryptocurrency space have been “very volatile,” Burchenson noted. “But it is an emerging space, and it is our responsibility to introduce it and see where it goes,” he said.

JSE, which enforces market rules over stockbrokers and listed entities such as VMIL, plans to set up its digital asset trading platform in late 2021, through which cryptocurrencies can be traded.

The JSE, in partnership with Canadian firm Blockstation, has been testing the platform since 2019, starting in January of that year, and was due to have five brokers testing that April. JSE said the “limited pilot” would have tested trading in both bitcoin and ether cryptcurrencies.

Security token offerings

In addition to the trading of digital currency, the JSE platform, which will operate separately from the equities trading platform supplied by Nasdaq, was eventually expected to accommodate the listing of digital assets, through STOs, or security token offerings, which is a digital version of an initial public offering.

Then JSE chairman Ian McNaughton said at the signing of the agreement with Blockstation in 2019 that details of the STO programme were still being worked through with regulators. Barita, which McNaughton headed as managing director at the time, was to be one of the five brokerages tapped for the second-phase trial.

The JSE platform will list digital assets using blockchain technology, the same system on which bitcoin was built.

BOJ has not enunciated a public policy on cryptocurrencies, but the FSC, which regulates financial firms like VMIL, is said to be taking steps to formulate guidelines and rules around the asset class.

Burchenson said no timeline has been given for the release of the FSC guidelines, but he also noted that outside of regulatory approval, VMIL itself needs to do market research to assess whether existing equity traders are even interested. The average Jamaican investor is risk-averse, while cryptos are highly risky.

“A large percentage of the local investor class are still apprehensive to trade Jamaican equities, [for which] there is an identifiable valuation methodology; while the Nobel Prize for valuing crypto is yet to be handed out,” he said exaggeratedly to hammer home the point.

Several overseas-based online platforms allow for the trading of stock, commodities, foreign exchange and cryptocurrencies. VMIL recently started offering a platform to its clients to trade US securities in partnership with Interactive Brokers, but Burchenson declined to say whether the company would seek out the cryptocurrency side of the IB platform for its clients to trade digital coins.

“There is work to be done to identify the number of persons who trade on the Jamaica Stock Exchange and are interested in crypto,” he said.

VMIL is a mid-sized investment company owned by a conservative parent, the Victoria Mutual Building Society, with assets of $27 billion as at March 2021. Its profits fell during the pandemic year but still delivered a robust $433 million in annual earnings for the period ending December 2020. Amid signs of recovery, the company swung from a pretax loss of $89 million to profit of $99 million in the first quarter ending March 2021.

Quarterly losses of around $9 million from its 30 per cent share in online lending platform Carilend weighed on profit, just as it did in March 2020, but Burchenson said the fintech associate is making progress. VMIL has owned a piece of the Barbados-based company – a peer-to-peer lending platform which matches borrowers and lenders – since August 2019.

“The activity in the company is getting to the stage of critical mass. There is a number we have identified to break even, and we want to get to that number as fast as possible,” he said regarding Carilend.

steven.jackson@gleanerjm.com