Purchase securities easily on global markets.
It’s 2019. Investors all over the world are watching as fintech developments change the way investments are being made every day. The cryptocurrency trend proved successful for many but left others burned through fraudulent ICOs. Crypto, however, opened the doors for many other innovations through the digital, public ledger of blockchain.
One of the newest, and most innovative developments gaining momentum this year is the tokenization of assets, more importantly, security tokens. Security tokens are an efficient, inexpensive, and compliant way to invest in securities with the security benefits of blockchain technology.
What is a token?
Tokenization works by taking an asset and converting the rights of a hard asset into a digital token. Popular assets like stocks, real estate, carbon credits, oil, and gold can be difficult to physically transfer and/or subdivide, leading buyers and sellers to utilize paper trading that represent some or all of the asset.
There are two different kinds of tokens to define, utility tokens and security tokens.
These tokens are what most people are talking about when they are talking about tokens. A utility token is a virtual coin that is back up by a project, which is the type of investment most individuals are making.
When an investor purchases a utility token, they will receive a definable benefit in return. In most cases, the benefit is access to a particular system, or a coin that offers them access to a service. For example, the investor gains access to cloud storage space.
A security token is a kind of token that does not need a utility. Instead of giving investors a tangible benefit, this kind of token usually represents a share in the company that issues it. Also known as equity tokens, security tokens are compared to purchasing shares on the traditional stock market as it offers partial ownership of a company.
While the differences between the two don’t seem to be vast, as you will see below, security tokens are much more heavily regulated, at least in the US government.
Security tokens offer users a quicker and easier transaction, with the benefits of blockchain technology and strong legal protection. They are a digitized conventional security that many investors are already purchasing, including stocks, bonds, property, and so on. When an individual purchases a security token, they are investing in an underlying asset, traded on global marketplaces that can represent fractional ownership of the asset. This gives security tokens a level of liquidity that wouldn’t be feasible with traditional securities.
The tokens are equipped with smart contracts, simple programs that are designed to execute as soon as a criterion is satisfied. The smart contracts can determine how the token is purchased, traded, or sold. Additionally, since tokens are based on blockchain, transactions are immutable, traceable, and transparent.
The Howey Test
In the United States, securities and security tokens are regulated by the Securities and Exchange Commission (SEC). To be considered a security, the investment or token must best what is known as the Howey Test. The Howey Test comes from a 1946 Supreme Court case in which an orange grove company, the Howey Company, was selling plots of land without promising investors to work the land and pay out part of the profit.
The SEC wanted to stop the sale of the land plots, saying that this was an investment contract and the investors should be promised protection. The Howey Company did not agree, claiming the transactions was simply a sale of land.
The Supreme Court sided with the SEC, creating the current definition of a ‘security’ and a test, the Howey Test.
In order to pass the Howey Test and be considered a security, a transaction must meet the following requirements.
- There is an investment of money.
- There is an expectation of profits.
- The investment of money is in a common enterprise.
- Any profit comes from the efforts of a third party or promoter.
Security Token Offering (STO)
For those who may be worried about a security token’s relationship to an ICO or cryptocurrency, there is a major difference.
Initial Coin Offering, or ICO, is like an IPO for cryptocurrency. When a new digital currency is developed, money is needed to fund it. Those who invest are hoping the currency will gain a lot of traction and raise the price of the coin. Unlike IPOs, investing in an ICO cannot gain you ownership stake of the company. During the ICO phase of a cryptocurrency’s life, interested investors buy some of the coins with virtual currency. The coins are known as tokens and act similarly to shares of a company when they are sold during the Initial Public Offering (IPO) step.
Unfortunately, many eager investors learned the hard way that many ICOs were fraudulent. With the added security and regulation of a security token, investors can rest easy knowing that Security Token Offerings aren’t the same as cryptocurrencies, nor are they related to ICOs.
An individual who is comfortable purchasing a traditional security will be comfortable purchasing a security token. As stated above, a security token is simply a digitized version of a traditional security, replacing a stock certificate with a digital copy.
Fintech and You
The shift we are seeing is that of a digital age. Tech-savvy individuals are seeking easy access, convenience, efficiency, and speed in every part of their lives, including their finances. Having the ability to make transactions from the convenience of a phone or other electronic platform is what is creating this strong push towards the Alpen Partners team has expertise in tax compliance guidance.
You can save big on taxes.
Speaking of taxes, one of the leading reasons smart investors and wealthy individuals seeking an offshore bank account is the tax advantages. When planned correctly, holding wealth in an offshore account can maximize your tax efficiency by holding your offshore bank account in a tax-exempt country.
Depending on the jurisdiction you call home, you may catch some tax breaks for holding your money outside of your tax jurisdiction. Some countries even offer incentives to foreign investors through favorable tax rates in order to attract outside wealth.
The tax treatment is one of the biggest reasons an individual may seek an offshore bank account. With an offshore account, it is possible to earn tax-free money in some countries. Many offshore banks allow you to work in another country and earn hefty capital gains with no taxes.
It’s vital for your asset protection plan
One of the best ways to protect expensive assets from the hands of a creditor is taking the assets to a jurisdiction that is out of reach. Valuable assets that one might worry could be in danger in the event of a lawsuit can be moved offshore to protect them. This includes assets of all kinds such as stock portfolios, precious metals, retirement accounts, and self-directed IRAs. Creditors who are after your money held in foreign accounts will run into numerous roadblocks.
The very first step of moving assets offshore is going to be opening an offshore bank account.
Asset protection plans may include offshore trusts or even an offshore company. Others hold assets in offshore LLCs that allow them to keep expensive assets outside of the reach of creditors. To sue an offshore business, many courts require a separate lawsuit in the foreign jurisdiction. This means that if someone is trying to get your money, they must also sue your offshore company. The new lawsuit will not consider the original lawsuit.
No matter how you take your wealth offshore asset protection, a foreign bank account is necessary.
You can take advantage of investment options.
Not only are you protecting your wealth when holding wealth offshore, but the foreign bank account can also even help grow the wealth. Many offshore banks offer top of the line investment services that guide investors to the perfect offshore investments for them.
Further, many feel restricted by the investment opportunities at home. Offshore banks typically offer a wide choice of funds and investments that aren’t available in your home country. It’s an easy and great way to diversify your portfolio. This includes new and developing sectors, as well as developed industries that aren’t available everywhere. Also, many invest in foreign real estate as a way to help with gaining residency.
It’s easier than you think
Many people believe that there is an unnecessary amount of hoops to jump through to have an offshore bank account, but in most cases, this is not true.
Opening a bank account in a different country can be easy, usually completed from home via the internet and courier. Very rarely do banks require applicants to participate in a one-on-one meeting in person. In many cases, individuals provide specific required documentation of identity, letters of reference, and make the minimum deposit.
Obviously, not all banks are the same, and some countries are more strict about who is allowed to have an account. It is crucial to seek the help of a legal and financial professional to help you every step of the way.
Get the help you need today.
As you have read, offshore banking cannot typically be done alone. Guidance is often needed to find the right jurisdiction, knowing exactly how to open the account, and staying compliant.
Alpen Partners partners with banks around the world, with the most significant and prestigious being in Monaco and Switzerland. Building on many years of experience in private banking in Switzerland, Alpen Partners Wealth Management International AG provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well known for being sophisticated and discreet.
Additionally, Alpen Partners is working with the leading tax and legal specialists around the world to advise its clients on the best structure to protect their assets. Working with these specialists, Alpen Partners has developed strong expertise in offering asset protection strategies for clients from various industries.wealth.com/us/insights/introduction-to-fintech/”>Fintech.
Looking beyond blockchains, we are seeing technology have a hand in simple things such as payment and holding money, and more complex life aspects like investment advising. Some companies are even developing ways artificial intelligence can assist in hedge fund managing!