Feds shut down allegedly fraudulent cryptocurrency offering

Feds shut down allegedly fraudulent cryptocurrency offering

Cryptocurrency offerings are no longer a regulation-free zone.

 A diagram on the PlexCoin website illustrates the cryptocurrency's revolutionary architecture.

The Securities and Exchange Commission on Monday announced that it was taking action against an initial coin offering (ICO) that the SEC alleges is fraudulent. The announcement represents the first enforcement action by the SEC's recently created cyber fraud unit.

In recent months, the SEC has been wrestling with what to do about ICOs. US securities laws impose a number of requirements on anyone who offers new investments to the public. ICOs—in which a company offers the public cryptocurrencies that could appreciate in value the way Bitcoin has—look a lot like securities offerings. But most ICOs have ignored the SEC's requirements. At the same time, the SEC is aware that new cryptocurrencies could become an important source of innovation. And some experts argue that many new cryptocurrencies—those that serve a useful function beyond their potential to grow in value over time—are not securities, legally speaking.

So the SEC has proceeded cautiously. In July, the agency fired a warning shot. It announced that a 2016 fundraising campaign had run afoul of securities law, but that the SEC would decline to prosecute those responsible. The hope was to get the cryptocurrency world to take securities laws more seriously without doing anything drastic.

Now the SEC is taking the next step by prosecuting what it considers to be one of the most egregious scams in the ICO world. The SEC's complaint, filed in federal court in New York, is against Dominic Lacroix, whom the SEC describes as a "recidivist securities law violator." The SEC considers Lacroix's cryptocurrency project, PlexCoin, to be a "fast-moving Initial Coin Offering (ICO) fraud that raised up to $15 million from thousands of investors since August by falsely promising a 13-fold profit in less than a month."

The PlexCoin website has a hilariously vague description of this supposedly revolutionary cryptocurrency. "The PlexCoin's new revolutionary operating structure is safer and much easier to use than any other current cryptocurrency," the site proclaims. "One of the many features of PlexBank will be to secure your cryptocurrency from market variation, which is highly volatile, and invest your money in a place where you can get interesting guaranteed returns." The company claims that it's working on a PlexCard to allow people to spend their PlexCoin balances. h your PlexCard will guarantee you a perfect interbank exchange rate without fees," the site claims.

The SEC isn't impressed and is arguing that PlexCoin has "all of the characteristics of a full-fledged cyber scam." The agency is seeking to freeze the assets of the PlexCoin project in hopes of getting investors' funds back to them. Most ICOs are not outright scams, as the SEC alleges in this case. Still, the action will give many other ICO sponsors pause. Securities law goes well beyond combatting scams. Offering securities to the public without following SEC rules can get people in a heap of trouble. The SEC started with PlexCoin, but its enforcement of securities laws probably won't end there.

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Revolut merges mobile banking with cryptocurrency trading

Revolut merges mobile banking with cryptocurrency trading

Revolut is merging traditional banking and cryptocurrency

to let you buy, sell, trade, and hold Bitcoin, Litecoin, and Ether alongside 25 world fiat currencies. The $90 million-funded mobile banking startup is trying to erase the divide between old and new money. Revolut‘s CEO Nikolay Storonsky announced on stage today at TechCrunch’s Disrupt Berlin conference that cryptocurrency trading will open to all Revolut users on Thursday. If you’re spending money through Revolut’s debit card and run out of fiat currency, it will automatically convert the necessary amount of cryptocurrency to fiat to fund your transaction.

“Despite being one of the hottest trends in the world right now, getting exposure to cryptocurrency has notoriously been time-consuming and expensive,” Storonsky writes. The move comes as cryptocurrency becomes increasingly legitimate in the eyes of the world, following bitcoin blowing past $10,000 per coin, and traditional futures exchanges preparing to allow bitcoin futures trading this month. While cryptocurrency could be seen as a niche distraction from Revolut’s core business, but Storonsky feels that crypto is going mainstream and will quickly become a critical part of all banking. He cited that during Revolut’s week-long crypto beta test, 10,000 customers traded $1 million in cryptocurrency.

When the feature opens up to all users Thursday, Revolut promises to offer the most competitive rates on crypto transactions, charging only a flat, up-front 1.5 percent without other hidden fees that can add up to 5 percent to 9 percent on other platforms. Customers will be able to buy through all of Revolut’s base currencies so there’s no need for extra foreign exchange fees if you want to buy in Swiss Francs, for example.

In just two years, Revolut has signed up over 1,000,000 users in Europe and processed 42 million transactions, and claims to have saved customers $160 million in foreign exchange fees. It’s growing fast, doubling the rate of new customer sign-ups versus three months ago. While there are plenty of players in the modernized debit card market like N26 and Monzo, Revolut also lets you send up to €5,000 per month in 16 currencies without any fee. As these startups jockey for position, they’re all searching for differentiators. Embracing cryptocurrency could lure fintech early adopters to Revolut.

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How the Winklevoss twins became the world’s first bitcoin billionaires

How the Winklevoss twins became the world’s first bitcoin billionaires

The entrepreneurs sued Facebook founder Mark Zuckerberg years ago, and they invested their (supposedly) meagre payouts wisely


Tyler and CameronWinkelvoss have won big on bitcoin.

Vaguely. So they’re actors, are they? No. They’re venture capitalists and entrepreneurs. In 2008, they rowed for the US at the Beijing Olympics, finishing sixth. In the film, Armie Hammer played both of them as a kind of two-man master race. As one of them put it in a memorable line of dialogue, “I’m 6ft 5, 220 pounds and there’s two of me.” Nice. But why make a film about them? Because they were at Harvard with Mark Zuckerberg, who they later sued, claiming he stole their idea for a website that they called Harvard Connection, but which he called the Facebook. (Dramatic music.)

And did he? Steal the idea, I mean? Oh, God, that’s just too complicated to get into. The Winklevii launched numerous lawsuits about it, and got about $65m (£48m) worth of Facebook stock, which wasn’t much at the time. Oh, yeah. Sure. These guys probably spend $65m on lunch. In fact, they spent $11m of it on bitcoin, so they’ve probably cheered up a bit.Bitcoin. There’s a word I don’t understand. It’s a crypto-currency. There’s another one. Think of it as an electronic token, which can be owned and traded. Like normal money, it has value because other people consider it valuable. The number of bitcoins in circulation is strictly controlled by a clever bit of software that nobody can hack, called the blockchain.

Thank you. And the Winklevoss twins like having lots of bitcoins, do they? I’m sure they do at the moment. In March 2013, they bought about 100,000 of them, when each coin was worth roughly $120. After a strong year, and a wild couple of weeks, each bitcoin is now worth … let’s see … $11,826. Holy moly! That’s right. Not counting the value of their other investments, the Winklevoss twins have just become the world’s first bitcoin billionaires. Apart from Satoshi Nakamoto, bitcoin’s mysterious inventor, of course. Please don’t explain who he is. Well, there are lots of intriguing theories … Do say: “They’re not billionaires – they’re half a billionaire each!” Don’t say: “Just $73bn to go and they’ll catch up with Zuckerberg.”

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Bitcoin: UK and EU plan crackdown amid crime and tax evasion fears

Bitcoin:
UK and EU plan crackdown amid crime
and tax evasion fears

Cryptocurrency close to record high despite news Treasury plans to end traders’ anonymity

Bitcoin
The EU is taking action to regulate trading in bitcoin.

The UK and other EU governments are planning a crackdown on bitcoin amid growing concerns that the digital currency is being used for money laundering and tax evasion. The Treasury plans to regulate bitcoin and other cryptocurrencies to bring them in line with anti-money laundering and counter-terrorism financial legislation. Traders will be forced to disclose their identities, ending the anonymity that has made the currency attractive for drug dealing and other illegal activities.

Under the EU-wide plan, online platforms where bitcoins are traded will be required to carry out due diligence on customers and report suspicious transactions. The UK government is negotiating amendments to the anti-money-laundering directive to ensure firms’ activities are overseen by national authorities. The Treasury said: “We are working to address concerns about the use of cryptocurrencies by negotiating to bring virtual currency exchange platforms and some wallet providers within anti-money laundering and counter-terrorist financing regulation.”

Guardian Today:

The rules are expected to come into effect in the next few months. The Treasury said digital currencies could be used to enable and facilitate cybercrime. It added: “There is little current evidence of them being used to launder money, though this risk is expected to grow.” The bosses of Goldman Sachs and JP Morgan have criticised bitcoin as a vehicle to commit fraud and other crimes. But Sir Jon Cunliffe, a deputy governor of the Bank of England, last week said the digital currency was too small to pose a systemic threat to the global economy. He also cautioned that bitcoin investors needed “to do their homework”.

Bitcoin was trading at $11,566 on Monday. It hit a fresh record high of $11,800 on Sunday but fell to $10,554 on news of the regulatory crackdown. The Labour MP John Mann, a member of the House of Commons Treasury select committee, suggested MPs would look into the regulation of virtual currencies. He told the Daily Telegraph: “These new forms of exchange are expanding rapidly and we’ve got to make sure we don’t get left behind – that’s particularly important in terms of money laundering, terrorism or pure theft. “It would be timely to have a proper look at what this means. It may be that we want speed up our use of these kinds of thing in this country, but that makes it all the more important that we don’t have a regulatory lag.”

The UK government is currently negotiating amendments

Stephen Barclay, the economic secretary to the Treasury, set out the government’s plans in a written parliamentary answer in October. “The UK government is currently negotiating amendments to the anti-money-laundering directive that will bring virtual currency exchange platforms and custodian wallet providers into anti-money laundering and counter-terrorist financing regulation, which will result in these firms’ activities being overseen by national competent authorities for these areas. “The government supports the intention behind these amendments. We expect these negotiations to conclude at EU level in late 2017 or early 2018.”

Since you’re here …

… we have a small favour to ask. More people are reading the Guardian than ever but advertising revenues across the media are falling fast. And unlike many news organisations, we haven’t put up a paywall – we want to keep our journalism as open as we can. So you can see why we need to ask for your help. The Guardian’s independent, investigative journalism takes a lot of time, money and hard work to produce. But we do it because we believe our perspective matters – because it might well be your perspective, too. High-quality journalism is essential intellectual nourishment. The generosity of providing such a service without a paywall deserves recognition and support. 

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World Computer? New Protocol Could Supercharge Ethereum Blockchain

World Computer?
New Protocol Could Supercharge Ethereum Blockchain

With scaling the center of attention in the public blockchain sector,

an older but lesser known attempt to overcome the restrictions inherent in ethereum is getting a refresh. Revealed in an exclusive interview with CoinDesk, a new TrueBit protocol is being released this December, one that removes the ethereum "gas limit," which today puts an upper-bound on the number of computations the network can achieve, bringing the second largest blockchain by market capitalization closer to its oft-touted goal of becoming a "world computer."

While TrueBit is one of many in-progress scaling solutions being engineered for the ethereum platform – working alongside mechanisms such as sharding, state channels and Raiden – it distinguishes itself by focusing on the computational power of the network at large, instead of just transaction speed. Geared specifically towards heavy computations, such as those video broadcasting and machine learning would require, TrueBit could resolve the fact that ethereum is still about as fast as a "smartphone from 1999," as ethereum creator Vitalik Buterin joked last year.

"In short, the new scheme would be a vast simplification of the current TrueBit protocol," said Zack Lawrence, the co-founder of 1protocol, who developed the technology. And these gains all came about after speculation that someone could exploit the protocol, after an amendment to its white paper was released last month. Jason Teutsch, a mathematician and co-founder of TrueBit, framed the speculation, and the process for patching the vulnerability,

with a silver lining:

"When so many people have eyes on the papers, over time, you get more and more confident that it's correct, but it's always an ongoing process for these things that are living systems… Now, we go another layer down the protocol rabbit hole, it's this iterative process of getting deeper and deeper into this."

Hit the jackpot?

And going deeper led the devs to the incentive mechanism used in the protocol. TrueBit aims to remove the gas limit on ethereum by moving computations off-chain – outsourcing them to an external marketplace that rewards participants for solving and verifying the computations. Within the marketplace "task givers" pay "verifiers" to solve computations in exchange for rewards, while "validators" check that the computations are correct.

To make sure everyone runs effectively, Truebit relies on an incentive scheme dubbed the "forced errors jackpot," which ensures validators are actively checking for correctness by requiring verifiers to occasionally submit incorrect information. If a validator finds these forced errors, they're rewarded with a substantial payout: the "jackpot." But according to Lawrence, that process can be a lot less complicated.

Within the new protocol, instead of limiting the participants' tasks, everyone can participate openly. Those that verify correct computations still get paid, but if another participant finds an error, they can submit what they believe the computation should be and enter that into the verification game. All the potential answers are then pooled together until a consensus is reached.

Because that verification pool is costly to participants, the protocol incentivizes them to work together honestly so disputes do not occur, since the reaching consensus within that verification pool would be costly for everyone. Not only does this iteration eliminate the security flaws pointed out when the amendment was released, but it's also easier to implement and could increase the number of computations participants are willing to perform since it eliminates the once-every-so-often jackpot, Lawrence told CoinDesk.

Security challenge

Still, the new protocol may not be the last step in evolving TrueBit to achieve optimum efficiency. Teutsch explained that both versions of the protocol will still hit against eventual limits when it comes to massive computations. If, for example, verification takes too long or gets too expensive, those who notice errors might be inclined to keep quiet, and just let them go. "Remember that the verification game is really slow compared to native computation, so my concern expressed here is more than just theoretical," he said.

Plus, because TrueBit is a protocol built on game theory (rather than relying on more familiar security auditing processes), Teutsch said, its "security is an observational science," in which devs try to put themselves in every position an attacker might be in. Because of this, Teutsch said the developers may decide to run both the original protocol (now internally nicknamed TrueBit Classic) and the new protocol in parallel for better security.

But nodding to the fact that digital security is an immensely challenging prospect that takes continual work,

 Teutsch told CoinDesk:

"Full confidence happens once you have all the money in the world behind it, and it's sat there for a few years."

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For security agencies, blockchain goes from suspect to potential solution

For security agencies, blockchain goes from suspect to potential solution

  • Australia blockchain grant for intel sharing
  • Investigators so far seen blockchain, bitcoin as criminal havens
  • US, UK eye blockchain's military, security, intel potential

Police and security agencies have so far only taken

an interest in blockchain – the distributed ledger technology behind cryptocurrencies like bitcoin – for tracking criminals hiding illegal money from banks. But that's changing as some civilian, police and military agencies see blockchain as a potential solution to problems they have wrestled with for years: how to secure data, but also be able to share it in a way that lets the owner keep control.

Australia, for example, has recently hired HoustonKemp, a Singapore-based consultancy, to build a blockchain-based system to record intelligence created by investigators and others, and improve the way important information is shared. "They've been trying for years to come up with a centralised platform, but people are reluctant to share information," said Adrian Kemp, who runs the consultancy, which was awarded a A$1 million ($757,500) grant by AUSTRAC, Australia's financial intelligence agency, and the Australian Criminal Intelligence Commission.

Blockchain's appeal for data sharing is threefold.

Its ledger, or database, is not controlled by any single party and is spread across multiple computers, making it hard to break. Once entered, any information cannot be altered or tampered with. And, by using so-called smart contracts, the owner of information can easily tweak who has access to what. It's a sign of how far blockchain technology has come within a decade since the publication of a pseudonymous paper describing bitcoin and the blockchain ledger that would record transactions in it. Bitcoin has since become the preferred currency not only of libertarians and speculators, but also of criminal hackers. The bitcoin price is volatile, and hit record peaks late last month.

Governments are already exploring ways to store some data, such as land records, contracts and assets, in blockchains, and the financial industry, too, has experimented with blockchain technologies to streamline transactions and back-office systems, though with limited success.

Securing shared data

The closest most law enforcement agencies have come to the blockchain has been working with start-up firms to analyse it for evidence of criminal deals. But in the past year or so that attitude has begun to change. The United States Air Force (USAF) has funded research into how blockchain could ensure its data isn't changed. In May, the Defence Advanced Research Projects Agency (DARPA) awarded a grant to the company behind an encrypted chat program to make a secure messaging service based on the blockchain.

Amendments to a recent U.S. Senate defense bill require the government to report back on "the potential offensive and defensive cyber applications of blockchain technology and other distributed database technologies" and how foreign governments, extremists and criminals might be using them. Britain, too, is exploring several uses of the blockchain, say consultants and companies working for several departments.

Cambridge Consultants, a U.K.-based consultancy, said it had worked with the Defence Science and Technology Laboratory, a U.K. Ministry of Defence (MoD) agency, on using a blockchain to improve the trustworthiness of a network of sensors on, for example, security cameras. The UK's justice ministry is looking at proving that evidence – video, emails, documents – hasn't been tampered with by registering it all on a blockchain, according to a blog post on its website.

Marcus Ralphs, a former soldier and now CEO of ByzGen Ltd, which makes blockchains for the security sector, said he was working on projects with the MoD using blockchain to track the status and level of individuals' security clearance. Other work included helping the Foreign and Commonwealth Office (FCO) improve the way work permits are issued and records stored.

'Passing the buck'

These are early days. Kemp says there's no guarantee his project will be deployed more widely. And some who have worked with AUSTRAC are skeptical, saying such projects have more to do with agencies turning to the private sector because they're running low on resources and ideas. "The government is just looking to pass the buck on to private industry," said Simon Smith, a cyber private investigator who has worked on cases involving AUSTRAC. Many police forces and armies aren't ready for the technological and mental leap necessary.

The Police Foundation, a UK think-tank focusing on policing and crime, is pushing British police to explore the blockchain, but its director, Rick Muir, said "we are still at the stage of 'what is blockchain?'." Neil Barnas, a USAF major who last year wrote a thesis on the potential of blockchain in defense, said U.S. military and security agencies were slowly waking up. The problem, he says, is that military minds are more inclined towards centralized systems than the decentralised ones that blockchain's distributed ledger embraces. That said, blockchain's association with the criminal underworld has not dented its appeal to those who see its potential, said ByzGen's Ralphs. "The negative narrative around it has not at all watered down or diluted interest of the people we've been engaging with," he said.

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USV’s Albert Wenger: Cryptocurrency as a Whole Will Be Worth Trillions of Dollars

USV’s Albert Wenger:
Cryptocurrency as a Whole Will Be Worth Trillions of Dollars

 

Following bitcoin’s historic march to $10,000

and subsequent volatility, covered by CCN, various prominent Wall Street executives have been weighing in on bitcoin and the cryptocurrency ecosystem in general, showing they aren’t too fond of it. Nobel Prize-Winning economist Joseph Stiglitz recently stated that bitcoin should be “outlawed,” while Goldman Sachs CEO Lloyd Blankfein apparently soured on bitcoin as he stated that it’s a “vehicle to perpetrate fraud.”

However, Union Square Ventures (USV) partner Albert Wenger recently shared his views on the cryptocurrency ecosystem, and made it clear that he feels its current $300 billion market cap is just the beginning of the journey. While speaking to CNBC, Wenger stated that “a bubble is only something you can ever figure out in hindsight,” and added that he finds it instructive to look at Amazon’s stock chart. The e-commerce giant’s chart, Wenger continued, looks like a “massive upward-sloping curve,” but when we zoom in on it, we can see that in the beginning there was a run-up and big drop-off. To him, the cryptocurrency’s chart will, in the future, be a “very massive run-up.”

As such, it’s possible that the current run-up turns out to be “a blip on that chart.” To him, since the cryptocurrency ecosystem has grown to where it is today, there’s definitely a way for it to do down as well, but there’s also a path for it to reach trillions of dollars.

He notably stated:

“And there’s definitely also a path to the future where cryptocurrency as a whole will be worth trillions of dollars. So I believe that there’s a good change cryptocurrencies taken together as a bucket will be worth trillions of dollars.”

Wenger added that he believes we’re still far from that, and that there will be set backs along the way. When asked if he believed cryptocurrencies were going through an “Amazon moment,” he clarified that they’re going through an “exuberant moment.” Regarding whether or not there’s a bubble, he stated that “at some point there’s a reset,” adding that using the word bubble implies it’s about to pop, something Wenger believes may or may not happen.

To Wenger, all this irrational exuberance is a good thing for cryptocurrencies in the long run, as it brings investors and entrepreneurs to the space. Since cryptocurrencies are still a novelty, he added, we still need to try new things to see what works. Earlier this year, USV’s co-founder Fred Wilson dismissed potential bitcoin crash predictions, and explained the optimal cryptocurrency holdings for investors, according to their comfort levels.

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National Cryptocurrencies? All Currencies Will Be Digitized, Cryptocurrency Expert Says

National Cryptocurrencies? All Currencies Will Be Digitized, Cryptocurrency Expert Says

Bitcoin has burst through the $10,000 barrier

and Ethereum is bumping up against $500. But today's important cryptocurrencies might just be the loud and noisy open act to the really big deal of the next decade. That is, the end of cash as we know it. "All currencies will be digitized," Bitt founder and director Gabriel Abed said today at TechBeach retreat in Jamaica. "Cash has seen its days."

National Cryptocurrencies? All Currencies Will Be Digitized, Cryptocurrency Expert Says. Bitcoin has burst through the $10,000 barrier and Ethereum is bumping up against $500. But today's important cryptocurrencies might just be the loud and noisy open act to the really big deal of the next decade. That is, the end of cash as we know it. "All currencies will be digitized," Bitt founder and director Gabriel Abed said today at TechBeach retreat in Jamaica. "Cash has seen its days."

Cryptocurrency, Bitt is a fintech starup,

nd Abed spoke today on a panel addressing cryptocurrencies and blockchain along with other Carribean startups and banking infrastructure representatives, such as Justin Ram, the Director of Economics for the Caribbean Development Bank.

"There’s a future coming that complete disrupts what we know today," Abed said. "I see a different future where central banks are issuing digital dollars … a new economic age of digital dollars." Cryptocurrencies like Bitcoin and Ethereum, and hundreds of others, typically are issued by private individuals, groups, or organizations, or mined via cryptographic protocols. Russia, however, among just a few other nations on the planet, has publicly announced plans for a national cryptocurrency: the CryptoRuble. China is working on a similar currency, as is Kyrgyzstan. At this moment, the U.S. Federal Reserve has no such plans — although, you'd have to think it would make quantitative easing much more simple.

What's better about a national cryptocurrency?

 "A national cryptocurrency would be better," Abed says. "It's more efficient, more immutable, more transparent."Bitt is talking to the Central Bank in Jamaica, Abed said, to potentially test technology like this, while the company is in active pilots in other Caribbean nations. Jamaica is doing what it can to enable fintech startups, said another panelist, in order to foster innovation."I do not want to see a situation where the regulators have too heavy a hand initially," said Ram, from the Carribean Development Bank. "We can utilize the Caribbean as a sandbox … and little “ays” can open big doors."

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Bitcoin Futures Get Official Green Light From Regulators

Bitcoin Futures Get Official Green Light From Regulators

Opening up Bitcoin future exchanges..!!

  • CME, Cboe allowed to proceed after pledges to regulators
  • CFTC says venues will help U.S. surveil bitcoin’s spot market
     
Bloomberg’s Rob Urban reports on the CME and CBOE opening up Bitcoin future exchanges.CME Group Inc. and Cboe Global Markets Inc. are poised to offer bitcoin futures contracts, easing the way for mainstream investors to bet big while dragging regulators into a realm skeptics call a fad and fraud. CME, the world’s biggest exchange owner, and smaller venue Cboe, known for its VIX volatility products, were allowed to offer the products after pledging to U.S. regulators that they comply with the law. CME said its contract will begin trading Dec. 18, while Cboe said it is “operationally ready” and would announce a start date soon. Cantor Exchange, a subsidiary of Cantor Fitzgerald, also will offer bitcoin binary options.

Bitcoin extended gains following the announcement.

The moves are a watershed for Wall Street professionals — including institutional investors and high-speed traders — who’ve been eager to bet on cryptocurrencies and their wild swings. But the new products will also spur federal regulation, with the contracts announced Friday subject to oversight by the Commodity Futures Trading Commission. All three exchanges promised to help the agency surveil the underlying bitcoin market.

“Bitcoin, a virtual currency, is a commodity unlike any the commission has dealt with in the past,” CFTC Chairman Chris Giancarlo said in a statement. “We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity on the relevant cash platforms.” Trading in bitcoin and other cryptocurrencies is largely unregulated, and that’s the point. Bitcoin was introduced in the wake of the 2008 financial crisis as a way of avoiding governments and central banks. Now with its meteoric rise and the proliferation of cryptocurrencies, banks, brokers and mainstream investors want in. And they want regulation, something they’ll get plenty of a market like CME or Cboe’s.

 Plans to Train His Sights on Bitcoin

Under a process called self-certification the exchanges assured the CFTC that the new products complied with the rules. While it doesn’t technically require CFTC approval, the regulator could have stayed their plans if they weren’t satisfied. Friday’s announcement allows them to go forward. “The launch of the futures will actually make the market healthier,” Cboe President Chris Concannon said in an interview after the announcement. “It will create pricing equilibrium in the market. Clients who are holding bitcoin now have no way to hedge their risk. These products allow them to hedge, and to take opposing views. More importantly, it brings a wave of regulatory oversight.”

U.S. financial regulators have struggled for years to agree on what, exactly, bitcoin is and what risks it might pose. That’s left its enthusiasts and financial professionals unsure which government agencies might try to police the rapidly growing market. In addition to the CFTC, there’s the Securities and Exchange Commission, the Internal Revenue Service and the Treasury Department’s FinCEN, which tracks illicit payments.

The CFTC declared in 2015 that it would treat bitcoin as a commodity. “But the IRS says it’s property, the SEC said now some digital currency is a security, and FinCEN says digital currency is a ‘money-like instrument,’” said Adam White, general manager of GDAX, a cryptocurrency exchange owned by Coinbase. His company is trying to work with all of them, he said, while offering his own definition: “It’s a new asset class.” The new derivatives will open the door for institutional investors to get into the market, likely pushing the price higher once they start trading, said Naeem Aslam, a chief market analyst at TF Global Markets in London.

“This is going to bring large sum of money in this area,” Aslam said. “It sends the message that the product does have some regulation around it and it is trading on the same exchange where other reputable derivatives are.” Bitcoin, created in 2009, excited early investors with its potential use as a global currency, free from bank fees and government control. Transactions take place person-to-person around the world — anywhere there’s Internet access. The cryptocurrency’s price skyrocketed in recent months, surpassing $11,000 this week before paring some gains.

After Friday’s announcement, exchanges and the CFTC will have to keep tabs on that underlying market, according to Jeff Bandman, who until June advised Chairman Giancarlo on financial technology issues. “It’s well understood that bad actors can take actions in the spot market for a commodity where the reward or payoff is the derivatives market and vice versa,” Bandman, who now runs Bandman Advisors, said in an interview before Friday’s announcement. “This would represent a new opportunity for mischief.”

Brian Quintenz, a Republican commissioner at the CFTC, said in an interview in London earlier this week that such venues will have to be vigilant if they list contracts. They would “take on a significant but a very, in my view, positive role in ensuring manipulation is not occurring in how they calculate the prices for these futures,” he said. That “can bring some regulatory oversight on their own” to bitcoin, he said. There are other ways the new futures could spur more vigorous oversight of the cryptocurrency. The contracts, for example, could make it easier to create an exchange-traded fund tied to bitcoin — even after a previous attempt was knocked down.

That could enlist the SEC. In March, the agency rejected a bitcoin ETF proposed by Tyler and Cameron Winklevoss — the co-creators of the Gemini exchange — saying necessary surveillance-sharing agreements were too difficult given that “significant markets for bitcoin are unregulated.” Cboe will base its XBT futures on the Gemini Exchange’s bitcoin auction price. On Thursday, a top SEC official weighed in. David Shillman, associate director in the agency’s division of trading and markets, said a strong bitcoin futures market could make the regulator more comfortable approving bitcoin ETFs. Many mainstream investors and their brokers — lured by bitcoin’s meteoric rise this year — wouldn’t mind some government oversight to head off potential abuses.

“The problem with the futures contracts is they are regulated derivatives that are based off underlying trading in unregulated markets,” Richard Johnson, a market-structure analyst at Greenwich Associates who specializes in blockchain, said before Friday’s announcement. “That does create a potential problem.” Ever since digital currencies began emerging, U.S. regulators have faced a big dilemma: The laws that empower watchdogs and delineate their areas of responsibility were written decades ago when money was minted on paper, companies turned mainly to the stock market for capital, and commodities came from farms, mines or wells. Many authorities have held back, studying what to do.

CME Chief Executive Officer Terrence Duffy sped up that process in October when he disclosed his plan for futures. His announcement of an imminent product caught some CFTC officials by surprise, according to three people with knowledge of the matter. Exchanges like CME, which profit from increased trading volumes, can approve new futures contracts themselves. Still, CME and Cboe conferred with the CFTC while crafting terms for their products. The agency said they made a number of adjustments. CME, for example, increased its margin requirement for the contracts.

At the SEC, Chairman Jay Clayton has warned that initial coin offerings — which are also backed by the blockchain ledger technology that underpins bitcoin — are probably ripe with fraud. Earlier this year, the SEC cautioned that in many instances the offerings are essentially securities that must be registered. In November, the SEC warned that celebrities who endorse ICOs risk running afoul of securities laws if they don’t disclose their compensation. “Most people believe that bitcoin is not a security,” Clayton said this week. “The question is, jurisdictionally, where does the SEC fall. The various regulators are thinking about it. There are jurisdictional issues around bitcoin and bitcoin trading and where it’s taking place.”

The Federal Reserve, meanwhile, is taking a cautious approach. Federal Reserve Chair nominee Jerome Powell has said bitcoin isn’t big enough to affect monetary policy. And Randal Quarles, who was confirmed in October as the Fed’s first-ever vice chair responsible for regulating banks, has said authorities should keep a close eye on digital currencies, slowly adopting useful innovations if deemed safe. The problem among regulators is that they each have roles with bitcoin, but that there’s too little coordination, said Justin Slaughter, a former top aide to a CFTC commissioner who now consults on financial technology and regulation as a partner at Mercury Strategies. “It’s been very scattershot, it’s been somewhat confused,” he said.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-461

David https://markethive.com/david-ogden

This Is What Could Pop the Bitcoin Bubble

This Is What Could Pop the
Bitcoin Bubble

Bitcoin and bubble have become virtually synonymous

in the minds of many skeptics during this year’s breathtaking rally. While the digital currency has defied doomsday prophesies, there’s a number of ways this party could end badly for the swelling ranks of bulls. But be warned: many of the potential causes of death have surfaced during the past few years, and have proven unable to bludgeon bitcoin into oblivion thus far.

Knifed by a Fork

The multiple offshoots of bitcoin could cause the world’s largest digital currency by market value to cede its crown. Divides among developers as to how to proceed with upgrades to bitcoin’s network have led to "forks," in which different versions of the currency are spun off from the original. Excessive fragmentation could prove a bug for bitcoin, just as it did for the U.S. financial system during the free banking era. When it comes to cryptocurrencies, hedge fund manager Mike Novogratz warned, "not everything can win" — though that’s not enough to stop him from launching a $500 million fund to invest in the asset class. Ether, the second-largest digital currency, has posted massive gains since the bitcoin forks began. But even that advance pales in comparison to the surges in bitcoin and bitcoin cash over the same span.

Strangled by Regulators

Given bitcoin’s checkered history as the means to purchase illicit materials, a vehicle for capital flight, and a victim of theft, it’s no surprise that regulators around the world have cast a watchful eye over the asset class. As such, the specter of a complete crackdown on cryptocurrencies remains an ever-present tail risk. The SEC has been keeping an eye on crypto and has given guidance saying some tokens may be securities, making them subject to their oversight. UBS Group AG Chief Investment Officer Mark Haefele said the wealth manager wouldn’t dedicate funds to bitcoin because "all it would take would be one terrorist incident in the U.S. funded by bitcoin for the U.S. regulator to much more seriously step in and take action."

Federal Reserve Chair nominee Jerome Powell said bitcoin isn’t big enough to matter right now, but alluded to the possibility that it could impede the central bank’s transmission mechanism "in the long, long run." That raises the prospect of bitcoin becoming a casualty of its own success should cryptocurrencies gain sufficient mainstream adoption and pose a threat to the government’s ability to collect taxes or the efficacy of monetary policy. Even so, the recent history on restrictions is not encouraging for bitcoin bears: the digital currency was able to shake off what was tantamount to an attempted ban by Chinese authorities in September.

Hacked to Pieces

Ever since the 2011 breach of the Mt. Gox exchange, bitcoin owners have had to face the possibility that this intangible asset may fall into the hands of hackers. The Tokyo-based exchange filed for bankruptcy February 2014, alleging there was a high possibility that what was then nearly half a billion in bitcoin had been stolen. The 2011 breach and 2014 collapse of Mt. Gox were accompanied by steep declines in bitcoin, as was the $65 million theft of the digital currency from Hong Kong exchange Bitfinex in 2016. But a $31 million hack of alternative currency tether earlier this month was only a speed bump for bitcoin. After falling more than 5 percent, the cryptocurrency recovered to post a fresh record high the same session.

A Short Demise

CME Group Inc., Cboe Global Markets Inc., and Nasdaq Inc. are planning to offer bitcoin derivatives — a move which seems poised to introduce more two-way traffic to the asset class. At present, most options investors have for shorting cryptocurrencies are fairly expensive and risky. With futures from reputable, established exchanges in play, more investors may be incented to enter into positions that put downwards pressure on prices.

The introduction of bitcoin futures could also ultimately prove detrimental to its valuation should clearing organizations come under stress amid the digital currency’s wild swings. Thomas Peterffy, chairman of Interactive Brokers Group Inc., argued in an open letter that allowing bitcoin futures on platforms that clear other derivatives would raise the risk of price gyrations that could "destabilize the clearing organization itself." Any institutional credibility recently gained by bitcoin could evaporate should such the cryptocurrency’s fluctuations serve to disrupt and undermine the operations of financial markets.

Pass Away on Profit-Taking

The failure of major cryptocurrency exchanges such as Coinbase to handle traffic on the day bitcoin breached $11,000 throws into sharp focus the scalability problems that cryptocurrencies face as speculative vehicles. "A bitcoin correction is now likely and human psychology suggests it will finish the day lower," wrote Bloomberg macro strategist Mark Cudmore. "If this was a normal market, it would almost definitely retrace in the short-term because large barrier magnets had been taken out." Profit-taking opportunities when the cryptocurrency passes significant milestones could foster steep declines and waves of selling pressure due to poor liquidity.

Death by ¯_(ツ)_/¯

It’s been a puzzle to explain why bitcoin’s gone parabolic. Why would we expect the way down to be any different? The practical applications for cryptocurrencies to facilitate legal commerce appear hampered by relatively expensive transaction fees and the high energy costs associated with mining at this juncture. On this note, Nobel Prize-winning economist Joseph Stiglitz said that bitcoin "ought to be outlawed" because "it doesn’t serve any socially useful function." Former Fed Chairman Alan Greenspan has said that "you have to really stretch your imagination to infer what the intrinsic value of bitcoin is," calling the cryptocurrency a "bubble." Perhaps it could end like the dot-com bubble — with investors who have no clue how to value high-flying assets fleeing for the exit en masse.

Chuck Reynolds


Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.
Interested or have Questions. Call me 559-474-461

David https://markethive.com/david-ogden