Bitcoin fell below $10,000 on Wednesday to $9,410 on the CoinDesk bitcoin price index after the US Securities and Exchange Commission (SEC) said in a statement yesterday that digital asset exchanges had to register with the authorities. The cryptocurrency is currently trading at $9,942 on the CoinDesk bitcoin price index.
The SEC statement in part read:
“If a platform offers trading of digital assets that are securities and operates as an ‘exchange’, as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
Bitcoin immediately dropped $1,000 on the news, which coincided with rumours that the Asia-based Binance exchange, which has been growing in popularity with traders, had been hacked.
The regulatory chill from the US was compounded today with the news from Japan that two exchanges – Bit Station and FSHO – have been ordered to close for a month.
A further five Japanese exchanges, including Coincheck, which recently lost $530 million worth of XEM tokens in a hack, have been ordered to improve their business processes. The other four exchanges are Bicrements, GMO Coin, Tech Bureau and Mister Exchange. The exchanges have until 22 March to comply with local regulator, the Financial Services Agency’s (FSA) demands.
The FSA added that it has set up a working group to consider the institutional ramifications of cryptocurrencies for the wider financial system.
On 2 March, Japan’s 16 government-approved crypto exchanges announced they were setting up a self-regulatory body. Of the seven exchanges that are subject to FSA latest orders, GMO Coin is already on the approved list, indicating the regulatory authorities’ threshold for approval lacked rigour and they are now making amends.
Winners and losers in exchange crackdown
The trouble at Binance was thought to originate in the API keys which exchanges provide that allow third-party automated trading software to interact with exchanges. Some of the exchanges customers may have fallen victims to phishing attacks; affected clients complained that their holdings of altcoins were sold for bitcoin, which was then used to buy the token of the Vechain blockchain platform (VEN). Binance was forced to freeze trading and suspend withdrawals.
In a sea of red yesterday VEN was the only coin in the top 25 flashing green. Previous to its rise there had been rumours that the project itself was placing sell orders on exchanges to lower its price. The goings on regarding VEN is an illustration of the Wild West nature of the crypto markets and explain why regulators are being forced to act. Regulation will protect investors from market manipulation, but could also make it harder to trade.
The regulatory burden of market surveillance, in addition to the basics of anti-money laundering and Know Your Customer safeguards, could also force some exchanges out of business, leaving only the biggest standing. Exchanges such as Coinbase and Kraken that handle fiat have money transfer licences and are not registered with the SEC as exchanges, but are probably well-placed to comply with securities law.
The US-based Poloniex exchange was bought by payment start-up Circle last week and the regulatory tightening could encourage rapid consolidation in the space.
Bank of England governor Mark Carney in a speech last week specifically singled out exchanges for regulatory attention. The global financial authorities clearly see crypto exchanges as the key link in the chain in getting to grips with implementing in the cryptocurrency marketplace the laws that already apply to share dealing and the trading other financial assets.
Bitcoin transaction volumes falling and so are fees
Bitcoin this week has again failed the $11,500 test and had already reversed over the past couple of days to trade back below $11,000 at $10,685 even before the SEC statement.
Transaction volumes on the bitcoin network have fallen from an all-time high of 490,000 a day on 14 December to 206,000 on 6 March, according to blockchain.info and is ranging in a zone last seen two years ago. Some commentators are interpreting this as a bearish signal.
Average transaction fees on the network have dropped from approximately $30 at the beginning of the year to $1.99 today, as transaction volume falls and the SegWit upgrade to speed up transactions is taken up by industry heavyweights such as the Bittrex and Coinbase exchanges.
Altcoins have also fallen back from recent highs in tandem with bitcoin. Ethereum is currently trading at $768. Ripple’s XRP token broke above $1 earlier in the week on rumours of a Coinbase listing, which proved to be unfounded; XRP token is today priced at $0.87.
Litecoin has slipped to $193 following disappointment over the non-launch of the LitePay payment card, although the merchant solution is still being rolled out.
Japanese banks to launch money transfer app on Ripple blockchain
Ripple announced on Tuesday that three members of the Japan Bank Consortium – SBI Net Sumishin Bank, Suruga Bank and Resona Bank, are launching a consumer-facing on-demand payment smartphone app called MoneyTap.
Money transfers by consumers are confined to a 8.30am-3.30pm window in Japan, and the Ripple blockchain will allow transfers to take place instantaneously at any time of day, seven days a week.
Takashi Okita, chief executive of SBI Ripple Asia, said of the app plans, which is slated to launch this autumn: “Together with the trust, reliability and reach of the bank consortium, we can remove friction from payments and create a faster, safer, and more efficient domestic payments experience for our customers.”
Coinbase launches its first fund, Grayscale has four new ones too
US exchange Coinbase has announced the launch of its first collective investment vehicle -the Coinbase Index Fund.
Coinbase has set up a subsidiary fund management arm called Coinbase Asset Management and the fund will be managed by Coinbase Fund Managers. The fund will track the value of the coins currently traded on its sister GDAX exchange, which are Bitcoin, Bitcoin Cash, Litecoin and Ethereum. New coins will be automatically added to the fund.
The exchange is also launching the Coinbase Index which will track the underlying assets. The index currently stands at 47,99.
The Coinbase Index Fund is a passive vehicle which means it is not actively managed as is the case with most of the hedge fund crypto funds that have been set up over the past 12 months.
Product lead Reuben Bramanathan speaking about the launch told Reuters: “We’re seeing strong demand from our customers and the market generally for a passive investment management product.” He said the product had been in the works for some time but the spike in demand was “why we’re just launching now”.
Investors in the fund have to be accredited, which requires them to have an earned income in excess of $200,000 or a net worth of more than $1 million. Also, at this stage investors must be US residents.
Those interested can sign up on the mailing list but no date has been set for the opening of the fund. The minimum investment is $10,000 and the current allocation is bitcoin 62%, Ethereum 27%, Bitcoin Cash 7% and Litecoin 4%. The fund is rebalanced annually on 1 January and it charges a high management fee of 2%.
Grayscale Investments is launching four new funds, one each for Ethereum, Bitcoin Cash, Litecoin and Ripple, modelled on the Grayscale Bitcoin Investment Trust (GBTC) that holds an asset base of bitcoin. GBTC split on 26 January at a 91:1 ratio, making it easier for retail investors to buy but it trades at a huge premium of 60% to its net asset value.
The Bitcoin Investment Trust was briefly removed from exchanges in Europe because the manager failed to comply with the European Union’s MiFiD II rules, which came into force at the beginning of the year.
Grayscale Investments is owned by Barry Siebert who is the founder of the Digital Currency Group, which has 80 investments in the crypto sector including BitPay, Coinbase, Circle and news and analysis website CoinDesk.
NEO blockchain problems pose uncomfortable questions
China-based blockchain platform NEO, the seventh-ranked coin by market cap according to Cryptocompare.com, has had its share of problems this week when “delays” hit the network, bringing it to a temporary standstill. The project’s head of research and development Malcolm Lerider gave the reason as the disconnection of one of the seven consensus nodes. That was met with derision and worry in some quarters as that statement appeared to indicate that the network’s delegated consensus mechanism was not as robust as previously assumed.
However, founder Da Hongfei in a blog post on Tuesday said Lerider’s initial statement was incorrect and the cause of the problem was a bug the project was already aware of and had been working on a fix.
“The delay is not out of the reason described by the statement of Malcolm Lerider in Discord, although he is NEO’s Senior R&D Manager. His statement was then misused as evidence that 1 Consensus Node failure will bring down the NEO network. It is a ridiculous and ignorant accusation and can be debunked easily. The actual reason is more complicated and we were aware of this issue and had been working on it long before the recent delay happened,” he said.
NEO was the first and only token to receive an A rating in the Weiss Cryptocurrency Ratings, although that has since been reduced from A- to B+.
The element of centralisation in the NEO architecture was seen as an advantage because there is no need to get agreement across a decentralised network of consensus nodes as there is with bitcoin. However, centralisation comes at a cost, as shown in the NEO debacle and the apparent single point of failure that was initially reported to have been the cause of the network failure.
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