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>>> Bitcoin falls below $19,000 following Grayscale ETF rejection
Yahoo Finance
David Hollerith
June 30, 2022
https://finance.yahoo.com/news/bitcoin-price-june-30-140257134.html
After fighting to hold $20,000 on Wednesday, buyer support for bitcoin (BTC-USD) collapsed Thursday morning, with bitcoin falling over 5% to trade as low as $18,930.
This latest decline has seen bitcoin lose more than 37% in June — its worst month since since December 2018.
Thursday's drop comes after the SEC sent rejection letters for ETFs proposed by both Grayscale and Bitwise, while continued inflation fears also weigh on sentiment in the broader crypto market.
Like bitcoin, sell-offs continued for other cryptocurrencies Thursday morning. Binance's BNB token (BNB-USD) down 4%, Solana (SOL-USD), down more than 6%, Cardano’s ADA token (ADA-USD), down more than 4%, Chainlink (LINK-USD), down 3%, have all seen losses on the day.
Grayscale ETF rejection and lawsuit
The SEC's rejection of Grayscale's proposed ETF was a key factor dragging down crypto markets early Thursday.
"The next few months for crypto are going to be very telling," Grayscale CEO Michael Sonnenshein told Yahoo Finance Live on Thursday.
As Yahoo Finance previously reported, Grayscale had sought approval from the SEC to convert GBTC into an exchange traded fund (ETF) that holds bitcoin and relies on “authorized participants” to continuously redeem and create shares could close this discount.
On Monday, Grayscale attempted to show regulators an ETF would be operationally viable, announcing Wall Street firms Jane Street and Virtu Finance had agreed to fill the authorized participant role as long as Grayscale received approval from the SEC.
As the SEC showed in its filing on Wednesday, the regulator continues to harbor concerns that “the price of bitcoin is subject to manipulation on unregulated platforms” and the approval could invite additional manipulation.
As of midday Thursday, GBTC was trading hands at around $12.25 per share, a roughly 30% discount to the per-share value of the trust's bitcoin holdings. With ETF conversation, Grayscale had sought to close this gap between the market price and the trust's net asset value.
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BIS / CBDC - >>> Crypto fears now materialising, central bank body BIS says
Reuters
June 21, 2022
By Marc Jones
https://www.reuters.com/business/finance/crypto-fears-now-materialising-central-bank-body-bis-says-2022-06-21/
LONDON, June 21 (Reuters) - Recent implosions in the cryptocurrency markets indicate that long-warned-about dangers of decentralised digital money are now materialising, the Bank for International Settlements has said.
The BIS, the global umbrella body for central banks, sounded the warning in an upcoming annual report, in which it also urged more effort in developing appealing central bank digital currencies.
BIS general manager Agustin Carstens pointed to recent collapses of the TerraUSD and luna 'stablecoins', and a 70% slump in bitcoin, the bellwether for the crypto market, as indicators that a structural problem exists.
Without a government-backed authority that can use reserves funded by taxes, any form of money ultimately lacks credibility."
"I think all these weaknesses that were pointed out before have pretty much materialised," Carstens told Reuters. "You just cannot defy gravity... At some point you really have to face the music".
Analysts estimate that the overall value of the crypto market has slumped more that $2 trillion since November as its troubles have snowballed. read more
Carstens said the meltdown was not expected to cause a systemic crisis in the way that bad loans triggered the global financial crash. But he stressed losses would be sizeable and that the opaque nature of the crypto universe fed uncertainty.
"Based on what we know, it should be quite manageable," Carstens said. "But, there are a lot of things that we don't know."
CENTRAL BANK DIGITAL CURRENCIES (CBDCs)
The BIS is a long-term sceptic of cryptocurrencies and its report laid its vision for the future monetary system - one where central banks utilise the tech benefits of bitcoin and its ilk to create digital versions of their own currencies.
Roughly 90% of monetary authorities are now exploring CBDCs as they are known. Many hope it will equip them for the online world and fend off cryptocurrencies. But the BIS wants to coordinate key issues such as making sure they work across borders.
The immediate challenges are mainly technological, similar to how the mobile phone world needed standardised coding in the 1990s. But there is also the geopolitical issue as relations between the West and countries such as China and Russia wane.
"This (interoperability) is a topic that has been on the G20 agenda for quite some time.. so I think there is a good chance for this to move forward," Carstens said, adding how there had been a number of "real-life" trials with different CBDCs over the last year.
Asked how long before international standards for CBDC interoperability might be agreed, he said: "I think in the next couple of years. Probably 12 months is too short."
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>>> Ethereum maximalist Mark Cuban says the crypto crash reminds him of Warren Buffett’s advice: ‘When the tide goes out, you get to see who is swimming naked’
Fortune
by Taylor Locke
June 15, 2022
https://finance.yahoo.com/news/ethereum-maximalist-mark-cuban-says-200750202.html
The cryptocurrency market is seeing a flash of failed and struggling projects amid a rough downturn that has left investors fearful over what’s to come.
Looking ahead, billionaire Mark Cuban sees extinction.
“In stocks and crypto, you will see companies that were sustained by cheap, easy money—but didn’t have valid business prospects—will disappear,” the Shark Tank investor and Dallas Mavericks owner told Fortune. “Like [Warren] Buffett says, ‘When the tide goes out, you get to see who is swimming naked.’”
After the Terra ecosystem collapsed, with failed algorithmic stablecoin TerraUSD (UST) and cryptocurrency Luna (LUNC) becoming nearly worthless, there has been a ripple effect throughout the space. This week alone, Celsius Network, one of the largest cryptocurrency lending platforms, halted withdrawals and sparked fears of bankruptcy.
It’s also been reported that prominent cryptocurrency fund Three Arrows Capital is facing possible insolvency after $400 million in liquidations. The value of the global cryptocurrency market dropped below $1 trillion as Bitcoin, the largest cryptocurrency by market value, fell to $20,193, and Ether, the second largest, to $1,023.
Despite the negative market sentiment, Cuban said he expects innovation to come out of the crypto market downturn as well.
“Disruptive applications and technology released during a bear market, whether stocks or crypto or any business, will always find a market and succeed,” he told Fortune.
He says that cryptocurrencies are related to the Nasdaq, which has proved especially true in recent months. Tech stocks and Bitcoin, for example, have moved in tandem lately. The correlation between the Nasdaq 100 and Bitcoin was recently near all-time highs.
“If rates go up, it will struggle till it’s priced in,” Cuban said. “The exception, as with stocks, is for new, game-changing applications.”
Cuban himself is an avid cryptocurrency investor and self-proclaimed Ethereum maximalist. He owns a few cryptocurrencies and non-fungible tokens (NFTs) and has invested in a few blockchain companies.
This story was originally featured on Fortune.com
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>>> Celsius' move to halt crypto withdrawals catches Washington's eye
Yahoo Finance
by Jennifer Schonberger
June 14, 2022
Crypto lender Celsius Network’s decision to pause all withdrawals and transfers for customers as cryptocurrencies plunge is catching the attention of the administration and lawmakers.
The thinking within the Biden administration is that regulations that were proposed to regulate stablecoins by the President Working Group’s report could extend to the entire crypto space to avoid runs and platforms shutting down as in the case of Celsius.
“Recent events, Celsius and USTerra, only reinforce the need for a regulatory framework for digital assets. These events bolster the case for action and the need to mitigate the risks of these assets,” according to an administration official.
Celsius Network stopped all customers’ redemptions and transfers between accounts in the wake of “extreme market conditions” Sunday night as crypto assets plummeted in value, causing some to question the platform’s solvency. Celsius Network’s CEL token has plummeted more than 50%.
Digital currency is used for verified transactions while maintaining a digital record in a decentralized system using cryptography, rather than by a centralized authority.
Kavita Gupta, founder of early stage blockchain fund Delta BC Fund said Celsius is a classic example of lacking liquidity.
“It’s a liquidity issue,” Gupta told Yahoo Finance Live. People who invested in Celsius expecting 16% to 18% returns, Celsius was always vocal it was taking that money as a hedge fund to manage in other assets," Gupta said. "When there was a big withdrawal and everyone tried to get their [crypto] out it was like a classic banking problem. It’s just more people trying to take money out than they have liquidity for.”
The PWG report said stablecoin issuers should have adequate reserves to make sure they can make good on redemptions. The thinking is the same principle should extend to exchanges where there should be adequate reserves held by platforms so that when people want their money back they can get it easily and runs are avoided.
To help ensure against runs, the PWG’s proposals for stablecoins could extend to digital asset exchanges. Like with stablecoin issuers, customer assets should be separated from trading platforms; digital wallets held on exchanges should be subject to federal regulatory oversight; exchanges should be restricted from lending customers’ digital assets out; and they should also comply with liquidity and capital requirements.
The Securities & Exchange Commission did not immediately respond to Yahoo Finance for comment. SEC Chair Gensler has repeatedly encouraged exchanges to register with the agency, threatening enforcement action if not.
Meanwhile, Sen. Kirstin Gillibrand’s (D, NY) office said the senator’s bill jointly introduced with Sen. Cynthia Lummis (R, WY) to regulate crypto would help prevent the current upheaval in crypto markets by bringing crypto exchanges under the purview of the Commodities Futures Trading Commission.
That would require exchanges to hold significantly higher capital — $20 million of net adjusted capital — to back their trading activities. The bill would guarantee that if an exchange or lender suffered financial difficulty, customers would be assured they would get their assets back.
The bill also requires a 100% reserve, asset type, and detailed disclosure requirements for all stablecoin issuers to guarantee that stablecoin holders can redeem the stablecoin in exchange for the equivalent dollar value at any time.
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>>> Kevin O’Leary on US crypto regulation: ‘We need to catch up with the rest of the world’
Yahoo Finance
by Brad Smith
April 18, 2022
https://finance.yahoo.com/news/kevin-o-leary-on-us-crypto-regulation-we-need-to-catch-up-with-the-rest-of-the-world-153530069.html
Shark Tank star and O’Shares Investment Advisers Chairman Kevin O’Leary predicts that one day blockchain and cryptocurrency will represent the 12th sector of the S&P 500 and is "very confident" sensible government crypto regulation will happen before mass adoption.
“The pace and acceleration of policy proposals coming out of bipartisan Senate committees and the Hill has never been greater” Kevin O’Leary said on Yahoo Finance Live “We've got the Lummis bill. We have the Haggerty bill for stablecoin, the Toomey bill for stablecoin. We have the POTUS executive order, all within six weeks of each other, all discussing the future of cryptocurrencies.”
Cryptocurrency regulation has varied internationally, ranging from outright bans to early cases of bitcoin becoming a country's national currency — as El Salvador announced in 2021. Fifteen countries currently ban bitcoin and other cryptocurrencies and deem them illegal in any shape or form, according to data from Cryptimi.
On the opposite end, Canada allows bitcoin ETFs, ethereum ETFs and has licensed a cross-country cryptocurrency dealer.
“There's so much innovation going on in different geographies with regulators at different stages of releasing policy on this, that we have fallen behind in the U.S.,” O’Leary said.
The U.S. Securities and Exchange Commission has yet to introduce regulation for crypto exchanges, but SEC Chair Gary Gensler is hopeful to formalize guidelines this year. Meanwhile, the Federal Reserve published a research and analysis white paper which called attention to the price volatility, limitations on transaction throughput and energy footprint of cryptocurrencies, suggesting the Fed may favor a Central Bank Digital Currency or stablecoin.
Meanwhile, the benefits of cryptocurrency’s underlying technology — blockchain — are being heralded by technologists and the finance sector.
JPMorgan Chairman and CEO Jamie Dimon had historically bashed bitcoin, but in his latest annual shareholder letter, he said, “Decentralized finance and blockchain are real, new technologies that can be deployed in both public and private fashion, permissioned or not.”
Major investment firms have also been pouring capital into blockchain and cryptocurrency unicorns.
O’Leary commented on one such recent deal, “The announcement of BlackRock and Fidelity putting $400 million into USDC, the Circle product — that's unprecedented for such staid financial services companies to make a bet that large on cryptocurrency.”
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Circle USDC - >>> BlackRock, Fidelity and others to invest $400M in USDC stablecoin issuer Circle
TechCrunch
by Jacquelyn Melinek
April 12, 2022
https://finance.yahoo.com/blackrock-fidelity-others-invest-400m-141621168.html
Circle, a crypto-focused financial technology firm, has entered an agreement for a $400 million funding round, the company announced. It is expected to close in the second quarter of 2022.
Investors in the round include BlackRock, Fidelity Management and Research, Marshall Wace and Fin Capital.
In 2018, The Centre Consortium issued its USD Coin (USDC), a stablecoin that is pegged to the U.S. dollar on a 1:1 basis. This means every USDC is backed by $1 in reserves. The Centre has two founding members: Circle and the cryptocurrency exchange giant Coinbase.
In addition to the capital raise, BlackRock has entered a strategic partnership with Circle to be its primary asset manager of USDC cash reserves and explore capital market applications for its stablecoin, among other objectives. "Our broader strategic partnership with BlackRock, announced today, will allow us to explore new use cases where USDC may be an efficient resource in the financial services value chain," Jeremy Allaire, co-founder and CEO of Circle, told TechCrunch.
Crypto is altering the investing landscape for even the most disciplined VCs
USDC is the second-largest stablecoin behind USD Tether (USDT) and the fifth-largest cryptocurrency by market capitalization, according to data on CoinMarketCap. Its market capitalization rose about 370% year over year from $10.82 billion to $50.83 billion and about $5 billion in volume was traded in the past 24 hours, up over 39%.
Although USDC ranks in second place for stablecoins, compared to USDT, it has about $32 billion less in market cap and a 24-hour volume that’s roughly $73.6 billion less than the No. 1 stablecoin.
The fresh capital will be used to promote the company’s strategic growth “as demand for dollar digital currency and related financial services continues to scale globally,” Circle said in a statement.
"This is a milestone moment for Circle and part of the “coming of age” of crypto," Allaire said. Circle is focused on continuing to increase mainstream adoption of USDC and blockchain technology for payments, commerce and financial applications, he added.
This funding comes at an interesting inflection point after the firm delayed its SPAC merger and doubled its valuation to $9 billion in February 2022. It was previously valued at $4.5 billion in July 2021. At the time of the delay, Circle terminated its previous agreement with Concord Acquisition Corp., a publicly traded SPAC, only to reach a new deal with the company for a merger.
The original deal had a termination date of April 3, 2022, but the new agreement has been pushed to December 8, 2022, with the potential to be delayed as far as January 31, 2023, under certain circumstances, according to a press release.
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>>> Major clearing house tests how to settle a CBDC
Yahoo Finance
by Jennifer Schonberger
April 12, 2022
https://finance.yahoo.com/news/clearing-house-cbdc-142923910.html
A major clearing house is working on a prototype to explore how a central bank digital currency could be settled if adopted, as the Federal Reserve and Biden administration explore the pros and cons of a CBDC.
The Depository Trust & Clearing Corporation, which clears and settles trades for stocks and bonds, is teaming up with the Digital Dollar Project, a nonprofit led by former U.S. regulators, to test the design of a CBDC and settling delivery and payment at the same time in a project dubbed Project Lithium.
One of the keys to a central bank digital currency is that it’s instantaneous and settled immediately. Project Lithium is looking at using distributed ledger technology to create the best design that allows the most efficient instantaneous settlement.
“A CBDC could improve time and cost efficiencies, provide broader accessibility to central bank money and payments, and all while emulating the features of physical cash in an increasingly digital world,” said Christopher Giancarlo, co-founder and executive chairman of The Digital Dollar Project and former chairman of the Commodities Futures Trading Commission.
The use of printed U.S. currency is on the decline as markets become more digitized and securities are tokenized. Unlike private cryptocurrencies like bitcoin, a CBDC would be issued and backed by the Federal Reserve, just like U.S. paper dollars and coins.
The pilot will also look into how it can use DTCC’s clearing and settlement capabilities to realize the potential benefits of a CBDC, including improving capital efficiency, lowering counter-party risk, transparency for regulators, and guaranteeing cash and securities are delivered to the proper parties.
This comes as the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative have come up with an initial design for a central bank digital currency. The theoretical coin, which was unveiled as the Federal Reserve explores the pros and cons of adopting one, could handle 1.7 million transactions per second, and settle in under two seconds, the Boston Fed and MIT estimated.
The Federal Reserve hasn’t made a decision on whether to adopt a CBDC yet. But Treasury Secretary Janet Yellen said a CBDC could help create a more efficient payment system and could become a form of trusted money comparable to physical cash. She says she’s not sure what conclusions the administration will reach, but that issuing a CBDC would present a “major design and engineering challenge that would require years of development — not months.”
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>>> IMF warns crypto rout could lead to systemic risk, backs Fed digital coin
Yahoo Finance
by Jennifer Schonberger
January 27, 2022
https://finance.yahoo.com/news/imf-warns-crypto-winter-could-lead-to-systemic-risk-backs-fed-digital-coin-224508066.html
The International Monetary Fund says cryptocurrencies and stocks are likely to see more volatility, with the Federal Reserve set to raise interest rates, and as increasing correlations between the two asset classes create risks to the financial system.
Digital coins have gotten off to a rocky start in 2022, with a deep sell-off obliterating billions in market value. Since hitting a record high in November, the value of Bitcoin (BTC-USD) has been shaved nearly in half.
“The Fed needs to tighten financial conditions, that means that interest rates have to come up, risky asset prices have to come down, and that could be painful to some degree,” Tobias Adrian, director of the IMF’s Monetary and Capital Markets Department, told Yahoo Finance in an interview.
“That's what is going to change economic activity, which then will change inflation,” he added.
Adrian didn’t specify an exact timeline, but thinks it could be anywhere from two to six months before markets fully adjust to a new level of interest rates.
He explained that heavy leverage in crypto markets is magnifying spot price volatility – and is closely tied to leverage being taken on in the stock market, as hedge funds invest in both assets.
At the moment, banks themselves have little exposure to crypto assets, in general. Yet Adrian argued there’s little data showcasing how much risk investors overall are taking, leaving gaping holes as to what the real risks might be within digital assets, since full exposure isn’t known.
“There's very little data at the moment, data disclosures are not standardized,” he stated.
“Investors often don't know how much risk they're taking… There’s little regulation around margin setting, or around possible pitfalls around cyber risks,” Adrian added. “So there's really a lot of scope to improve the regulatory environment for the crypto space.”
Adrian says crypto is very much in the shadow banking system, but that over time he expects more regulations. He says the challenge is that crypto is so decentralized with no legal entity operating the digital coins, like Bitcoin.
Digital wallet providers, which store users’ cryptocurrencies, lend themselves to be regulated using cyber risk requirements and data disclosure requirements, the economist argued.
Why stablecoins, CBDCs make sense
When it comes to stablecoins, Adrian thinks it’s a good idea for some issuers to have a banking license and be regulated as such, because they offer services similar to that of traditional banks.
“We know that well-regulated banks and banks backstopped by the Federal Reserve work well,” he told Yahoo Finance. “When stablecoin providers don't have these kinds of regulatory setups and liquidity provisions, it's going to be difficult for them to be truly stable.”
Yet other stablecoin issuers may not be fit to have a banking license, he said, pointing to ones that operate more like money market funds.
“It depends on the business model of the stable coin as to whether they're more like a bank or more like a mutual fund,” Adrian added.
Some stablecoin issuers have bank licenses in certain states, while others have applied for banking licenses. Currently, U.S. policymakers are weighing whether stablecoin issuers should be granted banking licenses at a federal level where they could access the Fed’s system. The Biden administration has recommended that only banks should be allowed to issue stablecoins.
As the Fed mulls whether to adopt a digital dollar, Adrian said a well-designed central bank digital currency (CBDC) is a good idea. Assuming it’s properly designed, it could improve the efficiency of the payment system, allow more Americans to access the financial system and make payments with other countries cheaper and faster, according to the economist.
But he also says a CBDC is foundational to allowing cryptocurrencies to exist.
“There are many problems with crypto assets, but it's difficult to imagine them going away,” says Adrian. “A central bank digital currency is also an important bridge to the crypto asset universe and makes sure that federal reserve money is an important foundation for this emerging financial system.”
Adrian added that a CBDC should be able to coexist with private sector stablecoins.
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CBDCs - >>> As many as 87 countries are exploring a central bank digital currency
Yahoo Finance
January 4, 2022
https://finance.yahoo.com/video/crypto-many-87-countries-exploring-172617285.html
AKIKO FUJITA: Well, China has now released a pilot version of its digital Yuan wallet app for Android and iOS, as the country's central bank moves aggressively to develop its own digital currency. The PBOC though, certainly not the only central bank that's looking to roll out their CBDC.
Let's bring in Emily Parker, CoinDesk global macro editor and CoinDesk TV anchor. Emily, I just threw in a lot of acronyms in there. But we're talking about central bank digital currencies. And dozens of countries, I mean nearly 100, now working on this.
EMILY PARKER: Absolutely. So as you mentioned, China has grabbed a lot of the headlines for taking the lead in developing a central bank digital currency. But we're seeing more and more countries getting involved. So I think, according to the Atlantic Council, which has a very cool CBDC tracker, there are something like 87 countries that are developing, or exploring rather, exploring a central bank digital currency.
And the latest, we've learned, is Mexico, which has announced that they plan to issue a CBDC within the next two years. So Mexico is joining other countries in the region, such as Peru and Brazil, who are actively exploring this. So this is something that's going on all over the world.
And if we look at those 87 countries, again according to the Atlantic Council, that accounts for over 90% of global GDP, the countries that are exploring developing this central bank digital currency. So it's definitely, definitely not just China.
ZACK GUZMAN: Yeah, although a lot of the attention has been on China, given kind of what's going to play out at the Olympics and kind of the buildup to unveiling that one. And of course, there's the big overhang and big question of whether or not anyone who's actually crypto-savvy is going to want to use any of these, or if they might beat out other stablecoins in terms of being the rails that we see used in terms of large institutions.
But when we look at maybe the other big story to watch in 2022, certainly a big one in '21, the rise of NFTs. And now in Korea, we're seeing it used politically, not just for the tech-savvy anymore. I mean, how big is that in terms of bringing on new entrants to the space?
EMILY PARKER: So CBDCs and the news item that you just mentioned are all part of a larger story, which is that cryptocurrencies in theory are supposed to be independent of governments. But what we're seeing now is just a lot of governments trying to get in on the action in some way, either by launching a central bank digital currency or, in the case of Korea, we have the ruling political party now saying that they will basically be giving NFTs in return for political donations.
And clearly what this is is it's a play for younger voters, voters in their 20s and 30s. But this is also an acknowledgment by the Korean government that crypto isn't going anywhere. And if they want to get traction with younger voters, they're going to have to play along.
ZACK GUZMAN: Yeah, I mean, that's the biggest thing too. I think we had, of course, the president of El Salvador labeling Bitcoin, and I guess stances on crypto, a major theme to watch in 2022. Of course, we have the midterms coming up.
I tend to agree with that. I think that it's something that we've seen Republicans and Democrats really start to align on on different sides now, although some of them are conflicting. I mean, how important do you think it is going to be for maybe politicians back here in the US to also-- I don't know if it's important for them to really utilize NFTs to fundraise or whatnot. But how important is it to really start setting, I guess, their stances on these things ahead of those elections?
EMILY PARKER: Yeah, I mean, 2021 was the year that Washington really woke up to crypto. And we're just going to see that trend continuing into 2022. So we're going to see lawmakers in Washington.
What they're going to have to do is learn more about crypto and how crypto works because there are a lot of regulatory actions that are being suggested out there. They're going to have to understand what those are. Whether or not they're going to start issuing NFTs is another question. But I do think we're just going to at least see an attempt to be more educated about crypto in Washington, which I think is a good thing for the industry.
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Shiba Inu Layer-2 Scaling Solution To Be Launched Soon: Developer
https://www.benzinga.com/markets/cryptocurrency/21/12/24690753/shiba-inu-layer-2-scaling-solution-to-be-launched-soon-developer
$SHIB
>>> What DAOs are and what they might buy next
Yahoo Finance
by Andy Serwer with Max Zahn
December 11, 2021
https://finance.yahoo.com/news/what-da-os-are-and-what-they-might-buy-next-103821642.html
The scene: Sotheby’s auction house in Manhattan. Auctioneer Quig Bruning is poised at the lectern before a packed house. Bidding is set to commence at $20 million.
The object in question: A rare, first printing of the U.S. Constitution, one of 13 surviving copies, made for delegates to the Constitutional Convention and Continental Congress.
After a brief introduction the bearded auctioneer commences, and what happens next is straight out of Hollywood: Escalating million-dollar bids phoned in from unseen buyers (on old school landlines presumably to guard against dropped calls), last second raises and high anxiety.
The bidding immediately soars $10 million to $30 million and is pared to two buyers. After that the action slows a bit, though the tension mounts as Bruning congenially elicits $1 million increments. “Quite the drama,” he remarks at one point. (No kidding.) The gavel finally comes down at $43.2 million, a record sale for a historical document according to Sotheby's, with the winner being billionaire financier Ken Griffin, founder of the Chicago hedge fund and financial services firm Citadel.
What Bruning, (or even the participants themselves) may not have realized, is that there was even more here than meets the eye.
What this auction reflected was a smackdown between elite, status-quo finance versus the encroaching world of populist crypto. Because bidding against Griffin and ultimately losing was a crypto-backed entity, ConstitutionDAO, which represents that very new world of non-money, money.
What the heck is ConstitutionDAO? A group of crypto investors who banded together specifically to buy the Constitution using a digitally based organizational structure called a decentralized autonomous organization (or DAO). (Pronounced “Dow.”) Sort of like a decentralized Kickstarter, GoFundMe, or Indiegogo campaign done on crypto. Or maybe even better “a group chat with a bank account,” as one participant describes it.
Ken Griffin may not be J.P. Morgan, and has done some disrupting of his own, but relative to these cats, he’s 100% legacy. That Griffin — who’s been a crypto skeptic, though he’s come around a bit recently —intends to exhibit his copy of the Constitution at Crystal Bridges Museum in Bentonville, Arkansas, which is funded by Alice Walton, daughter of Walmart founder, Sam Walton, is perhaps icing on the old economy cake.
I’ll get back to Grif and the auction in a bit, but first some more on DAOs, which for starters have an ill-defined legal status as of now. So far only Wyoming has legally recognized DAOs. (Hey, here’s an FAQ sheet on how to form a DAO from the Wyoming Secretary of State for ya!) The SEC has taken note and seems not to be amused. To wit: “SEC Stops Wyoming-Based DAO From Registering 2 Digital Tokens."
“The reality of DAOs is they’re not currently legal structures at all,” says Alex Taub, co-founder of Upstream, a platform that streamlines and simplifies the process of creating a DAO, who says he invested a few hundred dollars in ConstitutionDAO. “I don’t care what Wyoming says, that’s flimsy. They’re potential legal structures. The concept of the LLC has only been around since the 1970s, who’s to say DAO is not the LLC of the future?”
On the other hand the federal government hasn’t completely dismissed DAOs. For instance, in a recent bizarro, rabbit hole of a story (even by crypto standards), the Feds sold (through intermediaries) Wu-Tang Clan’s one-of-a-kind album “Once Upon a Time in Shaolin,” which it had confiscated from “Martin Shkreli, (the price-gouging young pharmaceutical speculator who was later convicted of securities fraud)” to PleasrDAO for $4 million, according to The New York Times. Believe me when I tell you this stuff is wild.
Even wilder perhaps (it's difficult to imagine using the superlative adjective in crypto) is Olympus DAO, “a "staking" scheme with an annual percentage yield of 7,000% via new OHM token mints,” according to CoinDesk. (What could possibly go wrong?) In the mood for a tamer, warmer DAO? Check out Kimbal Musk’s (yes, Elon’s bro) Big Green DAO, the first nonprofit-led philanthropic DAO, which focuses on food justice.
For all their revolutionary potential, it’s early days yet for DAOs, with the concept only going back to 2015 or so. One infamous project, “The DAO” launched in 2016 using Ethereum (ETH-USD) and was hacked shortly thereafter. (That hack resulted in what’s known as “hard fork” of Ethereum from Ethereum Classic for those of you versed in this kind of thing.)
Some say DAOs are having their moment — or maybe getting ready for prime time is more like it. “We believe that this past month with the ConstitutionDAO will be the NBA Top Shot moment for DAOs,” says Taub, referring to the basketball NFT (a non fungible token, I wrote about them here) which jump-started that realm.
I should also note that DAOs are connected to the broader trend of what’s known as DeFi (or decentralized finance), a blockchain-based financial parallel universe that uses no (or little) traditional intermediaries like banks, exchanges or broker dealers. It remains to be seen how viable DeFi and DAOs, as well as NFTs and indeed the whole world of crypto is. Suffice it to say that activity in this new world is ramping up, and to a degree at the expense of the legacy world. Will the new world come crashing down? Who knows.
But let’s return to that auction of the Constitution, because there’s a slew of fascinating detail. The Verge, fyi, just did a nice longform interview with Jonah Erlich, a software engineer, who was one of 30 ConstitutionDAO’s core contributors (don’t say organizer).
Turns out the project had 17,437 donors with a median donation size of $206.26, who ponied up Ethereum through a platform called Juicebox.money. According to the Verge interview, the whole thing started as a joke on Twitter and came together in a week. (If that seems capricious, note that Griffin just revealed that buying the Constitution was whimsy for him too. From Bloomberg: “I was sitting at home in New York and my son calls me to say, ‘Dad, you have to buy the Constitution'” (Insists the billionaire’s son.)
As for Erlich, he ended up actually going to Sotheby's for the auction. This from The Verge: “It was exhilarating. … During the auction, when the number was creeping up, I felt like I was going to puke. If we won, I might have cried. It was a very intense experience, especially after this crazy week.”
And what if in fact his group had won? What were their intentions?
“...At that point, the DAO would have voted on what to do with it. For example, we had museums lined up that were going to give proposals on how their museum should be the one to store and display this document. The DAO would also be able to vote on what text should be displayed alongside this copy of the Constitution. What message do we want to share with the world? We probably would have funds left over to give to a community that is really excited about doing things. The token holders would set the future direction.”
Sounds reasonable enough. On the other hand, when Kevin Roose of The New York Times in this comprehensive piece took “a spin through” this community he also found that someone raised this slightly more disturbing line of questioning: “Is there a safeguard to make sure the DAO doesn’t vote to eat the constitution? Or other method of destruction?” Yikes!
In any event it’s all moot because ConstitutionDAO lost — at least in part perhaps because Griffin could see the DAO’s bid was capped at $42 million (Sotheby’s required the DAO to keep millions in reserve) and simply exceeded it by $200,000. “They should’ve obfuscated how much they had,” says Taub. "You’re playing poker with the richest people in the world. They’re no dummies.”
Cullen Roche, the founder and chief investment officer at financial advisory firm Discipline Funds and a former advisor at Merrill Lynch, has a similar take. “I think the lesson with the Constitution DAO is building an entity that publicly reports its bidding value is obviously pretty naive,” he says. “Everybody knows Griffin has bottomless pockets, he wouldn't go to bid and say I’m worth $40 billion and here’s all $40 billion —come play ball. He would never put up a bid like that. In this case transparency was counterproductive and a weakness.”
And there was Griffin’s state of mind. “I told myself, ‘I am going to own this. I don’t do that very often,” he said at an interview on Thursday after a luncheon hosted by the Palm Beach Civic Association at the Florida city’s Four Seasons hotel, according to Bloomberg.
Bloomberg also reported that Griffin said he was in touch with the DAO the night of the auction, and after he won looking to “arrange a joint governance for the document.” A Citadel spokesman said that Griffin “also proposed allowing each of the roughly 17,000 participants in the ConstitutionDAO group the right to generate a non-fungible token tied to the copy.” None of this came to fruition however.
The group is now in the process of endeavoring refunds (which will be net of expenses, called "gas fees"), which some have suggested could be onerous, especially relatively speaking for those who put in small amounts.
Meanwhile, and just to give you another reminder (as if you need one) of how wild and wooly this world is, ConstitutionDAO tokens (named People — like “we the People”) have become a "meme coin" a la Shiba Inu and dogecoin and were still trading as of yesterday morning. As CoinDesk reports: “PEOPLE has no utility and offers no governance rights to holders. But this hasn’t stopped crypto natives from trading up the token to a fully diluted market cap of $839 million as per CoinMarketCap. And the trading frenzy is leading to losses.” (Gee.)
Still, the people of ConstitutionDAO have proudly declared on Twitter (59,700 followers) this to be a victory of sorts and they’re right about that.
In other words, you best believe that Sotheby’s and the rest of the art world knows all about DAOs now. And that this won’t be the last DAO formed to try to buy a document or a piece of art.
And what about beyond that? What about buying a building, a company or even an NFL team (see below)? Why not? If this merry band could pull together $47 million in a few days on whim, imagine what one of these babies could do with say a Greta Thunberg or Amanda Gorman super-charging it?
At some point a DAO will likely make an even bigger splash.
KrauseHouseDAO — an homage of sorts to the late Chicago Bulls’ general manager Jerry Krause — recently tried to raise money to buy the Chicago Bulls. Or maybe, as Yahoo Finance’s Zack Guzman tweeted, a DAO might buy the Broncos. (Legendary Bronco quarterback John Elway, who missed out on a chance to buy a stake in 1998 and is reportedly interested in buying in today, may want to bone up on DAOs.)
DAOs may end up doing a million small things too. “The future of the concept of the DAO ends up becoming a group-chat of a few people who pull money together to do stuff,” says Taub. “[It’s] Web3 with an iMessage wallet attached to it. iMessage meets Venmo.”
For now at least, reverberations from the great Constitution auction of 2021 are still being felt. Bloomberg reports that “Michael Novogratz, billionaire founder of Galaxy Digital Holdings, said Thursday during the Goldman Sachs U.S. Financial Services Conference that Griffin’s bid spoiled the party."
“ConstitutionDAO might have been the coolest thing that happened all year long in crypto, because it’s the pure essence of, ‘Here we are, we are doing it for the people, buying one of the founding documents, one of 13 Constitutions, and we’re gonna give it back to the people.’ Unfortunately, Ken Griffin played the Grinch — rich billionaire coming in to kind of spoil the party, in what I would call a tone-deaf move.”
Note that Novogratz playing the Everyman may strike some as ironic, given that one could argue the Princeton wrestling champ, cum National Guard helicopter pilot, cum Goldman Sachs’ partner, cum hedge fund honcho, cum Federal Reserve advisor is of the old elite world. But note too that Novo has been whole-hog into crypto for more than half a decade now.
So what about this idea generally that DAOs and crypto are disrupting Wall Street?
“It’s weird for me to see things like bitcoin and crypto being touted as an inequality breaker,” says Cullen Roche. "When you look at ownership of bitcoin it’s way more massively unequal even than stocks and bonds are at present. There’s also a lot of hype and narrative of some of these things that exaggerate the benefits of the existing system. Is this really going to overthrow the financial system? Do you think Ken Griffin will go away without a fight?”
There are problems aplenty to be worked out with DAOs. For example, here’s what Alexis Goldstein, the director of financial policy for the Open Markets Institute, says when asked if DAOs can serve as an alternative financial structure that decentralizes control: “In theory, but what I’ve seen in practice it more closely resembles what is seen in shareholder votes: The biggest shareholders have the biggest say.”
Then there are the risks that accompany DAOs as Roche notes: “You could have DAOs being run by Russian bots that are buying, who knows, public companies, doing weird things that could have a big impact on U.S. economic outcomes.”
Roche, Goldstein and others agree that what DAOs desperately need is regulation and governmental oversight. Problem is the politicians never seem to agree on anything — which disruptors love. Caveat Emptor.
<<<
>>> US leads China in 'digital currency space race,' crypto exec says
Yahoo Finance
by Alexandra Semenova
December 10, 2021
https://finance.yahoo.com/news/us-beats-china-digital-currency-space-race-circle-ceo-212552244.html
As the global digital currency race heats up, Circle CEO Jeremy Allaire thinks the broader stablecoin adoption expected to come with regulatory clarity from Washington can give the United States a needed edge in minting the financial system of the future.
Testifying along with five other crypto leaders at Wednesday’s landmark congressional hearing, the digital payment provider’s chief executive officer said the U.S. is beating China in stablecoin transactions with trillions of U.S. dollar-backed payments carried out, compared to $10 billion completed by China’s central bank in its experimental digital yuan program, though clearer rules for mass use are needed to sustain this pace.
“This has the potential to grow at a very significant speed around the world and benefit the U.S. dollar and benefit American businesses,” Allaire told lawmakers. “And I think the primacy and development of this infrastructure is a national security and economics priority for the United States, and we need to get going on it right now.”
Despite larger transaction volumes, U.S. stablecoin issuers lack the key support from policymakers that is crucial for wider adoption, while China’s central bank has pushed forward with real-world trials of digital currencies. As the stablecoin market grows rapidly, reaching over $140 billion as of November, key players are eager for a nod from Washington as watchdogs inch closer towards support for institutional use.
“The United States and the U.S. dollar are winning the digital currency space race today,” Allaire, whose Circle is the second-largest stablecoin issuer, told members of Wednesday’s meeting, citing trillions in transactions.
A central bank digital currency (CBDC) tracker and database from the Atlantic Council, a nonpartisan think tank on international affairs, however, states the U.S. is the furthest behind in digital currency progress among countries with the four largest central banks.
“In the long term, the absence of U.S. leadership and standards setting can have geopolitical consequences, especially if China maintains its first-mover advantage in the development of CBDCs," Atlantic Council researchers wrote.
While Circle has come out against the launch of a centrally-managed CBDC — which differ from stablecoins because they are privately issued — the company has supported the Biden administration’s proposal to regulate stablecoin issuers as banks, viewing the move as a step forward for the industry.
“We think this represents significant progress in the growth of this industry,” Allaire previously told Yahoo Finance. “There's a real recognition that as these payment stablecoins grow, they could grow at internet scale relatively quickly."
'Viable means of payment'
Flagship financial institutions are also bracing for regulation and the potential for institutional use.
Bank of America (BAC) sees developments in the regulatory sphere around stablecoins as a good thing for payment companies, recently identifying Mastercard (MA), Signature (SBNY), Visa (V) and Western Union (WU) as potential beneficiaries.
“We expect regulatory clarity to increase stablecoin use as a viable means of payment, likely driving retail adoption,” Bank of America global research analysts wrote in a recent note.
“Stablecoin regulation is a significant first step toward a comprehensive regulatory framework that encompasses the digital asset ecosystem,” BofA said. “We view a comprehensive regulatory framework as a catalyst to mass adoption of digital assets.”
<<<
>>> The Great Crypto Crackdown
BY JAMES RICKARDS
SEPTEMBER 28, 2021
https://dailyreckoning.com/the-great-crypto-crackdown/
The Great Crypto Crackdown
It was another bad day for the stock market today. The major indexes were down big on fears of rising Treasury yields (I don’t believe they’ll continue to rise, but that’s a story for a different day).
Are you thinking of parking your money in cryptocurrencies like Bitcoin as an alternative to stocks?
I’m not here to tell anyone what to do with their money, but you might want to think twice…
China just made cryptocurrencies illegal in the world’s second-largest economy. No transactions in cryptos are to be allowed, nor is cryptocurrency “mining.”
The all-out ban is a departure from China’s previous attempts to simply regulate cryptocurrencies as a means to control them.
The People’s Bank of China (PBOC) said the ban is necessary to “maintain national security and social stability.”
China’s crackdown on cryptos is best understood in the broader context of the rise of central bank digital currencies (CBDCs).
Total Surveillance
China is very far along in its roll-out of a digital yuan: the Chinese CBDC. China will use the 2022 Winter Olympics in Beijing as a major showcase for this. They will try to cause all transactions for vendors, hotels, tickets, souvenirs, etc., to be conducted in the digital yuan.
The European Central Bank (ECB) is also working on a prototype CBDC, and the Fed is doing research and development work on its own CBDCs, in conjunction with MIT.
So CBDCs are coming fast.
The benefits of CBDCs are obvious, including faster transaction times and lower transaction costs. No more 2.5% merchant acquirer fees for Visa!
But the dark side of CBDCs includes the following: easy to monitor citizens’ whereabouts and buying habits, easy to impose negative interest rates, easy to seize and freeze accounts, etc.
This is why China is pushing so hard on its own CBDC. They want total surveillance of their people. They can then determine if they are buying prohibited books or supporting prohibited causes or traveling to sensitive areas such as Xinjiang.
In a U.S. version of this dystopia, your account might be frozen if you donate to the wrong political causes, groups or “extremist” political candidates (basically, anyone who disagrees with the preferred narrative).
If You Can’t Stop It, Control It
People will seek freedom from this digital-monetary dystopia by going to alternatives. What are they? The answer is cash, gold and cryptos.
Cash is already fighting for its life, thanks to people like Harvard Professor Ken Rogoff and his book The Curse of Cash. Cryptos are next to the guillotine. That’s the way to understand what’s happening in China.
If you want to push CBDCs (and the surveillance that goes with them), you have to eliminate cryptocurrencies first so people have nowhere to hide. Governments may have been planning that all along…
Here’s the thing: Governments don’t want to kill the blockchain; they want to control it.
Governments enjoy a monopoly on money creation, and they’re not about to surrender that monopoly to cryptocurrencies like Bitcoin.
But governments know they cannot stop the technology platforms on which the cryptocurrencies are based. Blockchain technology has come too far to turn back.
They have sought to do so using powers of regulation, taxation, investigation and ultimately more coercive powers, including arrest and imprisonment of individuals who refuse to obey government mandates with regard to blockchain. That’s what we’re seeing in China today.
Governments, regulators, tax authorities and the global elite are moving in for the crypto-kill. The future of Bitcoin may be a dystopia in which Big Brother controls the blockchain and decides when and how you can buy or sell anything and everything. That’s the logic of CBDCs.
Furthermore, cryptocurrency technology could be the very mechanism used by global elites to replace the dollar-based financial system.
Government Sets the Trap
In 1956, Mao Zedong, the leader of the Communist Party of China and China’s dictator, was confronted with demoralized intellectuals and artists who were alienated by Communist rule. As a policy response, he declared a new policy of intellectual freedom.
Mao declared, “The policy of letting a hundred flowers bloom and a hundred schools of thought contend is designed to promote the flourishing of the arts and the progress of science.”
This declaration is referred to as the “Hundred Flowers Campaign” (often misquoted as the “Thousand Flowers Campaign”).
The response to Mao’s invitation was an enthusiastic outpouring of creative thought and artistic expression.
What came next was no surprise to those familiar with the operation of state power. Once the intellectuals and artists emerged, it was easy for Mao’s secret police to round them up, kill and torture some and send others to “reeducation camps” where they learned ideological conformity.
The Hundred Flowers Movement was a trap for those who placed their trust in the state. It was also a taste of things to come in the form of the much more violent and comprehensive Cultural Revolution of 1966–1976 in which all traces of Chinese bourgeoisie culture and much of China’s historical legacy were eradicated.
Something similar is going on with Bitcoin and distributed ledger technology (DLT) today. Governments have been patiently watching blockchain technology develop and grow outside their control for the past several years.
Libertarian supporters of blockchain celebrate this lack of government control. Yet their celebration has proven to be premature, and their belief in the sustainability of powerful systems outside government control is naive.
Blockchain does not exist in the ether (despite the name of one cryptocurrency), and it does not reside on Mars. Blockchain depends on critical infrastructure, including servers, telecommunications networks, the banking system and the power grid, all of which are subject to government control.
Basically, Big Brother is coming to the blockchain.
Canary in the Coal Mine
China is the canary in the coal mine. The U.S. will not be far behind in strict regulation of cryptocurrencies. The SEC’s Gary Gensler and Treasury Secretary Janet Yellen are already working on it.
With CBDCs as the new world money and cash and cryptos eliminated, gold is the only form of money left if you want to avoid the surveillance state.
The obvious attraction (apart from 5,000 years of history) is that it is nondigital and not issued by central banks. It cannot be hacked, frozen or seized online.
Bottom line: The news from China is the thin end of the wedge. It’s part of a much larger effort to substitute CBDCs for other forms of money.
And that is part of an even larger effort to control dissent and maintain social order. The COVID lockdowns are just one example.
It might be a good idea to buy your gold now… while you still can.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Ray Dalio: I have more gold than crypto
MarketWatch
Sept. 15, 2021
By Frances Yue
https://www.marketwatch.com/story/ray-dalio-i-have-more-gold-than-crypto-11631734752?siteid=yhoof2
‘You don’t want to commit cash. You don’t want a bond… You want stocks, you want gold, you want tangible assets, you want real estate,’ Dalio said.
Though holding some bitcoin and admitting the cryptocurrency’s attraction as “alternative gold,” Ray Dalio disputed Cathie Wood’s view that bitcoin BTCUSD, 0.55% will rise tenfold in five years.
“That doesn’t make any sense to me,” the billionaire and founder of hedge fund Bridgewater Associates on Wednesday said at the SALT conference held in New York. The tenfold rise could be “very much a stretch,” Dalio said.
“There’s a certain amount of reflation turn-around for those kinds of things going up to make a price increase, and there’s a certain market share that gold might have, that bitcoin might have and other things might have,” Dalio said.
In a different panel of the SALT conference, Ark Invest’s ARKK, +0.83% Wood said on Monday that she expected bitcoin’s price to top $500,000.
Dalio also said he had more gold than crypto. “I would say diversification is a good thing. We could get into the merits of one versus the other,” he said.
Meanwhile, Dalio reiterated his view that the U.S. has “bad finances,” spending more than it is earning. “You can fill that in by printing money and continue to create debt. But that’s not sound finances.”
It means “you don’t want to commit cash. You don’t want a bond, it’s going to have a negative real return.” Dalio said. “You want stocks, you want gold, you want tangible assets, you want real estate, you want the things that are basically anti-money…you want to get into those things that have more of those intrinsic values accompanying it.”
When asked about his personal plans, Dalio said he expects to “go quiet” and “do the things I like to do” after a year or two.
“My goal is not anymore to be more successful myself but just to try to pass along. And then I’ll do that for a year or two. And then I’m done,” Dalio said.
<<<
>>> 3 Blockchain ETFs for Q4 2021
BLOK, BLCN, and LEGR are the three blockchain ETFs for Q4 2021
Investopedia
Aug 12, 2021
https://www.investopedia.com/news/3-blockchain-etfs-buy-2018/?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral
Blockchain exchange-traded funds (ETFs) own stocks in companies that have business operations in blockchain technology or in some way profit from it. Blockchain is made up of complex blocks of digital information and increasingly is used in banking, investing, cryptocurrency, and other sectors. While blockchain is a relatively new technology, many of the companies that operate in the space are well established. Some examples include International Business Machines Corp. (IBM), Oracle Corp. (ORCL), and Visa Inc. (V).
Many investors may be wary of risking an investment in blockchain due to the technology's association with the volatile cryptocurrency market. However, blockchain is not the same thing as cryptocurrency, and blockchain ETFs invest only in stocks of regulated companies, many of which are big blue-chip technology firms, and not in cryptocurrency directly.
KEY TAKEAWAYS
The three blockchain ETFs outperformed the broader market over the last year.
These three ETFs, ranked by one-year trailing total return, are BLOK, BLCN, and LEGR.
The top holdings of these ETFs are class A shares of MicroStrategy Inc., class A shares of Coinbase Global Inc., and Nvidia Corp., respectively.
There are three blockchain ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). This list excludes the Bitwise Crypto Industry Innovators ETF (BITQ), which launched in May 2021 and does not have enough trading history to be included in our rankings.1
The three blockchain ETFs have outperformed the broader market over the past 12 months, posting higher total returns than the S&P 500's total return of 34.0%, as of Aug. 10, 2021.2 The best-performing blockchain ETF for Q4 2021, based on performance over the past year, is the Amplify Transformational Data Sharing ETF (BLOK). We examine the three blockchain ETFs below. All numbers are as of Aug. 10, 2021.1
Amplify Transformational Data Sharing ETF (BLOK)
Performance over One-Year: 112.9%
Expense Ratio: 0.71%
Annual Dividend Yield: 1.30%
Three-Month Average Daily Volume: 448,406
Assets Under Management: $1.2 billion
Inception Date: Jan. 16, 2018
Issuer: Amplify Investments
BLOK is an actively managed ETF that invests a minimum of 80% of its net assets in stocks of companies engaged in the development and utilization of blockchain technologies. It follows a blended strategy, investing in a mix of value and growth stocks of various market capitalizations across the world, and is comprised mostly of companies operating within the software & services and diversified financials industries.3
The fund's top three holdings are class A shares of MicroStrategy Inc. (MSTR), a provider of enterprise software platforms; class A shares of Square Inc. (SQ), a financial services and digital payments company; and Hut 8 Mining Corp. (HUT:TSE), a Canada-based bitcoin mining and blockchain infrastructure company.4
Siren Nasdaq NexGen Economy ETF (BLCN)
Performance over One-Year: 38.9%
Expense Ratio: 0.68%
Annual Dividend Yield: 0.63%
Three-Month Average Daily Volume: 55,737
Assets Under Management: $289.1 million
Inception Date: Jan. 17, 20185
Issuer: SRN Advisors
BLCN tracks the Nasdaq Blockchain Economy Index, which gauges the performance of companies involved in developing, researching, supporting, innovating, or utilizing blockchain technology.5 The ETF follows a blended strategy, investing in growth and value stocks, and its top three holdings are class A shares of Coinbase Global Inc. (COIN), the operator of a cryptocurrency exchange platform; class A shares of Square Inc.; and class A shares of MicroStrategy Inc.6
First Trust Indxx Innovative Transaction & Process ETF (LEGR)
Performance over One-Year: 36.4%
Expense Ratio: 0.65%
Annual Dividend Yield: 1.12%
Three-Month Average Daily Volume: 18,962
Assets Under Management: $117.8 million
Inception Date: Jan. 24, 2018
Issuer: First Trust
LEGR tracks the Indxx Blockchain Index, which gauges the performance of companies that either actively utilize, invest in, develop, or have products that are positioned to benefit from blockchain technology. The ETF normally invests a minimum of 90% of its net assets in equity securities that comprise the index and has a total of 100 holdings, excluding cash, most of which operate in the information technology and financial industries.7
LEGR's top three holdings include Nvidia Corp. (NVDA), a graphics processing unit manufacturer; Oracle Corp., a multinational computer technology company; and Advanced Micro Devices Inc. (AMD), a semiconductor manufacturer.8
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>>> Invesco Files for Bitcoin ETF: Will It Be Approved?
Investopedia
By RAKESH SHARMA
Aug 12, 2021
https://www.investopedia.com/invesco-files-for-bitcoin-etf-will-it-be-approved-5197381?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral
Invesco, an independent investment management company, has filed with the Securities and Exchange Commission (SEC) for a Bitcoin (BTCUSD) exchange traded fund (ETF) that will invest in Bitcoin futures and cryptocurrency exchange traded products (ETPs).1
The Atlanta-based company, which filed its application on Aug. 5, is the latest investment firm in a growing list to clamor for an ETF that will enable greater liquidity in the cryptocurrency ecosystem. There are more than a dozen firms in that list, and Invesco, which has more than $1.5 trillion worth of assets under management, is among the largest.2 Given recent precedence, Invesco might also become among the first firms to gain approval for a Bitcoin ETF.
KEY TAKEAWAYS
Independent investment management firm Invesco filed for a Bitcoin ETF last week.
The fund will not invest directly in the cryptocurrency and will put money in CME Bitcoin futures contracts and crypto ETP products
The filing toes the regulatory line drawn by the SEC Chair earlier, when he said that he is "looking forward" to reviewing filings based on CME-traded Bitcoin futures contracts.
More than a dozen Bitcoin ETF applications have been filed with the SEC since last year and are pending a decision.
A Fund That Does Not Invest Directly in Bitcoin
Per Invesco's filing, the Bitcoin Strategy fund will not directly invest in the cryptocurrency. Instead, it plans to invest in bitcoin futures contracts traded at the Chicago Mercantile Exchange (CME) and in crypto ETPs like the Grayscale Bitcoin Trust (GBTC). It will also put money into a host of traditional financial instruments, such as government securities and money market funds, for a "temporary defensive position" against the volatility of crypto markets.
Invesco's investment strategy is notable because it comes on the heels of recent comments made by SEC Chair Gary Gensler about the possible approval of a Bitcoin ETF. During his remarks at the Aspen Security Summit last month, Gensler said investment vehicles that provide exposure to crypto assets already exist in the markets and name-checked GBTC and mutual funds that invest in Bitcoin futures at CME.
"I anticipate that there will be filings with regard to exchange traded funds under the [1940] Investment Company Act. When combined with the other federal securities laws, the '40 Act provides significant investor protections. Given these important protections, I look forward to the staff's review of such filings, particularly if those are limited to these CME-traded Bitcoin futures," the SEC Chair said.3
Gensler, who taught a course on blockchain and cryptocurrencies at the Massachusetts Institute of Technology (MIT) before becoming a commissioner, has argued for bringing cryptocurrency exchanges and products under government regulation. He is a fierce critic of the current state of affairs in the crypto ecosystem. At the security forum, he said that cryptocurrencies in their current form were an asset class that was "rife with fraud, scams, and abuse in certain applications."
Both investments that Invesco mentioned in its filings report to government agencies. While CME falls under the jurisdiction of the Commodities Futures Trading Commission (CFTC), the Grayscale Bitcoin Trust is an SEC-reporting entity and plans to convert itself into an ETF in the future.4
A Possible Bitcoin ETF Approval?
To be sure, Invesco is not the only Bitcoin ETF application that aims to invest only in regulated derivative products such as Bitcoin futures contracts. Another investment firm VanEck filed for an ETF based on Bitcoin futures contracts back in 2017. It has resubmitted the application with "minor amendments," according to a recent report.5
However, Invesco's filing has generated excitement in the crypto community because it hews closely to Gensler's recent directive. There is also precedence in the recent past suggesting that the SEC might look at the filing favorably.
The Bitcoin Strategy ProFund (BTCFX) mutual fund, which also invests in the cryptocurrency's futures contracts traded at the CME, received approval from the agency earlier this year.6 "The advantage of this approach is clear. The futures market is regulated. So, you've got the CME [Chicago Mercantile Exchange], the CFTC [Commodity Futures Trading Commission], you've got the clearinghouse, and then you're in a mutual fund that people understand well and you can get in and out every day at NAV," ProShares head of investment strategy Simeon Hyman told CNBC.7
The head of investment strategy at Grayscale, a firm whose products have benefitted from Gensler's insistence on regulation, told the same channel that the SEC Chair's comments at Aspen were "very positive." According to Grayscale's David LaValle, "the story is no longer if there's going to be bitcoin ETF but when there's going to be a bitcoin ETF."
<<<
>>> Hackers return $260 million to cryptocurrency platform after massive theft
Reuters
by Tom Wilson, Tom Westbrook and Alun John
August 11, 2021
https://finance.yahoo.com/news/defi-platform-poly-network-reports-064756815.html
LONDON/SINGAPORE/HONG KONG (Reuters) - Hackers behind one of the biggest ever cryptocurrency heists have returned more than a third of $613 million in digital coins they stole, the company at the center of the hack said on Wednesday.
Poly Network, a decentralised finance platform that facilitates peer-to-peer transactions, said on Twitter that $260 million of the stolen funds had been returned but that $353 million was outstanding.
The company, which allows users to swap tokens across different blockchains, said on Tuesday it had been hacked and urged the culprits to return the stolen funds, threatening legal action.
The hackers exploited a vulnerability in the digital contracts Poly Network uses to move assets between different blockchains, according to blockchain forensics company Chainalysis.
A person claiming to have perpetrated the hack said they did it "for fun" and wanted to "expose the vulnerability" before others could exploit it, according to digital messages shared by Elliptic, crypto tracking firm, and Chainalysis.
It was "always the plan" to return the tokens, the purported hacker wrote, adding: "I am not very interested in money."
The hackers or hacker have not been identified, and Reuters could not verify the authenticity of the messages.
Tom Robinson, co-founder of Elliptic, said the decision to return the money could have been prompted by the headaches of laundering stolen crypto on such a scale.
An executive from cryptocurrency firm Tether said on Twitter the company had frozen $33 million connected with the hack, and executives at other crypto exchanges told Poly Network they would also try to help.
"Even if you can steal cryptoassets, laundering them and cashing out is extremely difficult, due to the transparency of the blockchain and the broad use of blockchain analytics by financial institutions," said Robinson.
Poly Network did not respond to requests for more details. It was not immediately clear where the platform is based, or whether any law enforcement agency was investigating the heist.
The size of the theft was comparable to the $530 million in digital coins stolen from Tokyo-based exchange Coincheck in 2018. The Mt. Gox exchange, also based in Tokyo, collapsed in 2014 after losing half a billion dollars in bitcoin.
The Poly Network attack comes as losses from theft, hacks and fraud related to decentralised finance (DeFi) hit an all-time high, according to crypto intelligence company CipherTrace.
At $600 million, however, the Poly Network theft far outstripped the $474 million in criminal losses CipherTrace said were registered by the entire DeFi sector from January to July. The thefts illustrated risks of the mostly unregulated sector and may attract the attention of regulators.
DeFi platforms allow parties to conduct transactions, usually in cryptocurrency, directly without traditional gatekeepers such as banks or exchanges. The sector has boomed over the last year, with platforms now handling more than $80 billion worth of digital coins.
Proponents of DeFi say it offers people and businesses free access to financial services, arguing that the technology will cut costs and boost economic activity. But technical flaws and weaknesses in their computer code can make them vulnerable to hacks.
<<<
>>> Skepticism builds within the Fed over the need for a digital dollar
Yahoo Finance
Brian Cheung
August 5, 2021
https://finance.yahoo.com/news/skepticism-builds-within-the-fed-over-the-need-for-a-digital-dollar-155332561.html
A second top Federal Reserve official on Thursday voiced his opposition to the creation of a Fed-issued digital currency that could be used by the general public.
Fed Governor Christopher Waller added that a central bank-issued digital currency (CBDC) may be costly to implement, arguing that privately issued stablecoins may better handle the need for faster payments.
“After careful consideration, I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives,” Waller said in remarks at the American Enterprise Institute Thursday.
The Fed is currently in the early stages of evaluating the pros and cons of a CBDC, which could take the form of a digital dollar held in digital wallets managed by the central bank. The central bank plans on issuing a paper on the prospects of a CBDC and the broad cryptocurrency space in September.
But Waller has already joined his colleague, Fed Vice Chairman of Supervision Randal Quarles, in publicly criticizing the need for a CBDC. Quarles said in late June that a CBDC could be a serious target for hackers, arguing that issuing one would “pose significant and concrete risks.”
Waller similarly said that the “extreme cybersecurity risk” is the biggest downside concern, in his view.
Proponents of a CBDC argue that it could serve as a lower-cost way for users to make payments and transfer money, particularly for the roughly 5.4% of U.S. households that are unbanked (as of 2019).
The likes of former Federal Deposit Insurance Corp. Chair Sheila Bair have also argued that a CBDC, in future crises, would allow the Fed to bypass the banking system and provide monetary stimulus directly to American wallets.
Private stablecoins
Waller pushed back on the potential benefits of a Fed-issued digital dollar, questioning the central bank’s ability to build the technology at a cheaper cost than private issuers.
The Fed governor, who joined the central bank’s board in December 2020, said private stablecoins are already offering the “attractive payment instrument” of an asset that is pegged one-to-one to the dollar.
Stablecoins tie their values to one or more other assets, such as sovereign currencies, and serve as a less volatile asset compared to unbacked cryptocurrencies like bitcoin.
Still, Waller said stablecoins would benefit from some regulation, as Fed Chairman Jerome Powell has also suggested.
“It’s not clear that the stablecoin issuer is going to honor that 1:1 exchange rate in a run — if a run were to occur,” Waller said Thursday. He cited Tether as an example, suggesting that the nature of its commercial paper holdings are not transparent enough.
Waller proposed some liquidity test on the balance sheets of privately-issued stablecoins, which could evaluate the holdings of short-term government bonds and other securities widely regarded as highly liquid.
Bank of America wrote last week that stablecoins, whether private or central bank-issued, “seem inevitable and the only question is how soon and with what kinks along the way.”
An escalating debate within the Fed will raise further questions about the right balance between public and private players.
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>>> Tether Executives Said to Face Criminal Probe Into Bank Fraud
Bloomberg
By Tom Schoenberg, Matt Robinson, and Zeke Faux
July 26, 2021
DOJ examining whether banks were misled about crypto business
Tether says it’s committed to cooperating with law enforcement
https://www.bloomberg.com/news/articles/2021-07-26/tether-executives-said-to-face-criminal-probe-into-bank-fraud
A U.S. probe into Tether is homing in on whether executives behind the digital token committed bank fraud, a potential criminal case that would have broad implications for the cryptocurrency market.
Tether’s pivotal role in the crypto ecosystem is now well known because the token is widely used to trade Bitcoin. But the Justice Department investigation is focused on conduct that occurred years ago, when Tether was in its more nascent stages. Specifically, federal prosecutors are scrutinizing whether Tether concealed from banks that transactions were linked to crypto, said three people with direct knowledge of the matter who asked not to be named because the probe is confidential.
Criminal charges would mark one of the most significant developments in the U.S. government’s crackdown on virtual currencies. That’s because Tether is by far the most popular stablecoin -- tokens designed to be immune to wild price swings, making them ideal for buying and selling more volatile coins. The token’s importance to the market is clear: Tethers in circulation are worth about $62 billion and they underpin more than half of all Bitcoin trades.
“Tether routinely has open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency,” the company said in a statement. Its corporate structure consists of a tangled web of entities based in the British Virgin Islands and Hong Kong.
The Justice Department declined to comment.
Read More: Why Yellen and Powell Cast a Wary Eye on Stablecoins
Federal prosecutors have been circling Tether since at least 2018. In recent months, they sent letters to individuals alerting them that they’re targets of the investigation, one of the people said. The notices signal that a decision on whether to bring a case could be made soon, with senior Justice Department officials ultimately determining whether charges are warranted.
The probe is reaching a tipping point as stablecoins attract intense scrutiny from regulators. The U.S. Treasury Department and Federal Reserve are among agencies concerned that the tokens could threaten financial stability, and are obscuring transactions tied to money laundering and other misconduct because they allow criminals to make payments without going through the regulated banking system. Treasury Secretary Janet Yellen said last week that watchdogs must “act quickly” in considering new rules for stablecoins.
Tether's Dominance
The token is by far the most popular stablecoin
A hallmark of Tether is that its creators have said each token is backed by one U.S. dollar, either through actual money or holdings that include commercial paper, corporate bonds and precious metals. That has triggered concerns that if lots of traders sold stable coins all at once, there could be a run on assets backstopping the tokens. Fitch Ratings has warned that such a scenario could destabilize short-term credit markets.
Read More: Crypto Lode of $100 Billion Stirs U.S. Worry Over Hidden Danger
Tether was first issued in 2014 as a solution to a problem plaguing the crypto market: banks didn’t want to open accounts for virtual-currency exchanges because they feared touching funds tied to drug trafficking, cyberattacks and terrorism. By accepting Tether, exchanges could give traders a way to park their balances without being exposed to Bitcoin’s price gyrations. And funds could be transferred instantaneously from exchange to exchange.
But Tether’s corporate side still needed banks to hold its money and process customer transactions. One early relationship that soured was with Wells Fargo & Co. In 2017, the Tether Ltd. affiliate and Bitfinex -- a crypto exchange with common owners and executives -- sued Wells Fargo for blocking wire transfers that had been sought through Taiwanese banks.
In the lawsuit, Tether Ltd. and Bitfinex said Wells Fargo knew, or should have known, that the transactions were being used to obtain U.S. dollars so clients could purchase digital tokens. The companies dropped the case shortly after filing it.
Wells Fargo declined to comment.
In the course of its years-long investigation, the Justice Department has examined whether traders used Tether tokens to illegally drive up Bitcoin during an epic rally for cryptocurrencies in 2017. While it’s unclear whether Tether the company was a target of that earlier review, the current focus on bank fraud suggests prosecutors may have moved on from pursuing a case tied to market manipulation.
Tether has already drawn the ire of regulators. In February, Bitfinex and several Tether affiliates agreed to pay $18.5 million to settle claims from New York Attorney General Letitia James that the firms hid losses and lied that each token was supported by one U.S. dollar. The companies had no access to banking in 2017, making it impossible that they had reserves backing the tokens, James said. The firms settled without admitting or denying the allegations.
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>>> A Digital Money Rush Is Great. A Run, Not So Much
Stablecoins will become much more widely used and need balanced regulation before they’re too big to fail.
Bloomberg
By Andy Mukherjee
July 22, 2021
https://www.bloomberg.com/opinion/articles/2021-07-22/fed-needs-to-regulate-stablecoins-before-they-become-too-big-to-fail-in-a-crisis?srnd=premium
In Hong Kong, money has been privately issued since 1846. The bill in my wallet is a promise from HSBC Holdings Plc’s local banking unit to pay the value written on it. In accepting it, I gave no thought to the creditworthiness of the lender. Whoever it’s passed on to will also take the banknote at face value, and won’t ask for Hong Kong dollars printed by Standard Chartered Plc instead.
Not requiring due diligence on cash sounds commonsensical, but it’s actually a highly valuable property of money everywhere. Indeed NQA, or “No Questions Asked,” is so important that Yale School of Management finance professor Gary Gorton and Federal Reserve attorney Jeffery Zhang have made it the centerpiece of their new paper, titled “Taming Wildcat Stablecoins.”
Blockchain-based stablecoins such as Tether and the upcoming Diem are the latest form of private money: Tokens that don’t offer Bitcoin-type speculative thrills but seek acceptance instead as one-to-one clones of national currencies. They could become a powerful part of the modern digital economy, provided we know how to prevent a run on them.
Trust in physical cash is supplied by regulators. Since the value of Hong Kong’s currency is pegged to the U.S. dollar, the city’s three note-issuing institutions 1 buy certificates of indebtedness from the monetary authority by paying it 1 dollar for every 7.8 local units they print. Hong Kong’s 7.5 million people don’t have to ask any further questions about the worth of their money.
However, as digital stablecoins proliferate globally, NQA may not hold. That’s what happened during the free banking era in the U.S., when notes issued by a lender in Tennessee would sometimes be discounted by 20% in Philadelphia. “There was constant haggling and arguing over the value of notes in transactions,” Gorton and Zhang write. “Private bank notes were hard to use in transactions.”
Things changed because of the Civil War. President Abraham Lincoln wanted desperately to raise money for the war effort by selling bonds to newly chartered national lenders. The law Congress passed in 1863 also ushered in a uniform currency. Thereafter, banks were taxed for paying out other types of notes, driving them out of existence.
The researchers argue that stablecoins are in a similar situation. In the current regulatory vacuum, they’ll struggle to become no-questions-asked money. For NQA, they’ll need the state’s blessing — and oversight. That’s been in short supply because rapid growth of the novel product has taken regulators by surprise.
But while blockchain technology is new, the economic logic of stablecoins isn’t. Buying $100 worth of these tokens is no different from a depositor parking $100 in a checking account, which preserves its value because of deposit insurance and regulatory scrutiny. Stablecoins will need a similar setup. Or, if the issuers want to avoid the cost of being a commercial bank, regulators will have to insist on transparent, one-to-one backing of liabilities with safe assets. Only then can the public reliably trust tokens claiming to mimic official units of account — dollar, euro, pound, yen, yuan and so on.
Without these safeguards, allowing stablecoins to compete with bank deposits could spawn another combustible financial product. Money market mutual funds, which have avoided being regulated as bank deposits, had to be bailed out twice in a dozen years: during the 2008 crisis, and then again last year when Covid-19 struck. Gorton and Zhang caution that if policy makers wait a decade, stablecoin issuers will become the money market funds of the future. Doubts about a token’s ability to honor its promise of 1:1 exchange into fiat money could prompt users to make a beeline for redemption. Fire sales of assets by the coin issuer could afflict other corners of finance, forcing governments “to step in with a rescue package whenever there’s a financial panic,” the researchers say.
At a little over $100 billion, the combined market value of the top five coins tracking the dollar — Tether, USD Coin, Binance USD, Dai and Terra USD — is modest at present. But that’s because stablecoin users have mostly come from cryptocurrency investors. With Visa Inc. starting to accept USD Coin to settle card payments, it’s only a matter of time before usage goes mainstream. The Diem Association, a consortium of Facebook Inc. and other companies and nonprofits, has tied up with a bank. Diem’s dollar stablecoin can thus be launched from within the the U.S. banking system, and Facebook’s enormous reach could make it take off. Given the rapid pace at which the landscape is changing, Treasury Secretary Janet Yellen is right to tell U.S. regulators to hurry up and put in place a regulatory framework for stablecoins.
If the rules strike the right balance between supporting innovation and maintaining stability, the U.S. may not need to follow China into offering an official digital currency, a possibility that a top Fed official raised recently.
Will the Fed choose regulated private stablecoins, a central bank-issued digital currency, or both? Even as the rest of the world awaits answers, some decisions should be made right away. Tether, the most used dollar coin, is owned by Hong Kong-based iFinex Inc. Every country could potentially have a crypto or fintech firm mirror their official unit of account. Trying to regulate entities once they’re already too big to fail would be pointless.
Money in the 21st century may not need to be official. But it still has to be no-questions-asked, like the Hong Kong dollars in my wallet. That’s a power that only regulators can bestow. They should use it well.
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>>> Ethereum Co-Founder Says Safety Concern Has Him Quitting Crypto
Bloomberg
By Olga Kharif
July 16, 2021
https://www.bloomberg.com/news/articles/2021-07-16/ethereum-co-founder-says-safety-concern-has-him-quitting-crypto?srnd=premium
Anthony Di Iorio is selling his digital startup Decentral
Anthony Di Iorio, a co-founder of the Ethereum network, says he’s done with the cryptocurrency world, partially because of personal safety concerns.
Di Iorio, 48, has had a security team since 2017, with someone traveling with or meeting him wherever he goes. In coming weeks, he plans to sell Decentral Inc., and refocus on philanthropy and other ventures not related to crypto. The Canadian expects to sever ties in time with other startups he is involved with, and doesn’t plan on funding any more blockchain projects.
“It’s got a risk profile that I am not too enthused about,” said Di Iorio, who declined to disclose his cryptocurrency holdings or net worth. “I don’t feel necessarily safe in this space. If I was focused on larger problems, I think I’d be safer.”
Back in 2013, Di Iorio co-founded Ethereum, which has become the home of many of the hottest crypto projects, particularly in decentralized finance -- which lets people borrow, lend and trade with each other without intermediaries like banks. Ether, the native token of the network, has a market value of about $225 billion.
He made a splash in 2018 when buying the largest and one of the most expensive condos in Canada, paying for it partly with digital money. Di Iorio purchased the three-story penthouse for C$28 million ($22 million) at the St. Regis Residences Toronto, the former Trump International Hotel & Tower in the downtown business district.
In recent years, Di Iorio jumped into venture-capital investing and startup advising. He was also for a time chief digital officer of the Toronto Stock Exchange. In February 2018, Forbes estimated his net worth was as high as $1 billion. Ether’s price has more than doubled since then.
Decentral is a Toronto-based innovation hub and software development company focused on decentralized technologies, and the maker of Jaxx, a digital asset wallet that garnered about 1 million customers this year.
Di Iorio said he has talked with a couple of potential investors, and believes the startup will be valued at “hundreds of millions.” He expects to sell the company for fiat, or equity in another company -- not crypto.
“I want to diversify to not being a crypto guy, but being a guy tackling complex problems,” Di Iorio said. He is involved in Project Arrow, run by a high-school friend that’s building a zero-emission vehicle. He is also consulting a senator from Paraguay.
“I will incorporate crypto when needed, but a lot of times, it’s not,” he said. “It’s really a small percentage of what the world needs.”
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>>> Mystery buyer spends $12.3M on a 101-carat diamond -- and pays in cryptocurrency
CNN
by Megan C. Hills
7/12/2021
A 101-carat diamond has become the most expensive jewel ever purchased with cryptocurrency, according to Sotheby's, the auction house behind the sale.
The pear-shaped gemstone sold Friday for the equivalent of $12.3 million, after the auctioneer announced it was accepting offers in bitcoin and ethereum, in addition to traditional forms of payment. Sotheby's would not disclose which of the two cryptocurrencies had been used to make the purchase.
The diamond, dubbed "The Key 10138," went to an "anonymous private collector," according to a press release.
In a press statement, Sotheby's deputy chairman for jewelery in Asia, Wenhao Yu, said the sale had attracted "new clients well beyond the traditional pool of collectors," adding cryptocurrency purchases appealed to a "digitally savvy generation."
Remarkably rare in its own right, the stone is the second largest pear-shaped diamond ever to come to market, according to Sotheby's.
It is classified as a "D color" diamond, the highest such grade awarded to white diamonds, meaning it appears colorless to the naked eye. It is also verified as internally and externally "flawless," meaning it is completely clear with no visible blemishes. It is one of only 10 diamonds of its quality weighing over 100 carats ever to appear at auction.
A number of auction houses have begun welcoming cryptocurrencies for big-ticket items, which have included paintings and NFTs -- the blockchain-backed tokens increasingly used to transfer ownership of digital artworks and collectibles.
Earlier this year, Sotheby's opened the sale of Banksy's "Love is in the Air" to payment via bitcoin and ethereum. The famed artwork, which depicts a masked man throwing a bouquet of flowers like a Molotov cocktail, eventually sold for $12.9 million, though the auction house did not reveal whether they buyer eventually used a cryptocurrency.
In June, Christie's also announced that it was accepting bitcoin and ethereum for an untitled Keith Haring work. The painting, which depicts a figure with a computer for a head, sold for £4.3 million (nearly $6 million) though, again, the auctioneer did not disclose the payment method.
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>>> Yellen urges federal agencies to 'act quickly' on stablecoin regulation
Yahoo Finance
Brian Cheung
July 19, 2021
https://finance.yahoo.com/news/yellen-urges-federal-agencies-to-act-quickly-on-stablecoin-regulation-203653004.html
The top U.S. financial regulators convened on Monday to expand discussions on a regulatory framework for stablecoins, a type of digital currency that bills itself as a less volatile asset class than other cryptocurrencies.
Treasury Secretary Janet Yellen held a meeting with five federal regulatory agencies to discuss the “rapid growth” of stablecoins, according to a Treasury readout of the meeting Monday afternoon.
The nation’s top regulators acknowledged the potential for stablecoins to be a useful means of payment, but advocated for setting up guardrails to protect stablecoin users, the financial system, and national security.
“The Secretary underscored the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place,” the Treasury reported.
The meeting brought together the heads of the Securities and Exchange Commission, Federal Reserve, Commodities Futures Trading Commission, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
The officials were briefed by Treasury staff on a forthcoming report on stablecoins, which will include recommendations for addressing “any regulatory gaps” in the current regulatory framework.
Risks ahead?
Whereas many cryptocurrencies are not backed by a specific asset, stablecoins tie their values to one or more other assets, such as sovereign currencies. One selling point for stablecoins: facilitating cross-border payments.
Stablecoins have been growing in popularity, taking some steam out of prime money market funds. The concern is that if left unregulated, stablecoins may be riskier than advertised.
A chart from the Boston Fed, using data from Coin Metrics and iMoneyNet, notes that stablecoins have been growing in popularity against prime money market mutual funds. Source: Federal Reserve Bank of Boston
More
In a December 2020 statement, regulators said they wanted to encourage “responsible payments innovation.” But the statement also raised concerns over the possible financial stability risks that could come from “large-scale, potentially disorderly redemptions” on stablecoins.
If stablecoins continue to attract attention away from money market funds, short-term credit markets could be exposed to any stablecoin event.
“I think we have a tradition in this country where [if] the public’s money is held in what is supposed to be a very safe asset, we have a pretty strong regulatory framework,” Fed Chairman Jerome Powell told Congress last week.
The regulators in December proposed reserve requirements to ensure stablecoin liquidity. The regulators also emphasized that stablecoins must comply with all relevant laws concerning anti-money laundering and countering the financing of terrorism measures.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” the Treasury noted last week when it publicly announced the Monday meeting.
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>>> Yellen to Convene U.S. Regulators to Discuss Stablecoins
Bloomberg
Joe Light and Jesse Hamilton
July 16, 2021
https://finance.yahoo.com/news/yellen-convene-u-regulators-discuss-160000948.html
(Bloomberg) -- Treasury Secretary Janet Yellen will convene top U.S. financial-market and bank regulators on Monday to discuss rules for so-called stablecoins, a key part of the cryptocurrency market where government officials are increasingly fretting about a lack of oversight.
The meeting of the President’s Working Group on Financial Markets will “discuss interagency work on stablecoins,” the Treasury Department said in a statement Friday. In addition to the Treasury secretary, the working group is comprised of the heads of the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission, and this session will also include two bank regulators: the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Yellen said in the statement. “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”
The working group “will examine the current regulation of stablecoins, identify risks, and develop recommendations for addressing those risks,” and expects to “issue written recommendations in the coming months,” the Treasury said.
Regulators are increasingly worried about this new kind of cryptocurrency, which has a fixed price and is backed by real-money reserves, because of risks it poses to investors and the financial system broadly. Lawmakers and officials from the Fed and the administration have expressed alarm both in public and private that some consumers won’t actually be protected should one of the firms not have the backing they purport to have.
They also say the growing size of stablecoins has created a situation where huge amounts of U.S. dollar-equivalent coins are being exchanged without touching the U.S. banking system, potentially blinding regulators to illicit finance.
The market value of U.S.-dollar-backed stablecoins has grown rapidly in the past year and surpassed $100 billion in May. The largest, called Tether, has faced scrutiny from regulators for not always having the backing that it has claimed to have.
Powell Warning
The planned meeting follows comments by Fed Chair Jerome Powell this week warning that stablecoins lack needed regulatory oversight.
“They are like money funds, they’re like bank deposits and they’re growing incredibly fast but without appropriate regulation,” Powell said in answering questions before the Senate Banking Committee on Thursday. “And if we’re going to have something that looks just like a money market fund or a bank deposit or a narrow bank and it’s growing really fast, we really ought to have appropriate regulation. And today, we don’t.”
Fed officials including Boston Fed President Eric Rosengren have highlighted potential growing risks from stablecoins including Tether.
In December, the government warned firms behind stablecoins to tighten protections against money laundering. The Treasury and other agencies said at the time they should be used in a way that “effectively manages risk and maintains the stability of the U.S. domestic and international financial and monetary systems.”
There’s also the question of whether Congress should step in and write new laws that would give regulators more authority to regulate cryptocurrencies. One bill introduced in Congress last year would require stablecoin issuers to have a banking charter and get approval from the Fed, among other agencies.
The concept of a stablecoin is closely linked to the difficult decision the Fed faces on whether to someday launch a digital currency. Powell suggested this week that the best-case scenario for a Fed-run digital dollar would involve Congress issuing a legislative directive rather than letting the regulators pick through existing “ambiguous law” to back up any future moves.
The Fed has already been working on a digital-currencies report that Powell said could be released as soon as September. Among other things, that document will include a discussion on the risks and benefits of stablecoins, he said.
In recent years, the OCC has set itself up as the most aggressive banking agency when it comes to prepping the financial system for the influx of cryptocurrencies. The agency’s former acting head Brian Brooks, a Trump administration pick, made a series of rapid moves to accelerate digital currencies in U.S. banking. But Brooks left and took a job running the cryptocurrency exchange Binance.US, and the OCC’s work is expected to slow under Michael Hsu, the agency’s current temporary chief.
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>>> How to Keep Crypto From Crashing the Financial System
What used to be a sideshow is becoming a systemic risk.
Bloomberg
By Editorial Board
July 8, 2021
https://www.bloomberg.com/opinion/articles/2021-07-08/how-to-keep-crypto-from-crashing-the-financial-system?srnd=premium
Once upon a time, the realm of cryptocurrencies was a curious sideshow, a place where criminals did business and enthusiasts dabbled at their own peril. Not anymore. It’s rapidly evolving into a veritable Westworld of finance, where glitchy simulacra of investment funds, banks and derivatives allow visitors to take on immense risks — risks that could ultimately spill over into traditional markets and the broader economy.
Regulators have been struggling to get a grip on all this. It’s increasingly important that they succeed, and soon.
Whether crypto will prove to be, on balance, a good thing is still unclear. As money, it has so far failed: The volatility, transaction costs and carbon footprint of Bitcoin, for example, have made it largely useless for purposes other than speculation and ransomware (and even there it has flaws). That said, the underlying blockchain technology — which allows people anywhere to transact and create indelible records without relying on a trusted intermediary — may yet have uses beyond selling “official” copies of video clips and commemorating the torching of valuable artwork. In due course, it might help sovereign states improve their official currencies.
Lately, though, the denizens of crypto have been replicating the work of traditional financial institutions, without any of the regulatory guardrails designed to keep them in check. Left unattended, this is not likely to end well.
Exhibit 1 is stablecoins, representations of fiat currencies that operate on the blockchain. They mimic bank deposits by purporting to be worth, say, exactly one U.S. dollar per coin. But unlike banks, the organizations that manage them have no deposit insurance, no recourse to emergency loans from the Federal Reserve, and no limits on where to invest the reserves of fiat money that allegedly back them. Tether, the outfit behind one of the most popular stablecoins, has already been caught lending its dollar reserves to its affiliated crypto exchange, and still claims to hold potentially volatile assets such as precious metals and other digital tokens.
History has repeatedly demonstrated how dangerous such a naked combination of deposit-like liabilities and risky investments can be. Even the rumor of losses can trigger a rush to redeem before the money is gone, with systemic consequences. Suppose, for example, stablecoins became large buyers of commercial paper, short-term debt that companies issue for purposes such as buying supplies and paying employees. (Tether says it already holds tens of billions of dollars of such paper.) A sudden wave of redemptions could starve the market of cash, rendering companies unable to make payroll — similar to what happened in 2008, when the bankruptcy of Lehman Brothers triggered a run on money-market funds that devastated the commercial paper market (a vulnerability that itself has yet to be fully addressed).
Exhibit 2 is the burgeoning world of decentralized finance, or DeFi. Working on the Ethereum blockchain, using “smart contracts” capable of automating transactions, often-amorphous teams of developers have set into motion a panoply of applications. These include exchanges, bank-like platforms and derivatives dealers where people can lend, borrow and make highly leveraged bets. Many of the services have decentralized governance systems that leave decision-making to a constantly changing community of users. Scams abound. Hackers frequently find ways to drain funds, as famously happened with the original autonomous blockchain organization, the DAO. Think of it as full-service shadow banking with nobody in charge.
So far, the sums involved are relatively small — the equivalent of tens of billions of dollars, compared with the hundreds of trillions coursing through global capital markets. But this could change quickly, with far-reaching repercussions — particularly given the amount of leverage involved.
Imagine a group of hedge funds making a large bet on cryptocurrency. In DeFi, an algorithm would typically determine how much of their own money, or “margin,” they would have to commit to get a given amount of exposure. This might be 20%, enough to cover a $20 billion loss on a $100 billion investment. In the highly volatile realm of crypto, though, setting margins is a tricky business. An error, a hack or a sharp market move could cause the algorithm to recalculate, suddenly requiring the hedge funds to deliver billions more by selling assets in other markets — precisely the kind of contagion that tends to trigger broader meltdowns. And that’s just one of many possible scenarios.
What’s a regulator to do?
One promising solution for stablecoins: Require them to deposit their reserves only in traditional banks, which would in turn park the cash at the Federal Reserve. This would make them equivalent to federally insured deposits, leaving them to compete on the quality of the payment services they provide, as opposed to profiting from unduly risky investments.
Properly regulated, stablecoins could have beneficial uses, such as making it easier and cheaper for migrant workers to send money to their families back home. The payment “rails” they help develop might even someday serve as infrastructure for digital cash issued directly by sovereign central banks.
DeFi will be more complicated. One challenge will be defining what a platform actually does — is it like a bank, an exchange, a securities dealer, something else? Another will be figuring out whom to hold accountable in a decentralized organization — the developers, the users? Multiple agencies will have to cooperate, and new legislation will probably be needed to give them the necessary powers.
The overarching goal should be to ensure similar services are competing on the merits, rather than on the degree of regulation they face or their tolerance for crime. In cases where that’s not possible, some may have to be outlawed.
To their credit, global regulators are aware of the issues and are starting to engage. They’ve thought deeply about the options for addressing stablecoins. They’ve met with DeFi participants to better understand the risks. They’ve set forth concrete proposals to keep traditional banks safe. But they need to act quickly. This could get very big, and very dangerous, very fast.
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>>> Sotheby’s will accept bitcoin or ether for $15 million diamond sale
MarketWatch
July 7, 2021
By Bérengère Sim
https://www.marketwatch.com/story/sothebys-will-accept-bitcoin-or-ether-for-15-million-diamond-sale-11625649263?mod=article_inline
Recently minted cryptocurrency millionaires, unsure of what to do with their newfound wealth, can now bid for a $15 million 100-carat diamond at Sotheby’s auction — a first for a gem that valuable.
Sotheby’s 9 July auction comes as the art world and cryptocurrencies become more interlinked, with non-fungible tokens, which are smart contracts built on blockchain networks, selling for millions.
Those interested in buying the pear-shaped diamond can pay with either ether ETHUSD, +2.29% or bitcoin BTCUSD, 1.96%, and cryptocurrency exchange Coinbase Commerce will facilitate the payment.
“The most ancient and emblematic denominator of value can now, for the first time, be purchased using humanity’s newest universal currency,” said Wenhao Yu, deputy chair of Sotheby’s jewelery in Asia, in a statement.
“Never was there a better moment to bring a world-class diamond such as this to the market.”
The diamond, which is being auctioned as part of Sotheby’s “luxury edit” sale series in Asia, is on display at its Hong Kong gallery from 3 to 8 July. It is the second-largest pear-shaped diamond ever to appear on the public market, the auction house said. Bidding online started on 25 June.
“The fact that cryptocurrency is to be accepted as payment also marks a significant moment in the evolution of the market: no other physical object with an estimate even approaching the US$10-15m (HK$78-118 million) estimate this diamond carries, has ever been publicly offered for purchase with cryptocurrency,” the auction house’s statement said.
Digital high-net-worth individuals have diversified their investments during the pandemic, with many buying rare editions of trainers, vintage sports cards and jewelery.
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>>> EU countries approve landmark climate change law
Reuters
6-28-21
By Kate Abnett
https://www.msn.com/en-us/money/markets/eu-countries-approve-landmark-climate-change-law/ar-AALwJlP?ocid=uxbndlbing
BRUSSELS (Reuters) - European Union countries on Monday gave the final seal of approval to a law to make the bloc's greenhouse gas emissions targets legally binding, as EU policymakers prepare a huge new package of policies to fight climate change.
Negotiators from Parliament and EU member states reached a deal in April on the climate law, which sets targets to reduce net EU emissions by 55% by 2030, from 1990 levels, and eliminate them by 2050.
Ministers from the 27 EU countries formally approved the deal on Monday, except for Bulgaria, which abstained.
"The final compromise does not reflect our national position sufficiently," a Bulgarian government spokesman said, without specifying further.
Leaders from all EU countries signed up to the 2030 emissions-cutting target in December, which aim to put the bloc on a pathway that, if followed globally, would avoid the worst impacts of climate change. The targets apply to overall EU emissions, rather than a binding requirement for each country.
The law aims to put climate at the heart of all EU policymaking, ensuring that future regulations support the emissions-cutting aims.
Doing that will require a huge policy overhaul. Most EU laws are designed to meet a previous target to cut emissions by 40% by 2030.
The European Commission will begin that upgrade on July 14, when it proposes a dozen policies to reshape industry, energy, transport and housing to emit less CO2. The proposals will include EU carbon market reforms, tougher CO2 standards for new cars, and more ambitious renewable energy targets.
The climate law also requires Brussels to launch an independent expert body to advise on climate policies, and a budget-like mechanism to calculate the total emissions the EU can produce from 2030-2050, under its climate targets.
The European Parliament approved the law last week. Parliament and member states will sign the text, a formal step, this week before it becomes law.
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>>> Cathie Wood’s ARK Invest is readying the first bitcoin ETF with 21Shares
MarketWatch
June 28, 2021
By Mark DeCambre
https://www.marketwatch.com/story/cathie-woods-ark-invest-just-applied-to-offer-the-first-bitcoin-etf-11624915045?siteid=yhoof2
ARK Invest is teaming up with 21Shares AG’s U.S. affiliate, which serves as the filer and issuer of the ARK 21Shares Bitcoin ETF.
You can throw Cathie Wood’s ARK Invest in the ring of companies hoping to eventually offer a bitcoin-backed exchange-traded fund.
According to a regulatory filing on Monday, Wood has teamed up with 21Shares to offer the ARK 21Shares Bitcoin ETF, which would trade under the ticker symbol “ARKB,” if approved. The bitcoin BTCUSD, 0.42% ETF would list on the Cboe Global Markets CBOE, -0.50% and would use the S&P Bitcoin Index as its benchmark.
Wood’s prospectus is a part of a growing list of ETF providers and fund managers who are seeking to offer crypto in an ETF wrapper to the masses. Coinbase Global’s COIN, 0.47% custodial unit will serve as custodian of the ETFs holdings, according to the filing.
A spokeswoman for ARK Invest said that the company couldn’t comment on its plans. In the effort, ARK joins with a U.S. affiliate of 21Shares AG, a Switzerland-based provider, which has been behind a number of exchange-traded products.
Wood, the ARK Investment Management CEO and prominent promoter of technologies that she perceives as disruptive, has estimated that bitcoin’s price, currently at around $34,000, down about 50% from its mid-April peak, could hit as high as $500,000 if all institutions were to assign a mid-single-digit allocation to the virtual asset, putting it on their balance sheets.
ARK Invest’s actively managed ETFs have been on the recovery after swooning in the spring, amid a rotation out of large-cap tech names. Barron’s reported that her fund has gained an average of 22% since May 13, with the flagship ARK Innovation ARKK, -0.46% leading the chart, up over 30%.
A bitcoin ETF has been the holy grail of the crypto industry, but one that looks increasingly unlikely to be achieved this year under Gary Gensler, the new commissioner of the Securities and Exchange Commission.
A bitcoin ETF is seen as offering wider accessibility to average investors seeking direct crypto exposures.
Wood’s ambitions to list a bitcoin ETF may pit her against Grayscale Bitcoin Trust GBTC, 1.69%, a closed-end fund holding bitcoin, which is considered one of the biggest crypto funds. There also have been plans afoot for Grayscale trust to eventually convert to an ETF from its current structure. However, it hasn’t yet applied to do so.
ARK Invest has been a big investor in GBTC.
<<<
>>> Why the Fed is getting worried about the most boring thing in crypto
Yahoo Finance
Zack Guzman
July 1, 2021
https://finance.yahoo.com/news/why-the-fed-is-getting-worried-about-the-most-boring-thing-in-crypto-105555730.html
Unlike crypto critics who attack bitcoin and other cryptocurrencies for being too volatile, the Federal Reserve is increasingly sounding the alarm over investigating the coins that set out to be far more boring: stablecoins.
As their name suggests, stablecoins are cryptocurrencies that set out to remain stable over their lifetimes and try to maintain a value as close to $1 (or other base currencies) as possible.
Tether, the largest stablecoin in the world with a market cap of more than $60 billion, originally purported to be backed 1-for-1 by cash holdings. Earlier this year, after a settlement with the New York Attorney General's office, it was revealed to only have about 5% of its collateral in cash. Most of its portfolio is actually invested in commercial paper, or short-term corporate debt, making Tether similar to a prime money market fund in the eyes of some Fed officials.
As Boston Fed President Eric Rosengren explained in a recent interview on Yahoo Finance, prime money market funds have gotten into trouble during the last two major recessions, requiring the Fed to intervene both times. But recently, more money has been flowing exponentially into stablecoins, like Tether, relative to prime funds, which have seen a drop in popularity since the financial crisis.
"I do worry that the stablecoin market that is currently pretty much unregulated, as it grows and becomes a more important sector of our economy, that we need to take seriously what happens if people run from these type of instruments very quickly," he said. "Just like the money market funds caused a bad disruption in credit markets, I think a future financial stability problem could be occurring if we don’t start thinking carefully about what happens to things like stablecoins next time we have a market difficulty."
In a recent presentation, Boston Fed President Eric Rosengren pointed out that stablecoins have seen a parabolic rise in assets under management relative to prime money market funds, which have dwindled since the 2008 financial crisis.
Of course, it didn't take much to spark panic among investors to begin a rush to withdraw their funds from one of the largest money market funds back in 2008. Despite the fact that the Reserve Primary Fund, which was roughly the same size as Tether today, held only 1.5% of its assets in Lehman Brother's commercial paper, the fear of Lehman going bust caused customers to withdraw nearly two-thirds of the fund in just 24 hours. When the value of the fund's shares "broke the buck" to trade at just 97 cents, the Fed stepped in to save the day. Confidence was restored and businesses could once again access short-term liquidity through commercial paper that helps fund daily liquidity and payroll needs.
After settling with the New York Attorney General's office, Tether agreed to disclose the holdings backing its stablecoins. In total, its nearly 76% cash and cash equivalents are mostly comprised of commercial paper.
After settling with the New York Attorney General's office, Tether agreed to disclose the holdings backing its stablecoins. In total, its nearly 76% cash and cash equivalents are mostly comprised of commercial paper.
According to Rosengren, Tether in a way is just a riskier example of a money market fund. It even holds assets like longer term corporate debt and precious metals, which a normal, regulated fund would not. But as Tether has swelled in size, it has also now presented a new risk to the financial system as it's become one of the largest single holders of commercial paper. As a recent JPMorgan note pointed out, its holdings firmly place it in the top 10, even close to Vanguard.
But for Fed watchers like Avanti Bank founder Caitlin Long, who spent 22 years on Wall Street before crossing over into the world of crypto to win one of the first crypto banking charters, the new warning around stablecoins like Tether is a ramping up of a call to regulate them. As she told Yahoo Finance Wednesday, it's the first time she's seen a Fed speaker mention one of the stablecoins by name.
"I can't think of another example when the Federal Reserve mentioned a company as a potential systemic risk before there was actually any risk that actually happened," she said.
To be fair, Tether wasn't the only stablecoin Rosengren alluded to. He also made a nod to the riskier, crypto-collateralized stablecoin project, Iron Finance, that collapsed earlier this month and even ensnared an investment from Shark Tank's Mark Cuban. But the broader takeaway from Rosengren and others at the Fed seems to be an admission that stablecoins are growing so quickly that it's too big of a potential disruptor to continue ignoring. At the onset of the pandemic last year, the Fed once again had to jump in to backstop the commercial paper market. Stablecoins playing a larger role there raises new wrinkles if issues should arise again.
Tether for its part has only disclosed that the majority of the commercial paper it holds is from A-2 rated issuers (the second-highest credit tier) and above, and insists its portfolio is diversified. But that uncertainty, coupled with some questions around how much leverage is being used by the likes of unregulated crypto lending platforms (which have also swelled in size) pose some of the same risks that echo the 2008 crisis, Long says.
"When financial institutions go down, whether it's in crypto or whether it's in the mainstream world, what we've seen is that there's —behind the scenes — a lot more leverage than anyone thought there was," she said. "It always happens that way."
<<<
>>> Binance, the world's largest cryptocurrency exchange, gets banned by UK regulator
CNBC
by Ryan Browne
https://www.msn.com/en-us/news/other/binance-the-worlds-largest-cryptocurrency-exchange-gets-banned-by-uk-regulator/ar-AALwM8y?ocid=uxbndlbing
Britain's Financial Conduct Authority said that Binance Markets Limited "is not permitted to undertake any regulated activity in the U.K."
From June 30, Binance must notify U.K. users of the FCA's restrictions in a prominent place on its website and apps.
It's the latest sign of a growing crackdown on the cryptocurrency market from regulators around the world.
LONDON – Cryptocurrency exchange Binance has been banned from operating in the U.K. by the country's markets regulator, in the latest sign of a growing crackdown on the crypto market around the world.
Britain's Financial Conduct Authority said Saturday that Binance Markets Limited, the U.K. division of Binance, "is not permitted to undertake any regulated activity in the U.K."
From June 30, the company — which already offers Brits crypto trading through its website — must add a notice in a prominent place in its website and apps showing U.K. users the following text:
BINANCE MARKETS LIMITED IS NOT PERMITTED TO UNDERTAKE ANY REGULATED ACTIVITY IN THE U.K. Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA. (No other entity in the Binance Group holds any form of U.K. authorisation, registration or license to conduct regulated activity in the U.K.).
Binance, the world's largest crypto exchange by trading volumes, was set to launch its own digital asset marketplace in Britain. However, it was one of several crypto firms that withdrew applications to register with the FCA due to not meeting anti-money laundering requirements.
"Binance Markets Limited withdrew their 5MLD application on 17 May 2021 following intensive engagement from the FCA," a spokesperson for the FCA told CNBC. "The action taken today on Binance Markets Limited has been in train for some time."
The FCA spokesperson clarified that the scope of the ban was limited. Though Binance Markets Limited is banned from offering regulated services in Britain, non-registered firms can still interact with U.K. consumers. That means Binance could still offer Brits crypto trading through its website.
A Binance spokesperson told CNBC: "The FCA U.K. notice has no direct impact on the services provided on Binance.com ... Our relationship with our users has not changed."
"We take a collaborative approach in working with regulators and we take our compliance obligations very seriously," the spokesperson added. "We are actively keeping abreast of changing policies, rules and laws in this new space."
"The FCA has stated that Binance is not permitted to conduct regulated activities in the U.K.," Laith Khalaf, financial analyst at AJ Bell, said via email. "Providing access to cryptocurrencies itself is not a regulated activity, but offering derivatives is, which is presumably the activity the FCA is clamping down on."
The FCA isn't the only regulator clamping down on the crypto industry.
Japan's Financial Services Agency warned last week that Binance was operating in the country without its permission.
Meanwhile, China has stepped up efforts to stamp out crypto speculation, ordering digital currency miners to cease operations in a number of regions and urging banks and payment firms not to offer crypto-related services.
Increased regulatory scrutiny has weighed on the nascent crypto market. Bitcoin had a solid start to the year, rallying to an all-time high of almost $65,000 in April. But it's since almost halved in value, trading at $34,783 as of Monday morning.
"This isn't a step change in regulation which is going to knock the crypto craze on the head, but it is part of a growing trend of regulatory intervention in crypto markets," Khalaf said, referring to the FCA's restrictions on Binance.
"The idea that policy makers are simply going to allow a decentralised shadow payments system to emerge without any regulatory oversight is fantastical, and if the use of cryptoassets becomes more widespread, we can expect beefed-up regulation to follow suit."
<<<
>>> Bitcoin’s Volatility Spawns New Crypto Balance Sheet Alternative
Bloomberg
By Olga Kharif
May 29, 2021
https://www.bloomberg.com/news/articles/2021-05-29/bitcoin-s-volatility-spawns-new-crypto-balance-sheet-alternative
Circle to offer USDC stablecoin accounts paying interest
Firm is betting treasurers will next look at stablecoins
Corporate treasurers fed up with rock-bottom returns on their cash are about to get another pitch from the world of crypto.
Circle Internet Financial Ltd., one of the digital-asset firms behind the so-called stablecoin dubbed USDC that is pegged 1-to-1 to the dollar, has cooked up an alternative for the legions too conservative to follow the likes of Elon Musk and Jack Dorsey into Bitcoin. Park your extra cash in USDC and earn as much as 7% annually through high-yield accounts, the marketing says -- more than 10 times the return on an ultra-safe 1-year Treasury bill.
The idea may be appealing to some treasurers who were initially seduced by the big gains in crypto, especially following Bitcoin’s roughly 40% decline since mid-April. Stablecoins such as USDC are gaining increased attention because of their ability to maintain their pegs during the wild crypto price swings, suggesting they could actually serve as a store of value. Even so, not all long-term digital market observers are convinced.
“If companies wish to put their corporate reserves into a stablecoin and that is fully audited, it is like putting their money in a bank account which is what they normally do,” John Griffin, professor of finance at the University of Texas at Austin, said in an email. “However, if the account is paying out a higher yield than bank account yields, then it is not merely invested in some risk-free asset.”
Here’s how Circle’s program will work: Treasurers would open a “digital-dollar account” where the company’s fiat money is converted into USDC and interest is paid out in USDC. The yield is generated by Circle lending the digital dollars to a network of institutional investors that are willing to pay an interest rate for access to additional capital.
The companies would lock in their return when the account is opened, similar to a bank certificate of deposit. Circle plans to offer accounts with maturities ranging from one month to a year, with no early withdrawals allowed. Rates available will be updated on a weekly basis, depending on demand for USDC loans.
That’s a bit tamer than the strategy first highlighted last year by MicroStrategy Inc. Chief Executive Officer Michael Saylor, who advocated pouring company reserves into Bitcoin because he said the dollar is being debased by surging inflation. Musk’s February announcement that Tesla Inc. had added Bitcoin to its balance sheet helped fuel the rally that took the largest cryptocurrency to a record in April before it lost more than one-third of its value.
“Corporate reserves are not for investing in stocks, going to Vegas, or something more volatile and more rigged against you like Bitcoin,” Griffin said.
With few companies outside the crypto realm following MicroStrategy, Tesla and Dorsey’s Square Inc. into Bitcoin, Circle hopes that stablecoins may be the next logical step. The company is working with Genesis Global Capital, one of the largest crypto lenders.
The service will be first made available in the U.S. and Switzerland, and will launch “imminently,” Jeremy Allaire, Circle’s CEO, said in an interview. Thousands of businesses are already on the waiting list, according to Circle.
“We are seeing the opportunity for the treasury use-case grow a lot,” Allaire said.
Other providers of stablecoins are rolling out similar offerings. On May 26, Gemini exchange -- the brainchild of the Winklevoss brothers -- said investors can earn up to 7.4% annually on Gemini dollars through a program called Gemini Earn. The Gemini token is also pegged to the dollar and its reserves are held with State Street Bank and Trust, the largest financial custodian in the world. Each month, the dollar deposit balance is examined by BPM LLP, an independent registered public accounting firm.
USDC reserves are attested to monthly by accounting firm Grant Thornton LLP and published online.
Various small crypto lenders already offer yield accounts for different coins, including less regulated stablecoins like Tether.
For these products, “appropriate users would be people who invest in junk bonds or similar risky lending,” said Aaron Brown, a crypto investor and writer for Bloomberg Opinion. “It might offer a better risk-adjusted return than alternatives. . . or not. But whatever it is, it’s not a savings account in the way most people understand that term.”
<<<
>>> 'Britcoin': Central bank digital currencies explained
Yahoo Finance
Lucy Harley-McKeown
April 22, 2021
https://uk.finance.yahoo.com/news/britcoin-central-bank-digital-currency-explainer-pound-bitcoin-cryptocurrency
The buzz surrounding a potential central bank-backed digital currency grew louder this week, as the Bank of England and Treasury announced they would launch a taskforce to look into a potential digital pound.
Dubbed "Britcoin" by the press, the BoE said any UK digital currency would be a new form of digital money that could be used by both households and businesses. It would exist alongside cash and bank deposits, rather than replacing them. Both the BoE and Treasury stressed they were simply exploring the idea and are not committed to launching "Britcoin".
Interest in central bank digital currencies — often abbreviated to just CBDC – has evolved from the growth of decentralised digital currencies such as bitcoin (BTC-USD) and ethereum (ETH-USD), which have taken markets by storm.
Dutch bank ING said discussions of national digital currencies began with the emergence of bitcoin but were "mostly academic" until Facebook's decision to launch its own digital currency in 2019.
"All of a sudden, the prospect of a private stablecoin crowding out fiat currencies and pushing central banks into irrelevance turned into a real possibility, given Facebook’s vast global user base," Teunis Brosens, ING's head economist for digital finance and regulation, wrote in a research note.
What is Central Bank Digital Currency (CBDC) and how does it work?
Like other forms of cryptocurrency, CBDCs are a form of virtual money that uses an electronic record or digital token to represent cash. It is issued and regulated by a country’s monetary authority, which in the UK is the Bank of England. This is a key difference to cryptos like bitcoin, which are decentralised and unregulated.
Retail CBDC can be directly held by citizens and businesses. This is a step change from the current system where money is held at a bank. Instead of going to a cash machine to withdraw money from, say, Barclays, your money would instead be held directly on your mobile phone.
Interbank or wholesale CBDC is restricted to use by financial institutions like banks. It is used for big ticket bank-to-bank transfers and financial settlement processes.
CBDCs represent a new frontier for central bank stimulus, potentially acting as a conduit for policies such as stimulus checks, emergency loans, and UBI (universal basic income). Central banks could induce more powerful, directed "money drops" to stimulate the economy rather than tinkering with interest rates.
Which countries are looking at CBDCs and why?
According to PwC, retail CBDC projects appear to be more advanced in emerging economies.
China, Cambodia and The Bahamas are leading the pack, although the UK, Europe and the USA have all expressed an interest in developing their own CBDC.
Financial inclusion is often stated as a motivation, given that CBDC users do not need to be part of the banking ecosystem. With traditional money, people must have a bank account and a debit or credit card. With CBDCs, all they need is a phone.
READ MORE: Bank of England and UK Treasury explore 'digital pound'
PwC found that more than 60 central banks around the world have entered the central bank digital currency race since 2014, with 88% of the ongoing projects using blockchain as the underlying technology.
"As cryptocurrency investors ride a wave of speculation, the government will be keen to distance itself from what is still seen as the wild west of the payments world," said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.
"However, officials clearly believe they can’t ignore the surge of interest in digital currencies, as a means of faster and more efficient money transfers, particularly internationally."
Streeter said there was a do or die environment in the adoption of digital currency. Not developing a policy could mean more power falls into the hands of big tech companies as consumers drift further towards crypto.
Which country might be first to launch?
China is close to becoming the first major economy to launch a digital currency. Pilots began regionally last year and there are rumours of a national launch in 2022.
The Bahamas has also been tipped by PwC's CBDC global index as a frontrunner in the race, followed closely by Cambodia.
No wholesale CBDC projects have launched yet but nearly 70% are running pilots. Only 23% of retail projects have reached this stage.
Two projects are currently live and piloting: the Sand Dollar in the Bahamas and project Bakong in Cambodia.
The UK's taskforce has made clear that its project is in early stages. The European Central bank has said any possible "digital euro" will take several years.
Pros and cons
Many backers of digital currencies say banking this way is more efficient. Instead of relying on intermediaries such as commercial banks, money can be transferred directly to the recipient and payments can be made in real time.
There is also an argument that CBDC helps prevent illicit or fraudulent activity. CBDCs make it easier for central banks to keep track of the exact location of a unit of currency. Cash, meanwhile, can be laundered or 'lost' more easily.
Potential drawbacks include the invasion of privacy associated with this sort of surveillance. Governments could obtain access to private individual spending data, for example.
Another fear is that CBDCs could herald the onset of a fully cashless society, which could harm poor, rural, and elderly communities who largely rely on cash.
Central banks are also unsure of what the monetary policy implications would be of a fully cashless society. For example, if people can transfer money instantly and with zero friction, would bank runs be more common? Would commercial banks even still exist? And how powerful — or not — would interest rate adjustments become?
Questions like these are why governments around the world — particularly in major economies — are taking it slow when it comes to CBDCs.
<<<
>>> UK can lead the world on crypto regulation if it acts fast
by Oscar Williams-Grut
Yahoo Finance UK
May 24, 2021
https://finance.yahoo.com/news/thecityuk-cryptocurrency-regulation-stablecoins-cbdc-uk-britain-213034772.html
Britain can set the standard for cryptocurrency regulation if it acts fast, lawmakers have been told.
TheCityUK, the lobbying group for Britain's financial services sector, has published a white paper calling on Britain to put in place tailored regulation for the cryptocurrency sector. The paper said Britain could influence global policy by setting the standard for regulating crypto and take advantage of the booming sector by luring businesses with the certainty of rules.
"There is a fierce global race underway to see which applications of DLT [distributed ledger technology] and cryptoassets will win out, and who will grab the biggest slice of the value they promise," said Miles Celic, chief executive of TheCityUK. "The ultimate winner is for markets to decide, but government and regulators have an important part to play.
"They must set safe and robust rules for this burgeoning sector – while ensuring they don’t inadvertently squash good ideas before they can mature and flourish."
Read more: 'Britcoin': Central bank digital currencies explained
TheCityUK want regulators to draw up custom rules for the sector that take into account the different use cases and features of crypto technology. Some features — such as blockchain record keeping — don't need regulation at all, the group argues.
The call for regulation comes amid a renewed global boom for cryptocurrencies. The market has quadrupled in value to $1.5tn since last October as institutional investors like Tesla (TSLA) and Square (SQ) have ploughed money into bitcoin alongside amateur investors. Goldman Sachs (GS) said this week that cryptocurrencies should be treated as a new type of asset class.
"The UK has a great track record in supporting innovation with regulation," Celic said. "Its regulatory FinTech sandboxes, for example, have been copied around the world. Now we need to show similar vision and nimbleness in our regulatory approach to cryptoassets.”
TheCityUK said the UK should also capitalise on the "valuable opportunities" presented by central bank-backed digital currencies. Earlier this year UK chancellor Rishi Sunak said Britain was exploring a possible digital pound issued by the Bank of England — a project dubbed "Britcoin" in the press.
<<<
>>> Death by 1,000 Cuts
BY JAMES RICKARDS
MAY 24, 2021
https://dailyreckoning.com/death-by-1000-cuts/
Death by 1,000 Cuts
If you like roller coaster rides, then you should love Bitcoin. Bitcoin investors have been on a stomach-churning ride for the past few months.
Bitcoin traded at $33,537 on February 1 before really taking off. By mid-April, it topped out at around $64,829 before sliding down.
Last Wednesday, Bitcoin suffered a single-day collapse of 30%. Then, yesterday afternoon, Bitcoin plunged sharply to $31,227, over a 50% decline since its April high.
“Never fear!” say the Bitcoin cheerleaders. Bitcoin has had many drops of that magnitude or even greater in recent years and has bounced back to new highs every time.
That’s true. So, it’s too soon to talk about the demise of Bitcoin based on a few bad weeks of price action. And it did bounce back today to over $39,000.
Why? I can’t give you a good answer. It’s just part of the ongoing roller coaster ride that is Bitcoin.
The true believers (called HODLers), who hold onto their Bitcoin through thick and thin are still around. They have been rewarded for their tenacity every time, and they believe this time will be no different.
But, Bitcoin faces many challenges.
Bitcoin Mining Is Destroying the Planet!
First off, Bitcoin is a major generator of CO2 emissions because of the energy used in mining. Now, I don’t consider that some great environmental threat because CO2 is a harmless trace gas that plants need to survive. There’s no real science to support the alarmist claims that it’s a threat to the climate.
But climate alarmism is rampant in policy circles so you can expect a crackdown on Bitcoin mining. The largest amount of Bitcoin mining takes place in China, and news out today says China will likely ban all Bitcoin mining soon.
China has also recently banned Bitcoin payments (I’m sure China is far more concerned about Bitcoin’s challenge to the digital yuan it’s preparing to launch than it is about the environment).
Incidentally, Turkey has also banned Bitcoin payments. However, Bitcoin’s supposed environmental challenge is not the only obstacle it faces. Here are some more:
Bitcoin is not a good store of value because of volatility. How could it be a good store of value when it gains or loses 15-20% in a single day?
Also, Bitcoin is not a good medium of exchange because it’s slow, clunky and expensive to transact. It has little real-world use, aside from setting illegal transactions on the black market and supporting terrorism.
But none of this means anything to the Bitcoin groupies. Any swoon is just another opportunity to “buy the dip.” It’s been a successful strategy, to be sure. But it works until it doesn’t.
Bitcoin crashed from $20,000 in 2017 all the way to $3,300 by December 2018 — an 83.5% collapse in one year and the greatest recorded asset price collapse in history, even surpassing the Tulipmania of 1637.
Yes, Bitcoin came back. But it took a long time, and many people got crushed. If you bought at the bottom in December 2018, congratulations. But that’s some dip.
It’s a safe bet that Bitcoin is going to crash again.
Based Almost Entirely on Fraud
As I‘ve explained before, the Bitcoin bubble is based almost entirely on fraud. Therefore, when this bubble bursts, the damage may be so great that the value of Bitcoin could fall to $10,000 or lower. It could even disappear entirely.
Here’s a reminder of how the fraud works, as described in a recent legal notice from the New York State Attorney General…
A company called Bitfinex sponsors a cryptocurrency called Tether. This crypto is a so-called “stablecoin.” This means that the value of one Tether is fixed at $1.00.
When you buy a Tether for $1.00, the money is supposedly held in safe liquid assets. When you cash in your Tether, you should receive $1.00 in return (less small transaction costs).
The problem is that no one has been able to reliably locate the liquid assets that supposedly back Tether. There has been no genuine audit, and there is no transparency about the whereabouts or composition of the liquid assets backing the coin.
Bitfinex and Tether paid an $18.5 million fine and pledged to provide quarterly breakdowns of its reserves.
Shady Auditing
Less than two weeks ago, Tether released the composition of its reserves for the first time in order to comply with the settlement.
Tether claims that its reserves are in cash, cash equivalents or other short-term deposits. The rest are in secured loans, corporate bonds and other investments.
But as Coindesk notes, “the first category is mostly made up of commercial paper, a form of corporate debt that can be easily converted to cash – or not, depending on the issuer and market conditions.”
The information Tether provided failed to mention any independent review by an accounting firm. So, the information Tether provided about its reserves really doesn’t resolve much.
Tether has claimed that its dollar reserves are held in a Bahamian bank named Deltec Bank & Trust. But independent research revealed that the assets claimed by Tether exceed the total U.S. dollar assets of the entire Bahamian banking system.
Other research has shown that those who buy Tether use them overwhelmingly to buy Bitcoin from unregulated crypto-exchanges based in Africa and Asia. These exchanges offer leverage and often award “free” Tether coins for those who bring in new customers.
Contagion
These Tethers have been used to bid up the price of Bitcoin and create a bubble.
If this process were to reverse, which it inevitably will, the Bitcoin values would collapse quickly (because of leverage), and Tether would be unable to redeem retreating Bitcoin investors (because of the unaccounted-for liquid assets).
Tether would walk away with dollars. The prices of Bitcoin and Tether would collapse catastrophically. And the Bitcoin “investors” would walk away empty-handed.
This is not just a spectator sport for prudent investors.
The types of losses arising from a Bitcoin collapse would easily spill over into the brokerages and banks handling the accounts of investors who would be eager to sell everything because they’d be desperate to raise cash and avoid further losses.
Because the shady Bitcoin and Tether exchanges are unregulated, there is perhaps little that can be done to avoid this coming fiasco.
If that’s not enough, now there’s a new threat on the Bitcoin horizon.
The IRS Closes In
The Biden administration is working on major new tax legislation to go along with its multi-trillion deficit spending plans.
Part of this new legislation is an appropriation of $80 billion for IRS tax enforcement, including the hiring of thousands of new IRS agents to conduct audits and spot tax evasion.
Buried in the specifics of that proposal is a new regulation that would require reporting to the IRS of all transactions in Bitcoin over $10,000.
Such regulations already exist if you withdraw or deposit cash from a bank. But now they’ll apply to Bitcoin.
One by one, central banks and tax authorities around the world are zeroing in on Bitcoin in an effort to tax it, regulate it or ban it outright.
This effort will take time. But the efforts of countries around the world may do more to limit the appeal of Bitcoin than all the memes and narratives supporting it, combined.
I would advise you to stay far away from Bitcoin. Sadly, some people never learn. And many will probably get burned all over again.
Investors should at least be alert to the potential collapse by increasing their cash allocations to help weather the storm.
And of course, they should buy gold, which has a proven track record going back thousands of years.
The fanboys can’t say the same for Bitcoin.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Bitcoin is officially a new asset class: Goldman Sachs
Yahoo Finance
Brian Sozzi
Mon, May 24, 2021
https://finance.yahoo.com/news/bitcoin-is-officially-a-new-asset-class-goldman-sachs-103540636.html
It's time to take bitcoin way more seriously as an investable asset, says Goldman Sachs.
"Bitcoin is now considered an investable asset. It has its own idiosyncratic risk, partly because it’s still relatively new and going through an adoption phase," said Mathew McDermott, Goldman Sachs' global head of digital assets, in a new piece of research. "And it doesn’t behave as one would intuitively expect relative to other assets given the analogy to digital gold; to date, it’s tended to be more aligned with risk-on assets. But clients and beyond are largely treating it as a new asset class, which is notable—it’s not often that we get to witness the emergence of a new asset class."
Despite Goldman's rubber stamp of approval on bitcoin (BTC-USD) and other cryptocurrencies have traded anything like a typical stock of a credible company or bond in May. In truth, if bitcoin is to be considered a new asset class it has a lot in common with one area in the stock market: often very volatile penny stocks that see wild gyrations on the tiniest bit of news.
Bitcoin prices continued to be under massive pressure on Sunday, plunging more than 15% by afternoon trading. At $32,652, bitcoin prices have crashed about 50% from their mid-April peak of $64,829. Ether nosedived another 18% on Sunday, bringing it's drop from an all-time high this month to roughly 60%. Early Monday morning, crypto recovered slightly.
'A key concern is inconsistent regulatory actions'
The serious price correction in cryptos come amid a groundswell of negative news mostly from government officials worldwide.
Authorities in China said last Friday that it would be necessary to crack down on bitcoin mining and trading behavior to limit investment risks.
Meanwhile, Federal Reserve Chairman Jerome Powell said in a presentation last week the governing body would continue its work on a digital dollar. Any digital dollar would likely weigh on the bullish sentiment for bitcoin and other cryptos.
“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” Powell said. “Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation.”
Goldman's McDermott acknowledges regulation of the crypto space looms large as a significant risk to further price appreciation.
"A key concern is inconsistent regulatory actions around the globe that impede the further development of the crypto space, or the ability of more regulated entities to engage within it. It feels like the regulatory tone has turned more constructive, but I certainly wouldn’t want to be complacent," McDermott said.
Even in the face of such risk, McDermott said institutional clients remain keen on adding some form of crypto exposure to portfolios.
"As a whole, discussions with institutional clients revolve around how they can learn more on the topic and get access to the space—as opposed to questions around what bitcoin or cryptocurrencies are—which was really the main topic just a few years ago. But beyond that, asset managers and macro funds are interested in whether or not crypto fits into their portfolios, and if it does, how to get access to either the physical—by trading the spot instrument on a blockchain— or exposure through other types of products, typically futures," McDermott explained. "Hedge funds, perhaps unsurprisingly, are more active in this space, and are particularly interested in profiting from the structural liquidity play inherent in the market—earning the basis between going long either the physical or an instrument that provides access on a spot basis to the underlying asset and shorting the future."
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>>> U.S. regulators signal stronger risk, tax oversight for cryptocurrencies
Reuters
by Howard Schneider and David Lawder
May 20, 2021
https://finance.yahoo.com/news/fed-citing-crypto-risk-open-180231257.html
WASHINGTON (Reuters) - U.S. Federal Reserve chief Jerome Powell turned up the heat on cryptocurrencies on Thursday, saying they pose risks to financial stability, and indicating that greater regulation of the increasingly popular electronic currency may be warranted.
The Treasury Department, meanwhile, flagged its concerns that wealthy individuals could use the largely unregulated sector to avoid tax and said it wanted big crypto asset transfers reported to authorities.
The back-to-back announcements came in a week when Bitcoin, the most popular cryptocurrency, took a wild ride, falling as much as 30% on Wednesday after China announced new curbs on the sector, underscoring the volatility of the sector.
Powell underlined cryptocurrency risks in an unusual video message that also laid out a clearer timetable as the Fed explores the possibility of adopting a digital currency of its own.
https://www.federalreserve.gov/newsevents/pressreleases/other20210520b.htm
While highlighting the potential benefits of advances in financial technology, Powell said cryptocurrencies, stablecoins and other innovations "may also carry potential risks to those users and to the broader financial system."
As the technology advanced, "so must our attention to the appropriate regulatory and oversight framework. This includes paying attention to private-sector payments innovators who are currently not within the traditional regulatory arrangements applied to banks, investment firms, and other financial intermediaries."
Powell's comments signaled how seriously the Fed has been forced to reckon with the surge in popularity and market values of non-traditional currency options such as Bitcoin, especially as it looks at developing a digital version of the U.S. dollar, the world's reserve currency.
SPECULATIVE ASSETS
The Fed and Treasury consider cryptocurrencies, which now have a market capitalization of about $2 trillion, to be more like art, gold or other highly speculative assets.
A central bank digital currency, though, offers whoever holds it - a person, a business, even another government - a direct claim on that central bank, which is exactly what holding a paper dollar bill does now.
Powell said the Fed would release a discussion paper this summer on digital payments, with a focus on the benefits and risks of establishing a central bank digital currency, and will also seek public comment.
He noted that "to date, cryptocurrencies have not served as a convenient way to make payments, given, among other factors, their swings in value."
The Treasury also flagged cryptocurrency risks, including opportunities for wealthy individuals to move taxable assets into the largely unregulated crypto sector.
"Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion," the Treasury said.
Its proposal, disclosed as part of a policy report detailing the Biden administration's $80 billion IRS enforcement proposal to boost revenue collection, would provide additional resources for the IRS to address crypto assets,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-Tax-Compliance-Agenda.pdf
In addition to the reports of $10,000-plus cryptocurrency transfers that would parallel bank reports of similarly sized cash transfers, the Treasury also proposed that crypto asset exchanges and custodians also report transactions to the IRS related to bank interest, dividend and brokerage transactions.
The reporting requirements, depending on how they are structured, could also allow the government to gain insight about U.S. companies that are extorted to pay hackers ransoms, almost invariably in cryptocurrency, to regain control of their IT systems.
Law enforcement and private sector cybersecurity experts alike have complained that a lack of transparency around these ransomware incidents contributes to their continued occurrence.
The Treasury disclosure took the wind out of a rally in the dollar value of Bitcoin on Thursday that followed steep plunges for Bitcoin and etherium on Wednesday. Bitcoin was up 8.7% in afternoon trade after an earlier gain of 10%.
CAUTIOUS APPROACH
While the Fed and some other developed economies are still conducting research on what a central bank digital currency would look like, China is moving ahead at a fast clip and is currently piloting a digital version of the yuan, with plans to ramp up usage before the 2022 Winter Olympics in Beijing.
Powell said last month that the Fed would not rush its efforts in response to China’s more aggressive pace, noting that the approach taken there would not work in the United States.
"It is far more important to get it right than it is to do it fast," Powell said after the April policy setting meeting.
The Boston Fed is currently working with the Massachusetts Institute of Technology to research the technology that could be used for a central bank digital currency and will be releasing those findings in the third quarter.
Congressional action would be required before a digital currency could be developed.
Also on Thursday, U.S. Securities and Exchange Commission Chair Gary Gensler said he would like to see more regulation around cryptocurrency exchanges, including those that solely trade bitcoin and do not currently have to register with his agency.
"This is a quite volatile, one might say highly volatile, asset class, and the investing public would benefit from more investor protection on the crypto exchanges," he said at the Financial Industry Regulatory Authority's annual conference.
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>>> U.S. Treasury calls for stricter cryptocurrency compliance with IRS, says they pose tax evasion risk
CNBC
MAY 20 2021
Thomas Franck
https://www.cnbc.com/2021/05/20/us-treasury-calls-for-stricter-cryptocurrency-compliance-with-irs.html
Investors have seen the value of bitcoin slide about 25% over the past month and talk of capitulation creep into online forums.
Treasury announces new crypto tax reporting requirements
The Treasury Department on Thursday announced that it is taking steps to crack down on cryptocurrency markets and transactions, and said it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service.
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury said in a release.
“This is why the President’s proposal includes additional resources for the IRS to address the growth of cryptoassets,” the department added. “Within the context of the new financial account reporting regime, cryptocurrencies and cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies would be covered. Further, as with cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on.”
Bitcoin reversed course shortly after the Treasury’s announcement and was last seen trading up 0.6%, according to Coin Metrics. Previously in the session, it was up more than 9%.
A growing number of Wall Street analysts have over the past month sounded the alarm that regulators at the Treasury and the Securities and Exchange Commission could soon take a more active role in cryptocurrency regulation.
The Treasury Department’s release came as part of a broader announcement on the Biden administration’s efforts to crack down on tax evasion and promote better compliance. Among proposals officials are considering are bolstered IRS funding and technology, and more severe penalties for those who evade their obligations.
According to the Treasury’s estimates, the difference between taxes owed to the U.S. government and those actually paid totaled nearly $600 billion in 2019.
Increased regulation will likely upset some cryptocurrency investors, who have seen the value of bitcoin slide about 25% over the past month and talk of capitulation creep into online forums.
With longtime cryptocurrency expert Gary Gensler at the head of the SEC, Raymond James expects it’s only a matter of time until Congress grants the regulator broader jurisdiction.
He told lawmakers earlier this month that allowing the SEC to regulate cryptocurrency exchanges will help ensure investors are protected and prevent market manipulation.
“Chairman Gensler is viewed as a potential ally for cryptocurrencies as a former professor on the topic; however, these statements are likely to revisit debates regarding the regulatory risk to cryptocurrencies and exchanges,” Raymond James analyst Ed Mills wrote earlier in May.
“In the short-term, this could cause headline risk,” he added. “However, in the medium-to-long term, regulation would add further legitimacy to the asset class and could provide a regulatory moat around existing cryptocurrency exchanges.”
While involvement by the Treasury Department and the SEC may ultimately prove a boon for cryptocurrency investors, any near-term regulatory hurdles will likely come as another bother for investors in bitcoin, dogecoin and the like.
Those sentiments were echoed by Miller Tabak last month, when the firm told clients that “cryptocurrency markets are not properly considering legal risk.”
“Confirmation of Gary Gensler as SEC Chairman, and cryptocurrency volatility over the weekend following rumors of tighter regulation, highlight the regulatory risks facing this industry,” strategic economist Paul Shea wrote in April.
“The difference in regulatory risk and progress as a means of payment raises an important question: are other coins’ recent success due to good news about them or are they piggybacking on positive sentiment related to bitcoin?” he added.
Democrats and Republicans alike have made cryptocurrency regulation a top priority in 2021 as run-ups in the price of bitcoin and other digital assets last year sparked concerns of market manipulation and uninformed retail investments.
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>>> Bitcoin: National Security Threat?
BY JAMES RICKARDS
MAY 5, 2021
https://dailyreckoning.com/bitcoin-national-security-threat/
Bitcoin: National Security Threat?
After Bitcoin crashed from $20,000 to $3,400 in 2018, many observers decided the craze was over, and Bitcoin would slowly decline in price and fade into obscurity. But reports of the death of Bitcoin were premature.
In 2021, a new mania took hold, and the price surged to $60,000 before backing off a bit. Today it’s trading at about $56,871 (Bitcoin is so volatile, it could change by the time you read this).
But the price of bitcoin has not simply gone up. Now, millions of first-time users, mostly millennials and Generation Z, have joined the bandwagon.
Very few observers really understand the technology behind Bitcoin (including millions of the new buyers), but this seems irrelevant to most. They are true believers, akin to a cult or tribe.
The buyers believe one thing only — that the price of Bitcoin will continue to go up.
Buying it at any price is like buying a ticket for free money because, despite the occasional dip, the price has nowhere to go but up. If you think this sounds like the definition of a mania-induced bubble, you’re right. It is a bubble.
The Bitcoin price pattern displays the greatest bubble behavior in history, greater even than the Tulipomania in the Netherlands in the early seventeenth century.
The Higher They Rise…
You don’t need a Ph.D. in finance to see that Bitcoin is a bubble. Price increases over the past six months have been hyperbolic, almost vertical. The Japanese Nikkei Index in late 1989 and the NASDAQ Composite until March 2000 displayed exactly the same pattern.
Of course, The Nikkei crashed over 80% beginning in 1989 and has still not recovered its old high after 32 years. The NASDAQ crashed over 75% beginning in 2000 and did not recover its old high until April 2015, a 15-year recovery.
Bitcoin is positioned for the same kind of fall.
Based on the Nikkei and NASDAQ crashes described above, Bitcoin could fall from $60,000 to $10,000 or lower before establishing a new base. Still, there is one important difference between the Nikkei and NASDAQ bubbles and the new Bitcoin bubble.
The Nikkei and NASDAQ bubbles were based on a combination of investor mania, leverage, and hyped-up earnings releases from companies in the index. But there was relatively little outright fraud.
In contrast, the Bitcoin bubble is based almost entirely on fraud. There is substantial evidence that the price of Bitcoin is based on a Ponzi.
Charles Ponzi Would Be Jealous
Over 50% of Bitcoin purchases are made with another crypto-currency called Tether, a so-called stablecoin. Tether has never accounted for the billions of dollars that buyers have used to acquire Tether.
Hard currencies such as dollars go into Tether, which is used to pump Bitcoin, while the dollars are possibly skimmed away. That process does not work in reverse.
There has been no full audit or transparency about the whereabouts or composition of the liquid assets backing the coin. Tether claims that its dollar reserves are held in a Bahamian bank named Deltec Bank & Trust.
But independent research revealed that the assets claimed by Tether exceed the total U.S. dollar assets of the entire Bahamian banking system.
Other research shows that those who buy Tether use them overwhelmingly to buy Bitcoin from unregulated crypto-exchanges domiciled in Africa and Asia. Of course, these exchanges exist in cyberspace only and are accessed through the internet.
These exchanges offer leverage and award free Tether coins for those who bring in new customers. These Tethers have been used to bid up the price of Bitcoin and create the bubble. Meanwhile, the dollars supposedly backing Tether are unaccounted for.
Aside from fraud, the list of objections to Bitcoin is long.
What’s the Case for Bitcoin?
Mining bitcoin requires the use of an enormous amount of electricity. This adds to CO2 emissions since most of the mining is done in China (which uses mostly coal-fired generators).
Now, there’s no real scientific evidence that carbon dioxide is an environmental threat, but many policymakers believe it is. So, if they want to crack down on emissions, Bitcoin mining is one way to do that.
Bitcoin payments are also slow and expensive. Less expensive payment layers are available, but these destroy the anonymity that was the original selling point for Bitcoin.
It has no real use case except for money laundering and evading taxes or capital controls.
Theft is rampant as billions of dollars of Bitcoins have been stolen or simply disappeared as exchanges have collapsed. Billions more have been lost when Bitcoin holders lose their encryption keys and cannot access their accounts.
Bitcoin has no utility because it is deflationary by design and therefore unsuitable for use in bond markets, which is the key to reserve currency status. And so on.
Bitcoin has no return other than higher prices based on the greater fool theory. You can make money in Bitcoin at any purchase price as long as there’s a greater fool willing to pay an even higher price.
That system works until it doesn’t.
Bitcoin is a wealth transfer device but not a wealth creation device. Bill Gates is worth $100 billion because he created trillions of dollars in value through his Microsoft programs and operating systems. Bitcoin is a zero-sum game where one player takes money from another, but no new wealth is created.
None of this has slowed the widespread adoption of Bitcoin as a store of value, despite enormous volatility that cuts against that very function. Now, Bitcoin may face a more formidable challenge that will actually curtail its growth and possibly pop the bubble…
Is Bitcoin a National Security Threat?
Increasingly, Bitcoin is considered a threat to U.S. national security. The reasons for this include Chinese dominance of Bitcoin mining, financial instability that could result when the bubble bursts, and damage to the U.S. dollar’s role as the principal reserve currency if billions of users around the world simply abandon dollars for Bitcoin.
Along with national security threats comes a long list of draconian statutory powers that the president can use to curtail the threat, including a ban on Bitcoin usage and a prohibition on clearance of transactions by payments processors who also handle U.S. dollar payments.
This is not an abstract threat.
A reaction to Bitcoin on national security grounds may be coming sooner than many expect. But that doesn’t mean it’s going to collapse tomorrow. Still, when it does come, it could happen rapidly.
What goes up fast often comes down fast.
Investors can prepare by increasing their allocations to cash so they can weather the financial fallout when the death of Bitcoin actually does arrive.
And, of course, gold. Gold has endured for thousands of years. Will Bitcoin be able to make the same claim?
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Digital Yuan Gives China a New Tool to Strike Back at Critics
Bloomberg News
April 20, 2021
https://www.bloomberg.com/news/articles/2021-04-20/digital-yuan-gives-china-a-new-tool-to-strike-back-at-critics?srnd=premium
Beijing could have clear picture of financial transactions
‘That currency can be turned off like a light switch’
Even as China grows in economic and military power, perhaps nothing reveals Beijing’s weaknesses more than the U.S.’s control of the global financial system.
China has recently sought ways to counteract U.S. sanctions after the Trump administration targeted Chinese officials and companies over policies from the South China Sea to Xinjiang. Hong Kong’s leader can’t access a bank account and a top executive at Huawei Technologies Co. is detained in Canada. Even China’s state-run banks are complying with U.S. sanctions.
That’s one reason the Biden administration is starting to study whether China’s development of a digital currency will make it harder for the U.S. to enforce sanctions, Bloomberg reported earlier this month. The digital yuan, which could see a wider roll out at the 2022 Winter Olympics in Beijing, is also spurring the U.S. to consider creating a digital dollar.
China New Silk Road
But instead of challenging U.S. dollar dominance and neutralizing sanctions, the digital yuan appears potentially more geopolitically significant as leverage over multinational companies and governments that want access to China’s 1.4 billion consumers. Since China has the ability to monitor transactions involving the digital currency, it may be easier to retaliate against anyone who rebuffs Beijing on sensitive issues like Taiwan, Xinjiang and Hong Kong.
“If you think that the United States has a lot of power through our Treasury sanctions authorities, you ain’t seen nothing yet,” Matt Pottinger, former U.S. deputy national security adviser in the Trump administration, said last week at a hearing of the government-backed U.S.-China Economic and Security Review Commission. “That currency can be turned off like a light switch.”
So far China has mostly resisted hitting foreign firms in response to U.S. actions on companies like Huawei, holding off on releasing an “unreliable entity list” designed to punish anyone who damages national security. Any move to cut off access to the digital yuan would carry similarly high stakes, potentially prompting foreign investors to pack up and leave.
But Beijing has gone after companies like Hennes & Mauritz AB for statements on human-rights issues, even while government officials have been careful to avoid directly endorsing a boycott. In a Weibo post last month, the Communist Party Youth League declared: “Want to make money in China while spreading false rumors and boycotting Xinjiang cotton? Wishful thinking!”
READ MORE ABOUT CHINA’S DIGITAL YUAN:
How China Is Closing In on Its Own Digital Currency: QuickTake
Biden Team Eyes Potential Threat From China’s Digital Yuan
China Digital Yuan Will Co-Exist With Alipay, WeChat, PBOC Says
China Says It Has No Desire to Replace Dollar With Digital Yuan
A Digital Currency to Fight Data Overlords: Andy Mukherjee
Controlling access to China’s massive market remains the best way for Beijing to hit back at the U.S.: As long as Chinese companies still want access to the broader financial world dominated by the U.S. and its allies, Washington can effectively wield sanctions against nearly anyone who doesn’t operate exclusively in China’s orbit. And Beijing has little incentive to shun the dollar.
While President Xi Jinping has called for greater self-sufficiency in key technologies like advanced computer chips, a financial decoupling from the U.S. would only hurt China’s economy and potentially leave the Communist Party more exposed to destabilizing attacks. After Xi effectively ended Hong Kong’s autonomy last year with a sweeping national security law, the U.S. refrained from cutting off the territory’s ability to access U.S. dollars due to the potential devastation to the global financial system.
‘Great Commercial Risk’
Widespread use of the digital yuan -- also known as the e-CNY -- could potentially give China’s central bank more data on financial transactions than the big tech giants, allowing the Communist Party to both strengthen its grip on power and fine-tune policies to bolster the economy. While that level of control may boost growth in the world’s second-biggest economy, it also risks spooking companies and governments already wary of China’s track record on intellectual property rights, economic coercion and rule of law.
China’s state-endorsed boycott of H&M shows “great commercial risk” for companies that use the digital yuan, Yaya Fanusie, adjunct senior fellow at the Center for a New American Security in Washington, told the U.S.-China Economic and Security Review Commission hearing. If foreign merchants had to use the e-CNY, he said in a separate email, the government could prohibit transactions with H&M wallets and the store could disappear from digital yuan apps.
“This is the other side of the coin -- Beijing not as a sanctions evader, but more empowered to enforce its own financial muscle,” said Fanusie, who has written extensively on how central bank digital assets may impact U.S. financial sanctions. “China’s digital currency is as much about data as it is about money,” he added. Foreign firms that use the digital yuan “might end up handing over to the Chinese government lots of real-time data that it could not access efficiently through conventional banking technology.”
China’s ability to see every transaction may make it difficult for foreign banks to use the digital yuan and still comply with confidentiality rules in their home countries, according to Emily Jin, a research assistant at the Center for a New American Security. But, she added, the currency might appeal to some regimes that prioritize control over privacy protection.
Limited Role
Yuan's share of foreign exchange reserves tiny compared to size of economy
“They might find it easier to convince governments more authoritarian in their leaning that it helps monitor elicit activities or stop them quickly or stop them before they happen,” Jin said. “They aren’t going to market it to everyone.”
The digital yuan would serve as a back-up to Ant Group Co.’s Alipay and Tencent Holdings Ltd.’s WeChat Pay, which together make up 98% of the mobile-payments market, according to Mu Changchun, director of the central bank’s Digital Currency Research Institute. Last month he said the electronic yuan has the “highest level of privacy protection” and the central bank wouldn’t directly know the identity of users, but the government could get that information from financial institutions in cases of suspected illegal activity.
Dollar Challenge
Chinese policy makers have also repeatedly emphasized that the digital yuan isn’t meant to challenge the dollar, with People’s Bank of China Deputy Governor Li Bo saying last weekend the motivation for the e-CNY is primarily for domestic use. The Chinese currency now makes up about 2% of global foreign exchange reserves compared with nearly 60% for the U.S. dollar, and most of Beijing’s trade and loans in Xi’s Belt-and-Road Initiative are disbursed in dollars.
Any serious challenge to the dollar’s position as the world’s reserve currency would also require significant policy changes from China, including lifting capital controls that help the Communist Party keep a lid on sudden outflows that could trigger a financial crisis. Even if the digital yuan could be transacted more cheaply outside of U.S.-controlled global payment systems, it’s unclear if anyone would use it.
“The dollar is not the dominant reserve currency because the Americans say it must be,” said Michael Pettis, finance professor at Peking University and senior fellow at the Carnegie-Tsinghua Center in Beijing. “The dollar is the dominant reserve currency because the Chinese, the Europeans, the Japanese, the South Koreans etc. say it must be. It’s the rest of the world that imposes that because they think its the safest place to park money.”
Digital Ambitions
Central banks are at varying stages of developing digital currencies
The U.S. still has an incentive to set standards for digital currencies. In a survey last year of 65 central banks representing 91% of global economic output, the Bank of International Settlements found more than half were experimenting with digital currencies and 14% were moving forward to pilots. The U.S. itself is taking a cautious approach: Federal Reserve Chair Jerome Powell said last month policy makers must understand the costs and benefits of a digital dollar, and wouldn’t rush the “very, very large, complex project.”
‘Wake Up Call’
China began research on the digital yuan back in 2014, right after the price of Bitcoin surged from $13.40 to more than $1,000, raising the risk that digital currencies could impact Beijing’s control of monetary policy. It has begun technical testing with Hong Kong for cross-border payments, and is working with Thailand and the United Arab Emirates on real-time foreign exchange settlements. Authorities are also studying how the digital yuan can be combined with 5G networks and the internet of things.
This kind of research allows China a greater say in how other countries across the globe design digital currencies, particularly when it comes to questions of surveillance, privacy and anonymity, according to Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center.
“China is really leading in this area and it should be a wake up call to the U.S. and to Europe,” Lipsky said. “There is a serious first mover advantage not because of what China will do, but what other countries are doing.”
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>>> Coinbase Hangover Rattles Crypto Assets With Bitcoin Falling
Bloomberg
By Shamim Adam and Emily Barrett
April 18, 2021
https://www.bloomberg.com/news/articles/2021-04-18/bitcoin-falls-as-much-as-15-biggest-intraday-drop-since-feb?srnd=premium
Bitcoin pared some losses after sinking as much as 15%
Other cryptos also plunged; Dogecoin resumed its advance
Bitcoin Plunges Days After Reaching Record High
The mania that drove crypto assets to records as Coinbase Global Inc. went public last week turned on itself on the weekend, sending Bitcoin tumbling the most since February.
The world’s biggest cryptocurrency plunged as much as 15% on Sunday, just days after reaching a record of $64,869. It subsequently pared some of the losses and was trading at about $56,440 at around 8:25 a.m. in Tokyo Monday.
Ether, the second-biggest token, dropped as much as 18% to below $2,000 before also paring losses. The volatility buffeted Binance Coin, XRP and Cardano too. Dogecoin -- the token started as a joke -- bucked the trend and is up 7% over 24 hours, according to CoinGecko.
The weekend carnage came after a heady period for the industry that saw the value of all coins surge past $2.25 trillion amid a frenzy of demand for all things crypto in the runup to Coinbase’s direct listing on Wednesday. The largest U.S. crypto exchange ended the week valued at $68 billion, more than the owner of the New York Stock Exchange.
Bitcoin took a dive after a heady ascent to a record
“With hindsight it was inevitable,” Galaxy Digital founder Michael Novogratz said in a tweet Sunday. “Markets got too excited around $Coin direct listing. Basis blowing out, coins like $BSV, $XRP and $DOGE pumping. All were signs that the market got too one way.”
Dogecoin, which has limited use and no fundamentals, rallied last week to be worth about $50 billion at one point before stumbling Saturday. Demand was so brisk for the token that investors trying to trade it on Robinhood crashed the site a few times Friday, the online exchange said in a blog post.
There was also speculation Sunday in several online reports that the crypto plunge was related to concerns the U.S. Treasury may crack down on money laundering carried out through digital assets. The Treasury declined to comment, and its Financial Crimes Enforcement Network (FinCEN) said in an emailed response on Sunday that it “does not comment on potential investigations, including on whether or not one exists.”
‘Price to Pay’
“The crypto world is waking up with a bit of a sore head today,” said Antoni Trenchev, co-founder of crypto lender Nexo. “Dogecoin’s 100% Friday rally was ‘peak party,’ after the Bitcoin record and Coinbase listing earlier in the week. Euphoria was in the air. And usually in the crypto world, there’s a price to pay when that happens.”
Besides the “unsubstantiated” report of a U.S. Treasury crackdown, Trenchev said factors for the declines may have included “excess leverage, Coinbase insiders dumping equity after the direct listing and a mass outage in China’s Xinjiang province hitting Bitcoin miners.”
Growing mainstream acceptance of cryptocurrencies has spurred Bitcoin’s rally, as well as lifting other tokens to record highs. Bitcoin’s most ardent proponents see it as a modern-day store of value and inflation hedge, while others fear a speculative bubble is building.
Interest in crypto went on the rise again after companies from PayPal to Square started enabling transactions in Bitcoin on their systems, and Wall Street firms like Morgan Stanley moved toward providing access to the tokens to some of the wealthiest clients.
Volatility
That’s despite lingering concerns over their volatility and usefulness as a method of payment. Moreover, governments are inspecting risks around the sector more closely as the investor base widens.
Federal Reserve Chairman Jerome Powell last week said Bitcoin “is a little bit like gold” in that it’s more a vehicle for speculation than making payments. European Central Bank President Christine Lagarde in January took aim at Bitcoin’s role in facilitating criminal activity, saying the cryptocurrency has been enabling “funny business.”
Turkey’s central bank banned the use of cryptocurrencies as a form of payment from April 30, saying the level of anonymity behind the digital tokens brings the risk of “non-recoverable” losses.
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>>> Bitcoin price drops after Turkey bans cryptocurrency payments
Yahoo Finance
by Suban Abdulla
April 16, 2021
https://finance.yahoo.com/news/bitcoin-price-turkey-cryptocurrency-ban-coinbase-ethereum-075916004.html
The value of Bitcoin (BTC) has exceeded the threshold of 64,000 dollars for the first time in history. The Cryptocurrency overtakes the British Pound to become the 6th largest currency in the world. The total bitcoin market now represents $ 1.2 trillion, while that of all cryptocurrencies stands at $ 2251 billion.
Demand for cryptocurrencies in the country has been driven up recently by inflation pressures and a weaker Turkish Lira. The country's annual inflation rose above 16% in March.
The price of bitcoin (BTC-USD) descended from record highs on Friday following a decision by Turkey's central bank to ban cryptocurrencies for payments.
The Central Bank of the Republic of Turkey (CBRT) said the use of cryptocurrencies and other crypto assets based on distributed ledger technology would be prohibited as a payment, whether directly or indirectly.
The ban will come into force from 30 April this year.
"Payment service providers will not be able to develop business models in a way that crypto assets are used directly or indirectly in the provision of payment services and electronic money issuance, and will not be able to provide any services related to such business models," CBRT said in a statement.
The CBRT said the ban was motivated by a lack of "central authority regulation" and "supervision mechanisms" for cryptocurrencies and other similar digital assets.
It said that, among other risks, cryptocurrencies "may cause non-recoverable losses for the parties to the transactions" due to the lack of regulation.
A statement from the bank added that payments could "include elements that may undermine the confidence in methods and instruments used currently in payments."
Bitcoin was down over 3% to $61,379 (£44,670) in morning trade in London.
Demand for cryptocurrencies in Turkey has been driven up recently by inflation pressures and a weaker Turkish Lira. The country's annual inflation rose above 16% in March.
Prior to the announcement, Turkish authorities had last week demanded user information from trading platforms.
Cryptocurrency prices have hit record highs in recent weeks thanks to a rise in demand.
Bitcoin, which has been up and down over the last few weeks, crossed another record high on Wednesday, touching $64,717.01.
On Thursday, Ethereum (ETH-USD) — the world's second biggest cryptocurrency — continued its multi-month rally, hitting a record high of $2,488.07. It was down nearly 2% on Friday morning.
On Wednesday, cryptocurrency exchange Coinbase became the first crypto firm to list on the Nasdaq (^IXIC).
Coinbase, the largest cryptocurrency exchange in the US, was briefly worth over $100bn when it debuted on the Nasdaq on Wednesday. Shares ended their first day of trading at $328.28, below the opening price of $381.
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>>> Coinbase shares close 14% below opening price after trading debut
Yahoo Finance
Emily McCormick
April 14, 2021
https://finance.yahoo.com/news/coinbase-direct-listing-stock-cryptocurrency-bitcoin-172655492.html
Coinbase Global (COIN) shares ended their first day of trading at $328.28 apiece, falling below their opening price of $381.
Coinbase's closing level gave the stock a fully diluted valuation of nearly $86 billion. Earlier, in the day, the stock's valuation easily exceeded $100 billion, with shares rising to as much as $429.54 in the minutes immediately following its opening trade.
The stock was given a reference price of $250 per share on the Nasdaq on Tuesday, though no shares traded hands at that price. Coinbase's direct listing differed from a traditional initial public offering in that no new shares were issued in the process, with existing shareholders instead directly selling the stock to the public.
Coinbase, the largest cryptocurrency exchange in the U.S., hit the public markets amid a record-setting rally in cryptocurrency prices and broadening adoption of digital assets. The public debut was one of the most highly anticipated in the U.S. this year, with public and institutional interest in cryptocurrencies swelling in recent months. Companies including Tesla (TSLA), Square (SQ), BNY Mellon (BNY) and PayPal (PYPL) have either added significant holdings of bitcoin to their balance sheets or begun facilitating transactions in cryptocurrencies, and legacy banks Morgan Stanley (MS) and Goldman Sachs (GS) recently announced they would begin offering bitcoin exposure to their wealth management clients.
"Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of bitcoin and crypto for the coming years in our opinion," Wedbush analyst Dan Ives wrote in a note. "Given the still nascent and volatile nature around Bitcoin we believe less than 5% of public companies will head down the Bitcoin investment path in some capacity over the next 12 to 18 months, but could move markedly higher as more regulation and acceptance of this currency takes hold further down the road."
Bitcoin prices reached a record high of more than $64,000 on Wednesday, and comprise most of the total cryptocurrency market capitalization of over $2 trillion. The boom in demand for digitally native, non-interchangeable assets has been further underscored by the rise in non fungible tokens (NFTs) in the digital art and collectibles world, most of which have been built on the ethereum blockchain.
"Crypto has the potential to be as revolutionary and widely adopted as the internet. The unique properties of crypto assets naturally position them as digital alternatives to store of value analogs such as gold, enable the creation of an internet-based financial system, and provide a development platform for applications that are unimaginable today," Coinbase said in its prospectus. "These markets and asset classes collectively represent hundreds of trillions of dollars of value today."
Coinbase, for its part, makes the vast majority of its money via transaction fees from trades on its platform by retail and institutional users. Revenue for the year ended Dec. 31 more than doubled to $1.3 billion. On the bottom line, Coinbase swung to a profit of $322.3 million for the full year 2020, versus a net loss of $30.4 million in 2019. More than 43 million retail users and 7,000 institutions use the Coinbase platform, the company added.
For the first quarter of fiscal 2021, Coinbase estimated it would post net income of between $730 million and $800 million, compared to net income of just $32.26 million in the first three months of 2020.
Coinbase, America's leading cryptocurrency exchange, arrives on Wall Street on Wednesday April 14 as part of a 'direct introduction'. An IPO, eagerly awaited by crypto enthusiasts, which could value the Californian company at more than 100 billion dollars. Taking advantage of exploding demand for digital currencies, Coinbase said last week that it expects to make a profit of $730 million to $800 million in the first quarter of 2021, more than double the total profit in 2020. Revenues for the first three months of 2021 have likely exceeded last year's, to nearly $1.8 billion.
'Will be worth more than Goldman Sachs'
Even staunch cryptocurrency proponents, however, have noted that Coinbase's recent, rapidly growing results could be subject to volatility due to competition and price changes in digital assets.
"The biggest risk here is that 90% of Coinbase’s revenue is still tied to retail trading volume. And it’s very expensive — 250 basis points in transaction fees on average on those retail users, that’s expensive. So I think there’s going to be margin compression and challenges to Coinbase’s business model," Meltem Demirors, chief strategy officer at digital asset investment firm CoinShares, told Yahoo Finance. "Their margin is someone else’s opportunity, and already we see competitors in the space that are offering the same service, albeit with smaller brands, at much better prices."
Coinbase's results would also be subject to fluctuations in notoriously volatile cryptocurrency prices, which tend to dictate retail investor interest in cryptocurrencies overall, Demirors added.
"Historically, bitcoin in particular has gone through these two to three year cycles where we see a period of tremendous expansion and growth and then we see a 30% to 40% correction, sometimes even greater," she said. "So the risk here is Coinbase could have some of that same volatility that bitcoin and other digital assets have historically had."
Still, the opportunity for growth remains significant for cryptocurrencies and for Coinbase, Demirors maintained.
"I firmly believe within the week it will be worth more than Goldman Sachs," Demirors said. "Goldman today employs 40,000 people. It was founded in 1869, $120 billion market cap. Coinbase, founded in 2013, employs less than 4,000 people, and it's going to have a bigger market cap. So again, what I think we're watching here is a new guard coming in. And frankly, if financial institutions don't start to pay attention to this and take notice and build things that their clients want, their clients are going to leave."
At the same time, however, Coinbase's elevated valuation has given some investors pause. The stock already easily surpassed the $100 billion mark during intraday trading on Wednesday.
"Really to be comfortable buying at this price, you really have to have a strong belief, firm conviction, that cryptocurrency is the way of the future and that it’s going to be a long-term, sustainable trend," Bankrate.com's Jim Royal told Yahoo Finance. "But of course, you’re also betting on, at least to some extent, the continued rise in price of major cryptos such as bitcoin [and] ethereum raising increased trading volume ... And so those are really key drivers to the success of Coinbase.”
However, a number of investors are still on the sidelines when it comes to investing in bitcoin and other cryptocurrencies. In Bank of America's latest April global fund manager's survey, the firm found that 74% of respondents answered "yes" when asked whether they believed bitcoin was in a bubble, compared to just 7% of respondents who gave the same answer about equities.
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that's a dramatic move. so what happens if someone doesn't have a mobile device, or if they lose it? i guess the bare minimum requirement would be a debit card, swiped at each point of sale.
>>> Galaxy Digital becomes latest firm to file for a bitcoin ETF
Block
by Aislinn Keely
April 12, 2021
https://www.theblockcrypto.com/linked/101357/galaxy-digital-bitcoin-etf?utm_source=coinbase&utm_medium=rss
Galaxy Digital filed for a bitcoin exchange-traded fund (ETF) on Monday, according to a new S-1 with the Securities and Exchange Commission (SEC).
The Galaxy Bitcoin ETF filing names NYSE Arca as the intended exchange venue. Per the filing, Galaxy has yet to name a custodian, administrator or transfer agent and will likely submit amended filings as these roles take shape and become public.
Galaxy trades publicly in Canada, and already acts as sub-advisor to a Canadian bitcoin ETF offering sponsored by CI Financial, the CI Galaxy Bitcoin ETF. That particular product began trading on the Toronto Stock Exchange last month.
That product utilizes the Galaxy Bitcoin Index, which is owned and calculated by Bloomberg services. The Galaxy Bitcoin ETF, if approved, would also utilize the index as its pricing mechanism.
"The Index is designed to measure the performance of a single bitcoin traded in U.S. dollars," said the filing.
The end-of-day price of the net asset value of the ETF, or the pricing of the underlying holdings each day, is determined using the Bloomberg Crypto Price Fixings' mid-price for bitcoin. It's a "simple average" of the price of bitcoin using inputs from real-time pricing sources, according to the S-1.
The submission comes after a strong Q4 report from the firm. CEO Mike Novogratz said the crypto bank is seeing growth across asset management, trading and its newest addition, mining. The Q4 report also revealed plans to conduct a secondary listing on a U.S.-based venue.
The Galaxy filing joins a number of other submissions, including NYDIG, Fidelity and First Trust/SkyBridge. The U.S. has seen an increase in submissions since a wave of Canadian approvals, including the CI Galaxy Bitcoin ETF.
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>>> TIME Joins Tesla in Keeping Bitcoin on Its Balance Sheet
Grayscale Investments and TIME magazine are partnering on cryptocurrency content. And TIME is keeping the BTC.
Decrypt
By Jeff Benson
Apr 12, 2021
https://decrypt.co/66263/time-joins-tesla-keeping-bitcoin-balance-sheet?&utm_medium=referral&utm_campaign=feed&utm_source=coinbase
It was only a matter of TIME.
One of the most recognizable publications in the world, TIME Magazine will now be receiving some payments in Bitcoin, according to Grayscale CEO Michael Sonnenshein. What’s more, unlike some people, it won’t be immediately converting that crypto to fiat.
“Thrilled @Grayscale is partnering w/ @TIME on a new video series coming this summer explaining the #crypto space,” Sonnenshein tweeted today.
“Equally as important, @KeithGrossman & @TIME has agreed to be paid in #Bitcoin - and will hold the $BTC on their balance sheet. A first for our media partnerships!”
TIME President Grossman retweeted the news, blessing the partnership over Twitter.
Grayscale is a cryptocurrency asset manager that holds over 3% of the Bitcoin in circulation via its Grayscale Bitcoin Trust. No further details were available regarding its TIME partnership.
TIME won’t be the first non-crypto company to keep Bitcoin on its balance sheet. Cloud software company MicroStrategy and payment processing firm Square pioneered that approach. When electric automaker Tesla bought $1.5 billion in Bitcoin earlier this year, it announced in SEC filings that it may keep any Bitcoin it receives for car purchases. It has since confirmed that strategy.
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>>> A Key Bitcoin Investment Faces Activist Pressure
Barron's
By Avi Salzman
April 6, 2021
https://www.barrons.com/articles/a-key-bitcoin-investment-faces-activist-pressure-51617734136?siteid=yhoof2
The U.S. has yet to approve any Bitcoin ETFs.
The most popular fund for investing in Bitcoin without buying the cryptocurrency itself is under heat from a top investor.
The Grayscale Bitcoin Trust (ticker: GBTC), an ETF-like security that has drawn more than $34 billion in assets, now trades at a discount to the underlying Bitcoin it holds. Marlton LLC, a family office that owns a substantial amount of GBTC, sent an open letter to Grayscale’s board of directors calling for the company to conduct a tender offer that would allow current shareholders to sell at a premium to current market prices.
Marlton didn’t say how many shares it holds, but a spokesperson said that it would be on the list of the top 23 holders on Bloomberg if its filings were public.
The Grayscale trust, created in 2013, took off as the most direct way for investors to get Bitcoin exposure into their traditional portfolios. It remains popular, but because it is structured like a closed-end fund, the net asset value of its underlying Bitcoin can differ from the price of the security.
Grayscale has historically traded at a significant premium to the net asset value. That switched several weeks ago, and it has been trading at a significant discount—as large as 14%—since then. That is likely because competitors have begun to launch rival products, and there are now Bitcoin ETFs, including two in Canada.
The U.S. may also get a Bitcoin ETF later this year, some market participants are predicting, though regulators have yet to approve any.
Grayscale is looking to convert GBTC into an ETF, a move that would presumably eliminate the discount. But Marlton wants faster action, calling the ETF move a “wait and see” option that may fail. That is why the firm wants a tender offer.
“A tender offer is a superior value creating initiative, offering stockholders the ability to sell their shares for a specified price and within a particular window of time for an offered price at a premium to the market price and contingent upon a minimum or a maximum number of shares sold,” the letter says.
Grayscale responded to the letter by reiterating its plans for an ETF.
“We are 100% committed to converting GBTC into an ETF, on which more details can be found in a blog we shared yesterday,” the company said in a statement.
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>>> EXPOSED: The Bitcoin Fraud
BY JAMES RICKARDS
MARCH 1, 2021
https://dailyreckoning.com/exposed-the-bitcoin-fraud/
EXPOSED: The Bitcoin Fraud
Bitcoin crashed from $20,000 in 2017 all the way to $3,300 by December 2018 — an 83.5% collapse in one year and the greatest recorded asset price collapse in history.
That crash marked the collapse of the greatest asset price bubble in history, larger even than the Tulipmania of 1637.
Well, now Bitcoin is trading around $50,000 (the price currently is $48,595.50), 2.5 times its 2017 peak.
It’s a safe bet that it’s going to crash again. Today I’ll show you the fraud behind Bitcoin’s crazy run-up.
You don’t need a Ph.D. in finance to see that Bitcoin is a bubble. Just take a look at any price chart. The time series of prices over the past six months has been hyperbolic and almost vertical.
If you look at a chart of the Japanese Nikkei Index up to late 1989 or the NASDAQ Composite up until March 2000, you’ll see exactly the same pattern.
The Nikkei crashed over 80% beginning in 1999, and now, 32 years later, it still has not recovered its old highs. The NASDAQ crashed over 75% and did not recover its old high until April 2015, a 15-year recovery.
Bitcoin is positioned for the same kind of fall.
Based on the Nikkei and NASDAQ crashes, Bitcoin could fall from $50,000 to $10,000 or lower before establishing a new base. Still, there is one important difference between the Nikkei and NASDAQ bubbles and the new Bitcoin bubble.
The Nikkei and NASDAQ bubbles were based on a combination of investor mania, leverage and hyped-up earnings releases from companies in the index. But, there was relatively little outright fraud.
In contrast, the Bitcoin bubble is based almost entirely on fraud. Therefore, when this bubble bursts, the damage may be even greater, and the value of Bitcoin may disappear entirely.
Here’s an example of how the fraud works, as described in a legal notice from the New York State Attorney General…
A company called Bitfinex sponsors a cryptocurrency called Tether. This crypto is a so-called “stablecoin.” This means that the value of one Tether is fixed at $1.00.
When you buy a Tether for $1.00, the money is supposedly held in safe liquid assets. When you cash in your Tether, you should receive $1.00 in return (less small transaction costs).
The problem is that no one has been able to locate the liquid assets that supposedly back Tether. There has been no full audit, and there is no transparency about the whereabouts or composition of the liquid assets backing the coin.
Tether claims that its dollar reserves are held in a Bahamian bank named Deltec Bank & Trust. But independent research revealed that the assets claimed by Tether exceed the total U.S. dollar assets of the entire Bahamian banking system.
Other research shows that those who buy Tether use them overwhelmingly to buy Bitcoin from unregulated crypto-exchanges based in Africa and Asia. These exchanges offer leverage and often award “free” Tether coins for those who bring in new customers.
These Tethers have been used to bid up the price of Bitcoin and create the bubble.
Meanwhile, the dollars supposedly backing Tether are unaccounted for. If this process were to go in reverse, which it inevitably will, the Bitcoin values would collapse quickly (because of leverage) and Tether would be unable to redeem retreating Bitcoin investors (because of the unaccounted-for liquid assets).
The Tether crooks would walk away with dollars. The prices of Bitcoin and Tether would collapse catastrophically. And the Bitcoin “investors” would walk away empty-handed. This is not just a spectator sport for prudent investors.
The types of losses arising from a Bitcoin collapse would easily spill over into the brokerages and banks handling the accounts of investors who would be eager to sell everything because they’d be desperate to raise cash and avoid further losses.
Because the shady Bitcoin and Tether exchanges are unregulated, there is perhaps little that can be done to avoid this coming fiasco.
I would advise you to stay far away from Bitcoin. Don’t get sucked in by the hype. Sadly, some people never learn. And many will probably get burned all over again.
Investors should at least be alert to the potential collapse by increasing their cash allocations to help weather the storm.
Below, I show you why, when it comes to Bitcoin, “there’s no there there.” Read on.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> Blockchain ETFs Looking Overbought
Yahoo Finance
by Jamie Gordon
February 25, 2021
https://finance.yahoo.com/news/blockchain-etfs-looking-overbought-203000741.html
London – Blockchain equities have exploded in recent months, driven by the bitcoin rally which has seen many companies post three-figure returns since the start of 2021.
One product capturing much of this upside has been Europe’s only ETF offering direct exposure to blockchain, the $1.1bn Invesco Elwood Global Blockchain UCITS ETF (BCHN), which has increased in size by more than 35% year-to-date, courtesy of $382.7m inflows, according to data from ETFLogic.
BCHN’s popularity was most pronounced in the week to 19 February, in which the ETF saw inflows of $163.1m, pushing its AUM up by almost 15%.
Demand for the product has also been reflected in its performance with returns of 49.6% year-to-date, adding to the 95% rise in 2020.
Europe vs US: Time of the bitcoin ETP has come
Underlining this was the performance of the ETF's top holdings - Canaan, Silvergate Capital, and MicroStrategy - which, at their respective peaks in February, were worth around five times what they were just three months earlier.
Analysts highlighted the main cause of this bullishness as being the feverish surge in crypto valuations, with bitcoin jumping from $9,688 to $54,123 during the twelve months to 22 February. Likewise, the currency has surged 85.1% during the year-to-date.
The latest bitcoin resurgence was fuelled by reports that institutional investors had begun buying into the currency, with initial excitement compounded by the likes of PwC which pointed to professional buying as the driving force behind crypto hitting “record levels”.
As this excitement began to wear off, Tesla revived the bitcoin buzz by declaring that it had invested $1.5bn in the alternative currency – which in turn gave its rally enough steam to add an additional $20,000 to its valuation since the start of February.
Tesla, ESG and bitcoin: An unholy trinity
With investors of all levels of sophistication pouring in to chase an opportunity seemingly too good to miss, blockchains – in their capacity as the digital ledger for crypto mining and transactions – have been operating across more than 12,000 nodes to facilitate the safe and traceable trading of bitcoin on a global scale.
However, despite a number of positive developments in recent months, there is a growing feeling among analysts that the higher bitcoin climbs, the more it will take for the hype train to keep rolling.
And, should new, sensational headlines fail to materialise to sustain cryptos’ currently inflated valuations, one gets the sense that the ominous dot com bubble comparisons become increasingly apt.
As Barnaby Barker, investment analyst at SCM Direct, said: “Blockchain technology is undeniably a useful form of encryption, however the recent valuation of both blockchain companies and cryptocurrencies appears to have been driven by speculative excess rather than fundamentals, with FOMO appearing to be a core driving factor.
“History may not repeat itself but it has a rhythm, and there are many similarities between the current blockchain/crypto boom and the tech boom of the early 2000s.
“The latest “Fad” ETFs appear to rely on greater fool theory, whereby they can only be justified on the basis that an even greater fool will come along to pay an even higher price.”
Aside from its high valuation and illiquidity, investors should also be worried about bitcoin’s historical volatility, with the asset having dropped from $18,640 to $6,332 in less than two months between 2017 and 2018.
Commenting on the crypto’s recent surge, Ben Seager-Scott, head of multi-asset funds at Tilney, said: “The result has been a very volatile ride, and there are vanishingly few assets I know of that have rocketed without a fundamental investment case (including valuation considerations) and have stayed at such elevated levels.”
With alternative currency trading at unprecedented volumes and crypto ETPs making their debut in North America, investors should also be wary that such activity will attract the gaze of regulators. Should this lead to further, new restrictions – following the FCA’s ban of crypto ETNs being sold to retail investors – this would incur downside risk to the current valuations of crypto assets.
Industry bemoans FCA’s decision to ban crypto ETN sales to retail consumers
Even avoiding a repeat of the events of 2017, bitcoin’s current price is hard to justify. It would not be unreasonable to predict a correction, and this, in turn, would see blockchain equities reverse a good portion of their recent gains.
It is certainly true that blockchain has applications outside of cryptocurrency and will likely claim an increasing share of financial services’ back-office functions in coming years, as highlighted by Chris Mellor, head of EMEA ETF equity and commodity product management at Invesco.
“BCHN invests in a wide range of stocks exposed to different forms of blockchain technology, from token investment and cryptocurrency mining plays at one end of the spectrum through to enterprise blockchain in financial services and technology at the other,” Mellor added.
One challenge for BCHN, as highlighted by Laurent Kssis, managing director of 21Shares, is the majority of pure-play blockchain companies are yet to publicly list so are not available to be included in the basket.
“Instead, most companies with the potential to generate earnings from blockchain have well-established businesses in other areas, and blockchain merely presents an additional source of revenue,” Kssis said.
BCHN’s top five holdings have all more than doubled in the year-to-date illustrating just how directly the performance of blockchain equities are dictated by the crypto market.
Likewise, with bitcoin falling 5.4% on 22 February, BCHN’s three largest holdings fell by 15.9%, 5%, and 9.1% apiece during the same day.
Unfortunately, this means that for now, we should view the short-term prospects of blockchain the same way we look at assets like bitcoin. While the technology could well have a meaningful role within mainstream finance in the years ahead, its close correlation with crypto currently makes it a speculative investment – and one that is due a decline.
Offering some hope, Barker concluded: “I wouldn’t be surprised if there is a major correction, but feel that once we do, there will still be underlying demand for these companies (strongest will survive) until the next encryption technology arrives.”
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>>> 7 Ways to Play the Crypto Boom
Yahoo Finance
by Josh Enomoto
January 30, 2021
https://finance.yahoo.com/news/7-ways-play-crypto-boom-153213642.html
Although weakness has recently stymied what has otherwise been a remarkable run in bitcoin (CCC:BTC-USD), that alone won’t stop enthusiasm in the cryptocurrency sector. After breaking above the $20,000 level in December, bitcoin breached $40,000 in a matter of weeks before settling down to the low $30,000 territory. But is now a time to get into crypto assets?
Shedding about a quarter of its newfound lofty price gains, the correction invariably attracted critics, calling bitcoin and the virtual currency complex a dangerous asset class. To be fair, I understand the blowback. To the uninitiated, crypto sounds like magic fairy money, like something crafted out of thin air. And if it’s created that easily, it can be destroyed just as quickly.
While I don’t want to go into a university thesis as to why people can trust crypto assets, one of the most important factors to keep in mind is double-spending, or the ability to use a digital token in more than one transaction. Of course, such a concept would imply unlimited inflation, which would make bitcoin and other cryptocurrency coins worth as much as a billion-dollar Zimbabwean note during the underlying country’s hyperinflation struggles.
And accusations of such sent a shock wave through the crypto community recently, which contributed to the decline of bitcoin and other crypto tokens. However, as Coindesk.com points out, a double-spending incident did not occur. Instead, it was a misunderstanding of the nuances and intricacies of the bitcoin network.
However, that didn’t stop the entire cryptocurrency complex from correctly sharply. This has led people to consider diversifying how they are exposed to the blockchain markets. Fortunately, the burgeoning crypto arena offers multiple ways for all investors to participate.
Buy the crypto assets directly
Acquire shares of GPU manufacturers
Get broad exposure through exchange-traded funds
Purchase stock in mining companies or mining-equipment producers
Invest in companies which utilize the underlying blockchain technology
Consider solar energy firms
Regional investments where crypto or mining is popular
Each approach has their distinct pros and cons, which we’ll explore. But the important takeaway here is that you’re not limited to just one methodology. Indeed, the cryptocurrency market is much more diverse than many critics suggest.
Buying Crypto Directly
Many years ago, if you were to mention bitcoin, let alone alternative crypto coins (altcoins), you’d get a blank stare. At the dawn of blockchain technology and integration, it was difficult to understand how you get such assets in the first place.
Does bitcoin accept credit cards? Or do you have to mine the crazy things themselves? And how exactly do you cash out? What are the jurisdictional regulations regarding such transactions? So many questions.
Today, the process of acquiring crypto assets is much, much simpler. With ultra-popular exchanges and digital wallets like Coinbase, there’s never been a more conducive time to buy cryptocurrency coins directly. Better yet, once you’re satisfied with your profits, cashing out on these popular exchanges is remarkably quick and intuitive.
However, that doesn’t mean buying crypto coins themselves doesn’t have its drawbacks. For one thing, this asset class is incredibly volatile. Elation and despair are separated by mere hours, sometimes minutes. If you can’t handle stomach-churning chop, you better stay away.
As well, you generally have very little protection regarding your virtual currencies. Consider the case of a man who accidentally threw away a $275 million fortune in bitcoin. Things like this don’t happen with regular stocks because of the custodial safeguards in place.
Now, there are custodial crypto platforms available. However, if something happens to the platform, you could be up a creek without a paddle. Just something to think about before getting too heavily involved.
Limited Risk Exposure with GPUs
As you probably know, the process of cryptocurrency mining is extremely intensive. Essentially, various computers which are plugged into a target blockchain network (called a node) compete to solve an algorithmic problem first. The winner has the right to validate a block of transaction data into the blockchain, with crypto tokens as the reward for one’s troubles.
And those troubles are troubling indeed, especially if you walk away with nothing. Because your utility provider doesn’t give a ship what you used your energy for; the mere fact that you did is enough to slap you with a hefty bill. Nevertheless, this is a game of probabilities. With the right equipment, patience and commitment to the process, dedicated miners can make profits despite their astonishing overhead.
But to win consistently and with a measure of predictability, miners need the best equipment. That’s where graphics processing units or GPUs come into play. Companies such as Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) are always at each other’s throats, striving to develop the best GPU. Of course, this is great news for miners, which benefit from better products and lower costs.
Still, the main drawback for buying shares of NVDA or AMD is that these are diversified semiconductor businesses. Their fortunes are not tied to the crypto market; otherwise, they would be all over the map. But if you can’t handle all the pitfalls of virtual currencies, this may be the most risk-mitigated approach.
Diversify with ETFs
No matter what your investing style, exchange-traded funds offer valuable exposure. Rather than betting everything on one name, ETFs allow both investors and speculators to get broader coverage on a particular sector. Given the dramatic popularity of bitcoin in recent years, crypto-centric ETFs have popped up.
One of the most well-known crypto ETFs is the Grayscale family of offerings such as the Grayscale Bitcoin Trust (OTCMKTS:GBTC). Such a platform appeals to those who really believe in the cryptocurrency revolution but are nauseated with the risks of being directly exposed to the digital markets and would prefer the relative safety of the stock market.
In addition, there are ETFs that are levered to the underlying blockchain technology. An example is Siren Nasdaq NexGen Economy ETF (NASDAQ:BLCN), which feature crypto-friendly companies like Square (NYSE:SQ).
Certainly, the performance of many of these ETFs have been astounding. However, a key risk is that you’re purchasing quite a bit for the shares relative to how much crypto each equity unit represents. Also, ETFs trade under Wall Street rules whereas cryptos trade 24/7/365 across the world.
Therefore, if something happens in Asia, you can’t just dump out of your portfolio. You’ve got to wait for the falling knife to hit the ground and hope that you’re not in its trajectory.
Buying the Mining Operations Themselves
Although crypto proponents celebrate the remarkable rise in prices lately, the real “heroes” of this space are the miners. With few exceptions, virtual currencies are decentralized. And that means people have to participate in the mining process to validate transactions and to keep engagement within the target blockchain network.
Therefore, many astute investors have diversified their risk-on portfolios with companies that are connected to mining operations, such as Marathon Patent Group (NASDAQ:MARA) or the manufacturing of specialized mining equipment like Canaan (NASDAQ:CAN).
Fundamentally, it’s a compelling idea. You don’t have to worry about the administrative concerns of crypto investing. For instance, if you forget your password or throw away your hard drive, flash drive or even your computer, you don’t have to fret. Since stocks are basically custodial, you can just go to your broker and explain what happened.
As well, mining companies and manufacturers enjoy enormous upside when the underlying crypto assets are on fire. And let me tell you, they are on fire!
However, please be aware that in some cases, this approach could be riskier than buying blockchain tokens directly. Recently, a class-action lawsuit was filed against Bit Digital (NASDAQ:BTBT), alleging that it is “a fake cryptocurrency business” which is “designed to steal funds from investors.”
Bottom line: always perform your due diligence and be skeptical of outlandish claims (or even reasonable ones).
Stock Up on Companies Using Blockchain
Another potentially safe approach to gain exposure to crypto markets is buying shares of companies that utilize blockchain technologies in their business. At the end of the day, reward tokens will feature fierce debate – and if they don’t, that means we could be in a bubble! But there’s no debating the groundbreaking utility of the underlying blockchain.
What makes bitcoin so powerful is that it de-levered payment transactions away from the staid global financial infrastructure – which is tied to human intermediaries – and instead introduced the concept of decentralized payments without the need of such middlemen.
Later, the Ethereum (CCC:ETH-USD) blockchain came along and introduced the idea of smart contracts, which forges the path to potentially remove intermediaries in other industries, such as law and real estate.
Even better, publicly traded companies like Lemonade (NYSE:LMND) are rapidly integrating blockchain into their daily operations. One of the features that makes Lemonade so successful is its rapid-fire payments for claims. Well, that comes about through the company’s usage of smart contracts.
So long as you’re investing in fundamentally sound companies, this approach doesn’t have as much risk as many other methods. However, you’re limiting upside potential so it’s not great for growth-seeking speculators.
Go Solar
With the controversial election of President Joe Biden, the U.S. will enter a new phase in how it approaches climate change and the environment. This has been recently demonstrated by Biden’s executive order to return our nation to the Paris Agreement.
Naturally, Biden’s election and the Democrats securing control of Congress has been a boon for renewable energy stocks. But it can also be a catalyst for crypto assets. As I mentioned earlier, the process for mining cryptocurrency coins is extremely energy intensive. But with solar panels improving in efficiency and coming down in cost, mining becomes a more attractive proposition.
I explored this idea in December, which proposes that with solar panels running – particularly in the hot parts of the U.S. – crypto miners can possibly save 10% to 20% off their utility bills. Savings like that may not matter to the average household. But if your utility bill is in five-digit territory or more because of your mining operations, 10% to 20% adds up very quickly.
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Though creative, the risk here is that this is a limited-use application for solar energy. Therefore, I would primarily invest in solar energy companies which have upside in their core business, not because a few of their clients are mining cryptocurrency tokens.
Think Globally
While the U.S. is a world leader in multiple industries, when it comes to crypto markets, it lags many other countries. For example, the Securities and Exchange Commission’s lawsuit against Ripple Labs – the developer of the ripple (CCC:XRP-USD) payment protocol – for essentially sidestepping regulations of securities and initial public offerings may send a chill to crypto and blockchain-related enterprises.
On one hand, I can appreciate why the federal government is so severe with their stance on virtual currencies. You can’t just let companies sidestep laws that others have to abide by simply because the platform of choice is a crypto coin and not the U.S. dollar. As well, Uncle Sam needs his tax revenue.
But on the flipside, regulations can stifle growth. And that brings us back to the age-old debate of capitalism versus socialism. Fortunately, not every country has a stick up its hind end regarding the cryptocurrency complex. For example, Japan views XRP as a cryptocurrency, not a security. Thus, if you really believe that cryptocurrencies will change the world, you might look into Japanese stocks or ETFs.
Similarly, cold climates like Sweden may be more efficient in mining crypto tokens because the equipment won’t heat up as dramatically in hotter climates, possibly presenting cost-saving opportunities. Indeed, many are using the heat emitted from cryptocurrency mining in very creative ways.
Of course, this is a super-long approach to investing in virtual currencies. Thus, the risk again is limited upside potential. However, you will have the personal satisfaction of being a blockchain futurist.
On the date of publication, Josh Enomoto held a long position in BTC, ETH, and XRP.
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GMO internet Inc | 9449 | 5.13% |
Square Inc A | SQ | 4.61% |
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Intercontinental Exchange Inc | ICE | 3.44% |
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LINE Corp ADR | LN | 3.26% |
SBI Holdings Inc | 8473 | 3.23% |
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Overstock.com Inc | OSTK | 5.47% |
Square Inc A | SQ | 3.07% |
SBI Holdings Inc | 8473 | 2.20% |
DocuSign Inc | DOCU | 2.15% |
GMO internet Inc | 9449 | 2.14% |
PayPal Holdings Inc | PYPL | 1.91% |
SAP SE ADR | SAP.DE | 1.88% |
JD.com Inc ADR | JD | 1.86% |
NVIDIA Corp | NVDA | 1.84% |
OneConnect Financial Technology Co Ltd ADR | OCFT | 1.81% |
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Xilinx Inc | XLNX | 1.77% |
Alibaba Group Holding Ltd ADR | BABA | 1.68% |
Infosys Ltd ADR | INFY.BO | 1.67% |
Tata Consultancy Services Ltd | TCS.BO | 1.67% |
Micron Technology Inc | MU | 1.65% |
Baidu Inc ADR | BIDU | 1.64% |
JD.com Inc ADR | JD | 1.61% |
Cognizant Technology Solutions Corp A | CTSH | 1.60% |
Taiwan Semiconductor Manufacturing Co Ltd ADR | TSM.TW | 1.57% |
Texas Instruments Inc | TXN | 1.55% |
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