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US Crypto Regulations Between a Rock and a Hard Place

US Crypto Regulations Between a Rock and a Hard Place

In the midst of the delay for the approval of Bitcoin exchange-traded fund (ETF) applications after several rejections, and current uncertainty regarding regulatory framework, US Securities and Exchange Commission (SEC) Commissioner Hester Peirce provided insights into the matter as an opportunity for better industry development.

Last week, Heister made comments on the issues of state regulation at the University of Missouri School of Law where she opined that “entrepreneurship and innovation do not have the happiest relationship with innovation”, which may be the core reason why crypto ventures have suffered in the hands of most regulatory systems.

The SEC’s clamp down on non-compliant ICOs (issuing securities disguised as utility tokens), its rejection of Bitcoin ETF applications, and somewhat deliberate delay in providing a regulatory framework as regards the industry may have a more logical than malicious intent behind it. Innovations, while they make life easier most of the time, always come outside the norms, especially those of the regulatory system and often times drives regulators to accept changes despite skepticism.

“Regulators, for their part, tend to be skeptical of change because its consequences are difficult to foresee and figuring out how it fits into existing regulatory frameworks is difficult,” she said, implying that it’s not an easy task for the SEC to reject what seemingly looks like a financial innovation in an attempt to weigh and understand the situation correctly.

The last financial crisis has made it easier for trust issues to thrive, especially on the part of the regulator, given that some ascribe the crisis to be due to “financial innovations”. Peirce pointed out that “…every innovation — even one that almost everyone agrees is good — carries with it some risk”, something currently agreeable with the cryptocurrency system.

Accordingly, since innovations can be unpredictable, so caution must be applied when drafting regulatory frameworks, especially for a new industry such as blockchain and its underlying assets. Peirce continues by saying that “as regulators, therefore, we must allow innovation to proceed, even as we put in reasonable safeguards and watch for unanticipated consequences”, and still, it has to come with no comprise to the securities laws in place. It behooves one to imagine where the true line of trade-offs will be drawn, seeing that the core structure of the crypto industry lies in decentralization, which by implication makes it harder for any regulator.

Still, the regulatory polarity has created distinct shades of gray areas around the world. With the Chinese government adamant with its crypto ban, the Indian government chose a rather bizarre stance — first with a ban on banking services to crypto related ventures, and then planned to develop a state-backed cryptocurrency, which it shelved later on. Meanwhile, other jurisdictions have launched out to attract the “rejected”, by providing a safe haven to crypto ventures, and a few nations are developing their own state-backed crypto to augment their economies.

In the UK, the principal regulator has extended an invitation to the public through its consultation paper to better assess a possible way forward for industry regulations. It said in late January: “We are consulting on Guidance for crypto assets to provide regulatory clarity for market participants.” Meanwhile, in the Middle East, the United Arab Emirates (UAE) has also hinted on possible ICO regulations to be introduced later this year.

So far, the crypto industry has had checkered developments and have more recently been in a stalemate (regardless of minor spikes in market dynamics), and many have been waiting eagerly for the next bull-run trigger. It’s basically what most crypto enthusiasts talk about these days, consequently, dialing down tech innovation, development and mass adoption of crypto products — at least, for the innovations that they stand for — and are relying on adjuncts gunning for more institutional involvement that would supposedly propel the market further.

While the US SEC does recognize the potential this innovative technology may provide, as Peirce says. “the United States has benefited greatly from the relative importance of non-bank financing”, supposedly placing them on par with the capital market. This further buttresses the point made by SEC boss Jay Clayton who viewed crypto as a “promise for adding efficiency to our [capital] marketplace”.

However, the regulatory watchdog maintains a stance of balance that involved protecting the interests of investors as market volatility, manipulation, hacks, frauds, exchange illiquidity, and a host of other unforeseen consequences from the unstandardized cryptosystem remain legitimate concerns.

Perhaps, when the SEC, as well as other financial regulators, have finally regulated the industry, these problems will be adequately tackled. Meanwhile, the regulator itself is waiting for the maturity of the industry marked by improved oversight on market surveillance, definitive asset classification, and airtight custody solutions, before embracing the industry wholeheartedly. But it still remains to be known at what cost?

The good news so far is that earlier this year, a bill was introduced in the House to help with asset classification, that partly takes care of one problem. Nasdaq introduced its SMARTS Market Surveillance solution which may have provided precedence in the direction of play towards controlling market manipulation. On the subject of custody solutions, crypto ventures are urged to ensure best cybersecurity practices. Fidelity, Coinbase, Gemini, BitGo, Ledger, ItBi and even Goldman Sachs are among many reportedly racing toward that end.

Peirce’s overall sentiment in a manner of speaking, perhaps one shared on both sides of the tussle is that the delay in drawing clear lines may actually allow more freedom for the technology to come into its own.

 

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If Institutions Could Change the Crypto Market Narrative, What’s Keeping Them?

If Institutions Could Change the Crypto Market Narrative, What’s Keeping Them_ (1)

Last year saw lots of interest from institutions, who were a part of a hype-drive that supposedly should have ushered Bitcoin and the altcoins out of a prolonged bear market in 2019.

Suddenly, the prospects for institutional investments in the cryptocurrency markets have far more long-reaching effects than the actual application of the blockchain technology itself. It suggested that investors were bored with the cliché of what blockchain is and its potential, and are far more interested in how much they can profit off its underlying asset class.

Institutional investor flux

In preparation for these new class of investors, crypto ventures were adjusting their business infrastructures to accommodate the changes that would ensue from the influx of these sophisticated investors.

Top cryptocurrency exchange by trading volume Binance reportedly added sub-account features; Chicago-based cryptocurrency exchange Seed CX introduced spot trading facility for institutional investors; number one US crypto trading platform Coinbase launched an over-the-counter (OTC) trading platform for institutional clients; Circle’s Poloniex opened up trading services exclusive for institutional clients, and many more strides in the direction of high net-worth investment categories.

Perhaps the most currently notable investment interests for this class of investors include those to be offered by Intercontinental Exchange’s (ICE) Bakkt and Fidelity. The growing interests in these platforms suggest that these products would probably turn the tides for the crypto market upside, as it is perceived that they would offer a fresh inflow of capital and liquidity into the space.

Rewriting the market narrative

Accordingly, when the market crashed in November 2018, falling below the supposed bottom of USD 6,000 at the time, many thought that was the moment for institutional investors to hop in. Still, prices have breached many more speculated bottoms and are currently hovering around USD 3,400; yet, most of these investors have stayed their hands. One question, if these investors could actually change the narrative for the market, what’s stopping them?

Here are a few pointers: liquidity issues, susceptibility to market manipulation, regulation uncertainty, and crypto custody issues. Above all, the right framework may yet be the reason why these investors have not fully immersed themselves.

Moreover, insights provided by John Devlin, chief analyst at P.A.ID suggested that crypto needs to rise above stigma, and also become more regulatory compliant: “According to P.A.ID Strategies, 68% of Bitcoin exchanges across the US, and Europe is not KYC compliant.”

On another note, head of regulatory surveillance and marketplace at Nasdaq Tony Sio told business insider that while lots of exchanges were reaching out for Nasdaq’s SMARTS Trade Surveillance platform, it was however difficult because according to him, as a startup, “it is quite hard to set up because it requires a fair bit of work… [and] probably one of the sticking points”. This would imply that some of these investment propositions to institutions need time to develop and mature before implementing to scale.

Although some of the new projects reportedly claim that they are working diligently to ensure that their final product will meet the standards and expectations of the new class of investors. However, it remains to be seen exactly how the market will play out in the event that these platforms are finally launched.

 

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Is 2019 the Year of the Crypto Bull Market?

Is 2019 the Year of the Crypto Bull Market?

How Long Will the Crypto Market Bull Sleep?

Speculations about the cryptocurrency market continue to weigh heavily on the hearts of crypto enthusiasts as the market is yet to improve from the slump of 2018. The space is now left with dashed hopes, closed crypto exchanges, layoffs, hacks and a whole lot of constructive partnerships by the very few who truly understand what the blockchain is all about.

Reality has become grim for investors who hopped in at the all-time-high, especially shattering the expectations fueled by crypto influencers – the claims of Bitcoin reaching a high of USD 100,000 at the end of 2018. The ‘lambo’ songs that once reigned in many social communities have lost its savor as the lingo is being replaced with more realistic expectations such as measurable development goals and expected platform launch date.

Where are the 1000x’s promises?

Tough times greeted the new year, though still at the beginning of the year, many investors, as well as spectators, are wondering why the market still hasn’t had a bull run even though interest in blockchain has spiked. Some blame it on the delay in the entry of institutional investments.

Ripple CEO Brad Garlinghouse provided his personal opinion in a Blockchain Summit in Europe held at Brussels, saying that he estimates a 5 to 10 years waiting time for mainstream crypto payments.

This may be heartbreaking, as 5 years is indeed a long time to wait before hitting those 1000x’s again. More so, one would wonder if Ethereum’s co-founder Vitalik Buterin was right about his earlier predictions on the end of 1000x’s in crypto space. However, in just under a decade, cryptocurrency has evolved many times over.

The flagship cryptocurrency Bitcoin started its dramatic steep decline in the wake of 2018 and dragged the whole market with it after grazing an all-time-high of USD 20,000 the previous year. The cryptocurrency market with a cap of over USD 813 billion in November 2017 has now dropped to USD 114 billion according to data from CoinMarketCap as at press time. Surely, this drop in market value is enough to make investors wary.

The previous 3 years had seen a steady rise of activity in ICO markets, with 2016 recording an approximate fund collection of USD 93,922,741; USD 6,576,372,746 in 2017;  a reportedly recorded USD 21,576,147,596 in 2018 and now, in 2019 ICOs have raised over USD  126 million and still counting, according to data from CoinSchedule. With these humongous figures, it behooves one to wonder what happened to post-ICOs and why the current conditions appear rather stale.

What’s wrong with Crypto?

Brad has said that the biggest risk in the market is regulatory uncertainty. With the Securities Commission of different jurisdictions like the US SEC breathing down the necks of ICOs for securities compliance and making scapegoats out of defaulters, startups are exercising more caution. Binance CEO Changpeng Zhao had opined that 2018 was a year of correction and expressed his confidence for the future of crypto, however, he also pointed out that lack of clarity from regulators was a major drawback.

An analyst from JPMorgan expressed his skepticism about cryptocurrencies saying that real use for cryptocurrencies will only be in a dystopia – [one that has been duly noted in some hyper-inflated economies] – and that despite the correlation, the crypto market has with traditional assets, it’s of little value because of the prolonged bear market.

Legislation has indeed pegged the growth of the industry to a certain degree – at least from the cryptocurrency market perspective. However, some jurisdictions are opening up to the Idea of regulating the space in a way that innovation isn’t stifled. What’s left is for blockchain projects to live up to the hype that once ruled the space by developing more proof of concepts that are usable beyond the cryptomarket, as the market has so far proved to be a poor benchmark for the healthy state of blockchain enterprise.

For a while, the promise of institutional grade crypto services by elite financial systems such as Fidelity, and Intercontinental Exchange’s Bakkt has held many ‘hodlers’ ransom. Fortunately, as the space continues to mature, it becomes less reliant on external influences and survives on its initial narrative – decentralization.

Amid the market downturn, regulatory uncertainties, organizational restructuring, high expectations of institutional players; immense developments and innovation are driving adoption such as the rise in the numbers of Bitcoin ATM kiosks, use of crypto in charity, banks collaborating for cross-border payments, legacy systems shifting towards blockchain to tackle logistics problems. Perhaps, the market is just one trigger away to the next bull-run.

 

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Fidelity Bitcoin Custody Service Coming in March

Fidelity Bitcoin Custody Service Coming in March

Multinational financial services corporation Fidelity Investments is reportedly giving itself a March deadline to launch its Bitcoin custody service. Bloomberg reports three people familiar with the matter confirmed the March target, although the sources were not named.

The cryptocurrency custody solution is being developed to service the much anticipated institutional investors entering the market; retail investors will be unable to access the service when it does launch.

The cryptocurrency storage service was first announced in October last year, with Fidelity betting it is only a matter of time before Wall Street investors move to the cryptocurrency market. CEO Abigail Johnson said at the time: “Our goal is to make digitally native assets, such as Bitcoin, more accessible to investors.”

Johnson has advocated in favor of cryptocurrency for years, introducing Bitcoin and Ethereum mining at Fidelity in 2017. Clients have also been able to access balances from their Coinbase accounts on the website for several years.

The sources also disclosed to Bloomberg that an Ether custody solution would be the next focus for the firm.

Fidelity Investments administers over USD 7.2 trillion in customer assets and is based in Boston, USA.

 

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Fidelity Considers Digital Trading of Top 7 Cryptocurrencies

Fidelity Considers Digital Trading of Top 7 Cryptocurrencies

Fidelity Investments is reportedly looking into the feasibility of offering the top five to seven cryptocurrencies on its Digital Asset Services platform.

Extending beyond Bitcoin and Ether

Last month, the investment firm revealed its new Digital Asset Services arm alongside plans to offer Bitcoin and Ether trading services for institutional investors, also giving them a much-anticipated custody solution for these cryptocurrencies.

Tom Jessop, head of Fidelity Digital Assets, shared at the Block FS conference in New York on Thursday the company’s willingness to extend these services to other major cryptocurrencies.

“I think there is demand for the next four or five in rank of market cap order. So we will be looking at that,” he said in response to a question posed by Coindesk.

One of the potential issues he perceives is the question of which tokens will fall into the US Security and Exchange Commission’s definition of securities, as this will significantly impact the regulation surrounding their use. ”We are waiting for that space to develop,” he noted.

Jessop added there is not a huge call from institutional investors yet to venture into the lesser known cryptocurrencies on offer, so Fidelity will focus on the top seven or so, although other aditions will be considered when the demand is there.

Right now, he says Fidelity services over 13,000 institutional clients and their main interests are in the two leading cryptocurrencies, Bitcoin and Ether.

In August, the Bitcoin Tracker One Exchange Traded Note (ETN) became the first fully regulated financial instrument tied directly to Bitcoins, a service Fidelity offers its clients.

Given the relatively poor performance of the cryptocurrency market this year compared with 2017, many are counting on an influx of institutional investors using digital currency investment services such as that offered by Fidelity to boost prices.

 

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Bitpay: Bitcoin the “Under Pound Gorilla” Will Eclipse Many Other Currencies

Global Bitcoin payment service provider Bitpay is making some upbeat predictions for 2019 which certainly paint a different picture to the digital currency’s rocky ride as 2018 comes to a close.

The Atlanta-based company’s Chief Commercial Officer (CCO) Sonny Singh predicts that 2019 promises to be an “exciting” year which will push Bitcoin’s value up to between USD 15,000 and USD 20,000 by next December.

He believes that with the entry of Fidelity and Intercontinental Exchange into the market and ETFs getting the green light, 2019 will take on a whole new look when it comes down to investment opportunities. He commented it would be Bitcoin that would eclipse many other digital currencies whose fortunes were less easy to foresee, suggesting, “I don’t know what’s going to happen to them.”

He said, “There’s a night and day difference between Bitcoin and everything else. Bitcoin is the under pound gorilla, it’s the one that has the mass network effect… [the one] the traditional financial incumbents are building products around.”

In terms the durability of his gorilla, Sing argues that “Bitcoin survives first”, even in a poor market, despite its fluctuating fortunes. Blockstream CEO Bobby Lee, brother of Litecoin founder Charlie, agrees, suggesting that despite flashes of green in the last 24 hrs, Bitcoin could still threaten USD 3,000 but long-term, he feels it will overtake gold.

In this bear market for #Bitcoin, it’s worth reminding everyone that $BTC is still only one-hundredth of the value of #Gold: $80 billion vs $8 trillion.
Gold is worth 100 times more than Bitcoin today!
What will the ratio be in 10-20 years?
Will it flip, with Bitcoin worth more? pic.twitter.com/VIpzIDKfo0

— Bobby Lee (@bobbyclee) November 20, 2018

Currently, there is a consensus among certain cryptocurrency experts that with Bitcoin’s growing convenience as a payment method, illustrated by the march of ATMs worldwide, along with the digital currency becoming an internationally recognized household name, past hype could surrender to real value. A deflation of Bitcoin could “clean out weak hands”, according to the views of many investors. Serious players in the market would then be left to establish Bitcoin’s real value. EToro analyst Mati Greenspan says the ship isn’t sinking, but simply readjusting to its load:

“What we’re seeing now are the after-effects of the unprecedented rise of Bitcoin and other crypto assets in 2017. This year is simply a retracement of that… These cycles can sometimes be accentuated in the crypto market due to the riskier nature of this nascent industry. In the same way, previous cycles have not signaled the end for broader markets, these price movements don’t signal the end for crypto assets.”

For now, Singh’s gorilla is still in the mist, waiting for its moment to escape.

 

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“Institutional Investment Class” Morgan Stanley’s New Catchall for Crypto

A new report published by American multinational investment bank Morgan Stanley has redefined cryptocurrency as an “institutional investment class”.

The report was initiated after research revealed that current trading trends are flowing towards institutional investors who are increasingly wanting to invest in cryptocurrencies, so much so that Morgan Stanley have had its eyes firmly set on institutional investor potential for some months.

This led to rumors recently that the bank was intending following in the footsteps of some other Wall Street financial institutions offering crypto-related services by dealing in contracts that gave investors “synthetic exposure to the performance of Bitcoin”.

Still unconfirmed but if the rumors turn out to have substance, then investors will be given the option to go long or short using what is described as a “price return swap”, with Morgan Stanley adding its own charge to each transaction that it facilitates, according to a source close to the investment bank.

It is of little surprise then, that the New York financial giant has chosen this time to re-examine the way it looks at cryptocurrency. The new report, titled ‘Bitcoin Decrypted: A Brief Teach-In and Implications’, updated the classification of digital assets based on statistics from the last six months.

The report also examines problems reported by customers in relation to crypto as an investment class, such as regulatory uncertainty and a lack of regulations. These are areas that Morgan Stanley would like to address if it is seriously deciding on targeting institutional cryptocurrency investors, with a view to offering clients the chance to trade in Bitcoin derivative, as it has hinted in the past.

On a positive note for the bank, if this is to be their direction moving forward, is the reports mention of Fidelity’s new crypto services division, Coinbase’s fundraising round and positive regulatory developments. The report also notes that institutional investor confidence is rising at the expense of retail investment which has all but come to a standstill. The report states that institutional investors have gained “full confidence” in the market over the past six months.

 

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Mike Novogratz: Institutional Investments in Bitcoin During Q1 2019 to Bring New Highs

Notorious Bitcoin bull and seasoned investor Mike Novogratz no longer stands by his USD 10K Bitcoin price prediction for 2018, instead suggesting that institutional investors may push it to that total early next year.

Novogratz’s comments came in a Bloomberg Television interview where he defended his previous prediction, saying the cryptocurrency process has been a learning curve with everything taking ”longer than expected.”

He compared the whole crypto ecosystem to a fourth grader being expected to materialize into a graduate. One of the issues Novogratz pointed to is the need for internal committees and testing to solve custody problems that leave investors ”screwed” if anything illicit happens to their assets.

The conversation turned to Fidelity Investment’s announcement of a ”world-class custody solution,” to quote Novogratz, aimed at institutional investors. Considering cryptocurrencies as bare financial instruments, this class of investors has been held back from entering the market due to uncertainty surrounding the storage of cryptographic keys that allow access to the assets

Fidelity is offering them insurance that they can place their bets with cryptocurrency knowing that they won’t lose their money in an illicit way.

Combined with Goldman Sachs’ crypto custody solutions in the works, Novogratz believes that ”slowly but surely institutional investors are becoming more comfortable with the whole asset class.” As he reasons it, the institutional flow of capital can be expected in Q1 of 2019, or early Q2.

Being a Bitcoin trader himself, Novogratz has shared that right now, he is going long. In defense of Bitcoin’s mid-week stumble last week, he argued that it is still a young asset that certainly is not without volatility. Meanwhile, he stands firm on his belief that it is a valuable store of value, particularly in countries facing economic crises such as Iran and Venezuela.

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Fidelity Offering Bitcoin ETN to Clients

The Bitcoin Tracker One Exchange Traded Note (ETN) has become the first fully regulated financial instrument tied to actual bitcoins that are available for purchase by traders and investors in the United States. It is listed under the ticker symbol CXBTF on NASDAQ Sweden, but is available via OTC Markets to United States investors. Now Fidelity, one of the biggest stock trading firms with USD 2.4 billion of assets, is offering easy CXBTF access to their customers.

This is major news, since Bitcoin has a market cap of USD 110 billion and the overall cryptocurrency market cap is USD 215 billion. Now Bitcoin has direct exposure to investors who own and trade orders of much higher magnitude i.e. 1000% more, than the current amount of money invested in the Bitcoin market. Buying Bitcoin via CXBTF is just as easy, safe, and regulated as buying any other stock on the Fidelity platform. Eventually, due to customer demand CXBTF will likely be available on every major stock trading platform in the United States.

This is the news the entire crypto market had been waiting for since this is a way institutional investors can buy Bitcoin via the stock trading platforms they are used to. The crypto space had been hoping for a Bitcoin Exchange Traded Fund (ETF), and when the Winklevoss Bitcoin Trust ETF and the VanEck SolidX Bitcoin ETF were rejected and stalled respectively it caused the global price of Bitcoin to decline. This Bitcoin ETN is essentially just as good as an ETF, since it provides a way for institutional investors to diversify into Bitcoin on the same channels they use to trade stocks.

Bitcoin is an excellent way to diversify a portfolio, since it is an extremely unique asset class that has been showing strong long-term growth, and it is inevitable that institutional investors will invest a small fraction of their portfolio into Bitcoin in the future.

Currently, XBT Provider, a CoinShares company, is holding USD 334 million of Bitcoin for Bitcoin Tracker One and Bitcoin Tracker Euro, and USD 109 million of Ethereum for Ether Tracker One and Ether Tracker Euro. This is not an insignificant amount relative to the total Bitcoin and crypto market caps, and now that it’s available in the United States these numbers should surge.

One very important thing to note is that XBT Provider backs the Bitcoin Tracker One ETN with actual bitcoins, so as investors buy CXBTF, XBT Provider buys actual bitcoins. Therefore, CXBTF has a direct impact on spot markets and therefore the global Bitcoin price. This is much better than the Bitcoin futures in Chicago on CME and CBOE, which are backed by cash and don’t directly influence global Bitcoin price.

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