Category Archives: ICOs

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US Department of Justice Opens Criminal Case into Bitcoin Price Manipulations

The US Department of Justice (DOJ) has opened a criminal investigation into whether traders are manipulating the price of Bitcoin and other cryptocurrencies, according to a report published Thursday by Bloomberg.

The most notable concern coming from the DOJ relates to a suspected potential that the volatility of the market creates an opportunity for investors to push price valuations in a way to favor themselves.

Additionally, authorities feel cryptocurrencies are particularly susceptible to fraud due to a concern over the lack of regulations, as well as skepticism that every exchange actively pursues those deceiving the rules of the platform.

Spoofing and wash trading

People familiar with the situation told Bloomberg that the DOJ is specifically looking into spoofing and wash trading from colluding traders. These two illicit tactics are forms of market cheating that have been combated by regulators in the futures and equity markets for years.

Spoofing involves a trader submitting a number of orders, then cancelling them once they are satisfied they have affected the prices enough in the desired direction.

Wash trading involves a cheater creating trades with themselves to create a false impression of market movements, which influences others to move in a specific way.

It was reported that both Bitcoin and Ether are being investigated for this, but the DOJ declined to comment on the case at Bloomberg’s request.

Protecting investors

After a Bitcoin price surge last year spanning between USD 1,000 and USD 20,000, the cryptocurrency industry has found a host of new supporters and investors. The number of ICOs has also skyrocketed, with a growing number of people aware and involved with altcoins.

Regulators across the globe are now seeing the industry as a growing concern, as investors enter the market without a clear understanding of what cryptocurrencies are, and the risks involved.

Cryptocurrency exchange platforms operate internationally, with many remaining unregistered with any government agencies, leading to a heightened fear of fraudulent activities in general.

Of course, the vast majority of platforms maintain there own strict security measures to protect users and are willing to pursue fraudsters, if not only to protect their own reputation.

 

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Educational Hoax ICO Site Launched by US Government

The US Securities and Exchange Commission (SEC) has produced a website advertising a scam initial coin offering (ICO), in an effort to educate the populace on how to identify such fraudulent websites.

In a Wednesday press release, SEC Chairman Jay Clayton discussed the intent behind the initiative. While acknowledging the rapid growth in the number of ICOs, he explained a need to help give investors the tools they require to recognize fraudulent sites.

”We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud… I encourage investors to do their diligence and ask questions,”
Clayton detailed.

Howeycoin ‘ICO’

The mock ICO website advertises the fictitious Howeycoin token, reading: ”Howeycoin is the newest and only coin offering that captures the magic of coin trading profits AND the excitement and guaranteed returns of the travel industry. Howeycoins will partner with all segments of the travel industry (air, hotel, car rental, and luxury segments), earning coins you can trade for profit instead of points.”

Information provided on the website looks much like that supplied during a genuine ICO, with statements such as “We anticipate OVER 1% daily returns, with DOUBLE 2% returns on Tier 1 investors in pre-ICO stage secured purchases.”

SEC Chief Council Owen Donley noted the ease at which scammers can utilize convoluted jargon to lure individuals into false investments, but pointed out significant red flags that can indicate fraud.

By clicking on the internal website links, visitors are directed to an SEC site that notifies them of the truthful nature of the website.

The SEC notice explains: ”Our bogus site is a mash-up of a number of different things we’ve seen – any particular fraud may be harder to spot than the red flags here. Here are some of the signs of fraud that are on the Howeycoins site – we hope reviewing these may help you recognize a real fraud in the future!”

Targetting of ICOs

There is certainly an emphasis currently placed on targetting ICOs and cryptocurrency related scams, when in fact around less than 1% of Bitcoin-related transactions have been linked to illicit activities. Although, it is true that several high-profile ICOs have been shut down due to suspected, or convicted fraudulent activity.

While it is certainly necessary to regulate ICOs to ensure they are providing the services and tokens that they are advertising, the current enforcement of numerous subpoenas by the SEC does indicate an arguably overzealous approach towards cryptocurrency start-ups when compared to how mainstream financial scams are currently handled.

 

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Binance CEO Firmly Believes in ICOs as Answer to Venture Capitalism

The CEO of cryptocurrency trading platform Binance has made a positive case for initial coin offerings (ICOs). In a recent blog post, Changpeng Zhao argues that the digital crowdfunding method adopted at large by blockchain startups are “not just good-to-have”, but necessary.

Out with the old

At the crux of the blog post is a debate between traditional venture capitalism (VC) and ICOs; Zhao highlights several differences while acknowledging the present issues with the ICO markets.

For entrepreneurs, Zhao argues that the process of acquiring funding through VCs is tedious, time-consuming and requires startups to relinquish some or all control of their project. He writes:

“Courting VC investors, doing powerpoints, business plans, pitch decks, executive summaries, due diligence, term sheets, investment agreements, offshore company structure setup, board of directors, make reports for them, getting a bridge loan because the VC lawyers insist on some totalitarian terms that essentially gives them absolute power and ownership of your company and hence delays the whole investment process…”

He then compares it to the speed, effectiveness and control an ICO delivers to any entrepreneur:

“Writing an awesome white paper about your passionate dream project and raise USD 20M in 10 days, from thousands of people around the world who speak your language, understand your vision, use your product as soon as it is launched, spend all day beta testing your product, or discuss with you about new neat (and sometimes useless) features that you haven’t thought about.”

ICOs are still in development

Zhao admits that ICOs are still in their early stages, which is true considering that countries around the world are feverishly debating the validity and legalities of ICOs, which contrary to popular belief, is a good thing.

Concerns over ICOs having a myriad of security, fraud and other illegal activities tied to them has caused knee-jerk responses from governments and regulators everywhere in the world. However, Zhao makes a strong point saying:

“You can’t make advancements without encountering problems. Properly dealing with issues is how progress is made. If we had given up e-commerce/internet because there was identity theft or credit card fraud, where would the world be today? Whoever deals with the issues best will be the winners, that’s where the competition is.”

ICOs beat VC projects

Zhao is of the belief that ICOs will succeed more often than VC projects and makes three distinct points as to why he thinks this is the case. His first is that again, ICOs are extremely time and cost effective. Less time spent raising funds means the actual project itself receives the much-required attention it needs.

Furthermore, the higher amounts of funding received from ICOs allow for startups to better overcome weak points in the project. Finally, ICOs create a user base during the funding period, turning investors into users, which is an extraordinarily strong start for any company upon launch.

He concludes by noting that VCs are now investing heavily in ICOs, a factor which he believes speaks for itself regarding just how valid and useful the digital fundraising method is.

 

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South Korean Bill to Legalize ICOs in Pipeline

Ruling Democratic Party member Hong Eui-rak and 10 other legislators have joined together to draft a bill, which if passed, would legalize initial coin offerings (ICOs) in South Korea.

Since last September’s government ban, when South Korean regulators expressed “serious concern” about markets being pushed towards nonproductive speculation, there have been numerous calls for the government to legalize ICOs. Since then, many South Korean companies have raised their funds through ICOs overseas.

Park Sung-joon, head of the Blockchain Research Center at Seoul’s Dongguk University is one that wants to see the ban lifted:

“An ICO is banned only in South Korea and China. The government said it will make a 14 billion [Korean] won (KRW or USD 13.15 million) investment to promote the technology but it is a ridiculously small amount of money considering the fact that other countries are seeking to research and develop the technology by raising hundreds of millions of won through an ICO.”

Hong Eui-rak spoke this week at an ICO and blockchain forum at South Korea’s Nation Assembly and suggested that his bill would be aimed at legalizing ICOs, but with government supervision. If the bill were passed ICOs would come under strict guidelines set by the FSC and the Ministry of Science and ICT.

Party member Hong said that they had based the bill on research conducted between his office and the Korea International Trade Association (KITA) and reiterated that last years’ government concerns could be addressed by more clarity: “The primary goal (of the legislation) is helping remove uncertainties facing blockchain-related businesses.”

Chung Sye-kyun, a speaker from the National Assembly also voiced a similar opinion: “Blockchain and cryptos can be used in various public sectors for good causes. Given their potential, we need to work to help reduce political uncertainties they face.”

Despite rumors in March that the South Korean government had plans to lift the ban on ICOs, this bill, if it is presented, will be the first of its kind to challenge the government at parliamentary level.

image source: https://pixabay.com/en/bitcoin-mining-processor-3369039/ – TheDigitalArtist

 

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UK Financial Conduct Authority to Deliver Crypto Regulation Analysis in 2019

The United Kingdom’s cryptocurrency regulation is slowly taking shape as its Financial Conduct Authority (FCA) has announced that they will be analyzing the risks and benefits of blockchain technology and cryptocurrencies.

Regulation in the UK

The FCA, Bank of England and the UK Treasury are working together on a discussion paper for cryptocurrencies which will be revealed in 2019. The coming UK crypto regulations are geared toward attracting businesses based in Continental Europe.

The FCA Business Plan 2018/19 states:

“Cryptocurrencies has been an area of increasing interest for markets and regulators globally. In the UK, the Treasury Committee has announced that it will be launching an enquiry, to which we intend to respond.”

The plan continues:

“Cryptocurrencies themselves (i.e. those designed primarily as a means of payment/exchange) are not currently within our regulatory perimeter. However, some models of use or packaging cryptocurrencies bring them within our perimeter, making the landscape complex.”

Regulation around the world

The FCA has previously warned consumers regarding the risks of initial coin offerings (ICOs). The popular crowdfunding method for blockchain startups has been part of a miasma of controversies causing ICO bans in countries like China, which is still having issues with ICO and cryptocurrency projects getting past the Peoples Bank of China’s (PBoC) strict rulings.

There are very few countries around the world that have outright bans on ICOs, and many of the governments within their respective countries are taking a look at the possibility of future regulations.

Most countries have banned ICOs due to fraudulent actors, scams, security risks and money laundering; however, several are attempting to create definitions and legal frameworks that can accommodate the technology and utilize the long list of benefits that come with it.

Protecting consumers and the technology

In February, the UK Treasury Committee launched an inquiry into cryptocurrencies and distributed ledger technology, stating that one of its goals is to provide protection to consumers and businesses without stifling innovation. MP Nicky Morgan, committee chairman, said:

“People are becoming increasingly aware of cryptocurrencies such as Bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors… We will also examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities, and to what extent they could disrupt the economy and replace traditional means of payment.”

The FCA also released a statement in response to the UK’s growing number of cryptocurrency and blockchain firms describing that cryptocurrency derivatives could be classed as financial instruments, meaning that tokens issued through ICOs could require FCA authorization.

While the FCA doesn’t quite have a clear idea on how to manage or regulate cryptocurrencies and ICOs, it is evident that the regulator intends to embrace distributed ledger technology and, in doing so, enable blockchain-related businesses and innovations to thrive in the UK.

 

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SEC Chairman Doesn’t Believe Every ICO is a Scam; Japan and South Korea Charge Ahead Toward Regulation

Jay Clayton, the Chairman of the US Securities and Exchange Commission (SEC), gave a speech at a Princeton University event that provided fascinating insight into his evolving views on how to approach initial coin offerings (ICOs) as well as how to classify and regulate cryptocurrencies.

Not every ICO is a scam

Essential discussions that delve deeper into blockchain technologies, ICOs and cryptocurrencies are taking place all over the world. Perhaps now that the markets are cooling off, the topic of how to legitimize the lucrative technology is finally on the table.

During the event, the SEC chairman disregarded that all ICOs were fraudulent scams, bearing contrast to his position in February. At a Senate hearing, Clayton declared he was “unhappy” with how ICOs were conducted, based on the fact that they did not follow private placement rules, and that there were some fraudulent ICO operators.

Clayton made a potent remark that brought to light a solution for a lesser-mentioned problem: what happens if the technology continues to have fraudulent actors? He said:

“I think if we don’t stop the fraudsters, there is a serious risk that the regulatory pendulum – the regulatory actions will be so severe that they will restrict the capacity of this new security.”

Overseas efforts

The United States isn’t the only country wrestling with the ICO debate; in Japan, a recent government-backed study revealed that it now is looking to bring forth the proper legal and regulatory frameworks to give the go-ahead on the popular capital-raising method.

The report included guidelines that will identify investors, which will prevent money laundering, which acts as a protection for existing shareholders and debt holders, making “unfair” trading practices such as insider trading a thing of the past for cryptocurrencies.

The report also goes on to classify three types of ICOs:

The “venture company type” is the typical fundraising method and is defined as “fund-raising by venture companies through high-risk, high return investments”.

The second is the slightly lesser known “ecosystem type” which is described as “fund-raising for collaborative efforts in which multiple corporations such as companies and local governments are engaged”.

The third and probably least known of them all is the “large company type”, which is for “fund-raising by companies for certain in-house projects with high risk”.

Advancements in the United States and Japan are steering the future of cryptocurrency in the right direction; BitcoinNews recently reported that South Korea is making preparations to tax cryptocurrencies, which may come off as alarming, but can be a vital spoke in the regulatory wheel.

Rallying support

What makes it even less alarming is that the third largest fiat-to-Bitcoin market in the world is also preparing to have a cryptocurrency for its capital city, and in fact, the United States and Japan are above South Korea in the fiat-to-Bitcoin market listing.

It is evident that despite the constant negative press, cryptocurrencies are part of very progressive discussions taking place in the largest markets in the world. It is these serious pioneering efforts that will make blockchain technologies and cryptocurrencies validated as part of the economy.

 

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Hearn Satoshi

Japan Establishes New ICO Regulation Guidelines in Government-Backed Report

Japan is making progress towards the full regulation and legalization of ICOs, with a government-backed study from Tama University detailing how to approach the new fundraising technology.

The study from the Centre for Rule-Making Strategies at the university identifies that the ICO market is still well within its infancy, but acknowledges that the fundraising method’s ability to generate investment capital has garnered international attention and could be utilized effectively should the proper legal or regulatory frameworks be in place.

How to regulate an ICO

The research group that conducted the study was comprised of experts and advisors who worked across various industries and specialist fields; they sought to identify potential ICO use cases, and then frame a set of rules around them. The study reads:

“For the permeation and development of ICO, it would be desirable to set rules on “issuance of tokens” and “trading of tokens in the issue market.” As for the purchase and sale of tokens in the trading market, there are certain rules set force in the Payment Services Act. However, there are no laws or regulations stipulating explicit rules for issue markets, which leads to cases of misunderstanding between parties and cases of investors being left without protection.”

The report, which could be a catalyst for future laws surrounding ICOs, has a set of ‘issuance principles’ which are designed to keep ICOs transparent and accountable. One of which is that issuers should “define and disclose” how funds, profits and residual assets are to be distributed amongst investors, shareholders and debt holders.

Furthermore, the study goes into some details on how to track the progress of whitepapers, often the go-to document for any potential ICO investor; investors identify the development of all plans within the whitepaper and are able to view the history of updates and revisions within it.

Progressive visions

Japan has been a notably volatile country in regards to ICO practices and Bitcoin operators; in late 2017, multiple media outlets reported that Japan was readying to ban ICOs entirely.

However, Japanese lawmakers and regulators have proven themselves time and time again to be extremely forward thinking when it comes to the adoption of cryptocurrencies. In 2015, in the wake of the Mt. Gox scandal, Japanese financial regulators began working out how to regulate domestic cryptocurrency exchanges, and in 2017 those visions were realized when Japan approved the registrations of 11 cryptocurrency exchanges, allowing them to operate legally in the country.

Despite Japan’s efforts to create a regulatory framework for exchanges, ICOs are the favored method of fundraising for blockchain startups and this report could finalize the legitimacy of cryptocurrency and all related technologies in the country, providing blockchain startups with the ability to raise funds through the previously controversial method.

Japan is part of the growing global movement to regulate and integrate cryptocurrency into respective societies; South Korea has been at the centre stage for a myriad of controversies and is now, similarly to Japan, making incredibly positive steps toward a secure crypto future that works for the public and the government.

 

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French Finance Minister Calls For ICO Regulations To Attract Crypto Startups

In a recent op-ed for French news website Numerama, France’s finance minister Bruno Le Maire outlined his ambitions to create a legal framework that would regulate initial coin offerings (ICOs) founded in France.

In his piece for Numerama, Le Maire emphasized his intent in establishing France as the first major financial center to provide ad hoc legislative framework for companies holding ICOs. The minister stated that former central bank official Jean-Pierre Landau was entrusted in drafting the legislation that would be debated in the French parliament. The final legislative proposal gives the market regulators in France, the Autorité des marches financiers, the ability to authorize fundraising through ICOs, provided the companies holding them follow specific guidelines in protecting investors.

“A revolution is underway, of which Bitcoin was only the precursor”

Echoing the sentiment of many Bitcoin supporters, Le Maire described Bitcoin as leading the international revolution within the finance and technology sectors. A priority of the policy proposals is to provide security for both the companies and investors participating in ICOs, as this is integral to establishing them as reputable financial events. For Le Maire, adopting cryptocurrency-friendly policies is the next natural step for France, as he sees the country as having a historical tradition of financial innovation.

This is not the first time Le Maire has discussed his interest in promoting the use of cryptocurrencies. The minister is an open advocate for digital currencies, chairing the cryptocurrency task force in France. This announcement also follows Le Maire’s persistence in bringing cryptocurrencies on the agenda at theG20 summit held in Argentina earlier this month. He took the opportunity at the summit to highlight the critical role of cryptocurrencies and blockchain technology for the future of finance. Although his actions at the summit were unsuccessful in establishing any sure form of international monetary policy, cryptocurrency regulation proposals are set to be announced by July.

Le Maire plans to bring the legislative proposal that targets regulating ICOs to the French Parliament within a few weeks, where he hopes to find government support to back his policies.

 

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