Category Archives: ICOs

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Lithuania Probe: Some Euro Banks Cited for Trading Big in Crypto

A government probe in Lithuania into the activities of private individuals and cooperate bodies has revealed that major European banks have been facilitating large crypto-fiat deals.

The country’s Financial Crime Investigation Service (FCIS) has been investigating activities which are reported to have happened over a period of two years. This investigation mainly concerns large trading transactions, some running into the millions of euros traded for cryptocurrencies and through European banks.

The investigation was part of a national analysis of financial activity, in order to examine the direction of money-flow in Lithuania’s financial system. The information was gathered by the FCIS from sources such as the Central Bank of Lithuania and government departments responsible for electronic fund regulation.

The FCIS found that some major financial institutions such as Danske Bank and Swedbank conducted business for their clients running into millions of euros. The next step, according to the investigators, is to find where the money originated, with 7 banks trading cryptocurrency worth €661 million. The three largest transactions handled by the banks were valued at 27.2,16.6 and 14.1 million euros

FCIS director Mindaugas Petrauskas reported that one Lithuanian resident recorded a profit from cryptocurrency trading of EUR 60 million, commenting, “The question arises as to where does it come from, that’s a lot of money.”

There has been a significant increase in funds raised through ICOs since 2017 with funds raised rocketing from EUR 82 million in 2017 to EUR 500 million in 2018 so far. The FCIS is concerned principally with money laundering aided by the anonymity of the transactions with wallets often located overseas. Petrauskas indicated that the investigation is in line with the current recommendations proposed by the Finance Ministry at further ICO regulation.

The Lithuanian Minister of Finance recently suggested that the country was in the “middle of an explosion of ICOs and blockchain based projects”, as the ministry published a guideline document which covered information for investors regarding ICOs and taxation.

The country has recently become a growing center for ICOs and crypto projects. Latest figures show that Lithuania is now attracting an impressive 10% of all global ICO investments, with cryptocurrency bringing in half a billion euros from such activities.

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VC Funding for Crypto and Blockchain Records 280% Annual Growth

Venture capital (VC) is fast becoming the new way to invest in blockchain companies outstripping ICOs, according to a new study.

VC investments generally come from hedge funds, private equity firms, or persons of extreme wealth, with the resources to invest funds into start-ups with the hopes of quality returns on the original investment.

The new study conducted by Diar, the weekly institutional publication on digital currency, assets, payments and regulation, suggests that the impetus has clearly shifted with VC companies now pouring their money into projects at a rising rate. VC research platform Pitchbook confirms that within the first nine months of 2018, USD 3.9 billion has been raised for VC blockchain enterprises, a 280% rise on the previous year.

The growing interest by venture capital companies in blockchain projects, juxtaposed against a diminishing number of ICOs, thought to be a result of government intervention and stricter rules being enforced on crypto startups who get their funding from ICOs.

The data also shows that the size of VC investments has gone up with the frequency, with median size of deals increasing over USD 1 million in this year alone, showing that as confidence in the industry grows, so does the preparedness to take a higher element of risk. The most active VC investor with 110 deals related to crypto and blockchain is Digital Currency Group (DCG), followed by Blockchain Capital and Pantera Capital with 100 deals.

On the heels of this latest news, Bitcoin News reported yesterday that South Korea’s largest VC company announced investments in TEMCO, a blockchain solution company for supply chain management built on the EOS network.

Korea Investment Partners (KIP) of Seoul has investments in over 50 companies, 20 private equity funds and a significant roster of partners all over the world. Its investment into TEMCO is of undisclosed value although according to a press release, it claims to be the first ICO funded by “major venture capital”.

In terms of where the new wave of venture capital is going to, reports suggest that the US, UK, and Switzerland top the list.

 

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Token Grab Still on in China Despite Ban

China has a ban on crypto and ICOs but the Chinese crypto enthusiasts keep on coming, with tokens available for those that want to flout state rules.

ICOs banned in China are increasingly coming under pressure and most of the big names have set up overseas to avoid becoming entangled in complicated prohibitive regulations. Thus, any advertising relating to ICOs is quickly jumped on by the authorities in an attempt to eradicate them from mainland China.

Clearly, the way to survive the ban is to do your business quietly, which is what many investors have learned to do, ensuring that their crypto life goes on as normal. The latest method to circumvent rules and buy tokens is for buyers is to log in on a platform for over-the-counter (OTC) transactions, where WeChat, Alipay or bank transfer mainstream currencies are readily available. Even setting up an ICO is possible if you know how, according to local media, as many Chinese companies are setting up overseas.

Despite the obvious continuation of trading and increase in peer-to-peer activity, the Chinese government recently called its a ban a “success”. Zhang Yifeng, a blockchain analyst at the Zhongchao Credit Card Industry Development Company, commented on recent government data which suggested that Chinese yuan (CNY) was currently being used in less than 1% of crypto-trades:

“The timely moves by regulators have effectively fended off the impact of sharp ups and downs in virtual currency prices and led the global regulatory trend.”

However, the word “success” may be purely subjective on this occasion, seeing that the ban drove out Binance, one of the world’s largest cryptocurrency exchanges, along with other hugely “successful” platforms, taking along with them an enormous investment pool.

With the latest revelation that the Industrial and Commercial Bank of China (ICBC) intends to focus on developing blockchain technology, China’s blockchain growth goes from strength to strength regardless, and this is clearly where China sees its future regardless of any later decision they may take on lifting the current crypto ban. Financing events this year have involved far in excess of CNY 6 billion, with over 10% of blockchain businesses being able to obtain more than CNY 100 million yuan of financing to further develop their enterprises.

 

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China Central Bank Vows to Crush Foreign ICOs Targeting Chinese Investors

At a meeting for the Internet Finance Rectification Working Group on 9 July 2018, the Vice Governor of the People’s Bank of China (PBoC), Pan Gongsheng, had harsh words for foreign initial coin offerings (ICOs) that are targeting Chinese investors. He said, “Any new financial product or phenomenon that is not authorized under the existing legal framework, we will crush them as soon as they dare to surface.”

China banned ICOs and trading cryptocurrency for Chinese yuan (CNY) in September 2017, causing almost all cryptocurrency companies to flee the country including top exchanges Binance, Huobi, and OKCoin. Hong Kong has become a haven for cryptocurrency activity since that time since it has an autonomous government that has decided on more favorable cryptocurrency regulations.

According to Pan, individuals and organizations that are now “running abroad” are still doing business with Chinese residents, which is illegal and prohibited. The Internet Finance Rectification Working Group is tasked with enforcing decisions of Chinese regulators. Clearly, they are being pushed by Pan to use their full power to combat investment in foreign ICOs.

It is unclear how the Working Group will crackdown on ICOs. Due to the decentralized nature of cryptocurrency, even if cryptocurrency is fully banned there is no way to stop Chinese residents from using it, including the use of cryptocurrency to invest in ICOs. It appears one tactic Chinese regulators are using is monitoring messaging apps like WeChat to spot cryptocurrency traders, and WeChat has limited the amount of money that can be sent through their payment service. Also, popular online forums like Zhishi Xingqiu have become an access point for ICOs to reach Chinese residents, and these are being monitored as well.

 

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McAfee Furious over SEC Decision to Classify ICOs as Securities, Demands Debate with SEC Chairman

Infamous cryptocurrency advocate John McAfee, who is running for President of the United States with a campaign platform that focuses on cryptocurrency, is furious over the Security and Exchange Commission’s (SEC) decision to classify most initial coin offerings (ICOs) as securities. He is demanding a debate with SEC chairman Jay Clayton that would he hopes to be broadcast on CNN.

McAfee makes a significant portion of his money from advertising ICOs on his Twitter feed where he has 827,000 followers. Apparently, he makes USD 105,000 per promotional ICO Tweet, which he admits is “embarrassingly” huge. This is all down to a supposed “McAfee Effect” where cryptocurrency prices jump after they are promoted in his Tweets.

It is, therefore, no surprise that McAfee is upset about the recent declaration from the SEC that ICOs will be treated as securities if there is an organization making money from conducting the ICO, and if people who invest in the ICO expect a return on their investment. If ICOs are considered securities then John McAfee could end up facing severe legal consequences for promoting ICOs that aren’t properly licensed by the SEC.

He says that he will no longer work for future ICOs under the current conditions, but promises to fight the SEC’s decision. He believes that ICOs don’t meet the criteria for the Howey Test which was created by the Supreme Court to define what a security is.

McAfee says that if the SEC tries to prosecute any ICO activity prior to the date of their announcement, then he will become “the greatest thorn in the side of the SEC since the founding of our Constitution”.

McAfee has challenged the SEC to a debate on CNN, having previously lambasted the FBI and NSA on CNN and RT, respectively. In typically provocative fashion, he welcomes the opportunity to “rip the SEC a new butthole”.

He will have certainly raised eyebrows by posting the phone number and email of SEC Chairman Jay Clayton on his Twitter feed, urging his followers to pressure Clayton to give in to McAfee’s demands.

 

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Valerie Szczepanik Appointed as First SEC ‘Crypto Czar’

The US Securities and Exchange Commission (SEC) on Tuesday appointed Valerie Szczepanik to a new position being referred to as “crypto czar”. Szczepanik’s official title is the Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation for the division’s acting director Bill Hinman.

What crypto czar entails

The creation of this position is being interpreted as an indication of the SEC’s commitment to further regulating the cryptocurrency industry. Szczepanik’s role as a senior advisor will entail overseeing digital asset technologies, including initial coin offerings (ICOs) and cryptocurrencies.

The official government press release notes her responsibilities as including “[coordinating] efforts across all SEC Divisions and Offices regarding the application of US securities laws to emerging digital asset technologies and innovations, including Initial Coin Offerings and cryptocurrencies”.

The new role appears to hold substantial actionable responsibilities, with which acting director Hinman believes she is more than suited for.

”[Szczepanik] is a recognized leader in responding to developments in our markets. I am excited to have her join me and the Division’s staff as the SEC continues to collaborate with retail investors, issuers and other market participants, in this important and rapidly evolving area,” Hinman said.

Addressing her appointment, Szczepanik noted, ”I am excited to take on this new role in support of the SEC’s efforts to address digital assets and innovation as it carries out its mission to facilitate capital formation, promote fair, orderly, and efficient markets, and protect investors, particularly Main Street investors.”

Valerie Szczepanik’s history

The official press release details Szczepanik’s relevant employment history, noting that she joined the SEC in 1997 with her last job role designated as the assistant director in the division of enforcement’s cyber unit.

Previously, she has also headed the SEC’s Distributed Ledger Technology Working Group as part of the SEC’s fintech division, qualifying her relevant blockchain capabilities.

Szczepanik shares the SEC’s generally negative perception of ICOs, stating earlier this year,”They’re raising a lot of money, but they’re not complying with the rules that are in place to protect investors… What we’re seeing is the issuance of these tokens before a platform is built.”

Part of her skepticism comes from a critical perception of the ICOs that are structured to raise money for a company rather than for the launch of a cryptocurrency, leading them to fall under the acting legislative definition of a security.

It is unfortunate for cryptocurrency investors that this appointment would be given to another government employee with such a negative perspective on ICOs, but her positioning may well encourage instituting better legislation for all investors.

 

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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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