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Indian Exchanges Continue to Flout Crypto Banking Ban

The Reserve Bank of India (RBI) banking ban on cryptocurrencies in India is having less impact than the government anticipated as more exchanges go back to work.

Three exchanges have announced the return of Indian rupee (INR) deposits, contrary to the government ruling in July, which effectively removed INR deposits and made withdrawals illegal. Petitions against the current ruling are up for Supreme Court scrutiny later next week. On 12 September, Koinex announced rupee deposits and withdrawals were now back in operation at their exchange, referring, rather romantically, to the “old times”:

“We are happy to announce the revival of INR in the crypto universe through a new peer-to-peer deposit and withdrawal mechanism for INR transactions… Just like the old times, users will be able to deposit and withdraw funds directly from their INR wallets.”

Another exchange, Coindelta, is back to business as usual too with an equally folksy announcement on their website:

“We have resumed back the INR deposits and withdrawals on Coindelta. Not only this, your old favorite INR markets are back where you can trade with your INR.”

Two other platforms, Koindesk and Giottus, are back too, the latter with a peer-to-peer (P2P) system, allowing its users to withdraw rupees. P2P has become a way that many exchanges have developed for their own homemade way of operating. Exchanges now using a P2P system for accessing and spending their rupees include WazirX, Intashift, and Coind.

WazirX head Nischal Shetty suggested that the exchange was seeing more that one match per minute through its P2P facility, with trading increasing daily, proving that crypto is very much alive and well on the subcontinent.

Rahul Chitale of Instashift said: “Since the last set of RBI-related developments in the past couple of months, we have continued to see strong 20-25% growth in trading volumes month on month over the last 2 quarters of our operation.”

In the meantime, Dabba growths in strength, profiting from the RBI ban. Working via the messaging app Telegram, with money as cash routed through the various channels in the hawala system. The money then passes either officially or unofficially to the foreign account where Bitcoins are transacted. Payment is then made in cash or check and the deal is done: no exchange, no Indian bank.


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Robinhood Maintains Zero Fees by Selling Customer’s Orders to High-Frequency Trading Firms

Robinhood is a popular stock trading app that has expanded into crypto, and one of their biggest selling points is that they offer customers zero-fee trading. This business model has been somewhat of a mystery, especially in the areas of sustainability. However, a filing with the Securities and Exchange Commission (SEC) of the United States for Q2 of 2018 reveals that Robinhood is selling their customers’ orders to high-frequency trading firms. This is a practice known as payment for order flow or equity order flow, and could easily be generating Robinhood tens or hundreds of millions of USD.

Essentially, Robinhood doesn’t execute all of their customer’s trades on the Robinhood platform, if any at all, instead they sell orders to 5 high-frequency trading firms and choose on behalf of their customers. The firms are Apex Clearing Corporation, Citadel Securities, Two Sigma Securities, Wolverine Securities, and Virtu Financial. Robinhood is paid between USD 0.00008 and USD 0.00026 for each USD of an order they sell to another trading firm. This at first might seem very small, but it is actually 10 times more than firms like TD Ameritrade and E*TRADE profit on payments for order flow.

Additionally, other major trading firms report payments for order flow in terms of per share, instead of per USD like Robinhood does. By reporting the payments for order flow in terms of per USD it makes them appear minuscule, which is deceptive. Robinhood is likely making tens to hundreds of millions of USD on payments for order flow. E*TRADE makes USD 47 million per quarter on payments for order flow, and TD Ameritrade makes USD 119 million.

The reality is that Robinhood is not really in the business of selling stocks or cryptos, they are selling their customers as a product, and their real clients are high-frequency trading firms. The high-frequency trading firms make tremendous profits off Robinhood’s customers since Robinhood customers are generally uninformed and don’t notice that they aren’t getting optimal deals. This is why high-frequency trading firms pay 10 times more for Robinhood’s payments for order flow versus other trading platforms that have more skilled traders.

The reason behind Robinhood’s popularity is due to the branding of zero-fee trading. In reality, there is a heavy fee being charged for all Robinhood trades by high-frequency trading firms in the form of less than optimal order execution.

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Crypto Gains Valuable Voice in Washington with New Lobby Group

A new lobby group has been formed in Washington DC with the express purpose of representing crypto entrepreneurs and investors.

The group, the Blockchain Association, helps to put some further impetus behind the industry in the way it is represented to legislators and lawmakers in the nation’s capital.

Comprised of leaders in the sector, currently made up from  Circle, Coinbase, Protocol Labs and other crypto investment firms, like Polychain Capital and Digital Currency Group, the new lobby group has become the first of its kind, specifically aimed at improving conditions within the cryptocurrency space in the US.

Based in Washington, the group intends to assist crypto and blockchain companies through the law as it relates to the industry, and work with legislators on issues such as tax-law, KYC and AML policy. For industry players, many will be encouraged that the industry now has a voice in the capital, particularly those who welcome prudent voices in the push for regulation.

Detractors of cryptocurrency’s growing corporatization and privatization, however, won’t be convinced even if Coinbase’s chief legal and risk officer Mike Lempres, assured that they weren’t “looking to game the system”.

Recently, Coinbase established its own political action committee (PAC) for the crypto industry, becoming the first of its kind to do so. The role of PACs in the US is that of a fundraiser for candidates running for public office. At the US federal level, an organization becomes a PAC when it receives or spends more than USD 1,000 for the purpose of influencing a federal election and registers with the Federal Election Commission, according to the Federal Election Campaign Act.

Coin Center’s executive director Jerry Brito agreed with Lempres, claiming that it gives their company another outlet for responding to difficult issues:

“We’re happy to see this organization stand up. It’s good to have more voices advocating for things we agree about. But probably more importantly for us, a lot of folks project ‘trade association’ onto Coin Center, and we’re decidedly not that. When we get questions about the industry, we can send them to these folks.”


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SEC Halts Trading of Sole Bitcoin ETN in US

The United States Securities and Exchange Commission (SEC) has halted trading of the first and only Bitcoin exchange-traded note (ETN) available in the United States. The ETN Bitcoin Tracker One, under the symbol CXBTF, had only been trading in the United States since mid-August 2018.

The SEC says the halting of the Bitcoin Tracker One ETN is only temporary until 20 September, but from the wording, it sounds like it will be prohibiting the ETN long term. The SEC gives broker-dealers permission to interact with CXBTF only if they are helping to liquidate positions of US investors.

The SEC says there is a lack of current, consistent, and accurate information about Bitcoin Tracker One that is confusing investors. Particularly, Bitcoin Tracker One is characterized as an ETN by public sources, an exchange-traded fund (ETF) in some application materials, and the issuer classifies it as a non-equity linked certificate. The SEC says due to this classification confusion that it must be halted to protect investors.

It was a major milestone that Bitcoin Tracker One had become available in the United States. It allowed traders to invest in Bitcoin in a safe and regulated way, and had the potential to be listed on all the major stock trading platforms, which would have increased institutional investment. Indeed, Fidelity had already started facilitating the buying and selling of Bitcoin Tracker One.

The SEC has taken an aggressively negative stance towards Bitcoin, rejecting well over a dozen Bitcoin ETF applications. One of the SEC commissioners, Hester Pierce, says the SEC is not doing its job by getting in the way of a Bitcoin ETF. Pierce thinks a Bitcoin ETF would make it safer for investors to buy Bitcoin, and by rejecting ETFs the SEC is exposing investors to risk, the opposite of what they should be doing.

The SEC has repeatedly said that the entire Bitcoin market is too risky and unregulated, and that’s the reason no ETF is being accepted. In the case of Bitcoin Tracker One, the SEC chose a small legal detail, the particular classification, to halt trading.

Considering the SEC’s track record, it is clear that they will make sure there is no regulated Bitcoin securities product available to US investors for the foreseeable future. Bitcoin Tracker One is an ETN backed by actual Bitcoins that allowed institutional investors to buy Bitcoin on major stock trading platforms, and that is not in the SEC’s game plan.


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Winklevoss Bonus as New York Regulator Approves Gemini Stablecoin

In a statement on Monday, the New York state regulator revealed that it had approved two dollar-linked digital tokens, including one launched by the Winklevoss brothers.

Two firms, Gemini Trust Company, and the Paxos Trust Company, are the first stablecoin providers to receive the go-ahead to list on exchanges in New York State.

A stablecoin is a cryptocurrency pegged against the USD, giving it price-stable characteristics, seen by some as a safe hedge against the volatility of conventional cryptocurrencies such as Bitcoin or Ethereum. Currently, they are underutilized apart from traders using them to guard their positions during bear markets.

New York State’s Superintendent of Financial Services Mario Vullo commented on the Gemini/Paxos  decision:

“These approvals demonstrate that companies can create change and strong standards of compliance within a strong state regulatory framework that safeguards regulated entities and protects consumers.”

The Gemini Dollar, launched by the Winklevoss twins, will allow users a one to one exchange on the US dollar on the Ethereum blockchain. On Monday, they commented on the approval, suggesting that their thinking behind Gemini was a “first step… making it safe and easy to buy, sell, and store cryptocurrencies”. They saw the launch of Gemini four years ago as a “mission” to “build a bridge to the future of money”.

In exactly the same way as the Gemini, the company’s stablecoin, Paxos Standard, will also be linked to the US dollar on a one to one basis.

Nick Tomaino founder of @1confirmation calls stablecoins “the holy grail of cryptocurrency“, suggesting that coins such as Bitcoin were too prone to volatility. Tomaino suggests that the US dollar is a fiat working example of stability. The dollar falls down as a stablecoin, primarily because it lacks user control being dependent on the Federal Reserve and the US banking system.

Investors trading through the itBit exchange will able to cash out their crypto to Paxos Standard, which will trade as PAX on other exchanges.


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Uzbekistan and Belarus want South Korea’s Crypto Knowledge

South Korea’s high profile status in cryptocurrency space is leading less crypto-developed nations to seek advice from them in the hope to secure valuable insight in further developing their know-how in the industry.

Both Uzbekistan and Belarus, two central European countries still in development in the space, are turning to the East for support.

Uzbekistan has recently legalized crypto trading in the country and has announced some initial regulations for both trading and mining. The new decree, “On measures to organize the activities of crypto-exchanges in Uzbekistan”, states any company providing for the purchasing of or sale of crypto assets on a platform will be recognized as a legal exchange.

The country, which is now working to create a state-owned, national coin trading platform, also wants to attract foreign exchanges, to which end authorities in the nation’s capital Tashkent have sought the support of the Korean Blockchain Business Association (KOBEA).

As part of an ongoing negotiation, the Uzbekistan Revolution 4.0 project has been formed to further develop the country’s new crypto industry, with KOBEA cooperating with Uzbekistan’s regulatory body, the National Agency for Project Management. Further plans to build a mining center and a blockchain academy and a large research complex in Tashkent are also under consideration with KOBEA on hand for technical advice.

The country is also expecting to call on South Korean cryptocurrency experts in order to begin offering specialized educational courses at universities around the country.

Belarus has no intention of behind left behind in the region. As reported by local news outlet Korea JoongAng Daily, the deputy foreign minister and ambassador of Belarus Andrei Dapkiunas told reporters that the European nation is open to investment into Fourth Industrial Revolution (4IR) technologies; this includes blockchain, Artificial Intelligence (AI), Robotics and the Internet of Things (IoT).

Belarus recently expressed interest in strengthening economic and business ties with during a recent working visit to Seoul, particularity in the fields of fintech and blockchain technology. Diplomats from Belarus are keen to extend the cooperation between the two counties to promote new projects in the country.


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Blockchain Eases the Way in World of Islamic Finance

Islamic banking which carries with it higher administrative costs than conventional banking could be benefited with the implementation of blockchain technology.

The two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest.

Blockchain-based banking is considered the next frontier in banking that will usher in a new era of decentralization and disrupt the centralized banking system. Islamic banking is a USD 3 trillion industry worldwide particularly popular in North African, South Asian and Middle Eastern countries. Its principles involve zero interest rates and focus on more control of one’s finances than the conventional banking system.

Financial Institutions such as Hada DBank, a promising new startup, will help increase transparency and bring back control to the average Islamic Bank user. For this purpose, Hada DBank is involved in various corporate partnerships that are cementing the bank’s status as the premier blockchain Islamic bank.

However, fees are an issue in traditional Islamic banking, the main reason being that the system requires higher transactional costs which cover some legal and administrative processes not required in conventional banking.

Blockchain banking in automating some of these processes due to encoding terms and including them in its smart contract system can alleviate some of the associated legal and administrative processes, reducing both cost and the risk of fraud.

In Islamic banking, all financial transactions must comply with Sharia Law, where debt cannot be created unless backed with underlying assets. Mining is acceptable as there is no aspect of either debt or lending involved in the process.  According to Islamic law, items falling under the ribawi category (such as gold or silver) must be exchanged in equal measure and with immediate transfer of possession, otherwise, transactions may involve riba or usury, a major prohibition in Islam.

UAE-based startup Adab Solutions has launched the world’s first cryptocurrency exchange that operates with full Sharia law compliance. The exchange will be overseen by an in-house Sharia Advisory Board (SAB) comprised of independent experts that will ensure the operations unfailingly remain within the jurisdiction of Islamic law.

As the fastest growing religion in the world, with Muslims now representing 23% of the world’s population, Bitcoin has become an important issue for financial authorities. Last year, the International Monetary Fund (IMF) held its first formal discussion about Islamic banking needs in the Muslim community for the first time.


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New Regulations in Mexico Restrict Banking Services for Crypto Investors

Mexico’s Central Bank, the Bank of Mexico, has updated regulations for financial entities that restrict the services they can provide to regular cryptocurrency investors.

Financial entities are first required to identify all the customers they have involved in cryptocurrency trading, and then sort out those operating on a regular or professional basis. Those that fall into this category must only be given demand deposit accounts and are required to provide additional identification data.

Banking service providers are told to refrain from opening new accounts to regular or professional traders, and any funds transferred to crypto beneficiaries are required to undergo additional validation checks. Each financial entity must provide accessible policies and procedures to prevent any illicit proceeds from being transferred to or from crypto-related accounts.

The regulations go as far as to prohibit banks from making resources available to crypto clients on the same banking business day that funds are deposited; should the Bank of Mexico issue any last minute notice that the bank should intensify the monitoring of the clients.

The central bank said that measures have been taken in order to prevent money laundering or illicit financial activities in Mexico. However, banks have raised concerns over how the new policies will be a detriment to market efficiency. Cryptocurrency exchanges have also expressed their views that the new know-your-customer (KYC) guidelines combined with the regulations will slow the speed of transactions and increase the cost for the process.

All authorized cryptocurrency exchanges must also comply with an additional set of guidelines issued by the Bank of Mexico, under the FinTech law that sets terms and conditions relating to the custody and control of digital currency assets.

Financial entities have until September 2019 when the regulations will be in effect, to comply with the new rules.

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Goldman Sachs Not Abandoning Crypto Trading Desk, Plans to Launch Bitcoin Derivative

A story circulated through the mainstream crypto media that Goldman Sachs was abandoning its crypto trading desk ended up being a fake news. Not only is Goldman Sachs not abandoning its crypto trading desk, according to its Chief Financial Officer (CFO) Martin Chavez, Goldman Sachs is looking to expand its operation by launching a Bitcoin derivative.

Martin Chavez says “I never thought I would hear myself use this term but I really have to describe that news as fake news”. The fake news made the rounds on 5 September 2018, the same day Bitcoin crashed from USD 7,400 to USD 6,400. Many people at the time speculated that the Goldman Sachs news helped drive this crash. Yet, the market hasn’t gone up since this fake news was reversed, suggesting it might just be a coincidental crash event.

Martin Chavez indicates that clients want a Bitcoin derivative, specifically saying “The next stage of the exploration is what we call non-deliverable forwards, these are over the counter derivatives, they’re settled in U.S. dollars and the reference price is the bitcoin-U.S. dollar price established by a set of exchanges”. Goldman Sachs is already settling Bitcoin futures contracts from the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) since May 2018. This new derivatives product Martin Chavez is talking about is like an in-house version of cash-settled Bitcoin futures.

It would be much better for Bitcoin, and much more groundbreaking, if the product Goldman Sachs plans to launch uses physical Bitcoins. However, Martin Chavez says “Physical bitcoin is something tremendously interesting, and tremendously challenging. From the perspective of custody, we don’t yet see an institutional-grade custodial solution for bitcoin, we’re interested in having that exist and it’s a long road”.

His argument isn’t entirely true, since Xapo, BitGo, and Coinbase offer institutional grade crypto custodianship that would be effective and sufficient for Goldman Sachs’ operations. However, it is unfortunate that Goldman Sachs is choosing to go with cash-settled derivatives – paper bitcoins, instead of actual bitcoins. Paper bitcoins are actually bad for the Bitcoin market, since they divert investment away from the spot market, causing Bitcoin’s price to be lower in the long-term than it would be if paper bitcoins didn’t exist. Unfortunately, paper bitcoins are proliferating on the Bitcoin futures markets in Chicago, on derivatives exchanges like BitMEX, and now Goldman Sachs.

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Iceland Comes out of the Cold With First Bitcoin Trading Pair

Iceland’s Financial Supervisory Authority (FME) has announced the first registration of a cryptocurrency exchange in the country, allowing users to trade Bitcoin.

The exchange Skiptimynt, will feature two trading pairs, the Icelandic Krona (ISK)/Aurora Coin(AUR) and Bitcoin (BTC)/ISK. Aurora coin is Iceland’s alternative to Bitcoin created in 2014.

In reality, Skiptimynt isn’t the country’s first exchange as that distinction rests with ISX launched in 2016. However, that exchange is largely inactive and doesn’t offer a Bitcoin trading pair, limited to the ISK/AUR pairing.

When Auroracoin was launched it caught the eye of the country including politicians, the cryptocurrency community and the media. Although, very few Icelandic shops and services accepted payments in AUR and since then it has been largely ignored.

After its failed attempts to  “break the shackles of the fiat currency financial system in Iceland”, the country has primarily become a center for cryptocurrency mining. This is largely due to its combination of abundant renewable energy sources and cold climate – both suited for mining operations as they result in low electricity tariffs and cooling costs. Lower costs generate higher profits for cryptocurrency miners, which has created a situation in Iceland where electricity consumption for mining has overtaken household use.

Prominent politicians in Iceland have suggested that the country’s economy could be at risk given a cryptocurrency market crash. Government finance minister Bjarni Benediktsson said that the crypto threat “cannot be excluded as a risk factor” to an economy still recovering from the global financial crisis.

Styrmir Hafliðason, security and quality manager at Skiptimynt data center, is responsible for dealing with the weekly flood of mining applications. He disagrees, suggesting, for example, a crackdown on crypto by regulators wouldn’t impact the country, as crypto assets are simply held as zeros and ones in private centers, and therefore aren’t part of Iceland’s economy.

A recent report by KPMG claims that about 90 percent of the power consumption of Iceland’s data centers last year was dedicated to crypto mining.

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