CoinDesk Crypto

Cryptocurrency exchange FTX has launched eight unique index futures and volatility markets in less than 12 months. But enticing sophisticated traders to use these novel products has proved challenging. 

At the time of publication, Antigua and Barbuda-based FTX supports 115 different cryptocurrency futures markets. BitMEX, currently the largest cryptocurrency derivatives exchange by open interest, supports 23. FTX’s unique futures markets, including decentralized finance and “shitcoin” perpetual futures, rank in its top 25 traded markets by 24-hour volume. 

Since August 2019, when FTX launched its altcoin index futures, the product strategy for these innovative markets has been to build and launch rapidly to capitalize on trends within cryptocurrency communities. “A lot of these products are really important to launch while popular,” said CEO Sam Bankman-Fried. 

Related: Bitcoin Options Market Faces Record $1 Billion Expiry on Friday

The ostensible popularity of these indices’ underlying assets, however, hasn’t always translated into equivalent demand from professional traders to enter the new markets. In fact, these indices report a tiny fraction of the trading volume for FTX’s bitcoin and ether futures markets. A one-week average of daily trading volume for FTX’s top indices shows none of them broke above even $4 million in traded volume. 

“Each of these new products are fascinating and potentially very attractive hedging instruments in the future,” said Jeff Dorman, the chief investment officer at Arca. But at present, larger investors may be precluded from “fully utilizing” FTX’s innovative products due to “low liquidity and low underlying AUM per product.” 

“With that said, if FTX is able to continue growing its user base and onboards more market makers, liquidity will naturally flow towards these products and funds will follow,” Dorman added. 

FTX’s unique futures markets are designed for both retail speculators and professional traders, according to Bankman-Fried. But to some traders, the exchange appears to be primarily designed for professional algorithmic and quantitative traders.  

Related: Bitcoin ATM Growth May Be a Boon for Money Launderers

See also: In Banking First, ING Develops FATF-Friendly Protocol for Tracking Crypto Transfers

“FTX is a battlefield for quants,” said Nik Yaremchuk, an independent quantitative bitcoin trader. To Yaremchuk, the exchange’s user interface alone signals that it has “few retail traders.” He added that roughly 90% of all FTX trades are also executed via its application programming interface (API). Traders use an exchange’s API to programmatically enter and exit trades instead of completing the trade manually via an online web interface. According to Bankman-Fried, that number is closer to 75 percent. 

Snowball effect

Generating liquidity takes time but can have a snowball effect once a new market gains momentum. One solution to boosting a new market’s liquidity is having other exchanges launch similar markets. This generates interest among their own users and creates opportunities for arbitrage trading. But other exchanges could be “worried about the lack of liquidity” on FTX’s markets, and hence “they don’t launch these products,” said Qiao Wang, an independent bitcoin trader, previously a quantitative trader at Tower Research. 

Another obstacle, according to Bankman-Fried, is the difficulties of coordinating the product designers and initial market makers “on really short notice” for these popularity-driven product releases. 

See also: Veteran Commodities Trader Chris Hehmeyer Goes All In on Crypto

FTX doesn’t seem worried about the liquidity in its new, eye-catching products. “Over time, more and more liquidity providers start to provide,” said Bankman-Fried. “Because the bulk of maker orders are sent by automated bots, it takes some time for many market making firms to add a new product to their models.” Gradually, more firms will add these markets to their “repertoire” and, thus, provide more liquidity, he told CoinDesk. 

According to Yaremchuk, the innovative futures markets on FTX are both great “tools” and “toys” for quantitative traders. But to date, these products aren’t as attractive or useful as they could be due to low liquidity. 

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Bitcoin’s often criticized for its volatile and unpredictable nature – now analysts are saying that, and more, about the pound sterling.

In a shock-inducing note to clients on Tuesday, currency analysts at Bank of America (BoA) said sterling had devolved into an emerging market currency in all but name during the four years since the U.K. voted to leave the European Union.

Sterling’s movements in the past four years has been “neurotic at best, unfathomable at worst,” said lead analyst Kamal Sharma, a notable GBP bear, in a report by the Financial Times.

Related: The Last Time Volatility Was This Low Bitcoin Went On to Rally by $2K

Sterling’s spreads and implied volatility – the future range investors expect GBP to move in – remain far wider than other major world currencies, such as the U.S. dollar, euro or Japanese yen, and resemble something closer to the Mexican peso.

Uncertainty surrounding a future trade deal with the EU, as well as the possibility of negative interests, have also harmed investor sentiment, BoA said.

See also: UK Financial Watchdog Warns Crypto Firms to Register Before End of June

Of course, many say similar, and worse, about bitcoin. In a recent note to investors, JPMorgan said bitcoin might have staying power, but its trading patterns in the last few months showed it was still a “vehicle of speculation [rather] than a medium of exchange or store of value.”

Related: Bitcoin Price Volatility Hits 3-Month Low

Goldman Sachs actually advised its clients against buying bitcoin last month. Rejecting the idea it was even its own asset class, analysts said its lack of cash flow and high price volatility made it wholly unsuitable as a long-term investment.

Bitcoin’s volatility actually hit an eight-month low earlier this week, though some anticipate an imminent breakout as volatility returns. BTC options volumes on CME have increased markedly recently, with a series of call orders placed in the $11,000 and $13,000 range.

See also: Binance Launching Crypto Exchange in the UK

The BoA’s note on sterling comes as 21Shares, a Swiss-based product provider, launched the world’s first sterling-denominated crypto exchange-traded products (ETPs). In a press release, the company said the new products, set to launch on June 30, would provide U.K. investors with greater and cheaper access to digital assets.

CoinDesk asked 21Shares if a potential downgrade in sterling would impact their ETPs at all, with investors being dissuaded from buying a product that not only tracks a volatile asset, but is priced in another volatile asset too.

Laurent Kssis, 21Shares’ managing director, said it wouldn’t make much of a difference: U.K. enthusiasm for crypto products has been high, but the market has remained relatively untapped because investors first have to exchange into U.S. dollars, Swiss francs or euros in order to access them, adding additional frictional costs.

“Irrespective of volatility, GBP-denominated ETPs remove the FX risk factor and allow U.K. investors to better tap into crypto,” he said.

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The first BitLicense was issued in 2015, just months after the regulatory regime was first implemented. A total of 25 entities are now approved to operate in New York by the Department of Financial Services, including six limited purpose trust companies.

BitLicenses

• Circle Internet Financial, Inc. (9/22/15)
• XRP II, LLC (Ripple) (6/13/16)
• COINBASE, Inc. (1/17/17)
• bitFlyer USA, Inc. (11/28/17) 
• Genesis Global Trading (5/17/18)
• XAPO, Inc. (6/14/18)
• Square, Inc. (6/18/18)
• BitPay, Inc. (7/16/18)
• Coinsource (Clark, Sharp and Reynolds LLC) (11/1/18)
• NYDIG Execution LLC (11/14/18)
• LibertyX (Moon Inc.) (1/24/19)
• Robinhood Crypto, LLC (1/24/19)
• Cottonwood Vending, LLC (1/31/19)
• Bitstamp USA, Inc. (4/9/19)
• Tagomi Trading LLC (3/27/19)
• Seed CX (7/15/19)
  Zero Hash LLC
  SCXM
• SoFi Digital Assets, LLC (12/3/19)
• Eris Clearing, LLC (ErisX) (5/6/20)

Limited Purpose Trust Charters

• Gemini Trust Company, LLC (10/1/2015)
• Paxos Trust Company, LLC (05/07/2015) (Formerly itBit Trust Company)
• Coinbase Custody Trust Company (10/23/2018)
• NYDIG Trust Company LLC (11/14/2018)
• Bakkt Trust Company LLC (8/16/2019)
• Fidelity Digital Asset Services, LLC (11/19/2019)

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One shadowy group of cyber criminals might be behind attacks on various crypto exchanges (including “decentralized” exchanges) dating back to 2018, Israeli cybersecurity firm ClearSky claimed in a report released on Wednesday.

“We estimate that the group managed to rake in more than $200 million in two years,” the ClearSky report says about the cybercriminal collective the report calls CryptoCore. “We assess with medium level of certainty that the threat actor has links to the East European region, Ukraine, Russia or Romania in particular.”

ClearSky co-founder Boaz Dolev said his firm found at least five exchange hacks over the past two years that followed a particular pattern, though he declined to identify these exchanges on the record. 

Related: Bitcoin Options Market Faces Record $1 Billion Expiry on Friday

“They can attack very quickly,” Dolev said of CryptoCore, which he claimed once deployed an attack just 12 hours after registering fresh domain names. “They’re not a big group, maybe three to four people … a small but effective operation.” 

So far, ClearSky estimates the cyber criminal group stole $200 million over the past two years. Other firms have called the same group different names, such as “Leery Turtle.”

Or Blatt, ClearSky’s threat intelligence team leader, said he believes the alleged thieves are rogues without military training or support. He described the attacks as “much less sophisticated” than ones conducted by Russian military intelligence officers indicted for influencing American elections while using bitcoin in 2016. 

“They are cyber criminals and we know of other similar cybercrime groups,” Blatt said. “In order for such an attack to succeed, usually the [crypto exchange] employees need to be vulnerable to social engineering … [We] didn’t see this attacker exploiting VPN [virtual private networks], for example, which is something we often see with other groups.”

Human error

Related: Bitcoin ATM Growth May Be a Boon for Money Launderers

Dolev said crypto exchanges that don’t use the same level of security practices as banks are vulnerable to such attacks. 

The report details how the hacker group allegedly gained access to several exchange executives’ private email accounts, then used spear-phishing – impersonating a high-ranking employee – “either from the target company itself or from a company that deals with the target,”  to acquire information that grants access to crypto wallets.

Nicholas Percoco, head of security at the crypto exchange Kraken, said, “We routinely see attempts through multiple attack vectors, including social engineering attempts,” so his company often shares information with other exchanges targeted by such criminal campaigns. 

Ignoring CryptoCore specifically (Kraken was not mentioned in ClearSky’s report), Percoco said it is common for such cyber criminals to target several institutions in the same sector, especially the individuals who work at exchanges.

The concept of such a social engineering campaign, as ClearSky described, makes sense to Percoco. This is why Kraken’s security chief said he focuses on training sessions across the staff, because you “can’t patch a human, in addition to technical controls.” Plus, Kraken Security Labs routinely tries to penetrate the exchange system and find vulnerabilities, he said. 

“We will take all our employees, executives included, through extensive security training,” Percoco said. “We go very deep about home network security, social network security, even their own personal device security.” 

Dolev warned that, especially considering the mass exodus to remote work caused by COVID-19, crypto exchanges face a “higher risk” in 2020. Indeed, Blatt added that CryptoCore appears to be more active since the coronavirus crisis began. 

“If you put your money on an exchange, you don’t know if it’s secure or not,” Dovel concluded.

Related Stories

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• First Mover: Bitcoin’s Recent Stability May Come From a Fleeting Correlation With Equities

Few investors ever get into bitcoin hoping for stability, but over the past eight or so weeks that’s pretty much what they’ve got. 

Since the start of May, bitcoin’s price has rarely strayed outside its $9,000 to $10,000 range. Occasions where it has crossed the $10,000 boundary, or sunk beneath $9,000 have, so far, remained short lived. 

“Despite a few large fluctuations, bitcoin’s price has been surprisingly stable for the past 2 months, rarely leaving the $9k-10k range,” wrote analysts at Glassnode in a newsletter Monday.

Related: Bitcoin Options Market Faces Record $1 Billion Expiry on Friday

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

The idea bitcoin might be some sort of new, stable asset has been gaining followers; most of the time it’s tied to the idea that bitcoin is a new form of “digital gold.”

The “Black Thursday” crash in mid March led all asset classes to move together, temporarily spiking correlations. But some argue that the correlation between gold and bitcoin has stayed particularly strong months after the crash. 

“The correlation between gold [and bitcoin] has consistently maintained relatively high levels for several months now, a phenomenon that has not been historically observed,” data provider Coin Metrics said in its June report.

Related: Blockchain Bites: BitLicense at 5, Lawsky’s Fallacy and Hehmeyer’s Pivot

Analysts suggested the market might be treating both bitcoin and gold as safe-haven assets during unprecedented market disruption and volatility.

But not everyone agrees with the digital gold narrative. Most notably, in a note to investors earlier this month, U.S. investment bank JPMorgan said bitcoin still remains a “vehicle of speculation” and rejected the idea it was becoming a new type of macro hedge. 

In recent months, the relationship between bitcoin and the stock market has “moved sharply higher,” analysts said. “There is little evidence that bitcoin and others served as a safe haven (i.e., ‘digital gold’) – rather, its value appears to have been highly correlated with risky assets like equities.”

Coin Metrics shows the 90-day correlation between bitcoin and the S&P 500 – the world’s leading stock index – remained “very weak” at around 0.17, while that with gold came in at -0.07, a converse relationship that is virtually non-existent.

However, data from CoinDesk indicates that, on a shorter 60-day rolling average, the relationship between the stocks and bitcoin was consistently stronger than that with the precious metal. 

As the graph below shows, the correlation between the S&P 500 and bitcoin has floated around 0.30 for most of June.

In contrast, that between gold and bitcoin was in at just over 0.2, having fluctuated between a 0.15 trough and 0.45 peak across June.  

“We have seen a relatively steady increase in the S&P 500 index in the past couple of months which correlated with BTC’s trading range-bound around $8,600-$10,000,” said Bobby Ong, co-founder and COO of price aggregator site CoinGecko, in an email.

This connection might help explain why the bitcoin price has stayed relatively stable and unaffected by industry-centric developments.

The halving event in mid-May, which slashed block rewards from 12.5 BTC to 6.25 BTC, increased scarcity and was widely expected to drive prices higher – or, at least, increase volatility.

But that didn’t happen. On the contrary, bitcoin’s price has stayed flat and volatility fell to an eight-month low, earlier this week.

Bitcoin barely budged 1% on the news PayPal might be rolling out direct sales of cryptocurrency to its more than 325 million users worldwide. 

“Movements in the S&P 500 will play a major role in BTC price movement so changes in macroeconomic conditions is something we should keep an eye on,” Ong said. “I think BTC price may correlate with the stock market for the foreseeable future.”

While the 0.30 correlation between bitcoin and the S&P 500 is still relatively weak, it’s still stronger and more consistent than with gold.

Should the stock market rally continue, and bitcoin continue to track it, the original cryptocurrency could even be looking to break out of its established price range. 

However, as on Black Thursday, concerns around the global effects of the coronavirus and the ensuing economic turmoil could potentially also send both stocks and bitcoin tumbling once more.

Tweet of the day Bitcoin watch

BTC: Price: $9,381 (BPI) | 24-Hr High: $9,699 | 24-Hr Low: $9,338

Trend: Bitcoin is facing selling pressure on Wednesday despite a key indicator eyeing a bullish shift. 

The cryptocurrency is trading near $9,400 at press time, a -2.6% decline on the day, having faced rejection at $9,800 on Monday. 

However, the 100-day moving average (MA) of bitcoin’s price is on track to cross above the 200-day MA in the next 24 hours or so. The resulting bull cross of the two averages would be the first since early April. 

The cross comes on the heels of a so-called golden crossover of the 50- and 200-day MAs seen a month ago. Bullish MA crossovers are widely followed and often invite stronger chart driven buyers. So far, however, the cryptocurrency has failed to pick up a strong bid.  

On-chain developments, too, have been calling for an extended move higher for some time. For instance, the number of bitcoin “whales,” or entities holding at least 1,000 BTC, recently rose to 1,844. That’s the highest level since November 2017, suggesting continued buying pressure from wealthy investors. 

Even so, bitcoin remains trapped in the narrow range of $9,000 to $10,000. Moreover, the consolidation has gone far too long despite bullish technical and fundamental developments, and the bears may feel emboldened in the absence of quick progress to the higher side. 

The immediate support is seen at $9,000, which, if breached, would expose the 200-day MA located at $8,291. On the higher side, $10,000 is still the resistance to beat for the bulls. 

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Hehmeyer Trading + Investments, the commodities investment firm, is pivoting to crypto full-time.

The Chicago-based company, which began offering cryptocurrency services in 2017, will now focus solely on being a market maker and algorithmic trader in the space, rebranding to Hehmeyer in the process.

This means the company will no longer be offering its old brokerage services, prop trading, commodity pool or trading advisor services. Founder and CEO Chris Hehmeyer told CoinDesk that he finds the cryptocurrency and blockchain space dynamic, and believes it can lead to new types of products people could not dream of before, pointing to decentralized finance (DeFi) as one example.

Related: Liquidity on Bitcoin Perpetuals Exchange FTX Catches Up to Industry Leader BitMEX

But to Hehmeyer, a longtime major player in the U.S. futures and commodities industry, it’s the potential for removing trusted third parties that seems to be the major draw.

“I hope to see people liberated from the burdens of intermediaries and liberated in their interactions with other people,” he said. “I think it allows people to have more control of their lives and their assets. And I think it creates equity between people. I think people will have more ability to interact and we call it liberating interaction. And so I hope to see a world where people are liberated from having to use extensive intermediaries.”

He said his company will only look at market making on exchanges and counterparties at the moment, but his firm is looking at “some of the possibilities out there.”

“We’re of the opinion, what [people in the space] really need over time is not just an exchange … they need market makers and so we think the market maker can stay in the game and not be disintermediated because what people will need is, they’ll need a market or a price,” he said.

Related: Saudi Monetary Authority Pumped Some of $13B Bank Infusion Using Blockchain

As a market maker, Hehmeyer (the company) still needs to remain in compliance with applicable laws and regulations, but Hehmeyer (the founder) noted that since his firm doesn’t hold or transmit clients’ funds, this largely means ensuring the company is in compliance with know-your-customer and anti-money laundering rules, rather than seeking out money transmission licenses.

“We have a couple of subsidiaries overseas and we have to be careful to make sure we’re not doing stuff from the U.S. that we’re not supposed to be,” he said.

Transaction freedom

Hehmeyer said he wanted to be part of the liberating of transactions for individuals, though he expects this to take time. Initially, regulated custodians might be the most effective on-ramps for entities to get into the crypto space.

“It sort of looks like to me … the custodian business and prime broker business is the one that is set to accommodate the movement into the space. Tagomi went for a big price, these custodians are gaining assets,” he said. “So the BitGos and the Prime Trusts are in a good position to accommodate the way finance has traditionally worked, and that is with a trusted third party.”

The crypto space is still in the infrastructure-building phase, he said. Companies like Fidelity Digital Assets have entered the space, and central banks are considering issuing or working with digital currencies, which is a start.

Institutional investors have been slow to embrace crypto, but as companies evolve to provide more services, “things can start to happen really fast.”

“We’re a ways away but the PayPal and Fidelity are working to accommodate it,” he said.

These third parties might be the point of entry for institutions and major investors, but in Hehmeyer’s view, “the dynamic part” of the spaces comes from the potential benefit to individuals.

His company can help individuals and entities with this by creating a market that can let people move digital assets in and out – without having to own the assets themselves, Hehmeyer said.

“People can meet and create smart contracts and products and deal and settle on a peer-to-peer basis which is what the technology enables,” he said. “The whole system liberates everybody to interact in ways that they had never been able to do before. And that’s the part that inspires our little company, is a being a part of that.”

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Bitcoin outflows from miner wallets have spiked, with the majority of coins finding their way onto cryptocurrency exchanges.

The net flow of coins into or out of miner addresses fell to -2,935 BTC on Tuesday to hit the lowest level since June 2019, according to data source Glassnode. To put it another way, miner wallets witnessed the highest outflow of coins for a year. 

“There has been a big spike in miner outflows overnight, I’m expecting a whole lot of selling, starting real soon,” popular cryptocurrency analyst Cole Garner tweeted, along with a chart from blockchain analysis firm CryptoQuant showing a big spike in the miner outflow around 10:00 UTC on Tuesday. 

Related: Bitcoin Options Market Faces Record $1 Billion Expiry on Friday

However, the Miner’s Netflow Volume does not tell us whether coins have been sent to exchanges for liquidation or sold off in an over-the-counter deal.  

However, another metric, which tracks the flow of coins from miner wallets to cryptocurrency exchanges, shows nearly 97% of the total outflow of 2,935 BTC from miner addresses was deposited to cryptocurrency exchanges on Tuesday. 

The total 2,844 BTC that went to exchange platforms was the highest since March 26. That’s a major spike: on Monday, only 404 BTC were deposited on exchanges. 

With the sudden rise in the number of coins available on exchanges for liquidation, the cryptocurrency looks vulnerable for a notable price drop. Such spikes in miner outflows have preceded price drops in the past, although they don’t necessarily mean a drop is on the way. 

Related: Bitcoin ATM Growth May Be a Boon for Money Launderers

For example, outflows increased from 380 BTC to 1,824 BTC on Aug. 2, 2019, but the cryptocurrency extended its recovery rally to hit highs above $12,300 on Aug. 6. 

It remains to be seen if the latest spike in miner outflows yields a notable price drop or traps bears on the wrong side of the market. Supporting the case for a downside move is the fact that miners have spent less than they mined in the last 24 hours, pushing miners’ rolling inventory (MRI) above 100%, according to ByteTree.com.

Miners typically hoard coins when they feel the market lacks strength to absorb their offers.

At press time, the cryptocurrency is trading near $9,350, a 3% drop on the day. Prices are trapped in the range of $9,000 to $10,000 for the fifth straight week. 

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Related Stories

• FTX Is Building Lots of Sophisticated Markets Few Traders Use
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Bitcoin outflows from miner wallets have spiked, with the majority of coins finding their way onto cryptocurrency exchanges.

The net flow of coins into or out of miner addresses fell to -2,935 BTC on Tuesday to hit the lowest level since June 2019, according to data source Glassnode. To put it another way, miner wallets witnessed the highest outflow of coins for a year. 

“There has been a big spike in miner outflows overnight, I’m expecting a whole lot of selling, starting real soon,” popular cryptocurrency analyst Cole Garner tweeted, along with a chart from blockchain analysis firm CryptoQuant showing a big spike in the miner outflow around 10:00 UTC on Tuesday. 

Related: First Mover: Bitcoin’s Recent Stability May Come from a Fleeting Correlation With Equities

However, the Miner’s Netflow Volume does not tell us whether coins have been sent to exchanges for liquidation or sold off in an over-the-counter deal.  

However, another metric, which tracks the flow of coins from miner wallets to cryptocurrency exchanges, shows nearly 97% of the total outflow of 2,935 BTC from miner addresses was deposited to cryptocurrency exchanges on Tuesday. 

The total 2,844 BTC that went to exchange platforms was the highest since March 26. That’s a major spike: on Monday, only 404 BTC were deposited on exchanges. 

With the sudden rise in the number of coins available on exchanges for liquidation, the cryptocurrency looks vulnerable for a notable price drop. Such spikes in miner outflows have preceded price drops in the past, although they don’t necessarily mean a drop is on the way. 

Related: Argo Buys $500K-Worth of Zcash Miners as Bitcoin Revenue Shrivels

For example, outflows increased from 380 BTC to 1,824 BTC on Aug. 2, 2019, but the cryptocurrency extended its recovery rally to hit highs above $12,300 on Aug. 6. 

It remains to be seen if the latest spike in miner outflows yields a notable price drop or traps bears on the wrong side of the market. Supporting the case for a downside move is the fact that miners have spent less than they mined in the last 24 hours, pushing miners’ rolling inventory (MRI) above 100%, according to ByteTree.com.

Miners typically hoard coins when they feel the market lacks strength to absorb their offers.

At press time, the cryptocurrency is trading near $9,350, a 3% drop on the day. Prices are trapped in the range of $9,000 to $10,000 for the fifth straight week. 

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Related Stories

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Argo has nearly doubled its mining capacity for zcash, possibly as it looks to diversify from bitcoin.

The publicly listed mining firm has bought 750 Antminer Z11s, which specialize in the Equihash algorithm, for a total of $474,000. The rigs are now already in operation and were working at full capacity, Argo said in a filing at the London Stock Exchange (LSE).

In a statement sent after this article’s publication, Argo CEO Peter Wall said his company was “bullish” on bitcoin and expects “all cryptoassets” to do well over the next six months.

Related: Miners Are Sending Bitcoins to Exchanges Again – And That May Be Bearish

“Argo saw an opportunity to get high-performing machines at an excellent price with a technology we are familiar with. We jumped on it,” he said.

Only a handful of coins use the Equihash algorithm and the largest, by far, is zcash. The acquisition means Argo – which listed on the LSE in 2018 – has significantly increased its zcash mining capacity. The new Z11s join the 1,000 rigs the company already owns.

See also: Bitmain Co-Founder Offers Share Buyback at $4B Valuation to End Power Struggle

Argo’s mining power is mostly focused on bitcoin. In May, the firm had a total of 18,000 mining rigs, 17,000 focus of which are focused on the SHA-256 algorithm that is primarily used by bitcoin.

Related: The Zcash Privacy Tech Underlying Ethereum’s Transition to Eth 2.0

But since Argo bought its first lot of Z11 miners in May 2019 – in a bid to salvage its stock price after a $5.3 million pre-tax loss in 2018 – it has become one of the largest zcash miners. The company claimed on its website to make up roughly 3.5% of the network’s mining power.

Assuming total hashrate stays the same, the additional 750 miners means Argo could now constitute something like 6% of the Zcash blockchain.

“[T]he correct strategy is continued investment in mining infrastructure,” said CEO Peter Wall, in a statement. “Argo’s existing fleet of Z11s have performed extremely well, and we are pleased to add more Equihash mining capacity to our fleet of machines.”

Although Bitmain, the Chinese manufacturer of the Z11, has since released a more powerful Equihash miner, Argo claims that they would still get a better return on investment from the older model – which was released in March 2019.

The company estimates to have fully recouped the $474,000 purchase price in about eight months’ time.

See also: Zcash’s First Halving May Solve Its Inflation Problem

Like the rest of the cryptocurrency market, zcash toppled in the wake of the coronavirus pandemic. After riding high at $73 in February, the coin promptly slumped to a three-year-low at sub $24 by the middle of March. It has regained much ground over the past three months, trading at around $53 by the start of the week. Zcash had surged to just under $60 at press time, according to CoinDesk data.

As well as increasing zcash prices, it’s also possible Argo might be diversifying from bitcoin. Earlier this month, the company reported a $600,000 dip in revenue, in part because a slash in the block reward meant it mined around 60 less bitcoin with the same number of machines.

CryptoCompare’s mining profitability calculator shows mining Zcash with a Z11 brought in much greater returns – upwards of $130 each month – compared to bitcoin which, even with the latest S17 rigs, would still mine at a loss of about $90 a month.

CoinDesk approached Argo for comment, but a company spokesperson had not responded by press time.

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Argo has nearly doubled its mining capacity for zcash, possibly as it looks to diversify from bitcoin.

The publicly listed mining firm has bought 750 Antminer Z11s, that specialize in the Equihash algorithm, for a total of $474,000. The rigs are now already in operation and were working at full capacity, Argo said in a filing at the London Stock Exchange (LSE).

Only a handful of coins use the Equihash algorithm and the largest, by far, is zcash. The acquisition means Argo – which listed on the LSE in 2018 – has significantly increased its zcash mining capacity. The new Z11s join the 1,000 rigs the company already owns.

Related: Miners Are Sending Bitcoins to Exchanges Again – and That May Be Bearish

See also: Bitmain Co-Founder Offers Share Buyback at $4B Valuation to End Power Struggle

Argo’s mining power is mostly focused on bitcoin. In May, the firm had a total of 18,000 mining rigs, 17,000 focus of which are focused on the SHA-256 algorithm that is primarily used by bitcoin.

But since Argo bought its first lot of Z11 miners in May 2019 – in a bid to salvage its stock price after a $5.3 million pre-tax loss in 2018 – it has become one of the largest zcash miners. The company claimed on its website to make up roughly 3.5% of the network’s mining power.

Assuming total hashrate stays the same, the additional 750 miners means Argo could now constitute something like 6% of the Zcash blockchain.

Related: The Zcash Privacy Tech Underlying Ethereum’s Transition to Eth 2.0

“[T]he correct strategy is continued investment in mining infrastructure,” said CEO Peter Wall, in a statement. “Argo’s existing fleet of Z11s have performed extremely well, and we are pleased to add more Equihash mining capacity to our fleet of machines.”

Although Bitmain, the Chinese manufacturer of the Z11, has since released a more powerful Equihash miner, Argo claims that they would still get a better return on investment from the older model – which was released in March 2019.

The company estimates to have fully recouped the $474,000 purchase price in about eight months’ time.

See also: Zcash’s First Halving May Solve Its Inflation Problem

Like the rest of the cryptocurrency market, zcash toppled in the wake of the pandemic. After riding high at $73 in February, the coin promptly slumped to a three-year-low at sub $24 by the middle of March. It has regained much ground over the past three months, trading at around $53 by the start of the week. Zcash had surged to just under $60 at press time, according to CoinDesk data.

As well as increasing zcash prices, it’s also possible Argo might be diversifying from bitcoin. Earlier this month, the company reported a $600,000 dip in revenue, in part because a slash in the block reward meant it mined around 60 less bitcoin with the same number of machines.

CryptoCompare’s mining profitability calculator shows mining Zcash with a Z11 brought in much greater returns – upwards of $130 each month – compared to bitcoin which, even with the latest S17 rigs, would still mine at a loss of about $90 a month.

CoinDesk approached Argo for comment, but a company spokesperson had not responded by press time.

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Institutional digital asset technology firm Metaco is partnering with the Frankfurt School Blockchain Center (FSBC) to find ways of bolstering its services using the think tank’s research.

The Switzerland-based company announced Wednesday that it would be tapping research conducted by the FSBC to better inform the security and service design of its infrastructure tech.

According to Philipp Schulden, head of operations at FSBC, research work done under the partnership will largely focus on the kind of infrastructure needs a tokenized economy would have such as custody, transfer, trading and initial tokenization of assets. One of the research centers at the Frankfurt School of Finance and Management, the think tank was started in 2017 and has existing  partnerships with firms like PwC, eToro and helix. 

Related: Free Transactions Invite Systemic Attacks on Blockchains, Researchers Find

“In the future, all kinds of assets are expected to run on distributed ledger technology (DLT) systems in the form of tokens,” Schulden said, explaining why it was important for the right infrastructure to be in place to support the token economy. 

According to the statement, FSBC will also support Metaco in research and development of custody and enterprise blockchains. 

“Through this new partnership (we hope) to further accelerate the institutional understanding, adoption, and use of crypto assets in Germany and Europe,” said Seamus Donoghue, Vice President at Metaco, in an emailed statement. 

Headquartered in Lausanne, Switzerland, Metaco is partly owned by the telecom provider SwissCom, and the Swiss national postal service, Swiss Post, among others. The firm largely focuses on providing infrastructure to financial institutions looking to enter the digital asset market. 

Related: NEAR Protocol Enlists Bison Trails for Validator Support as It Heads Toward Full Mainnet

Last year in June, Metaco had also announced that it would provide crypto custody insurance via Aon, one of the world’s largest insurance brokers.

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Sweden’s Riksbank has looked into the viability of central bank digital currencies (CBDCs) for its local market and declared mixed results.

In a 96-page economic review, updated June 18, the world’s oldest central bank presents four models for supplying a digital version of the Swedish krona (e-krona) as well as outlining how well the different models would fit its policy goals.

Those goals include fostering a stable store of value and unit of account, being a lender of last resort (LOLR) providing a secure means of payment and settlement and providing tools for preserving financial stability.

Related: Canada’s Central Bank Is Serious About Designing a CBDC, Job Posting Reveals

Amid that backdrop, the four models under review include a “centralized e-krona provision without intermediaries,” “a centralized model with intermediaries,” “decentralized solutions with intermediaries” and “a synthetic e-krona.”

“We have seen that all models would have advantages and disadvantages, but some seem better at fulfilling the current needs of the Swedish payment market than others,” the review reads.

See also: Fed Paper: Central Bank Digital Currencies Could Replace Commercial Banks – But at a Cost

A centralized e-krona provision without intermediaries would see the bank take responsibility for the whole distribution chain for the e-krona. This scheme, the review says, would mean a wholly new role for Riksbank, similar to how large retail banks operate.

Related: S. Korea’s Central Bank Forms Legal Panel to Advise on Possible Digital Currency Launch

The Riksbank claims that under this model it would illicit substantial costs for staffing and customer support functions for potentially millions of users while simultaneously acting as a competitor to private payment services at the retail level, therefore indirectly creating a market monopoly.

“Riksbank may end up having too large a footprint in the payment market,” the review reads. “It could also be possible to implement a small-scale version of this model where the Riksbank would provide a basic supply of services that could, for instance, be catered to the needs of vulnerable groups.”

The centralized model with intermediaries closely resembles the current Swede financial infrastructure in that it is based on a partnership between the central bank and private service providers where Riksbank maintains its prominent role at the wholesale level of the payment market. However, in this example the bank does not have an operational role in the distribution chain, as mentioned above.

“Technology is not a decisive factor in this model. Both a conventional account-based and a token-based e-krona are possible. A token-based model is where each digital e-krona is uniquely identifiable and would “essentially replicate the current cash distribution model but in digital format,” the review reads. “The distinction between a token-based or account-based e-krona has no bearing on the potential implications of the e-krona on the monetary system by itself.”

See also: Digital Dollars Give the State Too Much Control Over Money

In a similar way to how the centralized model above operates, in a decentralized setting all intermediaries involving the e-krona would possess a direct contractual relationship with the consumer. “This setup is simply a decentralized database of all e-kronor in circulation at any given moment, where the Riksbank verifies all
transactions before completion.”

The review suggests Riksbank would need to provide a contingency plan if one or several intermediaries were to fail, the bank would then need to be able to provide a large number of customers with e-krona payments.

This differs slightly from the centralized model where Riksbank has no contractual agreement with the consumer and the anti-money-laundering (AML), know-your-customer (KYC) and counter-terrorist-financing (CTF) policies would be the sole responsibility of the intermediaries.

The final model presented in the economic review of CBDCs was the synthetic e-krona. The paper explains that aside from allowing more institutions access to the real-time gross settlement (RTGS) systems “the model consists mostly of new legislation that would require banks (and others) to set up segregated accounts.”

This model closely resembles the existing one, where the role of the central bank is to be an actor in the middle of the payment system with the private market acting as a secondary layer serving customers. For the private sector, “existing payment solutions could continue to operate as today with no need for additional hardware or investment.”

“What makes the Synthetic e-krona attractive is its limited scale compared to the other models that we have described. It would not involve major investment in infrastructure and the Riksbank could renounce all responsibility for KYC, ALM etc,” the bank states.

See also: China Will ‘Undoubtedly’ Pursue Digital Yuan, Central Bank Says

The Riksbank concludes that both the centralized and decentralized model featuring intermediaries, as well as the centralized e-krona provision without intermediaries, would incur substantial change and cost. A synthetic digital version of the Swedish krona, the paper says, could prove to be viable but may not even classify as a CBDC.

“Such a minimalistic approach might not achieve the goals of enhanced competition and resilience to the same extent since it would be quite similar to today’s system,” the review reads. “Furthermore, it would not be a direct claim on the Riksbank, and therefore it is not clear if this should really be considered to be a CBDC.”

The central bank added that a lot of the modelling would need to be expanded upon in “many dimensions” in future studies.

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The Financial Action Task Force holds its summer plenary meeting Wednesday, covering a gamut of topics around anti-money laundering (AML) and counter-terrorist financing (CTF).

With cryptocurrency now firmly in the global watchdog’s sights, here’s what to expect from the hearing, which will be the first time a FATF plenary will take place virtually. 

It’s been close to two years since FATF said it was including virtual assets within its ambit and a year since the final recommendation was made. During the June 2020 plenary, the FATF will be gauging regulatory and industry progress towards the implementation of its AML Recommendations.

Related: Blockchain Bites: PayPal’s Push, FATF’s Rules and ‘Overstated’ Libra Fears

The Travel Rule recommendation, first introduced in June 2019, which requires financial institutions participating in a transaction to exchange relevant beneficiary and originator KYC information will be one of the topics of discussion as the FATF’s 12-month review process reaches its conclusion.

Member states will also have to report back on the measures their jurisdictions have taken to ensure compliance with Recommendations 15 (New Technologies) and 16 (Wire Transfers). Countries will have to demonstrate progress made developing domestic regulatory frameworks to ensure virtual asset service provider (VASP) compliance with the recommendations.

Read more: All Global Crypto Exchanges Must Now Share Customer Data, FATF Rules

“People have been treating this as a sort of deadline,” said Siân Jones, senior partner at XReg Consulting and a former delegate on the FATF Policy Development group. “I think this has been overstated. It is a milestone, but it’s not a hard deadline.”

Related: Identity Startup Notabene Launches Exchange Tool for FATF Travel Rule Compliance

The 37 FATF member states form a quasi-treaty organization that mutually evaluates progress on digital asset regulation from country to country, and also how the industry has done at creating technical solutions and standards. A number of technical solutions have emerged with some clearly intended to land around the time of the plenary meeting.

“Since the FATF published its guidance last year, out of the 200+ countries that comprise of the FATF’s member jurisdictions, only around 10% of regulators have published frameworks and legislation fully-aligned with the new guidance,” said Elsa Madrolle, General Manager International at CoolBix, a wallet provider which has developed Sygna Bridge solution for the Travel Rule.

Jones said there will likely be acknowledgement that FATF members such as the U.S., Europe, Switzerland and Singapore have made progress, as has the crypto industry. There may be some notification of areas and jurisdictions where more work is needed – but this all takes place behind closed doors.

In Madrolle’s opinion, South Korea, Singapore, Canada, the Cayman Islands, Bermuda, Abu Dhabi and Switzerland deserve to be praised widely for establishing comprehensive regulation around the issuance and use of digital currencies, aligned with FATF requirements.

However, some countries such as Japan or the UK have stopped short of implementing specific regulation to encompass the Travel Rule requirement, said Madrolle, while the U.S. has issued regulation encompassing the Travel Rule without enforcing compliance.

In addition, the European General Data Protection Regulation (GDPR) greatly complicates the debate of AML measures versus data privacy. “The two sets of AML guidance issued by FATF and the EU have yet to be fully aligned, resulting in a patchwork of regulations being devised across the EU with some countries falling behind on timelines,” said Madrolle. 

Read more: In Banking First, ING Develops FATF-Friendly Protocol for Tracking Crypto Transfers

The event, which normally takes place over a whole week in Paris and can attract as many as 800 delegates, has been boiled down to three hours on Wednesday

“Virtual assets are an important item and a number of countries will want to speak on it. That might last ten minutes; it might last half an hour,” Jones said. “But as everything has been truncated, I imagine it will just be a matter of ten or 20 minutes on this topic.”

In fact, the hard work has already been done, Jones said, in the form of a report by the FATF Policy Development Group. 

“This report will have been circulated in advance of Wednesday, and there will have been various recommendations,” said Jones. “Countries can take their positions and the business of the plenary will be quite formal.”

The FATF report, once it has been approved by member countries, will be sent on to the G20, which kicked off the process by asking the FATF to look at digital assets back in 2018.

“The report will be published in some form probably a week or two after the plenary meeting,” said Jones. “It’s unlikely to be the full report, I expect there will be some abridged form.”

Read more: Identity Startup Notabene Launches Exchange Tool for FATF Travel Rule Compliance

In addition to the work done by the permanent Policy Development group, an ad hoc Digital Asset Contact Group was formed to monitor progress and liaise with countries and the private sector.

“I think it’s highly likely the Contact Group will be renewed for another 12 months,” said Jones.

The social distancing imperative could have an effect on outcomes and progress regarding the complex work of digital assets, Jones lamented, because there’s less opportunity to have side meetings over coffee. That may mean fewer ways to address issues or broker compromises.

“All the formal stuff at these big international meetings, in a sense, provides the backdrop for many important encounters between delegates and conversations on the margins, during which they can start to iron out problems,” she said. 

COVID-19 is likely to feature in some of the upcoming Travel Rule discussions as regulators may need more time in light of the current landscape, said Madrolle.

“We should see a trend towards harmonization between AML initiatives such as 5AMLD and FATF, possibly through further explanatory guidance notes from one side or the other. One of the most complicated issues for FATF to tackle during this plenary remains the ‘sunrise’ issue, where different regulation is devised and implemented at different times around the world,” she said.

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The U.S. Department of Homeland Security’s (DHS) startup booster, the Silicon Valley Innovation Program (SVIP), renewed its hunt for interoperable, blockchain-based anti-counterfeiting projects at a virtual Industry Day on Tuesday.

SVIP officials offered startups a fresh batch of use cases – an alternative to Social Security numbers; e-commerce, food and natural gas supply chain traceability projects; and an essential worker license inspired by COVID-19 – plus the same $800,000 in funding and potential to contract with the government that they’ve wooed first-time federal partners with in the past.

Coming two years after SVIP first ventured into the realm of distributed technologies and forgeries and four years into the Department’s private sector blockchain efforts, the renewed call highlighted the extent to which this lively corner of DHS has courted and funded startups building blockchain solutions for a cabinet department eager to deploy them. 

Related: As Pandemic Decimates Startups, Privacy Industry Holds Strong

“We are in the business of finding global talent to solve our local problems,” said Anil John, SVIP’s technical director at the event. “We are not in the business of doing science experiments.”

SVIP previously bankrolled Factom, Mavennet, SecureKey, Digital Bazaar and others’ respective efforts to build DHS everything from data-securing Border Patrol camera platforms to timber credential mechanisms. Part of the Science and Technology Directorate, the program has handed out millions in funding.

John, who is known as the “Blockchain Guru” of DHS, challenged the virtual event’s 300 participants to pitch deployable tools for the Privacy Office, U.S. Customs and Border Protection (CBP) and U.S. Citizenship and Immigration Services (USCIS), the three DHS branches posing SVIP’s five new use cases.

Revamping the Social Security number

Though the Silicon Valley Innovation Program often focuses on funding solutions for internal DHS problems, its call on behalf of the DHS Privacy Office offered startups the rare opportunity to create a tool that touches nearly every person in the country: an alternative to the Social Security number (SSN).

Related: Upbit Operator Dunamu Invested $46 Million in Blockchain Startups in Last Year

“We’re not out there to replace SSN, we are there to create something that people can share back and forth without leaking [personally identifiable information],” said David Linder, the senior director for Privacy Policy and Oversight at DHS.

Such a tool could address one of the most pressing but seemingly insurmountable privacy conundrums in American life. The SSN – the de-facto national identification number and also a gateway to financial services, health care and countless other services – is a highly insecure way of demonstrating one’s identity. 

The Privacy Office wants startups to come up with an interoperable alternative that DHS can use internally. Indeed, a 2019 directive mandates that DHS phase the number out.

But Linder told startups that their solutions could, and should, keep wider uses in mind.

“We feel like a real solution is this working beyond DHS,” he said. “We dont feel that there’s a ton of value” if it’s unique to DHS.

Essential Worker Attestation

USCIS officials requested pitches that will let essential DHS workers prove their essential status. They want to make it easier for those still traveling, reporting to offices and doing business as essential workers to show via credentials that they are as essential as they claim. 

John used the U.S.-Canadian border, currently closed to everything but essential travel and trade, as an example of why government agencies needed such an attestation system. 

“Both their border services agencies and ours are having challenges at the border when someone shows up and says ‘I am an essential person conducting trade that is allowed by treaty or permission,’” he said. “How do you sort of attest that?”

But John and the USCIS officials were quick to distinguish between this essential worker license and the COVID-19 immunity passports that some governments and technologists have considered developing. 

Read more: COVID-19 ‘Immunity Passport’ Unites 60 Firms on Self-Sovereign ID Project

“We’re not looking for immunity certificates, immunity passports, COVID credentials,” said John Goodwin of USCIS. 

Anil John, the SVIP technical director, said the science simply does not back up going down such a route.   

“As COVID-19 is one of those diseases that disproportionately targets vulnerable populations, Black communities, our vulnerable essential workers on the frontlines, we are very concerned given the current lack of science around the immunity passport.”

Supply Chain Tracing

Startups can also pitch SVIP on supply chain traceability projects that address problem points in food safety, e-commerce and natural gas. 

Vincent Annunziato, director of CBP’s business transformation division, told attendees that his agency wants to eliminate paper-based supply chains in favor of fully digitized systems that auditors can trust.

“Right now what tends to happen is the outside entities are supplying data often in paper means,” he said. “What’s the easiest thing in the world to doctor? A piece of paper.”

Annunziato said that the governments and industries alike are both moving swiftly to update the way they monitor supply chains. He pointed to Walmart’s efforts tracing leafy greens and the Food and Drug Administration’s ongoing interest in blockchain systems.

If all the disparate parties to a supply chain ported their data into interoperable systems, then he said that companies could see gains in efficiency, and governments could trust the provenance of goods.   

“We are interested in the team sport of data,” he said.

Annunziato framed this as a chance to influence a top-down redesign.

“The government is starting to look at reinventing its processes in a way that’s never been done before,” he said. 

Interoperability

Whether or not the startup proposals rely on blockchain is perhaps less important than their proposed solution’s capacity to work in conjunction with others, said John. He repeatedly cited the need to follow open standards that allow technologies to work cross-platform. 

Referencing SVIP’s previous batch of startups, which built interoperable asset trackers and digital identifiers during a recent collaboration event, John warned the prospective newcomers against pitching a “one ring to bind them all infrastructure.” 

“What we are looking for is a truly global interoperable and diverse ecosystem of solutions providers who have a baseline of interoperability,” he said. 

John said that SVIP will consider proposals from all qualifying startups, regardless of their home country or employees’ nationalities. 

“We are the part of the U.S. government that believes that talent does not stop at borders,” he said.

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Alethea AI, a synthetic media company, is piloting “privacy-preserving face skins,” or digital masks that counter facial recognition algorithms and help users preserve privacy on pre-recorded videos. 

The move comes as companies such as IBM, Microsoft, and Amazon announced they would suspend the sale of their facial recognition technology to law enforcement agencies. 

“This is a new technique we developed inhouse that wraps a face with our AI algorithms,” said Alethea AI CEO Arif Khan. “Avatars are fun to play with and develop, but these ‘masks/skins’ are a different, more potent, animal to preserve privacy.”

Related: Why CoinDesk Respects Pseudonymity: A Stand Against Doxxing

See also: Human Rights Foundation Funds Bitcoin Privacy Tools Despite ‘Coin Mixing’ Legal Stigma

The Los Angeles based startup launched in 2019 with a focus on creating avatars for content creators that the creators could license out for revenue. The idea comes as deepfakes, or manipulated media that can make someone appear as if they are doing or saying anything, becomes more accessible and widespread.

According to a 2019 report from Deep Trace, a company which detects and monitors deepfakes, there were over 14,000 deepfakes online in 2019 and over 850 people were targeted by them. Alethea AI wants to let creators use their own synthetic media avatars for marketing purposes, in a sense trying to let people leverage deepfakes of themselves for money. 

Khan compares the proliferation of facial recognition data now to the Napster-style explosion in music piracy in the early 2000s. Companies, like Clearview AI, have already harvested large amounts of data from people for facial recognition algorithms, then resold this data to security services without consent, and with all the bias inherent in facial recognition algorithms, which are generally less accurate on women and people of color. 

Related: The Zcash Privacy Tech Underlying Ethereum’s Transition to Eth 2.0

Clearview AI, has marketed itself to law enforcement and scraped billions of images from websites like Facebook, Youtube, and Venmo. The company is currently being sued for doing so.  

“We will get to a point where there needs to be an iTunes sort of layer, where your face and voice data somehow gets protected,” said Khan. 

One part of that is creators licensing out their likeness for a fee. Crypto entrepreneur Alex Masmej was the first such avatar, and for $99 you can hire the avatar to say 200 words of whatever you want, provided the real Masmej approves the text. 

We will get to a point where… where your face and voice data somehow gets protected

Alethea AI has also partnered with software firm Oasis Labs, so that all content generated for Alethea AI’s synthetic media marketplace will be verified using Oasis Lab’s secure blockchain, akin to Twitter’s “verified” blue check mark. 

“There are a lot of Black Mirror scenarios when we think of deepfakes but if my personal approval is needed for my deepfakes and it’s then time-stamped on a public blockchain for anyone to verify the videos that I actually want to release, that provides a protection that deepfakes are currently lacking,” said Masmej. 

The privacy pilot takes this idea one step further, not only creating a deep fake license out, but preventing companies or anyone from grabbing your facial data from a recording. 

There are two parts to the privacy component. The first, currently being piloted, involves pre-recorded videos. Users upload a video, identify where and what face skin they would like superimposed on their own, and then Alethea AI’s algorithms map the key points on your own face, and wrap the mask around this key point map that is created. The video is then sent back to a client. 

See also: Fake News on Steroids: Deepfakes Are Coming – Are World Leaders Prepared?

Alethea AI also wants to enable face masking during real time communications, such as over a Zoom call. But Khan says computing power doesn’t quite allow that yet, though it should be possible in a year, he hopes. 

Alethea AI piloted one example of the tech with Crypto AI Profit, a blockchain and AI influencer, who used it during a Youtube video. 

Deepfakes, voice spoofing, and other tech enabled mimicry seem here to stay, but Khan is still optimistic that we’re not yet at the point of no return when it comes to protecting ourselves. 

“I’m hopeful that the individual is accorded some sort of framework in this entire emerging landscape,” said Khan. “It’s going to be a very interesting ride. I don’t think the battle is fully decided, although existing systems are oriented towards preserving larger, more corporate input.”

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After a quick rally on Monday, bitcoin remains in bullish territory although trading was flat Tuesday. 

Bitcoin (BTC) was trading around $9646 as of 20:00 UTC (4 p.m. ET), gaining 1% over the previous 24 hours. 

At 00:00 UTC on Tuesday (8:00 p.m. Monday ET), bitcoin was changing hands around $9,675 on spot exchanges such as Coinbase. After a dip to as low as $9,571, the price rallied but failed to cross $9,700. However, bitcoin’s price is still well above its 10-day and 50-day moving averages, which is a bullish signal for market technicians.  

Related: Following COMP’s Surge, DeFi Platform Balancer Begins Distribution of BAL Tokens

Read More: The Last Time Volatility Was This Low Bitcoin Went On to Rally by $2K

Trading volume on Monday was only slightly higher than it had been over the past few days, with Coinbase spot bitcoin volume at $112 million. Nonetheless, it was the highest since June 15 when volume hit $171 million. For Tuesday, volume on Coinbase is at $63 million, according to data from aggregator Skew.

Exchange volume is certainly lower than a month ago, and traders are concerned about traditional equities possibly pulling bitcoin’s price lower should stocks drop. “Momentum looks good and the crypto market is a bit bullish,” said Sasha Goldberg, a senior trading specialist at crypto liquidity provider Efficient Frontier. “But the sentiment of the traditional markets hasn’t changed and it can stop this bitcoin run,” he added. 

Bitcoin is by far outperforming traditional global equities markets, up 38% in 2020.

Related: DeFi Protocols Should Act More Like Fiduciaries

Michael Gord, CEO of crypto brokerage Global Digital Assets, says poor second-quarter reports for some public companies might drag stocks down and bring back some crypto price movements. “I think we’ll probably see more crypto accumulation until the Q2 earning reports for public companies are released, and then I’d expect more volatility for better or worse,” he said. 

Meanwhile, major stock indices are all in the green Tuesday. 

Read More: The Logic Behind Three Arrows’ $200M Grayscale Bet

The Nikkei 225 of publicly traded companies in Japan climbed 0.50%. The index experienced gains in paper, transportation and real estate to close the day higher. 

The FTSE 100 index in Europe rose 1.4%. Economic indicators in the manufacturing and retail sectors ticked up, prompting investor confidence.

The U.S. S&P 500 index gained 0.43%. Tech stocks had big gains on the day, including Apple, which rose 2.1%.

ETH/BTC trading pair gains on DeFi frenzy

Ether, (ETH) the second-largest cryptocurrency by market capitalization, was up Tuesday, trading around $244 and after climbing 0.65% in 24 hours as of 20:00 UTC (4:00 p.m. EDT). 

The ether-bitcoin (ETH/BTC) trading pair is jumping to highs not seen since late May, which shows the strength ether is experiencing lately. This trading pair is available on almost all cryptocurrency exchanges and prices ether in terms of bitcoin – for example, 1 ETH currently equals 0.02528 BTC. It is a way for crypto traders to capitalize on price movements across the two largest digital assets by market capitalization. When a trader is bullish on ether relative to bitcoin, ETH/BTC is bought; those bullish on bitcoin relative to ether sell it.

The spike in ether versus bitcoin can be attributed to the Ethereum network’s decentralized finance, or DeFi, capabilities with services like lender Compound, said Matthew Ficke, head of market development for cryptocurrency exchange OkCoin.

Read More: Handshake Goes Live With an Uncensorable Internet Browser

 “ETH/BTC as a trading pair is interesting as it is up,” Ficke told CoinDesk.“There is some growing market discussion around Compound’s recent success driving more interest in DeFi applications, the majority of which run on ether, which is strengthening its price.”

Other markets

Digital assets on CoinDesk’s big board are mostly in the green Tuesday. Cryptocurrency winners on the day include zcash (ZEC) up an eye-popping 11.7%, decred (DCR) climbing 4.1% and dash (DASH) gaining 3.7%. All price changes were as of 20:00 UTC (4:00 p.m. ET).

Read More: PayPal, Venmo to Roll Out Crypto Buying and Selling

In commodities, oil is in the red 0.72% Tuesday as a barrel of crude was priced at $40.27 as of press time. Gold is trading up as the yellow metal climbed 0.90%, trading around $1,770 for the day. 

U.S. Treasury bonds were mixed Tuesday. Yields, which move in the opposite direction as price, were down most on the two-year bond, in the red 3%.

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Lawmakers in Spain are working on amending the nation’s anti-money laundering and terrorist financing laws to be in compliance with European Union law, six months after the EU’s deadline.  

A proposed amendment  published over a week ago will require virtual currency service providers to register with the Bank of Spain. If enacted, the law will place Spain in compliance with the EU’s 5th Anti Money-Laundering Directive (AMLD5), the bloc-wide mandate introduced in 2018, to strengthen preventative measures against financial crime.

To get things moving even faster, the public comment period on the amendment ends today; typically, the comment period is 60 to 90 days.

Related: Dutch Central Bank to Crypto Firms: Register in 2 Weeks or Shut Down

EU member nations had 18 months to comply with the new directive. In February, it sent warning letters to eight countries, including Spain, urging them to get moving on amending their AML laws. 

Mariana Gospodinova, general manager of virtual currency platform Crypto.com’s Europe operations, told CoinDesk the understanding of digital аssets has evolved greatly since the AMLD55 was first published. The abundance of new information, some of which came directly from companies seeking to be regulated in certain jurisdictions, led to a steep learning curve. This has helped regulators understand the risks associated with crypto, and offer comprehensive amendments that will improve risk mitigation and management, she said. 

Read more: The Netherlands’ AMLD5 Interpretation Appears to Be Killing Crypto Firms

“States may have benefited from a further extension of the implementation period and each country may have had their own reasoning as to why [there were] delays – from political circumstances to [a] lack of resource[s] to comply within the period given,” Gospodinova told CoinDesk via email.

Related: The Netherlands’ AMLD5 Interpretation Appears to Be Killing Crypto Firms

Under Spain’s new law, crypto-to-fiat exchanges, crypto exchanges, e-wallet providers and those who have custody of customers’ private keys will be subject to national regulation and registration.

A transitional provision calls for all these entities to register their services with the Bank of Spain within nine months from the enactment of the law. 

“The Draft Law advances in the reinforcement of the money laundering and terrorist financing control system, incorporating the new community provisions and including additional improvements in the current regulation to increase the effectiveness of prevention mechanisms,” the government website said.

Although the EU provides direction, it is ultimately the decision of each member nation’s regulator to provide details on how it will deal with entities that are not conforming to local crypto rules and regulations, Gospodinova said. 

Another nation told to speed up compliance with EU law was the Netherlands, which took drastic measures to speed up the process and later faced criticism over how the new laws were implemented. 

Although the United Kingdom left the EU at the end of January this year, it transposed the new AML laws before its exit. Gospodinova said the United Kingdom’s financial authority, FCA, is diligently monitoring crypto firms servicing its residents and publishing warnings on its frequently updated website clarifying risks associated with engaging in activities not licensed by regulators.  

In EU countries that have already complied with AMLD5, crypto firms, especially smaller companies, have complained about the added costs of compliance, which may drive them out of the country. 

The EU directive also outlines stringent know-your-customer (KYC) regulations that reinforce the law introduced by the Financial Action Task Force (FATF), the international financial crimes watchdog: the travel rule.  

“At the moment, crypto transactions are still unidentified in terms of ownership while they remain transparent in terms of movement. The anonymity of blockchain transactions will change with the implementation of the FATF travel rule, which aims to identify the sender and recipient of all crypto transactions,” Gospodinova said. 

According to the document published by the Spanish government, the reinforcement of an identification system is among the proposed amendments, stating, “In no case shall the obligated subjects maintain business relationships or carry out operations with individuals or legal entities that have not been duly identified.” 

Gospodinova said there has been a significant improvement in the level of KYC and customer due diligence procedures employed by the industry. In her view, it is of utmost importance that companies meet the latest global standards to manage risk and prevent money laundering.

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Platinum records are coming to cryptocurrency with a new integration between rapper Ja Rule and social currency startup Roll.

Announced Tuesday, Billboard Hot 100 artist Ja Rule has inked a deal with Roll, an Ethereum-based protocol that allows content creators to control their own platforms using cryptocurrency’s native digital scarcity.

“I’ve been following Roll and blockchain technology for a while actually on the sidelines,” Ja Rule said in a statement. “I think it’s the perfect time to partner with a company that can take blockchain technology mainstream. I see it happening in the next few years with the right partners and it’s a very big play.” 

Related: Status Keycard Now Works With Android Mobile Devices

The concept of social money allows artists to have birth-to-death control over their content, Roll CEO and co-founder Bradley Miles said in an interview with CoinDesk. Tokenizing access to personal work such as music or writing enables an artist to be paid in their own currency, letting them set the monetization rules. For fans, purchasing artist’s social money on Roll allows them to interact with an artistic community in a more familial way, Miles added.

“If someone can create their own social network online, they should be able to create their own social money,” he said. “This really allows them to give users a stake in their community and create this deeper sense of belonging.”

Founded in 2019, Roll launched into private beta this week backed by a $1.7 million seed round led by BitMEX CEO Arthur Hayes and joined by Techstars Ventures, Hustle Fund and Gary Vaynerchuk. The platform provides API infrastructure for as a content gateway built on the ERC-20 token standard.

Read more: Roll Wants to Take Power From YouTube With Cryptos for Content Creators

Related: Activists Document Police Misconduct Using Decentralized Protocol

Miles said the project with Ja Rule, founder and CEO of content management firm ICONN, was seamless given a mutual desire to monetize artists’ work. The partnership will explore opportunities for social money in the music industry, Miles said.

New drop

Ethereum fans can also get a kick out of a new song that dropped Tuesday, produced by Roll and featuring Bay Area rapper Lil B. 

Dubbed “Social Money,” the song also features cryptocurrency entrepreneur Alex Masmej, NFT artist Connie Digital and Atlanta-based rapper Sid Worthy. In the song, Lil B references multiple Ethereum products:

“Yeah I’m on a Roll, Yeah I’m on a Roll, gettin’ that social money, Ethereum…”

“Shout out $ALEX stackin’, shout out $HUE holdin’, attention is my currency…” 

“We’re on a Roll, Uniswap, watch that…”  

Both Masmej and Connie Digital have released personal tokens using Roll, under the $ALEX and $HUE tickers. Those tokens are currently available on decentralized exchange (DEX) Uniswap. $ALEX and $HUE act as personal securities, giving investors the ability to vote on the tokenized person’s actions.

As for Roll, social money features will slowly be issued to make the crypto platform a PayPal for content management, Miles said. The platform has some 160 communities consisting of creators – from journalists to entrepreneurs, he said.

“Artists like Ja Rule take social money to the next level, really bridging the gap between Web 3.0 and new audiences,” Miles said.

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The Status Keycard now works with Android smartphones to make mobile apps more secure.

Status, the Ethereum-based messaging company, has expanded the use case for its Keycard, a hardware wallet first announced in February 2019. It now works with Android mobile devices using much the same security technology as that found in modern credit cards.

It also enables a user to both authorize the spending of crypto either online or using a point-of-sale device and, with this new functionality, it acts as a form of two-factor authentication (2FA) for logging into applications like the Status messaging app and Ethereum wallet.

Related: ‘Social Money’ Startup Inks Deal With Rapper Ja Rule, Releases Song With Lil B

“If you are a regular Status user without a Keycard, your private keys are in your mobile phone,” Guy-Louis Grau, the product manager for Keycard, told CoinDesk. “Some users want to have their private keys outside of any connected device.”

Read more: Status Launches a ‘Tap-to-Pay’ Crypto Hardware Wallet

The private keys on the card are additionally protected by a PIN, so if someone stole or found a person’s Keycard, they would not be able to access the funds it controls. If a user lost their Keycard, they could restore the wallet using their mnemonic phrase, provided they have kept track of it.

The Keycard will work now with the Status Android app. Grau said it should work very soon with the Status iOS app as well. The device sells for $28.

Payments

Related: Activists Document Police Misconduct Using Decentralized Protocol

That said, a mobile device is not essential for using Keycard. At a point-of-sale system, for example, a user could simply tap their Keycard and then enter the PIN on the store’s device, and that would approve the transaction. No need to touch one’s phone.

To use as 2FA, a user simply needs to open the relevant app and, when the 2FA prompt comes up, hold the card to the back of the Android phone and enter the PIN.

The software that runs Keycard is all open source and written under open standards. Any other app that wanted to use it as a form of 2FA could do so.

Grau said the company wants to seed the payments use case. 

“Now we are working on developing an open payment network,” he said. “It would be particularly interesting in countries where it is difficult to open a bank account.”

While Status is focused on the Ethereum ecosystem, Keycard works with most major cryptocurrencies.

What’s the status of Status?

Before CryptoKitties wrecked Ethereum that December, the Status ICO clogged up the blockchain first, making it nearly impossible to get transactions through. Running in June 2017, the token sale ultimately raised slightly over $100 million. Despite being well funded, Status faced serious cutbacks during last year’s Crypto Winter.

Read more: Ethereum Chat Startup Status Lays Off 25% of Staff

The stated purpose of the round was to create a crypto-native messaging app along the lines of Telegram or WhatsApp.

“The internet is today on centralized platforms,” Grau said. “We just want to bring chat back to the people.”

However, he explained, the platform has committed itself to routing its messages over Ethereum nodes (which doesn’t mean they are logged on the blockchain). This gives messages more paths to reach users and makes it much harder to censor.

That said, the main protocol for running those kinds of messages, Whisper, has been underutilized and under-powered. Status has found it needs to do more work on Whisper in order to make it more usable for the masses, which is why the company has been relatively quiet in terms of pushing adoption.

Grau said the Status app is used heavily by crypto’s hardcore, and it has seen very strong developer activity. The company reported a significant uptick in new users at the start of the coronavirus pandemic.

Read more: Blockchain Gaming, Messaging Apps See User Growth Amid Coronavirus Lockdowns

Until the network is ready to handle use at scale, though, the company is not pushing adoption, Grau explained.

The company doesn’t monitor users, so precise statistics can be tough to track. However, there are over 50,000 installs and over 4,300 users have registered Status names on the Ethereum Name Service.

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Yesterday, it came to light that crypto functionality may come to PayPal and Venmo. If true, as substantiated by three anonymous sources and indicated by an open position for a senior blockchain research engineer, 325 million users would be able to buy and sell crypto.

“If it does happen, it has the potential to be the biggest crypto on-ramp ever,” Mati Greenspan, founder of Quantum Economics, told Blockchain Bites.

You’re reading Blockchain Bites, the daily roundup of the most pivotal stories in blockchain and crypto news, and why they’re significant. You can subscribe to this and all of CoinDesk’s newsletters here. 

Related: Identity Startup Notabene Launches Exchange Tool for FATF Travel Rule Compliance

It’s an interesting time to consider rolling out direct sales of crypto, which could happen within three months, according to a source cited in the original story. 

Amid the COVID-led market turbulence, crypto has emerged as a relatively safe bet for investors. As CoinDesk First Mover reports, crypto has tracked traditional assets like the S&P 500, while also recording an approximately 30% gain year to date. This performance in a global rut led JPMorgan analysts to conclude crypto is here to stay.

Further, as the world sheltered in place, crypto exchanges, payments apps and remittance services saw bustling use.

“Now that the blockade has been busted and everyone who wants to can buy bitcoin, there’s not much point boycotting it,” Greenspan said. “May as well make a few bucks on your way out.”

Related: In Banking First, ING Develops FATF-Friendly Protocol for Tracking Crypto Transfers

Questions remain. “I am waiting to see how this will be executed,” Ouriel Ohayon, CEO of ZenGo, told Blockchain Bites. “Will PayPal give customers control to move their cryptos outside of PayPal? Will their fee model be friendly? Will they have a wide choice of crypto assets to buy and sell?”

Perhaps most important is whether bitcoin’s success will lead to PayPal’s demise. 

“We can only assume that the reason they haven’t done it until now is because bitcoin has the potential to render their service useless,” Greenspan said. 

Top shelf

Travel Rule & Compliance
ING Bank has developed a protocol to assist with the Financial Action Task Force’s Travel Rule requirement for crypto exchanges and firms dealing in digital assets, which has been backed by Standard Chartered Bank, Fidelity Digital Assets and BitGo, plus a gaggle of other familiar firms from the crypto space. It’s the first time a bank has been involved in a crypto Travel Rule solution. Notabene also joined the race to find a FATF-friendly “trust framework” tool for crypto exchanges. While KPMG Chain Fusion, built by the big four auditor, is a new data management product that can connect with blockchains and traditional systems, to help firms remain in compliance. 

Reshaping Industries?
Economists at the Federal Reserve said that “fears of a so-called global stablecoin” envisioned by the early version of Libra were “overstated,” and the currency was unlikely to have lived up to its sovereign currency-killer hype. Meanwhile, Vanguard ran a pilot with blockchain startup Symbiont, Citi, BNY Mellon, State Street and an unnamed ABS issuer to see if repackaging contractual debt into bonds can be simplified. They found the full life of a digital asset-backed security (ABS) on a blockchain can be settled in 40 minutes versus the 10 to 14 days it would take in a paper-based setting.

Internet Stuff
Handshake, the crypto project trying to decentralize the internet’s infrastructure, now has a native browser. The fully-private HandyBrowser is able to access Handshake-specific sites as well as the traditional web, theoretically at speeds greater than the traditional Domain Name System’s stack. BlackBerry and Intel have joined the fight against crypto-mining malware with the launch of its BlackBerry Optics Context Analysis Engine, a detection tool for Intel’s commercial PCs.

Regulatory Loops
The Reserve Bank of India’s indecision around crypto regulation is stifling the blossoming industry, said multiple startup founders. For one, Nischal Shetty, CEO of WazirX, said trading volume went up by 400% after the recent Supreme Court ruling – allowing banks to work with crypto firms – but that it could have been even better with clear guidelines from the RBI. Elsewhere, Berlin-based security token startup Neufund shut down its security token platform, citing regulatory uncertainty from Germany’s Federal Financial Supervisory Authority (BaFin).

Funding and Hiring
Opyn, a DeFi hedging-startup, raised a $2.16 million funding round led by Dragonfly Capital, with participation from 1kx, Version One Ventures, CoinFund, DTC Capital, Uncorrelated Ventures and A.Capital. Meanwhile, BitMEX parent leads $3.5 million Series A for crypto options exchange Sparrow (The Block). Finally, decentralized lending platform Cred has hired former National Security Agency computer scientist Bethany De Lude and Western Union executive Daniel Goldstein as chief information security officer (CISO) and chief technology officer (CTO) respectively.

Market intel

Volatility Squeeze
For the fifth straight week, bitcoin is locked in a low-volatility squeeze similar to one seen ahead of a sudden $2,350 rally in October 2019. The Bollinger bandwidth, a price volatility gauge, has declined to 0.08, the lowest level since mid-October 2019, when bitcoin witnessed a bull-bear tug of war in the range of $7,700–$8,600 for over three weeks, starting from Sept. 26, 2019 (above right). A prolonged period of low-volatility consolidation often paves the way for a big move in either direction, according to technical analysis theory. 

Liquidity Burst
Bitcoin’s liquidity on derivative exchanges such as Binance, BitMEX and FTX continue to rise, despite a clear directional bias in prices, a sign of a sustained rise in investor interest. In fact, the order book depth on FTX, as represented by the number of buy and sell orders at each price, now matches the depth seen on industry leader BitMEX. 

First Mover: Three Arrow’s Gambit
Three Arrows has purchased $200 million of shares in the publicly traded Grayscale Bitcoin Trust. CoinDesk’s First Mover breaks down the logic behind this move. “The strategy of the trade comes from the dual ownership structure of the Grayscale trust, which is essentially a single-asset fund focused on bitcoin, and often referred to by its stock-trading ticker, GBTC,” they write. Institutional investors can create new GBTC shares or buy them at “net asset value” that’s marked daily, while retail buyers can only buy publicly traded shares at market price. Because the market price is typically about 20% higher than the value of the assets in the fund, this opens an opportunity for funds like Three Arrows to hold newly minted shares and then resell them at a profit later, if the premium holds up. (Grayscale is controlled by Digital Currency Group, the cryptocurrency-focused investment firm that also owns CoinDesk.) 

Opinion

DeFiduciary Duty
Lex Sokolin, a CoinDesk columnist and Global Fintech co-head at ConsenSys, thinks DeFi protocols should have a fiduciary duty. While these powerful tools are opening new economic realms, “we need fundamental change not for the sake of change, but for the sake of empowering people to live better financial lives,” he said. 

CoinDesk Podcast Network

The Macro Context
Some of the smartest investors in the crypto space, including Ari Paul, Spencer Bogart and David Nage, share how they think the larger macro context is shaping interest in bitcoin and digital assets.

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