CoinDesk Crypto

Harsh new rules making many uses of digital assets punishable with fines or prison might soon become law in Russia. 

New draft bills setting out how Russia should regulate cryptocurrencies were sent to the country’s parliament, the State Duma, earlier this week. Although the official website for the planned legislation hasn’t been updated yet, the two documents have been published in the OrderCom Telegram channel and were confirmed as genuine by sources of Russian news outlet RBK. 

The legislative proposals were reportedly written by staff at the Digital Economy think tank and the Skolkovo business accelerator. They seek a new version of the bill on digital assets, which has been stuck in the Duma for more two years now, as well as crypto-focused additions to the country’s criminal code.

Related: Telegram Quits Court Fight With SEC Over TON Blockchain Project

The first draft bill would regulate digital currencies in Russia. Or, to be more clear, prohibit the issuance of, and operations with, digital currencies in the nation. Even distributing information about such activities would be banned.

Read more: Bank of Russia Says New Digital Assets Bill Will Outlaw Crypto Trading, Issuance

Individuals and companies would not be permitted to accept digital currencies as payment, except if they are inherited, distributed to the debtors of a bankrupt company or confiscated as a result of a court decision. People owning cryptocurrency should declare it at the tax agency, as well as provide information on how it was purchased.

The second draft would introduce a new article into the criminal code bringing sanctions for illegal operations with digital assets.

Related: US Lawmaker Proposes Legislative Groundwork for National Blockchain Strategy

If passed, issuing digital assets in Russia without being approved for listing on a yet-to-be created register at the country’s central bank would see a company fined for up to two million rubles (nearly $28,000). The same level of penalty is suggested for organizing operations with digital assets and cryptocurrencies without approval, while individuals would face a fine of up to $2,800.

Buying crypto for cash or via a bank transfer from a Russian bank would be subject to a fine up to one million Russian rubles ($14,000) or up to seven years in prison, depending on the scale of the deal. Similar punishment would be in store for those who accept crypto for goods and services.

Read more: Russians Troll Government COVID-19 App With 1-Star Ratings, Harsh Reviews

If such a business brings “especially large” profit or especially large damage to the citizens and the state, the proposal would put the person(s) involved behind bars for up to seven years, or even forced labor. Facilitating crypto purchases, if such operations somehow “brought significant damage” to the state or individuals or “especially large profit” to the operator, could lead to five years in prison.

The mentions of a central bank register suggests legislators are providing leeway for some officially sanctioned entities to issue and use digital assets, while most general operations would be banned.

According to the RBK report, Anatoly Aksakov, chief of the Duma Committee on Financial Markets, confirmed the authenticity of the documents, but said they had not been finalized.

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Bittrex really didn’t want to get involved in the war that’s currently raging within the Steem community.

Richie Lai, co-founder of the U.S.-based crypto exchange, posted an announcement late on Wednesday saying his firm would return – reluctantly, it seems – million of dollars worth of disputed cryptocurrency back to a Steem wallet no one knows who controls.

After the 23.6 million steem tokens were confiscated from community dissenters in a tit-for-tat Steem hard fork Wednesday, they were quickly diverted to Bittrex by an unknown individual (or individuals) in the hope they would be returned to their original 64 owners – currently all persona non grata at the blockchain project.

Related: Why Kyber Network Tokens Tripled to $100M Despite the Coronavirus Recession

The controversial hoard is worth a little over $5 million at press time and was worth approximately $6.3 million at the time of the fork.

“We wish the entire Steem community could have addressed legitimate concerns in a manner which was viewed as fair by everyone,” said Lai. “The fact is, we only interpret the data on the blockchain, and in this case the consensus of the blockchain, regardless of how it was reached, agreed that the funds from those 64 accounts be moved to the ‘community321‘ account.”

“We believe in the sanctity of blockchain, and as an industry we need to adhere to the consensus rules of the blockchain without interjecting whatever our personal opinions might be,” he continued. “If we want blockchain to succeed, we must live by the rules of the blockchain.”

“While I am among those frustrated by the outcome, my own personal feelings do not matter,” Lai said.

Related: Steem Hard Fork Confiscates $6.3M, Community Immediately Takes It Back

See also: Tron’s Takeover of Steemit Is Internet History Repeating Itself

Wednesday’s Steem hard fork was the culmination of months of bitter infighting between those for and against the Tron Foundation’s takeover of Steemit – the largest application on Steem – earlier this year.

After the anti-Tron faction forked the network to create HIVE – a near-identical copy of Steem that copied over and then confiscated tokens linked to Tron founder Justin Sun – the pro-Tron team retaliated by forking Steem to seize tokens belonging to 64 of the former witnesses – blockchain validators – and stakeholders involved in creating the HIVE splinter group.

The tokens were sent to the mysterious wallet known as community321 but, as CoinDesk reported, were almost immediately sent to Bittrex’s platform. A note on the transaction said the funds had been “stolen by the Steem witnesses,” and asked Bittrex to “please return them to their original owners prior to the fork.”

No one knows who carried out the transaction (publicly, at least), but it was evidently someone from the anti-Tron lobby.

A former Steem witness told CoinDesk he believes this community member – whoever they may be – had access to an app and were able to cling on to the keys linked to the community321 wallet.

“There is a service run by an original community witness called AnonSteem, it allows users to make anonymous accounts,” they said. “They [the community321 wallet creator] used this service, and my initial guess is [a community member] saved the keys generated. Then used them to send the funds to Bittrex to rescue them.”

See also: Why Crypto Should Care About Justin Sun’s Steem Drama

In an interesting twist to the whole saga, Bittrex’s procedure for returning hacked tokens is to first receive proof of ownership from the victim. “We must review the facts of this transfer in order to return these funds to the original wallet owner provided the owner or owners of the wallet can prove the funds belong to them,” Lai said in his notice.

In other words, whoever is sitting behind the community321 wallet may have to declare themselves, at least to Bittrex. It could be interesting to see who does, eventually, break cover.

At the time of writing, the funds still hadn’t been returned.

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Kyber may be the Great Lockdown’s hottest token project. 

According to the analytics firm Flipside Crypto, the Kyber Network is one of the fastest-growing token projects so far during the coronavirus-led recession (in terms of developer contributions, social media chatter, blockchain records, wallet addresses and corresponding apps).

This decentralized exchange (DEX) protocol is associated with the token KNC, which jumped up in price since 2019, from roughly $0.18 in December 2019 to $0.64 by early May 2020, according to Messari. Traders don’t need to use KNC but in the near future they’ll be able to use it for staking rewards and to vote on development decisions. 

Related: Finance and the Real Economy Can’t Stay Out of Sync Forever

In the meantime, the Kyber Network protocol is essentially the third-most-popular DEX, with nearly $5.4 million worth of reserves in its decentralized finance (DeFi) systems, ranked behind Uniswap and IDEX. It’s estimated the protocol handled $200 million worth of volume in March alone. It was utilized by 13,000 crypto wallet addresses in March out of 62,264 active addresses tallied since January 2019.

Plus, this Asian DEX startup with team members in Vietnam and Singapore is now also part of the first batch of participants in Chicago’s DeFi Alliance (CDA), joined by DeFi startups like IDEX, dYdx, Synthetix, Set Protocol, Opyn and 0x. 

Read more: Ethereum’s Top DEX Is Rebooting With New Scaling Features

CDA co-founder Imran Khan of Volt Capital said over 100 teams applied to join the CDA, but only seven startups were chosen.

Related: Caught Up in Steem Squabble, Bittrex to Return Tokens Diverted in Hard Fork

“Market makers and liquidity providers all need different options based on their trading strategies,” Khan said. “Kyber’s competitive advantage is that it’s a decentralized exchange, they can play regulatory arbitrage and grow quickly.”

Liquidity

So far, the Kyber Network’s liquidity appears relatively healthy. In January 2020, Binance Research estimated the project had 35,000 active users. 

The network survived its first true stress-test in March, when the protocol supported $33 million worth of trading in a single day without any significant glitches despite cataclysmic volatility in broader markets. Khan added the CDA aims to grow the value of assets locked in DeFi systems from roughly $1 billion to $8 billion by 2021. 

“For the space to get real liquidity, we need professional market making,” said Kyber Network CEO Loi Luu.

Most DEXs saw significant gains during the start of the coronavirus crisis, so this doesn’t make Kyber unique. For example, fellow CDA member 0x reached a new all-time high in March with over $100 million worth of volume. What makes Kyber different from startups like 0x is that the former is primarily a liquidity protocol, not just a DEX. 

Read more: Chicago’s Trading Firms Look to DeFi With New ‘Alliance’

The Kyber Network DEX is merely a proof-of-concept, to show the protocol can allow on-chain trading functionality. Many wallets and DeFi platforms, like Uniswap and Trust Wallet, are also connected to the Kyber protocol on the backend. 

“On-chain market making is very different from off-chain market making, because you are actually using the blockchain to run all your operations,” said Kyber Network advisor Ming Ng. “Smart contracts can only talk to other smart contracts.” 

In short, in order for ethereum to become a global financial platform, something like Kyber Network (although not limited to it) would have to translate smart-contract functionality throughout all the layers of a trade.

Chains

Even if trades are settled on-chain, usually order books are off-chain, which is precisely the gap the Kyber Network wants to bridge. 

Stepping back, liquidity generally means the ability to move money around and actually use it, while a “smart contract” is just software that automatically triggers business activity. So, for example, if a trader wanted to build a tool that queried for the price of a specific asset across integrated order books, he could use the Kyber Network to do it. Then his smart contract could execute a trade or change the amount or price. 

“They are providing a different way to trade and some of the market makers will be more comfortable working with them,” Luu said of fellow CDA members IDEX and 0x. “You can have the full-fleshed decentralized stack [with Kyber], from the domain name and code to the smart contract as well.”

Getting more professional market makers to experiment with on-chain trading will be a challenge, but Luu’s staff of 55 still has more than half of its original token sale funds, Luu said. The KNC initial coin offering (ICO) reportedly raised 200,000 ether (ETH) in 2017. Plus, the team has been dogfooding their protocol by using it for market making and the above-mentioned DEX, turning a modest profit so far. 

“Market makers should be able to make a profit using Kyber,” Ng said. “We’re building a fully sustainable ecosystem where all the players in the ecosystem can make money.”

A new protocol upgrade coming in late June, called Katalyst, will allow KNC token holders to participate in a proof-of-stake system to earn rewards for helping maintain this DeFi network.

Read more: Kyber to Offer Delegated Token Staking After Coming Network Upgrade

When the token sale proceeds run dry, the namesake startup could also use this mechanism to earn money, just like other stakeholders. For now, demand for the token is surging across exchanges as more teams use the Kyber protocol for unique trading strategies related to stablecoins like dai, USDC and tether.  

Some traders may prefer a more familiar exchange and settlement model. For those who want to experiment with quasi-decentralized models, the CDA now offers the old guard a structure for getting hands-on experience working on-chain. Likewise, Volt Capital’s Khan said his fund plans to participate in staking on the Kyber Network. 

“The goal for Kyber Network as a DEX is that assets being traded should not exit the protocol,” Khan said. “Deeper liquidity enables more efficient markets and new ways to onboard retail traders.”

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Even idle speculation that mysterious bitcoin founder Satoshi Nakamoto might be moving around a small batch of the cryptocurrency appeared sufficient to spook the market on Wednesday.  

Bitcoin slid 2.3% on the day, retreating after a four-day rally and pushing the price down to about $9,500.

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.

Related: Blockchain Bites: Satoshi’s Sword of Damocles

But earlier in the day, bitcoin plunged as low as $9,100 after the Twitter account “Whale Alert” sent a message indicating a recent transfer of 40 bitcoins, worth some $391,055, might be from a “possible #Satoshi owned wallet” that had lain dormant since the first few months of 2009 – soon after bitcoin itself had launched.  

Shortly afterward, on Wednesday, the same address transferred 10 more coins over the blockchain. 

Satoshi wrote the white paper that mapped out the framework and rules for the bitcoin blockchain, but disappeared soon after the protocol launched, and their identity has never officially been confirmed. Many believe the name was a pseudonym. 

The reason it matters to digital-asset traders is that Satoshi — whoever he, she or they may be — is assumed to have amassed a large amount of bitcoins from mining shortly after the protocol’s launch in early 2009.

Related: 50 BTC Just Moved for First Time Since 2009 – But It Doesn’t Look Like Satoshi

Of course, a bitcoin transfer doesn’t necessarily indicate anything has been sold, and there are strong indications the address might not even be connected to the enigmatic founder.

But one fear could be that if Satoshi — or whoever it is behind the account — starts selling in large amounts, it could theoretically put downward pressure on the price.

“No matter who moved the coins, it did cause a mean ol’ nasty spike on the charts,” wrote Mati Greenspan, founder of foreign exchange and cryptocurrency research firm Quantum Economics, in an e-mail to clients. 

According to the cryptocurrency security researcher Sergio Demian Lerner, Satoshi’s untouched hoard might include as many as one million bitcoins, though BitMEX Research has estimated the number could be closer to 700,000.

Movement from old, inactive bitcoins is notable since such events rarely happen.

In fact, the 50 coins at the focus of Wednesday’s speculation — from data block 3,654, versus more than 631,000 now — were the first inactive coins mined in early 2009 to move since August 2017, according to data shared on Twitter by Coin Metrics engineer Antoine Le Calvez.

The bitcoin market sold off more than 7% almost instantly, as Whale Alert’s tweet quickly went viral, according to Bitstamp market data. As the rumor spread, something like $40 million worth of bitcoin futures contracts were liquidated on BitMEX, according to Skew.

“This occurrence highlights the importance of ‘address watching,’” Jose Llisterri, co-founder of crypto trading platform Interdax, told CoinDesk’s Daniel Cawrey. That includes “monitoring the addresses of whales/early miners and the so-called ‘Satoshi coins’ mined in the first months of bitcoin.” 

But there are strong indications the coins might not actually belong to Satoshi.

The primary evidence linking them to bitcoin’s creator are that the coins were mined in 2009, when few people were involved in the network, and that they’ve been inactive ever since.

But Lerner, the cryptocurrency security researcher, identified a unique “Patoshi pattern” in April 2019 that appears in the hash rate of a single, early miner. The assumption is the miner was likely Satoshi.

Lerner has identified all of those data blocks, and the 50 coins moved on Wednesday weren’t among them. 

Some bitcoiners immediately panned the Whale Alert’s suggestion. 

“Y’all need to up your analysis game,” Jameson Lopp, chief technology officer at bitcoin custody provider Casa, tweeted at the Whale Alert account.

In response to questions sent via Twitter, Whale Alert tweeted back that the “chance that this wallet is associated with Satoshi himself given its age and the transactions itself was interesting enough to post.”

“We are aware of the Patoshi research, but unlike what some are saying, we do not feel it excludes the possibility that Satoshi was the owner of those coins,” Whale Alert wrote via a direct message. 

Another angle is the vintage bitcoins might have been transferred by an early bitcoiner who has been active all along — just buying and selling newer bitcoins. So the fact the earliest coins were transferred might not mean the owner is suddenly doing anything differently.  

Gregory Maxwell, prominent Bitcoin Core developer and Blockstream co-founder, took to Reddit on Wednesday to explain that certain characteristics of the bitcoin protocol could cause coins like these to be left inactive in an otherwise active wallet owned by the same entity. 

“It’s possible that the author of this transaction has been frequently active all along, and their wallet just got around to spending this particular coin,” said Maxwell. From his perspective, he said, “nothing connects these coins to Satoshi.”

The takeaway for traders is to be on the lookout for vintage bitcoins — whether they’re Satoshi Nakamoto’s or not.

Tweet of the day Bitcoin watch

BTC: Price: $9,349 (BPI) | 24-Hr High: $9,795 | 24-Hr Low: $9,235

Trend: Bitcoin is facing selling pressure on Thursday amid bearish developments on short-duration technical charts.

The top cryptocurrency by market value is currently trading at $9,360, representing a 1.7% decline on the day, having spent the first half of the week battling selling pressure near $10,000.

Prices fell by over $600 to $9,100 on Wednesday, confirming an ascending triangle breakdown on the hourly chart. The pattern indicates the rally from the low of $8,100 observed ahead of bitcoin’s May 11 halving has ended, and the bears have regained control. 

The bearish view has been reinforced by rejection at $9,600 (lower high) seen during the Asian trading hours and the subsequent drop to levels below $9,400. Further, the MACD histogram is again producing deeper bars below the zero line, indicating strengthening of bearish momentum. 

As a result, the path of least resistance appears to be on the downside. Some observers may suggest otherwise, as the daily chart is reporting a golden crossover – a bull cross of the 50- and 200-day averages. However, the so-called long-term bull market indicator is based on historical data and often traps buyers on the wrong side of the market. “The last time the 50 DMA crossed above the 200 DMA, there was a 60%+ drop in price over the next month,” tweeted popular analyst Josh Rager. 

The immediate support is seen at $9,000, which, if breached, would open the doors to the four-hour chart 200-candle average at $8,590. On the higher side, key resistances are located at $9,600 (the Asian session high) and $10,000, which has proved a tough nut to crack over the past few days. 

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Bitcoin prices look to be struggling with buyer exhaustion, having put in a negative performance in the last 24 hours despite positive developments on both the macro and technical fronts.

The top cryptocurrency by market value fell from $9,760 to $9,100 during Wednesday’s U.S. trading hours, even though major investment banks JPMorgan Chase and Goldman Sachs called for an increase in the size of the inflation-boosting government bond purchase programs run by the Federal Reserve and other major central banks. Bitcoin is increasingly eyed as an investment alternative that isn’t prone to inflation.

“The level of the expected increase in supply this year – about $2.1 trillion – is offsetting the $1.9 trillion demand for bonds to the tune of $200 billion,” JPMorgan said. 

Related: Market Wrap: Traders ‘Buy the Dip’ as Bitcoin Hovers at $9,000

The bank is essentially predicting a rise in bond yields and a fall in prices due to the shortage of demand in the bond markets. An uptick in yields or borrowing costs may discourage investors and corporations from borrowing and investing, prolonging the coronavirus-led economic downturn. 

As a result, analysts at JPMorgan think the central banks would have to ramp up their bond purchase programs in order to keep yields depressed. Goldman Sachs strategists echoed similar sentiments last week. 

Even so, bitcoin, which is widely touted as “digital gold” due to its limited supply and programmed supply cut at regular four-yearly intervals, fell on Wednesday and remains under pressure near $9,390 at press time, representing a 3.8% decline on a 24-hour basis, according to CoinDesk’s Bitcoin Price Index. 

The decline looks more surprising considerin technical studies have been biased bullish from the start of the week. For instance, last week’s candle penetrated an 11-month falling trendline, confirming a bullish breakout. Further, the 50- and 200-day averages produced a “golden crossover” earlier Thursday, signaling long-term bullish conditions (as technical theory suggests, anyway). 

Related: Market Wrap: Bitcoin Rebounds to $9,500 After Scary Sell-Off

With buyers unwilling to step in despite the bullish signals, the cryptocurrency looks vulnerable to deeper pullbacks. 

Some observers have suggested that on-chain movements of bitcoins caused a decline in prices on Wednesday. Selling pressure strengthened after a dormant address moved some of the earliest mined coins for the first time in 11 years. 

The subsequent recovery was shallow, and prices faced rejection at $9,600 early on Thursday before falling back to lows under $9,400. While Wednesday’s price dip was an opportunity for investors to snap up bitcoin amid bullish macro developments, the weak bounce suggests most chose to remain on the sidelines. 

Signs of buyer exhaustion is not surprising because the cryptocurrency has rallied by over 150% in the past two months. The rally was likely fueled by the bullish narrative surrounding the reward halving, which took place on May 11, and due to the unprecedented amounts of liquidity injected by major central banks into the traditional markets. The G7 central banks purchased more than $1.3 billion worth of bonds in April, as tweeted by Jeroen Blokland, a portfolio manager for the Robeco Multi-Asset funds.

Analysts at Stack, a provider of cryptocurrency trackers and index funds, expect bitcoin to consolidate in the range of $8,000–$10,000 for some time. 

From a technical analysis standpoint, immediate support is seen near $8,970 at a trendline rising from March lows. 

Daily chart

Acceptance under the ascending trendline support would expose the 200-day moving average located near $8,000.

So far, the confirmation of the golden cross has failed to invite stronger chart-driven buying. The indicator tends to lag prices and trapped traders on the wrong side of the market earlier this year, as warned by Darius Sit, co-founder and managing director at Singapore-based QCP Capital.

On the higher side, $10,000 is the level to beat for buyers. 

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

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Block.one is about to begin wielding its juggernaut EOS allocation in the ecosystem's governance, but the multi-billion dollar developer house has some pre-requisites

IBM has become a shareholder in we.trade, the trade finance platform jointly owned by 12 European banks, signaling further consolidation across the enterprise blockchain space.

Ciaran McGowan, we.trade’s CEO, said the deepening relationship with Big Blue will help the platform in its next phase of global expansion.

“Now we’ve got a very strong partnership with IBM for scaling globally, and we are working closely together on Asia, Africa and Latin America,” McGowan said.

Related: Standard Chartered Claims First Yuan-Based Letter of Credit Issued on a Blockchain

We.trade has the distinction of being the first enterprise blockchain consortium to go live, which happened back in early 2018. The platform was formed by a group of banks to help European small and medium-sized enterprises (SMEs) get better access to trade finance. IBM has been the project’s technology partner from inception.

Read more: Staying Alive: Why the World of Enterprise Blockchain Has Turned to Collaborations

However, the plan at we.trade was always to take its technology in-house and rely less on IBM, as stated by McGowan at last October’s Sibos event in London.

“It’s all about getting the right balance,” McGowan said this week regarding IBM’s new role as part-owner of the platform as well as the sole technology provider. “Back then [in 2019], we had seven staff at the company and it wasn’t realistic for seven staff to make all the decisions, to collate all the different requirements, to prioritize and manage everything.”

Related: IBM Blockchain to Offer Decentralized Smart Contract Option

The move also raises the question of intellectual property (IP) ownership, something that has caused problems for IBM in the past with blockchain consortia.

Part of we.trade’s success was down to the fact no single entity had more say than another. The platform’s previous CEO, Roberto Mancone, pointed to a “clear distinction” between IBM’s IP, which was the components used to build the platform, and the IP of the platform itself. 

Read more: IBM and Maersk Struggle to Sign Partners to Shipping Blockchain

These lines appear to be blurring now. In addition to owning the Hyperledger-based IBM Blockchain Platform that we.trade is built on, IBM would own 7% of the platform’s IP, McGowan confirmed.

A concession being promoted by we.trade (and IBM) involves a new multi-cloud approach so customers can use Microsoft Azure or AWS, instead of having to use IBM Cloud.

IBM joins we.trade’s existing 12 shareholder banks: CaixaBank, Deutsche Bank, Erste Group, HSBC, KBC, Nordea, Rabobank, Santander, Société Générale, UBS and UniCredit. 

McGowan said some European banks are “playing wait and see” with enterprise blockchain, especially in the busy trade finance space.

“I think that because there are quite a number of players in the space, and quite a number of banks on those platforms, the European banks have been kind of sitting back and are maybe afraid to join one platform in case another does better.”

Read more: Banking Giant UBS Goes Live on We.Trade Blockchain for Trade Finance

Still, McGowan said we.trade plans to interoperate with Hong Kong’s eTradeConnect, a blockchain-based trade finance platform formed by 12 Asian banks. An investment round planned for September will see the platform onboarding some insurance companies as well as more banks, he added.

Asked if IBM is getting its hooks into a platform that previously had a semblance of independence, Parm Sangha, the global trade finance leader at IBM, said: “Hyperledger is open source; IBM has opened up to have a multi-cloud approach. The only thing we are collaborating smarter on is where does this all go, and that is the pursuit of market share and market size.”

A source involved in the enterprise blockchain space who wished to remain anonymous said we can expect to see IBM begin rolling together its big blockchain services such as TradeLens and Food Trust, in an attempt to get critical network mass.

“I’m not sure that strategy will work – the cost of transition may be higher than the cost of integrating those services together,” they said.

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A U.S. lawmaker wants the federal government to begin considering a national blockchain strategy.

On Tuesday, U.S. House Rep. Brett Guthrie (R-KY) introduced a bill calling on the Federal Trade Commission (FTC) to survey the prevalence of blockchain technologies across industry, government and the globe. CoinDesk obtained a draft version of the bill, HB6938, which is shared in full below.

If passed, the bill, which had no cosponsors when referred to the House Energy and Commerce Committee, would give the FTC two years to conduct the survey and a further six months to advise Congress on what it learned.

Related: Russia Considering Draconian Rules for Illegal Crypto Operations

Guthrie calls for recommendations on state-level blockchain adoption, business sector blockchain adoption, blockchain development plans, risk mitigation strategies, legislative frameworks and how to consolidate potentially prohibitive federal statutes.

The recommendation package would effectively outline a comprehensive blockchain strategy for the United States. 

Some U.S. allies already have such a framework, including Germany. (The proposed FTC survey would give lawmakers a rundown of at least 10 countries’ blockchain strategies’ relative to the U.S.).

But Guthrie’s main concern appears to be the clear leader of national blockchain strategies, and an adversarial one at that: China. 

Related: ‘Digital Dollar’ Reintroduced by US Lawmakers in Latest Stimulus Bill

“We cannot let China beat us,” he said in a press statement. 

In April China launched the Blockchain Services Network, and it is now moving swiftly forward with testing of its central bank digital currency, the digital yuan. It has aggressively courted state-sponsored blockchain use cases far beyond the actions of the U.S.

Read more: Blockchain Now Officially Part of China’s Technology Strategy 

Staying a step ahead of China has gotten only more crucial in the age of COVID-19, Guthrie said.

“The ongoing coronavirus pandemic has made it clear that we need to maintain American leadership in technology,” he said in the statement. “America is a nation of innovation and enterprise – and we need to keep it that way.”

The bill is part of an emerging tech legislative package by House Republicans.

Read the full draft bill below:

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Bitcoin suffered a quick sell-off on Wednesday after a previously dormant address moved some of the earliest-mined coins for the first time. While bitcoin’s price has recovered a bit, downward selling pressure remains and could have an impact on stakeholders, especially in the derivatives and mining sectors.

As of 20:00 UTC (4 p.m. ET), bitcoin (BTC) was trading at $9,529, a loss of 1.2% over 24 hours. Bitcoin moved below its 10-day and 50-day moving averages on high selling volume. It’s a signal of bearish sentiment after bitcoin dropped as low as $9,100 earlier in the day on spot exchanges including Bitstamp.

After a few days of prices staying pretty much flat, bitcoin trading activity has picked up. However, that activity was mostly from sellers after one of the oldest bitcoin addresses suddenly showed signs of life, moving up to 50 BTC around for the first time in 11 years. That caused a quick 7% price drop within an hour. 

Related: Bitcoin Drops Over 3% Despite Golden Cross and Bank Calls for More US Stimulus

Read More: 50 BTC Just Moved for First Time Since 2009 

This sell-off reminds traders to keep track of the oldest addresses in the bitcoin network, says Jose Llisterri, co-founder of crypto trading platform Interdax. “This occurrence highlights the importance of ‘address watching,’ monitoring the addresses of whales/early miners and the so-called ‘Satoshi coins’ mined in the first months of bitcoin.” 

As of now, there is no evidence the 50 BTC were moved by accounts held by the pseudonymous “Satoshi Nakamoto,” the founder (or founders) of bitcoin. 

While the price of bitcoin was able to recover some from the dip, stakeholders such as Mostafa Al-Mashita, head of business development for digital asset management firm Secure Digital Markets, are concerned the crypto market may be heading lower. “Coins from 2009 moving on-chain have definitely spooked some speculators about early players cashing out their coins,” said Al-Mashita. 

Related: Price Drops 7% in an Hour After Bitcoin Sees a Ghost

Such selling also compounds losses because of leveraged derivatives positions that get liquidated. This dynamic is what exacerbated bitcoin’s massive drop in March to below $4,000 when BitMEX liquidations wiped out leveraged traders who were long crypto. Over $40 million in liquidations occurred during the time of bitcoin’s 7% drop Wednesday. 

Another group of stakeholders watching the price carefully are miners. Bitcoin’s mining difficulty adjusted on Tuesday, a 6% drop in the computational resources needed for machines on the network to produce new coins. Mining difficulty is how much computational power it takes for miners to mine for bitcoin. 

Read More: Bitcoin Just Got Easier to Mine, but for How Long?

Since the halving, bitcoin’s total daily rewards has been reduced from roughly 1,800 down to 900 BTC. Miners are more sensitive to price than ever before, despite the recent easing of difficulty. 

Christopher Thomas, head of digital assets at Swissquote Bank, senses bitcoin’s price is too high despite today’s selling activity. “I’ve felt we’ve been hanging around the $9,900 level without any conviction for the last week or so,” he told CoinDesk. ”We’ll likely move lower to the support levels around $8,000 and possibly further to $7,300.”

“The lower we go, the more sell volume from the miners. As their profit margins lower, they are forced to sell a higher percentage of coins,” added Thomas.

Other markets

Digital assets on CoinDesk’s big board are mostly in the red Wednesday. Ether (ETH), the second-largest cryptocurrency by market capitalization, was down less than a percent in 24 hour trading as of 20:05 UTC (4:05 p.m. ET).

The biggest digital asset dips in 24-hour trading were tron (TRX) slipping 2.8%, monero (XMR) down 2.8% and ethereum classic (ETC) losing 2.6%. Gainers on the day include zcash (ZEC) climbing 1.7%, cardano (ADA) in the green 1% and dash (DASH) up less than a percent . All price changes were as of 20:05 UTC (4:05 p.m. ET) Wednesday.

Read More: Why $4M Dai Made From WBTC Matters for DeFi’s Maturation

In commodities, oil is making large gains, with the price for a barrel of crude up 5% at press time. Gold traded flat, with the yellow metal gaining less than a percent, priced at $1,749 at the close of New York trading. 

Asia’s Nikkei 225 index closed trading Wednesday up less than a percent as mixed trading performances were attributed to Japanese business confidence hitting lows not seen in ten years. In  Europe, the FTSE Eurotop 100 index of the largest companies by market capitalization closed the day up 1%. 

In the U.S. the S&P 500 gained 1.6% on the day, up over 3% for the week. “Equities have had a good run,” says Rupert Douglas, head of institutional Sales at digital asset firm Koine. “I think that the Nasdaq might get to around 9700. If equities then sell off, I’m looking for BTC to be uncorrelated and rally strongly.”

U.S. Treasury bonds were mixed. Yields, which move in the opposite direction as price, were down most on the two-year bond, in the red 1%.

Related Stories

• 50 BTC Just Moved for First Time Since 2009 – But It Doesn’t Look Like Satoshi
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The first large minting of MakerDAO’s dai stablecoin using a bitcoin synthetic has occurred, signaling user demand for inter-blockchain asset support on Ethereum’s largest decentralized finance (DeFi) protocol.

Crypto lending platform Nexo minted $4 million dai Wednesday by using WBTC as collateral. 

WBTC, an ERC-20 token created by placing deposits of bitcoin with crypto custodian BitGo, was approved as collateral on the MakerDAO platform on May 3. Launched in January 2019, WBTC’s market cap is currently $21.7 million, according to DeFi Pulse.

Related: Why Kyber Network Tokens Tripled to $100M Despite the Coronavirus Recession

“This really showcases the latent demand for non-ETH assets,” MakerDAO founder Rune Christensen said in a tweet, “and it’s the beginning of a broader trend of DeFi acting as an economic vacuum that will eventually attract almost all value to the ethereum blockchain.”

Adding exposure to bitcoin is a major step by DeFi’s leading protocol, giving Maker lenders access to the largest cryptocurrency by market cap for further issuance of dai-based loans.

Read more: The CoinDesk 50: MakerDAO Is the Godzilla of DeFi

Calls to add bitcoin onto the protocol have floated around the Maker community before but gained steam following the flash crash of ether (ETH) on March 12. At the time, Maker community members considered adding bitcoin, stablecoins and even tokenized gold as collateral assets to protect against further plunges in ETH’s price. 

Related: UMA Project Creates Its First Synthetic Coin, Matching ETH Against BTC

The community eventually added support for USD Coin (USDC), which largely alleviated dai’s dollar peg issues during the month of April. Yet, the wheels were in motion for the addition of bitcoin – as demonstrated with the early April addition of an ETH/BTC pricing feed on MakerDAO. 

Some DeFi developers also believed porting bitcoin onto Ethereum would be a win-win: DeFi users could gain exposure to bitcoin’s liquidity – such as derivatives platform dYdX –  while utilizing Ethereum’s transaction speeds. And, as the oldest and largest DeFi protocol, the addition of bitcoin to Maker would pave the way for bitcoin onto Ethereum in general. 

The WBTC-generated dai could be used for a variety of purposes, data scientist Alex Svanevik said in a Medium post last week, including lending the dai at interest. 

The initial WBTC minting took place on token sale platform CoinList, with Nexo minting 999.6 WBTC May 11. Those funds were then moved to Maker compatible wallet Oasis in two transactions of 1 WBTC – perhaps as a test – and 997 WBTC on May 13 and May 20, respectively. (Nexo did not return a request for comment.)

Read more: Why MakerDAO Should Consider Negative Interest Rates for Dai

The minting of $4 million in stablecoins represents some 3% of the amount of dai currently minted, but about 50% of the WBTC market cap, according to DeFi Pulse. 

WBTC isn’t the only tokenized bitcoin competing for space on Maker. Keep’s tBTC was working on a listing on the DeFi protocol before pausing operations after a bug was found in the protocol less than a week after it launched.

Related Stories

• Market Wrap: Here’s Why Ether’s Price Has Jumped 65% So Far This Year
• Uniswap V2 Launches With More Token-Swap Pairs, Oracle Service, Flash Loans

Want to bet the price of ether (ETH) is rising relative to the price of bitcoin (BTC)? There’s now a token for precisely that.

On Tuesday night, the UMA Project community approved contracts that allowed creating its first token: ETHBTC. This is a synthetic token whose value tracks the relative value of ETH to BTC, so if ETH is worth $200 and BTC is worth $10,000, an ETHBTC should be worth $0.02. 

The intriguing thing about ETHBTC, though? No ETH or BTC is needed to make it.

Related: Why Kyber Network Tokens Tripled to $100M Despite the Coronavirus Recession

This will be the first deployment of what UMA, a decentralized finance (DeFi) project, calls the priceless token model, one built from the start to minimize the need for oracles.

“ETHBTC was selected as the first test for UMA’s priceless synthetic design because it’s DeFi-centric but not too serious,” Hart Lambur, UMA’s co-founder, told CoinDesk in an email. “This first token is still experimental, so it felt wise to choose a product that appeals to hardcore DeFi natives – the type of people that might want to bet on this rate, and who best understand the risks of ‘new’ things.”

ETHBTC is available now on the new Uniswap, though the team is warning interested buyers: “The mechanisms behind this design have not been proven in the wild. Users should proceed with extreme caution.”

Representing BTC on Ethereum to prove its value as collateral has become a prominent theme for DeFi in 2020.

‘Priceless‘

Related: Why $4M Dai Made From WBTC Matters for DeFi’s Maturation

Below is an explanation of how ETHBTC is created, and it should basically describe how any other synthetic tokens might be created on UMA, though some of the variables will likely change.

To generate ETHBTC, a user posts dai as collateral to the smart contract. Based on the collateralization rate of 120%, the contract will allow the user to generate a specific amount of ETHBTC. They can then sell the new ETHBTC on the open market or they can use it to add liquidity to the ETHBTC pool that will be created on Uniswap (most interested buyers will probably choose to just acquire it directly on Uniswap).

Read more: Trust No Dapp: Chainlink Launches Oracle for Provable Randomness

UMA’s synthetic tokens trade like any Ethereum-based token until their contract comes to an end. At that moment, the staked DAI will be split between token holders and stakers. If the value of ETH vs. BTC has gone up at the close of the contract, the token holder will get a profit on what they paid for it. If it hasn’t, the staker will earn a profit on that original sale as the contract releases more dai back to them.

So token holders are long and stakers are short ETHBTC. Lambur described it as “a sort of meta-bet on DeFi as a whole,” because the most likely explanation for growth in ETH uncorrelated to BTC would be more people using DeFi products. 

This is all quite new. The UMA team noted in their message that this is very much an alpha test in the real world. While it has been audited by OpenZeppelin, users should be very cautious about the amount of risk they take on. 

“We strongly encourage interested users to do their own research and proceed with caution in this experiment,” Lambur wrote.

Eliminating oracles

Under the priceless token model, UMA does not need an oracle to function on a day to day basis.

“What we’re saying is: Let’s not do any on-chain price ever,” Lambur told CoinDesk in an interview. “This is how you’re going to have to scale DeFi,” he added later.

The idea here is that everyone knows that the contract is going to have this defining moment when it comes to the end and the stakes get split up between stakers and coin holders. If the definition of the price is clear and transparent to everyone, the truth of the world should not be confusing at that moment. If so, then an oracle will never be necessary. People will just see what the truth was and accept that outcome.

“Minimizing the dependency you have on your oracles is just good system design,” Nik Kunkel, on the oracles team at MakerDAO, told CoinDesk. “This type of oracle’less design is very unique to their system and the characteristics of the UMA system. It can’t really be applied anywhere else.”

Read more: Uniswap V2 Launches With More Token-Swap Pairs, Oracle Service, Flash Loans

This was a point that Sergey Nazarov, creator of Chainlink, a network of oracles, also emphasized.

“If you say, ‘I’m not going to build data feeds to build financial products,’ the number of financial products you can build is very small,” Nazarov said. “I think what they are doing is essentially an interesting experiment.”

That said, Lambur compared UMA’s approach to paper contracts in the real world. Traditional contracts don’t have to be publicly posted to function and most of the time no one but the parties ever see them because every one honors their side of the deal.

“We are really trying to frame the oracle itself as being like taking someone to court,” Lambur said.

In order to backstop price throughout the life of the contract, UMA also has a liquidation model. If anyone spots an undercollateralized position, they can trigger a liquidation event. Again, if they initiated it accurately under the conditions, ostensibly there will be no need to turn to oracles.

If there’s a dispute, UMA token holders will settle it by coming together to vote. The holders who voted on the winning side will be rewarded in new token emissions. The economic model of UMA is designed so that it will always be unprofitable to buy up UMA tokens in order to vote through a false choice.

“The tokens themselves, the token holders, form this court system which ultimately is the security of the whole platform,” Lambur said. “The whole overall premise for our token economics is we need the cost of bribing the system to be greater than the value of the system.”

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• Hybrid Blockchain Maker Kadena Adds Chainlink Price Feeds

Bitcoin was spooked by a ghost Wednesday, tumbling 7% in the span of an hour on reports a previously inactive address dating to the blockchain network’s earliest days had transferred more than $300,000 of the cryptocurrency. 

The scare brought a quick end to bitcoin’s four-day rally. Prices for the largest cryptocurrency by market value fell to around $9,500 as of 17:15 UTC (1:15 p.m. in New York) from $9,788 on Tuesday. Earlier Wednesday the rapid sell-off took bitcoin as low as $9,100.    

The hourly drop was the biggest tumble since May 10, when a brief outage on Coinbase caused the price of bitcoin to dip 10% in 30 minutes. 

Related: Bitcoin Drops Over 3% Despite Golden Cross and Bank Calls for More US Stimulus

Wednesday’s tumble was most pronounced on Luxembourg-based exchange Bitstamp, where the price for 1 BTC lost 7% in one hour. 

The sudden drop came as crypto traders lit up Twitter after bitcoin blockchain data showed the address, inactive for 11 years, had moved up 50 BTC to different wallets, then another 9.99 BTC earlier in the day. The address’ owner is unknown at present but the coins were valued at around $379,200 at press time. 

See also: Bitcoin Mining Difficulty Drops by 6% in First Adjustment After Halving

The market pullback appeared to be exacerbated by the liquidation of heavily leveraged positions on the Seychelles-based BitMEX exchange, where traders can use derivatives known as perpetual swaps to bet up to 100 times their money down.  

Related: Market Wrap: Bitcoin Rebounds to $9,500 After Scary Sell-Off

Spot-market prices briefly diverged from those in derivatives markets, Vishal Shah, founder of the cryptocurrency exchange Alpha5, told CoinDesk via a Telegram message. 

A price gap as high as $15 opened up between spot exchanges and BitMEX, he said. 

“The spot index was higher than perpetual swaps” on BitMEX, Shah said. “This shows that it’s leveraged guys getting liquidated, while the spot bitcoin market is still firm.”

Hunter Merghart, head of U.S. operations for Bitstamp, told CoinDesk in a phone interview there appeared to be a “large sell order on the exchange” but that operations were functioning normally. 

“In general, we see large buys and sells all the time,” Merghart said. “We don’t know why people buy and sell, but it’s probably the news” of coins moving.”

Related Stories

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The bitcoin market sold off more than 7% Wednesday, according to Bitstamp market data, after a Twitter bot alleged a recent bitcoin transaction came from a wallet possibly belonging to Satoshi Nakamoto, the protocol’s creator. 

But almost nothing supports the rumor the coins indeed belong to Nakamoto.

“Whale Alert,” a popular Twitter bot account that tracks on-chain transactions for multiple blockchains, tweeted that 40 BTC were transferred from a “possible Satoshi owned wallet.” The price dipped as the tweet quickly went viral. 

Related: Blockchain Bites: Satoshi’s Sword of Damocles

Commenting on the market’s reaction, Hunter Merghart, head of U.S. operations at Bitstamp, said sellers on the exchange “got good fast liquidity and buyers were there to fill it. Everything worked as designed.” 

See also: Price Drops 7% in an Hour After Bitcoin Sees a Ghost

That the coins were old (mined in 2009) and inactive (not moved until Wednesday) is the only link possibly connecting them to Nakamoto. 

Commenting on the unconfirmed alert, bitcoin software engineer Jameson Lopp noted the script behind the account is a bit naive and should be improved for accuracy. “Y’all need to up your analysis game,” he tweeted.

Related: First Mover: Bitcoin Rattled by Transfer of Satoshi Coins That Might Not Be Satoshi’s

More sophisticated analysis casts doubt on Nakamoto’s connection to these coins. Analysis of the habits of a single, early miner has been used to develop the “Patoshi pattern,” which is believed to indicate which blocks Nakamoto most likely mined and those he didn’t. 

The “Patoshi” miner is believed to be Nakamoto, according to the hashrate analysis. Disproving that bitcoin’s creator owned these coins, however, is ultimately impossible.

Related Stories

• Bitcoin Drops Over 3% Despite Golden Cross and Bank Calls for More US Stimulus
• Market Wrap: Bitcoin Rebounds to $9,500 After Scary Sell-Off

Bitcoin’s network difficulty adjusted downwards today, making older mining machines profitable once again, while Tokensoft distributed $4 million in tokenized equity to investors and technology firms are calling upon the Department of Defense to invest in the blockchain arms race. Here’s the story:

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. 

Top Shelf

Getting Easier
The Bitcoin network just fine-tuned a key parameter to coax back miners who quit after last week’s halving hammered their profits. Bitcoin’s mining difficulty, which measures how hard it is to compete for block rewards, decreased 6% on Wednesday, in the network’s first biweekly difficulty adjustment since the halving meant to keep the block interval at roughly every 10 minutes. This adjustment may lure less efficient miners back into the network.

Related: Blockchain Bites: Satoshi’s Sword of Damocles

Tokenized Distribution
Tokensoft, a digital securities platform for enterprises and financial institutions, has used blockchain tech to distribute equity to investors in a $4 million seed round raised in 2018. The investors, including Base10 and e.ventures, Coinbase Ventures and Fidelity affiliate Avon Ventures, received a digital representation of their investments on the Ethereum blockchain using ERC-1404 tokens.

Blockchain Arms Race
The U.S. Department of Defense can’t afford to lose the global military blockchain race to Russia and China, warns a new white paper by Amazon Web Services, IBM, Deloitte and others. “The two superpowers that pose the greatest threat to the U.S. are both heavily investing in both the research and development of blockchain technology,” the briefing said. China’s on the “economic warfare” offensive with its digital currency. Russia is on defense with a lab dedicated to blockchain cyber threat mitigation. For U.S. security interests, blockchain could assist the military in anything from “weapons release” [Ed. note: Just what bitcoin’s founders intended.] to stopping data erasure, as well as bolstering command and control mechanisms.

Elliptic Growth
Crypto sleuthing firm Elliptic has expanded its scope to cover some 97% of digital assets by trading volume – the broadest range of any crime-fighting blockchain analytics service, the company said. Announced Wednesday, Elliptic Navigator adds 87 new crypto assets to the firm’s existing purview. That said, touting just the number of coins covered can be “fairly irrelevant,” said Elliptic co-founder Tom Robinson, because analytics shops could be including many ERC-20 tokens that nobody really uses.

Flawed Code
Keep Network says a flawed code addition forced the shutdown of its bitcoin-backed Ethereum token, tBTC, just two days after it launched. The bug affected the processing of deposit redemptions (when users try to pull bitcoin out of the system), essentially due to the code’s inability to tell different types of bitcoin addresses apart. While the bug and subsequent pause have been a setback for the Thesis team, a new call out has been made to solicit help from code auditors to help track down any further issues.

Related: First Mover: Bitcoin Just Got Easier to Mine, but for How Long?

Iranian Regulation
The Iranian government just made conduits to cryptocurrency markets riskier, and more confusing, than ever before. According to Iranian news outlet ArzDigital, Iran’s parliament published a proposal this week to include cryptocurrency in existing “currency smuggling” and foreign currency exchange regulations. The result of this prospective regulation is Iranian entrepreneurs face a heightened risk of being jailed by local authorities or sanctioned by Americans. 

Coinbase to Comptroller
A former top lawyer at Coinbase is about to take the top job at a major U.S. bank regulator, at least temporarily. Brian Brooks, the first deputy comptroller and chief operating officer in the Office of the Comptroller of the Currency (OCC), is poised to become acting comptroller as his boss, Joseph Otting, is planning an imminent departure.

75 Million Devices
Blockchain e-sports streaming platform THETA.tv will soon be available on Samsung’s flagship Galaxy S20 smartphones shipping to the U.S. THETA.tv runs on the Theta blockchain and pays out a native token to content streamers, and will be included in the Samsung Daily app, extending its potential reach to more than 75 million smartphones and tablets.

Atari Token
Ahead of Atari token’s September launch, the development team has partnered with the Litecoin Foundation to make litecoin an accepted form of payment for the token and across Atari’s “gaming ecosystem.” (The Block)

Opposite Editorial

Staking Will Turn Ethereum Into a Functional Store of Value
Osho Jha argues ether’s current price does not reflect the protocol’s upcoming switch from proof-of-work to proof-of-stake consensus, which would turn the cryptocurrency into a functional store of value. 

PTJ on BTC: Bitcoin Is Now the Macro Big Bet
Byrne Hobart argues that Paul Tudor Jones’ big bet on Bitcoin is a signal to other institutional and traditional investors to view bitcoin as a legitimate hedge against inflationary monetary experiments. “[A]fter careful due diligence, the famous trend-chasing macro investor ultimately treated bitcoin as a value play,” Hobart said. 

Facebook’s Toothless Oversight Board Has Lessons for Blockchain
Cathy Barrera digs into Facebook’s oversight board, which recently announced its founding members, calling the system necessarily flawed and unable to account for the myriad problems the company may generate or find itself dealing with. “Facebook’s inability to create a genuinely independent body with real control over content decisions is an essential lesson for blockchain projects,” Barrera writes. 

Market Intel

$1B in Open Interest
Open interest in options listed on the Panama-based Deribit exchange jumped to a record high of $1 billion. On Tuesday, 101,000 options contracts were open on the most popular exchange. Each option contract on Deribit represents one bitcoin. “The new record is driven by market sentiment, an increased number of diverse global participants on Deribit and the efforts made by our various partners and us to provide a premier quality market at all times with the highest capital efficiency, integrity and connectivity and trading solution,” said Luuk Strijers, Deribit’s chief compliance officer.

Bitcoin Undervalued
Bitcoin has witnessed triple-digit percentage gains over the past two months. Yet, a key measure known as the Puell Multiple suggests the currency is still undervalued. Lows in this metric, which currently sits below historic levels, have marked the beginning of fresh bull runs in bitcoin’s price. 

Mining Metrics
Bitcoin became 6% easier to mine Tuesday, a rare dip in Bitcoin’s lifetime in which difficulty has almost always trended upwards. Despite the recent adjustment, the current difficulty is still well over double what it was this time last year – a sign of just how competitive the mining business has become. Yet, according to Coin Metrics data, many formerly unprofitable machines are turning on, including Bitmain’s Antminer S9s, which saw their heyday in 2018. The halving made them less profitable, but the easing in mining difficulty should help to improve margins. 

Exchanging Out
Glassnode data suggests holders are withdrawing Bitcoin out from centralized exchanges. Beginning around March 12, when bitcoin’s price cratered, the market has entered “the largest and most prolonged BTC exchange balance downtrend in bitcoin’s history.” (Decrypt)

The Breakdown

‘Minsky Moments’ and the Financial History of Pandemics
Jamie Catherwood, of quantitative long-equity investment firm O’Shaughnessy Asset Management and Investor Amnesia, joins The Breakdown to discuss historic connections to today’s market meltdown. 

Who Won #CryptoTwitter?

Related Stories

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• First Mover: Bitcoin Difficulty Adjustment Feels Like Post-Halving Easing Party

Bitcoin’s halving busted a lot of miners while Samsung adds blockchain e-gaming. It’s CoinDesk’s Markets Daily podcast.

This episode is sponsored by ErisX, The Stellar Development Foundation and Grayscale Digital Large Cap Investment Fund.

For early access before our regular noon Eastern time releases, subscribe with Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica or RSS.

Related: Bitcoin News Roundup for May 21, 2020

Today’s stories:

Bitcoin Mining Difficulty Drops by 6% In First Adjustment After Halving

Tokensoft Distributes $4M in Equity to Investors Using Ethereum Blockchain

Iran Moves to Restrict Crypto Exchanges Under ‘Currency Smuggling’ Laws

Related: Why a Strong Dollar Is Bad for the US and Bad for the World, Feat. Lyn Alden

Blockchain E-Sports TV App to Ship on Samsung S20 Phones in US

For early access before our regular noon Eastern time releases, subscribe with Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica or RSS.

Related Stories

• ‘Minsky Moments’ and the Financial History of Pandemics
• Bitcoin News Roundup for May 19, 2020

Brazil’s biggest private banks are not out of the woods yet.

On Wednesday, Brazil’s antitrust watchdog, the Administrative Council for Economic Defense (CADE), voted to continue its investigation of banks who denied financial services to crypto brokers in alleged violation of Brazilian competition law. 

CADE’s nearly two-year-old inquiry into Itaú Unibanco, Banco do Brasil, Santander, Inter, Bradesco and Sicredi now returns to the General Superintendency for further review, as per the decision by CADE’s chief tribunal. Those six banks comprise the lion’s share of Brazil’s banking sector.

Related: Bitcoin in Emerging Markets: Latin America

The ruling, made by a seven-member tribunal, reopens the possibility that these powerhouse banks – they held over 80% of deposit market share during the time in question – could face eventual sanctions and even be forced to provide financial services to crypto brokers.

Such an outcome appeared unlikely as recently as last week, after the General Superintendency, CADE’s investigative wing, tried to close the case on technical grounds. But on May 13, Counselor Lenisa Rodrigues Prado called upon CADE to reopen its investigation.

In Prado’s view, these banks failed to give reasonable justification for shutting out crypto brokers. She found “significant evidence” that they had violated Brazilian laws protecting market competition and called upon CADE to initiate a sanctions inquiry.

Fernando de Magalhães Furlan, a former CADE official who leads the Brazilian Cryptocurrency and Blockchain Association’s (ABCB) charge against the banks, said the ruling “is a victory to the Brazilian crypto sector. ABCB represents 39 crypto brokers, according to Furlan.

Shutdowns 

Related: Brazil’s New Blockchain Data Tool Cost $250K, Runs on Quorum

Crypto brokers and banks had been at loggerheads before CADE launched its probe in September 2018. Banks, weary of the legal grey zone that cryptocurrency trading inhabits in Brazil (and allegedly fearful cryptocurrency’s success would eat into their own) had begun shutting down crypto brokerage accounts.

Without brokerage accounts, exchanges such as Nox Bitcoin could not easily provide cash on and off ramps to their customers. Founder João Paulo Oliveira said Banco Bradesco closed his brokerage account.

Banco Bradesco declined to comment on CADE proceedings.

It was a pattern rippling across Brazil’s crypto landscape, said Furlan, who as CEO of ABCB first called for a CADE investigation in April 2018.

Furlan said the banks would swoop in and close accounts “without any justification whatsoever.” He said their collective cold shoulder was a broadside to Brazil’s growing crypto industry.

“No company, no enterprise can survive in capitalism without access to the financial system,” Furlan said. 

Competition

Itaú Unibanco denied allegations it acted anti-competitively.

Itaú “has always guided its commercial practices based on the defense of free initiative and competition, as well as the understanding that competition is positive not only for the financial system, but for the whole country,” a spokesperson told CoinDesk.

There does not appear to be any evidence the banks coordinated their decisions, Furlan said. A previous CADE official said none of them wielded individual market power, according to Furlan. These are usually two hallmarks of anti-competitive case law. 

Indeed, Furlan said, a different CADE official’s December 2019 attempt to drop the case partly rested on the banks’ individual inability to control the market.

Furlan said it was a distinction without a difference. Four of the banks involved in the inquiry rank among the five-largest in all of Brazil. CADE said that in 2017, a year before its own investigation began, the six banks together held over 80% of Brazilian deposits.

The other argument Furlan said the first CADE ruling drew from was the banks’ stated fear that crypto brokers would expose them to money laundering. 

Members of the crypto business landscape reject that claim.

“We do a better job in checking the legitimacy of the money we touch than banks and government agencies,” said Fabiano Dias, vice president of LATAM operations for the crypto payroll company Bitwage.

“For us crypto businesses, I know I can speak for our partners in Brazil on that too, we are confident in our [know-your-customer] procedures, making sure we are only enabling legit professionals, helping them to add efficiency to their payments and finances,” he said.

Furlan and ABCB appealed the decision. The appeal was denied. But on May 13, Prado said money laundering was not a good enough reason to lock out the crypto brokers in her call to continue the inquiry.

Crypto’s nascency was actually an argument for letting such businesses in, she wrote.

“In order to avoid the risk of pushing independent crypto asset brokers into a ‘limbo’ of the financial system (which could even increase the risks related to money laundering), CADE must exercise its duty to protect competition in this growing market,” she wrote.

Next steps

Itaú, the second-largest bank in Brazil and the only one to respond to CoinDesk’s questions before Wednesday’s ruling, said it “remains confident that its conduct will be considered legal and valid.”

“If the investigation is reopened, the bank will continue to collaborate with CADE in the necessary clarifications,” an Itaú spokesperson said at the time (the spokesperson could not immediately be reached for comment after the ruling).

Oliviera, the Brazilian exchange founder, thinks the sanctioning argument only failed previously because its proponent, ABCB, “was funded exclusively and controlled by” Atlas Quantum, an alleged crypto ponzi scheme.

(Furlan’s April 2018 letter to CADE highlights that Atlas, an ABCB member, was denied a bank account by Banco do Brasil).

“I do believe that relations between ABCB and Atlas were considered for CADE to have decided that there’s no competition conflict for banks to close bank accounts of crypto business,” Oliviera said. 

Furlan told CoinDesk that ABCB has 39 members but acknowledged that the organization “has not been very active” since its main contributor ran into regulatory trouble with Brazil’s SEC. 

UPDATE (May 20, 18:15 UTC): Brazil’s antitrust regulator voted Wednesday to continue its investigation of local banks for allegedly blocking crypto firms’ access to financial services.

Related Stories

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• Brazil’s Central Bank to Launch Near-Instant Payments as a Response to Cryptocurrencies

Travel Rule may well prove to be the best thing to happen to digital assets — particularly if the goal here is widespread adoption of these assets

Though it’s a feature that’s been built into Bitcoin since its inception, the third-ever halving of the network’s mining subsidy dominated cryptocurrency headlines this week.

“How many divisions does the pope have?” The question (possibly apocryphal) was asked rhetorically by Joseph Stalin, the iron-fisted dictator, to emphasize the military might of the USSR.

In times of emergency it is easy to ignore the privacy risks, especially when lives are at stake. However, we must remain vigilant as to how these policies compromise privacy, given they will linger long after the lifespan of the virus.