[header date=”7 September 2018″]Fear overtakes greed among traders, Ripple’s top lawyer leaves at an inopportune time, and ShapeShift’s “membership” move could be a sign of things to come for anonymous exchanges.[/header]
What you need to know—and why
Over the past few days, cryptocurrency markets have shed tens of billions of dollars in market value. Bitcoin dropped into the mid-$6,000s and ether, which led declines during a selloff on Wednesday, set a new one-year low. The broad market drop impacted nearly every top-100 cryptocurrency. Bitcoin short interest—bets on price declines—on Bitfinex increased 78% over the past week, nearly matching the yearly highs, according to Bobby Cho, global head of trading at Cumberland.
[takeaway]Some have cited the news that Goldman Sachs shelved plans for a crypto trading desk as the catalyst, but Wall Street stalwarts have been getting into crypto, in various ways, for some time, with no discernible effect on prices. (For the record, Goldman’s CFO calls reports of its retreat “fake news.”) Recent headlines and data, however, suggest that fear is overtaking greed among crypto traders. ↘️[/takeaway]
Why has ether been hit so hard? There’s chatter about panic selling among some projects that raised ether in ICOs, have expenses in fiat currencies, and are—technically speaking—freaking out. In the past 30 days, approximately 250,000 ether (worth around $56 million) have been moved from various ICO wallets, according to Cumberland. Adding to the gloom, Jeremy Rubin, a bitcoin core contributor and technical advisor to Stellar, this week called an ether price collapse “inevitable” not long before it, er, collapsed. Granted, he said ether will go to zero, prompting ethereum founder Vitalik Buterin to respond on Reddit. Rubin said ether is unnecessary for using the ethereum network because fees can be paid in another token—a point Buterin conceded.
[takeaway]While he did not discuss price directly, Buterin seemed to suggest that proposals within the ethereum community could mandate ether payment at the protocol level, which could be supportive for prices. Meanwhile, the synchronized ether cash-out suggests that “this bear market may be more protracted than many hope,” according to Scott Weatherill, chief risk manager at crypto market-maker B2C2 in Japan. ↘️[/takeaway]
🚨EXCLUSIVE🚨 Ripple has parted ways with its general counsel. Quartz has learned that Brynly Llyr is no longer Ripple’s general counsel, a move which comes as the company prepares for class-action cases about whether its XRP cryptocurrency is a security. “The team here at Ripple looks forward to the next chapter where we will continue to pave the way in this ever-evolving and unchartered industry,” the company said in a statement to Quartz. The firm has already retained former SEC chair Mary Jo White and the agency’s former director of enforcement, Andrew Ceresney, to fight its corner in court.
[takeaway]The turnover can’t help the company as it faces growing scrutiny of XRP, which the company has long argued is decentralized and shouldn’t be considered a security. Observers in the crypto legal community seem fairly confident that XRP will be judged a centralized venture, a distinction that could land Ripple in a heap of trouble and set a potentially worrisome precedent for other cryptocurrency issuers. ↘️[/takeaway]
A digital asset exchange that allowed anonymous trading won’t for much longer. ShapeShift unveiled a loyalty program this week that may offer higher trading limits, rewards for trading volume, and early access to new coins. The big news, though, is that the exchange is abandoning its no-account structure. “Membership requires basic personal information to be collected,” according to its announcement. “Today, membership is optional, but it will become mandatory soon.”
[takeaway]The implication is that know your customer (KYC) and anti-money laundering (AML) protocols will be required at the Switzerland-based exchange. The change of direction suggests that crypto exchanges with lax KYC and AML controls should expect far greater scrutiny; the days of loose rules that attract soaring trading volumes could be over. ➡️[/takeaway]
Venezuela’s “petro” cryptocurrency is nowhere to be found. President Nicolás Maduro recently redenominated the country’s worthless currency and pegged it to the new digital asset supposedly backed by the country’s vast oil reserves. A Reuters special report found that the token isn’t listed on prominent exchanges and isn’t accepted by businesses.
[takeaway]Economically embattled countries may resort to ill-conceived national cryptocurrencies in desperation, or as a distraction, from their real problems: their debased currencies won’t become magically trustworthy when sprinkled with crypto pixie dust. Don’t take anyone seriously who talks about government-issued crypto and cites Venezuela as a genuine example. ↘️[/takeaway]
[supplemental headline=”Reasonable doubt”]
Quartz spoke with TransferWise CEO Kristo Käärmann about whether the money-transfer company has found any value in using blockchain for cross-border payments. So far, he tells us, TransferWise is better off without it:
“Not in our domain today. The benefits of connecting into the local infrastructures and using the pretty tried and tested modern technologies to offer the services securely, that’s all that’s needed. If anything, blockchain at this point slows it down or makes it more expensive.”[/supplemental]
Crypto meets finance
Cboe is talking to market makers about ether futures. The derivatives exchange has been publicly discussing these contracts since June, and its latest discussion of a proposed new contract with trading shops that post bids and offers should come as no surprise.
[takeaway]However, this underscores that institutional scaffolding for crypto continues going up, price declines be damned. Quartz has confirmed that the Chicago exchange’s ether futures may go live this year if the regulatory pieces fall into place. ↗️[/takeaway]
The Australian Securities Exchange (ASX) will delay its transition to blockchain technology by six months. It is “allocating additional time for users software development and testing and extending the period of time for accreditation testing,” it said.
[takeaway]ASX had initially planned to switch to a distributed ledger by the fourth quarter of 2020, but the launch date is now scheduled for March-April 2021. This has to be disappointing news, as the ASX has been leading the pack on potential blockchain implementation. ↘️[/takeaway]
[supplemental headline=”Chart interlude”]
Corporate execs aren’t chatting about blockchain and crypto as much as a few months ago, but it still comes up regularly in financial filings and earnings calls.
[img src=”https://cms.qz.com/wp-content/uploads/2018/09/Crypto-terms-transcripts.png”]
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[/supplemental]
Regulatory watch
China’s supreme court says that blockchain is an accepted method of validating evidence. According to CoinDesk’s translation of the announcement, courts should accept digital data to support cases “if relevant parties collected and stored these data via blockchain with digital signatures, reliable timestamps and hash value verification or via a digital deposition platform, and can prove the authenticity of such technology used.”
[takeaway]The ruling supports an earlier decision by the Hangzhou internet court, which according to Legal Daily (link in Chinese) approved the use of blockchain-derived evidence in a copyright case earlier this year. ↗️[/takeaway]
The European Union should create and enforce common standards for crypto exchanges and ICOs. That’s according to Bruegel, a think tank, which produced a report for EU finance ministers, who will discuss it when they meet in Vienna today and tomorrow.
[takeaway]While the EU’s markets regulator has introduced 2:1 leverage limits for cryptocurrency-linked contracts for difference, broader regulatory measures for crypto have not been passed, despite being floated by some member states and central bankers. ➡️[/takeaway]
California’s legislature passed a bill intended to boost blockchain technology. The bill calls for a working group to establish best practices for implementing distributed ledgers in government and business.
[takeaway]The bill was originally designed to recognize blockchain-based records, but seems to have been scaled back quite a bit. It does surprisingly little to advance the blockchain and crypto community in California, home to some of the industry’s biggest companies, like Coinbase and Ripple. ↘️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
Greece’s supreme court sided with Russia, instead of the US or France, in deciding the fate of a wanted crypto exec. Alexander Vinnik, a Russian who operated the now shuttered BTC-e exchange, was detained in Greece on a US warrant. Forensic analysis linked bitcoin transactions on BTC-e to groups accused interfering in the 2016 election. In view of competing requests for extradition of Vinnik, the court ruled in favor of Moscow. The Greek justice minister will have the final say on Vinnik’s fate, though, possibly as early as next week.
Cops are clamping down on SIM-porting crypto theft. In these crimes, as reported by the Mercury News, thieves socially engineer their way to digital riches by tricking mobile providers into granting control of victims’ phone numbers. Since mobile phones are often used in two-factor authentication for email addresses and cryptocurrency wallets, this can be devastating. Be wary about the contact information you give out at cryptocurrency conferences, as these events seem to be ripe targets for would-be thieves.
[/supplemental]
Crypto calendar
🗣 Sept. 5-11: Berlin Blockchain Week.The ETHBerlin Hackathon is fully booked, but many meetups and workshops are still open.
⚖️ Sept. 11: Indian supreme court’s final hearing on central bank’s crypto ban. Policymakers appear to be rethinking their crackdown on virtual coins in the world’s second-most populous country.
📚 Sept. 13: Adobe’s quarterly earnings. The tech company tends to opine on blockchain technology’s potential, especially in the healthcare and advertising industries.
🗣 Sept. 19-20: Consensus Singapore. The CoinDesk-led event will feature conversations on gaming, mining, and blockchain forensics. Quartz reporter John Detrixhe will interview Don Wilson, founder of trading powerhouse DRW, on stage. If you’re there, say hello!
⚖️ Sept. 25: Capitol Hill Round Table. Warren Davidson, a Republican Congressman, will meet with blockchain and crypto industry figures, such as VC Andreessen Horowitz, crypto advocacy group Coin Center, and exchange operator Kraken. The discussion will focus on fostering “light-touch” ICO regulation.
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Please send news, tips, and extradition requests to privatekey@qz.com. If this email was forwarded to you, click here to sign up for your own subscription, which includes a free two-week trial. Today’s Private Key was written by Matthew De Silva and John Detrixhe, and edited by Jason Karaian. Buy low, sell high.