[header date=”21 September 2018″]New York is not impressed by bitcoin bourses, Binance makes big announcements, and a rural city struggles with the effects of crypto mining. [/header]
What you need to know—and why
New York takes aim at crypto exchanges. New York’s attorney general released an eye-catching report (pdf) about virtual markets that suggests some unlicensed exchanges are breaking the law by accepting trades originating from the state. Three exchanges—Binance, Kraken, and Gate.io, which all refused to volunteer information for the report—were referred to the state’s financial regulator for potential violations. The report detailed three areas of concern: conflicts of interest; the potential for abusive trading activity; and a lack of consumer protections.
[takeaway]The report also revealed some noteworthy nuggets about prominent crypto platforms. While Gemini emerged as a model exchange, Kraken CEO Jesse Powell reacted to the report with characteristic scorn. Coinbase said it accounts for 20% of the trading on its own platform, once again raising concerns about insider trading (swiftly denied by the company). It remains unclear, however, how Coinbase monitors or enforces its employee trading policies. Messari Crypto’s Katherine Wu offered a terrific legal breakdown of the AG’s report. ↗️[/takeaway]
Why did litecoin’s creator sell all his litecoin? “Selling during a bull market does not contradict the advice of hodling,” said Charlie Lee, who dumped his holdings near the height of the crypto boom in December 2017. Speaking at the Litecoin Summit this week, Lee joked that he would’ve needed to find another job if he didn’t sell—a pithy remark which was pounced on by some critics.
[takeaway]Lee claims that he sold his stash so he “could focus on adoption and not price.” However, with the Litecoin Foundation operating on a modest budget and Github commits running low, it’s not clear what the future holds for the supposed silver to bitcoin’s gold. At least one crypto venture capital firm, Multicoin, is betting on a Litecoin downturn. And it’s peculiar how much influence one person’s actions can have on the price of a “decentralized” cryptocurrency. ↘️[/takeaway]
Binance, the world’s largest cryptocurrency exchange, is plotting a shift from crypto-to-crypto trading to fiat-to-crypto trading. Within a year, the company plans to open as many as 10 fiat-to-crypto exchanges, founder Changpeng “CZ” Zhao said at the Consensus Singapore conference.
[takeaway]With a daily trading volume approaching $1 billion, Binance could further bolster its market share if it’s able to offer fiat-linked trading (a big “if,” given various regulatory hurdles). ↗️[/takeaway]
A high-profile article puts a spotlight on crypto mining. The economically depressed cities of upstate New York have become destinations for cryptocurrency mining operations because of their cheap hydropower, according to a front-page splash in the New York Times. As residents and local companies complain about increasing power prices, cryptocurrency mining raises questions about sustainability, employment, and the exploitation of regional economies.
[takeaway]Plattsburgh, New York mayor Colin Read calculates that one mining operation, Coinmint, has earned as much as $50 million in profit with its operations in his city. Although the various miners—and miner-hopefuls—said they would bring hundreds of jobs to the city of less than 20,000, those promises have thus far gone unfulfilled. ↘️[/takeaway]
NYU does not offer a cryptocurrency major, as you may have heard. This was reported erroneously in both the general and crypto media this week. Andrew Hinkes, a professor at NYU’s business school who teaches a class called “Digital Currency, Blockchains, and Future of Financial Services,” clarified to Quartz that the school has a fintech concentration with some coursework that features crypto, but not a full-blown major.
[takeaway]Universities have ramped up their crypto course offerings, but this might reflect exuberance about the space at the peak of the bubble. (It takes time to build, pitch, and enroll students in a new class, after all.) Will academic interest endure now that prices are so much lower? ➡️[/takeaway]
[supplemental headline=”Reasonable doubt”]
An Ethereum bear growls. Mike Hearn, a long-time bitcoin developer, is asking pointed questions about Ethereum’s future, particularly in light of forthcoming changes like its proposed new consensus algorithm, Proof of Stake. “What you don’t want to do is start a new blockchain with new technology and announce that all of your existing technology is rubbish—which is kind of what they are doing,” said Hearn, who now serves as lead platform engineer for enterprise blockchain software firm R3.
Hearn’s bold statements have blown up in his face before, but there’s often a grain of truth to his proclamations. Although he has every incentive to position R3’s own platform, Corda, as an industry leader, Hearn shrewdly observed that public blockchain projects might be derailed by internal disputes, while enterprise solutions take the lead.[/supplemental]
Crypto meets finance
Coinbase poaches LinkedIn, Fannie Mae executives. Coinbase’s new VP of data is Michael Li, formerly LinkedIn’s head of analytics and data science, and the exchange’s new chief legal officer is Brian Brooks, previously a legal exec at Fannie Mae. Mike Lempres, who was Coinbase’s chief legal officer, will become the exchange’s chief policy officer.
[takeaway]The exchange’s 2018 hiring spree points to the increasing importance of compliance for the cryptocurrency industry. Exchanges don’t want to get caught on the wrong side of regulators or customers, but with each step toward professionalization, a little bit more of the crypto-anarchist movement dies. ➡️[/takeaway]
Ripple teams up with PNC. In its latest partnership announcement, Ripple said PNC Treasury Management will use its xCurrent system for settling international invoices. The bank won’t use Ripple’s XRP cryptocurrency or xRapid, its payment platform, a Ripple exec told Reuters. PNC did not reply to a request for comment about the duration and terms of the deal.
[takeaway]In interviews, Ripple is still pushing its xRapid product, but it’s never been clear how adding an intermediate cryptocurrency for settlement could make international business more efficient. Let’s keep an eye on whether PNC’s implementation is substantive or quietly fizzles out. ➡️ [/takeaway]
[supplemental headline=”Chart interlude”]
XRP jumped on the news of a tie-up with PNC (see above).
[img src=”https://cms.qz.com/wp-content/uploads/2018/09/10-day_performance_vs._US_dollar_XRP_Bitcoin_chartbuilder.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know[/mailto]
[/supplemental]
Regulatory watch
Bookkeeping remains the law of the land. Companies must maintain thorough accounting records regardless of blockchain innovation, the SEC’s chief accountant, Wesley Bricker, reminded attendees at the American Institute of Certified Public Accountants’ conference on banking. “Companies must continue to maintain appropriate books and records—regardless of whether distributed ledger technology (such as blockchain) smart contracts, and other technology-driven applications are (or are not) used,” he said.
[takeaway]In one example, Bricker discussed the prevalence of “premining,” or the practice of creating digital assets reserves for developers before releasing a project to the wider public. He acknowledged premining identification as a “useful disclosure” for potential investors, which shows that the agency is aware of the skewed distributions of many cryptocurrencies. ↗️[/takeaway]
Singapore seems relaxed about crypto securities. The Monetary Authority of Singapore hasn’t seen any tokens that qualify as securities, the head of MAS’s tech infrastructure office told attendees at a conference. The statement is directly at odds with the opinion expressed by the US SEC’s chair, Jay Clayton.
[takeaway]This is far from an official position, and it’s pretty bizarre since the MAS released a November 2017 report (pdf) that mentioned the relevance of securities laws to digital token offerings no fewer than 42 times. ↘️[/takeaway]
Mission accomplished. China’s share of global cryptocurrency transactions has fallen from 90% to 5%, according to a notice from the People’s Bank of China, which restated its concerns about ICOs and virtual currency investments.
[takeaway]Even though the central bank celebrated its efforts to curtail the crypto trade, offshore trade among Chinese nationals persists, facilitated by VPNs and crypto-to-crypto exchanges. ➡️ [/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
Sorry, your funds aren’t Zaif. About $60 million worth of bitcoin, bitcoin cash, and Monacoin disappeared in a flash, as another Japanese cryptocurrency exchange was hacked this past week. The licensed exchange, Zaif, lost about $20 million worth of its own holdings from a hot wallet, while the rest belonged to customers, who have been promised compensation. Deposits and withdrawals are suspended for now. To address its situation, Tech Bureau, the owner of Zaif, accepted ¥5 billion ($44.5 million) from Japanese firm Fisco in exchange for majority ownership in the exchange.[/supplemental]
Crypto calendar
🤝 Sept. 25: Capitol Hill Round Table. Rep. Warren Davidson, a Republican from Ohio, will meet with figures from the blockchain and crypto industry, including firms like VC Andreessen Horowitz, crypto advocacy group Coin Center, and exchange operator Kraken. The discussion will focus on fostering “light-touch” ICO regulation.
🗣 Oct. 1-2: Ripple’s Swell Conference. Bill Clinton is a keynote speaker at the San Francisco event this year. At last year’s gathering, ex-Fed chairman Ben Bernanke told attendees, “Bitcoin is an attempt to replace fiat currency and evade regulation and government intervention. I don’t think that’s going to be a success.”
🗣 Oct. 5-6: Scaling Bitcoin. The Tokyo event is geared toward the “engineering and academic community.”
🗣 Oct. 5-12 SF Blockchain Week. A collection of Ethereum superstars, including researcher Vlad Zamfir and 0x co-founder Will Warren will be at ETH San Francisco, the world’s largest Ethereum hackathon (Oct. 5-7). Meanwhile, Epicenter (Oct. 8-9) will feature Litecoin founder Charlie Lee and Parity Technologies CEO Jutta Steiner, among others.
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