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Abacus Weekly Crypto Recap #8 | Regulation Looms in Bitcoin Boom

The Abacus join us again for their eighth weekly Bitcoin recap. Their recurring column will bring you up to speed on the all the major crypto headlines you need to know about. 

The Abacus Crypto Recap is a weekly update focused on two polar yet symbiotic elements of cryptocurrency markets—adoption and regulation. Here’s all the major happenings for this past week in crypto.

 

Adoption

The much anticipated launch of Bitcoin futures contracts finally came and went, adding to Bitcoin’s powerful ongoing rise. The rest of the cryptocurrency market seemed to benefit as well, with the total market cap approaching $500 billion USD. Along with the market gains, cryptocurrency ATMs continue their proliferation as projects like Dash are gaining traction in day-to-day use.

 

  • Bitcoin Futures Launch To The Moon: The Chicago Mercantile Exchange has officially started offering Bitcoin Futures contracts, adding to the stratospheric rise in bitcoin prices. Trading began the evening of December 10th at a price of $15,000. Future contracts expiring in January were already trading at $18,500, showing an overwhelmingly bullish appetite for the digital currency. The CME has a series of “circuit breakers” in place designed to curb what is believed to be inherently unstable volatility, which have already been triggered twice. A gain of more than 10% results in a 2 minute stop trade, with 20% or more causing a 5 minute pause. CME’s website went down almost as soon as trading started, with over 2,000 contracts having traded hands as of December 11th — quite notable for Sunday evening volume. Future’s contracts allow an entity the right to buy an asset or commodity at a locked in price by a defined date. These contracts require only a small percent of the contract value up front for a purchase, leading many to be concerned about over-leveraging of a historically unstable asset. Nonetheless, demand has been exploding, leading the way for an inevitable barrage of new investment products and vehicles to come for cryptocurrencies.
  • Craigslist Fosters Crypto Adoption: Craigslist, famous for its unchanging interface, has made an update that allows users to signify they’ll accept payment in cryptocurrency. In standard Craigslist parlance, the new feature allows users to check a box declaring “cryptocurrency o.k” — users can now also search by listings that allow payment in crypto. Craigslist’s accomodation of cryptocurrency is a clear sign of increasing adoption and an encouraging gauge of crypto’s future potential as a peer-to-peer transactional tool.
  • Bitcoin ETF’s Gain Renewed Traction: New Bitcoin ETF’s might be on the way following reports from the SEC that VanEck Vectors Bitcoin Strategy ETF, REX Bitcoin Strategy ET, and REX Short Bitcoin Strategy ETF have again filed applications for approval. Filings from these firms were withdrawn earlier in the year following citicisms from the SEC relating to the nature of the financial instruments involved. Given the recent surge in Bitcoin following the launch of CME trading, it’s quite likely that a deluge of new investment vehicle’s like these are on the horizon.
  • Washington State Becomes Miners Paradise: Geography has conspired to make Central Washington state a Bitcoin mining paradise. The region’s plentiful hydroelectric power and subsequent inexpensive rates per KwH has made the state quite popular to mining upstarts, with customer utilities director John Stoll remarking his department has received more than 20 calls in one week inquiring about the cheap energy, noting that, “Our challenge is capacity.” Ryan Holterhoff, a public affairs officer for Grant County PUD noted that their requests for power show about an “85 percent increase over our average load.” With Bitcoin prices surging, growing numbers of people are looking to cash in on the gold rush and cheap electricity for mining is fast becoming the most precious commodity.
  • CryptoKitties Meowing Along: Ethereum’s most successful Dapp to date, the adorable CryptoKitties, has now processed more than $12M in transactions. Each kittie acts as a unique asset on the Ethereum blockchain. Rare kitties have attracted quite a following, with one such kittie going for roughly $120,000. While the idea may seem silly at first, it has adequately served as something of a litmus test for the Ethereum platform, demonstrating the plausibility of relatively seamless international trading of a digital asset on a large scale decentralized platform. While the value of an individual kitty is in the eye of the beholder, the merit of the game shows what Ethereum can do as well as demonstrating the importance of scalability, as the fervent exchange of CryptoKitties has slowed transactions, bogging down the Ethereum network.
  • UBS And Others Get Their Ethereum Hands Dirty: Swiss banking giant UBS is heading an initiative aimed to streamline the compliance process for Ethereum. Dubbed “Massive Autonomous Distributed Reconciliation platform,” UBS will work with Barclays, Credit Suisse, KBC, SIX, and Reuters on the technology which is designed to help banks share data more seamlessly. On January 3rd, the EU is requiring banks to incorporate “legal entity identifiers” for all legal entities involved in a transaction. Essentially, the banks will be using a shared blockchain to verify identities using smart contracts on the Ethereum platform.
  • Dash Sprints Into Brazil: Leading peer-to-peer payment-focused currency Dash has partnered with Brazilian cryptocurrency firm CoinBR, allowing Dash to be accepted at more than 13,000 locations throughout the country. The price of Dash has continuously increased on the back of improvements to the platform including an upgrade to 2MB block sizes allowing for even more efficient transactions.
  • VIA BTC To Put Bitcoin Cash At Center of New Exchange: Mining pool ViaBTC is creating a new UK-based exchange that will use Bitcoin Cash as the main currency, resulting in the majority of trading pairs appearing between BCH and other coins — an intermediary position usually reserved for Bitcoin. The mining conglomerate states they’re using Bitcoin Cash for its lower costs and greater performance/usability. The exchange is eventually planning to offer margin trading and crypto-tied derivative investment contracts. Many have touted Bitcoin Cash’s superior utility and scalability to Bitcoin. As exchanges start creating direct currency pairings between BCH and other top coins, Bitcoin Cash could become a real contender to Bitcoin.
  • South Korean Bank Joins R3: NongHyup Bank of South Korea has joined the ever growing R3 consortium. The agricultural bank joined with the goal of fostering development in the blockchain space as well as collaboration with other fintech firms investigating uses for blockchain technology. The R3 network now has over 160 members from various industries.
  • Circles Centre Raises $20 Million To Connect ETH Tokens: Blockchain startup circle has created a subsidiary Ethereum payment network that has raised $20MM in a SAFT (Simple Agreement for Future Tokens) sale. SAFT’s allow a company to raise money without having to issue a token at the time of funding. Called CENTRE, the group aims to create a platform that links different networks together via the CENT token, used to access the network. Funding will go towards building the network. CEO of circle Jeremy Allaire remarked, “… the CENTRE Foundation now has the capital to recruit talent, invest further in research and development, build partnerships, and become a non-profit entity independent of Circle.”
  • Bank of America Issues Patent For Crypto Exchange: BOA has been awarded a patent allowing for the creation of cryptocurrency exchange. The second largest US Bank has filed a slew of patents in the blockchain space, with this latest announcement giving them the potential to expand their blockchain influence. The patent cites an automated exchange to convert digital currencies with rates determined by external data feeds. The patent notes that the system is currently intended for enterprise level customers with the document stating, “Enterprises may handle a large number of financial transactions on a daily basis. As technology advances, financial transactions involving cryptocurrency have become more common. For some enterprises, it may be desirable to exchange currencies and cryptocurrencies.”
  • Apple Issues First Blockchain Patent: Apple has finally broken its silence in regards to blockchain technology, filing a patent detailing a program that could enable the certification of timestamps using a combination of blockchain technology with public key infrastructure tools. The application includes 3 potential methods of timestamp verification, with Apple considering blockchain technology for one implementation by generating a block with a timestamp as part of what Apple calls a “multi-check architecture,” which allows the confirmation of a timestamp after a block is created but before it’s been put on a chain. Though only one patent for the time being, Apple’s consideration of the technology may demonstrate that Apple is ready to work with blockchains as competitors like Microsoft continue blockchain initiatives at a dizzying rate.
  • Steam Gives Bitcoin The Boot: Online gaming platform Steam has announced it’s dropping the ability for users to pay in bitcoin, citing high transaction costs and volatility. The platform made headlines back in April 2016 when it announced that they’d take payments in BTC — at the time seen as a large indicator of the potential for mass Bitcoin adoption. After dropping bitcoin, Steam stated, “For example, transaction fees that are charged to the customer by the bitcoin network have skyrocketed this year, topping out at close to $20 a transaction last week (compared to roughly $0.20 when we initially enabled bitcoin). Unfortunately, Valve has no control over the amount of the fee. These fees result in unreasonably high costs for purchasing games when paying with bitcoin. The high transaction fees cause even greater problems when the value of bitcoin itself drops dramatically.” The issues cited by Steam adequately demonstrate growing scalability pains for the Bitcoin network. As more and more speculators invest in Bitcoin as a store of value, its utility as a means of transference decreases as the system becomes bogged down by transaction times and high costs.
  • ATM Producer Lamasu Gives Bitcoin Cash The Greenlight: Lamassu, a BItcoin ATM operator with about 268 ATMs all over the world has announced it will now support Bitcoin Cash. BCH has been steadily gaining adoption all over the world following the cancellation of the B2X fork that saw Bitcoin Cash volume soar. According to one source, there are over 1300 ATMs globally now supporting BItcoin Cash, another sign of evidence that the currency could one day eclipse Bitcoin, at least as it concerns transactional utility and/or volume.

 

Regulation

The SEC’s new cyber crime unit took down its second fraudulent ICO as governments across the world continued to wrestle with implications related to the ascent of cryptocurrency. Rumors began swirling that officials in the cryptocurrency trading hub of South Korea are considering a ban on cryptocurrency exchanges.

 

  • Bulgarian Government Seizes Over 3 Billion In BTC: An investigation into organized crime back in May lead to the Bulgarian government seizing over 200,000 Bitcoins, valued at roughly $3.5B at the time of writing. Investigators alleged that offenders were using Bitcoin as it “is rather difficult to be tracked and followed.” Since the time of seizure, the Bulgarian government has roughly sextupled their newfound investment, with the BTC reportedly worth around $500M when it first came into their possession.
  • Bitcoin Futures Banned In South Korea: Regulators in South Korea have reportedly banned the trading of futures contracts and other derivatives related to Bitcoin trading, which includes participation in foreign derivatives. The news comes just weeks after the South Korean Financial Supervisory Service Chief Choe Heung-Sik announced that Bitcoin trading would not be regulated, declaring that Bitcoin was a speculative product and not a currency or payment method. The ban comes amidst controversy relating to the launch of Bitcoin futures contracts in the U.S., with many concerned over the dangers of intense speculation on something as volatile as BTC.
  • SEC Takes Down Munchy Token: California-based Munchee has had to refund $15M worth of tokens following an investigation by the SEC. This marks the second instance of the SEC’s new cyber crime unit halting the sale of an ICO following the previously reported case against PlexCoin. Described as “Yelp meets Instagram,” Munchee was trying to market their coin as a utility, a moniker the SEC disagreed with, as the agency noted the tokens were “investment contracts.” The agency remarked, “Even if MUN tokens had a practical use at the time of the offering, it would not preclude the token from being a security. Determining whether a transaction involves a security does not turn on labeling – such as characterizing an ICO as involving a ‘utility token’ – but instead requires an assessment of ‘the economic realities underlying a transaction.” Thanks to their early cooperation and cessation of the sale, the SEC has decided not to fine Munchee. This case demonstrates the SEC’s solidifying stance on ICOs, with the purported distinction of a utility token not being enough to preclude an entity from the requirements of offering a security to investors. Decisions like these will likely shape future ICO regulation in the U.S.
  • Indonesia Considers Bitcoin Ban: The Indonesian Central Bank has reported it is considering regulations that could result in the ban of Bitcoin transactions in 2018. According to the bank’s head of transformation Onny Widjanarko, the bank is seeing a ban stemming from concerns of BTC being used to fund terrorism, launder money, and facilitate drug trafficking. Officials from the bank have asked merchants not to accept Bitcoin as payment, further clarifying they wouldn’t be responsible for incurred losses.
  • Indian Central Bank Issues Crypto Warning: The Reserve Bank of India has issued a warning on cryptocurrencies for the second time this year. The bank further clarified that is had not licensed any companies in India to work with cryptocurrencies. The new warning also highlights the dangers of ICOs, conveying concerns they raised in previous cautionary releases. This newest warning comes as the Indian supreme court has petitioned the government seeking clarity on digital currencies. Government officials have said there is work being done on a regulatory framework but haven’t provided clarity as to the timing or scope of such new potential policies.
  • British Spy Agency Keeping Tabs On Bitcoin: Britain’s GCHQ (similar to the U.S.’s NSA) has reportedly been monitoring Bitcoin activity at the request of the government. Tasked with protecting the country from threats, Deputy Director of the Government Communications Headquarter Chris Ensor remarked, “We are interested in anything that could affect the country, so Bitcoin is a major thing now.” The agency is looking at how Bitcoin works, considering the potential of harnessing the blockchain, and what kind of threat it could pose to traditional monetary systems. As the price of Bitcoin continues to explode, it is only natural that governments around the world are scrambling to glean a better understanding of digital currencies in light of their newfound growing adoption.
  • Australian Cryptocurrency Exchanges Forced To Register: Australia’s new “Anti-Money Laundering and Counter-Terrorism Financing Amendment BIll 2017” includes updates to the country’s regulatory framework as it relates to cryptocurrency. The bill allows the government to regulate Bitcoin trading exchanges, decreeing they must be registered to operate legally, with the failure to do so now being considered a criminal offense. The regulations also require exchanges to follow similar protocol to banks or other financial institutions. Australia has been a very crypto-friendly country, with these new regulations seeming to demonstrate a willingness to accommodate the proliferation of cryptocurrency.
  • India Examines Crypto Taxes: Investors in India may be forced to pay taxes on Bitcoin earnings following new warnings issued by the country’s reserve bank. Following that announcement, many investors began selling off their BTC holdings only to find they may be subject to a 20-30% tax. The uncertainty centered around the legal grey area occupied by Bitcoin in the country, something that could result in an increased Indian selloff as the government steps up their anti-Bitcoin mantra.
  • Waves Partners With Deloitte To Create ICO Compliance Framework: The team behind Waves is collaborating with Deloitte to form a regulatory body to create an ICO framework encompassing legal, tax, accounting, due diligence, and KYC (know your customer) considerations. The platform will be open to exchanges, marketing companies, ICO platforms themselves, services, etc. CEO of Waves Alexander Ivanov states, “Regulation is clearly an emerging phenomenon and concern in the crypto space. If certain jurisdictions have not yet announced their intentions, then it’s only a matter of time. Waves has always been clear that regulation — the right kind of regulation — is a good thing for the crypto space. We have also been clear that we want to be a part of that emerging dialogue. We want a seat at the table to be able to shape the future of regulation in the ICO and blockchain space.” The initiative has already been met with support from Deloitte, the Ethereum Competencies Centre and others. Being blockchain agnostic, anyone will be able to take advantage of the framework. As ICOs become a legitimate funding mechanism, the subject of government regulation is not a matter of if, but when. Products like this are critical if ICOs are to be brought into the limelight and thought of as a fully legitimate alternative to other means of capital infusion.
  • IRS Continues Biting Into Bitcoin: While the recent IRS case against Coinbase resulted in a far smaller number of records being turned over to the tax agency than originally sought, the ruling still sets a possible precedent of things to come. The IRS is currently ramping up its efforts to go after Bitcoin related tax evasion and other financial crimes, with the current focus being on the most nefarious of criminal players but expected to widen in scope as more investors than ever get in on Bitcoin. Some have speculated that the IRS may begin offering amnesty or discounts to investors who haven’t reported Bitcoin earnings in the face of what is likely to be more formal upcoming regulations.
  • Crypto Causes CFTC Confusion: Chairman of the Commodity Futures Trading Commission (CFTC) Christopher Giancarlo has remarked in a statement that, “I have said consistently that virtual currencies are unlike any commodity that the CFTC has dealt with in the past, and I know they pose challenges for the SEC as well.” He went on to clarify that the CFTC is in regular communication with the SEC, but clarified that the CFTC themselves have “limited statutory authority” to enact formal regulations. His remarks concluded with a warning for investors, highlighting the often repeated fears relating to volatility and risk. Government agencies the world over are beginning to formally discuss cryptocurrency, furthering the notion that we may be entering a new era of governmental crack down on exchanges, ICOs, and tax policy relating to cryptocurrency.

 

Conclusion

From a superficial point of view, the future of cryptocurrency has never looked brighter with meteoric gains, rampant mainstream adoption, and talk of Bitcoin at your local gym.

However, confusion and fear among governments coupled with a frenzy of novice investor activity has pushed the market towards unpredictable territory.

Former crypto safe havens like South Korea are considering cryptocurrency bans, the British secret service is investigating whether Bitcoin is a threat to the monetary system, and the SEC is becoming increasing involved in shutting down ICOs.

Developments like Bitcoin futures contracts, Ethereum’s rise, the ICO boom, and the proliferation of cryptocurrency in developing nations were harbingers of this year’s massive crypto gains; but the quickening pace of current regulatory rumors could likewise serve as a glaring sign of turbulent waters ahead.

William M. Peaster is a cryptocurrency journalist and copy-editor based out of El Paso, Texas. He's an avid fan of Ethereum, ERC-20 tokens, and smart contracts in general.

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