Kvě 18

US Securities and Exchange Commission Launches ‘HoweyCoins’ ICO

· May 17, 2018 · 8:00 pm

In a surprising turn of events, the US Securities and Exchange Commission has launched its own initial coin offering dubbed HoweyCoins.


‘A Hot Investment Opportunity’

Anyone looking for a hot new initial coin offering (ICO) should look no further than the US Securities and Exchange Commission’s brand new token sale for HoweyCoins. States the regulatory authority in an official press release:

If you’ve ever been tempted to buy into a hot investment opportunity linked with luxury travel, the Securities and Exchange Commission has a deal for you.

Check out the SEC’s Office of Investor Education and Advocacy’s mock initial coin offering (ICO) website that touts an all too good to be true investment opportunity. But please don’t expect the SEC to fly you anywhere exotic—because the offer isn’t real.

Unsurprisingly, the SEC isn’t actually launching its own token sale. Rather, the independent agency of the United States federal government has set up a mock website in order to educate investors about the perils of investing in fraudulent ICOs.

Clicking “Buy Coins Now” on HoweyCoins.com — a tongue-in-cheek reference to a landmark US Supreme Court decision in 1946 — will not actually sell you coins, but rather offer tools and advice from the SEC and other financial regulators.

The website has reportedly been set up to protect regular investors, and “features several of the enticements that are common to fraudulent offerings, including a white paper with a complex yet vague explanation of the investment opportunity, promises of guaranteed returns, and a countdown clock that shows time is quickly running out on the deal of a lifetime.”

The SEC’s Office of Investor Education and Advocacy’s Chief Counsel, Owen Donley — aka HoweyCoins’ Josh Hinze — explains:

Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals. But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for.

Likewise, SEC Chairman Jay Clayton states:

The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our Main Street investors. We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws. I encourage investors to do their diligence and ask questions.

HoweyCoins.com does indeed look a lot like the vast majority of websites offering ICOs and may be interpreted as a clever and funny way to educate investors against fraudulent schemes — as opposed to simply providing bullet points on a government website.

What do you think of the SEC’s new mock ICO? Do you think this is a positive move in the education of investors against fraudulent ICOs and bad actors in the cryptocurrency space? Be sure to let us know in the comments below! 


Images courtesy of Shutterstock

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Kvě 13

Reserve Bank of Zimbabwe Bans Cryptocurrency Trading, Financial Institutions Given 60 Days to Comply

· May 12, 2018 · 8:00 pm

The financial services regulator for the southern African country of Zimbabwe – the Reserve Bank of Zimbabwe (RBZ) – has banned all financial services institutions in the country from all forms of cryptocurrency trading. The directive was shared in a circular on virtual currencies distributed to all institutions on Friday.


Cryptocurrency Trading Banned Through Banking Services

According to a news report, the circular which was signed by the RBZ registrar of banking institutions Norman Mataruka, the central bank has said that it is taking these measures to protect the public and safeguard the integrity, safety, and soundness of the country’s financial system.

All financial institutions in Zimbabwe which include commercial banks and mobile money service providers have been told to ensure to not use, trade, hold or transact in virtual currencies or provide banking services that would facilitate any individual or entity in dealing with or settling cryptocurrencies.

The ban outlined a swathe of services that include maintaining accounts, registering, trading, clearing, collateral arrangements, remittances, payment and settlement accounts, giving loans against tokens, accepting tokens as collateral, opening accounts of cryptocurrencies exchanges and moving money in accounts relating to cryptocurrency trading.

The RBZ has also directed banks to terminate any existing relationships with virtual currency exchanges in sixty days to liquidate existing account balances.

Zimbabwe does not recognize cryptocurrencies as legal tender and the country does not have a regulatory framework for virtual currencies or cryptocurrency trading. However, it has managed to effect a ban by directing financial institutions to keep their hands off all transaction and services related to cryptocurrencies.

Cryptocurrency Trading Banned Through Banking Services

Exercising Caution and Choking an Industry at the Same Time

The stance that has been taken by Zimbabwe’s central bank isn’t new. The cryptocurrencies space is still facing a lot of scrutiny and regulators in other markets have taken a cautious approach, pushed by concerns around money laundering, tax evasion, fraud and in cases like Zimbabwe, the externalization of foreign currency in response to the country’s foreign currency challenges.

Countries like India and China have explored this route before and in Africa, Kenya’s regulator has also taken a hard stance against cryptocurrencies. They are all meant to be measures against potential risks in a new space.

However, such moves also have a negative impact on legal service providers including entities that solve some problems that affect the economy.

In Zimbabwe, a number of businesses that have emerged in this space over the past few years that include the local cryptocurrency exchanges like Golix as well as outfits that have been using cryptocurrencies to facilitate remittances such as Bitmari will be affected by the directive.

Do you think that regulators that put restrictions on cryptocurrency activities because of the risk of crimes like money laundering are justified? Please let us know in the comments below. 


Image courtesy of AAAB, Shutterstock

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Kvě 11

Iran Turns to Bitcoin in Preparation for Renewed U.S. Sanctions

· May 10, 2018 · 8:00 pm

With U.S. President Donald Trump declining to renew a nuclear deal with Iran, citizens of the country are turning to Bitcoin. Iran is facing renewed sanctions from the United States which could signal the start of new economic problems. There are also reports that the Iranian government is looking to create a state-owned cryptocurrency.


Impending Economic Troubles

Fresh sanctions from the U.S. will adversely affect Iran’s exports especially oil which forms a considerable portion of its GDP. The country’s currency, the rial has lost a lot of ground on the U.S. dollar. This decrease in value follows several months of forex shortage and financial difficulties in the banking sector. As a result, the local economy has been declining with the situation expected to worsen with the issuing of fresh sanctions. The Central Bank of Iran (CBI) has tried to remedy the situation but seemingly to no avail. The apex bank unified the official and black-market forex rates, but the rial has continued to plummet.

A State-owned Crypto Solution.

There have been numerous reports that the Iranian government is developing a state-owned cryptocurrency. Jayad Azari-Jahromi, the country’s ICT Minister, announced in April that an experimental model of the local crypto project was ready. This announcement followed the ban placed by the CBI on Bitcoin and other cryptos. The country’s apex bank prohibited all banks and lending institutions from facilitating cryptocurrency transactions.

If Iran does develop a local crypto, it will be following in the footsteps of Venezuela. The Latin-American nation launched its petro cryptocurrency earlier in the year. Many see the petro as a way of circumventing economic restrictions affecting the country. In response, the United States has banned the petro, and this will likely diminish its exchangeability. If Iran decides to follow the same route, its local cryptocurrency will likely suffer the same ban.

Bitcoin to the Rescue

Bitcoin to the Rescue

Despite the Bitcoin ban, Iranians are still using bitcoin to send money out of the country. According to reports in the local media, residents of the nation have spent more than $2.5 billion in acquiring cryptos in recent months. The CBI ban, however, is expected to significantly reduce the outflow by making more significant transactions a lot more difficult.

Mohammad Reza Pourebrahimi, the Chairman of the Iranian Parliament’s Economic Commission, believes most of the crypto activities in the country are speculative investments. He also said that foreign cryptocurrencies are a threat to Iran’s banking system. As such, it is necessary for the government to develop a national virtual currency.

Can Iran navigate the problems brought about by economic sanctions using cryptocurrency? Let us know in the comment section below.


Image courtesy of Shutterstock, iStockPhoto

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Dub 20

Tax Attorney: Blockchain Immutability ‘Does Make The IRS Smile’ (Interview)

· April 20, 2018 · 4:30 pm

Bitcoinist spoke with Alexander Stern, legal attorney and founder of Attorney IO, to unpack the complexities related to Bitcoin and cryptocurrencies taxes, potential loopholes for users, and how the IRS can easily track individuals using Bitcoin compared to fiat currencies. 


Alexander Stern

The fact that a lot of this is on a blockchain (and cannot be tampered with) does make the IRS smile.

– Alexander Stern

Bitcoinist: First, how and for how long has your law firm been involved with Bitcoin and cryptocurrencies? Are you seeing increasing interest from clients?

Alexander Stern: I’m an attorney and the founder of Attorney IO. Attorney IO is a startup that provides legal AI to other lawyers to give them an AI’s perspective on the law. We proudly support lawyers working on the latest cryptocurrency issues, spanning from taxes to securities. I believe smart contract technology and legal AI are the future of the legal profession.

Bitcoinist: So do you see the legal profession also facing disruption? In other words, will many legal experts be replaced by AI and smart contracts in the future? 

Alexander Stern: Yes, I think a huge number of lawyers will be replaced by AI and smart contracts. However, the best lawyers will embrace this techno-legal future rather than fight it. It is now common to get a joint degree in law and business.

With the rise of AI and smart contracts, I think we’ll start seeing a lot more people getting joint degrees in law and computer science.

Bitcoinist: Is trading crypto-to-crypto on an exchange like Binance or Poloniex, for example, a taxable event? Is it retroactive? If so, from what date did this go into effect?

Alexander Stern: We asked some of the top tax law professors in the country this question. The Attorney IO Panel Report generally found that starting January 1st, 2018, all crypto-to-crypto exchanges are taxable events.

This is the case whether you use an exchange such as Poloniex or even if you make a private swap without using an exchange. The only exception I’m aware of may be to use non-taxable retirement accounts. However, the panel said that, prior to 2018, a great deal of crypto-to-crypto exchanges are taxable events and have been since before the Bitcoin whitepaper was published. The question is whether the two crypto assets being exchanged are highly similar to each other in how they function.

For example, it is arguable that Bitcoin and Litecoin are sufficiently similar to suggest swapping one for the other may be a non-taxable “like-kind exchange.”

On the other hand, one panelist said, “I don’t think a swap of cloud storage for a car is LK [like-kind]. So why should a digital asset that allowed you only to get cloud storage be LK [like-kind] with a digital asset that could be redeemed only for a car?” In other words, all exchanges going back to Bitcoin’s release are potentially taxable events, especially when the two coins are meaningfully different in function.

Bitcoinist: Is it possible to have taxable gains despite never having been converted into dollars? Moreover, what if the gains were wiped out by later unrealized losses?

Alexander Stern: Yes, this is the single biggest news of the panel report. The blockchain ecosystem could move into a second generation of coins and leave the first generation in the dust. If that happens and most of this first wave of tokens drop to levels seen only a few years ago, thousands of families could owe tens of billions of dollars in taxes, despite receiving much less than that in dollars. This could haunt people for the rest of their lives.

One panelist, Prof. Ainsworth, answered this question as follows: “Absolutely. The same happens in any real estate bubble where people are flipping homes. Some people flip every month, and if they end up flipping a $1 million home at the top of the market, and the value of all real estate ‘tanks,’ it is possible to have [taxable] gains that exceed the current market value of real estate.”

Another panelist, Prof. Kane, said, “I could exchange an appreciated, valuable painting for a farm. Not like kind (even before 2017 changes), so I recognize gain. But then the land market crashes, and I take a big loss. Was it wrong for the system to tax me given I did not really end up with any gain at the end of the day?”

Bitcoinist: The CFTC considers crypto to be commodities while the SEC believes some are securities. Is there any clarity at this point?

Alexander Stern: Cryptocurrencies are a completely new technology and paradigm. Regulators could decide they have features of both securities and commodities. It will also likely depend on the token itself rather than the asset class as a whole.

Bitcoin looks a lot more like a commodity. The latest ICO often looks a lot more like a security.

Ultimately, one token could be regulated as both a security and a commodity. This could mean at least two federal agencies would have simultaneous authority over one token.

Bitcoinist: Many people in the crypto space get paid salaries in Bitcoin, for example. Would this be taxable the same as income in dollars?

Alexander Stern: Yes. If you get paid in Bitcoin or any other digital asset, you generally have the same tax responsibilities as payment in dollars.

Bitcoinist: We’ve seen instances where people claim they got “hacked” and that the funds are no longer theirs. How can the IRS technically prove that an individual has control of their funds?

Alexander Stern: In my opinion, this seems very similar to losses due to theft outside of the blockchain. If you keep half of your salary as cash under your mattress, it is vulnerable to theft too. In some cases, the IRS does allow you to deduct for theft, but it is a very case-specific process. If you have a substantial theft from a cryptocurrency hack, you should get a tax attorney to guide you.

Documentation, such as police reports or news articles on a major hack, can be crucial to demonstrate to the IRS that you did indeed lose money due to theft. Nobody should consider claiming a hack that is not genuine. That may lead to serious consequences that could include jail and fines.

Bitcoinist: Are there any legal loopholes that Bitcoin users can use to avoid taxation? For example, sending bitcoin to another person as a “gift”?

Alexander Stern: Generally speaking, no. A good rule of thumb in the tax world is to ask whether something would be effective if you use dollars instead of cryptocurrencies. If you get a salary in dollars or cryptocurrencies, you cannot avoid income tax by saying you gifted it all away.

IRS

Bitcoinist: The IRS is increasingly forcing third-party intermediaries to turn over records such as we’ve seen with Coinbase. However, since technological innovation is always one step ahead, could new tech, such as anonymizing features, decentralized exchanges, cross-chain atomic swaps, etc., make it even harder for authorities to track individuals? Who do you see winning this game of cat-and-mouse?

Alexander Stern: These new technologies could make it harder for the IRS but certainly not impossible. The Bitcoin blockchain is particularly susceptible to scrutiny. Panelist Prof. Ainsworth notes that “all the IRS needs to do is get a good computer out and draft assessment notices once they have the account numbers.

The fact that a lot of this is on a blockchain (and cannot be tampered with) does make the IRS smile. Assessments could not be easier. The metaphor of ‘fish in a barrel’ comes to mind.”

However, the IRS is a very capable agency. People try to dodge taxes outside of blockchain investments all of the time. When you start driving around in a Lamborghini but report only a small income, that raises some serious red flags. If the IRS can catch tax evaders using cash, it can do so with even the most sophisticated anonymous blockchain assets.

Bitcoinist: Given that 2017 was a record year in terms of price gains across the board for cryptocurrencies, do you believe we’ll see more people file taxes on the crypto returns this year or less?

Alexander Stern: All sorts of federal and state government agencies have seen the dramatic price appreciation of cryptocurrencies. They all want to increase their authority and get a piece of the pie. The panel report notes that only a few months ago we saw a ramp up in IRS scrutiny of Coinbase.

I think we’ll start seeing significant legal action taken against cryptocurrency tax dodgers, and this enforcement will spark a community-wide increase in paying taxes.

Bitcoinist: Do you think tax service companies like Turbo Tax or H&R Block will start offering cryptocurrency tax services as it becomes more popular?

Alexander Stern: Yes, I think that’s a great idea. Turbo Tax and H&R Block could make a ton of money by tapping into this burgeoning market. Most people want to comply with the law and that means paying taxes. These companies can make a few small additions to their systems and capture this market.

taxes

Bitcoinist: What’s your advice for cryptocurrency users moving forward? Should they keep track of every single transaction and trade?

Alexander Stern: The panel report does find people should track every single trade. Panelist Prof. Chodorow says, “To comply with the tax laws, keep track of how much you paid for each coin. Further, keep track of which coin you sell or spend as well as the value of the coin at the time you dispose of it. You will also need to determine how long you have held the coin. If you hold your coins at one of the exchange companies, those companies should be able to provide you that information.”

He adds, “Any time that you sell or spend a virtual coin, you will have a tax gain or loss if the value of the coin at the time you sold or spent it differs from the value when you acquired it.”

In other words, even if you buy a small item such as a cup of coffee, you are technically incurring a tax obligation.

It is no different than if you sold $5 in Bitcoin and took that $5 to the coffee shop. Both events are taxable. While this could limit the practical use of these assets as currencies, it may not be so onerous if you are with an exchange that automatically records all of the necessary information each time you make a trade.

Bitcoinist: Finally, where can people find more information on this topic?

Alexander Stern: I suggest that people read the entire Attorney IO panel report on cryptocurrency taxes and adjust their bookkeeping and tax strategies accordingly. Some of the best law professors in the world took the time to educate the cryptocurrency community about their obligations. It’s worth looking into what they have to say.

Did you pay your cryptocurrency taxes this year? Share your comments below! 


Images courtesy of Shutterstock, Attorney IO

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Dub 15

Hong-Kong Based Exchange OKEx Plans to Move to Malta

· April 15, 2018 · 4:00 pm

OKEx, one of the largest exchanges in the world, has announced plans to move to the European island, Malta. This announcement came quickly after a similar announcement made by Binance, one of OKEx’s main competitors.


In an attempt to gain an understanding of the political climate around cryptocurrencies in Malta, OKEx’s executives met with the Maltese government. While many EU countries are taking a standoff-ish, if not downright hostile, approach to cryptocurrency, Malta – which aims to become a ‘global pioneer’ for cryptocurrency – has proven to be extremely welcoming to crypto and blockchain businesses.

Currently, OKEx only offers crypto to crypto trading along with a futures market. OKEx is currently based in Hong Kong, which has probably made it difficult for the exchange to obtain the required licenses to allow for a fiat gateway to be opened in collaboration with banking systems.  However, some suspect that with the move to Malta, that the exchange will open fiat to crypto trading, which will become an essential part of any successful exchange in the near future. 

OKEx CEO Chris Lee stated:

We look forward to working with the Malta government as it is forward thinking and shares many of our same values: the most important of which are protection of traders and the general public, compliance with Anti Money Laundering and Know Your Customer standards, and recognition of the innovation and importance of continued development in the Blockchain ecosystem.

Malta – a Global Pioneer for All Things Crypto

Since the rise of the cryptocurrency industry, Malta has been continually open to accepting companies who are looking for a bit more wiggle room with regard to regulations. As a result of this, Malta has established itself as the crypto and blockchain ‘go to’ locale as more startups and exchanges flock to the country.

Malta - a Global Pioneer for All Things Crypto

Earlier in 2018, Malta’s government announced their plans for a new segment of the government called the Digital Innovation Authority which aims to provide full legitimacy for blockchain and cryptocurrency companies alike.

It is unlikely that Malta will be averse to any legitimate cryptocurrency or blockchain company in the future as their policy plans indicate that they are willing to keep cryptocurrency rules minimal.

OKEx Chief Risk Officer and Head of Government Relations noted:

Malta’s Virtual Financial Asset Act is a solid foundation for the industry and the government to work together in fostering the nascent blockchain/digital asset industry. More specifically, Malta’s sound risk-based approach will help cultivate a responsible, compliant, and healthy ecosystem.

Do you think that the cryptocurrency and related technology industry will flourish in Malta? If not, where else? Let us know in the comments!


Images Courtesy of  AdobeStock, iStockPhoto

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Bře 20

4 Ways Criminals Are Trying to Cash out Their Bitcoin

· March 20, 2018 · 2:30 pm

Due to the increased spotlight on cryptocurrency, criminals are finding it more difficult to cash out their Bitcoin for fiat, but they are finding ways to do so.


A common media portrayal is that of a criminal who plies their trade on the Dark Web and amassing a fortune in Bitcoin. It is true that the daddy of cryptocurrency can be used for all manner of illicit transactions, but an interesting phenomenon is now occurring. While some criminals have amassed a veritable fortune in bitcoins, they are finding it increasingly difficult to cash out the cryptocurrency to fiat. However, they are finding some ingenious ways to do so.

money

A Hard Knock Life

A recent report by Vice highlights this issue that criminals are having. People who conduct illicit business on the Dark Web, such as selling stolen information or malware, are making some serious money, but they are facing obstacles in converting that digital wealth into actual fiat currency.

The main reason for this problem is that cryptocurrency is the victim of its own success. The massive surge in value towards the end of 2017 shone a very bright spotlight upon the cryptocurrency sphere, catching the attention of law enforcement and regulatory bodies.

The increasing acceptance of cryptocurrency has led to more regulations being put into place, such as exchanges requiring verifiable information from its users. Law enforcement has also become more adept at infiltrating the seedy underbelly of the crypto sphere, not to mention keeping a sharp eye on large-scale transactions.

Some Savvy Criminals

This increased scrutiny has led criminals to try to cash out their Bitcoin. Swiss bankers have reported being contacted and offered a 10% payment if they could facilitate large-scale transfers; offers that they have, so far, rejected.

cybercriminal

However, criminals can be an ingenious lot at times. A few methods for cashing out their bitcoins were revealed to Vice. One such method is using Western Union. An online drug dealer says he uses services that will automatically transfer cryptocurrency to accounts belonging to Western Union. Then he uses another person to pick up the fiat.

Probably the safest way to cash out is to sell the Bitcoin to a trusted person in the real world. A malware seller tells Vice that he regularly sells cryptocurrency to a local person a few times per week, who then leaves a bag of cash on their porch a few hours after the crypto is transferred. Another method is to work with a company that charges pre-paid debit cards with cryptocurrency. Criminals note that the card issuer does not know what is being used to charge the card as another company handles that. If the card requires some documents, fake ones can be procured on the Dark Web.

Law enforcement notes that another viable option for criminals is to use a bank in Eastern Europe. Regulations dealing with cryptocurrency are much more lax in that particular region. In fact, Europe is currently known as a weak link when it comes to money-laundering and cryptocurrency. Even now, such enforcement is not high on the EU list of priorities, which is something that cybercriminals are very aware of. In addition, criminals are now moving away from Bitcoin and into other cryptocurrencies that are far more private.

Do you think criminals will always find a way to cash out their cryptocurrencies? Let us know in the comments below.


Images courtesy of Pexels, Pixabay, and Bitcoinist archives.

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Bře 07

SEC Chairman: ‘Abide by the Law. We are Watching.’

· March 7, 2018 · 12:30 pm

Securities and Exchange Commission (SEC) Chairman Jay Clayton went on FOX Business yesterday to inject some fear into investors — particularly those interested in Initial Coin Offerings (ICOs).


‘We Are Watching’

SEC Chairman Jay Clayton has issued a serious threat to the cryptocurrency space and, in particular, to ICOs.

Clayton — who was nominated by President Donald Trump — initially claims he’s just got investors’ best interests at heart, telling FOX Business:

I worry in particular about people who see things that look like a New York Stock Exchange or NASDAQ listing for ICOs or cryptocurrencies and think that I’m getting the same protection for my token that I would be getting for a share of stock that trades on an exchange. They’re not.

Now that you know Clayton’s got your back, you can also rest assured that he and the SEC are investigating whether or not ICOs are violating securities laws. He told FOX Business:

Many ICOs and many of the ones I’ve looked at specifically are securities. … For some reason, people selling ICOs seem to think they don’t need to follow either path; they seem to think they can have the best of both worlds: a limited disclosure from a private placement and public trading and public offering of the token.

SEC

Unsurprisingly, Clayton’s concerns rest primarily with how ICOs raise their capital. He explained:

We have seen instances where companies seem to have had trouble raising money in a traditional private placement and then have switched to an ICO in order to raise the money. The business hasn’t changed substantively, but it’s a form-over-substance way to raise money. That is troubling.

Nevertheless, Clayton knows a war against cryptocurrency will ultimately not work in anybody’s interest — particularly his. Thus, he pretends he wants to open a constructive dialogue, while at the same time sending a threatening message:

It’s important to understand that the fundamentals of our securities laws do apply in this space. It’s a technology with great promise. … It’s a technology that I really think is pretty cool and can change the way people do business at a great deal of efficiency, but it doesn’t mean that you can obviate our tried-and-true approach to the federal securities laws.”

Clayton’s entire discussion can ultimately be summed up in three authoritarian sentences:

Abide by the law. We are watching. Others are watching.

What do you think of Clayton’s warning? Do you think ICOs should be more careful with how they raise funds? Let us know in the comments below!


Images courtesy of Bitcoinist archives.

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Bře 04

SEC Subpoenas TechCrunch Founder’s Crypto Fund — And Everyone Else, Too

· March 4, 2018 · 12:30 pm

While the U.S. Securities and Exchange Commission dishes out subpoenas to cryptocurrency projects like a generous house doles out candy on Halloween, TechCrunch founder Michael Arrington’s $100 million cryptofund has also come under investigation.


‘They Just Have to Figure out What They Want.’

TechCrunch founder Michael Arrington’s $100 million cryptofund has been subpoenaed by the U.S. Securities and Exchange Commission — which is no skin off Arrington’s back. He told CNBC on Thursday:

We received a subpoena. Every [crypto]fund I’ve talked to has received one. That’s fine. They just have to figure out what they want. They need to set up rules so we can all follow them, and the market is begging them for that.

SEC

Too Much Confusion

Indeed, the SEC apparently has no idea exactly what it wants, having already indicated that regulations in regards to securities laws do not apply to digital coins. The confusion created by the SEC has even caused many cryptocurrency firms to ban U.S. investors from getting involved in the projects.

Meanwhile, the SEC’s New York, Boston, and San Francisco offices have been issuing subpoenas like it’s their job, in an attempt to learn as much as possible about the burgeoning billion-dollar industry. Said Jason Gottlieb, partner at Morrison Cohen, who is defending PlexCorps against charges of fraud:

Clearly it’s a coordinated, grand investigation. I would expect it’s going to continue throughout this year.

Goodbye, USA

According to Arrington, the negativity and confusion created by the SEC is driving innovation away from the United States. He told CNBC:

That’s a shame, The U.S. has just frozen itself. The stuff coming out of Asia is uniformly high quality.

US flag

The US is not the only country struggling with regulation, of course. South Korea has ping-ponged back and forth while China has outright banned Initial Coin Offerings. Japan has somewhat successfully implemented a licensing system for cryptocurrency exchanges, while European financial authorities in Germany and France are calling for a global crackdown.

Still, the US remains in the spotlight and risks driving out innovation while the SEC dithers. Says William Mougayar, author of The Business Blockchain:

I hope they don’t go [down] the slippery slope of trying to classify tokens because it’s a grey zone throughout. Rather, focus on requiring disclosures that are well-defined, while not being too restrictive yet.

For now, we’ll just have to wait and see.

What do you think about the SEC’s subpoena-issuing spree? Do you think effective, innovation-supporting regulation will come from its investigation? Let us know in the comments below!


Images courtesy of Reuters, Wikipedia Commons, Flickr.

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Úno 28

So Why Did Goldman Sachs-Backed Circle Really Buy Poloniex?

· February 28, 2018 · 10:00 am

Goldman Sachs-backed startup Circle made waves earlier this week when it acquired cryptocurrency exchange Poloniex. A couple of experts share their thoughts on the implications for the soon-to-be first compliant US crypto exchange and its customers.


Most Crypto Exchanges ‘Over-Regulate Themselves’

As the dust settles on Circle’s acquisition of Poloniex, U.S. regulators are keeping a close eye on KYC/AML compliance of cryptocurrency exchanges.

Joseph Weinberg

Joseph Weinberg, OECD Think Tank Special Advisor and Chairman of Shyft, a blockchain protocol that will create a new standard for the KYC/AML mandates, shared his comments with Bitcoinist. He states:

Most crypto exchanges that are processing fiat to crypto transactions are very compliant and, in some cases, even more so than banks. It all really depends on jurisdictions and the compliance policies given by countries to crypto exchanges.

He continued:

For crypto exchanges, the challenge lies in how little formal guidelines there are from regulators. As a result, most of the industry has been doing self-compliance in absence of clear procedures. To err on the safe side, crypto exchanges over-regulate themselves. For example, most exchanges ask for passport verification in order to confirm users’ identities, whereas most banks only require government-issued IDs, such as drivers licenses.

Interestingly, Circle acquired the crypto exchange over a year after announcing it was shifting focus from Bitcoin to blockchain-based services. At the time, the company informed its Bitcoin customers that they can can cash out or transfer their balances to Coinbase, if they wished to continue to use the cryptocurrency.

So why did Circle decide to jump back into the crypto game?

It appears that Poloniex was struggling to keep up with the unexpected surge in new users as prices skyrocketed in the second half of 2017. Additionally, being based in the United States, the company also had to keep up with rising compliance costs as it rolled out its new KYC policies late last year.

Weinberg explains:

In the past, Poloniex had a lot of issues with onboarding new users and properly building out its KYC process, mainly due to the large amounts of time it takes to verify users. Given the level of KYC that exchanges force themselves to go through, scaling compliance is almost a separate product that the exchange has to build out.

According to him, this is where Circle comes in with their KYC/AML expertise. He says:

Through this acquisition, Circle will deploy more people to help handle compliance—more employees to build and process KYC due diligence faster. This is the same type of issue traditional banks have when it comes to scaling. Compliance costs keep multiplying, and yet, they aren’t always found to be effective.

The SEC Is Watching

Meanwhile, another takeaway has been put forth by Nathaniel Popper, author of Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money.

Popper noted on Twitter that the SEC informally suggested to Circle that no enforcement action will occur if the Boston-based startup “cleans up Poloniex and turns it into a regulated exchange.” He adds:

The SEC seems to be saying here that it’s okay if you broke the rules, as long as you get acquired by a legitimate player before we crack down on you.

The question now seems to be whether the SEC will apply this same thinking to other virtual currency exchanges if they are acquired by large players.

In addition to facilitating compliance, Circle also announced that it will add fiat bridges and expand operation to other markets. Namely, the company promised to explore “USD, EUR, and GBP connectivity that Circle already brings to its compliant Pay, Trade, and Invest products.”

This would imply that the exchange must also become compliant and answer to regulators from across the pond, who are currently scratching their heads on how to approach cryptocurrencies without stifling innovation in the process.

Therefore, regulators in the U.S. and abroad could be playing the carrot and stick strategy by providing an incentive for crypto exchanges to get acquired by the large players, such as Goldman Sachs, before a potential crackdown. Admittedly, this could also be a clever way for traditional finance to not only appear innovative through association but also assimilate would-be future competitors.

If true, the strategy may be futile and usher in the Streisand effect to boot. As technology advances, so do new methods of exchanging cryptocurrency. Therefore, assimilating centralized exchanges like Poloniex could force users to migrate en masse to decentralized exchanges and further bolster their development.

Why do you believe Circle acquired Poloniex? Share your comments below!


Images courtesy of Shutterstock, Twitter/@nathanielpopper.

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Úno 20

South Korea to ‘Support’ And ‘Encourage’ Crypto Transactions – Regulator Chief

· February 20, 2018 · 9:30 am

South Korea will “encourage” banks to interact with cryptocurrency exchanges, regulators have said in a surprising development in the country’s narrative.


Choe: We Want ‘Normal’ Transactions

As local news media outlet Yonhap News Agency reports Tuesday, Choe Heung-sik, governor of the Financial Supervisory Service, has announced government organs will “support” all legitimate transactions in the cryptocurrency trading space.

The comments were delivered during a meeting which included representatives from South Korea’s exchange industry.

The emphasis appeared to be on legal versus illegal transactions, with the promise of support “if normal transactions are made.”

South Korea Issues Ban on ICOsChoe’s hinting at a more open-minded stance from Seoul going forward forms part of a recent departure from lawmakers’ harsher words which caused public outrage in recent months.

Since December, talk of an outright ban on cryptocurrency exchanges had metamorphosed into a ban on anonymous trading. This was then joined by plans to create a Japan-style exchange licensing system, constituting an about turn in the space’s legal prospects.

Turbulence As Police Investigate Official Death

Despite the rapidly-changing landscape, however, Yonhap notes the general atmosphere of confusion and hesitation on the part of exchanges themselves to embrace the current market.

“Currently, local banks have been reportedly reluctant to open virtual accounts for cryptocurrency trading amid the government’s crackdown,” it adds commenting on the teething problems witnessed following the anonymous trading ban when it became law January 30.

On Monday, the government released data showing South Korea’s exchanges generated taxable revenues amounting to almost $650 million in 2017. Taxation, hastily enacted last month and worth 24.2% of that figure, is due for payment by the end of April.

At the same time, a more solemn development this week saw Jung Ki-joon, the official working on future cryptocurrency treatment plans suddenly die of a heart attack. Police investigating the event have since announced a more in-depth review will be carried out.

What do you think about Choe Heung-sik’s plans for cryptocurrency treatment? Let us know in the comments below!


Images courtesy of Shutterstock, Twitter

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