REPORT: ETHERDELTA SEC TEA LEAVES: What Are The Regulatory Lessons To Be Learned From An Exchange Shut Down?

The Securities and Exchange Commission (SEC) announced on Thursday that it settled charges against Zachary Coburn, the founder of EtherDelta, a digital “token” trading platform. This is the SEC’s first enforcement action against a platform operating as an unregistered national securities exchange.   

The SEC stated that over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws.   Almost all of the orders placed through EtherDelta’s platform were traded after the SEC issued its 2017 DAO Report, which concluded that certain digital assets were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption.   

Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement, plus $13,000 in prejudgment interest, and a $75,000 penalty.   The order also recognizes Coburn’s cooperation, which the SEC considered in determining not to impose a greater penalty.

SEC Warned Exchanges of Registration Concerns in March

The SEC issued a statement in March asserting that it will continue to “focus on platforms that offer trading of digital assets and their compliance with the federal securities laws” to protect investors.

The statement also reiterates the SEC’s position that platforms that offer “trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, must register as a national securities exchange or be exempt from registration.” 

Despite these Warnings, Exchanges Did Not Register with the SEC

In early June, Brett Redfearn, SEC Director of the Division of Trading and Markets, raised concerns over the lack of self-reporting by digital asset exchanges. Redfearn stated that the SEC was “underwhelmed by the enthusiasm for coming within the regulatory structure”.   

Redfearn also explicitly stated that there are a “number of exchanges out there trading ICOs” and the SEC would like to see “more registrations” from these existing digital asset exchanges.   

Digital asset firms may have initially declined to self-report with the SEC because they feared the SEC may take enforcement action against them. Exchanges may also have been reluctant to self-report, as they were waiting for concrete guidelines to be issued by SEC. In some cases, exchanges may have been unwilling to register, as they would have had to de-list unregistered digital assets, which would have reduced earnings. 

Exchanges Considering Registering with the SEC 

In May, Kraken’s Chief Executive Officer Jesse Powell said that the company would “probably get registered” with the SEC. The firm, however, qualified its statement by noting that before it registered, it would require “more clarity from the regulator about which digital coins are securities and how those tokens can trade legally”. 

In June, Prometheum Inc. filed for registration with the SEC to establish an exchange to conduct secondary trading of digital assets. 

Jeremy Allaire CEO of Circle Internet Financial Ltd. (“Circle”) also confirmed in June that the firm had discussed registering as an exchange with the SEC. Allaire stated that the company was interested in becoming a registered exchange through the SEC application process or by purchasing a platform that is already registered with the SEC. 

Digital Asset Firms Acquiring or Partnering with Companies Already Registered with the SEC

Circle is not the only firm to consider forgoing registering with the SEC and purchasing a company already licensed as an exchange.

In June, Coinbase, Inc. (“Coinbase”) announced that it acquired Keystone Capital Corp., (“Keystone”) a financial-services firm. The acquisition of Keystone will allow Coinbase, after receiving federal approval, to take part in broker-dealer, digital asset exchange, and investment advisor activities. 

Other firms are partnering with existing companies that are already licensed as an exchange. In August, Bittrex announced it was partnering with Rialto Trading Technology (“Rialto”), a U.S.-registered trading platform for fixed income products. Under terms of the agreement, Rialto will expand its exchange operations to include digital assets that are registered securities. 

Penalties Against Firms that Self-Report May be Limited

The case against Coburn indicates that the SEC is willing to reduce penalties for individuals who cooperate with investigations. Coburn’s cooperation in the investigation only resulted in a low-six-figure fine. Coburn was not banned from participating in any market activities.  

Operators of unregistered exchanges may take this as an indication that it is time to register with the SEC. If so, the enforcement action against Coburn may herald a wave of registrations. 

SEC Likely to Intensify Enforcement Efforts against Unlicensed Exchanges, but Direction of Future Investigations Unclear 

If exchanges do not register, the SEC will likely bring more cases against unlicensed digital asset exchanges. 

Based on the SEC order against Coburn, however, it may be difficult for market participants, advisors, and investors to determine the direction of future SEC enforcement actions. 

The SEC would likely initiate an investigation against an unregistered decentralized exchange that, like EtherDelta, provides a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a “smart contract” that operated on the Ethereum blockchain.

The SEC would also likely initiate an investigation into an unregistered decentralized exchange that uses smart contracts that are coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade. 

The order against Coburn, however, does provide the market participants with a basic understanding of which digital assets are explicitly considered securities by the SEC. This will likely be clarified in future enforcement actions or-more likely-through the issuance of comprehensive digital asset guidelines that eventually will be issued by the SEC.

_____________________________________________________________________

This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation, and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.

The post REPORT: ETHERDELTA SEC TEA LEAVES: What Are The Regulatory Lessons To Be Learned From An Exchange Shut Down? appeared first on Abacus Journal – Cryptocurrency News.

REPORT: ETHERDELTA SEC TEA LEAVES: What Are The Regulatory Lessons To Be Learned From An Exchange Shut Down?

Via: REPORT: ETHERDELTA SEC TEA LEAVES: What Are The Regulatory Lessons To Be Learned From An Exchange Shut Down?

A Blockchain is a growing list of records, called blocks, which are linked using cryptography. Cryptography is the practice and study of techniques for secure communication in the presence of third party adversaries. Cryptocurrency is a digital currency that uses encryption (cryptography) to regulate the generation of currency and verify the transfer of funds, independently of a central bank.

Blockchain 101 · Crytpo Currency Market
—————————————————
Trezor: Hardware Wallet
Binance: Exchange for Traders
Ledger Nano S: Hardware Wallet
Coinbase: Exchange for Investors
CoinSwitch: Wallet-to-Wallet Exchange

BANK OF AMERICA AND RIPPLE: Bank Of America Sends Representatives To Engage Ripple Leadership; Payment Systems Partnership Discussed

Something is brewing between Ripple Labs and Bank of America. Why you might ask? They keep finding themselves in the same rooms together, meet up after meet up, conference call after conference call, and discussion after discussion – all surrounding payment systems that the large bank is considering implementing.

But something of note is happening this week that we are sure will need to be cataloged. In a gathering, last week representatives from Bank of America and others discussed their partnerships with Ripple and the ‘go-forward’ payment processing functionality of the firms’ products.

Other banks and financial firms have discussed the same with Ripple: MUFG Bank, WestPac, Standard Chartered, Banco Santander, American Express, Siam Commercial Bank, and SBI. Clearly, Bank of America would be the biggest name and ‘get’ for Ripple Labs as of yet.

Still, from that above group, headliners being Bank of America, American Express, and Banco Santander – who all possess global presences and brands of scale, are partners that any crypto brand would love to add to their client list. Ripple has obviously rolled out the red carpet for these brands and made a commitment to doing whatever is necessary to partner with them.

Ripple continues to make other announcements that have been highlighted over the past couple of weeks connected to their ever developing payment systems.

Ripple has confirmed the launch of xRapid, a cross-border remittance solution built on the top of Ripple’s proprietary blockchain, last month. The announcement had caused an abnormal bull run in XRP price action, bringing its value up over 100 percent in just a week. The excitement, however, dried off as long position holders began to exit their position on new intraday highs, causing a selloff.

Some of the biggest companies have already nodded to test Ripple xRapid system on their frameworks. These companies include names like MoneyGram, Western Union, Mercury FX, and Cambridge Global Payments. An excerpt from the Ripple website:

“xRapid is for payment providers and other financial institutions who want to minimize liquidity costs while improving their customer experience. Because payments into emerging markets often require pre-funded local currency accounts around the world, liquidity costs are high. xRapid dramatically lowers the capital requirements for liquidity.”

The speculators are expecting these announcements to continue and remain a catalyst for $XRP price action through the end of the year. The team announced that it will launch the system in October (which did actually happen), but the actual date of its commencement remains unclear. Unclear or not, having Bank of America and others in the room partnering with you to launch your product is meaningful. Very meaningful.

To the extent that Bank of America, Banco Santander and others will use Ripple’s product line once is it launched and available daily client customer transactions also remains to be seen. But there aren’t a dozen cryptocurrency and blockchain firms having these kinds of conversations and building this type of architecture.

In fact, you could count on one hand the other blockchain/crypto firms that are involved, to this serious depth, not only building use case products but actually on the precipice of executing those exact use cases.

While some in the crypto community may scoff at Ripple’s ambitions and the way they go about their announcements, there is real substance involved. Bank of America doesn’t send reps to just anywhere for a nice cup of coffee – they don’t need to based on their reputation and scale.

We expect more and interesting announcements to occur throughout the rest of 2018. Should they rise to the level of actual news and use case seriousness, we will bring it to you.

 

The post BANK OF AMERICA AND RIPPLE: Bank Of America Sends Representatives To Engage Ripple Leadership; Payment Systems Partnership Discussed appeared first on Abacus Journal – Cryptocurrency News.

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A Blockchain is a growing list of records, called blocks, which are linked using cryptography. Cryptography is the practice and study of techniques for secure communication in the presence of third party adversaries. Cryptocurrency is a digital currency that uses encryption (cryptography) to regulate the generation of currency and verify the transfer of funds, independently of a central bank.

Blockchain 101 · Crytpo Currency Market
—————————————————
Trezor: Hardware Wallet
Binance: Exchange for Traders
Ledger Nano S: Hardware Wallet
Coinbase: Exchange for Investors
CoinSwitch: Wallet-to-Wallet Exchange

REPORT: SWITZERLAND: Swiss Financial Regulators Push ‘Anti-Crypto’ Bank Standards

The Financial Market Supervisory Authority (FINMA) announced in October its holding guidance for banks and securities firms that establish relationships with digital asset companies, according to a report by Swissinfo.ch.  The guidance classifies “digital assets” as a “highly volatile” asset class and assigns a risk weight of 800% of market value. 

The guidelines also place a cap on digital asset trading activities at 4% of total capital, including long and short positions.  FINMA also requires institutions to report when they have reached the limit. 

The guidelines are designed to make it easier for digital asset firms to access traditional banking services, but the risk weight imposed on digital assets and associated reporting requirements may limit the number of banks that offer these services. 

The FINMA guidance follows in the steps of guidelines issued by Swiss Bankers Association (SBA) in late September for providing firms that carry out ICOs access to corporate bank accounts. 

The SBA guidelines also recommend that members impose higher and additional know-your-customer and anti-money laundering requirements for ICOs that raise funds in fiat or digital currencies.  

Basel Committees Studying Risks Associated with Digital Assets 

The Basel Committee on Banking Supervision (“Basel Committee”) is studying how to include digital assets in its recommendations on liquidity ratios, as there is currently separate exposure class for digital assets.

The Basel Committee has already exchanged views on some of the risks associated with digital assets, but further work is needed. 

FINMA will likely adhere to its present high-risk weight guidelines for digital assets until the Basel Committee issues its recommendations. 

BitCoin Association Switzerland Offers Praise and Criticism of the Guidelines 

Despite the stringent requirements placed on banks conducting business with digital asset firms, the Bitcoin Association Switzerland (BAS) reacted positively to the issuance of the new FINMA guidelines.

The BAS stated that it was “encouraging to see banks no longer turning down the increasing number of client requests for crypto services but asking for guidance and providing their input along the way,” BAS also stated that this was “the Swiss financial centre’s first step towards moving into the next decade where assets are no longer held in a single, central custody but instead are held on the blockchain.” 

The BAS also commended the SBA in September for issuing guidelines were that “a step in the right direction,” but a BAS community officer stated that banks expect firms to “to provide more evidence of future business success and stability than other small companies”.

____________________________________________________________________

This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.

The post REPORT: SWITZERLAND: Swiss Financial Regulators Push ‘Anti-Crypto’ Bank Standards appeared first on Abacus Journal – Cryptocurrency News.

REPORT: SWITZERLAND: Swiss Financial Regulators Push ‘Anti-Crypto’ Bank Standards

Via: REPORT: SWITZERLAND: Swiss Financial Regulators Push ‘Anti-Crypto’ Bank Standards

A Blockchain is a growing list of records, called blocks, which are linked using cryptography. Cryptography is the practice and study of techniques for secure communication in the presence of third party adversaries. Cryptocurrency is a digital currency that uses encryption (cryptography) to regulate the generation of currency and verify the transfer of funds, independently of a central bank.

Blockchain 101 · Crytpo Currency Market
—————————————————
Binance: Exchange for Traders
Ledger Nano S: Hardware Wallet
Coinbase: Exchange for Investors
CoinSwitch: Wallet-to-Wallet Exchange

SOURCES AND RUMORS: EXCHANGES AT RISK: SEC Pursuit Continues, 1Broker And EtherDelta Only The Beginning (Bistamp, Kraken, Bitfinex)

The EtherDelta action by the SEC yesterday  (and 1Broker more than a month ago) has spurred a flurry of dialogue and rumor mill conversations behind crypto closed doors. Crypto hedge fund water coolers are abuzz with what the action means, who could be at risk and where crypto money flows should continue and where they should stop, immediately, based on the regulatory risk that could come to bare.

We’ve had extensive conversations with all manner of players in the crypto ecosystem and have put together different angles, analysis, rumors, guesses, and ‘what ifs’ to give you all you need to make decisions with your crypto assets and where they are currently held.

**We use the term ‘held’ in this instance because your crypto assets are not ‘custodied’ at firms like BitMex or Binance. Not even close. That in and of itself is important to remember here as we walk through this story.**

Conversations that we have had with multiple sources across the asset management space, legal, regulatory, and ‘in the know’ crypto ecosystem believe that the SEC is planning more actions based on specific criteria and crypto exchanges. The basis of these actions has to do with the lion’s share of assets, revenue and trading coming from the United States and United States consumers. The SEC believes that it can take significant liberties in enforcement no matter where these exchanges choose to set up their legal entities. That doesn’t matter to the SEC.

1Broker and EtherDelta were just the first two to feel the heft of an SEC action and quickly acquiesce to civil law enforcement.

Several sources from the AML/CFT, SEC, crypto hedge funds, and other crypto sources have given us thoughts and opinions on where this roadmap could lead and who could be next. Here are parts of those conversations and some explanations as to who, why, where, and when.

A former AML/CFT enforcement agent had this to say based on background conversations with two contacts at the SEC:

“There will be more actions taken. That much I am certain about. Geography is not a factor as they formulate any strategy and are having back-channel conversations. One important point to make here, sticking your thumb up the nose of the SEC over the past six months, or any other regulatory agency, has been noticed and cataloged. It is incredibly stupid to basically dare a federal or state organization to come after you. Which led our conversation to Kraken and the dialogue there CEO decided to air in public. They are firmly in the crosshairs here.”

A current SEC contact was matter of fact and careful:

“The 1Broker and EtherDelta actions were appropriate and serious. Treated as such by both entities. We are carefully evaluating other crypto exchanges and their policies and consumer protection policies and actions. That is an important distinction. We are interested in both what an exchange prints and what it actually does.”

A crypto hedge fund source:

“We are looking at every exchange carefully and taking necessary steps where we think there is added risk. And our legal team is doing what it can to grab any and all clues in the 1Broker/EtherDelta actions. Can it be mapped over other larger exchanges? Should we move crypto assets based on those findings? I would imagine that others in our space are doing the same. You may find that there is a story in that dynamic alone. Follow where the crypto may or may not flow over the next month and that may give you a firmer hold on who could take a hit.”

A different hedge fund source:

“Whatever the rumors are you can cross BitMex off that list. They have serious legal architecture in place and meet every possible check mark that the SEC could possibly question. Then you add the concept of ‘geofencing’ within their platform and you simply can’t make a connection with 1Broker or EtherDelta in any way. Have we heard other names over the past 24 hours? Yeah – sure. But BitMex is got serious legal cover here – and they are represented by Sullivan and Cromwell. No chance they are under the microscope of the SEC.”

A third crypto hedge fund source made the distinction between the SEC and the CFTC:

“One important point in all the back and forth going on right now is that the SEC may take more action but the CFTC weighing in would be the bigger story, if it were to happen. That is a distinction that needs to be discussed further. Really, 1Broker took a hit because they were giving investors access to US securities via BTC funding. That crosses the border so to speak into SEC territory. That is a line that needs to be closely looked at. Does the CFTC have the appetite to join the SEC in some of these actions? Don’t know. But if that were to occur that would set off serious alarm bells and concern on our end. To be clear, though, we don’t see that happening.”

A crypto twitter voice that we spoke to that has seen it all since their involvement in the space since 2012:

“I expect Kraken and Bitfinex to be the headliners to get punk’d at some point. How, when, or for what is anybody’s guess at the moment. But one of them has actively antagonized regulators (Kraken) and the other has played all sorts of legal and geographic games specific to avoiding regulators (Bitfinex). Should the SEC begin to really get frisky and take on Bitfinex that would be serious and cause some price destruction. Were I to offer a guess, I think Kraken gets slapped and Bitfinex finds a way to avoid *public* enforcement. I could see a way that a backroom conversation occurs and Bitfinex is given a ‘deal they can’t refuse’ to clean some things up.”

When the above source was asked about BitMex being in the clear based on the dialogue above connected to ‘geofencing’ and representation:

“Yeah – even though on the surface you would think that gambling like leverage and liquidations would bring regulatory scrutiny – they’ve legally covered the bases when you enter the gates at that place. It is essentially ‘moted’ as a gambling site.”

Sources, conversations, conjecture, rumors, what if’s, and a feeling that there is still more to come from an enforcement standpoint is the purveying vibe with those in the know across the crypto spectrum.

Offering our opinion based on all of the above feedback, as well as conversations that we didn’t share; BitMex is in the clear, Kraken should be concerned, smaller exchange ‘pop-up’ shops should be very, very concerned. And there will be more regulatory action and exchange shutdowns to come.

 

The post SOURCES AND RUMORS: EXCHANGES AT RISK: SEC Pursuit Continues, 1Broker And EtherDelta Only The Beginning (Bistamp, Kraken, Bitfinex) appeared first on Abacus Journal – Cryptocurrency News.

SOURCES AND RUMORS: EXCHANGES AT RISK: SEC Pursuit Continues, 1Broker And EtherDelta Only The Beginning (Bistamp, Kraken, Bitfinex)

Via: SOURCES AND RUMORS: EXCHANGES AT RISK: SEC Pursuit Continues, 1Broker And EtherDelta Only The Beginning (Bistamp, Kraken, Bitfinex)

A Blockchain is a growing list of records, called blocks, which are linked using cryptography. Cryptography is the practice and study of techniques for secure communication in the presence of third party adversaries. Cryptocurrency is a digital currency that uses encryption (cryptography) to regulate the generation of currency and verify the transfer of funds, independently of a central bank.

Blockchain 101 · Crytpo Currency Market
—————————————————
Binance: Exchange for Traders
Ledger Nano S: Hardware Wallet
Coinbase: Exchange for Investors
CoinSwitch: Wallet-to-Wallet Exchange

Trading Crypto: Effective Technical Traders Should Be Having A Scalping ‘Field Day’ With BTC Trading Range

Bitcoin overnight trading (US CST) sees some downside after 6600 was tested. This is not a true resistance area but as discussed over the past few months has provided a pivotal area for BTC throughout the bear market this year. 

After being rejected here, price continued downward as BTC has technically only “retraced” less than 1/2 of the previous leg down* – a sign of higher downside risk. Therefore, the 6460 active downside protection area was hit exactly during the formation of the last 4-hour candle.

BTC has maintained step-ladder-like price action to see the 6600 mark broken but ultimately still struggles to find a point past this area. Keep in mind that the next true resistance area to beat is at 6800 firm. However, 6400 support also continues to hold.

 

Price action has been hanging in the balance between the two – giving an indication of how much indecision remains in the market at this time. Thus, 6460 downside protection remained active to protect profits by keeping any continued fallout to a minimum.

The next stage to watch for will be a channel formation if BTC holds the current area firm while slowly creeping to the upside. This will be shown with the next 24 hours of trading.

Stochastic levels now maintain a downward course, however, they still look to seek overbought (>80) levels. This will trigger continued buy signals near the 6500 area if stochastic pivots once again.

MACD has now crossed to the downside and gives additional reason to protect profits.

BTC is currently a No Play/Sell at this time.

Futures Traders – trade the trend. The short-term trend is short, however, it may pivot if channel formation is at hand. Capital conservation is important at this time – no trade scenario until confirmation of patter + trend.

The post Trading Crypto: Effective Technical Traders Should Be Having A Scalping ‘Field Day’ With BTC Trading Range appeared first on Abacus Journal – Cryptocurrency News.

Trading Crypto: Effective Technical Traders Should Be Having A Scalping ‘Field Day’ With BTC Trading Range

Via: Trading Crypto: Effective Technical Traders Should Be Having A Scalping ‘Field Day’ With BTC Trading Range

A Blockchain is a growing list of records, called blocks, which are linked using cryptography. Cryptography is the practice and study of techniques for secure communication in the presence of third party adversaries. Cryptocurrency is a digital currency that uses encryption (cryptography) to regulate the generation of currency and verify the transfer of funds, independently of a central bank.

Blockchain 101 · Crytpo Currency Market
—————————————————
Binance: Exchange for Traders
Ledger Nano S: Hardware Wallet
Coinbase: Exchange for Investors
CoinSwitch: Wallet-to-Wallet Exchange