Posted on

South Korean Cryptocurrency Exchanges Evaluate Self-Regulations

An association of South Korean cryptocurrency exchanges said that it is planning to check if its members are following a set of self-regulatory cryptocurrency measures adopted last year, local journal Yonhap News reported Feb. 21.

The Korean Blockchain Industry Association, which is currently comprised of 33 of South Korea’s cryptocurrency exchanges, stated that it is going to carry out evaluations of 21 participants, including major trading platforms Coinone, Bithumb, and Korbit.

In mid-December 2017, the Korean Blockchain Industry Association announced that it plans to “establish a set of specific ethical codes on the virtual currency bourses, including insider trading and market manipulation” after the South Korean financial authorities began considering cryptocurrency regulations.

The self-regulatory move among South Korean exchanges was intended to provide more transparency in trading to alleviate worries over the country’s “Bitcoin frenzy” in December 2017, during which a sudden influx of South Korean investors started buying Bitcoin.

Last week, in the UK, seven of the world’s largest cryptocurrency companies, including Coinbase, formed the country’s first self-regulating trade body, CryptoUK. On Feb. 16. Cointelegraph reported that another self-regulating cryptocurrency body is being considered in Japan by the country’s two cryptocurrency industry groups, but decision has yet to be finalized.

Posted on

Bank Of America: Our ‘Inability To Adapt’ Could See A Failure To Compete With Crypto

Bank of America (BoA) has admitted to US regulators it may be “unable” to compete with the growing use of cryptocurrency.

In its annual report to the Securities and Exchange Commission (SEC) this week, filed Feb. 22, the major US bank for the first time highlights cryptocurrency as an area that may cause it “substantial expenditure” as it tries to remain competitive.

Our inability to adapt our products and services to evolving industry standards and consumer preferences could harm our business,” BoA states in the filing.

As banks worldwide eye the cryptocurrency phenomenon, direct interaction remains low. The lack of uptake formed a central reason why the European Central Bank confirmed it had opted for a hands-off approach to legislating the area earlier this month.

While BoA has sought to innovate in the sphere, receiving a patent for its proposed cryptocurrency exchange system in December 2017, it has come in for criticism more recently after blocking its clients from credit card purchases of cryptocurrency.

As the report to the SEC continues, the institution’s keen awareness of the threat posed to its core business offering by competitors becomes clear.

“…The competitive landscape may be impacted by the growth of non-depository institutions that offer products that were traditionally banking products as well as new innovative products,” BoA forecasts. The report continues:

“This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services[.]”

The bank also pointed to staff retention failures and “increasing competition” in the financial services industry as being detrimental to its prospects.

Posted on

Turkey, Iran To Release State-Backed Cryptocurrencies On Heels Of Venezuela’s Petro

The governments of Turkey and Iran are both considering developing their own government-backed digital currencies, following on the heels of the Feb. 20 pre-sale of Venezuela’s national oil-backed Petro coin.

Feb. 21, a day after the Petro’s launch, Iran’s Ministry of Information and Communications Technology (ICT) tweeted that Iran’s Post Bank is working on releasing a cryptocurrency:

“In a meeting with the board of directors of Post Bank on digital currencies based on the blockchain, I […] prescribed […] measures to implement the country’s first cloud-based digital currency.”

Feb. 22, two days after the Petro’s launch, Middle-Eastern news outlet Al-Monitor reported that Turkey’s Nationalist Movement Party (MHP) deputy chair and former Industry Minister Ahmet Kenan Tanrikulu is publically considering launching a “national Bitcoin” called the “Turkcoin”, described in his 22-page report on regulating the crypto market.

Tanrikulu’s report comes two weeks after a Feb. 7 CNN Turk interview with Turkey’s Deputy Prime Minister Mehmet Simse where he mentioned that the government would be preparing to release a national cryptocurrency.

Last November, the Iranian cyberspace authority, the High Council of Cyberspace (HCC), “welcome[d] Bitcoin” and announced that they were working with the Central Bank of Iran on a report on cryptocurrencies. On Feb. 21 the Central Bank of Iran said that it was actively working on a way to “control and prevent” cryptocurrencies in Iran.

Turkey’s government had previously taken a harsh stance on Bitcoin (BTC) and cryptocurrencies, when lawmakers from the Directorate of Religious Affairs (Diyanet) said in November, 2017 that trading crypto was “not compatible” with Islam due to its speculative nature and lack of government control.

However, Tanrikulu told Al-Monitor that since there is no mention of cryptocurrencies in Turkish law, buying and selling crypto is legal in Turkey:

“The use of cryptocurrencies can be considered legal since our law contains no prohibition […] buying and selling with cryptocurrencies and creating money through Bitcoin mining are not within the scope of criminal activity in Turkey today.”

Tanrikulu’s report adds that crypto regulation is definitely needed in Turkey to prevent money laundering and fraud, and that the creation of a government-controlled “bitcoin bourse” is one way to do so.

Venezuela’s Petro has been seen by some critics as solely a way for the country to avoid the Western sanctions imposed on the country; Iran is also currently facing international sanctions.

The Petro is not the first government-backed cryptocurrency to be launched — the local government in Dubai launched the state-backed emCash in October 2017, and in 2017 Kazakhstan, Japan, and Estonia have all brought up the possibility of releasing their own government-backed cryptocurrencies.

Posted on

SEC Director of Investor Education: ‘Don’t Flip A Coin’ Over Crypto Investments

The US Securities and Exchange Commission (SEC) investor’s website published a light-hearted notice this week to all investors considering buying the “latest new cryptocurrency or token.”

Lori Schock, the Director of the SEC’s Office of Investor Education and Advocacy, wrote an informal post aimed at the everyday retail crypto investor, beginning with an anecdote from a visit to a retirement home where she spoke with senior citizens about investing.

According to Schock’s post, one senior citizen approached her after the lecture, asking:

“My children keep telling me I need to hurry up and invest in bitcoin—is it safe, have I already missed the boat?”

Schock’s light-toned post comes after a number of more serious statements from the SEC’s official website over the past year regarding the risks around Initial Coin Offerings (ICO) and detailed testimony on the roles of the SEC and the Commodity Futures Trading Commission (CFTC) regarding virtual currencies.

The SEC investor.gov post explicitly says that Schock’s post is not investment advice on cryptocurrencies, but advice for those considering beginning an investment in the crypto market.

Schock underlines from the start how crypto investments do not fall under the SEC’s security protection laws, suggesting readers look at SEC Chairman Jay Clayton’s Dec. 2017 statement on crypto and ICOs for more information:

“You should understand if you lose money there is a real chance the SEC and other regulators won’t be able to help you recover your investment, even in cases of fraud.”

She then warns investors not fall for “high-pressure sales tactics” or to listen to celebrity endorsements as your basis for investment decision:

“Just because your favorite celebrity says a product or service is a good investment doesn’t mean it is.”

Schock’s note to investors about celebrity endorsements comes the same week that “Zen Master” Steven Seagal announced his brand ambassadorship with Bitcoiin2Gen, a new coin that markets itself as “not an MLM company or a Pyramid Scheme or any Scam.”

Schock says that beginning crypto investors should “ask questions and demand clear answers,” about what exactly they are investing in, like “‘[w]ho exactly am I contracting with?’ and ‘[w]hat will my money be used for?’”

She recommends not putting in more money than you are willing to lose, and diversifying your investments to spread the risk:

“One way to spread risk is to diversify your investments.  Don’t put all of your eggs in one basket. That way, if one of your investments loses money, the other investments can make up for it […] Cryptocurrencies may be today’s shiny, new opportunity but there are serious risks involved […] most importantly, don’t flip a coin when you’re making investment decisions.”

Posted on

French Watchdog Says ‘Crypto Derivatives’ Must Be Regulated, Can’t Be Advertised Online

French stock market regulator Autorité des marchés financiers (AMF) released a statement Thursday, Feb. 22, that cryptocurrency derivatives must be regulated under the European Union’s new Jan. 2018 financial reforms.

As derivatives cannot be legally advertised electronically, the AMF also states that online advertisements for cryptocurrency derivatives are not permitted.

AMF refers to the new version of the Markets in Financial Instruments Directive (MiFID 2), whose framework lays out the derivatives that must be regulated, like options, futures, swaps or forwards, as well as a list of corresponding underlying assets.

The AMF began an inquiry into the legal definition of a cryptocurrency as both a derivative and an underlying asset after several online crypto trading platforms began offering binary options, contracts for difference (CFD), and Forex contracts where cryptocurrency was the underlying asset. Investors could bet on the outcome of a cryptocurrency without owning any of cryptocurrency itself.

Although cryptocurrency derivatives are not included in the MiFID 2 regulation list, the AMF statement has concluded that “a cash-settled cryptocurrency contract may qualify as a derivative, irrespective of the legal qualification of a cryptocurrency.”

Online trading platforms offering cryptocurrency derivatives must be regulated under MiFID2 and cleared under the European Market Infrastructure Regulation (EMIR). Cryptocurrency derivatives also fall under the jurisdiction of France’s anti-corruption Sapin 2 law, according to the AMF statement.

Bloomberg writes that companies Plus500 Ltd. and IG Group Holdings Plc. have offered such cryptocurrency derivatives. Kelsey Traynor, a spokesperson for Plus500, told Bloomberg that all of the firm’s CFDs are in accordance with the AMF’s framework.

In December 2017, France allowed fintech companies and banks to trade unlisted securities on Blockchain-based platforms as a way to promote France’s reputation as a fintech hub.

France’s Minister of the Economy Bruno Le Maire appointed Jean-Pierre Landau, or “Monsieur Bitcoin,” in January of this year to head a cryptocurrency task force aimed at preventing criminal activity with crypto.

Posted on

Iran Central Bank Wants To ‘Control And Prevent’ Cryptocurrency, Local Press Reports

Iran’s central bank has split from previous pro-Bitcoin government announcements and is now looking to “prevent” cryptocurrency, according to a report published by the Iran Front Page news site Wednesday, Feb. 21.

An article in local newspaper Iran quoted online by Iran Front Page cites the Central Bank of Iran describing cryptocurrencies as “highly unreliable and risky” this week.

The bank, the press sources claim, is now “cooperating with other institutions to develop a new mechanism to control and prevent digital currencies in Iran.”

While details remain sketchy at this stage, if true, the central bank’s tone contrasts sharply with reports last November surrounding an open reception of crypto in Iran.

At that time, regulatory body the High Council of Cyberspace made clear that rules should be in place to ensure the secure operation of assets, in line with various jurisdictions worldwide.

We welcome Bitcoin, but we must have regulations for Bitcoin and any other digital currency… following the rules is a must,” Cointelegraph quoted Secretary Abolhassan Firouzabadi as saying.

In a move mirroring recent stages of Russia’s regulatory battle with Bitcoin meanwhile, Iran’s ICT minister also announced this week it was seeking to create a state-issued cryptocurrency.

Debating likely use cases, online commentators quickly linked the scheme to the potential to bypass international sanctions in light of Venezuela’s identical plan to use its Petro token to raise international capital this month.

Russian government sources, too, had considered the concept.

Posted on

German Regulator Clarifies Obligations For ICO Operators Following Increased Interest

Germany’s Federal Financial Supervisory Authority (BaFin) has clarified obligations for Initial Coin Offering (ICO) tokens after receiving “increased queries” about their legal status in a note issued Tuesday, Feb. 20.

The note from BaFin is a follow-up on its warning to investors from November 2017, in which it discussed the potential “risks” of ICOs.

The update comes “against a background of increased enquiries to BaFin regarding the areas of securities and asset management,” the note states, with potential ICO operators enquiring “whether the underlying tokens, coins or cryptocurrencies behind so-called ICOs are viewed as financial instruments within the area of securities supervision.”

BaFin follows its counterparts in Switzerland, where financial regulator FINMA last week similarly introduced new regulatory guidelines for ICOs in response to a large number of questions on how they should be treated within the current legal framework.

On Tuesday, Feb. 20, Cointelegraph reported on how the US state of Wyoming had passed a Bill exempting some token offerings from securities conformity if they met certain requirements by July, 2018.

Under Germany’s jurisdiction, ICO operators “are required to check exactly whether a regulated instrument, [such as] a financial instrument… or a security, is being dealt with, in order to fulfil potential legal requirements without any gaps.”

This month the country also joined a cross-Europe push to debate wider cryptocurrency regulation on an international level during March’s G20 Summit in Argentina.

Posted on

US Gov’t Indicts Founder Of Long Defunct Crypto Exchange BitFunder

The US Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have officially leveled charges against the founder of the now non-operational Bitcoin-dominated exchange BitFunder, Jon E. Montroll, Wednesday Feb. 21.

The SEC released a press statement Wednesday stating that they have charged Montroll, also known as Ukyo, with operating BitFunder as an unregistered securities exchange, defrauding the users of said exchange, and making “false and misleading statements in connection with an unregistered offering of securities.”  

The SEC alleges that both BitFunder and its founder Montroll defrauded exchange users by “misappropriating their bitcoins”, operated as an unregistered securities exchange, and failed to disclose a cyberattack which led to the loss of over 6,000 bitcoins.

In 2013, hackers exploited a weakness in BitFunder’s programming code to falsely credit themselves with over 6,000 bitcoins. In an effort to recuse himself of the responsibility of having lost what was then about $720,000, today worth over $60 mln, Montroll denied the success of the hackers, and additionally provided false balance statements to SEC investigators.

The formal complaint filed by the SEC charges Montroll with violations of the anti-fraud and registration provisions of US federal securities laws. According to the press release, ”[t]he complaint seeks permanent injunctions and disgorgement plus interest and penalties.”

The DOJ also announced today Feb. 21, that Montroll has been arrested and taken into custody by the federal government. The DOJ has charged Montroll with two counts of perjury and one count of obstruction of justice. The counts of perjury and obstruction carry maximum sentences of 5 and 20 years, respectively.

Investor protection remains a priority concern for the federal government in these proceedings. Marc Berger, Director of the SEC’s New York Regional Office stated:

“…Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption.  We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws.”

BitFunder ceased trading on Nov. 14, 2013 amid complaints about delayed and frozen withdrawals of funds, following the August hack. Adding to BitFunder’s woes from the hack, the exchange went bankrupt after, following a ban on US traders, American traders left the platform in droves.

At a senate hearing earlier this month, SEC Chairman Jay Clayton noted that, so far, every ICO-issued token the SEC has observed is likely a security under US law, regardless of how the issuer refers to or markets the token. As of December, 2017, Clayton noted that not a single ICO had registered their tokens with the SEC.

Posted on

Israel Confirms Cryptocurrency Will Be Taxed As Property, Not Currency

The Israeli Tax Authority (ITA) confirmed yesterday, Feb. 19, in a professional circular that the country will tax cryptocurrencies as property.

The tax authority had released a draft of today’s circular on Jan. 12, which referred to virtual currencies as “unit[s] used for barter [that] can be used for investment purposes.” Per this definition:

“these currencies will be considered as ‘assets’ and will be sold as a ‘sale’ and the proceeds from their sale will be classified as capital income.”

The final version of the circular writes that crypto will be taxed by the capital gains tax, which in Israel will be 25 percent for private investors, with a 47 percent marginal rate for businesses, according to Israeli news outlet Haaretz.

The US Internal Revenue Service (IRS) has been taxing cryptocurrencies as property since March 2014.

Israel’s general consumption value-added tax (VAT) will not be added for individual investors, as crypto is considered an “intangible asset” used “for investment purposes only”, but businesses will have to pay VAT, the circular notes. The document also states that miners will be classified as “dealer[s]” for VAT purposes.

Shahar Strauss, a lawyer at the Israeli law firm Ziv Sharon & Company, doesn’t agree with the new crypto property tax definition, Haaretz reports:

“The [agency’s] stance ignore economic realities. According to the Tax Authority, investing in the esoteric currency of some Pacific island that can’t be used in Israel and many other countries meets the definition of currency and is therefore entitled to a tax exemption, while investing in digital currency is not.”

In January, the Israeli tax authority had also released a draft circular considering the methods of taxing Initial Coin Offerings (ICO) with VAT. This week’s circular does not make any mention of decisions regarding ICOs taxation.

Israel’s government has been considering releasing their own cryptocurrency, a digital shekel since December 2017, as one possible means to limit black market transactions within the country.

Posted on

S. Korean Gov’t Official In Charge Of Crypto Regulations Found Dead Of Heart Attack

A ranking official in South Korea who has been developing policy measures against cryptocurrency speculation was found dead at his home in Seoul, the Wall Street Journal (WSJ) reported Feb. 19.

The WSJ reports the official was Jung Ki-joon, the 52 year old head of economic policy at the Office for Government Policy Coordination. Ki-joon was reported to have died of a heart attack while sleeping on Sunday Feb. 18.

In November, 2017 South Korea’s government started weekly meetings of vice ministers to regulate cryptocurrency operations. The deceased official was in charge of integrating opinions of different ministries and offices for meetings headed by Hong Nam-ki, minister of the Office for Government Policy Coordination.

The official’s colleagues noted that he had been under extreme pressure over the last year due to holding a stressful post in charge of regulations development against cryptocurrency speculation.

The police have launched an investigation into the sudden death of the official, though it was described as natural.

South Korea, the world’s largest market for cryptocurrencies, has experienced a lot of confusion regarding cryptocurrency policy. On Jan. 11, the Ministry of Justice proposed a cryptocurrency trading ban, which was subsequently misinterpreted by some media as the announcement of an effective ban. The South Korean Ministry of Strategy and Finance later reported that it did not agree with the proposal.

On Feb. 14, the government of South Korea responded to an online petition against crypto regulations. In a released statement, Hong Nam-ki declared that there would be no cryptocurrency trading ban. However, he emphasized that “the government is still divided with many opinions ranging from an outright ban on cryptocurrency trading to bringing the institutions that handle the currency into the system.”

Posted on

Wyoming Introduces New Bill To Exempt Crypto From Property Taxation

A new tax bill has been introduced in the Wyoming state senate on Feb. 16 that would exempt virtual currencies from state property taxation, and suggests an effective date be provided for the tax exemption implementation.

Wyoming Senate Bill 111 was introduced by senators Ogden Driskill, Tara Nethercott, and Chris Rothfuss, along with representatives Tyler Lindholm, David Miller, and Jared Olsen. All are Republicans with the exception of Senator Rothfuss.

The bill received 26 “ayes,” from a mixture of Republicans and Democrats, 3 “nays,” all from Republicans, and 1 “excused.”

This Republican and Democratic backed bill comes as a growing bipartisan movement of US lawmakers are calling for more crypto regulation.

The bill is short and to the point, proposing a list of “intangible items” that should qualify for property tax exemption, like fiat currency, gold, cashier’s checks, and “virtual currencies.” Virtual currencies are defined as anything that digitally represents value as a medium of exchange or unit of value, and as well as not being recognized as legal US currency.

Taxation requirements for cryptocurrency profits in the US are a relatively grey area, with US citizens’ crypto assets being subject to federal property and payroll taxes. However, the personal finance service Credit Karma reported that only 0.04 percent of customers reported their crypto assets to the US Internal Revenue Service (IRS) in 2017 as of Feb. 13.

Posted on

US: Republican, Democrat Officials Calling For Crypto Regulation In Rare Show Of Unity

A bipartisan movement of US lawmakers are considering forming new legislation to regulate cryptocurrencies, prompted by the increasing interest – and therefore risk – in cryptocurrency worldwide, according to Reuters.

There is currently no singular body in charge of overseeing cryptocurrencies in the US– the responsibility is instead divided between individual states, the US Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Treasury Department, and the Federal Reserve.

The SEC and the CFTC did hold a joint hearing on Feb. 6 on their roles in cryptocurrencies, Blockchain technologies, and Initial Coin Offerings (ICO). The general conclusion was that the two bodies would work together to create a regulatory framework, with the strictest regulations for ICOs and the most loose for Blockchain and digital ledger technology.

The hearing also concluded that cryptocurrencies will need protective regulation against market manipulation and fraud.

Republican Senator Mike Rounds, a Senate Banking Committee member, was prompted to insert himself into the crypto regulation debate due to the growing popularity of cryptocurrencies:

“Six months ago, we didn’t see this explosion. The marketplace has changed.”

Rounds told Reuters, that while there is, “no question about the fact that there is a need for a regulatory framework,” he sees a chance for crypto to be regulated as both a commodity and a security.

The global debate over whether cryptocurrencies and ICOs should be regulated as securities has already led to some concrete legislation. On Feb. 17, the Swiss Financial Authority released a set of guidelines to help determine if an ICO and its tokens should be regulated under securities legislation. The US has yet to release a similar document.

Mixed signals

Two days ago, on Feb. 16, special assistant to the president and White House cybersecurity coordinator Rob Joyce told CNBC that general regulation of cryptocurrencies is something not yet “close,” as they were still in the “studying and understanding” stage of regulation.

However, Reuters reports that US lawmakers are beginning to ask for legislation that would put digital currencies under SEC’s investor protection rules for securities, this new desire prompted by the steady growth of the crypto markets.

Republican Representative Bill Huizenga, chairman of the House Financial Services Subcommittee on Capital Markets – which will soon hold hearings on this topic – told Reuters that the “SEC is properly the lead on the issue.”

Democrat Carolyn Maloney, a senior member of the House Financial Services Committee, agrees with Huizenga’s perspective that the SEC should be the regulatory crypto body, telling Reuters that, “a lot of people don’t realize there’s nothing backing these virtual currencies.”

Even “free-marketer” Republicans like Dave Brat, a member of the House Freedom Caucus, are prepared to back regulatory legislation:

“If it’s a currency that could destabilize the whole economy, you’re going to have that conversation.”

In spite of this beginning of calls for regulation, lawmakers will still protect revolutionary technological innovations like Blockchain, Democratic Senator Chris Van Hollen, a member of the Senate Banking Committee, told Reuters:

“The goal here is to have rules of the road that protect consumers without trying to squash innovation.”

Posted on

Austrian Finance Minister Considers Pan-EU Crypto Regulation Based On Rules For Gold

Austria’s Finance Minister Hartwig Löger is considering basing cryptocurrency regulations on the trading rules already in place for gold and derivatives as a way to prevent crypto from being used in money laundering, Bloomberg reported Friday, Feb. 23.

Löger spoke with Portugal’s Finance Minister Mario Centeno about his plans for pan-European Union crypto regulations on this basis yesterday, according to local news outlet Vienna.at.

During the meeting with Centeno, Löger discussed an action plan for the EU Commision in Brussels to form a working group in March to accept EU proposals about how to deal with fraud in cryptocurrencies.

Löger said, “the case in Austria is enough for me to take action in this area,” reported Vienna.at, referring to the recently uncovered Optioment Bitcoin (BTC) pyramid scheme.

Löger has also brought up the idea of a Fintech Regulatory Council to be organized by March, where crypto experts will examine how crypto regulation will work with EU institutions.

According to Bloomberg, Löger said in a statement:

“Cryptocurrencies are significantly gaining importance in the fight against money laundering and terrorism financing. That’s an important aspect for the changes we support. We need more trust and more security.”

As part of Löger’s plan, crypto investors would report trades of more than $12,300 to the financial intelligence unit, and crypto trading platforms would be supervised by the Austrian Financial Market Authority (FMA).

Additionally, Initial Coin Offerings (ICO) would be based on “digital prospectuses” that would need to be approved by the FMA, and regulations against market manipulation and insider trading would be applied to ICOs, just as they already are for share and bond offerings.

In a Feb. 23 press release, the FMA Board, Helmut Ettl and Klaus Kumpfmüller, wrote that they “welcome the move by Finance Minister Hartwig Löger to subject cryptocurrencies such as Bitcoin to regulation and supervision:”

“Since digital currencies are essentially a phenomenon of the Internet and are offered there without limits, regulation and oversight of cross-border cooperation are also of great importance, we therefore particularly support the approach of addressing these issues at European level.”

The FMA also wrote that they will contribute to Löger’s proposed FinTech Regulatory Council.

European Union regulators released another series of warnings in mid-February to consumers, advising them of the high risks and “pricing bubble” characteristics of virtual currencies.

Posted on

Regulations And Their Influence On Cryptocurrency Prices

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.

2017 saw cryptocurrencies swing wildly in valuations daily. Despite a mostly upward trajectory, the market remains susceptible to unpredictable and sometimes extreme fluctuations in prices.

While some of this volatility can be attributed to how the current cryptocurrency model was conceived—namely its deflationary nature—and the fact that most coins are still viewed mainly as investment and speculative assets, there have been external factors that drive price momentum as well.

The increased spotlight on Bitcoin and its digital contemporaries led the original cryptocurrency to skyrocket in value. This meteoric rise results in widespread market participation, inviting retail investors in droves to the crypto industry. However, it also focused the gaze of governments and international actors on the industry, a factor that has and could still play a large role in this volatility, especially if past regulatory efforts are any indication.

A prominent example of how regulations can lead to unintended consequences in financial markets comes courtesy of the post-crisis Dodd-Frank Act. Due to the restrictions placed on deposit-taking banks, many prominent financial institutions were forced to reduce their market-making activities in certain asset classes to reach higher capital ratios required by the regulations. In effect, the reduction in market-making liquidity harmed the price discovery process. Especially in the bond market, which is not as liquid as foreign exchange or stock markets, it can conceivably result in a snowball effect that amplifies directional price movements instead of reducing overall volatility.

Despite regulators’ best intentions, cryptocurrencies’ values remain heavily tied to speculation and optimism. For this reason, drastic policy changes can have an outsized impact on short-term direction, as several prominent examples revealed over the past year.

Nonetheless, the long-term impact is slightly hazier, as many of these regulations are only months old. Even so, while they could lead to a more stable market in the future, an abundance of questions surrounding the matter shows just how effective regulations will really be, and to what degree they will impact prices in the future.

Why regulations affect prices

The original boom in cryptocurrencies occurred in an unregulated environment. Even as news outlets and investors paid closer attention to the market, regulators and international actors remained largely distant from the action, and prices continued to soar unabated.

Why regulations affect prices

While in 2017 regulatory bodies take their first steps toward reining in the market, the previous near-decade saw cryptocurrencies evolve and grow relatively unrestricted. For regulators, this means attempting to box in a system that grew chaotically mostly by design.

This trend was largely visible thanks to the explosive growth in ICO funding many Blockchain companies attained last year. In 2017 new Blockchain-based companies reach an unheard-of $4 bln in funding even as regulators like the Securities and Exchange Commission began to circle. The capital raising was not without its flaws, with several well-publicized incidents underlining the relative lawlessness of the current model.

Hartej Sawhney – Co-founder of Hosho – a Blockchain and smart contracts auditing and security firm who’ve seen and audited a vast amount of smart contracts noted:

“There is currently no regulatory body that is enforcing standard practices for companies within the Blockchain ecosystem.

The number of successful high-profile attacks and data breaches are also indicative of the security weaknesses that many companies and organizations have, but choose to ignore due to lack of regulation which is a big factor to the volatility of cryptocurrency prices.

Sophisticated projects within the Blockchain ecosystem will only grow a stronger support from investors and exchanges upon the rise of a regulatory environment.

Having clarity on laws is better than none. Gibraltar is a great example of a nation that has made its stance on regulation of the Blockchain space clear, thus companies globally are flocking to incorporate there.”

This ‘wild west’ the cryptocurrency market catalyzed has had a psychological impact on investors. Due to the decentralized nature and lack of power structures inherent in cryptocurrencies, many view regulations as a tactic that could stunt this explosive growth, and reduce the volatility that has been a hallmark of the industry.

Market reaction

The result is a market in which news or speculation of upcoming regulation leads to massive moves in one direction or another, as investors rush to sell off coins or purchase them, creating instability in prices and wild swings in valuations. Bitcoin, for example, lost nearly half of its value as popular exchange Coinbase launched an internal investigation into fraudulent practices and potential market manipulation on their platform.

Market reaction

More recently, prices of most cryptocurrencies dropped significantly after South Korean regulators announced they would ban crypto trading entirely, or at least implement significant controls on the market.

Market reaction

The result was a more than 15% slide in Bitcoin, while Ethereum, Ripple, Litecoin, and most other major cryptocurrencies lost double digits amounts in market capitalization within hours.

But not all regulations result in negative shocks. After the South Korean government changed its tack and sounded a more positive note, cryptocurrencies quickly reversed their slide and generated significant upward momentum.

Even before that, Japan’s public and outward embrace of cryptocurrencies helped push Bitcoin prices to then-historic highs.

Market reaction

After falling to near $3,000 following a Chinese ban on cryptocurrencies in September, prices leapt by 96 percent to $5,855 following the news. The country’s announcement of Bitcoin’s legalization as a payment method drove a new frenzy in Asia to buy cryptocurrencies.

Adv. Aviya Arika, Head of Blockchain Innovation at Porat & Co. Law Firm, who has been dealing with uncertain regulatory environments for a long while, noted:

“Contrary to what your instinct may tell you, regulation actually makes cryptocurrencies prices flourish.

Regulatory uncertainty, as well as outright bans by governments, have proved to be harmful to the crypto markets.

When an investor/user is not sure about how they are going to be taxed when they sell their crypto, or about the mere legitimacy of their use of crypto, they will most likely steer clear of it altogether or just hodl until further notice. These behaviors lead to a bearish market.

However, when regulators shed light on the way they view cryptocurrency, investors and users feel more certain regarding the way they can use crypto, whether it be as a medium of exchange, a financial instrument or any other form.

Generally speaking, I think that as more jurisdictions regulate and clarify legal statuses of cryptocurrencies, crypto markets will become substantially more stable and widely adopted.”

Furthermore, cryptocurrencies’ introduction into mainstream investments has proven uneven at best. When the Chicago Board Options Exchange announced it would start offering Bitcoin futures contracts, trading was halted three times in six days after prices swung too far, triggering alerts and downtime.

Market reaction

Overall, user sentiment still outweighs cryptocurrencies’ abilities to retain value, and the divergence from real-world assets, such as gold, means that speculation and knee-jerk reactions will continue to have an outsized impact on price fluctuations.

The Long-term remains hazy

Even with the increased attention being paid to the sector, cryptocurrencies remain a mystery to many financial observers who attempt to project prices. Despite its nearly 10-year existence, the cryptocurrency industry remains very much in its infancy. Regulators have only recently started to think of ways to restrain some of the more dangerous practices that abound in the market, but have run into challenging headwinds.

Most recognize that blockchain—the underlying technology that supports cryptocurrencies’ many popular features—is a vital component of the future, but regulating the broader market has so far proven to also put a damper on the blockchain sector.

Moreover, ICOs remain a serious concern for governments and regulators considering their high vulnerability to fraud, theft, hacking, and other unethical practices.

The sector’s young age also makes it difficult to measure the long-term impact of regulations. Even after its most violent price swings, Bitcoin prices have self-corrected, as do most other cryptocurrencies. The real effect regulations across the globe will have is becoming clearer, but the picture remains murky.

2018 should be an important measuring stick as to how regulations impact the industry. In the meantime, investors need to always remain vigilant considering more and not less regulation is on the horizon, likely spurring violent reactions in the short-term while rendering long-term investment strategies a haphazard guess at best.

Posted on

Canada: TD Bank Bans Credit Card Purchases of Crypto Following Global Trend

Following in the footsteps of several major banks globally, the Toronto-Dominion Bank (TD), one of the largest banks in North America, announced  in an email statement to customers on Friday, Feb. 23, that it is banning the purchase of cryptocurrency with credit cards, local journal The Globe and Mail reports.

A representative of TD, the first major Canadian bank to enact such a ban, said that the bank regularly evaluates its policies and security measures “in order to serve and protect our customers, as well as the bank.”

TD’s move is part of a larger global trend of banks banning customers from credit card purchases of cryptocurrency. The wave of bans was initiated by US giants J.P. Morgan Chase, Bank of America, and Citigroup on Feb. 3, and followed by the largest bank in the UK, Lloyds Banking Group, Feb. 5, and Virgin Money in Australia, South Africa, and the UK on Feb. 6. Last week, Citibank India went ahead with banning both credit and debit cards for crypto purchases.

According to The Globe and Mail on Feb. 23, the Royal Bank of Canada made of point of stating that it does allow both debit and credit card purchases of cryptocurrency, but it warns its customers about high volatility risks which “could expose them to substantially higher debt levels than they are able to repay.”

In a contrasting move for the local industry, on Feb. 13, a Canadian stock exchange announced that it will soon launch its own Blockchain-based securities clearing and settlement platform that help companies raise funds via fully regulated security tokens issued by the exchange.