CoinDesk Crypto

The Takeaway

• Bitcoin (BTC) traded around $23,310 as of 19:00 UTC (2 p.m. ET), slipping 1.3% over the previous 24 hours.
• Bitcoin’s 24-hour range: $22,644.56 – $23,672.82 (CoinDesk 20)
• Derivatives market hints at more volatility ahead.
• With XRP’s sell-off, bitcoin’s dominance of the crypto market increases.

A mere $1.2 billion worth of bitcoin changed on the eight exchanges tracked by the CoinDesk 20, the lowest level in 10 days. 

The relative quiet of the holiday season could potentially give way to some downside at the start of the new year, according to technical analyst Katie Stockton, managing partner at Fairlead Strategies.

Related: Coinbase, Other Big Exchanges ‘Between Rock and a Hard Place’ on Delisting XRP

“Bitcoin is digesting its gains in a consolidation phase after having confirmed its breakout to new all-time highs with its mid-month push higher,” said Stockton. “Former resistance near $19,500 is now initial support. Overbought conditions have not had an impact on momentum,” she said, though that is “perhaps more likely in January, which appears prone to risk-off positioning as it pertains to other asset classes.”

Traders borrowing to buy bitcoin may also end up endangering prices in the not-too-distant future, according to analyst Alex Krüger. 

“The crypto market became extremely levered up since the $20K breakout, and implied volatility spiked higher as traders repriced,” Krüger said. “High leverage translates into weaker hands and makes price vulnerable to large corrections. That is why we have been seeing such large two-way price moves since. This is normal given such market dynamics. In such conditions negative news would have an outsized market impact.”

A hint of what’s to come – as early as Friday – may also be found in the derivatives market. 

Related: Market Wrap: Bitcoin Rangebound as XRP Plummets After SEC Lawsuit

“We will witness the largest expiry in Deribit’s history tomorrow [Dec. 25] as 86,000 option contracts will expire with a notional value of over $2 billion,” said Luuk Strijers, chief commercial officer at Deribit, the world’s largest bitcoin options exchange. About 35% of all options on the exchange will expire Friday, leading them to expect some volatility on Christmas Day.

“Max pain is at a significantly lower level, possibly indicating volatility to come,” Strijers added.

As Deribit defines it, the max pain price is the strike price with the most open interest for puts and calls and the price at which the underlying asset (such as bitcoin or ether) would cause financial losses for the largest number of option holders at expiration.

Thursday also marked the December expiration of bitcoin futures on the CME, with 4,309 contracts changing hands, much lower than the previous day’s 13,829.

Read More: SEC Gives Broker-Dealers Room to Handle Crypto Securities

All is certainly not quiet, calm or bright for XRP. Its downward slide continued Thursday, with the embattled cryptocurrency taking another 16% hit over the course of the most recent 24 hours. Since Monday, when Ripple Labs CEO Brad Garlinghouse gave the heads-up that the Securities and Exchange Commission was going to file an action claiming that XRP is a security, the cryptocurrency lost more than half its value. While still the third-most valuable crypto, according to CoinDesk 20 data, its market cap is now back down to $26.6 billion, roughly where it was in early November. 

On the heels of XRP’s troubles, bitcoin’s share of the total crypto market has increased to nearly 69% from 65% in just the past week, according to data compiled by CoinMarketCap. 

Read more: Coinbase, Other Big Exchanges ‘Between Rock and a Hard Place’ on Delisting XRP

Ethereum

Ether (ETH), the second-largest cryptocurrency by market capitalization, was down 2.3% Friday, trading around $596 as of 19:00 UTC (2:00 p.m. ET).

For those tracking decentralized finance, the amount of ether locked in DeFi contacts remains just shy of 7.3 million ($4.3 billion worth), according to data site DeFi Pulse.

Read more: FinCEN’s Proposed Crypto Wallet Rule Might Hit DeFi

Other markets

Digital assets on the CoinDesk 20 were mixed, with eight winners and 10 losers Monday (the remaining two are stablecoins).

Notable winners as of 19:00 UTC (2:00 p.m. ET):

• Stellar (XLM) + 9.8%
• Orchid (OXT) + 4.0%
• Cardano (ADA) + 4.4%

Notable losers:

• OMG Network (OMG) – 6.7%
• Algorand (RAND) – 6.1%
• Chainlink (LINK) – 5.6%

Equities: 

• Nikkei 225 (Japan) 26,668.35 (+143.56 or +0.54%)
• The FTSE 100 (U.K.) 6,502.11 (+6.36 or +0.10%)
• The S&P 500 (U.S.) 3,703.06 (+13.05 or +0.35%)

Commodities: 

• Oil was up 0.23%. Price per barrel of West Texas Intermediate crude: $48.23.
• Gold was in the green 0.27% and at $1,883.20 as of press time.

Treasurys:

• The 10-year U.S. Treasury bond yield fell 29 bps to close the short week at 0.926%.

• Bitwise Liquidates XRP Position in Crypto Index Fund Following SEC Suit Against Ripple
• First Mover: XRP Plunges 20% as Traders Assess SEC’s Ripple Suit

Miami Mayor Francis Suarez may try to turn his city into a hotbed for cryptocurrency innovation.

Suarez tweeted Thursday that he is “absolutely exploring” making Miami, the seventh-largest city in the U.S., home to the country’s first crypto-centric municipal government, seemingly endorsing concepts from tokenization to on-chain voting. He tagged new city resident Anthony Pompliano, founder and partner of Morgan Creek Digital and a crypto Twitter celebrity, for help.

In a subsequent tweet, Suarez said he wants South Florida “on the vanguard of legislation that promotes crypto and makes us forward-leaning on innovation.” He said he’d reach out to Wyoming’s blockchain doyenne, Caitlin Long, for assistance on that front.

Related: Author Ben Mezrich on Capturing the Winklevii and Plans for a ‘Bitcoin Billionaires’ Movie

Suarez has been pushing recently for Silicon Valley discontents and hopeful tech startups, fed up with California’s taxes and regulations and particularly San Francisco’s crime-ridden and feces-covered streets, to move to Miami. The crypto angle may well be the latest strategy of that bid.

Earlier Thursday, Suarez appeared to buy into bitcoin‘s growing appeal as an alternative investment with a tweet on Ben Mezrich’s book about the Winklevoss twins, “Bitcoin Billionaires.”

• Norway Central Bank Official Says ‘No Acute Need’ to Introduce a Digital Currency
• The Case for $500,000 Bitcoin
• Is Asteroid Mining Really Our Best Argument for Bitcoin Over Gold?

Cryptocurrency exchange Livecoin claims to have suffered what it called a “carefully planned attack.”

The Russian exchange said in a web post it has “lost control of all of our servers, [backend] and nodes” and pleaded with clients to cease making deposits, trading or interacting with the exchange. “We were not able to stop our service in time,” the post said.

It was not immediately clear if clients funds’ were affected in the breach. CoinGecko charts indicate Livecoin usually handles about $50 million in daily trading volume. However, in the last 24 hours volume climbed to $805 million.

Related: From SIM-Swaps to Home-Invasion Threats, Ledger Leak Has Cascading Consequences

Livecoin CEO Ivona Zlatova did not respond to a request for comment by press time.

This story will be updated.

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Liquidations for XRP futures contracts have soared at year’s end as bullish signals in November followed by decidedly bearish news in December whipsawed the token’s price.

Over $1.5 billion worth of XRP futures contracts have been liquidated since the start of November, per data from analytics provider Bybt. Barely $700 million in liquidated futures contracts were recorded between March and October. 

In November, the price of XRP skyrocketed over 220% to two-year highs just below $0.80 as traders anticipated a scheduled token airdrop event by the Flare Network to all XRP holders. In short, anyone holding XRP would automatically receive a portion of the new Spark token, spurring new buyers to accumulate XRP.

Related: Coinbase, Other Big Exchanges ‘Between Rock and a Hard Place’ on Delisting XRP

Adding fuel to the frenzy, leading U.S.-based cryptocurrency exchange Coinbase announced its plans to support the upcoming airdrop, per CoinDesk’s previous reporting. 

“XRP experienced massive upward price movements in November due to retail investors’ interest on the Spark airdrop scheduled for Dec. 12, 2020,” said Florent Moulin, a cryptocurrency researcher at data provider Messari. “The market also saw experienced investors accumulating XRP in anticipation of a retail-led bull market.”

The acute XRP bull trend quickly ended when the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple for allegedly violating federal securities laws in selling the cryptocurrency to retail consumers, which raised $1.3 billion over a seven-year period. 

Traders reacted negatively to the news as XRP instantly started giving back large chunks of its gains from the previous month. Institutional investors followed suit with cryptocurrency money manager Bitwise liquidating its index’s entire XRP position and prominent brokerages like OSL notifying clients it halted all XRP trading. 

Related: Market Wrap: Bitcoin Rangebound as XRP Plummets After SEC Lawsuit

Both events – the airdrop and the lawsuit – have pushed XRP price volatility to its highest level since July 2018, per Coin Metrics data, with a more than 130% increase in volatility since early November. 

Sharp downward price action for XRP is probably due to a combination of factors, Moulin told CoinDesk. But the most significant is likely the SEC’s lawsuit against Ripple. 

Also noteworthy is increased selling by Ripple co-founder Jed McCaleb, who sold over $120 million worth of XRP in December, Moulin said, an amount over three times larger than previous months. 

Some of December’s downward price movement was also caused by XRP holders selling after receiving tokens from the airdrop event, Moulin said. 

Regardless of the reason, since news of the SEC’s lawsuit broke XRP has dropped over 60% and fallen below its pre-airdrop frenzy levels in early November, hitting $0.21 on Wednesday. 

And with the price still dropping and over $350 million in futures contracts liquidated the two days before Christmas Eve, XRP investors are left to face a not-so-happy holiday season.

• Bitwise Liquidates XRP Position in Crypto Index Fund Following SEC Suit Against Ripple
• Hong Kong Trading Platform OSL Suspends XRP Services as SEC Sues Ripple

Japan is gearing up to launch a digital currency in both the public and private sectors as it trails China, which is in the trial stage of launching its own.

• According to the Japan Times, the country’s Digital Currency Forum aims to create “some form” of digital currency similar to Facebook’s diem plan, by 2023.
• The group is preparing to conduct a feasibility study for its virtual currency in 2021.
• “China has prompted moves toward digital currency (around the world),” Hiromi Yamaoka, a former Bank of Japan official, told the Japan Times. 
• China has done so at “surprising speed” while “central banks tend to take a cautious stance,”  added Yamaoka, who expects China to officially launch its digital yuan in 2022.
• China has been accelerating its push toward the adoption of a digital currency as the People’s Bank of China works with banks and commercial entities on public pilots to gauge user experience.
• In October the People’s Bank of China launched a pilot program that provided digital yuan to citizens selected by lottery in Shenzhen, and in Suzhou earlier this month.

Read more: Digital Yen Would Make Crypto Markets ‘More Lively,’ Says CEO of Monex Group

• Japan’s SBI, Securitize Bringing Security Tokens to Crypto Wallet for Institutions
• Mt. Gox Creditors’ Wait Nearly Over as Trustee Announces Draft Rehabilitation Plan
• Japanese City to Trial Blockchain Voting System
• Citigroup Helping World Governments Build Digital Currencies, CEO Says

Elad Roisman has been named acting chairman of the U.S. Securities and Exchange Commission, according to a tweet by Commissioner Hester Peirce congratulating him.

• The news comes a day after former Chairman Jay Clayton announced that yesterday was his last day. Clayton had previously said he would step down by the end of the year.
• Roisman was appointed by President Trump as an SEC commissioner two years ago.
• Perceived as friendly to cryptocurrencies in general, Roisman had served as chief counsel for NYSE Euronext, which was eventually sold to the Intercontinental Exchange (ICE), parent company of the Bakkt futures exchange.
• At the time of his appointment to the SEC, Roisman said to the Senate Committee on Banking, Housing, and Urban Affairs that
  “the SEC must examine and re-examine its rules, regulations and guidelines to ensure that they are still working as intended to accomplish the SEC’s mission. This is most recently manifested in areas such as data protection and cybersecurity, as well the emergence of new investments and technologies such as initial coin offerings and blockchain.”
• The U.S. Senate must now confirm the nomination.

The story is developing and will be updated.

• Coinbase, Other Big Exchanges ‘Between Rock and a Hard Place’ on Delisting XRP
• SEC Chairman Clayton Says Wednesday Is His Last Day in Office
• Market Wrap: Bitcoin Rangebound as XRP Plummets After SEC Lawsuit
• SEC Gives Broker-Dealers Room to Handle Crypto Securities

New anti-money-laundering (AML) regulations need to exclude Hong Kong’s bitcoin automated teller machines (ATMs) in order to sustain innovation, according to the Bitcoin Association of Hong Kong, reports the South China Morning Post (SCMP).

• Hong Kong regulators have stepped up their supervision of the cryptocurrency industry and are in the process of introducing new regulations that will restrict the city’s digital currency trading by prohibiting them from serving retail investors.
• The government’s plan to regulate cryptocurrency exchanges in Hong Kong could mean ATMs may also be off-limits unless an appeal to exclude them from the extended regulations goes ahead, said the report.
• “Stricter oversight of bitcoin has created uncertainties for start-ups and their blockchain-related investments,” said Leo Weese, co-founder of the Bitcoin Association of Hong Kong, the SCMP reported.
• Weese added, “To restrict retail individuals from accessing bitcoin would be overshooting the government’s goals of promoting innovation and financial inclusion.” 
• There are around 60 bitcoin ATMs across Hong Kong where users can buy and sell digital currencies, the SCMP said.

Read more: Hong Kong’s Securities Watchdog May Soon Regulate All Crypto Trading Platforms

• BitcoinPoint, Cashzone Allow Users to Sell Bitcoin Using 16K ATMs Across UK
• Hong Kong Trading Platform OSL Suspends XRP Services as SEC Sues Ripple
• Huobi Crypto Exchange Returning to US After Winning Nevada Trust License
• Bank of Russia Chair: Digital Ruble Is No Threat to Banks

Bitcoin holders will now be able to sell their bitcoin from 16,000 Cashzone automated teller machines (ATMs) across the U.K. under an agreement reached with London-based cryptocurrency company BitcoinPoint.

• Under terms of the agreement, after registering, Cashzone users will be able to enter an amount to be withdrawn on the BitcoinPoint website and scan a QR code. Users would then get an SMS message with a pin code to be entered at a Coinzone ATM.
• BitcoinPoint CEO Benoit Marzouk said there is a demand for the ATMs as registering on a cryptocurrency exchange can be complex for non-tech savvy people, adding that the scarce availability of bitcoin ATMs made the accessibility of bitcoin problematic.

Read more: Number of Bitcoin ATMs Up 85% This Year as Coronavirus Drives Adoption

• Hong Kong ATMs Must Be Excluded From Coming AML Regulations, Group Says
• UK FCA Grants Crypto Firms Temporary Registration as It Deals With Applications Backlog
• Bitcoin Exchanges Flood London’s Metro With Adverts
• SpaceChain Awarded $585K Grant to Co-Develop Decentralized Satellite System

Talks regarding a possible acquisition by PayPal of bitcoin custodian BitGo have fallen through, Fortune reported, citing multiple sources.

• PayPal was exploring the possible purchase of cryptocurrency companies including BitGo, according to a Bloomberg report in October.
• BitGo CEO Mike Belshe would not confirm whether the PayPal report was true in an interview with Fortune but commented that over the years BitGo has been “in talks with everyone” and will not accept a “small exit.”
• Whatever talks there may have been have come to an end, sources told Fortune, with one saying that “PayPal is exploring other potential acquisitions.”
• BitGo was the first U.S. crypto firm to secure a broker-dealer approval, transfer agent registration and trust company recognition, allowing it to provide custody and record-keeping services.
• PayPal has launched crypto buying and selling, as well as crypto merchant payments, following its Oct. 21 announcement that sent shockwaves across the industry.
• Emails to both companies requesting comment on the report were not immediately answered.

Read more: PayPal Said to Be in Talks to Buy Crypto Firms Including BitGo: Bloomberg

• Square’s Cash App Now Lets Customers Get Bitcoin Back on Purchases
• Mizuho Analyst: Bitcoin Will Make PayPal ‘Center of People’s Financial Lives’
• Paxos, Firm Powering PayPal’s Crypto Service, Raises $142M
• Evercore Says PayPal’s Crypto Offering Could Bring Big Business Boost

Cryptocurrency exchange Binance announced Thursday it is closing its South Korea operations after eight months due to low usage and volume.

• The exchange said it has been challenging to operate in South Korea due to low transaction volumes, which resulted in tight liquidity for its users. The Korean affiliate of Binance had been relying on its parent for liquidity but that ability was about to be banned under a law in the country, in effect March 2021, prohibiting order book sharing.
• Binance said it will close all new registrations and deposits on the local exchange starting today at 2:00 p.m. local time. Binance Korea users will be able to redeem funds in Korean fiat currency or other cryptocurrencies and complete withdrawals before Jan. 29, 2021; after this date, withdrawals will be inaccessible.
• Once the operations of Binance Korea have been closed, the team said it would reassess its business approach in the country.

Read more: Crypto Exchange Binance Suspends Trading Over ‘Systems Messaging Error’

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• Binance Labs Leads $12M Funding Round for Multi-Asset Wallet Developer MATH
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The U.S. Securities and Exchange Commission (SEC) has accused the founder of hedge fund Virgil Capital, which specializes in cryptocurrency arbitrage, of fraud.

• Stefan Qin, the 23-year-old founder of Virgil Capital, has been accused by the SEC of “fabricated records” for failing to redeem $3.5 million in investments and attempting to withdraw $1.7 million in investor funds to pay off Chinese loan sharks, the SEC said.
• On Tuesday, the SEC applied to U.S. District Judge Lorna Schofield in the Southern District of New York for an emergency order to suspend $25 million in digital assets owned by another fund managed by Qin.
• The SEC accuses Qin of fraud involving the Virgil Sigma Fund LP of New York and VQR Multistrategy Fund LP of the Cayman Islands.
• The hedge fund manager is being accused of altering spreadsheet tracking investments at 39 cryptocurrency trading platforms in 2019.
• Earlier this year Qin falsely informed investors looking to redeem $3.5 million investments from their funds that the money would be moved to the VQR Multistrategy Fund but the funds were not transferred, according to the SEC.
• Qin also asked VQR head trader Antonio Hallak to assist with withdrawing $1.7 million from the fund, claiming he had borrowed money from Chinese loan sharks to invest in the Sigma fund, according to Reuters.
• Qin, whom the SEC said is believed to be currently in South Korea, is prepared to cooperate with the SEC and is “committed to ensuring that no investors are harmed,” said his lawyers, Reuters said.
• The SEC is seeking an order permanently restraining Qin from participating in the sale, issuance, purchase or offer of any security except on his personal account, a disgorgement of profits and civil penalties.

Read more: SEC Charges Former State Senator Over Digital Asset ‘Scam’

• Tierion to Repay ICO Investors Up to $25M Plus Interest in SEC Settlement
• MoneyGram Takes Wait-and-See Approach as SEC Sues Partner Ripple
• Market Wrap: Bitcoin Recovers to Nearly $24K; Ether Rides Bitcoin’s ‘Coattails’
• An SEC Victory in Ripple Case Would Render XRP ‘Untradeable,’ Market Pros Say

Digital asset manager Grayscale Investments reached $16.4 billion in assets under management (AUM), up from the $13 billion the firm announced last week.

• Data tweeted by the firm showed its largest holdings remain in bitcoin, with the Grayscale Bitcoin Trust having $14.1 billion in the top crypto asset. The firm’s Ethereum Trust now has $1.81 billion in AUM.
• Grayscale also has trusts for litecoin ($125.0 million), bitcoin cash ($70.7 million), ethereum classic ($67.7 million) and others with less significant holdings including XRP, XLM and zcash.
• New York-based Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.

Read also: SkyBridge’s Scaramucci Sees Bitcoin Rally in ‘First Inning’

• Grayscale Temporarily Stops Accepting New Clients in Six Crypto Trusts
• A Slowing of Grayscale Bitcoin Fund Inflows Could Prompt Price Correction: JPMorgan
• The CIO of $230B AUM Guggenheim Just Called for $400,000 BTC
• Grayscale Now Has $13B in Crypto Assets Under Management

U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton said his last day in office would be today, Wednesday, Dec. 23.

• Only the precise timing of this is a surprise. Clayton announced in November he would be leaving by the end of the year but hadn’t specified a date.
• Clayton certainly knows how to leave on a high note. His last day comes 24 hours after the commission filed suit against fintech firm Ripple as well as its CEO and chairman, sending shockwaves throughout the cryptocurrency industry.

• Market Wrap: Bitcoin Rangebound as XRP Plummets After SEC Lawsuit
• SEC Gives Broker-Dealers Room to Handle Crypto Securities
• Hong Kong Trading Platform OSL Suspends XRP Services as SEC Sues Ripple
• Abandon ShipChain! Logistics Startup Torpedoed by SEC Over $27M Unregistered ICO

Stablecoins should meet the same regulatory standards as other aspects of the financial system, says President Trump’s Working Group on Financial Markets. 

The working group published a report Wednesday detailing how it views retail payments using stablecoins and asking for public feedback on the issue.

Stablecoins must meet appropriate money-laundering and oversight requirements, the document said:

Related: FinCEN’s Proposed Crypto Wallet Rule Might Hit DeFi

“Where a stablecoin that is primarily used for retail payments is adopted at a significant scale in the United States, the associated risks may require additional safeguards. We encourage relevant participants engaged in the design of such stablecoin arrangements and their functions, operations, transactions, and risk management to align with key principles.”

These principles include addressing financial stability risks, among others. 

U.S. regulators should coordinate among each other and with international partners to ensure they keep up with the space, the document said.

The working group, which includes Treasury Secretary Steven Mnuchin, Federal Reserve Chair Jerome Powell, Securities and Exchange Commission Chair Jay Clayton and Commodity Futures Trading Commission Chair Heath Tarbert, was formed in the late 1980s by President Ronald Reagan, and is tasked with overseeing and nurturing the U.S.’s financial markets. 

Related: ‘There Is No Emergency Here’: Coinbase Asks FinCEN to Extend Comment Period on Wallet Regs

In a statement, Acting Comptroller of the Currency Brian Brooks said he appreciates the “productive balance” the group reached on the issue. 

“In its wisdom, the group also remained agnostic regarding the technologies related to unhosted wallets, which helps the nation remain competitive by preserving industry’s ability to innovate in responsible ways and adapt to the market and consumer needs and preferences,” Brooks said.

• US Floats Long-Dreaded Plan to Make Crypto Exchanges Identify Personal Wallets
• Self-Hosted Bitcoin Wallets Become Front Line in Fight Over Crypto Regulations

Digital asset services firm Bequant has secured two “in-principle” approvals in Malta which will eventually lead to the firm being a licensed prime broker and crypto exchange in Europe.

“The prime brokerage offering has been our anchor product since we launched it,” Bequant CEO George Zarya said in an interview. “We tailored it to quants, prop traders and arbitrageurs that are the clients of prime brokers. Prime brokers minimize the counterparty risk on exchanges and allows for a high level of capital efficiency.”

After Coinbase acquired crypto prime broker Tagomi in May, it was able to facilitate at least $425 million of MicroStrategy’s blockbuster bitcoin buy through its Coinbase Prime service. Such are the stakes for establishing a prime brokerage arm in the time of heightened institutional interest.

Related: How BitGo Is Getting Into the Events Business

Prime brokers are facilitators for financing and trading for deep-pocketed institutional investors.  While the digital asset space doesn’t currently have a lot of prime broker options, several crypto firms including Coinbase, BitGo and Genesis Trading have announced this year their plans to build prime brokerage wings.

Read more: Behind ‘Prime Broker’ Buzzword Lies a Complex Strategy Game for Crypto Firms

Bequant’s prime brokerage services include capital introduction, fund administration, securities lending, multi-exchange direct market access, custody, collateral management, leveraged trade execution, over-the-counter block trading, risk management and smart-order routing.

Since late August 2018, the company has been operating its prime brokerage and crypto exchange services provisionally under the Virtual Financial Assets Act while in close conversation with the Malta Financial Services Authority (MFSA), Zarya said.

Related: Crypto.com Takes Steps Toward Financial Licensure in Malta

The licenses will allow Bequant to continue operating its crypto exchange and to offer prime brokerage services to its clients. 

In total, both approvals required Bequant to hold €730,000 in reserve and to have policies and procedures reviewed by the Malta Financial Services Authority, Zarya added. 

Having gone through this rigor already will allow Bequant to apply for other securities licenses in Malta with relative ease in the future, Zarya said, potentially allowing the firm to handle tokenized securities and derivatives.

“The prime brokerage product has been our anchor since we launched it,” Zarya said. “In the new year, the major milestone for the industry is going to be an increased scrutiny on exchanges by clients as the market becomes more institutional.” 

The firm is now connected to 14 exchanges and five OTC desks as sources of liquidity, up from 11 sources in August.

• Prime Broker Bequant Adds Risk-Monitoring Service in Push for Added Compliance
• Bequant Adds Services to Its Crypto Prime Brokerage Offering

Bitcoin’s price continues to trade below $24,000 as legal action against Ripple Labs rattled the XRP market. Bitcoin is the only asset in the CoinDesk20 with a positive 24-hour return as of 4 p.m. ET.

• Bitcoin (BTC) trading around $23,500 as of 21:00 UTC (4 p.m. ET) gaining less than 1% over the previous 24 hours.
• Bitcoin’s 24-hour range: $22,822.26 to $24,086.95.
• XRP’s sell-off continues with the token’s price dropping another 40% to $0.27 Wednesday.

The price of bitcoin has been bouncing between $22,000 and $24,000 since Friday.

Despite its monster rally through the fourth quarter of 2020, bitcoin’s volatility has stayed low. There was a slight increase in December as bitcoin continued setting new record highs, but 180-day volatility has been sitting at its lowest levels since February 2017, per data from Coin Metrics.

Related: SEC Chairman Clayton Says Wednesday Is His Last Day in Office

Where the price heads next is anyone’s guess. But on Twitter, Ki Young Ju, CEO of cryptocurrency data provider CryptoQuant, shared his bullishness, saying, “BTC will break $25,000 without retesting $21,000.”

Part of the reason for Ju’s prediction are the large outflows from Coinbase, which could be viewed as transfers to Coinbase cold storage following new over-the-counter deals for institutional clients.

Sharing Ju’s market outlook, Zoran Scekic, managing partner at cryptocurrency trading firm Zorax Capital, also took to Twitter, calling bitcoin’s market conditions a “consolidation or up” trend. Regardless of what it’s called, bitcoin’s current trend has resulted in over 200% year-to-date returns, with a roughly 20% gain so far in December.

Along the way, bitcoin’s correlation to traditional markets has continued to weaken, per data from Coin Metrics, with the 90-day correlation between bitcoin and the S&P 500 stock index at its lowest level since just before the market crash in March 2020.

Related: SEC Gives Broker-Dealers Room to Handle Crypto Securities

Following news of the SEC lawsuit against Ripple, XRP investors are facing a very un-merry Christmas weekend. The fifth-largest cryptocurrency by market capitalization crashed more than 40% Wednesday as of 21:00 UTC (4 p.m. ET), trading hands around $0.27.

Ripple CEO Brad Garlinghouse warned Monday the U.S. Securities and Exchange Commission’s (SEC) planned to file a lawsuit, per prior CoinDesk reporting. Sure enough, on Tuesday afternoon the SEC filed a suit that claimed Ripple Labs violated federal securities laws in selling the XRP cryptocurrency to retail consumers.

Some organizations are taking a wait-and-see approach to this news, such as Ripple partner MoneyGram, which said it has yet to see any “negative impact” on its business arrangements with Ripple following the SEC lawsuit.

But some investors aren’t being as patient. Cryptocurrency money manager Bitwise liquidated its XRP, worth $9.3 million, following news of the SEC’s lawsuit. “The Fund liquidated its position and reinvested the proceeds in other portfolio assets,” Bitwise wrote to clients.

Digital assets on the CoinDesk 20 are down Wednesday. Bitcoin is the index’s only asset with a positive 24-hour return as of 21:00 UTC (4:00 p.m. ET), reporting a gain of 0.4%.

Notable losers:

• xrp (XRP), down 40%
• stellar (XLM), down 16%
• omg network (omg), down 13%

Equities:

• Asia’s Nikkei 225 is in the green, up 0.33%.
• The FTSE 100 in Europe is up 0.7% from its Wednesday open.
• The S&P 500 in the United States closed flat, with a modest 0.2% gain Wednesday after giving back some of its gains from early afternoon trading hours.

Commodities:

• Oil was up over 2%. Price per barrel of West Texas Intermediate crude: $48.12.
• Gold was in the green 0.26% above $1,875 as of press time.

Treasurys

• The 10-year U.S. Treasury bond yield climbed Wednesday with a nearly 0.04% daily gain.

• Bitwise Liquidates XRP Position in Crypto Index Fund Following SEC Suit Against Ripple
• First Mover: XRP Plunges 20% as Traders Assess SEC’s Ripple Suit

A proposal by the U.S. Financial Crimes Enforcement Network (FinCEN) that would require crypto exchanges to collect personal information, including names and home addresses, from individuals seeking to transfer cryptocurrencies into their own wallets is poorly defined and could have widespread repercussions, say a number of regulatory experts.

The proposed rule, unveiled last Friday, would require crypto exchanges to collect this personal information from customers who transfer an aggregate of $3,000 per day to “unhosted” wallets (which are also referred to by FinCEN as self-hosted or self-custodied wallets; crypto users may know them as private wallets or, simply, wallets). Transfers of over $10,000 per day would require the exchange to file a Currency Transaction Report (CTR) to FinCEN, reporting these transactions and the individuals making them to the federal government. 

The proposed rulemaking, which was published in the Federal Register on Dec. 23, has quickly drawn widespread industry backlash, with complaints ranging from the document’s poorly defined terms to the rushed process itself. Comments are due by Jan. 4, cutting what would normally be a months-long public comment period to just two weeks. 

Related: Presidential Advisory Group Weighs In on Regulatory Approach to Stablecoins

The controversial rule is said to be a personal project of Treasury Secretary Steven Mnuchin, said Jeremy Allaire, CEO of USDC stablecoin co-issuer Circle. It originally was thought to be far more stringent than the final version published last week.

Further, it appears the rule is being jammed through the rulemaking process to ensure it is implemented before President-elect Joe Biden takes office next month, said Nick Neuman, CEO of bitcoin self-storage firm Casa.

The shortened comment period reduces how much time exchanges have to determine whether they need to change their internal processes to remain in compliance, said Amy Davine Kim, chief policy officer of the Chamber of Digital Commerce advocacy group. How exchanges would comply also remains an open question, she said.

“It could also cause these regulated financial institutions to pause transactions involving self-hosted wallets given the extremely short timeframe in which to consider the implications of this rule, while they implement the tools, processes and procedures to implement the requirements,” Kim said.

Related: ‘There Is No Emergency Here’: Coinbase Asks FinCEN to Extend Comment Period on Wallet Regs

Several key details of the proposed rulemaking have been poorly defined, multiple individuals told CoinDesk. 

Perhaps the most glaring omission: “unhosted wallets,” FinCEN’s favored term for storing one’s own crypto, isn’t actually defined in the proposed rule, both Kim and Seward & Kissel Associate Andrew Jacobson said. 

“Notably, the preface of the NPRM [Notice of Proposed Rulemaking] explicitly discusses ‘unhosted wallets’ as prompting the need for the proposed rule. However, the actual language of the proposed rule does not mention unhosted wallets or define it, making the rule discordant in its explanatory language versus the actual language of the rule,” Kim said. 

Jacobson agreed, telling CoinDesk that while there are “pages and pages of explanation and justification” explaining the regulation and discussing unhosted wallets, the proposed regulation doesn’t actually specify what unhosted wallets are. A review of the document by CoinDesk confirms this.

Read more: US Floats Long-Dreaded Plan to Make Crypto Exchanges Identify Personal Wallets

The actual reporting requirements are also unclear, Allaire said. While names and addresses must be recorded and submitted, the proposed rulemaking doesn’t specify if IP or blockchain addresses are also required. 

Nor does the proposed rulemaking say if financial institutions must collect this information from counterparties, or if the customers can just submit this information, Kim said. 

“Finally, how would the rule treat the CTR aggregation requirements for customers that use multiple wallets? The CTR requirement attaches to the customer, not the wallet,” she said.

The rule itself is unlikely to impact end users, said Neuman. While there were initially rumors that Treasury’s proposed rulemaking would be far more stringent – potentially going so far as to ban unhosted wallets outright – this would have been far more difficult to implement. 

“What isn’t clear is how the regulated service providers like exchanges will be actually implementing this,” he said. “There’s going to be compliance necessary if the rule passes among exchanges, brokers, other custodians, they’re going to have to implement this in one way or another and how they implement this will be important to what the user experience is like.”

Exchanges might need to whitelist individual wallet addresses to ensure funds aren’t sent to a wallet without the required personal information, he said.

One area that does seem likely to be impacted is decentralized finance (DeFi). Multiple people told CoinDesk the proposed rule’s biggest – and most unclear – impact would be on DeFi projects.

For one thing, many DeFi projects rely on smart contracts to store or escrow funds. Users engage with, say, Compound by connecting their MetaMask wallet to the lending platform. Subsequent transactions are reflected in the wallet itself, and unique to the user’s holdings. 

Plus, these smart contract-powered platforms don’t have physical addresses, nor are they necessarily operating under the auspices of an actual company. In short, Uniswap would persist if Uniswap’s founders were arrested.

It is unclear how such DeFi platforms would be treated under FinCEN’s proposed rule.

“Since smart contracts do not have a name or physical address, they may be unable to interact with the U.S. financial system,” Kim said. 

Read more: Coinbase CEO: Trump Administration May ‘Rush Out’ Burdensome Crypto Wallet Rules

Also, smart contracts don’t necessarily have counterparties, Allaire said. If a business is trying to send a large payment independently using crypto, it would need the counterparties’ names and addresses. Institutional investors providing liquidity to a DeFi platform would presumably not be covered by such rules.

This could throw an entire segment of the blockchain industry into a legal gray area, the Digital Chamber’s Kim said. 

“Treasury should not impose a rule that could have a deleterious impact on this promising area of development without understanding the benefits to innovation,” she said. 

“What if you want to send to the Compound protocol? There is no name and address, it’s a market,” Allaire said. “It could create a situation where the only way to use DeFi protocols is to be outside the U.S.”

This could even affect the Eth 2.0 staking contract, he said. To stake on the next iteration of the Ethereum blockchain, users must send 32 ETH to the smart contract, or about $20,000 – well over FinCEN’s limits.

“The vagueness of the rule also calls into question whether funds that were used in DeFi would or could be accepted if a user attempted to move those funds to a ‘hosted’ wallet,” Kim said. 

Allaire noted the FinCEN rule raises new questions about privacy and how government regulators are approaching privacy concerns for digital cash. If exchanges are required to submit blockchain addresses, physical addresses and names to the agency, the federal government might be able to essentially track an individual’s digital activity.

This differs from how physical cash is treated, he said. 

“When you walk out of a bank, they can report you did that but they can’t track you,” he said. “There’s a massive amount of personally identifiable information that’s about to start getting blasted around the world.”

Moreover, the rule could prove counterproductive to FinCEN’s actual mission of tracking malicious actors, Jacobson said. While the new reporting requirements might drive bad actors away from U.S. exchanges, it’s likely they’d just set up shop at an offshore platform.

“In some ways that isn’t a bad thing but could hurt FinCEN’s regulatory objectives because they won’t collect [that data],” he noted.

Read more: Self-Hosted Bitcoin Wallets Become Front Line in Fight Over Crypto Regulations

The number of issues raised by the proposed rulemaking should mean the comment period should be extended and that the Treasury Department engages with industry participants, Allaire said.

Kim noted the Customer Due Diligence Rule for banks took more than four years to implement, and saw an advanced notice of proposed rulemaking as well as extended conversations with the industry.

Advocacy groups and companies such as Coinbase have already begun preparing comment letters responding to FinCEN’s proposed rule.

Coin Center even set up a module to streamline the process for the general public to weigh in. 

“If we don’t take the right approach the U.S. could end up significantly hamstrung versus other areas of the world in terms of development and innovation,” Casa’s Neuman said. “We definitely don’t want that to happen so it’s up to us to make sure.”

• US Floats Long-Dreaded Plan to Make Crypto Exchanges Identify Personal Wallets
• Japan’s SBI, Securitize Bringing Security Tokens to Crypto Wallet for Institutions

Donations keep pouring in for leading cryptocurrency think tank and advocacy group Coin Center.

Announced Wednesday, a $175,000 donation to the Washington, D.C.-based non-profit was made by five industry players: NEAR Foundation, Celo Foundation, The Graph, Interchain Foundation and Solana.

Coin Center has also raked in over $300,000 this month from a bevy of small and large donors via Gitcoin, a public Ethereum-based fundraising platform. In the first two days of its Gitcoin program, Coin Center raised over $100,000, as CoinDesk reported.

Related: First Mover: As Markets Turn Ugly, Bitcoiners Thank Secular Trend

In total, over 335 donors have contributed $290,000 with an additional $21,000 paid out by Gitcoin’s unique donation-matching features.

Industry players have shown strong support for Coin Center’s advisory and advocacy work in the U.S. capital amid a flurry of year-end legislative and regulatory efforts, including an anti-stablecoin bill that would require issuers to obtain bank charters and stricter know-your-customer (KYC) requirements per a proposed rule from the Treasury Department.

“The Coin Center team has been working tirelessly over the years to help educate and and advocate for better U.S. policy around crypto,” Ashley Tyson, special projects lead at NEAR Foundation, told CoinDesk in a direct message. “As builders of this technology, we think it’s important to come together and support their work.”

Coin Center’s annual budget is a bit more than $1 million, per communications director Neeraj Agrawal. Recent donations – especially a “huge surge” in smaller donors via Gitcoin and Coin Center’s website – are incredibly helpful for continuing the team’s cryptocurrency policy work, Agrawal said.

• The Graph’s Token Soars as a Bevy of Exchanges Add the Cryptocurrency
• Web 3.0 Infrastructure Blockchain ‘The Graph’ Now Live on Ethereum
• Will the Next M-Pesa Be a Blockchain App?

The U.S. Securities and Exchange Commission (SEC) is showing signs it might budge on letting crypto custodians become regulated broker-dealers specifically for digital assets. 

The Commission announced Wednesday that it would let crypto-focused broker-dealers operate for five years without fear of an enforcement action provided they can verify they have possession and control of customers’ digital asset securities. The SEC is looking for feedback on the proposal, which comes after months of industry requests for clarity around the issue. 

“As discussed below, the Commission’s position in this statement is premised on a broker-dealer limiting its business to digital asset securities to isolate risk and having policies and procedures to, among other things, assess a given digital asset security’s distributed ledger technology and protect the private keys necessary to transfer the digital asset security,” the SEC said in its published statement. 

Related: SEC Chairman Clayton Says Wednesday Is His Last Day in Office

The SEC announcement was generally welcomed as a step in the right direction by industry players. 

“This is positive from the SEC because it’s enabling rather than restrictive,” tweeted Caitlin Long, CEO of Wyoming-based crypto bank Avanti Financial.

Stepping back, the SEC has been accused of stonewalling efforts by digital asset custodians to become regulated federal broker-dealers. Securing a broker-dealer registration would let these companies offer securities for trading in the U.S., including security tokens. 

A handful of startups already offer such services. 

Related: Market Wrap: Bitcoin Rangebound as XRP Plummets After SEC Lawsuit

Securitize CEO Carlos Domingo said it was “potentially very good news” for broker-dealers operating in the security token space, including his firm. He told CoinDesk that “lack of broker-dealer custody has been a major point of stagnation” for crpyto securities.

Kristin Smith, executive director of the Blockchain Association, told CoinDesk that her organization “applauds the SEC for releasing a long-awaited path forward for broker-dealer custody of digital asset securities. Regulatory certainty on this issue will enable the custody marketplace to develop and give consumers the confidence they need that their digital assets are safe and secure.”

U.S. Representative Patrick McHenry, ranking member on the House Financial Services Committee, said he was pleased by the SEC’s action in a statement.

“Digital asset custody is a major outstanding regulatory issue, and I appreciate that the SEC is taking steps to allow for further market developments. I look forward to continuing to work with the Commission and market participants to allow further growth in this space,” he said.

The SEC, alongside the Financial Industry Regulatory Authority (FINRA), which works with the SEC but is actually tasked with approving broker-dealer applications, said last year that there are questions about whether digital asset custodians can effectively comply with the Customer Protection Rule, a part of the Securities Exchange Act of 1934 that requires broker-dealers “to promptly obtain and thereafter maintain physical possession or control of all fully-paid and excess margin securities it carries for the account of customers.

On Wednesday, the SEC said it wants public feedback on how companies can effectively comply. However, “as an interim step,” it’s creating what amounts to a five-year safe harbor, letting companies provide broker-dealer services under a set of specific conditions.

The SEC also said its five-year period will give the agency a chance to better understand how it can regulate the space.

According to its press release, the SEC wants public feedback. The statement will be published in the Federal Register and takes effect 60 days after that.

Read the full document:

UPDATE (Dec. 23, 2020, 19:52 UTC): Updated with additional comment.

• Hong Kong Trading Platform OSL Suspends XRP Services as SEC Sues Ripple
• Abandon ShipChain! Logistics Startup Torpedoed by SEC Over $27M Unregistered ICO

Crypto money manager Bitwise has liquidated $9.3 million worth of XRP in its crypto index fund.

The firm acted shortly after the U.S. Securities and Exchange Commission (SEC) sued the token’s alleged creator, Ripple Labs Inc., for conducting an unregistered and ongoing securities offering.

“Prior to the sale of the asset on December 22, 2020, XRP was approximately 3.8% of the Fund,” the firm wrote. “The Fund liquidated its position and reinvested the proceeds in other portfolio assets.”

Related: Market Wrap: Bitcoin Rangebound as XRP Plummets After SEC Lawsuit

The Bitwise 10 Crypto Index Fund is largely denominated in bitcoin and ether. The funds from its liquidated XRP position have been reinvested into the other assets in the fund, according to a company press release. The fund also holds litecoin, bitcoin cash, LINK, ADA, XLM, EOS and tezos. 

“The Bitwise 10 Crypto Index Fund does not invest in assets that are reasonably likely to be deemed securities under federal or state securities laws,” the company wrote. “Bitwise’s decision to liquidate its position in XRP was based on consideration of new public information from the SEC’s complaint.”

Read more: SEC Sues Ripple Over 7-Year, $1.3B ‘Ongoing’ XRP Sale

While there is no fund linked to the Bitwise 100 Total Market Crypto Index, which is maintained for academic and research purposes, XRP will be removed from that index at 4 p.m. ET today, Matt Hougan, Bitwise’s chief investment officer, told CoinDesk. The Bitwise 100 combines the holdings of the Bitwise 10 Large Cap Crypto Index, the Bitwise 20 Mid Cap Crypto Index and the Bitwise 70 Small Cap Crypto Index, he explained.

Related: First Mover: XRP Plunges 20% as Traders Assess SEC’s Ripple Suit

Digital asset manager Grayscale Investments did not respond to a request for comment by press time. 

The New York-based company, which is owned by CoinDesk parent company Digital Currency Group, currently offers investors an XRP Trust, which is modeled after the Grayscale Bitcoin Trust. Since its inception, the XRP trust has decreased in value by more than 80%, according to a July 2020 report.

The vehicles from both Bitwise and Grayscale are meant for accredited investors only and provide access to crypto price gains without having to hold the underlying assets.

While Bitwise was fast to change course, major Japanese financial group SBI Holdings told CoinDesk the SEC lawsuit doesn’t yet affect its partnership with Ripple.

“As far as we have heard, the lawsuit is currently in the process of being filed and no injunction has been issued against Ripple for the sale of XRP or the provision of [On-Demand Liquidity] and other products, and the company is continuing its business as usual and pushing forward with the expansion of RippleNet,” a company spokesperson said in an emailed statement sent Wednesday. “Under these circumstances, SBI Holdings will continue to be a strong partner of Ripple as we work together to expand our business in Asia.”

Ripple’s On-Demand Liquidity (ODL) service allows companies to transfer funds from one currency to XRP and from XRP to another currency. The cross-border payment tool allows enterprises to avoid opening bank accounts in countries they want to send funds to.

Earlier this year, Ripple and SBI holdings announced that Ripple planned to invest in MoneyTap, a blockchain money-transfer app launched through a joint venture between SBI and Ripple called Ripple Asia. In January of this year, SBI announced it would give shareholders the option to receive XRP as a benefit.

A spokesperson for U.S. regional bank PNC said it would be “premature” for the bank to comment on its use of Ripple’s technology since it takes advantage of xCurrent, the distributed ledger technology that does not use XRP. PNC’s treasury management division uses xCurrent to exchange messages between bankers and clients.

Spanish bank Santander, global trade-finance bank Euro Exim Bank, London-based Barclays and Japan’s MUFG Bank declined to comment. 

Eleven other financial institutions known to be linked with Ripple’s suite of services have yet to reply to CoinDesk’s requests for comment.

UPDATE (Dec. 23, 16:41 UTC): Adds additional information regarding Grayscale, SBI Holdings and other firms with known ties to Ripple and/or XRP.

• Hong Kong Trading Platform OSL Suspends XRP Services as SEC Sues Ripple
• MoneyGram Takes Wait-and-See Approach as SEC Sues Partner Ripple