CoinDesk Crypto

The son of former Renault and Nissan head and fugitive Carlos Ghosn used Coinbase to pay two men $600,000 in bitcoin to get his father out of Japan last December.

• U.S. prosecutors said Wednesday that Anthony Ghosn sent 63 bitcoin to Michael and Peter Taylor, a father and son team who smuggled Carlos Ghosn out of Japan on December 30, 2019.
• Coinbase gave evidence to Japanese investigators this week (see below), showing a series of transactions between January and May 2020 from Ghosn’s Coinbase account to one belonging to Peter Taylor.
• Ghosn transferred what was then worth $500,000 of bitcoin to Taylor in seven transactions – the 63 bitcoin would now be worth $608,000.
• Michael Taylor, a former green beret, and Peter Taylor are currently being held by U.S. authorities on the request of Japan, which is trying to extradite them.
• U.S. prosecutors filed the evidence in opposition to the Taylors’ bid to be released on bail.
• Wednesday’s filing shows a bank account managed by Peter Taylor also received two wire transfers, totaling over $870,000, from Carlos Ghosn’s account in October 2019.
• Ghosn was arrested in November 2018 on allegations of false accounting and then of shifting a personal loss of $16.6 million onto Nissan’s books.
• Pleading innocent, Ghosn was held under house arrest for more than a year until his escape.
• In December, he was smuggled out of the country in a double-bass case by the Taylors, who pretended to be a band playing at a dinner party.
• Ghosn is now hiding out in his childhood home of Lebanon, having accused the “rigged” Japanese justice system of denying his basic human rights.

See also: Wanted Wirecard Exec Said to Be Sheltered by Secret Service in Russia

See the Coinbase evidence below:

Related: Binance’s Fiat-Gateway Partner Banxa Expanding to US

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• Opera’s Built-In Crypto Wallets Have 170K Monthly Active Users

The stock market isn’t usually considered an ally of cryptocurrencies, but with the big U.S. exchange Coinbase now rumored to be considering a share listing, some digital-asset industry insiders say a move toward more public ownership could accelerate mainstream adoption. 

By becoming publicly traded, cryptocurrency-focused companies could appeal to investors in the $35 trillion U.S. stock market. Back-of-the-envelope math shows that just a 1% allocation into crypto stocks could mean $350 billion of new investments for companies in the space. Compare that with the $287 billion total market value of digital-asset markets, and suddenly there’s a lot more capital going into the industry, even if it’s not directly into cryptocurrencies. 

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

Related: Ether Leaves Bitcoin Behind With 2020 Gain of Over 100%

New listings and initial public offerings would also be sure to generate a raft of coverage on analog-world TV channels like CNBC, while the Wall Street Journal and Bloomberg News publish ostensibly breathless headlines on first-day trading action. No publicity is bad publicity, and all this just gives digital-asset companies generous exposure to a broader swath of potential investors who typically only deal in stocks. 

Steve Ehrlich, CEO of the crypto brokerage platform Voyager Digital, which has been publicly traded on the Toronto Stock Exchange since February 2019, told First Mover in a phone interview that stock-market listings promise a whole new vista for the cryptocurrency industry. 

“We always felt that being a public company was something that was necessary in the crypto space,” Ehrlich said, over the phone. “It’s great for the industry.”

A handful of crypto companies have already gone down the route of listing shares.

Related: Blockchain Bites: OCC’s Crypto Letter, Eth 2.0’s ‘Official’ Testnet and Dinwiddie’s Tokenized Airball

According to CoinDesk Research, there’s more than two dozen publicly-traded firms, from the the bitcoin-mining firm Argo, which listed on the London Stock Exchange in 2018, to the bitcoin-mining computer maker Canaan, which listed depositary receipts on the Nasdaq late last year. Bitmain, another mining-computer manufacturer, previously considered an initial public offering (IPO) in Hong Kong in 2018 and is rumored to be exploring a listing in the U.S. 

Earlier this month, industry sources told Reuters that the San Francisco-based exchange Coinbase, worth approximately $8 billion at its last valuation, was seriously considering a direct listing in 2021.

Just this week, the Alibaba affiliate company Ant Group announced it was planning an IPO in both Shanghai and Hong Kong at a reported $200 billion valuation. Although the company is best known for its payment app Alipay, the Hangzhou-based company also runs its own highly scalable blockchain network and is believed to be one of the planned primary issuers for China’s digital yuan.

Should it go through, the dual IPO would arguably make Ant Group the largest company operating in the blockchain space. 

Ehrlich, a long-time entrepreneur who previously served as a top executive at the online stock-trading firm E*Trade, said he welcomed the news that companies like Coinbase were now considering share listings. 

According to Ehrlich, not only can auditors scrutinize Voyager’s financial statements, they can also help to make sure company operates in an ethical and regulatory compliant manner. That could provide the accountability, transparency and comfort demanded by investors, especially for a still-maturing industry that has been pocked by controversies, scams, hacks and fraud. 

Binance, the largest exchange in the world, has resisted calls to divulge the location of its headquarters. Tether, the $10 billion stablecoin, is dogged by allegations that the token is not properly backed by dollar reserves. Just this week, the CEO of Canadian exchange Coinsquare was forced to resign after the local regulator found the exchange regularly made fake trades on the platform.

“Our customers love it, the transparency that comes with it,” Ehrlich said.

Yet another benefit: More listings might allow stock investors to bet on individual or multiple executive teams and strategies within the cryptocurrency industry. That way they’re not limited to putting all eggs into the bitcoin basket, as envisioned by proposed issuers of a bitcoin exchange-traded fund, which has yet to win approval from the U.S. Securities and Exchange Commission. 

It goes without saying that a bet on Coinbase would represent a bet on broad growth in digital-asset markets, including “altcoins” like ether and litecoin.  

Grayscale, which offers cryptocurrency funds known as “trusts” that trade like stocks, reported last week that total capital inflows into non-bitcoin products had climbed seven-fold in the past 12 months. (Grayscale is a unit of the investment firm Digital Currency Group, which also owns CoinDesk.)  

More stock listings could satiate growing investor appetite for exposure to a broad range of cryptocurrencies, similar to the way a mutual fund might buy a big, vertically integrated energy producer like Exxon for exposure to oil, natural gas, refining and retail distribution — without ever having to venture directly into commodities markets. 

In an industry where market-leading companies can get away with not disclosing their headquarters, the trend could help bring a much-needed dose of transparency and trust to the digital-asset space. 

Tweet of the day Bitcoin watch

BTC: Price: $9,561 (BPI) | 24-Hr High: $9,682 | 24-Hr Low: $9,454

Trend: Bitcoin is trading flat so far on Friday, after three consecutive daily gains. 

The leading cryptocurrency by market value is changing hands around $9,560, representing a very slight decline on the day. Bitcoin was rejected near $9,700 during Thursday’s U.S. trading hours. Prices are still up over 3% on a week-to-date basis. 

The weak tone seen at press time could be associated with the renewed risk aversion in traditional markets. The major European stock markets are down over 1% at press time seemingly due to China-U.S. tensions. China has announced the closure of the U.S. consulate in the southwestern city of Chengdu in retaliation to the U.S.’s recent decision to shut down Beijing’s diplomatic mission in Houston.

While bitcoin may face selling pressure, the immediate bullish bias confirmed by Tuesday’s 1.5% gain would be invalidated only if prices find acceptance below $9,480.

A strong bounce from that level would reinforce the immediate bullish bias and shift the focus to $9,800 – the resistance of the trendline falling from the December 2017 to June 2019 highs.

If prices establish a foothold below $9,480, we may see a deeper decline toward $9,150 (July 21 low). 

Related Stories

• First Mover: Ethereum a Victim of Its Own Success as Fees Soar, Vitalik Complains
• 3 Reasons Bitcoin’s Price Could Soon Rise to $10K

Digital banking infrastructure provider Banxa is making a move into North American markets.

• In a strategic partnership announced Thursday, Australia-based Banxa plans to leverage custody and settlement infrastructure from exchange platform Zero Hash to provide the regulatory and technology means for its expansion.
• The partnership will see Banxa expand its fiat gateway API solutions for exchanges, wallets and other crypto-related businesses across North America.
• Banxa’s CEO, Holger Arians, said the startup was in the final stages of a Toronto Stock Exchange listing that would position the company as the “first crypto payment service provider to be publicly listed.”
• Zero Hash is a registered Money Service Business under the oversight of FinCEN, and is also a registered Money Transmitter in over 40 U.S. states.
• It was awarded a “BitLicense” allowing it to operate in New York State in 2019.
• Banxa already provides a fiat onramp for users of Binance and Edge Wallet, among others.
• It recently raised $2 million in a Series A funding round back in January of this year.

See also: Seed CX to Close Exchange, Focus on Settlements in Company Shift

Related Stories

• Carlos Ghosn’s $600K Bitcoin Escape Fee Paid via Coinbase
• Crypto Bank Hopeful Bitcoin Suisse Raises $48M in First-Ever Round
• Central Bank Board Member Says CBDCs Raise More Questions Than Answers
• Opera’s Built-In Crypto Wallets Have 170K Monthly Active Users

Bitcoin Suisse has raised more than CHF 45 million (~$48 million) in its first-ever funding round.

• The Series A was for 16.4% of total equity – 10% newly-created – and completed in four months.
• It was led by Roger Studer, the former investment head of Vontobel, a private bank that held approximately $215 billion in assets under management at the end of 2019.
• A Zug-based financial services provider for the digital asset industry, Bitcoin Suisse said the funding round pushed its valuation to CHF 302.5 million (~$327 million).
• Some of the funding will expand the company’s lending business and staking services, as well as the custodial solution.
• Bitcoin Suisse is applying for a Swiss banking and securities dealer license, as well as a banking license in neighboring Liechtenstein.
• A spokesperson told CoinDesk it had set aside funding for new product offerings, should the license applications be successful.
• In a statement, Bitcoin Suisse said H1 2020 performance had been strong, with strong growth across its product and service range – the Series A satisfied capital needs for the foreseeable future.
• The spokesperson previously told CoinDesk that Bitcoin Suisse had started initial preparations for a public listing – either an IPO or direct listing – for some time in the next few years.
• A security token offering (STO) might also be in the works, but this will depend on market demand and Bitcoin Suisse’s capital requirements.
• The spokesperson told CoinDesk Friday that the Series A put the bank hopeful in a “good position” to move ahead with its listing plans.

See also: Swiss Banks Enter the Age of Bitcoin

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• Carlos Ghosn’s $600K Bitcoin Escape Fee Paid via Coinbase
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• Opera’s Built-In Crypto Wallets Have 170K Monthly Active Users

A board member of the Czech National Bank has provided a less than glowing opinion on the current viability of central bank digital currencies (CBDCs).

• Tomas Holub told 4H Production journalist Martina Sobkova in a wide-ranging interview on Tuesday that the role CBDCs had in providing direct liquidity to clients’ accounts was technically an “attractive concept.”
• However, Holub stopped short of praising CBDCs, which he dubbed “helicopter money,” because he hasn’t seen a solution that answers outstanding questions surrounding the nature of CBDCs.
• Helicopter money is a term used to describe newly printed money that distributed publicly to stimulate an economy in a recession or or at times of zero interest rates.
• Those questions included whether digital currency would be anonymous or not, whether anti-money laundering (AML) standards would be applied to the anonymous variant, and if the currencies would be interest-bearing.
• When asking these questions, Holub said, many more arise and he is yet to see any CBDC project that provided full, detailed answers.
• Holub also took aim at Czech law, which he said lacked the power to give the central bank the authority to issue citizens credit in the form of digital currency due to European legislation standards.
• When asked if the Czech Republic would be a pioneer in CBDCs, he said the country’s share of currency in circulation is still fairly high and is growing long-term, countering the idea of a liquidity crisis that might prompt such a launch.
• Still, a digital currency from the central bank is a future possibility, Holub said.

See also: Fed Paper: Central Bank Digital Currencies Could Replace Commercial Banks – But at a Cost

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• Carlos Ghosn’s $600K Bitcoin Escape Fee Paid via Coinbase
• Binance’s Fiat-Gateway Partner Banxa Expanding to US
• Crypto Bank Hopeful Bitcoin Suisse Raises $48M in First-Ever Round
• Opera’s Built-In Crypto Wallets Have 170K Monthly Active Users

Opera’s web browser is slowly amassing a following among those advocating for a decentralized internet, with 170,000 users now engaging with its built-in Ethereum, Tron and Bitcoin wallets every month.

• Announcing crypto wallet usage numbers for the first time Friday, the longstanding Norwegian browser company gave some context to its two years-long courting of the Web 3, decentralized application (dapp) and distributed computing communities.  
• While the firm would not provide a breakdown of the numbers by blockchain network, Charles Hamel, head of crypto at Opera, said Ethereum is “by far the most popular.”
• While the wallet engagement figures pale in comparison to Opera’s total monthly active user-base (about 360 million) they’re not quite as far off from similar web-wallet products. MetaMask, a wallet browser extension provider, measured 192,000 monthly active users in May 2019.
• Opera worked on Friday to woo yet more wallet users by announcing that decentralized application clearinghouse Dapp.com will now power its Web 3 app store.
• U.K. users will now also be able to access the crypto top-up feature that Opera had previously rolled out in the U.S. and European markets. Fiat-to-crypto bridge company Ramp Instant will provide the U.K. service, Opera said.

Related Stories

• Carlos Ghosn’s $600K Bitcoin Escape Fee Paid via Coinbase
• Binance’s Fiat-Gateway Partner Banxa Expanding to US
• Crypto Bank Hopeful Bitcoin Suisse Raises $48M in First-Ever Round
• Central Bank Board Member Says CBDCs Raise More Questions Than Answers

In the American epic, Lonesome Dove, by Larry McMurtry, there are two characters who can see much further than the other members of their gang: Captain Gus McCrae and Joshua Deets. McCrae’s co-captain, Woodrow Call, and their fellow cowboys learn to take Deets and McCrae at their word when they say they see something out where the Earth bends.

Listening to Filecoin founder Juan Benet is like that. 

When he’s really trying to peer into the future of the internet, what he sees is hazy and chimerical, but he’s seeing something, anticipating either what must be built or the consequences of inaction.

Related: With Chat Privacy Under Threat in US, Firm Develops ‘100% User-Controlled’ Messaging

This stood out Wednesday night when Benet shared the Zoom stage with Ethereum creator Vitalik Buterin and former Coinbase executive Balaji Srinivasan, both of whom are strong futurists.

The conversation, sponsored by HackFS, ETHGlobal and Protocol Labs, was billed as a “debate,” but one had to wonder what these fellow travelers down blockchain’s volatile highway would actually disagree about. 

To state the low-energy dispute simply, Srinivasan is focused on urgently shaking up the information distribution system, whereas Benet is more worried about people ever trusting anything they don’t see themselves. That is: verification of source material.

“[People] don’t have a good mechanism for achieving truth,” Benet said. “That is a much worse state than where we are now, and that could be precipitated by centralized or decentralized media not taking these problems seriously.”

Get off Twitter

Related: Jack Dorsey Has Floated Decentralized Fact-Checking at Twitter. Here’s What That Could Look Like

Srinivasan strongly advocates that superusers of social media gradually exit networks like Twitter and start reverting back to their own blogs again. 

He’s been focused on this for months (see “This Week in Startups” from April and his keynote at Messari’s Mainnet virtual conference in June). More recently, he described how Twitter users could build a minimum viable product for monetizable distribution from their own web domains.

In Wednesday’s discussion, Srinivasan immediately linked the problems of social media with the problems of legacy media.

“Decentralized media also means if you give individuals the ability to monetize on their own, potentially pseudonymously, there’s less pressure for them to be part of an intellectual orthodoxy where they have to repeat certain nostrums to retain their job in an uncertain environment,” he argued. The successful Substack newsletters are the ones that stand out for their originality, he said. 

But Benet is not as ready to dismiss the practice of reporting as decisively as Srinivasan. He said:

“The entire history of journalism is filled with incredible important advances and improvements that came simply because there was a series of articles that caused an important change to happen. So just recalling that that’s the point, and even though right now the entire media incentive structure is kind of messed up, both in traditional media and social media, let’s figure out how we can build a system that promotes that.”

For his part, Buterin went straight to the problem of social media, though, describing what he felt like everyone believed Twitter to be, the great “water cooler” where all kinds of people could chat and cross over tribal lines.

It sort of started that way, but that’s not where it ended up. “All of these different tribes that really disagree with each other are really yelling at each other and it’s not at all clear that the result is better,” Buterin said.

Srinivasan praised Facebook, Twitter and others for taking buggy services and making them available to the masses, for free. 

But that all came at a cost, he argued.

“There’s an election happening every day on Twitter, and this is literally how policy is happening,” Srinivasan said. “Twitter is not always real life but it will be and it becomes real life.”

Scaffold of truth

Benet wants to see these networks disrupted, but he also thinks that with every new experiment on the distribution side we accrue a bit more technical debt on the validation side. Distribution of information is light years ahead of where it was in the 1980s, but, he said:

“Part of what’s happening now is we didn’t put in any way of controlling for manipulation vectors and attack vectors in the entire stack. We’ve created a set of systems that can balkanize not around access or thought but rather balkanize on manipulation targets. It’s very easy for attackers to divide the network.”

A core of this problem is disinformation campaigns that trick people into believing things about the world that aren’t true, in such a way that the untruths persist even when they are repeatedly debunked.

Benet is skeptical about future experiments in social media if they don’t happen alongside even more aggressive experiments in the verifiability of data and information.

“A number of the first-order suggestions for most decentralized media … will make that problem orders of magnitude worse, not better,” he said. “So I think in order to succeed here, we have to look ahead of those problems and start talking about those larger issues of how do you get to systems that are attack-resistant, and that enable some distributed notion of getting to truth.”

Srinivasan is also thinking seriously about the truth problem. He talked about two concepts: oracles and advocates.

Oracles are cryptographically signed data feeds that prove their provenance and the fact that they haven’t been tampered with. Advocates represent a proposal for machine-readable statements about perspective, a sort of “robots.txt” file for ideology, that would allow search engines and readers to understand the disposition of any writer as a way to characterize the arguments they make.

“I like where a lot of that is headed,” Benet said. “I think there’s a massive problem in just establishing truth.”

A more perfect web

In a TEDxSanFrancisco talk in 2016, Benet said the internet is “the planet’s most important technology.” But even then he felt it could be much better. 

On Wednesday, it was clear he was still only at the beginning of some very complex ideas about the future.

Benet spoke about using natural language processing to find ways to turn human speech into structured data, so factual data could be extracted from claims.

He also talked about the need for a way to describe “the scaffold of claims,” that is to look back in an organized fashion at the prior claims any given new claim is based on. This would help humans or machines go backward to identify the truth or non-truth of any particular argument.

Benet’s talking much more about the technical stack the web is built on here than he is about companies or business models. Almost everything on the web so far has been built on Linux, Apache, MySQL and Python, or versions thereof. That’s the stack. Benet thinks there could be a future where a universal data store of some kind is a part of that stack, one that many websites can draw from.

“My impression is we are headed to a much better future where the data structures are going to be decoupled from the [user interfaces],” Benet said. “There will be many different systems built atop the same information graph.”

And this was a point where Srinivasan agreed. 

It’s a crude version of it, but on some level Bitcoin already is what Benet is describing. It’s a shared database about the truth, only in Bitcoin’s case that truth extends no further than who owns which unspent transaction outputs. 

It’s a start, though, and one Srinivasan noted the wider world doesn’t really appreciate. He said:

“I think something that is massively still underappreciated by folks outside our space is the extent to which something like that already exists, in the sense that Coinbase and Binance and Blockchain.info … are all different layers over the Bitcoin and Ethereum blockchains.”

So maybe those two blockchains are the Captains McCrae and Call of this Web3 epic, leading us all like cantankerous cattle on the long road to the utopia of a decentralized Montana. 

It remains to be seen which of the two will have to carry the other’s corpse back to Texas, where he can give a last look at the burned-down saloon of our past internet, where Twitter played piano and Facebook tended bar.

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• Vitalik Buterin

Out of the nearly $8 billion in deposit growth that Signature Bank saw in the second quarter of 2020, $1 billion was raked in by the firm’s digital assets team, according to the bank’s most recent earnings report.

While Signature doesn’t break out its total deposits by business line, the increase is a record for the New York-based, crypto-friendly bank. On an earnings call, Signature CEO Joseph DePaolo also attributed deposit growth to an increase across every business line in the bank, including the blockchain-based payment platform Signet. 

The crypto industry is often a rich source of low-cost, non-interest bearing deposits for crypto-friendly banks like Signature, Silvergate Bank and Metropolitan Commercial Bank, and analysts have paid close attention to Signature’s deposit growth as a result. 

Related: Tokensoft Teams With Signature Bank to Launch Real Estate Security Token Platform

“This is now the fourth consecutive quarter exceeding $1 billion in both total and average deposit growth, non-interest bearing deposits of $16.1 billion still represent a high 32% of total deposits since the second quarter of last year,” DePaolo said on an earnings call on Tuesday. 

The cost of those deposits also decreased to 56 basis points from 98 basis points because of the low interest rate environment, the CEO added. For the sake of improving profitability, the bank wants to get the cost of deposits down around 40 basis points, the CEO said. 

The company’s executive vice president of corporate and business development, Eric Howell, commented on the earnings call that the bank’s net interest margin will be up if the bank gets back to a more “stable” deposit growth of between $500 million to $1 billion a quarter.

The bank earned around $117 million in second quarter 2020, a significant decrease from the $147 million in second quarter 2019 after putting up a provision for credit losses of $93 million this last quarter. 

Related: Silvergate Adds 46 More Crypto Clients in Q1 While Existing Customers Increase Deposit Levels

Notably, the bank made Paycheck Protection Program (PPP) loans to nine crypto companies.

Signet growth

Custody provider Copper announced on Monday that it had integrated with the bank’s blockchain payments platform, Signet. 

The integration means Copper clients like crypto exchanges will now get to use Signet for faster payments and settlement times in U.S. dollar transactions. 

“Previously, the process of paying and settling transactions was far more complex,” Copper CEO Dmitry Tokarev said in an emailed statement. “In order to route fiat currencies, customers had to go from their exchange account, back to Signature Bank, then back to their exchange account. Now, both fiat and digital assets can be moved within the Copper platform.”

Copper offers multi-signature custody and prime brokerage to its clients. This is provided by Copper’s Walled Garden infrastructure, giving clients access to trading facilities without taking digital assets out of custody. 

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Thursday was an up day for both bitcoin and ether prices.

• Bitcoin (BTC) trading around $9,590 as of 20:00 UTC (4 p.m. EDT). Gaining 2% over the previous 24 hours.
• Bitcoin’s 24-hour range: $9,364-$9,686
• BTC above 10-day and 50-day moving averages, a bullish signal for market technicians.

Read More: 3 Reasons Bitcoin’s Price Could Soon Rise to $10K

Bitcoin prices rose for a third straight day to its highest price in a month, reaching $9,686 Thursday. George Clayton, managing partner of New York-based Cryptanalysis Capital, expects it to go much higher. “We are bullish and higher prices are better for us, but the rise is really no big deal,” he said. 

Related: No One Has Traded Bitcoin Options on Bakkt for Over a Month: Deribit Continues to Dominate

Constantin Kogan, partner at crypto fund of funds BitBull Capital, pointed out The Fear and Greed index added 5 points at once and is in the “greed” zone.  “Bitcoin has risen above the psychologically important $9,500 mark. This indicates a positive sentiment from investors,” Kogan told CoinDesk.

A short squeeze in the cryptocurrency derivatives market may have helped to accelerate the price rise. Over the past week, some $61 million of short positions were liquidated, outweighing the $18 million of long liquidations on derivatives exchange BitMEX. As the short sellers got squeezed, bitcoin moved to $9,400 Tuesday, and then over $9,500 on Thursday. “Big levels are being tackled,” said Vishal Shah, an options trader and founder of derivatives exchange Alpha5.

Adi Yona of algorithm trading firm Efficient Frontier noted payments companies like PayPal jumping on the cryptocurrency bandwagon as more bullish sentiment. “Bitcoin has jumped in its last move. Paypal’s 325 million users could buy and sell bitcoins. This could have a major impact on volume and pricing as the crypto markets open up to new populations.”

Read More: PayPal Picks Paxos to Supply Crypto for New Service, Sources Say

Related: Ether Stalls After 8% Rally as Exchange Inflows Spike

BitBull’s Kogan also noted the performance of gold Thursday. Gold is nearing an all-time high, up 0.57% Thursday, at $1,882 per ounce. “Both bitcoin and gold almost completely won back their losses after the March dip in price,” he said. 

Read More: Banks in US Can Now Offer Crypto Custody Services, Regulator Says

Total value in DeFi over $3 billion

The second-largest cryptocurrency by market capitalization, ether (ETH), was up, trading around $273 and climbing 11% in 24 hours as of 20:00 UTC (4:00 p.m. EDT). Jack Tan, CEO of Taiwan-based Kronos Research, expects $300 ether soon. “It’s a continued bullish trend in my view, I would take profits around low-mid $300s.”

The total value locked in decentralized finance (DeFi) surpassed the $3 billion mark July 21, according to information from aggregator DeFi Pulse. The total value, at $3.37 billion Thursday, has quintupled since the start of 2020.

Stablecoin project Maker leads DeFi projects with $718 million in value locked. Lenders Aave and Compound follow with $560 million and $547 million, respectively. Decentralized exchanges (DEXs) Synthetix, with $483 million locked, and Curve, with $342 million locked, round out the top five. Of the top 35 projects on DeFi Pulse, only Bitcoin’s Lightning Network, with $9.4 million in total value locked, is not built on the Ethereum platform. 

Other markets

Digital assets on the CoinDesk 20 are mostly green Thursday. Notable winners as of 20:00 UTC (4:00 p.m. EDT): 

• tezos (XTZ) + 6.2%
• chainlink (LINK) + 5.5%
• xrp (XRP) + 4%

Read More: BitGo Now Supports Custody and Staking of Tezos’ XTZ

Notable losers as of 20:00 UTC (4:00 p.m. EDT): 

• 0x (ZRX) – 1.4%
• nem (XEM) – 1%
• lisk (LSK) – 0.50%

Read More: Banks in US Can Now Offer Crypto Custody Services, Regulator Says

Equities:

• In Asia the Tokyo Stock Exchange is on holiday. Hong Kong’s Hang Seng gained 0.45% as tech stocks pushed the index higher. 
• In Europe the FTSE 100 closed flat, up just 0.07% as increased stimulus measures boosted consumer confidence.
• The U.S. S&P 500 index fell 1.2%, dragged down by losses in tech stocks Microsoft, Netflix, Amazon and Tesla.

Read More: Twitter Hackers Saw DMs From 36 Accounts, Including CoinDesk’s

Commodities:

• Oil is down 1.8%. Price per barrel of West Texas Intermediate crude: $41.16

Read More: Ethereum a Victim of Its Own Success as Fees Soar, Vitalik Complains

Treasurys:

• U.S. Treasury bonds were mixed Thursday Yields, which move in the opposite direction as price, were down most on the 30-year, in the red 4.9%.

Read More: Ethereum 2.0 Developers Announce ‘Final’ Testnet Before Network Launch

Related Stories

• First Mover: Ethereum a Victim of Its Own Success as Fees Soar, Vitalik Complains
• BitGo Now Supports Custody and Staking of Tezos’ XTZ

Bitcoin options traders have completely deserted Bakkt, with its volume and open interest flatlining at $0 since June 15.

• The Intercontinental Exchange’s subsidiary launched its bitcoin options market in December 2019. 
• Open interest for the exchange’s options market has suffered complete inactivity before, but the current 38-day streak dwarfs other periods. 
• Bakkt’s options volume has also dropped to $0 since April 23, according to Skew.
• Bakkt declined to comment when contacted by CoinDesk.

• The record for daily options volume in Bakkt is $528,000, set on January 8.
• According to Skew, 92% of bitcoin options trading volume is controlled by Panama-based exchange Deribit, which reported $101 million in volume Tuesday.

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• Market Wrap: Bitcoin Hits 1-Month High; DeFi Value Locked Hits $3.3B
• 3 Reasons Bitcoin’s Price Could Soon Rise to $10K
• Market Wrap: Bitcoin Fails to Stay Above $9,400 While Dai Supply Skyrockets
• Bitcoin ‘Active Entities’ at Highest Since 2017 Bull Run

Avanti Financial expects to open its doors this October with a new bank-issued digital asset.

Led by Wyoming blockchain advocate Caitlin Long, the crypto-friendly bank announced Thursday its application was accepted by the Wyoming Division of Banking on July 15. Avanti will open in the fall because the regulator accelerated the timeline of its application process. 

In the same announcement, Avanti revealed its plans to issue Avit, a programmable digital asset that can only be issued by banks and will be treated as a cash equivalent. With Blockstream as the bank’s technology partner, Long said in an interview that “one could presume that the Bitcoin blockchain will be involved,” but could not comment further. 

Related: Binance Enters German Market via Partnership With Crypto Investment Firm

Read more: Caitlin Long’s Avanti Raises $5M, Submits Wyoming Bank Charter Application Draft

If Avanti’s charter application is approved in October, the bank will be the only financial institution capable of issuing Avit. While Avit would not be pegged one-to-one to the U.S. dollar – because it’s a new digital asset, not a digital representation of a real-world asset – the currency would be 100% backed by a reserve of liquid traditional U.S. assets. (The bank requires this reserve for all the assets it custodies.)

Avanti claims Avit will not have the same delayed settlement and chargeback issues that traditional fiat payments face. Because an automated clearing house (ACH) transaction can be reversed several weeks after a payment has been made, exchanges and other asset service providers often hold traders’ cash for several days, Long said. 

“There’s a lot of counterparty risk in OTC trading of digital assets,” Long said. “Everyone wants to settle second. What we’re doing is offering the ability for both sides to settle simultaneously.”

Related: Banks in US Can Now Offer Crypto Custody Services, Regulator Says

The bank also claims Avit will not have the legal, accounting or tax issues associated with stablecoins.

“No one knows the legal enforceability of digital assets in the U.S. because they fall through the cracks,” Long said. “The legal clarity of all stableicons is not there. Tax and accounting is also far from clear.”

Read more: Banks in US Can Now Offer Crypto Custody Services, Regulator Says

Long argued that despite the Office of the Comptroller of the Currency (OCC) letter clarifying that U.S. banks may provide crypto custody, the special purpose depository institution in Wyoming is still the most advanced framework for crypto custody in the U.S. 

“The OCC and 49 other states do not yet have in place the comprehensive legal structure necessary for enabling digital asset custody without significant legal risk,” Long said in a press statement, adding: 

“They also do not have a roadmap for courts to adjudicate disputes involving digital assets and do not provide the certainty in bankruptcy that Wyoming provides for digital asset custodians. Its prudential standards make Wyoming the only jurisdiction in the U.S. where digital asset custody in a bank can truly be executed in a safe and sound manner.”

The Wyoming Division of Banking did not return a request for comment by press time.

Related Stories

• Standard Chartered to Launch Institutional Crypto Custody Solution
• Crypto Custodian Curv Is Helping Institutions Dabble in DeFi With Compound Integration

Arca Capital Management’s flagship hedge fund – the Arca Digital Assets Fund – is up 76.74% in 2020, even as some cryptocurrency-focused hedge funds appear to be floundering and still others are folding due to lackluster demand.

• According to a monthly investor note obtained by CoinDesk, Arca Digital Assets Fund, which invests in crypto companies’ tokens, equities and bonds, has grown 9% or more every month this year except for in February (-3.24%) and March (-4.36%) when it followed global capital markets’s virus-induced plunge.
• The fund’s 76.74% year-to-date gains beat the S&P 500 (+1.12%), Bloomberg’s crypto index BCGI (+38.01%) and bitcoin (+30.39%). January’s 35.37% growth was the fund’s strongest single month of 2020. Last month it gained 9.9%, the investor note shows.
• Arca’s Investment Adviser registration documents reveal that Arca Digital Assets Fund had a gross asset value of $2,976,028 as of March 30. A source familiar with the matter told CoinDesk that Arca has doubled its assets under management every quarter of 2020. 

Related Stories

• SEC Registered Broker-Dealer Is Launching a Security Token Platform
• Prime Factor Capital Is Shutting Down: Lack of Capital Cited as Prime Factor
• Boston Fed Wants to Hire a Digital Currency Engineer
• BitGo Now Supports Custody and Staking of Tezos’ XTZ

A broker-dealer registered with the Securities and Exchange Commission (SEC) is preparing to launch Gladius: a regulatory-compliant security token platform.

• New Hampshire-based Watchdog Capital said Thursday that issuers would be able to use Gladius to offer security tokens.
• In a statement, Watchdog said Gladius could provide companies with more access to capital as well as better opportunities for investors.
• Gladius, which has been built to be compatible with existing U.S. securities laws, is currently in beta mode.
• Bruce Fenton, CEO of Watchdog’s parent Chainstone Labs, told CoinDesk Gladius plans to host the first offering in the next three months.
• As Watchdog is a registered broker-dealer, Fenton said Gladius can be used for SEC-exempted offerings, including crowdfunds.
• Watchdog has to approve each offering; certain Reg A offerings may also need approval from the SEC.
• The broker-dealer does not have the appropriate licenses to offer secondary trading or custodial services on Gladius.
• The platform is blockchain-agnostic and can also be used to issue paper equity – investors can either pay in fiat or cryptocurrencies.
• Fenton said his company believes it’s the only broker-dealer launching a U.S. security token platform at this time.
• He added that security tokens may well open up a new regulated investment avenue for companies in the decentralized finance space.

See also: Mauritius Releases Guidance for Regulated Security Token Offerings

Related Stories

• Arca’s Flagship Crypto Hedge Fund is Up 77% in 2020
• Prime Factor Capital Is Shutting Down: Lack of Capital Cited as Prime Factor
• Boston Fed Wants to Hire a Digital Currency Engineer
• Winklevoss-Owned Gemini Now Provides Custody for .Crypto Blockchain Domains

In a motion to dismiss a lawsuit brought by Ripple, YouTube argues it isn’t liable for crypto scammers using its platform. 

The motion filed on Monday in the  U.S. District Court for the Northern District of California, argues that under  Section 230 of the Communications Decency Act, “interactive computer services,” like YouTube, cannot be treated as publishers of third-party content and hence aren’t liable for it. 

• Ripple had sued YouTube in April, alleging that the video sharing platform did not sufficiently control XRP giveaway scams on its platform that caused monetary loss for users and hurt Ripple’s reputation. 
  
• The crypto firm’s lawsuit alleged that scammers have defrauded “millions of XRP valued at hundreds of thousands of dollars” from victims and cited at least one instance where a scammer apparently received $15,000 in XRP from a victim.
  
• In its motion to dismiss the lawsuit, YouTube argues that Ripple’s claims run up against  immunity provided against such lawsuits to online publishers under Section 230. The motion said that Ripple has filed the lawsuit “even though YouTube itself is a victim of the scam,” since the attackers took over user accounts on the platform.
  
• YouTube’s motion to dismiss the allegations boils down to the idea that the video-sharing giant did not willingly or knowingly engage in any of the scams or copyright infringement, and cannot be held liable for  any third party content on its website. The firm’s motion  also adds that it shut down such scams whenever it was alerted to them. 
  
• Responding to allegations that YouTube also helped scammers advertise their schemes by running paid ads for them, the video sharing giant’s motion to dismiss maintained that it could not be held liable for third-party content. “And whether YouTube ‘approved’ or ‘endorsed’ the ads by allowing them to be published is immaterial,” the motion noted. 
  
• YouTube argues that Section 230 protects the video-sharing giant from Ripple’s allegations and therefore the case should be dismissed. A Ripple representative did not immediately respond to a request for comment on YouTube’s motion to dismiss. 
  
• In another lawsuit filed against YouTube yesterday, Apple’s co-founder Steve Wozniak alleged that the firm had allowed bitcoin giveaway scams that use his likeness to thrive on its platform. Wozniak, along with 18 other plaintiffs, is seeking punitive damages and demanding that Youtube take down all such scams as well.
  
  
  

Related Stories

• Apple Co-Founder Steve Wozniak Sues YouTube Over Bitcoin Giveaway Scams
• Twitter Hacker Is Mixing Bitcoin Loot Using a Wasabi Wallet, Elliptic Says
• Maybe It Wasn’t About the Money – Few People Fell for Twitter Hack, Data Indicates
• Man Charged With Defrauding $4.5M in Crypto to Fund Gambling Habit

The Takeaway:

• Enterprise blockchain solutions in Russia have to get their cryptographic elements certification with the FSB, the counter-espionage agency
• The process can take several years to complete and up to $100,000
• Some foreign-developed blockchains can’t satisfy the requirement without a fork
• Russian-made systems might end up isolated from the global market due to distrust of Russian government cryptography standards

Blockchain technology was created to be borderless. But in the real world, borders still impose limits on this technology.

Everything related to cryptography in Russia falls under the supervision of the Federal Security Service, or FSB, which is the successor to the KGB. The FSB has a certification process for blockchain companies, which might cost over $100,000 and take more than a year, according to experts on the Russian enterprise blockchain market. 

Related: Russia to Treat Crypto as a Taxable Property

Last year, the Fintech Association, a consortium helmed by the Bank of Russia, reported obtaining the certification for Masterchain, its blockchain for banks. The process took about three years to complete, and it’s still not the end of story. 

Read more: ‘Disappointed’ by Central Bank Blockchain, Russia’s Largest Bank Eyes Alternatives

The Fintech Association is working on getting another certificate from the FSB, this time for a particular product on Masterchain. Going forward, any new iteration and implementation of the code using cryptographic elements needs to go through this process. 

Other Russian enterprise blockchain projects, including Waves and Bitfury’s Exonum, are still working on getting certified as well – and they also may need more than a year. 

Related: Wanted Wirecard Exec Said to Be Sheltered by Secret Service in Russia

The FSB’s certification process is challenging the borderless feature of blockchain technology in two ways. Globally, Russia is trying to get the cryptographic community to accept its encryption algorithm as a standard. Inside the country, the blockchain industry is trying to figure out what to do with a product that foreign partners might be reluctant to adopt. 

Unofficial must

While there is no law directly stating that blockchain companies must be certified by the FSB, companies have strong incentives to do so. First, according to Russian law, documents that are signed electronically must use state-certified electronic signatures to be legally binding documents.

“If we’re talking about financial services, certification is a must, otherwise the transactions between [blockchain system] participants won’t have any legal significance. And the digital signature should be built into the blockchain system,” explained Anatoly Konkin, head of DLT at the Fintech Association. 

Certification also could help convince big clients, in particular government agencies in Russia, that the system you’re building is secure, says Ivan Maslov, Bitfury’s head of development in Russia. 

Read more: Waves and the Tricky Task of Being a Russian Crypto Brand

“If you are creating a system for a government body, it must be certified,” Maslov said.

“It’s an additional competitive advantage for [enterprise blockchain] vendors, which allows them to promise that the system will satisfy all the security requirements,” said Dmitri Plakhov, head of the technical committee of the Center for Distributed Ledger Tech at the Saint Petersburg State University. 

The situation is not unique to Russia, notes Sasha Ivanov, CEO of Waves: “Using local cryptography for government-level blockchain projects is a reality that we will have to deal with, be it Russian, Chinese, or Western projects.” 

The certification process in Europe, he adds, might take less time than in Russia, but the principle is the same.

Russian standard

For blockchain companies, however, the FSB certification process brings special challenges. Blockchain technology is supposed to be a transparent, agile and auditable system, but having certified cryptographic modules raises questions about transparency and reliability. 

The easiest way to comply with the FSB requirements is to use a solution from a licensed vendor – but the code of such solutions is not open source and can not be audited. This is not obligatory, and Masterchain, for example, is using its own cryptography elements, Konkin said. However, an FSB-licensed company named Crypto PRO has been supervising the entire creation of Masterchain. 

CryptoPRO is also one of the licensed providers of the GOST (GOvernment STandard) cryptography solutions certified by the FSB.

Bitfury’s Maslov explains that to get Exonum compatible with the requirements of Russian government bodies that the company is working with, Bitfury used software made by one of the FSB-certified providers. The software is responsible for data encryption, hashing and securing channels for the nodes to connect, Maslov said, but it’s up to the blockchain architect to decide what functions should be used. 

The process is far from transparent. When a company gets a document from the FSB saying its product is now certified, most of that document is classified. 

If the blockchain solution is open source, it’s certified version won’t be. For example, the certified version of Bitfury’s Exonum will not be open source, even though Exonum itself is, Maslov said. “The open code can not be certified. You need to certify a certain version of it, but if somebody can change it with one click, it’s hard to control this,” he adds.

Read more: Moscow Said to Hire Kaspersky to Build Voting Blockchain With Bitfury Software

Furthermore, the certification process is complicated by the need to check not just the code, but also its implementations. Even though Masterchain was already certified as a platform, it also had to get a separate certificate for each app it’s building on top, Konkin said. For one of these apps, which stores digital mortgage bonds, the certification is already complete. But for another one, the inter-bank letter of credit project, the process is still ongoing.  

The certification touches every part of the blockchain architecture. Artem Kalikhov, Wave Enterprise director of product, explained that the certification process entails the entire architecture of the blockchain being scrutinized. This includes “not just the use of the cryptographic functions, but also the information security, correctness of the consensus algorithm. Different threat models for the system must be studied.”

The task gets further complicated by the fact that the FSB hasn’t dealt with blockchain systems before, excluding Masterchain, and it has to grapple with the novel concepts of blockchain architecture.

“Now they are figuring out blockchain, consensus, smart contracts,” Kalikhov said.

The certification process requires quite a lot of company resources. Normally, two or more people in the company need to work on it full time, writing the technical papers and communicating with the FSB, Maslov said. The product that’s getting certified basically gets frozen for the period of certification, and any updates need to go through the process again, he said. 

A game of algorithms

The FSB certification requires international blockchain companies to use Russian standards, but those Russian standards could be viewed with suspicion abroad. 

Historically, Russia has maintained its own cryptographic standard, the so-called GOST, as did China, staying clear of the global market of cryptographic solutions and not trusting foreigners to sell them encryption tools. 

This strategy was vindicated by stories such as that of Crypto AG, a Swiss code machine manufacturer, which turned out to be controlled by the NSA for decades and sold compromised machines across the globe, as the Washington Post reported. 

The certification process also makes it harder for global blockchain projects to make it in Russia. 

“Cryptographic algorithms created abroad can’t be recognized as legitimate in Russia by the law,” Alexey Lukatsky, security advisor at CISCO, said. “According to the FSB requirements, a cryptographic solution developer should be based in Russia and have a license from FSB, which is unfeasible for foreign companies.”

Yet another problem is that Russian certification could cause blockchain projects to be cut off from the global developer community. 

“There are no platforms, and won’t be any, where you can build the Russian cryptography in and keep the full tech support available before,” CryptoPRO’s engineer Dmitri Pichulin told CoinDesk. 

Currently, most blockchain solutions are based on the hashing algorithms built upon the Advanced encryption standard, or AES, established by the U.S. National Institute of Standards and Technology. 

For internationally recognized standards, there are multiple libraries that developers can use, while for national standards, there are less opportunities to build upon freely. Libraries for GOST are harder to find, a cybersecurity expert Sergey Prilutsky says.

For example, there is no GOST library for the Go language, which is used to build on Hyperledger Fabric, Prilutsky said. “So the devs have to transfer [their code] from C++ to Go. But in this case, there is a danger to introduce serious vulnerabilities into a system,” he added.

In addition, the GOST crypto algorithm itself has been viewed with apprehension by the global cryptographic community. When the algorithm, named Kuznyechik (“grasshopper” in Russian), was presented to the International Organization for Standardization (ISO) last summer, it got a cold reception, Vice reported, as the experts from other countries found potential vulnerabilities in the cipher. 

According to the French cryptographer Pascal Paillier, the research has shown that “the Russian standards may contain what looks like a backdoor, which, if confirmed, would allow Russia to be able to break the confidentiality of communications,” he told Vice.

No more Fabric?

Blockchain products with foreign roots might get pushed out of the Russian market. Take the example of Hyperledger Fabric by IBM. Hyperledger has been the most popular framework for enterprise blockchain, and the giants like the Russian Railways, Sberbank and Gazpromneft used it as a platform of choice for blockchain proof-of-concepts. But maybe not anymore. 

Previously, there was a way to build the GOST cryptography into Fabric without forking it – which is, without making it incompatible with the main branch code – by using plugins, and CryptoPRO even created some for Russian companies to use. However, the most recent version of Fabric, released late January, no longer supports plugins. 

Read more: Meet the Russian Oligarch Launching a Metal-Backed Crypto Token

IBM engineer Chris Ferris, who is the сhair of Hyperledger’s Technical Steering Committee, said via a spokesperson that it’s still possible to build in an alternative cryptography but “it would require a recompile of the binaries.” As for the plugins, supporting them “was not sustainable and required significant work-arounds to manage dependencies,” Ferris added.

There is also an opening for Russian developers to find a way to securely build the GOST cryptography into Fabric and provide quality tech support and regular code updates, essentially replacing the Hyperledger community. 

Some companies have been working on commercial forks of Hyperledger Fabric already. One of them is CryptoPRO, which has already patented its forked version, named CryptoPRO HLF 1.0. 

It’s not a commercial product yet, Pichulin says, but it might become one. “The demand is there, tech support and updates are on our agenda.”

Still, the challenge of certification, combined with Russia’s law demanding that all Russian’s data be stored inside the country, might further insulate Russia from the global technology market. 

Cryptographic elements are rooted deep in any product’s core, which makes systems based on different standards incompatible, Prilutsky says. 

He added:

“The open source solutions based on Western [cryptographic] standards, available in hundreds of countries, can’t be used in Russia because of the certification requirements, and the blockchains with Russian cryptography are a non-starter for the global market players – they are not trusted.”

Related Stories

• Microsoft Partners With Waves Enterprise to Tokenize Industrial Assets
• Darknet Markets Are Mixing Bitcoins at Blistering Pace: Report

The OCC will allow banks to custody crypto, Visa has a digital currency playbook and a digital dollar is essential to America’s economic edge, said experts at a U.S. Senate hearing.

You’re reading Blockchain Bites, the daily roundup of the most pivotal stories in blockchain and crypto news, and why they’re significant. You can subscribe to this and all of CoinDesk’s newsletters here. 

Top shelf

Digital Dollar Hegemony
The U.S. Senate Banking, Housing and Urban Affairs Subcommittee on Economic Policy conducted a hearing on “Winning the Economic Competition” between China and the U.S. on Wednesday where crypto was cited as a possible tool to maintain U.S. economic supremacy. “This could be interpreted as crypto’s increasing acceptance as a mainstream idea,” CoinDesk’s Nikhilesh De says. Former CFTC Chair Christopher Giancarlo once again called for the U.S. conduct pilot programs using a tokenized dollar. “We have to assume that as the nature of finance changes, the nature of currencies change, we have to stay at the leading edge,” Walter Russell Mead, the James Clarke Chace Professor of Foreign Affairs and Humanities at Bard College and a member of the Hudson Institute, said. 

Related: Don’t Expect Banks to Jump on the OCC Crypto Custody News

‘The Future of Money’
Visa outlined a digital currency playbook Wednesday, showing its commitment to digital currency’s place in “the future of money.” Already a crypto bridge for tens of millions of merchants, Visa cast its digital currency partnerships as critical to preserving what it said was six decades of innovation. “Extending this legacy into the decades ahead requires continuous innovation and collaboration with” the public and private sector, it said.

Near the Net?
Brooklyn Nets guard Spencer Dinwiddie’s plan to tokenize part of his $34 million NBA contract fell short of its $13.5 million target. Dinwiddie’s issuer SD26 LLC sold just nine of the 90 available tokenized contract shares, priced at $150,000, to eight total investors as of Wednesday, according to CoinDesk’s review of Form D regulatory filings and the security’s token’s issuance history on Etherscan. Project insiders have previously said the sale would last only until the end of July. It now appears to be closed out for good. Dinwiddie first proposed tokenizing his three-year contract in September 2019, which was initially met with fierce opposition from the NBA.

Ant’s Assets
Ant Group claims its clients are uploading an average of 100 million digital assets to its distributed ledger every day, making it the largest operating blockchain in China. The Alibaba-affiliate company made the claim in a release Thursday that announced Ant Blockchain was rebranding to AntChain. An Ant spokesperson later told CoinDesk these were mostly transaction records, as well as copyright and property ownership certificates. Ant Group said this week it was planning an IPO on the Shanghai and Hong Kong stock exchanges at a rumored $200 billion valuation.

Compromised Accounts
The attackers who compromised Twitter in a massive breach last week may have accessed direct messages from up to 36 accounts, including CoinDesk’s, according to an announcement late Wednesday. Twitter said it has completed its review of the 130 accounts targeted by the hack, which garnered $120,000 through a crypto giveaway scam. The attackers were not able to see previous passwords, but were able to access email addresses, phone numbers and possible “additional information,” the update said. CoinDesk has yet to regain access to its primary account. 

Quick bites

• Apple’s co-founder Steve Wozniak sued YouTube over Bitcoin giveaway scams using his likeness
• BitGo is staking Tezzies
• Winklesvoss-owned Gemini will custody .crypto domains names
• Veritaseum accuses T-Mobile of gross negligence over $8.6 million SIM-swap hack
• The U.S. House passed two blockchain amendments in an annual defense budget bill

The big idea

Related: First Mover: Ethereum a Victim of Its Own Success as Fees Soar, Vitalik Complains

A change is in the air. In a letter yesterday, the Office of the Comptroller of the Currency (OCC) announced all nationally chartered banks in the U.S. will be able to provide custody services for cryptocurrencies.

This marks a major turning point for the crypto industry, long reliant on specialist custodians, typically licensed through states, to offer services to large investors. But it also signals a changing attitude in the nature of money. 

“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers,” the letter said.

Brian Brooks, a former Coinbase exec who joined the OCC as Acting Comptroller earlier this year, is just one of a number of crypto-friendly regulators in high positions. U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton is likely to become the next U.S. Attorney for the Southern District of New York, while ‘Crypto Mom’ Hester Peirce has been tapped for a second term as an SEC commissioner.

It’s not out of the question for more crypto-forward legislation or administrative actions to follow this year. 

Still, the growing governmental acceptance of crypto comes with costs. Banks custodying digital assets will have to conform to local laws and follow “sound risk management practices,” the OCC letter states, placing these assets under watchful eyes. 

Whether this is antithetical to crypto’s original ethos, or may stifle breakneck development is an open question. But it’s worth asking what “being your own bank” means. 

Market intel

‘Risk On’
Bitcoin jumped above $9,500 on Wednesday, ending a four-week-long low-volatility squeeze. CoinDesk’s Omkar Godbole said market sentiment is poised for a further rise to the psychologically important $10,000 price level. In particular, a “risk-on” mood in traditional markets – seen by five-month highs in global stocks and near-term lows for the U.S. dollar, a safe haven in times of crisis – supports the case for a bullish crypto market. Bitcoin has recently developed a strong correlation with traditional assets. 

Tech pod

Testing, Testing
Ethereum 2.0 developers released the specifications for the “official” testnet on Wednesday, ahead of a presumed end-of-year launch. The testnet will begin August 4 and has been named “Medalla” after a Buenos Aires metro stop. In this case, “official” means the testnet is deployed by the Ethereum Foundation (EF), which will run by a decentralized group of programmers, developers and code auditors organized by fork coordinator Afri Schoedon. This is also a signpost the network’s code base is nearing launch readiness. Medalla joins multiple prior tests of Eth 2.0’s code bank on various client implementations, including Görli, Witti, Schlesi and most recently Altona.

Crypto on the Backend
Orchid VPN announced the launch of a Mac desktop app for private web browsing, which will allow users to purchase bandwidth using an Apple ID. The Ethereum-based service “marks one of the first times consumers can exchange USD for a service that runs entirely on crypto in the background,” Orchid CEO Steven “Seven” Waterhouse told CoinDesk via a spokesperson. Apple has traditionally taken an anti-crypto stance, including banning mining applications. “At minimum, Orchid’s arrangement with the Cupertino tech giant represents a slick workaround,” CoinDesk’s Zack Seward reports.

What Went Wrong
Blocknative, a company that studies blockchain mempools, issued a report that may explain the “zero-bid” attack on MakerDAO on March 12, also known as Black Thursday. The company found that an unusually high proportion of the mempool was clogged by transactions with very low gas prices, “hammering” the system with transactions never meant to go through. This opened the doors for hackers to submit “zero bids” in MakerDAO’s collateral auctions with stronger gas prices, essentially netting them collateralized ETH for $0. The attackers walked away with $8.3 million.

Opinion

Embrace the Unknowable Intelligence
Jesus Rodriguez, CEO of IntoTheBlock, thinks crypto should embrace OpenAI’s new GPT-3 language generator model, not fear it. Noting that GPT-3, which is able to respond to human prompts, does not pose consequences for crypto, it could be employed in developing new quantitative trading and on-chain analysis strategies, as well as find a home in decentralized systems. “[T]he techniques behind GPT-3 represent the biggest advancement in deep learning in the last few years and, consequently, can become incredibly relevant to the analysis of crypto-assets,” he said. 

Who won #CryptoTwitter Related Stories

• Banks in US Can Now Offer Crypto Custody Services, Regulator Says
• Blockchain Bites: Coinsquare Conclusion, Ethereum Fees and a GPT-3 Poet

Binance has partnered with licensed German investment firm CM-Equity to offer crypto asset management and brokerage services in Germany and Europe.

• CM-Equity has a crypto custody license with Germany’s Financial Supervisory Authority (BaFin), allowing Binance, the largest crypto exchange by volume, to operate in the German market.
• Digital asset custodians in Germany have to be licensed, per a law passed in January 2020. Crypto firms have scrambled to understand the new mandate; BaFin offered additional clarity on the new regulations in February.
• “Depending on the residency of the user, some services were restricted and/or not marketed in certain jurisdictions,” Wei Zhou, Binance’s chief financial officer, said via email. “This partnership allows Binance to offer more services and market directly to more countries in Europe.”
• The exchange would not clarify what kind of new services it would offer with CM-Equity, saying it would announce them in the coming weeks and months.
• “Binance offers the best trading experience in the market and we are thrilled to collaborate with the world’s number one,” CM-Equity CEO Michael Kott said in a press release. “Our fully licensed digital assets platform will benefit from the best liquidity and frictionless service offered by Binance.”

Read more: Germany’s BaFin Clarifies Licensing Process for Foreign Crypto Custodians

Related Stories

• Chainlink Integration Brings Data Feeds to Binance’s DeFi Project
• Banks in US Can Now Offer Crypto Custody Services, Regulator Says
• Blockchain Fintech Firm BitBond Joins German Bank Association Bankenverband
• Swipe Futures Volume Equals 42% of Its Market Capitalization

Cambrian has landed $4 million of operating capital from high-flying technology and finance investors to help run its $25 million data-driven crypto-trading fund.

• Cambrian Asset Management, the manager of a quantitative cryptocurrency fund based in Marin County, California, raised $4 million in equity, the firm announced Thursday. 
• The seed funding round was led by Renaissance Technologies and First Round Capital co-founder Howard Morgan, the family investment offices of Charles B. Johnson and Franklin Templeton, IVP general partner Dennis Phelps, and Business Insider and MongoDB co-founder Kevin P. Ryan, according to the fund. 
• “Following the events of 2020, more investors are starting to look at digital assets because of their scarcity, as well as the value created by innovation that is orthogonal to the equity and credit markets,” Ryan said.
• The money will support operations, R&D and technology, instead of growing managed assets. Morgan and Johnson are said to be deeply involved with advising Cambrian on these infrastructure plans. 
• Cambrian, which started investing with mid-single-digit millions of dollars in capital, now has $25 million under management and has outperformed the Bitwise 10 and Bletchley 10 passive cryptocurrency fund indices.
• Former and current principals and executives from Goldman Sachs, UBS, The Carlyle Group, BNP Paribas, DRW, RGM, SAC Capital, Tata Capital, Standard Pacific Capital, Winton Capital, First Round Capital, Visium, Microsoft, Instagram, Airbnb, Pinterest and Fastly, as well as angel investors in Coinbase and Uber, also took part in the equity round, the fund said.
• Cambrian co-founder and chief executive officer, Martin Green, co-chief investment officer and managing partner, Jay Posner, and head of engineering, P. Daniel Tyreus, launched the fund in November 2018.
• Cambrian uses probabilistic algorithms, or computer programs developed on statistically focused models, to take long and short trading positions on large market capitalization cryptocurrencies such as bitcoin over several days or weeks rather than by the hour or minute.
• To curb risk, the fund does not trade on margin with derivatives, options or futures. Green told CoinDesk that leveraged trading instruments on cryptocurrency exchanges remain underdeveloped for the fund’s tastes.
• Cambrian works only with well-regulated, audited and on-shore custodians – Coinbase and Fidelity Digital Assets – and counterparties.

Related Stories

• Vanguard to Go Live on Symbiont’s Blockchain Platform for Foreign Exchange in Q3 2020
• ‘Long Bitcoin’ It Ain’t: Crypto Traders Make Sense of Renaissance Filing
• $166B Asset Manager Renaissance Eyes Bitcoin Futures for Flagship Fund

Ether’s price gained on Wednesday but it is struggling to extend the rally. It may be due to a build of short-term selling pressure, as indicated by higher flows of ETH to exchanges.

The second-largest cryptocurrency by market value rose to $270 at around 23:00 UTC on Wednesday, marking a bullish breakout from the multi-week-long trading range of $225 to $250. 

As such, some observers are expecting stronger gains. So far, however, the cryptocurrency has remained flatlined below $270. 

Related: First Mover: Ethereum a Victim of Its Own Success as Fees Soar, Vitalik Complains

One possible explanation for the weak follow-through to the bullish breakout could be the pick up in the inflow of ether into centralized exchanges observed after the cryptocurrency’s breakout. Investors or miners usually move coins from their wallets to crypto exchanges when they want to liquidate their investments.

So far Thursday, more than 135,000 ETH have been transferred to centralized cryptocurrency exchanges. That is the highest single-day exchange inflow since June 5, according to Santiment, a blockchain analytics firm. 

Read More: First Mover: Ethereum a Victim of Its Own Success as Fees Soar, Vitalik Complains

“The spike in the amount of ETH flowing into centralized exchanges suggests a rising selling pressure. Weak hands might be looking to cash in on the pump. So it’s not surprising that ETH seems to have stabilized around $264 for the moment,” Dino Ibisbegovic, market analyst at Santiment, told CoinDesk in a Telegram chat. 

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“Weak hands” is the term used to describe traders lacking confidence or resources to hold assets for long-term. Usually, it’s the retail crowd which exits on minor price pumps or dumps. Hence, markets often consolidate or witness temporary price pullbacks following major breakouts like the one seen in ether. 

Outflows from top 100 addresses

On-chain data show significant outflows from whale addresses. For instance, holdings of the top 100 ETH addresses have declined by 700,000 in the past three days. 

In addition, miner balances have declined by 11,000 ETH to 1.163 million ETH since July 11, according to Santiment. However, in both the cases, it is difficult to gauge how much of the outflow went to exchanges. 

It remains to be seen if ether faces selling pressure in the next few days due to the rise in the exchange inflows. “In the past, similar spikes have been recorded around local tops, suggesting capitulation,” Ibisbegovic said. 

That said, it all depends on how strong the buying pressure is. If the bulls manage to absorb the potential sell wall from weak hands, a pullback won’t be seen and prices could chart a quick rise after a brief consolidation. 

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Prime Factor Capital has exited the cryptocurrency investments game less than a year after becoming the first regulated British crypto hedge fund to gain approval.

• The alternative assets manager failed to attract many institutional investors during its two-year run (it was founded in 2018), according to a report by Financial News, and is shutting down completely.
• Founded by BlackRock alumni, the firm became Britain’s first approved crypto hedge fund in July 2019 when it secured a Financial Conduct Authority (FCA) license to manage in excess of 100 million euros. 
• That wasn’t enough to lure big-fish investors, however, and neither was the firm’s claim to deliver existing clients a 4% average monthly return, CEO Nic Niedermowwe told Financial News.
• FCA records show that Prime Factor Capital’s authorization expired on June 25.

Read more: UK Regulators Approve First Cryptocurrency Hedge Fund

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