CoinDesk Crypto

Privnote, a free web service that which lets users send encrypted messages that self-destruct once read, has been copied with the reported aim of redirecting users’ bitcoin to criminals.

In a Sunday post on cybersecurity blog KrebsonSecurity, journalist Brian Krebs warned users of a phishing scam that lures unsuspecting victims to a near-identical version of the privnote.com website known as privnotes.com.

However, the fake site doesn’t fully encrypt messages, as Krebs discovered in tests, and can “read and/or modify all messages sent by users.”

Related: Bitcoin Price Drop May Be a Bear Trap, Options Market Suggests

Just as worrying, it contains a script that hunts out messages containing bitcoin addresses and changes the original address into the bad actor’s own address in the sent message. This would mean any funds sent would arrive at the bitcoin address owned by the criminal, not the one intended by the message sender.

“Any messages containing bitcoin addresses will be automatically altered to include a different bitcoin address, as long as the Internet addresses of the sender and receiver of the message are not the same,” Krebs said in the post.

“Until recently, I couldn’t quite work out what Privnotes was up to, but today it became crystal clear,” he said.

Krebs explained that he’d been notified by the owners of privnote.com that someone had built a clone version of their site and that it was tricking users of the legitimate site.

Related: JPMorgan Analysts: Bitcoin Is Likely to Survive (as a Speculative Asset)

See also: Crypto Scams Targeting Pacific Communities on the Rise, Say New Zealand Regulators

“It’s not hard to see why: Privnotes.com is confusingly similar in name and appearance to the real thing, and comes up second in Google search results for the term “privnote.” Also, anyone who mistakenly types “privnotes” into Google search may see at the top of the results a misleading paid ad for “Privnote” that actually leads to privnotes.com,” Krebs wrote.

A quick Google search by CoinDesk verified this finding.

Making the scam harder to spot, the self-destructing nature of these messages means victims are unable to go back and check on the bitcoin addresses the script alters: they are sent, read and deleted. According to Allison Nixon, chief research officer at Unit 221B, who helped identify and test the phishing scam, said the script appears to only alter the first instance of a bitcoin address if it’s repeated within a message.

“The type of people using privnote aren’t the type of people who are going to send that bitcoin wallet any other way for verification purposes,” Nixon said in the post. “It’s a pretty smart scam.”

Bitcoin-related scams have been on the rise in recent months, particularly with concerns relating the coronavirus pandemic. U.K residents were warned in late March that scams were being used to exploit fear and uncertainty through text messages and emails posing as an official health organization.

See also: FBI Warns COVID-19 Scammers Are Targeting Crypto Holders

“Even if you never use or plan to use the legitimate encrypted message service Privnote.com, this scam is a great reminder of why it pays to be extra careful about using search engines to find sites that you plan to entrust with sensitive data,” Krebs said.

• Bootstrapping Mobile Mesh Networks With Bitcoin Lightning
• How the Porn Industry Changed During Coronavirus, With Performers Wary of Bitcoin

Rumors that India might be considering a new ban on crypto may be premature, exchange founders and startup CEOs working in the sector believe.

Indian news site The Economic Times created a stir Friday by suggesting that lawmakers in India, where the Supreme Court only overturned a punitive banking ban from the Reserve Bank of India (RBI) four months ago, were planning on slapping a new ban on crypto companies.

The story, titled “With a law, India plans lasting ban on crypto,” cited one unnamed “senior government official” who told The Economic Times that, “A note [presumably on crypto] has been moved (by the finance ministry) for inter-ministerial consultations.”

Related: Just-Launched Ziglu Wants to Make It Stupid Easy to Buy Crypto

The article doesn’t provide any information on what the note could be but says that it was spurred on by the Supreme Court ruling, which allowed crypto exchanges to finally access banking services after nearly two years stuck in the wilderness.

They then claim that it could well lean on a previous government draft law, from July 2019, which proposed that all forms of cryptocurrency be banned, with anyone caught holding them facing up a fine and up to 10 years imprisonment.

But is there any substance to this?

Well, the report in question relates to one published by a government panel, chaired by former Economic Affairs Secretary Subhash Chandra Garg. While the report recognizes blockchain technology is an “important new and innovative technology,” it notes, “with serious concern,” that the use of cryptocurrencies in India is “mushrooming” at an alarming rate.

Related: Crypto Long & Short: Cryptocurrency Markets May Be Decentralized, but They’re Still Accountable

Highlighting that many crypto assets don’t have any intrinsic value and supporting the RBI ban, the report concludes: “the Committee has recommended a law banning the cryptocurrencies in India and criminalising carrying on of any activities connected with cryptocurrencies in India.”

The only exception, they say, would be a digital currency issued by the state itself.

See also: India’s Central Bank Plans to Fight Supreme Court Crypto Ruling

Speaking to CoinDesk, Nischal Shetty, the founder and CEO of WazirX, a local exchange acquired by Binance late last year, said a blanket ban on crypto wasn’t what he was seeing.

“This is all leaked information,” Shetty said. “There is movement for sure, but no one has been able to get clarity on whether it specifically talks about a ban, or whether it talks about just moving forward with regulation. There are a lot of assumptions.”

Based on his own government sources, Shetty said he believes that the Finance Ministry is consulting with other government departments to determine what the next regulatory step should be.

“I’ve personally met people in government, right, ministers in Parliament, and what I’ve seen is they’ve been very positive about regulating,” Shetty said. “Some of them have been very vocal that a ban is not the solution because they understand technology … they understand that banning a technology is not a solution.”

The original draft bill from the Garg committee – which has long since been wound up – is still floating in the Finance Ministry and Shetty agrees it could form part of the “default content” when determining how to move forward with crypto regulation.

“Someone from the Finance Ministry has proposed that they should consider looking into cryptocurrencies and figuring out what to do, either to ban it, or to regulate it,” Shetty said, as the lifting of the RBI ban has made this a priority for officials. “[The government] wants to see progress and regulations,” he added.

But, he points out, the idea of reaching out to other departments is in order to take in other viewpoints. Citing Bloomberg Quint’s appraisal of the note, Shetty highlighted: “if in any way, they [the Finance Ministry] get pushback that a ban is not the right way approach, then they would set up another committee, which would explore [crypto] regulation.”

“I see this as a positive step,” he continued, “there is no clarity in India today. It’s a good thing that someone is taking the initiative.”

See also: Indian Crypto Exchange Adds Bank Transfers Hours After RBI Ban Lifted

Shetty’s thoughts have been echoed elsewhere.

A spokesperson for the Bangalore-based exchange CoinSwitch said, “the report has no mention of the particular government body responsible for such actions or contains quotes from reliable sources. As such there is a lack of clarity and until further details reveal we would carefully monitor the situation.”

Similarly, Sumit Gupta, the co-founder and CEO of CoinDCX, one of the country’s largest exchanges, told CoinDesk in an email that, “reconsidering past bills is likely part of the process of forming clearer regulations around the use of cryptocurrencies within India.”

Gupta noted the lifting of the RBI ban has led to record trading volumes and user adoption, calling recent growth in the sector “unprecedented.”

CoinTelegraph reported earlier this week that there has been a flurry of new exchanges launching in India, as well as a wave of outside investment from global players, including OKEx and Binance.

“Given the previous open-mindedness of government officials and regulators in the Supreme Court case, where they were willing to engage with cryptocurrency sector leaders in dialogue about the future of the industry – we are confident that a similarly communicative approach will be taken in making this decision,” Gupta said .

See also: India’s Central Bank Removes Lingering Confusion Over Banking for Crypto Firms

Among some of the existing industry players in India’s crypto scene, a consensus is building around starting more formal dialogues with officials. There’s already an active crypto-related trade body within the Internet and Mobile Association of India, which helped challenge the RBI ban.

Shetty said WazirX was looking at creating a self-regulatory framework.

“We have to show our government on why we are already practicing KYC [know-your-customer verification] and all the standard practices in India as exchanges,” he said. “I think a formal regulatory note from us would be helpful in going in the right direction.”

CoinDesk reached out to the India’s Finance Ministry for comment, but did not receive a response by press time.

• Japan’s High Court Rejects Former Mt Gox CEO’s Conviction Appeal
• Tezos and Algorand Latest to Integrate Tech for Anti-Money Laundering Compliance

U.K.-based cryptocurrency platform Ziglu has launched, following a £5.25 million (US$6.6 million) seed round. As a starting point, the platform aims to painlessly put crypto in the hands of consumers.

Announced Monday, Ziglu allows users to exchange GBP for bitcoin (BTC), ether (ETH), litecoin (LTC) and bitcoin cash (BCH), with more fiat currencies to be added and a debit card coming in July or August.

Ziglu is the brainchild of Mark Hipperson, co-founder and CTO of U.K.-based Starling Bank, one of a crop of so-called “challenger banks” that took on the incumbents with sleeker, more intuitive and transparent services.

Related: India’s Rumored Crypto Ban May Be Overblown, Say Industry Pros

Things have changed since 2015 when all the challengers entered the market, though, said Hipperson. 

“In 2020, we think the 25-45 [age] demographic will want easy, safe access to crypto,” he said. “Only about 1% of people go to the large platforms to buy crypto and we think we can do better, and perhaps get them better prices as well.”

The marketplace for apps that offer crypto is heating up. For instance, Square, the fintech unicorn launched by Twitter CEO Jack Dorsey, rolled out bitcoin purchases in mid-2018 and recently reported bitcoin revenues of $306 million on its Cash App service.

Read more: Bitcoin Revenue in Square’s Cash App Tops Fiat Revenue for First Time in Q1

Related: Crypto Long & Short: Cryptocurrency Markets May Be Decentralized, but They’re Still Accountable

In Europe, London-based Revolut, which recently raised $500 million, valuing the platform at $5.5 billion, allows users to buy cryptocurrencies sourced from the Luxembourg-based BitStamp exchange.  

Ziglu’s original plan was to launch with five major exchanges, but for now it’s connecting to two, both of which Hipperson declined to name. The startup has had to adapt its go-to-market plans in light of COVID-19, he said. More exchanges will be added in the coming weeks, he added.

Part of Ziglu’s secret sauce involves routing requests to find consumers the best deal. For example, if the best price for bitcoin happens to be in dollars on Kraken, the service converts fiat and sources the deal on that exchange.

The forthcoming debit card has Mastercard as a scheme partner and Global Processing Services is Ziglu’s payment processor. The seed round was sourced from high-net-worth individuals and friends, but no VCs, Hipperson said.

In terms of fiat, Ziglu plans to add currencies based upon customer demand. 

“I’d expect we would be at 15 currencies” by the end of the year, said Hipperson.

• Japan’s High Court Rejects Former Mt Gox CEO’s Conviction Appeal
• Crypto Exchange Owner Admits Laundering $1.8M in Online Auctions Fraud

Bitcoin proved itself a resilient asset, if not a stable or useful currency, during March’s global financial meltdown, according to analysts at one of the world’s largest investment banks.

In a note to investor clients circulated June 11 and obtained by CoinDesk, JPMorgan Chase & Co. analysts described how bitcoin has shifted from a fairly uncorrelated asset to one whose price more closely tracks traditional stocks.

“Though correlations were modest and mostly mean-reverting around zero for much of the past couple of years, in recent months they have moved sharply higher in some cases (equities) and lower in others (U.S. dollar, gold),” wrote the team of strategists led by Joshua Younger.

Related: Bootstrapping Mobile Mesh Networks With Bitcoin Lightning

The analysts, who normally cover bonds, noted bitcoin’s success in outperforming traditional assets in March on a volatility-adjusted basis. The report also found that liquidity on major bitcoin exchanges was, surprisingly, more resilient than for traditional assets such as equities, gold, U.S. Treasury bonds and foreign exchange.

The results of their analysis “suggest that bitcoin saw among the most severe drops in liquidity around the peak of the crisis in March, but that disruption was cured much faster than other asset classes,” the researchers wrote. “At this point, bitcoin market depth is above its 1-year trailing average, while liquidity in more traditional asset classes has yet to recover.”

Stablecoins, whose values are generally pegged to government currencies, got a brief mention and were described as relatively “unscathed” by the March turbulence.

From March 2-23, the S&P 500 plunged 29% as investors looked to cash out amid increasing concerns about the coronavirus.

Related: How the Porn Industry Changed During Coronavirus, With Performers Wary of Bitcoin

The JPMorgan analysts reckoned that cryptocurrencies successfully passed their first stress test during this period despite volatile price action. During the March panic, crypto valuations did not diverge all that much from their intrinsic values, showing little flight to liquidity within the asset class, the analysts wrote.

While the market structure for crypto during this period was more resilient than its traditional counterparts, according to the report, bitcoin did not quite live up to its reputation in some corners as a port in a storm.

“There is little evidence that bitcoin and others served as a safe haven (i.e., ‘digital gold’)—rather, its value appears to have been highly correlated with risky assets like equities,” the report concluded. “This all likely points to the continued survival of the asset class, but likely still more as a vehicle for speculation than as a medium of exchange or store of value.”

See also: Crypto Long & Short: Cryptocurrency Markets May Be Decentralized, but They’re Still Accountable

• Asset Manager Wilshire Phoenix Files to Launch New Bitcoin Investment Trust
• Market Wrap: Bitcoin Is Still Up 30% in 2020 After a Bumpy Week

Wilshire Phoenix, an asset manager which tried to launch a bitcoin exchange-traded fund (ETF) last year, has filed to launch a new Bitcoin Commodity Trust.

According to a Securities and Exchange Commission (SEC) filing published Friday, the New York-based Wilshire Phoenix intends to offer bitcoin to certain investors through the new trust, with a maximum proposed aggregate offering price of $2 million, or 80,000 shares.

“The Shares will provide investors with exposure to bitcoin in a manner that is accessible and cost-efficient without the uncertain and often complex requirements relating to acquiring or holding bitcoin,” the filing said.

Related: Market Wrap: Bitcoin Is Still Up 30% in 2020 After a Bumpy Week

The trust may be looking to compete with Grayscale Investments’ $3.6 billion bitcoin trust, which the company launched in 2013. Grayscale (which is a subsidiary of Digital Currency Group, CoinDesk’s parent firm) filed to turn its bitcoin trust into an SEC reporting company last year.

According to the Wilshire Phoenix filing, Fidelity Digital Asset Services will serve as the trust’s bitcoin custodian, while UMB Bank will serve as the cash custodian.

While the cash holdings will have FDIC insurance, the bitcoin held will only be insured against theft in excess of $100 million, according to the filing.

The trust’s value will be calculated each business day at 4:00 p.m. Eastern by its administrator, according to the document. The value will be derived by just multiplying bitcoin’s price (based on CME’s bitcoin index) at that time with the number of coins held.

Related: Bitcoin News Roundup for June 12, 2020

Read more: SEC Rejects Latest Bitcoin ETF Bid

Wilshire is perhaps best known in the crypto space for trying to launch a bitcoin ETF, hoping to succeed where several other companies have not. The SEC rejected the proposal earlier this year. The idea behind a crypto ETF is it could make bitcoin more accessible to a broader range of investors who might not be comfortable investing directly in bitcoin.

A spokesperson for Wilshire Phoenix did not immediately return a request for comment.

Update (June 13, 2020, 07:00 UTC): This article has been updated to clarify the the proposed maximum offering.

• Why Bitcoin Suddenly Dropped 6% on Thursday
• Market Wrap: Stocks’ Carnage Drags Bitcoin Down to $9K

A blockchain-centric art project is pushing the boundaries of modern art with a controversial digital display.

The DADA Art Collective, a loosely affiliated group of roughly a dozen visual artists across the globe, teamed up with the non-fungible token (NFT) marketplaces OpenSea and Mintbase plus the file-storage blockchain Arweave to publish the names and faces of American police officers accused of killing unarmed black people.

The project, No Justice No Peace, was published June 6 in collaboration with crypto veteran Dennison Bertram, founder of the DappHero project.

Related: With Arweave’s ‘Lazy’ Approach to Smart Contracts, Its Version of Web3 Does More

“The collective got in touch with me,” Bertram said. “Social justice is something that I’ve always been interested in. They’d already minted and created these tokens. … It’s a fascinating demonstration of how to do social protests using blockchain technology.” 

The DADA Collective’s Judy Mam said 10 artists contributed to this piece to support Black Lives Matter and police reform, with pictures of 30 officers along with their alleged crimes and case statuses. 

The artists leveraged Arweave’s blockchain to create a wallet associated with each person killed, holding tokens that have data for the corresponding officers’ information. 

“The private keys of the wallets that control these tokens have been destroyed. No one controls these tokens. These tokens can’t be censored, modified or taken down,” the project’s website says. 

Related: Alchemy Notify Wants to Simplify Blockchain UX With a Single Push

“Blockchain is itself a political statement, the ability to organize outside of government control,” Bertam said. “What about decentralizing justice or human rights or other aspects of society that are critical to the ways people live?”

And yet, this project raises tricky questions about the ethics of immutable digital records. In Europe, lawmakers have introduced a “right to be forgotten” with the General Data Protection Regulation (GDPR). Even in the United States, Mam said the artists behind this project prefer to stay anonymous because some jurisdictions limit access to evidence that might incriminate police officers.

“The police do take action against [outspoken] people,” Mam said. “These [visual pieces] are tokenized but they’re not for sale. … It was about making a statement.” 

With simple text beneath black and white photos, the message is clear. There’s scant artistic flourish in this piece. 

“We don’t forget. We find out who you are,” Mam said. “Maybe someday some of these men will get a [prison] sentence. … But at least now there’s a record that is there forever, immutably, of these people and their crimes.”

The criminal justice system failed to proceed with formal charges in most of these cases, despite community efforts, according to research from Bowling Green State University. This piece is just one of many activist projects already curating public lists with such information. Howard University student and crypto aficionado Gerald Nash, who was not affiliated with the “No Justice No Peace,” said he thinks the project is interesting. 

“People should take into account this isn’t an organization doing unbiased research,” Nash said of the art collective. “As a black person and someone who wants to see justice. … I see no difference between this and holding up a sign.” 

Of course, “censorship resistance” is a relative term. Governments could make it difficult to access affiliated websites and keyword searches, even if the blockchain data remains unaltered. Some experts would also argue a blockchain’s immutability depends on its incentive structure and participants, which likely are not infallible. The Arweave blockchain’s distribution is still nascent, with less than 3,000 members in the project’s Discord group.

Even with these limitations, University of New Hampshire law professor Tonya Evans agreed this art project is an interesting use case – memorializing information.

“I would compare it to what news reporters do … [but] reporters have to be very thoughtful about ways to correct the record, even if that’s to add to and not take away from,” Evans said, describing American freedom of speech laws. “Code is also speech. It will be interesting to see what type of innovation emerges during this period with regards to protecting free speech.”

• A Digital Art Project Might Have an Answer to the Woes of Staking Centralization
• Blockchain.com

Despite sliding in sympathy with stocks this week, bitcoin’s performance remains healthy this year, up 30% so far. 

Bitcoin (BTC) was trading around $9,412 as of 20:00 UTC (4 p.m. ET), gaining 2% over the previous 24 hours. 

At 00:00 UTC on Friday (8:00 p.m. Thursday ET), bitcoin was changing hands around $9,474 on spot exchanges such as Coinbase. The price began to decline, dipping to as low as $9,301, before picking up a bit. The price is well below the 50-day and 10-day moving averages, a bearish technical indicator.

Related: Asset Manager Wilshire Phoenix Files to Launch New Bitcoin Investment Trust

“The fight for the support pivot $9,750 eventually lost. The bears broke through the level and made a major drain,” said Konstantin Kogan, a partner at cryptocurrency fund of funds BitBull Capital. “There is a chance for another decline to $9,000”

Read More: Why Bitcoin Suddenly Dropped 6% on Thursday

However, despite the dip Thursday, Rupert Douglas, head of institutional sales for digital asset brokerage Koine, sees reason for optimism in the crypto markets. 

“Technically this is an important inflection point for bitcoin and I still believe we’re headed higher after several days of consolidation, having shaken out the weak longs,” Douglas said, referring to traders who dabbled in the crypto derivatives market this week.

Related: Bitcoin News Roundup for June 12, 2020

Stocks fell Thursday, a day after Federal Reserve Chairman Jerome Powell gave a dour outlook on the economy. Bitcoin was caught up in the decline. 

Read More: Stocks’ Carnage Drags Bitcoin Down to $9K

When prices in the bitcoin market began to fall, liquidations on BitMEX intensified the movement, squeezing out long positions. Hourly liquidations hit $45 million as of 16:00 UTC Thursday. 

“The correlation with stocks has been tight these last two days. Crypto is acting like a risk-on asset,” said George Clayton, managing partner of Cryptanalysis Capital. “But all of this bitcoin volatility is still within the trend channel,” i.e., par for the course in crypto.

Cryptocurrency stakeholders often scratch their heads watching the stock market. The recent fall in the S&P 500 to where it started the year may seem unhinged to them when bitcoin is up 30% this year, according to MarketWatch data. 

“The bullish technical picture for crypto is still intact. So is the macro picture. I cannot say the same for stocks and that confounding rally to the 2020 highs,” said Cryptanalysis’ Clayton.

Digital assets on CoinDesk’s big board are mixed Friday. The second-largest cryptocurrency by market capitalization, ether (ETH), is trading around $236 and climbed 3% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: Why This Dev Built a ‘Centralized Ethereum’ on Top of Bitcoin’s Lightning

The amount of gas, or small amounts of ether, sent on the Ethereum network to run smart-contract applications has steadily increased in 2020, a sign of increasing usage.

The biggest cryptocurrency winners on the day include decred (DCR) climbing 7%, cardano (ADA) up X% and tron (TRX) in the green 3.7%. The largest loser on the day is iota (IOTA) in the red less than a percent. All price changes were as of 20:00 UTC (4:00 p.m. ET).

Read More: Free Transactions Invite Systemic Attacks on Blockchains, Researchers Find

In commodities, oil is flat, gaining less than a percent as a barrel of crude was priced at $36 as of press time. 

Gold is trading, up less than percent, trading around $1,731 for the day. 

The Nikkei 225 index of publicly traded companies in Japan ended trading in Asia down less than a percent on the day, dragged down by the transportation and mining sectors. The FTSE 100 index of top companies in Europe was essentially flat, up a tenth of a percent as economic data showed U.K. output dropped to 2002 levels. 

“Bitcoin is simply playing along right now. There’s not much else to it,” said Vishal Shah, an options trader and founder of Polychain Capital-backed derivatives platform Alpha5.

In the U.S., the S&P 500 index gained 1.3%. Stocks experienced the largest losses since March for the week.

U.S. Treasury bonds were mixed Friday. Yields, which move in the opposite direction as price, were up most on the 10-year, in the green 6%.

• Why Bitcoin Suddenly Dropped 6% on Thursday
• Seed CX to Close Exchange, Focus on Settlements in Company Shift

Currently just a flashy idea, the digital dollar is competing with more prosaic but proven 20th-century methods for the job of getting stimulus funds to every U.S. resident.

That’s the takeaway from Thursday’s House Financial Services Committee (FSC) hearing, where witnesses advocated different solutions to the problem.

Making the case for an electronic greenback was J. Christopher Giancarlo, former chairman of the Commodity Futures Trading Commission (CFTC), now a director with the Digital Dollar Project. 

Related: Drug Dealer Just Sentenced to 25 Years Hoped to Build a Better Bitcoin Miner

As he has in the past, he argued tokenization is a way to future-proof the dollar. Other countries, including China, are working to digitize their currencies, he noted. If the U.S. wants to maintain its leadership role in the global financial system, it too should take on this task, he told lawmakers.

While Giancarlo previously cautioned a digital dollar should not be “cobbled together” during a crisis, he suggested at the hearing that laying the groundwork should be part of the response to the downturn caused by COVID-19.

“Nothing reveals the limits of our accounts-based financial system more strongly than the current COVID-19 pandemic, when tens of millions of Americans are waiting a month or more to receive payments by paperchecks,” he said. 

“We need to start exploring the next level of technology side by side with the existing accounts-based technology, if for nothing else to build greater redundancies in the system but also greater optionality and more tools in our toolbox to use in crises like this,” he added.  

Related: National Science Foundation Funds Research Into Crypto Dollars

But other witnesses kept the focus on the urgency of making stimulus payments quickly to those in need. One round of paper checks has gone out to individuals who filed taxes in the last two years, but many are still waiting for their stimulus dollars.  

“The point I just wanted to drive home [is] we are still in the midst of a crisis and [as] others on the panel said really eloquently, people are suffering today,” said Jodie Kelley, CEO of the Electronic Transactions Association.

“So I wanted to make sure that we recognize the only way to do that is with the tools that we have now,” she said.  

The success of prepaid debit cards and peer-to-peer applications like PayPal and Venmo show they can be used to quickly distribute stimulus dollars to those in need, argued Kelley, whose member companies process more than $8.5 trillion in payments annually. 

“The prepaid debit cards in particular are a preferred way to make payments to lower-income people. They are simple to use and don’t require a mobile phone,” she told CoinDesk after the hearing.

As for using blockchain, Mehrsa Baradaran, a Professor of Law at the University of California Irvine School of Law, said the discussion of that technology is premature.

“How do we get people to meet people where they’re at and make sure our solutions match the problem?” she asked lawmakers. “The problem here is the banking deserts, it’s the unbanked and underbanked, and we have technology to meet those people and I think that’s critical at this juncture.”

Read more: US Senator: ‘I Don’t Think You’ve Persuaded Anyone’ Crypto Creates Financial Inclusion

Baradaran advocated a different, more feasible strategy (at least technologically, if not politically): using the U.S. Postal Service to create local bank branches in partnership with the Federal Reserve. 

“We need to close this cash-digital divide first,” Baradaran said.

Non-tokenized digital dollars could also be easily set up, said Morgan Ricks, a Professor of Law at Vanderbilt University School of Law. Ricks has long touted the concept of a FedAccount, a bank account essentially offered by the Federal Reserve for consumers to have direct access. 

Setting up FedAccounts should be fairly straightforward and easy to accomplish, he told lawmakers: The Fed already offers these services to banks, large financial institutions and government entities. 

“The Fed itself has been processing real-time instant payments for many many decades through the FedWire system,” he said. “The Fed has been opening accounts on its own books since its inception … retail operations are a different matter.”

The Fed could even contract out certain tasks until it has built up its own internal infrastructure, he said.

A large portion of the hearing focused on the tokenized dollar concept, with Rep. Patrick McHenry (R-NC) asking Giancarlo to walk him through how it might aid financial inclusion and subsidy distribution.

In the former regulator’s view, a tokenized dollar could be a way to provide banking services to those who lack them. Here, broadband access is the largest issue that would need to be addressed, he said.

A lack of banking access is “not insurmountable,” if residents of areas underserved by financial institutions have broadband access, Giancarlo said.

The digital dollar “is about on-ramps into the financial system, and making them as simple and accessible as possible,” he said. While he acknowledged that access to mobile devices might be another barrier, he said solving this would make the question of financial inclusion much easier.

Focusing on providing mobile access and a tokenized dollar rather than an expansion of existing banking services, might attract more individuals to the new system, he said.

“There are populations…with folks that are just outside the banking system but are comfortable with bearer instruments,” he said.

Prior to the hearing, Digital Dollar Project director and Accenture manager David Treat told CoinDesk he was encouraged the conversation was happening at all.

He said he expected some stakeholders might only be comfortable with incremental changes to the financial system right now.

“I think we’re at an inflection point now where we’re starting on a journey of modernizing money for our digital world and I think we will all benefit if we collectively recognize that [the] journey will have multiple waves of innovation,” Treat said. 

• WATCH: US Lawmakers Talk Digital Dollar, FedAccounts in Thursday Hearing
• Digital Dollar Project Calls for 2-Tiered Distribution System in First White Paper for US CBDC

Digital Dollars
On Thursday the House Financial Services Committee (FSC) Task Force on Financial Technology convened on Capitol Hill to discuss the possible role of a digital dollar is distributing COVID-19 relief payments. The watchdogs discussed FedAccounts, or cryptographic wallets held by the Federal Reserve, for commercial banking services.

The National Science Foundation, an independent branch of the federal government, has given blockchain startup KRNC $225,000 to design cryptocurrency features for the U.S. dollar. The startup is pioneering the Proof-of-Balance consensus mechanism to assign voting power and distribute a digital currency to users in proportion to an individual’s existing wealth. 

Following the Money
The Ontario Securities Commission (OSC) issued a report saying QuadrigaCX operated like a Ponzi scheme. The provincial regulator said Gerald Cotten, who died  under mysterious circumstances, traded against his customers using their funds under fake accounts set up on other exchanges. This revelation contradicts Quadriga’s claims that customer funds were lost upon his death, as Cotten was the person to maintain copies of the private keys. 

Related: Blockchain Bites: CBDCs on Capitol Hill, Custody Battles and Smart Drugs

Meanwhile, in the last two days three Ethereum transactions have spent $5.7 million on fees. But a report claims it’s not a bug – an exchange is being blackmailed. (Decrypt)

Elsewhere, the owner of a now-defunct Romanian crypto exchange CoinFlux has pleaded guilty to laundering roughly $1.8 million in a fraudulent scheme involving fake eBay ads and a car wash.

Protocol Level
Pseudonymous developer Fiatjaf has created Etleneum, what he calls a “centralized” version of Ethereum running on Bitcoin’s Lightning Network. Like Ethereum, Etleneum has public “contracts” open for anyone’s use, but protocol is not decentralized. Fiatjaf controls it all – as he is quick to note – as a commentary on the ways Ethereum tries and fails to cede technocratic and social power from a cadre of developers. 

Researchers from Imperial College London and University College London found the overwhelming number of transactions on the EOS, Tezos and XRP Ledger networks either have no value attached or are passing it back and forth within one entity. 

Related: Blockchain Bites: Libra’s Future, Elrond’s ‘Trial by Fire’ and LocalBitcoins’ Volume

Security in technology
Mutual fund giant Vanguard has completed the first phase of a blockchain pilot to issue digital asset-backed securities (ABS). Together with blockchain startup Symbiont, an unnamed U.S. ABS issuer, BNY Mellon, Citi and State Street, Vanguard modeled the full lifecycle of an ABS settlement on blockchain.

Additionally, in separate statements, Algorand and Tezos Foundations said the blockchain networks are trying to stay on the right side of the Financial Action Task Force’s (FATF) “Travel Rule,” by linking up with analytics companies Chainalysis and Coinfirm, respectively, to help bake regulatory compliance into their eponymous blockchains.

Expansions?
Crypto wallet and bitcoin custodian, Xapo is discontinuing support for credit card payments for digital asset purchases, ahead of its transition into a digital bank later this year. As of yesterday, users would not be able to add funds to their account through credit cards.

Gemini is planning to expand its services to Singapore with the appointment of former Goldman Sachs executive Jeremy Ng as its new Managing Director of Asia-Pacific.
Crypto derivatives platform Seed CX will be axing its exchange arm to focus solely on its Zero Hash product, a custody and settlement service that accounts for 95% of the firm’s revenue.

On Thursday, bitcoin tumbled 6.37% to about $9,100 in tandem with a 5.7% sell-off on  the Standard & Poor’s 500 – rekindling an ongoing debate over the cryptocurrency’s use as a store of value. The slide in stocks came a day after the Federal Reserve provided an unexpectedly dour assessment of the outlook for the U.S. economy, and investors speculated that a possible uptick in new cases might slow the pace of the recovery. Some investors may have also sold bitcoin, still seen as a risky asset despite its 30% gain year-to-date. Since March, bitcoin’s price has shown a weak but consistent correlation with both gold and stock prices, and is now trading well below its price average for the past 50 and 100 days, typically a bearish signal.

Coinbase announced Wednesday it may list Bancor’s BNT token as well as 18 others, which gave the asset’s global trading price a slight bump. The token project itself saw a resurgence in May, facilitating nearly $10 million worth of trading volume and rising from roughly $0.20 a token at the start of the month to $0.85 by the end. Bancor’s growth, despite the broader economic crisis in 2020, may be due to a systems upgrade in April as well as the team’s role in forging a data strategy for Israeli Prime Minister Benjamin Netanyahu’s campaign. Still, BNT tokens are now selling for far less than they were during the initial sale in 2017.

Money Reimagined: The Fed, Hertz, a Bonkers Stock Market and why ICOs Still Matter
“Regulation is both unavoidable and necessary. But it absolutely should not function as protective armor for a capital market system that harms our economy’s capacity to optimize capital allocation,” says Michael Casey in the latest edition of his weekly newsletter.

The Breakdown: Fed EditionOn the latest episode of The Breakdown, NLW looks into the Federal Reserve’s role in creating inequality.

• Blockchain Bites: ‘Bitcoin Billionaires’ and Buying a Coke With Crypto
• Blockchain Bites: Coinbase Surveillance, Bitcoin Wargames, CoinMarketCap Drama

Paul Calder Le Roux, an admitted drug dealer with a background in encryption, planned to build a bitcoin miner had he beaten the rap.

In a last-ditch attempt to avoid incarceration, Le Roux wrote a letter to District Judge Ronnie Abrams, of the Southern District of New York (SDNY), this week detailing his personal history and addressing his alleged crimes. He was indicted on drug charges in 2012, pleaded guilty two years later and has been sitting in detention since. On Friday, he was reportedly sentenced to 25 years in prison, though he can appeal this decision.

Even if Le Roux wins an appeal, he would still face extradition to the Philippines, where he is wanted on a murder charge dating back to 2010. Should he be released by courts in both the U.S. and Philippines, however, he has planned his next step.

Related: WATCH: US Lawmakers Talk Digital Dollar, FedAccounts in Thursday Hearing

“I plan to start a business selling and hosting Bitcoin miners,” he wrote in the letter to the judge filed June 11.

The letter provides some background on what bitcoin is and how it works, including how coins are mined through the use of ASICs, powerful chips designed for the task. Le Roux claimed he acquired related expertise working for the U.K. signals intelligence agency known as Government Communications Headquarters (GCHQ).

“I have a custom design for an ASIC chip that utilizes special optimizations in the underlying computer code or algorithm known as (‘SHA’), I obtained this knowledge about the mathematical properties of SHA while working as a contract programmer at GCHQ in London in the early 2000’s,” Le Roux wrote.

“These optimizations have allowed me to create an ASIC chip design, and therefore ASIC miners, that are an order of magnitude faster at Bitcoin mining than any current design,” he wrote. “To this end I plan to put my knowledge and skills to a better, and legal use.”

Related: Bitcoin News Roundup for June 8, 2020

The Bitcoin white paper was released in 2008 and the first coins were mined the following year. ASICs emerged a few years after.

Over recent years, speculation has abounded alleging that Le Roux might be, or have ties to, Satoshi Nakamoto, the pseudonymous creator of Bitcoin.

Last year, journalist Evan Ratliff published an article exploring this connection, based on a court filing by Ira Kleiman against self-proclaimed Satoshi Craig Wright.

“Paul Le Roux had the technical skills to create bitcoin – that much I’d concluded the first time around,” Ratliff wrote.

Ratliff stops short of declaring outright that Le Roux is Satoshi, and notes there are many other programmers who fit the bill.

Le Roux does not appear to have claimed he is Satoshi, either.

He was sentenced to 25 years in an SDNY hearing Friday, according to Matthew Russell Lee of Inner City Press, who frequently posts updates from the courthouse.

Before the conviction was handed down, a prosecutor said Le Roux’s plan to enter bitcoin mining “gives pause,” though such a business “could be operated legally.”

Le Roux cooperated with prosecutors, Lee reported.

Read Le Roux’s full letter below:

• Crypto Long & Short: Bitcoin’s Quiet Progress Is Pointing Toward a Better Future
• VeChain to Develop Drug-Tracing Platform for Pharma Giant Bayer

Mason Privatbank Liechtenstein AG has become the latest private bank to offer digital asset custody through a partnership with Hong Kong-based Hex Trust.

The Liechtenstein bank has high-net-worth clients across Asia and Europe that have an interest in investing in digital assets such as cryptocurrencies, stablecoins and security tokens, said Chief Markets Officer Hubert Buechel. As such, the bank has chosen to adopt Hex Trust’s least invasive level of integration, because of how few trades the bank’s clients are interested in making.

“We don’t have any day traders in our client base,” Buechel said. In the future, the bank may connect with Hex Trust through a SWIFT integration or allow the trust company to build application programming interfaces (APIs) that connect directly to the bank’s core.

Related: Custody Battle Pits Institutional Boomers Against Crypto Upstarts

Read more: Liechtenstein Bank Opens Up Cryptocurrency Investment for Clients

Buechel came to the bank last July from a multi-year stint at Bank Frick, a Liechtenstein-based family bank that became one of the first banks in the world to allow clients to directly invest in cryptocurrencies. Mason Privatbank Liechtenstein is aiming to cater to both crypto-focused investors and asset managers who are looking to diversify their portfolios, Buechel added. 

Hex Trust will also connect the bank’s clients to third-party providers who can provide crypto lending, staking, borrowing and trading. With the bank’s parent company, Mason Financial Holdings, based in Hong Kong, this will be the first bank that has an Asian presence that Hex Trust is working with, said Hex Trust CEO Alessio Quaglini.

“Our goal is to create interconnectivity between the traditional asset world and the digital asset ecosystem,” Quaglini said.

Related: US Marshals Service Seeks Firm to Custody and Sell Crypto Seized From Criminals

Read more: R3 Teams With Custodian Hex Trust to Help Asian Banks Sell Security Tokens

In the back half of 2020, Hex Trust plans to further expand its reach through Europe with an office in Italy and Germany. 

Hex Trust also holds a trust or company service provider (TCSP) license under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance in Hong Kong. The custodian is entering the Monetary Authority of Singapore sandbox and applying for the capital markets custody license in Singapore. 

It’s also been provisionally authorized by Germany’s Financial Supervisory Authority (BaFin) to provide crypto custody services and is applying for the crypto custody license in Germany as well. 

• Digital Currencies Could Replace Low-Interest Bank Accounts, Says UN-Linked Expert
• Fed Paper: Central Bank Digital Currencies Could Replace Commercial Banks – But at a Cost

Russia’s Supreme Court for the first time used a blockchain-based system to record votes in a plenary session on Friday.

According to a press release, judges used the Polys app from Kaspersky Lab to record the results of voting on six issues before the court. The session was the latest to take place as a web video conference as part of Russia’s anti-coronavirus measures.

“This voting system is based on a blockchain and is using transparent encryption,” the press release says, adding that the system received a “high appraisal” from the judges of the Supreme Court in the “landmark” vote. The system has been recommended for use in the next plenary session in July.

Related: Bitcoin News Roundup for June 11, 2020

The Supreme Court’s press office did not respond to CoinDesk’s request for further information by press time.

Kaspersky has been expanding its presence in the blockchain space recently, and is also assisting a project for blockchain-based voting in Moscow. According to a 2017 announcement from the cybersecurity company,

Polys is based on Ethereum and was developed with help from Parity Technologies, a tech startup launched by Ethereum co-founder Gavin Wood.

“Blockchain is increasingly being implemented by a vast number of industries and we believe that decentralising the voting procedure will ensure a fair process and create a high level of trust in the system,” said Parity co-founder Jutta Steiner.

Related: Russia’s Economy Ministry Calls for ‘Controllable Market’ Rather Than Crypto Ban

Kaspersky pledged to open source the Polys code back in 2017, however, the project’s GitHub page is still currently empty. Kaspersky did not immediately comment by press time.

• Moscow Said to Hire Kaspersky to Build Voting Blockchain With Bitfury Software
• Illegal Miners in Russia Stole $6.6M Worth of Electricity, Power Grid Firm Says

The former CEO of Mt. Gox – the bitcoin exchange at the center of one of the most notorious hacks in crypto – has had his conviction upheld by Japan’s high court.

On Thursday, Tokyo’s the court threw out an appeal from Mark Karpeles, who had been found guilty last year for manipulating electronic data, upholding the original conviction and sentence of two and a half years in prison, suspended for four years.

Karpeles was originally arrested in August 2015, roughly 18 months after an unknown hacker made off with more than 850,000 bitcoins from Mt. Gox. At the time the amount was valued in the hundreds of millions, but would be worth more than $8 billion, today. Around 15% was later recovered and now constitutes the Mt. Gox estate, which is still being fought over by the exchange’s creditors.

Related: Crypto Exchange Owner Admits Laundering $1.8M in Online Auctions Fraud

See also: Mt. Gox Deadline Extended Again After Creditors Criticize Refund Proposal

Prosecutors had originally accused Karpeles of embezzling user funds, breach of trust and manipulating electronic data, and demanded he serve 10 years in prison. The Tokyo District Court found him innocent on the first two counts, but guilty on manipulating electronic data in order to harm his clients.

The legal team representing Karpeles, which has always claimed he is innocent of all charges, contend that prosecutors didn’t know how crypto exchanges operated and were merely using him as a fall guy.

“Today’s verdict was unfortunate, and I am reviewing its contents alongside my lawyers and will decide how to proceed from there in the coming days,” Karpeles said following the ruling, in a report from the Associated Press.

• Coinbase Outlines Tech Plan to Help Avert Future Outages
• CoinMarketCap Metric Overhaul Keeps Owner Binance at the Top
• Mt.Gox

Two blockchain platforms, both proof-of-stake, are trying to stay on the right side of the Financial Action Task Force’s (FATF) “Travel Rule.”

In separate announcements on Thursday, the Algorand and Tezos Foundations said they had linked up with two analytics companies, Chainalysis and Coinfirm, respectively, to help bake regulatory compliance into their eponymous blockchains.

It’s been very nearly a year since the Financial Action Task Force (FATF), the global anti-money laundering (AML) watchdog, updated its guidance for nations to stipulate that crypto companies must store and disclose information about senders and receivers, above a certain transaction threshold.

Related: Free Transactions Invite Systemic Attacks on Blockchains, Researchers Find

In Algorand’s case, Chainalysis will provide a know-your-transaction (KYT) solution, allowing its foundation to monitor large volumes of on-chain activity for the native ALGO token and report any suspicious transactions to the authorities.

While Algorand emphasizes that the new integration will enhance trust and security, the specter of regulation is never too far away. As it says in a press release, the new integration will enable the foundation to “fulfill their regulatory obligations to report suspicious activity.”

In a statement, Fangfang Chen, the Algorand Foundation’s chief operating officer, said the integration would allow it to meet regulatory requirements in Singapore. “We needed a compliance partner that could not only help us adhere to regulations in Singapore where we are based but also global regulatory best practices,” she said.

Over the past 12 months, some national regulators have transposed FATF’s “Travel Rule” into local law. The U.S’ Financial Crimes Enforcement Network (FinCEN), one of the first regulators to implement the Travel Rule back in May 2019, has continued with a minimum threshold of $3,000.

Related: Russia’s Economy Ministry Calls for ‘Controllable Market’ Rather Than Crypto Ban

Singapore announced in January that parties involved in crypto transactions worth more than 1,500 Singapore dollars (around US$1,100) would have to be ready to disclose identities.

Chainalysis told CoinDesk that while the integration was not a “comprehensive solution to Travel Rule compliance,” it would help the Algorand Foundation meet some of the requirements, including picking out transactions that trigger the Travel Rule, as well as identifying relevant senders and receivers.

“FATF’s guidance states that automated transaction monitoring and customer risk scoring are essential components of an effective anti-money laundering program,” a spokesperson said in an email. “Chainalysis provides the transaction monitoring software required to hold a license in Singapore and comply with regulatory requirements in other FATF jurisdictions.”

See also: Algorand and Blockstack Are Building a Multi-Chain Smart Contract Language

Tezos’ tie-up with Coinfirm’s is broader, allowing its foundation and commercial entities such as exchanges to monitor activity on the protocol. Rather than a partnership, it’s more that Coinfirm’s AML Platform will be available for Tezos and XTZ transactions.

Generally, though, Tezos’ deal with Coinfirm runs along the same lines as Algorand’s integration with Chainalysis.

“One of the largest roadblocks for the growth of blockchain protocols and cryptocurrencies in the global regulated market has been focused on AML compliance regulations,” reads a press release. “AML has become a required feature for protocols and related assets who want a leadership position in the market and the capability to operate in regulated markets globally.”

Speaking to CoinDesk, Coinfirm CEO and co-founder Pawel Kuskowski said FATF, and broader AML compliance, were among the main motivations behind Tezos’ integration with its AML platform.

“It will allow entities using XTZ and its ecosystem to become FATF compliant under AML requirements…while paving the way for them to further implement Travel Rule dedicated solutions,” he said. “Overall, the greatest inhibiting factor when it comes to the growth of protocols is AML-related regulations.”

For protocols to work in regulated markets, they have to meet set guidelines. “The Tezos integration [with Coinfirm] allows for XTZ to operate according to AML guidelines in regulated markets including FATF AML guidelines,” Kuskowski said.

The Tezos Foundation declined to comment for this article.

See also: Tezos Becomes Latest Blockchain to Tap Chainlink for Oracle Services

The Travel Rule was met with trepidation when first unveiled. Many in the industry were concerned it could spell the end for cryptocurrency transactions by eroding user privacy and making the compliance burden on exchanges and other companies too much to bear.

But while there have been some negative effects, such as options exchanges Deribit being pushed out of the Netherlands, in other ways it may be good for the industry: Germany’s second-largest exchange, Boerse Stuttgart, said the strong AML rules have made crypto attractive to a growing institutional audience.

And it isn’t only Tezos and Algorand that have made themselves FATF compliant. Soon after the Travel Rule guidance was announced, Coinfirm inked a deal with Ripple to tag transactions on the XRP ledger that may have been laundered through mixer services.

Cryptocurrency intelligence provider CipherTrace has also rolled out its own solution, allowing wallet services and exchanges to securely share information about their customers to comply with the Travel Rule.

A year on, and with the Travel Rule now being enacted into local laws, it appears that instead of scurrying away, the crypto industry is simply adapting to the new regulatory landscape.

• Algorand and Blockstack Are Building a Multi-Chain Smart Contract Language
• Libra Is Ready for the Digital Money ‘Space Race’: Dante Disparte

The owner of a now-defunct Romanian crypto exchange called CoinFlux has pled guilty to laundering roughly $1.8 million in a fraudulent scheme involving fake eBay ads and a car wash.

Vlad-Calin Nistor and 14 other defendants, including the owner of a car wash, have all entered guilty pleas at the Eastern District Court of Kentucky for their involvement in a racketeering conspiracy and cyber fraud scheme that defrauded millions of dollars from U.S. residents by selling goods that didn’t actually exist.

Beginning in 2013, the defendants began posting fake advertisements on sites such as eBay and Craigslist for items such as cars. Often using stolen identities, the group would pretend to be U.S. military personnel who needed to sell their goods before beginning a tour of duty. They even set up a fake call center to assuage any concerns victims had about the advertisements.

Related: Japan’s High Court Rejects Former Mt Gox CEO’s Conviction Appeal

After the victim had sent payment, the group would begin the process of transferring the money out of the U.S. and back to Romania. Most of the time, this was done by converting illicit funds into crypto, usually bitcoin, and transferring it to Nistor and his crypto platform CoinFlux, where it would then be exchanged into the local currency.

Per a release from the U.S. Department of Justice (DOJ) on Thursday, the ringleader was Bogdan-Stefan Popescu, the owner of car wash in Bucharest, Romania’s capital. He provided instructions for Nistor and Coinflux for transferring the illicit funds out of bitcoin and into selected bank accounts, which were usually set up under the names of his employees and family members.

“Through the use of digital currencies and trans-border organizational strategies, this criminal syndicate believed they were beyond the reach of law enforcement,” said Michael D’Ambrosio, assistant director at the U.S. Secret Service’s Office of Investigations.

See also: France Charges Alleged BTC-e Operator Alexander Vinnik Following Greek Extradition

Related: Coinbase Outlines Tech Plan to Help Avert Future Outages

Back in December 2018, Nistor was arrested on an international warrant on charges of money laundering, fraud, and involvement in organized crime. He, alongside the other defendants, was promptly extradited to the U.S. the following month. At the time of his arrest, Nistor’s lawyer argued to Romania’s Court of Appeal that he had no way of knowing that the bitcoin in question came from criminal proceeds.

CoinFlux advertised itself as a 24-hour marketplace that provide a local fiat gateway for Romanian traders. The exchange had been preparing to celebrate its third anniversary with zero transaction costs, less than a week before Nistor’s arrest.

Five days later, following Nistor’s arrest, CoinFlux’s Twitter account said they were in “the unpleasant situation to temporarily stop any digital currency exchanges.” In a follow-up post, CoinFlux’s marketing head said an “unexpected investigation” meant their banks accounts had been frozen and they had been temporarily locked out of their site.

“Our expectation is that we will gain control back, within the next days,” the post said.

See also: Alleged Architects of $720M BitClub Ponzi Request Jail Release Over Coronavirus Risk

Under U.S law, those found guilty of racketeering can be fined up to $25,000 and face up to 20 years in prison, as well as forfeit all their ill-gotten gains. A guilty plea can bring the penalty down to 10 years. All 15 defendants now await sentencing.

• CoinMarketCap Metric Overhaul Keeps Owner Binance at the Top
• Coincheck Customers Fall Victim to Data Breach After Domain Account Error

In a redux of trading from the early days of the coronavirus crisis in March, bitcoin tumbled Thursday in tandem with a sell-off on Wall Street – rekindling an ongoing debate over the cryptocurrency’s use as a store of value.

Prices for bitcoin fell 6.37% to about $9,100, as the Standard & Poor’s 500 Index of large U.S. stocks lost 5.7%.

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: Why Bitcoin Suddenly Dropped 6% on Thursday

The slide in stocks came a day after the Federal Reserve provided an unexpectedly dour assessment of the outlook for the U.S. economy, and investors speculated a possible uptick in new cases might slow the pace of the recovery. Some investors may have also sold bitcoin, still seen as a risky asset despite its 30% gain for the year to date.

“I think the general negative sentiment of traditional markets affects bitcoin,” Sasha Goldberg, senior trader for Efficient Frontier Markets, a digital asset quant fund, told CoinDesk’s Daniel Cawrey.

Thursday’s plunge in bitcoin prices was nowhere near the 39% wipeout on March 12, when it became clear to investors across all markets just how devastating of a toll the coronavirus was likely to take on the economy.

The day’s session kindled chatter anew among cryptocurrency analysts over whether bitcoin is mostly uncorrelated with traditional assets, or whether it should trade as an inflation hedge like gold, or in sync with riskier assets like stocks. 

Related: Blockchain Bites: CBDCs on Capitol Hill, Custody Battles and Smart Drugs

“The institutionalization of crypto (i.e. same firms that trade stocks and other assets, trading crypto), will lead to higher correlation, especially during extreme risk on/off scenarios such as margin calls,” said Denis Vinokourov, head of research at Bequant, a London-based prime brokerage to cryptocurrency investment firms.  

Thursday’s price decline came just a day after the Fed indicated that joblessness would remain elevated for at least three years. That means Fed officials expect to keep interest rates close to zero through 2022, while pumping at least $120 billion a month of freshly created money  into the financial system for the foreseeable future. If bitcoin is an inflation hedge, then loose monetary policy should theoretically be good for the price. 

Larry Kudlow, one of President Donald Trump’s top economic advisers, told Fox Business Network in an interview Thursday that the Federal Reserve’s balance sheet’s “gonna rise by about $10 trillion by year-end.” Just in 2020 alone, the Fed’s total assets have climbed by about $3 trillion to $7.2 trillion.   

“You know, I don’t know why the market has sold off,” Kudlow said Thursday.  

Earlier in the day, Stack Funds, a provider of cryptocurrency trackers and index funds, had written in a weekly report that “there was a higher probability for bitcoin to swing upside in the coming week.” It went so far as to predict that bitcoin might be on the cusp of a “potential move upside to $40,000,” or more than quadruple the current price level. 

Instead bitcoin took a nosedive as the mood darkened on Wall Street. 

“Bitcoin, along with the entire emerging digital asset class, are very much considered risky assets,” Mati Greenspan, founder of the research firm Quantum Economics, wrote Thursday in an email to subscribers.

Bitcoin is trading well below its price average for the past 50 and 100 days, typically a bearish signal.

As reported by Cawrey, the U.S. Dollar Index rose 0.4% off its three-month lows Thursday, potentially indicating that investors were looking to classic safe-haven assets, which include cash as well as gold. Prices for the yellow metal were down Thursday, but less than 1%. 

Since March, bitcoin’s price has shown a weak but consistent correlation with both gold and stock prices. According to Greenspan, that might be a sign of bitcoin’s increasing adoption by investors.  

“The fact that bitcoin had any reaction at all to the Fed yesterday is a clear sign that either a) institutional money is playing a much larger role in the market these days, or b) retail traders are getting more savvy and reacting more to their surroundings,” Greenspan wrote. “Either way, the market is growing up fast.”

BTC: Price: $9,444 (BPI) | 24-Hr High: $9,810 | 24-Hr Low: $9,108

Trend: Bitcoin is back up near $9,450 at press time, having put in a low of $9,112 during the U.S. trading hours on Thursday. 

The cryptocurrency fell by over 6% as stock markets across the globe cratered on renewed growth concerns and fears that a second wave of the coronavirus pandemic would wreak further economic havoc. 

The risk sentiment, however, looks to have stabilized somewhat over the last few hours with futures tied to the S&P 500 gaining over 1%. European equities, too, are reporting modest gains. Bitcoin could rebound further if the stock market recovery gathers pace.

However, the odds look stacked in the other direction.

The U.S. bond market has priced out the prospects of a V-shaped economic recovery. Meanwhile, a second wave of coronavirus seems to have hit the U.S. states of Texas, Florida and California, even as some emerging market economies are still experiencing their first waves. 

There are also concerns that the stock market has risen too far from the lows seen in March on the back of unprecedented liquidity injections by central banks across the globe, and has lost touch with the reality that the economy may take years to recover. As a result, equities are likely to remain under pressure in the short term and keep bitcoin on the defensive. 

The cryptocurrency’s technical charts are also painting a bearish picture. Thursday’s decline validated a bearish divergence of the three-day chart’s relative strength index and marked a downside break of the eight-day restricted trading range between $9,350 and $10,000. 

The range breakdown, coupled with sub-zero reading on the MACD, indicate scope for a drop to support at $8,630 (May 27 low). On the higher side, $10,000 is still the level to beat for the bulls.

• Bitcoin Stuck Below $10K as Stocks Drop
• First Mover: Fed Sees No Inflation Through 2021, but Bitcoiners Are Betting on It Anyway

The week-long calm in the bitcoin market ended with a sudden $800 price drop on Thursday.

The over-6% drop saw the top cryptocurrency by market value register its biggest single-day decline in two weeks, according to CoinDesk’s Bitcoin Price Index. Prices briefly hit lows near $9,100, a level last seen on May 27.

There’s three likely factors as to why this happened:

Related: First Mover: Bitcoin Recouples With Wall Street as Stocks Tumble, Fear Trade Returns

Global equities cratered and traditional safe havens like U.S. government bonds and the Japanese yen gained value as comments by the U.S. Federal Reserve that the economy may take years to recover gave a reality check to investors hoping for a V-shaped recovery. 

Bitcoin initially showed resilience by holding above $9,700 during the Asian and European trading hours. However, the sell-off in U.S. equities was too big to ignore for the crypto market traders – some of whom likely offered bitcoin on the fear that financial markets could be about to witness another round of panic like that seen in March.

The Dow Jones Industrial Average (DJIA) fell by 1,800 points on Thursday, reviving memories of multiple 1000 point drops seen during the first half of March. 

Read more: ETH Whale Pays $5.2M in Fees for 2 Mysterious Transfers Totaling $82K [Updated]

Related: Market Wrap: Stocks’ Carnage Drags Bitcoin Down to $9K

A few observers had warned of an impending price drop in conversation with CoinDesk during Thursday’s European trading hours. At that time, bitcoin was trading near $9,800.

“A switch to ‘risk-off’ in global markets could lead to further downside pressure for major cryptocurrencies,” Matthew Dibb, co-founder of Stack, a provider of cryptocurrency trackers and index funds, told CoinDesk. 

Big on-chain transactions, especially ones related to controversial wallets and addresses, can create panic in the cryptocurrency markets. That’s because, in the past, malicious entities have liquidated stolen coins in the market, causing sudden price declines.

On Thursday, hackers moved over 400 BTC (or $4.1 million worth of cryptocurrency) stolen from the cryptocurrency exchange Bitfinex to unknown wallets, according to twitter bot Whale Alert.

These transfers happened in 20 transactions during the Asian hours and were noted by the crypto market community. A few investors then began speculating about a price dump. At that time, bitcoin was hovering around $9,900. 

Another big transaction worth $1.3 billion executed by an unknown wallet also elicited a similar response from the investor community. 

Fears that so-called “whales” are preparing to dump large numbers of coins may have caused some bulls to exit the market. Further, savvy traders may have taken short positions in anticipation of the big dump, likely accentuating bearish pressures.

Technical traders had a strong reason to sell bitcoins, as the charts were reporting uptrend exhaustion. 

The cryptocurrency has failed multiple times to establish a lasting foothold above $10,000 since the May 11 mining reward halving. Markets often test dip demand following multiple rejections at key resistance. 

A bearish divergence of a key three-day chart indicator was also suggesting scope for a price pullback.

Thursday’s price decline has only strengthened the case for a deeper pullback. The slide to $9,100 marked a downside break of the eight-day restricted trading range of $9,350–$10,000. 

Additionally, the daily chart’s relative strength index has dropped into the bearish territory below 50. Analysts see strong support around $9,100, which, if breached, would invite stronger selling pressure. 

Read more: First Mover: Bitcoin Recouples With Wall Street as Stocks Tumble, Fear Trade Returns

First support comes from the weekly downtrend resistance line which bitcoin broke and has been “sitting above the last few weeks,” said Chris Thomas, head of digital assets at Swissquote Bank. “This week the level is around $9,000-$9,100, hence [we’re] likely to see good buying here, then $8,700 & $8,200, otherwise, the next downside zone is $6,500-$7,000.”

At press time, bitcoin is changing hands near $9,440. The price bounce from Thursday’s low may be associated with the 1% gain in the S&P 500 futures.

Disclosure: The author holds no cryptocurrency at the time of writing.

• Bitcoin News Roundup for June 11, 2020
• Three Arrows Capital Now Holds More Than 6% of Grayscale’s $3.6B Bitcoin Trust

Crypto wallet and bitcoin custodian, Xapo is discontinuing support for credit card payments for digital asset purchases.

In an emailed announcement on Friday, Xapo said its users would not be able to add funds to their account through credit cards beginning June 11. Additionally, bank transfers will only be supported above a certain minimum amount, depending on the user’s location.

“If you make a transfer, the app will detect your country of residence and specify the minimum amount,” the company email said.

Related: Custody Battle Pits Institutional Boomers Against Crypto Upstarts

“Rest assured, these changes will not affect your Xapo BTC wallet services, and your BTC will remain safe and secure with us (as always). BTC transfer in and out will not be affected at all,” the email added.

The changes come after Xapo announced on May 5 it would be transforming into a digital bank late in 2020. It will also move its operations from California to Gibraltar, which offers a regulatory framework for cryptocurrency firms but sets a high standard for approvals.

See also: Custody Battle Pits Institutional Boomers Against Crypto Upstarts

Earlier this month, a lawsuit was brought against Xapo and crypto exchange Indodax for allegedly holding stolen bitcoin. The crypto trader behind the legal action is attempting to force the exchanges to hand over nearly 500 bitcoin (currently worth around $4.7 million) he claims to have lost in a hack.

• Lawsuit Accuses Xapo, Indodax of Negligently Holding Stolen Bitcoin
• Xapo
• It’s Tough Getting Approved in Gibraltar, Says Green-Lighted Crypto Derivatives Exchange

The National Science Foundation has given blockchain startup KRNC $225,000 to design cryptocurrency features for the U.S. dollar.

The National Science Foundation, an independent agency of the U.S. federal government, awarded a $225,000 grant to private blockchain startup KRNC to design crypto features for the dollar at a time when the digital dollar is a topic of national debate.

Key Retroactivity Network Consensus, or KRNC, is a protocol that would allocate a scarce cryptocurrency like bitcoin to fiat dollars. The digital currency will be distributed free of charge to users in proportion to their already existing wealth, so anyone who holds dollars can interact with decentralized applications without having to purchase cryptocurrencies such as bitcoin or ether. 

Related: Coca-Cola Distributor Offers Bitcoin Payment Options for Aussie Vending Machines

To receive the funding, the KRNC proposal was reviewed by a panel of external industry experts and evaluated for its merit and commercial potential. Anna Brady-Estevez, the National Science Foundation program manager for the grant, said the agency had no mandates for specific end-uses for any of its awards to small businesses.

“We focus on projects where there is meaningful technical work to be done with the potential to drive competitive advantage and impact commercially,” Estevez said. 

Read more: Digital Dollar Project Calls for 2-Tiered Distribution System in First White Paper for US CBDC

According to Estevez, the project showed potential in developing a new technology that enhances the security of financial transactions. 

Related: WATCH: US Lawmakers Talk Digital Dollar, FedAccounts in Thursday Hearing

“Our funding of this protocol shouldn’t be misconstrued as an endorsement of any initiative to upgrade the U.S. dollar or make it more like bitcoin or any other cryptocurrency for that matter,” Estevez said.

According to KRNC CEO and chief scientist Clint Ehrlich, the protocol is based on a concept of his own invention: Proof-of-Balance. 

“Bitcoin, which runs on the principle of Proof-of-Work, is wasteful,” Ehrlich said. “It requires people to waste money and computing power solving pointless problems.”

KRNC would take the approach of measuring the assets that people already own, like the dollar, and assigning voting power in proportion to an individual’s existing wealth. 

One feature KRNC is particularly interested in including in its cryptocurrency is scarcity, inspired by bitcoin often likened to gold. Ehrlich plans to ensure the scarcity of his digital gold by freezing the supply at the time of launch. 

“If today, there is $15 trillion when the currency is launched, it will be possible to only ever unlock 15 trillion [crypto] dollars,” Ehrlich said. 

Users who wish to acquire digital gold can deposit fiat money in banks during the period of allocation and be assigned free currency. Once the currency is assigned, users are free to purchase goods and services or trade the gold in the same way as bitcoin. Users can also choose to spend or trade the digital gold separately from their fiat money, or use it as a weighted dollar. 

“They’re getting the fiat dollar and the gold so that if there is a shift in the price of either one they’re protected from the risk of that volatility,” Ehrlich said.

According to Ehrlich, Bitcoin’s Proof-of-Work and honest majority system works like an auction where whoever pays the highest cost through mining is in control of the blockchain.

“Currency is asymmetric so even if an adversary tries to purchase a larger stake, as long as the initial majority of all the fiat money is owned by honest agents the system can remain secure. It’s a way to provide superior security at zero cost,” he said. “The playing field is not limited to a few buyers and minors but the billions of people who own fiat money.”

• Japan’s Biggest Banks Are Talking About Building a Digital Payments System
• Digital Dollar Project Calls for 2-Tiered Distribution System in First White Paper for US CBDC

Crypto derivatives platform Seed CX will be axing its exchange arm to focus solely on settlements.

Announced Thursday, Seed CX intends to focus on its Zero Hash product, the company’s custody and settlement service. Zero Hash began offering back-office settlement functions for bitcoin forwards contracts in September of last year.

“As a start up [sic], you inherently gravitate towards opportunity and that often leads you to take on more, rather than less. However, it is equally important to begin to refine the business focus as certain opportunities develop into a ‘real venture growth business,’” CEO Edward Woodford wrote in a Medium post.

Related: Number of Institutions Buying Crypto Futures Doubled in 2020: Fidelity Report

Read more: Seed CX Subsidiary Adds Crypto Derivatives Settlement for Institutions

According to Seed CX, Zero Hash now accounts for 95% of its revenue, leading to the decision to pivot the company’s focus as it aims to become the leading provider of “digital asset settlement infrastructure.”

As part of the shift, the company will concentrate on two main areas for clients: regulation and technicals.

“Through our API, platforms can own the complete client experience whilst not taking on any regulatory overhead. This is similar to how ‘Banking as a Service’ (BAAS) provides access to traditional rails,” the company wrote.

Related: Bitcoin Options Growth Outpaces Futures, Swaps

On the technical side, Zero Hash will enable groups to submit two-sided transactions, depending on the product (spot, derivatives or loans) and will handle end-to-end complexities with a particular blockchain to achieve “greater capital efficiency through netting.”

The firm also teased some fundraising news.

“We are on course to profitability, are well capitalized and will be announcing an additional round of fundraising this month, with investors including Bain Capital. We have settled close to a billion dollars notional in the past months,”

In September 2018, Seed CX announced a $15 million Series B led by Bain Capital.

Read more: Bain-Backed Crypto Exchange Seed CX Is Expanding to Asia

The startup expanded into Europe in February of this year with the addition of eight order books for its spot-trading market. That will now be closed as the company looks towards settlements in the derivatives and spot markets.

• Crypto Derivatives Exchange OKEx Launches Options on Ether
• Bullishness Building in Bitcoin Options Market, Data Suggests