CoinDesk Crypto

While regulators are trying to restrict privacy in crypto, their efforts may be futile, according to privacy-centric protocol Monero’s maintainer, Riccardo “Fluffypony” Spagni. 

“The U.S. Internal Revenue Service (IRS) wants the same level of insight [into monero] as they have over digital dollars in bank accounts; however, cryptographers and researchers are always going to be one step ahead on privacy,” Spagni told CoinDesk. 

Launched in April 2014, monero (XMR) is a private, secure and untraceable cryptocurrency. The protocol allows transaction participants to obfuscate their identities and hide the amounts transferred from third parties, except for those they designate.

Related: ‘Boring’ Bitcoin Market Sends Miners’ Fee Earnings to 3-Month Low

Protocols offering privacy have become the focal point of regulators and law enforcement agencies when the race among central banks to launch sovereign digital currencies is heating up. 

The IRS recently hired blockchain analytics firms Chainalysis and Integra FEC to develop transaction tracing tools for monero and layer 2 protocols. In June, Chainalysis added support for monitoring transactions for privacy coins dash (DASH) and zcash (ZEC). 

Further, the U.S. Department of Justice (DOJ) published an extensive white paper, “Cryptocurrency: An Enforcement Framework“, on Oct. 8, citing the use of anonymity enhancing cryptocurrencies (AECs) that use non-public or private blockchains as a risk to anti-money laundering programs and controls put in place to combat terrorism-related finance. 

According to Spagni, who was lead maintainer of Monero until he stepped down last year, regulators’ best bet is to apply controls at entry and exit points. “Payment service providers and merchant service providers are sorts of the points at which they can apply a degree of regulation. And that I think is feasible,” Spagni said. 

Related: A Day in the Life of the Splinternet

For instance, a payment gateway facilitating monero or lightning transactions could ask users to verify location and charge sales tax. Similarly, if the user is dealing directly with a merchant service provider, the merchant would employ necessary checks before approving transactions. 

Read more: Monero Leads Rally in Privacy Coins, Rising to Two-Year Highs

Besides, even if regulators succeed in developing some traceability solutions, monero is likely to fix the bugs, retaining privacy over the long run, according to one analyst.  

“Untraceable cryptocurrencies such as monero are here to stay,” Dr. Tom Robinson, co-founder and chief economist at blockchain analytics firm Elliptic, told CoinDesk in an  email. “In the short term, it may well be possible to find exploits in these systems and trace transactions to some degree, but these bugs will be fixed.” 

Over the weekend, monero implemented an upgrade codenamed “Oxygen Orion,” which includes a new ring signatures feature called compact linkable spontaneous anonymous group (CLSAG). That is expected to reduce transaction sizes by 25%, improving transaction verification times by 10% boost security. 

Perfect solution unlikely

An ideal world solution that limits backdoor entry into privacy protocols for regulators and law enforcement looks out of reach. 

“A system of controlled access would be fantastic; however, the thinking, though not bad, is just flawed,” Spagni said, adding that both well-meaning people and hackers could abuse the system. 

Besides, regulators continue to struggle to establish controlled access in traditional finance, where paper money still offers some privacy. “Traditional financial institutions are already comfortable with untraceable payments in the form of physical cash,” Elliptic’s Robinson said. 

In the days before the dot-com era, physical cash transactions dominated the global economic activity, and regulators and agencies relied heavily on active surveillance methods like monitoring behavior and actions to break cases. Currently, regulators and law enforcement agencies rely on passive surveillance like facial recognition systems, tracking bank accounts, and suspicious activity reports by financial systems. 

Spagni said agencies need to step up their game and not rely on passive surveillance or influx of information, which “ultimately results in false positives.”

Read more: In Effort to Differentiate, Litecoin Makes a Move to Privacy

There could be a better middle ground between regulators and privacy cryptocurrencies that facilitate legitimate financial investigations but avoid surveillance. 

“Our position is that financial privacy is important, and people should be able to pay for day-to-day expenses without having to fear hitting regulators’ radar and provide identity proofs,” David Jevans, CEO of blockchain forensics firm CipherTrace, told CoinDesk in a telephone interview. 

Monero shrugs off regulatory concerns

Monero has charted an impressive rally over the past few weeks despite the increased regulatory scrutiny and dour expert forecasts. 

The privacy coin rose to a two-year high of $135 last week, marking an over 90% rise from the lows near $75 observed in early September. The cryptocurrency is currently trading near $120, up 22.3% so far this month, the highest of any crypto asset valued above $1 billion, according to data site Messari. Monero’s price has increased 173% on a year-to-date basis while bitcoin has gained 60% over the same amount of time, according to CoinDesk 20.

CipherTrace’s Jevans believes monero has largely tracked bitcoin’s price, and the recent outperformance is mostly due to chart factors.  

“Speculators, algorithmic traders look to have fueled the price rally,” Jevans told CoinDesk, adding that people who care about monero haven’t been involved. 

That could be the case, as the broader market has remained bid since the March crash, and the majority of prominent cryptocurrencies, including ether (ETH) and the decentralized finance coins, have outshined bitcoin (BTC) by leaps and bounds. 

“The overall sentiment of crypto as a whole has turned fairly bullish as of late with monero’s gains simply outpacing those of other coins breaking out past some technical resistance at $95 and $115,” Connor Abendschein, a crypto research analyst at Digital Assets Data, told CoinDesk. 

Nevertheless, the price rally, regulatory inquiry, and potential traceability solutions could turn out to be net positives for monero. “It gets visibility in the market,” Jevans said. 

That governments and regulatory authorities are trying to clamp down on monero transactions suggests there is strong demand for the privacy token. 

Abendschein, however, maintains that the cryptocurrency would lose ground if Chainalysis succeeds in “consistently tracing” monero transactions, while Jevans foresees privacy coins falling to the backwaters of crypto markets if they fail to comply with regulatory requirements. 

That said, the international law firm Perkins Coie published a regulatory white paper a month ago, detailing how regulated entities can comply with anti-money laundering obligations while supporting privacy coins.

Read more: Zcash’s Electric Coin Company Shifts to Non-Profit Status Following Stockholder Vote 

“The AML [anti-money laundering] risks of privacy coins, while real, do not require specific, tailored regulations that may pose an unnecessary risk of stifling privacy coins’ growth. Rather, virtual assets service providers (VASPs) can adequately address those AML risks by maintaining an effective, risk-based program. Allowing VASPs to support privacy tokens undercurrent, tested AML regulations strike the appropriate policy balance between preventing money laundering and allowing beneficial, privacy-preserving technology to develop,” the white paper said. 

Regulated exchanges are already developing ways to support privacy coins in a compliant way. “Crypto exchanges that support zcash [also a privacy coin] are using Elliptic’s products to assess risk on zcash transactions,” Elliptic’s Robinson told CoinDesk.

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Russia’s most notorious state cyberhackers used bitcoin to cover their ties to critical hacking campaign “infrastructure” such as servers and domain names, according to an indictment unsealed Monday by U.S. prosecutors.

• Six members of Russia’s state-run hacking teams who allegedly targeted “thousands” of victims across companies, political campaigns, governments and the 2018 Winter Olympics through Russian Military Unit 7445 are named in the suit.
• Prosecutors also allege they were responsible for 2017’s catastrophic “NotPetya” malware attack that caused billions of dollars in damage. Security researchers have made such claims before.
• NotPetya was based on the petya bitcoin ransomware exploit but with a malicious twist, prosecutors allege: “Even if victims paid the ransom ($300 worth of bitcoin), the Conspirators would not be able to decrypt and recover the victims’ computer files.”

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Top shelf

Token protest
Five of the largest Filecoin miners, which secure that data storage network, have gone on strike, bringing attention to the project’s “unfair” economic model. According to a report by 8btc.com, miners are required to stake a significant amount of FIL tokens to start mining operations. But there’s a critical lack of FIL tokens off the bat. Purchasing tokens on exchanges at what could be inflated prices is seen as unattractive. “All the miners have been off since the mainnet went live. This is not some sort of protest but we have to shut them down because we really don’t have the tokens as collateral to mine,” ST Cloud CEO Chuhang Lai said in the report. In response to miner’s concerns, Filecoin has decided to release 25% token rewards in advance once a miner builds a block on the blockchain.

Transaction count
Bitcoin’s (BTC) miners are seeing depressed earnings as on-chain transaction activity and price action cools. “Boring price action and low volatility tends to reduce the count of transactions to and from the exchanges,” Willy Woo, on-chain analyst and author of The Bitcoin Forecast newsletter, told CoinDesk over Telegram. Yesterday, there were only 231,437 transactions processed on the Bitcoin blockchain, the lowest since May 24 and down 40% from a peak on July 1, according to data provided by blockchain analytics firm Glassnode. With the network processing far fewer transactions currently, the percentage of miners’ revenue derived from fees also dropped to a three-month low of 3.49% over the weekend.

Schiff riff
Noted Bitcoin skeptic Peter Schiff’s Euro Pacific Bank has become the focus of a major global tax evasion investigation. Initiated by the U.K., the U.S., Australia, Canada and the Netherlands, this investigation, dubbed Operation Atlantis, is seeking to determine if hundreds of “high risk” account holders were involved in tax evasion and money laundering through the bank. The investigation began in January and has its roots in the “Panama Papers,” which shed light on how some of the world’s wealthiest people and firms have been hiding money and evading tax in off-shore accounts.

Related: First Mover: ‘Blue Wave’ in US Senate Could Mean Flood of Stimulus for Bitcoin

Crypto insurance
Bitstamp, one of the world’s largest cryptocurrency exchanges, has introduced an insurance policy that covers the theft and other losses of user funds held on its platform. The Europe-based exchange said the new insurance policy will be provided by Paragon International Insurance Brokers in coordination with Woodruff-Sawyer, per a Thursday blog post. The policy applies to digital assets, such as bitcoin, that are held at the exchange both on and offline, and covers a number of crime-related circumstances, per the post. The underwriters will consist of various insurance companies and certain syndicates from one of the world’s oldest insurance markets, Lloyd’s of London.

Branch closing
Binance, the biggest cryptocurrency exchange platform by trading volume, is closing its dedicated Jersey branch, which offered  fiat-to-crypto exchange for users trading with euros and U.K. pounds against a limited choice of crypto assets. Announced Monday, Binance said all deposits to the local platform will be disabled on Oct. 30, and trading and other services will cease on Nov. 9. Binance said its global service, Binance.com, now offers GBP deposits via the U.K.’s Faster Payments scheme, as well as SEPA payments for the euro. It also offers trading pairs against both currencies. As such, the company said, the growth of services on Binance.com has “extinguished the rationale for Binance Jersey as a distinct exchange.”

Quick bites

Binance recorded an all-time high spot trading volume in Q3 (Yogita Khatri/The Block)

MicroStrategy Redirects Hope.com to Bitcoin After $425 Million BTC Purchase (Robert Stevens/Decrypt)

Related: Crypto Long & Short: The OKEx Drama Exposes a Weakness in Crypto Market Infrastructure

Binance Destroys $68 Million of BNB in Most Expensive Burn to Date (Robert Stevens/Decrypt)

Coinbase’s New ‘Direction’ Is Censorship, Leaked Audio Reveals (Edward Ongweso Jr/VICE)

With Ripple’s $10 million donation, Mercy Corps strengthens its bet on crypto (Leo Jakobson/Modern Consensus)

At stake

In just the past three days, central bank digital currencies have been reported to be a means to bust economic sanctions, tools to strengthen local monetary policy and marginally worse versions of payment tech we already have. 

The global CBDC conversation really got going in earnest after the Facebook-incubated Libra Consortium was announced to the world, which sparked regulatory backlash and calls for national digital currency experiments. In a recent International Monetary Fund (IMF) report, it’s clear Libra is still front of mind for many central bankers. 

In a hypothetical scenario, IMF researchers describe a bait-and-switch where “Big Techs” advertise a corporate-run but fiat-backed stablecoin, only to de-peg them later on: becoming something of a stateless currency unto their own. This is clearly undesirable for central bankers, who wish to exert granular control over monetary policy. 

Even before the pandemic-led economic crisis, the global economy was cooling. Global productivity, wage growth, inflation and GDP stagnated in the 2010s, leaving most central banks without the “ammunition” to stimulate sufficiently. With many financial chiefs, like Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey, eschewing long-standing central bank political independence to call for a coordination of monetary and fiscal policy. 

While CBDCs are seen as a panacea, the IMF thinks it could expand central banks’ toolbox, providing new ways to deal with old problems. For instance, CBDCs could allow central banks lower policy rates “below the effective lower bound,” letting them exert better control over their economies.

Still, initial reports back from the world’s most advanced CBDC experiment in China have been wanting. Early still to see how a “digital yuan” might be used for state economic programming, the first trial has painted a scene where people are uninterested in using the novel currency. 

The city of Shenzhen and the People’s Bank of China launched a “red envelope” lottery earlier this month, giving away 20 million of the digital yuan (worth around $1.5 million) to locals. Many found the play-money inconvenient and similar to existing payments apps like Alipay.

“It’s especially important to offer convenience and other benefits to promote the use of digital yuan,” a senior economist at PwC China told Reuters. It’s just another bind for the central banks.

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Netherlands-based fiat-to-crypto gateway BTC Direct has raised a little under $13 million in a series A funding round led by undisclosed investors. 

• Announced on Monday, BTC Direct said this was the first significant injection of funds into the platform, which so far has largely been funded by its founders. Started in 2013, the firm also runs a crypto-trading app, Blox, in addition to its fiat-crypto ramp.
  
• According to its emailed statement, BTC Direct will use the fresh funds to expand its workforce, develop new products and broaden its marketing efforts. 

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Central bankers continued to evaluate the merits, or lack thereof, of a digital currency (CBDC), explaining that digital innovation has its benefits but policy considerations abound, during a panel discussion hosted by the International Monetary Fund on Monday. 

The panel, featuring Federal Reserve Chairman Jerome Powell; Bank Negara Malaysia Governor Nor Shamsiah; Bank for International Settlements General Manager Agustin Carstens; and Saudi Arabian Monetary Authority Governor Ahmed Abdulkarim Alkholifey, appeared to conclude that while CBDCs may be useful for some countries, it’s too soon for them to be issued.

Nothing particularly new was said during the hour-long segment, in which Powell reiterated the U.S. is evaluating a digital dollar.

Related: IMF Says CBDCs Have Potential, but Don’t Solve Every Issue

“I actually do think this is one of those issues where it’s more important for the United States to get it right, than it is to be first,” he said. “Given the dollar’s important role globally, it’s essential that we remain on the frontier of research and policy development. The dollar is the world’s principal reserve currency and there continues to be large global demand for Federal Reserve notes.”

The Federal Reserve Bank of Boston is collaborating with MIT’s Digital Currency Initiative to research CBDCs, he noted.

“These types of experiments advance our understanding of the risks and benefits of CBDCs, measuring trade-offs between different designs and system arrangements and assessing security risks on the policy side,” Powell said. “We’re also actively engaging with a wide variety of stakeholders from government, academia and the private sector to gather different perspectives and expertise about potential CBDC issues, the range of design options and other considerations.”

Powell said much the same a year ago, when he told U.S. lawmakers that while central bank researchers were evaluating a potential digital dollar, it was unclear what specific benefits the U.S. would enjoy.

Related: Digital Ruble Could Be Tool Against Sanctions, Bank of Russia Says

Shamsiah said she believes the private sector “has an important role to play” in the development of a CBDC, while Alkholifey said Saudi Arabia might consider a CBDC for its economic policy toolkit.

The IMF published a report on CBDCs and their policy considerations in the lead-up to the event, which said digital currencies can be a useful tool for central banks but they need to evaluate the potential effects on their country’s monetary policy goals.

Also read: Wanted: Economist for Digital Currencies, Fintech as Bank of Canada Studies a Possible CBDC

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Binance, the biggest cryptocurrency exchange platform by trading volume, is closing its dedicated Jersey branch.

• In an announcement provided to CoinDesk on Monday, Binance said all deposits to the local platform will be disabled on Oct. 30, and trading and other services will cease on Nov. 9.
• A hard shutdown, expected Nov. 30, will see all accounts become inaccessible.
• Launched in January 2019, Binance Jersey provides a fiat-to-crypto exchange for users trading with euros and UK pounds against a limited choice of crypto assets.
• Binance said its global service, Binance.com, now offers GBP deposits via the U.K.’s Faster Payments scheme, as well as SEPA payments for the euro. It also offers trading pairs against both currencies.
• As such, the company said, the growth of services on Binance.com has “extinguished the rationale for Binance Jersey as a distinct exchange.”
• Binance still maintains other local arms, including the recently launched Turkey division and others in nations such as Uganda.
• A U.K. institutional exchange is set to launch sometime this year, the firm has previously confirmed.
• A Binance spokesperson couldn’t comment on the progress of the U.K. arm when asked by CoinDesk.

Also read: Binance’s CZ Views ‘CeDeFi’ as a Complement, Not a Competitor, to DeFi

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In any development of a cross-border digital currency, it is more important for the United States "to get it right than be first," U.S. Federal Reserve Chair Jerome Powell said on Monday.

Former Coinbase counsel Hailey Lennon is joining law firm Anderson Kill. 

Lennon has joined Anderson Kill’s Los Angeles office as a partner in the Technology, Media and Distributed Systems Group. She joins a team of 10 other lawyers who practice in the crypto and blockchain space, including Stephen Palley, Preston Byrne and Bob Cornish.  

“Hailey’s hiring is indicative of our hiring philosophy in the space, which is to bring on lawyers who have deep substantive experience and are best in class lawyers,” Palley said in an email.  “We expect to see more growth in disputes work, M&A transactions, and in BSA/OFAC regulatory work, where Hailey has significant experience.”

Related: Digital Ruble Could Be Tool Against Sanctions, Bank of Russia Says

In her role at Coinbase, Lennon worked with the U.S. Securities and Exchange Commision (SEC), Commodity Futures Trading Commission (CFTC), Office of Foreign Assets Control (OFAC) and the New York Department of Financial Services (NYDFS). 

Prior to Coinbase, she helped Tokyo-based crypto exchange bitFlyer gain 33 money transmitter licenses in the U.S. and was part of the team that helped bitFlyer secure a BitLicense from New York.

Read more: Crypto Cleanup? Law Group to Focus on Tech Messes

Lennon also worked as an assistant vice president of regulatory compliance at Silvergate Bank, who conducted compliance and legal reviews for any prospective cryptocurrency customers looking for an account at the La Jolla, Calif.-based bank. 

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Bitcoin was lower, tracking what appears to be a new range between roughly $11,200 and $11,700. It’s a step up from levels that prevailed over most of September, between $10,100 and $11,000.

“As the bulls push for a return to a $12,000 handle, resistance will be found just below, at $11,900,” Matt Blom, head of sales and trading for the cryptocurrency exchange owner Diginex, wrote in a daily newsletter. 

In traditional markets, U.S. stock futures rose on fresh optimism that lawmakers might reach agreement on a new federal stimulus package. Gold strengthened. 

Related: ‘Boring’ Bitcoin Market Sends Miners’ Fee Earnings to 3-Month Low

Happening Monday: Federal Reserve Chair Jerome Powell is scheduled to appear at a panel sponsored by the International Monetary Fund on “the benefits and risks of cross-border” digital currencies. 

Market moves

Alert readers will recall that First Mover argued in this column last week that next month’s U.S. presidential elections may not matter too much for bitcoin’s price – because trillions of dollars of stimulus money are likely no matter who wins. 

The calculus may also hold for whoever wins the upper chamber of the U.S. legislature, the Senate. 

President Donald Trump is trailing in polls with just two weeks left until the Nov. 3 election day, so Wall Street analysts are starting to handicap the likely market reaction if the U.S. leader’s lack of popularity translates into a takeover of the Senate by the opposition Democratic party.  

Related: Crypto Long & Short: The OKEx Drama Exposes a Weakness in Crypto Market Infrastructure

The scenario “most likely to occur under a Democratic blue wave” is one of “overly easy” fiscal policy, eventually eliciting a response from the Fed, Deutsche Bank Chief International Strategist Alan Ruskin wrote last week in a report. A weaker U.S. dollar could result, Ruskin wrote, which could be good for bitcoin prices. 

Even if Trump’s Republican party holds the Senate and fiscal policy were “inappropriately too tight,” then the “burden of responsibility” would fall on the Fed to pursue additional money printing to keep markets from convulsing.

There’s little pressure at the moment to impose fiscal austerity. None other than the International Monetary Fund recommended last week that governments spend more to fight the pandemic and bolster economies despite public debt reaching record levels. 

Kristalina Georgieva, the IMF’s managing director, noted in published remarks that governments had allocated $12 trillion of extra aid this year and central banks had expanded their balance sheets by about $7.5 trillion. She said she expects debt levels in 2021 to rise to about 125% of gross domestic product in “advanced economies.”  

“The scale of government money committed is extraordinary,” Deutsche Bank strategist Jim Reid wrote in a separate note last week. “With [COVID-19] spreading and restrictions mounting, this won’t be the end of such fiscal support and will maybe herald a new era of fiscal largesse.” 

With nearly $20 trillion pumped into the economy this year by governments and central banks, prices for bitcoin, seen by many investors as a potential hedge against inflation, have surged 60%. Bitcoin traders can be forgiven for betting that prices will rise further as trillions of dollars more in stimulus are deployed.  

Bitcoin watch

BTC’s recent resilience to several exchange-related issues seems to have given institutions the confidence to increase their bullish bets.

In the week ended Oct. 13, institutional investors increased long positions by over 9%, taking the tally of bullish bets to the record high of 3,500 contracts reached in mid-September.

The numbers were revealed by the Commitment of Traders (COT) report published by the U.S. Commodity Futures Trading Commission (CFTC) on Friday.

Bitcoin’s price rose to multi-week highs above $11,700 during the seven days to Oct. 12. Since then, however, the cryptocurrency has remained sidelined largely in the range of $11,200 to $11,700.

The on-chain activity has cooled due to the comatose price action. Bitcoin’s blockchain processed 231,437 transactions on Oct. 18, the lowest since May 24, according to data provided by the blockchain analytics firm Glassnode. 

The combination of low volatility consolidation and pullback in transaction count often creates bullish conditions. That’s because, exchanges earn fewer BTC in fees with the slide in transaction count. As such, supply of BTC from exchanges drops, putting floor under prices. 

That, coupled with record institutional bullish positioning suggests the path of least resistance is to the higher side. At press time, bitcoin is trading near $10,480.

– Omkar Godbole

Read More: ‘Boring’ Bitcoin Market Sends Miners’ Fee Earnings to 3-Month Low

Token watch

OKB (OKB): OKEx exchange token loses 30% of market value since withdrawal suspension due to private keyholder being “out of touch.”   

Filecoin (FIL): Wild first days of trading in decentralized data-storage company’s tokens end with price around $34 and market cap of $560 million, according to CoinGecko, though variations are large across exchanges. 

What’s hot

Huobi contrasts security approach with rival OKEx’s, saying “multiple people and multiple backups ensure the availability of the private key.” (CoinDesk) 

Sweden’s top central banker pushes hard for launch of “e-krona” digital currency in new economic note. (CoinDesk)

Diginex management’s projection of 5x Coinbase’s trading volume by 2023 “seems ambitious.” (CoinDesk Research)

Release of Filecoin’s FIL tokens signals growing market for “storage tokens.” (CoinMarketCap) 

DeFi 3Q revenue dwarfed previous three-month periods by “a few orders or magnitude.” (Bankless):

Analogs The latest on the economy and traditional finance

China growth hits 4.9% versus a year earlier, on track to be world’s only major economy to expand this year. (WSJ) 

JPMorgan CEO Jamie Dimon says biggest U.S. bank has $300B of cash and doesn’t want to put money into investments returning 0.6% to “get a teeny bit more” of interest income. (Bloomberg) 

Nancy Pelosi says she’s optimistic about legislation being passed before Nov. 3 presidential election. (CNBC)

After last week‘s IMF and World Bank meetings, columnist suggests that government stimulus funds should be used for investment in infrastructure, education and climate-change mitigation rather than “ill-targeted subsidies.” (South China Morning Post)

U.S. budget gap tripled to record $3.1T in fiscal 2020 ended Sept. 30 (WSJ):

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Central bank digital currencies (CBDCs) may benefit countries looking to exert greater control over their monetary policy but aren’t a solution for every crisis, said a report from the International Monetary Fund (IMF) published Monday. 

While most of the report assessed the different pros and cons as well as the policy considerations of a central bank issuing its own digital currency, its main conclusion appeared to be that a CBDC should be viewed as another tool in currency issuance or monetary policy, rather than a panacea for every world economy.

“Overall, the paper finds that CBDCs do not qualitatively change the economic forces that lead to the international use of currencies, as they are only digital forms of existing fiat currencies but quantitatively, they could reinforce the incentives behind currency substitution and currency internationalization,” the report said.

Related: Major Meeting of Central Banks Produces Same Old ‘Evaluating’ CBDCs Refrain

The report created a few hypothetical scenarios for the issuance of a CBDC, which envision it as a niche tool solely for cross-border payments; a tool for currency substitution; a primary unit of account/payments tool in several countries; or a widely adopted set of CBDCs which are used for both international and domestic transactions.

A CBDC is not a one-size-fits-all solution for lackluster economies, and it won’t save nations with high inflation or similar domestic issues.

“If the local currency suffers from instability and provides a poor unit of account, issuing CBDC is unlikely to change that. More broadly, the case for CBDC issuance is likely to depend on country circumstances,” the report warned.

The report comes ahead of an IMF-hosted panel on cross-border payments, which will see Federal Reserve Chair Jerome Powell, Bank for International Settlements General Manager Agustín Carstens, Bank Negara Malaysia Governor Nor Shamsiah and Saudi Arabian Monetary Authority Governor Ahmed Abdulkarim Alkholifey discuss their views with moderator Kristalina Georgieva, the IMF’s managing director.

International relations

Related: Digital Ruble Could Be Tool Against Sanctions, Bank of Russia Says

One of the chief benefits of a central bank digital currency is that it’s (perhaps obviously) a digital payments system, the report said. 

Before CBDCs can be issued or adopted, countries should take a look at the international treaties governing currency agreements, the report suggested. 

“Authorities will also need to assess whether restrictions on payments in CBDCs are consistent with countries’ obligations under international and bilateral treaties, including the IMF’s Articles of Agreement,” the report said. 

Other considerations include the impact of a CBDC on domestic monetary policy. 

Read more: CBDCs Could Challenge US Dollar’s Dominance: Deutsche Bank

In two scenarios with a CBDC, “the issuing central banks need to decide whether it is in their national interest to be the lenders of last resort to those countries that use its CBDC extensively,” the report said. 

Nations can benefit from issuing their own CBDCs, such as from the fact that such tools would help issuing central banks take advantage of digital payment rails. Theoretically, CBDCs can also let central banks lower policy rates “below the effective lower bound,” letting them exert better control over their monetary policy.

However, these same facets might create drawbacks. High external demand might require central banks to expand their monetary policy toolkit, though the IMF report suggested that certain limits might reduce this concern.

Private stablecoins

The report also took a look at private efforts to launch a stablecoin that would be used internationally, warning that a truly global stablecoin poses risks of its own to monetary policy (echoing concerns raised repeatedly by finance ministers and policymakers over the last 16 months).

The authors speculate “Big Techs” could essentially bait-and-switch their stablecoins by linking them to fiat reserves at launch, only to de-peg them later on. These unbacked global stablecoins (GSCs) would then become something akin to a stateless currency. Their value could be preserved through Big Tech’s pledge to follow “a credible set of rules and principles” acting much like a central bank themselves.

“At some stage, once adoption reaches some critical mass, the peg to existing reserve currencies may no longer be needed to generate trust in the value of the GSC, and the GSC could become a fiat currency,” the IMF said. 

Read more: Libra’s Long Road From a Facebook Lab to the Global Stage: A Timeline

This risk is especially acute in countries with unstable exchange rates or high inflation, where the GSC could serve the role fiat currencies would normally, the report warned.

The adoption of a global stablecoin could even lead to a world where private companies direct the monetary policy of an asset to which countries would be subject.

“In addition, even in countries with credible policy frameworks, the adoption of GSCs could be significant as they could facilitate transactions associated with certain e-commerce or social networking platforms,” it said. “The platforms might not require the use of GSCs but could encourage it through incentives (e.g., lower prices paid for goods and services on the platform if the GSC is used).”

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The Bank of Russia (BoR) has said a role in side-stepping economic sanctions would be one reason to launch a ruble-backed central bank digital currency (CBDC).

• Talking to Moscow-based newspaper Izvestia, the institution’s press office said a digital ruble could help diminish the dependence of the Russian economy on the U.S. dollar.
• This, in turn, could help mitigate the risk of the foreign sanctions, which have been imposed on Russia by the U.S. and the European Union in recent years.
• The most recent round of EU sanctions was imposed last week on several high-level public officials in Russia over the alleged assassination attempt on Russian opposition leader Alexei Navalny with a chemical warfare agent.
• The digital ruble could also make electronic payments cheaper, ease the pressure on the existing payment infrastructure and make cross-border payments more convenient, the BoR said.
• The bank did not go into details over how exactly a digital ruble would help counter sanctions.
• U.S. sanctions can also include bans on operations with digital currencies, as was the case with the three Russian nationals charged with interference in the U.S. elections this autumn.
• The central bank did say it would not permit any use of the CBDC not controlled by the regulator, and that the token must be backed by actual rubles.
• On Oct. 13, the BoR published a report on a possible future launch of the digital ruble seeking public feedback by Dec. 31.
• A ruble-backed stablecoin guaranteed and controlled by the government could stimulate financial innovation and even help prevent corruption, the report said.
• After the consultation period, the regulator may run pilot of the digital ruble with a limited set of users.
• A final decision on whether to go ahead with the digital currency would only be made after that, the report indicated.
• This summer, Russia passed a law regulating the issuance of digital securities in the country, which also mentions cryptocurrencies.
• A more detailed set of rules for cryptocurrency is yet to be passed and, according to a draft bill recently published, they may be prohibitive.
• The Bank of Russia has consistently voiced an anti-crypto stance over the years, with its head, Elvira Nabiullina, saying decentralized cryptocurrencies like bitcoin should not be legal in the nation.

Also read: First Users Not So Impressed by China’s Digital Yuan: Report

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Bitcoin’s (BTC) on-chain transaction activity has cooled amid the recent lull in price action – and that’s hurting miners’ earnings.

• The cryptocurrency’s blockchain processed 231,437 transactions on Oct. 18 – the lowest since May 24, according to data provided by blockchain analytics firm Glassnode.
• That means the daily transaction count was down nearly 40% from a peak of 382,408 observed on July 1.
• With network processing far fewer transactions currently, the percentage of miners’ revenue derived from fees also dropped to a three-month low of 3.49% over the weekend.
• Last week, CoinDesk reported that the bitcoin’s hashrate had hit a new high as a record amount of computing power was applied to mining on the network.
• The slide in the tally of transactions is the result of the cryptocurrency’s low-volatility trading of late, and may have bullish implications for price, according to analysts.

• “Boring price action and low volatility tends to reduce the count of transactions to and from the exchanges,” Willy Woo, on-chain analyst and author of “The Bitcoin Forecast” newsletter, told CoinDesk over Telegram.
• Daily trading volume across major exchanges fell to $804 million on Sunday.
• That’s the lowest since July 19 and down 80% from the high of $4.4 billion registered on Sept. 3, according to data source Messari.
• Exchanges typically liquidate bitcoin earned through trading fees to pay salaries and finance other expenses.
• But with fewer transactions bringing in less in fees, Woo said, the exchange supply tends to drop, thus reducing selling pressure in the market.
• Bitcoin is now trading in the range of $11,200 to $11,700 for the seventh straight day, according to CoinDesk’s Bitcoin Price Index.
• Previously, the cryptocurrency had consolidated in a narrowing price range below $11,000 for four weeks before establishing a foothold above the psychological hurdle on Oct. 10.
• Joel Kruger, a currency strategist at LMAX Digital, also said the transactions drop is reflective of sideways, directionless price action.
• The combination of low volatility and pullback in transaction count often creates bullish conditions for prices, according to Woo.
• At press time, bitcoin is changing hands near $11,480, down 0.38% on the day.
• Prices are pushing at the upper bounds of a descending triangle on the 4-hour chart.

• A breakout would imply a resumption of the rally from the Oct. 8 lows near $10,500 and shift the focus to $12,000.
• The cryptocurrency has recently shown resilience to exchange-related issues and heightened uncertainty in traditional markets. As such, the odds appear stacked in favor of a breakout.
• Disclosure: The author holds small positions in bitcoin and litecoin.

Also read: Institutions Take Record Bullish Bets in Bitcoin Futures, Shrugging Off Exchange Missteps

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A recent giveaway of China’s in-testing central bank digital currency (CBDC) has reportedly left recipients less than wowed by the user experience.

• As reported previously, the city of Shenzhen and the People’s Bank of China launched a “red envelope” lottery earlier this month, giving away 20 million of the digital yuan (worth around $1.5 million) to locals.
• Two million people were said to have applied for a 200 digital yuan ($30) share of the total.
• But according to Reuters, these early users of the trial digital currency feel the central bank has more to do if it wants them to switch over from existing payments apps like Alipay.
• The news source polled users in a shopping district in Shenzhen, with one going by the surname Yuan saying she found the option less convenient and that she wouldn’t use the CBDC again unless it was provided through another giveaway.
• Another, surnamed Zhong, told Reuters the digital yuan infrastructure was similar to those from Alipay and WeChat Pay, which have been “out for a long time.”
• Even though, she said she may switch to using the CDBC if it seemed secure and convenient.
• With the central bank playing catch-up to existing providers, it may have to offer incentives to grow adoption of the digital coinage when it finally launches.
• “It’s especially important to offer convenience and other benefits to promote the use of digital yuan,” a senior economist at PwC China told Reuters.
• For the Shenzhen lottery, over 3,000 stores were equipped with payment technology allowing the digital yuan winnings to be spent.
• Point-of-sale devices at the stores’ checkouts would scan a QR code on the users wallet app to deduct their spending amounts.

Also read: China Central Bank Official Reveals Results of First Digital Yuan Pilots

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A recent giveaway of China’s in-testing central bank digital currency (CBDC) has reportedly left recipients less than wowed by the user experience.

• As reported previously, the city of Shenzhen and the People’s Bank of China launched a “red envelope” lottery earlier this month, giving away 20 million of the digital yuan (worth around $1.5 million) to locals
• Two million people were said to have applied for a 200 digital yuan ($30) share of the total.
• But according to Reuters, these early users of the trial digital currency feel the central bank has more to do if it wants them to switch over from existing payments apps like Alipay.
• The news source polled users in a shopping district in Shenzhen, with one going by the surname Yuan saying she found the option less convenient and that she wouldn’t use the CBDC again unless it was provided through another giveaway.
• Another, surnamed Zhong, told Reuters that the digital yuan infrastructure was similar to those from Alipay and WeChat Pay, which have been “out for a long time.”
• Even though, she said she may switch to using the CDBC if it seemed secure and convenient.
• With the central bank playing catch-up to existing providers, it may have to offer incentives to grow adoption of the digital coinage when it finally launches.
• “It’s especially important to offer convenience and other benefits to promote the use of digital yuan,” a senior economist at PwC China told Reuters.
• For the Shenzhen lottery, over 3,000 stores were equipped with payment technology allowing the digital yuan winnings to be spent.
• Point-of-sale devices at the stores’ checkouts would scan a QR code on the users wallet app to deduct their spending amounts.

Also read: China Central Bank Official Reveals Results of First Digital Yuan Pilots

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Users of the Luno cryptocurrency exchange can now earn passive income on bitcoin holdings through the firm’s new “savings wallet.”

• Launched Monday, the product is said to bring bitcoin savers up to 4% in interest per year, with no fixed terms.
• Luno – which is owned by CoinDesk’s parent company Digital Currency Group (DCG) – said users can withdraw their bitcoin from the savings wallet into their normal wallet at any time.
• Interest is calculated on the first of every month.
• The firm’s CEO and co-founder, Marcus Swanepoel, said in an announcement that the wallet was launched after a 95% of customers indicated they would like to earn interest on their holdings.
• The interest rate offered is “much higher” than those currently offered by traditional savings schemes in regions such as Europe, he added.
• The firm’s research found that 54% of respondents earned zero interest on their cash savings internationally.
• Luno was acquired by DCG in September, with the exchange to continue to operate independently as part of the blockchain investment company’s group.
• The bitcoin savings product comes at a time when investors are increasingly turning to ways to earn income from their cryptocurrency holdings other than merely holding in the hope of gains.
• The area of decentralized finance, or DeFi, has soared over the last six months as the concept of “yield farming” saw wider appeal as a means to earn rewards by loaning liquidity.
• However, DeFi, with its sometimes unproven protocols and anonymous founders, also carries risk.

Also read: What Is Yield Farming? The Rocket Fuel of DeFi, Explained

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Bitstamp, one of the world’s largest cryptocurrency exchanges, has introduced a new insurance policy that covers the theft and other losses of user funds held on its platform.

• The Europe-based exchange said the new insurance policy will be provided by Paragon International Insurance Brokers in coordination with Woodruff-Sawyer, per a Thursday blog post.
• The underwriters will consist of various insurance companies and certain syndicates from one of the world’s oldest insurance markets, Lloyd’s of London.
• The policy applies to digital assets, such as bitcoin, that are held at the exchange both on and offline, and covers a number of crime-related circumstances, per the post.
• These include employee theft, loss while the assets are stored at any premise, loss in transit, loss caused by computer fraud or funds transfer fraud, and losses related to legal fees and expenses.
• Bitstamp said 98% of all its digital assets are stored offline, which are already protected by cover from cryptocurrency custodian BitGo.

See also: Crypto Long & Short: The OKEx Drama Exposes a Weakness in Crypto Market Infrastructure

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A Puerto Rico-based bank founded by gold bug and long-time bitcoin skeptic Peter Schiff is under investigation over suspicions it facilitated tax evasion for “high-risk” clients.

According to reports on Saturday by several large media organizations in Australia and the U.S., Schiff’s Euro Pacific Bank has become the focus of a major global tax evasion investigation dubbed “Operation Atlantis.”

Hundreds of account holders at the bank, including 100 Australians considered “high risk,” are now being investigated over possible tax evasion and money laundering.

Related: Spain Working on Bill to Force Crypto Holders to Disclose Assets, Gains

These reportedly include Simon Anquetil, the man behind major Australian tax fraud Plutus Payroll, and Australian entrepreneur and film financier, Darby Angel, who has previously been convicted for drug trafficking.

“People can be investigated for all sorts of reasons doesn’t mean they did anything wrong,” Schiff said in a fiery interview with 60 Minutes Australia. “I’m not allowed to discuss it.”

The investigation is also said to be seeking the lawyers, accountants and financial firms that helped connect customers to Euro Pacific.

Initiated by the U.K., the U.S., Australia, Canada and the Netherlands, Operation Atlantis began looking into Euro Pacific back in January of this year.

Related: IRS May Make It Harder to Avoid Declaring Crypto on Tax Returns

The effort was established by the countries’ top tax officials, known as the “Joint Five,” after it was discovered tax authorities were less than equipped to deal with the revelations arising from the “Panama Papers” scandal.

According to The Age, the bank’s former IT director, John Ogilvie, also claimed that data security was poor, putting Euro Pacific customers’ financial information at risk.

He claimed his computer had been hacked several times and that Russian bad actors had tried to extort a ransom of 1,000 bitcoin from the bank.

A huge 2016 leak of documents, the Panama Papers shed light on how some of the world’s wealthiest people and firms have been hiding money and evading tax in off-shore accounts.

Schiff has long been a critic of bitcoin, going so far as to describe those that promote the cryptocurrency as “frauds,” in a tweet on May 9.

See also: The FinCEN Files Show Banks Don’t Actually Care About Stopping Money Laundering

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Filecoin, a decentralized storage network launched by Protocol Labs, is off to a rocky start after a strike by miners just one day after its highly anticipated miannet launch on Oct. 15. 

Five of its largest miners turned off their machines to protest the project’s “unfair” economic model that requires a significant amount of FIL tokens to start mining operations, according to a report by 8btc.com. 

Zhihu Cloud, one of top five Filecoin miners, has more than 8,000 InterPlanetary File System (IPFS) mining machines yet only 276 mining machines were running on Saturday, while the other four, including mining company 1475, generated even less storage mining power, the report said. 

Related: Filecoin Settles Near $40 After Wild Opening Day of Trading

The project aims to provide its users with decentralized data storage and transmission services through servers offered by its miners with commodity hardware. However, the miners are required to stake a large amount of FIL tokens as “Initial Pledge Collateral” to start their mining operations. 

While Filecoin uses the collateral as a leverage to ensure miners fully deliver their services according to users’ contracts, it creates a situation where the miners don’t have enough FIL tokens to begin with. 

There are two ways to get more tokens but neither of them are desirable. Miners could earn token rewards and put them down as collateral but Filecoin releases the rewards over the course of six months after building a block. As a result, the miners receive very few tokens at the beginning. 

Miners could also buy FIL tokens from exchanges. However, that could be a very costly and risky move since many believe FIL is currently overvalued and there might be a hefty transaction fee. 

Related: Decentralized Data Storage’s Only Competition Is the Public Cloud

FIL token’s price fluctuated wildly on its opening day, soaring to $100 before settling down to almost $40 with many investors arguing it was still grossly overpriced. 

“All the miners have been off since the mainnet went live, this is not some sort of protest but we have to shut them down because we really don’t have the tokens as collateral to mine,” ST Cloud CEO Chuhang Lai said in the report. 

In response to miner’s concerns, Filecoin has decided to release 25% token rewards in advance once a miner builds a block on the blockchain. “The revision could enable 80% of our mining capacity,” Xiaoming Zhan, CEO at IPSFMain said. 

Miners have been complaining about Filecoin’s mining economic model long before the mainnet launch and suggested that they should fork the project. 

China has been one of the hottest markets for Filecoin in part due to its unique mining mechanism since the project raised over $200 million in its ICO three years ago. 

Chinese crypto mining companies have purchased tens of millions of dollars of IPFS mining machines that are designed to provide large data storage and computing  power to “seal” and transmit the data. 

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Democratic House Speaker told the White House Sunday it has until Tuesday to reach a deal on a pandemic stimulus package or it was unlikely to be passed before the election, the Wall Street Journal reported.

• If no deal is reached by Tuesday evening, even if negotiations continue and are eventually successful, it’s unlikely to produce a package before the Nov. 3 election, the WSJ said, quoting an aide to the Senate Democrat.
• House Democrats are seeking a $2.2 trillion relief package, and while President Donald Trump has said he’s prepared to go beyond his $1.8 trillion proposal, Senate Republicans in favor of a much more modest package may not support him.
• If a package isn’t passed by the election, it might be well into February before one happens, the WSJ said, quoting Rep. Tom Reed (R., N.Y.).
• Why this matters to crypto: Bitcoin (BTC) prices have been buoyed this year as investors bet that trillions of dollars of government and central bank spending around the world in response to the coronavirus-induced economic slowdown will inevitably result in inflation, and therefore be positive for the cryptocurrency.
• As such, if a stimulus deal is reached, BTC may rise further.

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The Bank of Canada, posted a position for an economist, digital currencies and financial technologies, as the Canadian central bank continues to research how a central bank digital currency (CBDC) would work as well as the possible risks involved.

• According to the posting, the economist will: “monitor and analyze developments in electronic money and payments, including CBDCs, cryptocurrencies, stable coins, crypto exchanges, and others.”
• The advertisement lists as qualifications “nice to have” as: a knowledge of bitcoin, ethereum and other major cryptocurrency platforms as well as traditional payments systems like card networks, merchant acquirers, point of sale technologies.
• The posting comes as the Bank of Canada has both expressed caution regarding the risks of a CBDC and also how the pandemic has accelerated the need for speed at which the central bank must research how a CBDC would work.

Read also: Federal Reserve, 6 Other Central Banks Set Out Core Digital Currency

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