Crescent Talks Crypto

All you need to get caught up on the world of crypto in 10 minutes or less

 

Weekly Newsletter 

02/25/2018 - 03/04/2018

 

Goldman-Backed startup Circle purchases Poloniex

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What happened?

On Monday, Circle announced that they will be purchasing Poloniex, one of the world’s largest cryptocurrency exchanges, for $400 million. Circle, a Boston-based start up, initially started out with the intent of being the Venmo of Crypto, however a little over a year ago they announced they would be shifting their focus from Bitcoin to blockchain-based services. While they developed a mobile app that allows people to make instant money transfers, they moved away from retail crypto investors and focused on becoming one of the largest Bitcoin liquidity providers in the world (handles around $2 billion in crypto trading a month) as well as supporting many exchanges (Poloniex included).

Why does this matter?

Like many exchanges, Poloniex (which is ranked as the 14th largest crypto exchange according to CoinMarketCap) saw a high surge in new users as prices skyrocketed in the second half of 2017 and struggled to keep up with the increased demand. Given that Poloniex is a US-based company, they’ve also had to keep up with compliance within the space which is why they rolled out new KYC policies late last year. Circle’s immediate focus regarding Poloniex will be around facilitating compliance, while also looking into adding fiat bridges and expanding Poloniex to other markets (despite Poloniex already being available in more than 100 countries). This acquisition should help Poloniex better manage their customers, while also helping to expand the reach of the cryptocurrency markets.

What’s the word on the street?

Nathan Popper (a writer for the New York Times) shared a private slide from a confidential Circle presentation which hinted that the SEC informally suggested to Circle that no enforcement action will occur if the Boston-based start up “cleans up Poloniex and turns it into a regulated exchange”. This is definitely interesting given the regulatory overhang ongoing within the crypto markets, especially with more and more exchanges constantly going through periods where they no longer accept new users to work through their backlog of new user requests and complaints. Nathan went on to propose that “The SEC seems to be saying here that it’s okay if you broke the rules, as long as you get acquired by a legitimate player before we crack down on you”.

Where can I read more?

Bitcoin News: Why Did Goldman Sachs Backed Circle Really Buy Poloniex

Bloomberg: Goldman Backed Circle Buys Digital Exchange Poloniex

 

Bill Gates Says He Doesn’t Think Bitcoin’s Anonymity Is A Good Thing

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What happened?

Bill Gates commented on Bitcoin during a Reddit AMA on Tuesday. When asked for his general thoughts on cryptocurrencies, Bill Gates responded:

“The main feature of crypto currencies is their anonymity. I don't think this is a good thing. The [government’s] ability to find money laundering and tax evasion and terrorist funding is a good thing. Right now crypto currencies are used for buying fentanyl and other drugs so it is a rare technology that has caused deaths in a fairly direct way. I think the speculative wave around ICOs and crypto currencies is super risky for those who go long.”

This isn’t the first time Bill Gates has publicly spoken about cryptocurrencies. Back in 2014, he said Bitcoin was exciting because of how cheap moving money can be at the Sibos conference in Boston. Interestingly enough, he even stated that he wasn’t a fan of the anonymity aspect of cryptocurrencies during that conference. Since then, Bitcoin has evolved and more and more people are using it for either a store of value or a medium of exchange. As most people who have been in the space for a while will tell you, there have been numerous studies that have found a decline in criminal activity as a percentage of the overall bitcoin economy.

Why does this matter?

While Bill Gates does have a point, he seems to be missing the bigger picture. The underlying distributed ledger technology (DLT) which is the basis of Bitcoin means the blockchain records all. Once you know one account is being used for illcit transactions, you can see their entire transaction history and trace it back to all other interacting accounts. Additionally, most “cryptocurrencies” not only aren’t well constructed for illcit trade, but really aren’t currency at all but a token or digital asset that enables you the use of a specific digital network. Being the founder of Microsoft and one of the richest people in the world, Bill Gates’ has a pretty powerful voice. That being said, we can’t help but feel he should take note from his close friend, Warren Buffet, and outright state that he hasn’t dived deep enough to fully understand the crypto space.

What’s the word on the street?

As expected, the crypto community created an uproar almost immediately after Bill Gates posted his reply regarding cryptocurrencies. While many community members seemed to see Bill’s point but believed he was generalizing the space, some people went as far as pointing a finger at Microsoft itself for helping facilitate criminal transactions over the internet. Kyle Torpey, a well known Bitcoin writer and researcher, brought up a great point within his Forbes article (attached below) by stating “To Gate’s point, there would be not much use for bitcoin if every government in the world implemented sound monetary policies, allowed all of their citizens to transact privately, and never seized anyone’s assets; however, this is obviously not how the world works.”

Where can I read more?

Forbes: Bill Gates Says "I Don't Think Bitcoin's Anonymity Is A Good Thing"

 

Bitcoin Private Fork Leaves ZClassic Investors Puzzled

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What happened?

A co-fork between ZClassic and Bitcoin occurred on Friday, resulting in Bitcoin Private, a Bitcoin-based protocol that utilizes the same privacy technology (zk-snarks) as ZClassic. Bitcoin Private (BTCP) will be distributed to each holder of ZClassic and Bitcoin on a 1:1 ratio. The snapshot date, when the final record of holders is recorded, was announced at the end of January, causing a major run up in ZClassic's price in early February as investors piled in in anticipation of the fork. ZClassic's price has fallen 95% from its high, as it currently trades under $11.

Why does this matter?

The ability to fork a protocol is one of many attributes that make cryptocurrencies and assets unique from traditional investments, and as the market grows, the number of forks will grow with it. Understanding the details surrounding a hard fork are imperative if you hold the token or coin involved. Many speculators profited as ZClassic rocketed towards $200, but many were left holding the bag when the chips came crashing down. As much of this market is made up of individual, retail investors, exchanges need to be more proactive in being upfront with users about steps and procedures surrounding these events.

What’s the word on the street?

Logistically, this fork could have gone better. A lot better. Rhett Creighton, the founder of ZClassic, is also the founder of Bitcoin Private, which has caused some to question his motives for BTCP. After all, what was wrong with ZClassic in the first place? The lack of communication from exchanges supporting ZClassic only added insult to injury. The dust seems to be settling, and many are truly excited about the new Bitcoin Private protocol, but many lessons were learned the hard way this week.

Where can I read more?

Benzinga: Bitcoin Private Aims To Combine The Best of Bitcoin and ZClassic

Bitcoin.com: Bittrex Stance on Bitcoin Private Angers ZClassic Bagholders

BTC Private: Why Bitcoin Private?

Cryptocurrency Facts: Understanding Hard Forks

Cryptovest: Bitcoin Private Coming Along, But ZClassic Is Crashing To Nothing

 

U.S. Regulatory Update

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It was another busy week for regulators as new parties were contacted by both state and federal regulators in various capacities. So far, the actions have been consistent with recent guidance from Jay Clayton (head, SEC) and other high ranking officials.

The SEC kicked off its probe though it is still unclear what the size and scope of the crackdown will be. Several more subpoenas were handed out and focus on details around the time of a token’s launch. Additionally they ask for investors, KYC procedures, marketing materials, organizational charts and even emails. With regard to scope its still too early to say whether this is a true crackdown of fraud or a scare tactic with the hope of a chilling effect on the ICO phenomenon. To reiterate, a token must pass the so-called Howey Test and must have utility outside of appreciating due to the labor of another person.

The Texas State Securities Board (TSSB) issued a cease-and desist order to LeadInvest.com a Panama-based cryptocurrency firm. The company marketed mining, trading and lending programs that promised “20 to 100 percent returns on investments”. Leadinvest collected over $177 million from almost 200,000 users. The company’s management bios were represented with stock photos. The more you dig into the company the more it sounds like Bitconnect. Good riddance. 

News broke on Friday that the fund run by TechCrunch founder Michael Arrington, was subpoenaed. He indicated that there was no reason to be concerned and that many other crypto funds had also received something similar from the SEC.

On the positive news front employees at the CFTC were given permission to trade cryptos on personal accounts. As if Chris Giancarlo (head, CFTC) needed any more goodwill form the crypto community. 

The Bottom Line

Expect these regulatory nuggets to continue throughout the year. Both the rhetoric and action of U.S. regulators thus far indicates that they are picking the lowest hanging fruit. Obvious fraud and failure to pass the Howey Test will raise red flags. The upside to this approach is twofold. First it prevents a chilling effect on the industry writ large and focuses on obvious wrongdoing. Second, it educates regulators on the processes that ICOs employ. This can hopefully create a meaningful information channel back to lawmakers and help craft meaningful regulation around digital assets. 

 

Anything else?

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‘Wasn’t me’ says 50 Cent this week after news broke that he was a Bitcoin millionaire after being paid in the cryptocurrency for his 2014 album “Animal Ambition”. The rapper clarified this week saying that he never owned the digital currency and that he rarely corrects news of any kind that doesn’t portray him in a negative way. 

The obvious catch-22 in this case being that 50 could just hide his Bitcoin from his personal balance sheet should he choose to. 

 

Things we're reading this week. 

Benefits Of Crypto For Countries - Changpeng Zhao, CEO of Binance, discusses the economic benefits of crypto-friendly countries, especially in smaller nations focuses on developing the infrastructure to support financial markets. 

Blockchain Can Democratize Access To Credit - Access to credit is imperative for those with innovative ideas but difficult financial situations to realize their dream of financial freedom. Blockchain can help even the playing field for access to financial services, benefiting both borrower and lender. 

Don't Invest What You Can't Afford To Lose - First hand account about how you can lose a lot of money in these markets even if you think you're investing responsibly. Always remember this market can turn in the blink of an eye. 

Institutional Investors Are Stuck On The Sidelines - Gauging demand for any asset class may be tough, but one thing we know is institutional money could have a great impact on crypto prices. 

 

Ali Hassan