A prominent cryptocurrency analyst and one of few yet to be convinced that Bitcoin will not sink lower than its December 2018 low of $3,200 once again is teetering on the edge of bullishness. Vinny Lingham, a South African entrepreneur and co-founder of the Civic (CVC) blockchain identity platform, has stated that he will come around to the belief that crypto winter is indeed over if Bitcoin can stay above the price many though would serve as immense resistance – $6,200.Lingham has previously commented that he thinks Bitcoin unlikely to make any lasting gains until it moves up and down independently of other altcoins. However, he did also state that if we cross the $6,200 price point, we could very well be looking at a new bull run regardless of decoupling.Lingham: If Bitcoin Holds, “I’m Going to Become a Raging Bull”Bitcoin is currently sitting at its 2019 high point in terms of price. The world’s most popular digital asset by market capitalisation is having a much more positive start to this year than it did in 2018. In dribs and drabs, this has caused almost all those commenting on the market to state that bear market is now over and accumulation has already begun.One of the last people to come round to this way of thinking is Civic CEO Vinny Lingham. The South African crypto entrepreneur took to Twitter last month to muse on the likelihood of the downtrend in prices having reversed. Ultimately, Lingham concluded that Bitcoin would not be capable of any sustained upwards movements until the rest of the crypto space stopped moving in tandem with Bitcoin.For Lingham, the idea that XRP, Ether, Monero, or any other coin or token gains in value when Bitcoin does is ridiculous. He stated last month that it was evidence of a market that had little clue what made different digital assets unique and why some were better than others.At the time, however, he did state that he was prepared to change his mind about the bottom being in, providing Bitcoin price could charge past the $6,200 level.Well, guess what? Bitcoin did just that this afternoon. At the time of writing, a single unit of the digital currency will set you back $6,407. That’s quite an increase from the less than $4,000 it started 2019 priced at.True to his word, Lingham has today taken to Twitter once again to update his market forecast. This afternoon, the entrepreneur posted:If Bitcoin can hold the $6200 level for the next 24-48 hours, then the bear market is officially over and I’m going to become a raging bull!— Vinny Lingham (@VinnyLingham) May 10, 2019The $6,200 price area that Bitcoin stormed through earlier today was considered by many to be a significance area of resistance that would likely send Bitcoin much lower once again. Back in autumn 2018, Bitcoin had been holding steady above the significant price, when the news of the Bitcoin Cash hard fork that created the now hugely unpopular Bitcoin SV appeared to cause it to crash through support and find the current low point of this market cycle – around $3,200. Related Reading: Bitcoin Dominance Moves to 2019 High: Is This The Start of Crypto Decoupling?Featured Image from Shutterstock.
Archives for May 10, 2019
By CCN: Augmento is an artificial intelligence platform that analyzes trends and data to “augment human decision-making.” The firm posted the results of its look into the bitcoin bear market today with an eye toward determining if crypto winter is truly over.
Social Media Reveals Feelings Toward Bitcoin
Augmento’s algorithm categorizes social media mentions of cryptocurrency in several ways – everything from “FOMO” (fear of missing out) to “annoyed.” The company believes that for a bull run on the order of 2017 to take place again, sentiment must reach a point of calm.
“First of all, we find that Twitter becomes extremely emotional when big price actions take place. Examples are January 2017 (BTC broke above $1k), November 2018 (BTC fell below $6k), and April 2019 (BTC jumped from $4k to $5k). One might wonder why emotions did not peak when prices peaked. One explanation could be — and you might remember the emotional roller coaster — that emotionally loaded discussions kept on for a while when the market turned from bull to bear. But sentiments did not drastically change their intensity and instead kept rising.”
The Hardcore Shills Won’t Impact This Method
Specific segments of “Crypto Twitter” will obnoxiously shill crypto no matter the situation. AI can deal with these people categorically by identifying the density of their zeal. When looking for a broader trend and correlations with price action for cryptocurrencies, the algorithm needs much bigger indicators.
“The eScore tells us that for such a bull run to happen again we would have to experience a similar emotional surge as in 2017. […] The question is, however, if such an uptrend is still possible. The indicator currently oscillates above 0.5. That means more than 50% of the conversation is emotionally loaded. For an emotional uptrend á la 2017 the eScore would first have to drop much more before being able to rise that much again.”
The researchers conclude that a much greater swath of people will have to enter the market.
One More Indicator
The analysis assumes that social media sentiment is a serious indicator of the price movement. Historically, this may have been accurate, but plenty of the big boys – hedge funds and the like – don’t share a unified social media presence to gauge “sentiment” on.
Social media sentiment is probably just one more way to gauge the rolling tides of crypto markets. It shouldn’t be mistaken for more reliable chart analysis or wisdom gained through experience.
Bitcoin Price: What’s Really Going On?
Some believe Bitfinex may be using its massive resources to manipulate the market. Such conspiracy theories cannot be proven with existing technologies or available data.
Here, maybe these charts will help.
Bitcoin isn’t going up because of fundamentals, it’s going up because Bitfinex and Tether is running a giant scam. pic.twitter.com/oUtnJ5gPeu
— Bitfinex’ed — full stop. (@Bitfinexed) May 10, 2019
People have known for a long time that major exchanges like Bitfinex potentially wield power to manipulate the bitcoin price.
The Federal Reserve of Boston is starting a new blockchain experiment this summer.
The Massachusetts state regulator has been one of the earliest and most involved government bodies to dip their toe into the new technology. It has been quietly developing blockchain systems since 2016 but has said very little about their plans.
Now the first results of those trials are out and the Boston Fed published a white paper on its proof-of-concepts on ethereum and Hyperledger Fabric. Now it’s getting ready for the next stage, Boston Fed’s vice president of IT Paul Brassil told CoinDesk.
The team is going to look into possible opportunities to set up a “supervisory node,” a regulatory surveillance tool that should be able to connect to various banking blockchains in the future. This node will watch the money flows and settlements between different banks, Boston Fed’s senior vice president Jim Cunha said.
“If you look at the future, there might be one blockchain that is holding securities, one that is holding derivatives, one is holding cash or interbank transfer — how do you as a supervisor watch the traffic on all these platforms that also will be on different technology?”
Cunha adds, that Boston Fed is not looking at these explorations from a policy standpoint and that is expects to work with the central Federal Reserve on these rules. But in the meantime monetary authorities have to keep apace with the technology development.
“We are surrounded by very large financial institutions and banks and we know that all of them are experimenting with the blockchain technology. So the more we can work with them and understand their roadmap, the more we know that we’re moving in a right direction,” Brassil said.
First, the Boston Fed plans to set the agenda and determine the main direction of this experiment and the work on this ideological part will start as early as this summer. Cunha said there are no plans yet for the publicly releasing the project.
“Right now there is very little research on it, so our next goal is to look into what an audit node look like,” Cunha said. “What kind of data we should have access to, how to interact, how to update nodes, can you create operational problems with it? What kind of coding you will need to do to store the information about the movement of funds, so you can do analysis of the flows. We are really starting from scratch.”
In the future, it could be possible that we will see multiple blockchains by various banking institutions, Brassil said, so the Fed’s supervisory node should have a technical capacity “broad enough to cover all the platforms.”
“Startup in the basement mentality”
Boston Fed started blockchain technology trials back in 2016 by experimenting with ethereum. At that time, there were no specialized blockchain developers on staff, so the team of coders educated themselves watching relevant videos on YouTube. Cunha and Brassil called it their “startup in the basement.”
During that period, developers tried to put depository institution balances under the Boston Fed supervision on a blockchain and create mock transactions — a kind of a blockchain-powered back office model. They conducted the testing first on the ethereum blockchain and then on Hyperledger Fabric. In the end, the latter was considered a more suitable option.
Why did they pick Fabric? first of all, a permissioned blockchain is preferable for a government entity. Among other challenges, the necessity to maintain a supply of ether to pay gas in transactions complicated the task and they were also worried about speed limitations.
“The time necessary to create a block was slower than could be tolerated in a production environment,” the white paper said.
Now, with the project of the blockchain back office on hold and the “supervisory node” experiment in the pipeline, Boston Fed is hiring some professionals to ramp up its blockchain testing, Cunha told CoinDesk.
“We are trying to add stuff to do something more robust internally, we need more dedicated resources,” he said. The new blockchain team will not be large, though, only “a handful” of people.
Boston Fed is also actively talking to other monetary authority bodies, though Cunha and Brassil won’t name the particular institutions. That said, they are excited to spread the word about the project.
“We have to share information because the whole industry needs to educate itself,” Cunha said.
Image of the Boston Fed office — courtesy of the Boston Fed.
Crypto security company Curv has obtained up to $50 million of insurance coverage for its institutional customers from reinsurance giant Munich Re.
“Curv will have the financial capability to pay for losses of crypto assets,” the partners said in a press release Tuesday.
The startup claims that “digital assets cannot be stolen from Curv’s Wallet Service with a single cyber breach or even through insider collusion.” Even so, the insurance policy is available as a further line of defense.
Specifically, Munich RE is insuring Curv against the risks of “an external cyber breach or malicious behavior by Curv or one of its employees,” Curv said. Customers using the wallet can opt-in for the insurance by paying an additional cost based on the amount of assets they store with Curv.
Munich Re audited Curv’s technology and found “their approach enables us to underwrite a policy that covers customer-controlled wallets in Internet-connected settings,” said Ali Kumcu, Munich Re’s head of cyber innovation and services.
That approach dispenses with the usual mix of so-called hot wallets, which are connected to the internet, and cold storage, in which cryptographic private keys are kept on a piece of paper or an offline device and locked away in a safe or even an electromagnetic field-proof cage.
Instead, “the product applies multi-party-computations to the private key signing mechanism, eliminating the private keys altogether,” explained Curv CEO Itay Malinger. “This brings a distributed security model to the signature mechanism.”
The company raised $6.5 million in February 2019 from Team8 and Digital Currency Group.
With its security system, “Curv can enforce a corporate [access] policy from the cloud and completely out of band, so that an attacker or an insider within Curv or within its customers are unable to sign transactions because they simply don’t have enough cryptographic material,” said Malinger, concluding:
“This is also what makes the service insurable.”
By CCN: In December 2018, the mainstream media proclaimed the death of bitcoin (BTC/USD) for the millionth time. At that point, the first cryptocurrency dropped by as much as 84% from the all-time high of around $20,000 as the price plunged below mining costs. The bearish sentiment was so strong that almost no one dared to long the digital asset. Those who did, however, have been handsomely rewarded because bitcoin is 2019’s best-performing asset globally.
Bitcoin Outperforms Other Assets by a Huge Margin
It may come as a shock to you but bitcoin is way ahead of any asset in terms of this year’s returns. As of this writing, it is up by more than 67% on Coinbase year-to-date. Coming in at No. 2 is oil (USOIL), up by 38.35%. The other investable assets in the green this year are the Nasdaq 100 (through the QQQ ETF), small caps (through the IWM ETF), and S&P 500 (through the SPY ETF). These investment vehicles are up by 22.25%, 18.17%, and 16.54% percent, respectively. On the other hand, gold (GLD), which is considered as a safe store of value, is down by 0.12%.
Bitcoin’s recovery comes at a time when global markets appear to be in turmoil. The uncertainty is further intensified as China threatens to come up with severe retaliatory measures in response to the significant tariff bump by the White House. Fundstrat Co-Founder Thomas Lee recently took to Twitter to show how BTC is unaffected by these developments. He applauded the rise of bitcoin in spite of tense global market conditions:
In a period where:
—political tensions escalate between US and China,
—global equity markets fall sharply
—VIX largest spike in many months
—global yield curves flatten/invert#bitcoin has RISEN and >$6,000
Crypto showing its value as an uncorrelated asset.
— Thomas Lee (@fundstrat) May 9, 2019
Even more impressive, bitcoin is not just buckling under the sharp declines of global markets. The cryptocurrency also appears to be shrugging off bad developments within the crypto community. Crypto-enthusiast Alex Kruger was able to notice this pattern.
— Alex Krüger (@krugermacro) May 8, 2019
Bitcoin is still rising even after three negative developments. It appears to be in the midst of a massive disbelief rally. An in-depth analysis shows that this digital currency has more gas left in the tank.
Bitcoin Targeting $7,800 in the Near Term
Bitcoin looks to mock the shorters and the non-believers as the cryptocurrency continues to push higher despite overheated technical signals. Daily volume and RSI may be flashing bearish divergences yet bitcoin remains strong. It is now threatening to breach heavy resistance of $6,200 on Coinbase.
Nevertheless, bulls have the pending golden cross between the 100-day moving average (MA) and the 200-day MA on their side. A confirmed cross can be the technical catalyst that keeps BTC above $6,200. Above this resistance, the next logical target is $7,800.
Bitcoin is 2019’s top performing asset, significantly edging traditional assets like oil, the Nasdaq, and the S&P 500. The cryptocurrency’s trend is so strong that it defies negative developments in the legacy markets as well as within the crypto community. Don’t wait for bitcoin to hit $7,800 before you start considering it as an investment.
As Bitcoin continues to set new 2019 high after high, altcoins across the crypto market continue to bleed out, with many setting new lows relative to their BTC pairings.With sentiment surrounding altcoins reaching extreme lows, these price levels could present lucrative buying opportunities if Bitcoin can stabilize above $6,000. If the leading crypto by market cap cannot, however, the bearish bloodbath may continue.Altcoins Market At Dangerous Levels as BTC Dominance SpikesBTC dominance has risen steadily ever since the break of resistance at $4,200, which caused what some day is healthy decoupling between the first ever cryptocurrency and alts, that is considered necessary before a true Bitcoin bull run can begin.$BTC Dominance right at Sept 2018 highsIf it continues to push up, Bitcoin dominance will hit highs not seen since Dec 2017And if you don’t know what this means….. it means your alt coins are dead inside pic.twitter.com/U9ViJoVmaM— Josh Rager 📈 (@Josh_Rager) May 10, 2019According to crypto analysts, BTC dominance closed the highest it has since September 2018, and has risen as much as ten points over the last month alone. The reverse correlation between Bitcoin and altcoins began after Bitcoin broke $4,200.Shit coins really living up to their name— Josh Olszewicz (@CarpeNoctom) May 10, 2019While many analysts are fearing the worst for altcoins if Bitcoin drops from here – a zone that could serve as powerful resistance but has yet to do so – warning of certain demise for altcoins should the important crypto market cap support of $180 billion be broken.Alts are really being annoying, they either need to catch up soon or they will fall along with Bitcoin when the total crypto market cap breaks below $180B— Formerly ScienceGuy9489 (@Etherdamus) May 9, 2019Analysts are split on what altcoin charts patterns are showing signs of in terms of where the crypto market goes next. Many believe that altcoins entered a distribution phase following the short-lived alt season that was upon us, causing many altcoins to double in value during 2019.Was literally gonna post something similar but with btc and Cardano. Good looks my friend. https://t.co/ZAfE0CmJkA— Mayne (@Tradermayne) May 9, 2019The same traders believe that altcoins charts are slightly ahead of Bitcoin, and claim that Bitcoin will be next in the agenda for smart money to begin distributing and taking profit from the recent rally.(or they die lol)— The Crypto Dog📈 (@TheCryptoDog) May 9, 2019Others, however, follow the old Baron Rothschild quota of “buy when there is blood in streets,” and believe that altcoins are currently an attractive buy at these levels, that could lead to lucrative trades.99% of you probably disagree with me and that is greatI’m bullish on alts pic.twitter.com/677rKXOTdc— Bitcoin 𝕵ack (@BTC_JackSparrow) May 9, 2019Warrant Buffet too supports a similar counter-sentiment mindset for investing, suggesting that people should be greedy when others are fearful, but fearful when others are greedy. The perfect example of this strategy paying off can be found in the price charts of none other than Bitcoin itself, showing that the “bottom” was mostly missed by buyers who were too fearful to buy at yearly lows.Related Reading | From $20K to $3K and Back: How Bitcoin Price Counters Sentiment in the Crypto MarketThe modern day crypto equivalent of the two quotes would look a little something like this…Sell alts when shitcoiners claim they will flip $BTC.
Buy when maximalists gloat about alts going to zero.— ฿TF%$D! (@CryptoHustle) May 10, 2019Now, with the bottom likely behind us, crypto investors will need to find the right entry point to maximize their returns – is that time now that altcoins have reached new lows relative to Bitcoin?
By CCN: As the bitcoin price bounded to a new 2019 high on Friday, a key market metric quietly surged to its highest level since December 2017 when the bitcoin price peaked at an all-time high just under $20,000.
Bitcoin Market Share Explodes to 17-Month High
That metric, “Bitcoin Dominance,” measures what percentage of the overall cryptocurrency market cap belongs to bitcoin. According to CoinMarketCap, Bitcoin Dominance jumped to 58.4% on Friday as the flagship cryptocurrency smashed through resistance to set a new six-month high at $6,425 on Bitstamp.
Bitcoin currently boasts a $113.4 billion market cap, compared to a combined $80.8 billion split between the other 2,165 cryptocurrencies tracked by CoinMarketCap. It’s also more than six times larger than its next-closest competitor, Ethereum, which has an $18.4 billion valuation but remains lightyears away from achieving the long-awaited “flippening” that hardly anyone talks about anymore.
The last time Bitcoin Dominance was this high, CBOE had just launched the first regulated US cryptocurrency futures contracts, catapulting a parabolic BTC to an all-time high at $19,891. A year-and-a-half later, CBOE is preparing to bid farewell to crypto, though bitcoin futures continue to flourish on crosstown rival CME.
Bitcoin’s market share is even more dominant if you go by data from OnChainFX, which disregards the value of “illiquid” tokens, such as the massive XRP stockpile owned by the Ripple company. OnChainFX pegs BTC Dominance at 62.92%.
What Does Rising BTC Dominance Mean for Crypto Market?
So what does all this mean for bitcoin, aside from the fact that it is trouncing the horde of altcoins grappling for its throne? That much remains unclear.
Before the historic cryptocurrency bubble in 2017, Bitcoin Dominance regularly held above 80%. By January 2018, it had careened as low as 33%, thanks in part to the initial coin offering (ICO) boom, which has since gone bust.
Though still a highly-risky asset itself, bitcoin is the cryptocurrency market’s conservative play. That’s one reason it weathered crypto winter better than its average altcoin competitor, and it also explains why altcoins tend to steal market share when low-information cryptocurrency investors dive headlong into bullish euphoria.
That’s precisely what occurred in January 2018, as Johnny-come-latelies who bought BTC in November 2017 found themselves sitting on a fortune just one month later, fancied themselves the second coming of Warren Buffett, and FOMO-bought ripple all the way up to $3.84.
Bitcoin Price Surge Hasn’t Catalyzed Return of Crypto Hype Bubble
So will crypto investors take their profits and use them to speculate on riskier altcoins, as they have done in the past? Conventional wisdom suggests that will happen at some point, though Google Trends data indicates that the hype-driven investors most susceptible to this trend still haven’t returned to the crypto marketplace.
On the other hand, I’d love to believe that the cryptocurrency industry’s longest-ever bear market had caused investors to sober up to the reality that Dentacoin – which is still worth a ridiculous $12 million – probably isn’t ever going to disrupt the global dental industry.
But I wouldn’t bet any bitcoin on it.
An ethereum funding initiative from the CEO of SpankChain is getting a major boost from two of the blockchain’s biggest names.
Ameen Soleimani’s MolochDAO announced a donation of 1,000 ETH each from Joseph Lubin and Vitalik Buterin, plus 2,000 ETH more from a group of individuals at ConsenSys and the Ethereum Foundation.
“Moloch is a very innovative structure and I expect it to take off and be a significant factor in helping drive development throughout the ethereum ecosystem,” Lubin, the founder of ConsenSys, told CoinDesk at the venture studio’s Ethereal conference in Brooklyn on Friday.
Stepping back, MolochDAO launched publicly in March as a crowdsourced funding initiative to support ethereum infrastructure projects. It was started with 22 founding members, each depositing 100 ETH (the equivalent of $17,000 at today’s price) into the decentralized and autonomous grants system.
With the announcement of additional funding today at Ethereal, Soleimani told CoinDesk he would “love to have more insight from wider groups of people with diverse and complementary viewpoints to help make sure all the blind spots are covered.”
With the 4,000 ETH donation ($700,000 at today’s price), both Lubin and Buterin, along with the 20 individuals from ConsenSys and the Ethereum Foundation who have submitted donations, will be voted in as members of the decentralized autonomous organization. Members are able to submit funding proposals to the platform and have them approved with a simple majority vote from all the members in the system.
Soleimani told CoinDesk:
“It’s inspiring to see the leads of the ethereum community join together and help try out new coordination mechanisms to help move the ethereum ecosystem forward.”
Today’s donation raises the valuation of MolochDAO’s funding pool to $1 million, Soleimani said.
Lubin told CoinDesk:
“It is an honor to be one of many independent decision makers in Moloch along with many of my ConsenSys colleagues and friends across the ecosystem.”
Ameen Soleimani image via Christine Kim for CoinDesk
QuadrigaCX, the Canadian crypto exchange that collapsed after the death of its CEO and founder late last year, has just $21 million in assets, but owes creditors $160 million, its court-appointed monitor and trustee said.
The latest report by Ernst and Young (EY), which is dated May 1 but appears to have been published in the last few days, outlines three legal entities affiliated with the exchange – Quadriga Fintech Solutions Corp., Whiteside Capital Corporation and 0984750 B.C. Ltd., each of which is presented as its own bankrupt firm.
As a result, each entity has its own list of assets and liabilities, even though they overlap. As of April 12:
- Quadriga Fintech Solutions had $254,180 CAD ($189,345 USD) and owed $214,873,113 CAD ($160,051,461 USD);
- Whiteside Capital Corporation had no assets and owed $214,618,937 CAD ($159,875,011 USD); and
- 0984750 B.C. had $28,649,542 CAD ($21,343,192 USD) and owed $215,697,147 CAD ($160,688,982 USD).
“There is a material discrepancy between the reported fiat and cryptocurrency obligations” due to the fact that there were different estates, creditors and known assets, wrote George Kinsman, the EY employee acting as the monitor and trustee.
Kinsman also cited shoddy bookkeeping as an issue EY faced when pulling together these numbers.
Where’s the money?
Stepping back, Quadriga entered a civil rehabilitation process at the end of January, when Jennifer Robertson, the widow of Quadriga founder Gerald Cotten, wrote in an affidavit that the exchange was unable to access its cold, or offline, crypto wallets following his death.
EY was unable to locate any cryptocurrencies in the cold wallet addresses listed by Quadriga, however, aside from 103 bitcoin accidentally transferred from a hot wallet.
Addressing EY’s efforts to locate Quadriga’s missing funds in this week’s report, Kinsman wrote:
“A complete and fulsome review of Quadriga’s financial affairs will take considerable time and effort to pursue and may not be possible or cost effective to complete given the lack of available information, the volume of transactions processed and the number of [third-party payment processors] and crypto currency exchanges involved, many of whom to date, have not fully cooperated with the Monitor’s investigation.”
EY also holds about $500,000 in cryptocurrency recovered from Quadriga’s hot, or online, wallets “and various other sources.” Broken down, EY holds 61 bitcoin, 33 bitcoin cash, 2,661 bitcoin gold, 851 litecoin and 960 ether. The report did not address what progress, if any, EY has made in locating the exchange’s other missing cryptos.
While Robertson initially estimated that the exchange may have as many as 115,000 creditors, Kinsman wrote in the new report that Miller Thomson, the court-appointed representative counsel for the exchange’s users, had presented an omnibus proof of claim for 76,319.
Miller Thomson also presented the $214,618,928 CAD figure that is being used to calculate liabilities.
In addition to Quadriga’s users, Robertson is listed as a secured creditor, and is owed $300,000 CAD ($223,500 USD) based on her costs in starting the civil rehabilitation process, though Kinsman said he expects this claim to be challenged.
Costodian, a payment processor for Quadriga, has also claimed $774,214 CAD ($577,200) in processing fees, though this claim has yet to be resolved in court.
Kinsman also addressed the estate of Cotten and Robertson. In a previous report, he noted that it appeared corporate funds may have been used to purchase personal goods, and EY agreed to an asset preservation order with Robertson’s attorneys to prevent the liquidation of any assets.
In this week’s report, Kinsman noted that while the order is in effect, “for the purpose of the Quadriga Statement of Affairs the Quadriga Estate has valued this possible asset category at $1,” a placeholder figure that indicates the exchange may have more than just the $21 million in assets that were already listed.
While the assets in the estate have not been appraised, “the preserving parties” have told Kinsman that they approximate $12 million CAD (about $9 million USD), meaning they still would be insufficient to fill the hole Quadriga finds itself in.
Nova Scotia Supreme Court image by Nikhilesh De for CoinDesk
On May 9, 2019, the Financial Crimes Enforcement Network (FinCEN), issued new “interpretive guidance” about how its regulations apply to businesses that conduct money transmissions in virtual currencies.
In summary, a money services business (MSB) needs to register with FinCEN, (which is free and done through Form 107); get an AML compliance policy that specifies what KYC information will be collected (and aims to catch and prevent money laundering and terrorism); designate a compliance officer to monitor transactions and file suspicious activity reports for activity that looks suspicious and file currency transaction reports for transfers over $10,000; and adhere to record-keeping requirements. Crypto-to-crypto or crypto-to-fiat conversion is treated in the same way.
According to the guidance, it appears the following would need to register as an MSB:
Anyone exchanging or administering a token (called a convertible virtual currency, or CVC, in the guidance) who is not already regulated by the Commodity Futures Trading Commission (CFTC) or the U.S. Securities and Exchange Commission (SEC). This includes
- Peer-to-peer (LocalBitcoins/OTC)
- Custodial wallets (not your keys, not your coins)
- Crypto ATMs
- Crypto payment-processors
- DEX’s that don’t auto-execute and take custody in the middle of the trade
- ICO issuers who don’t register with the SEC
- Mining pool operators who host all the wallets on behalf of pool members
Defining Key Concepts
FinCEN made a point to note that the guidance only applies to business models “consisting of the same key facts and circumstances as the business models described herein. Therefore, a particular regulatory interpretation may not apply to a person if their business model contains fewer, additional, or different features described in this guidance.”
In this context, an MSB is a person doing business (must be in the business of …) “wholly or in substantial part within the United States operating directly or indirectly as a money transmitter.”
A “money transmitter” is a person that provides money transmission services or any other person engaged in the transfer of funds.
Money transmission services include any type of funds being transmitted so long as they have some value — this includes any and all cryptocurrencies.
Exemptions: The term “money services business” (and the FinCEN requirements accompanying it) does not include banks (they get the more cumbersome Office of the Comptroller of the Currency banking charter to deal with), a person registered with the SEC (for example, doing a Reg D raise if you filed Form D — Reg S seems to be borderline here because you don’t need to file any form to let the SEC know you are opting into their regulatory scheme) or the CFTC (which regulates bitcoin and, unofficially, the other proof-of-work coins).
Money transmission may occur when a person not exempt from the MSB status uses any representation of currency of legal tender (government-backed money) associated with the purchase or sale of commodities, securities or futures contracts to engage in money transmission. For example, if you are operating in the consumer/utility token world where you believe the SEC doesn’t have jurisdiction and you accept USD and transmit a token, you need to register with FinCEN.
General Application of BSA Regulation to Money Transmission
Under the Bank Secrecy Act (BSA) a “person” is a legal person, which means it can be an individual or any type of company. The focus is primarily on your activities, not your business entity. Even one transaction can qualify as a money transmitter operating on a “transactional basis,” which includes a one-off transaction. As an example, thinking you are an exempt DAO won’t hold up if you are in the business of sending coins or cash that touch Americans.
Exclusions from the definition of money transmitters
- Provides the delivery, communication or network access services used by a money transmitter to support money transmission services (software provider);
- Acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller (integral service);
- Operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA-regulated institutions (the bank already has your information);
- Physically transports currency (impossible for crypto but the ATM armored car service is not a MSB);
- Provides prepaid access (for example, closed loop gift cards); or
- Accepts or transmits funds for the sale of goods (for example, selling physical goods for bitcoin).
An MSB must have a written AML program and register with FinCEN within 180 days of starting to engage in money transmission.
If the money transmitter’s transactions are a transmittal of funds, the travel rule applies. As an example, if you send $3,000 or more, you have to send the receiving financial institution the transmitter’s name/account number/originating financial institution, amount of transfer and date.
Application of BSA Regulations to Money Transmission Involving CVC
In 2011, FinCEN issued the MSB Final Rule that included any type of CVC in the MSB analysis. (Saying “it’s not money, it’s crypto” doesn’t get you out of these requirements.)
In 2013, FinCEN issued the 2013 VC Guidance which described what CVC is (it’s everything under the blockchain umbrella). That guidance initiated the terms “exchanger” (for example, when you turn fiat currency into bitcoin through Coinbase), “administrator” (any token created and put into circulation — when the administrator has the power to withdraw it from circulation. I believe POW coins can’t be taken out of circulation, but pre-mined or ERC-20 tokens can) and “user” (someone who buys bitcoin to purchase goods or services and uses it on their own behalf). A user was exempt from MSB registration.
Guidance on Application of BSA Regulations to Common Business Models Involving the Transmission of CVC
Peer-to-Peer: Services like LocalBitcoins or OTC trading, are still MSBs if the buyer or seller is advertising the services and/or making a profit from either crypto-to-crypto or fiat-to-crypto exchanges.
CVC Wallets: A new four-factor test is created to determine if a wallet provider needs to register as an MSB: (a) who owns the value; (b) where the value is stored; (c) whether the owner interacts directly with the payment system where the CVC runs; and (d) whether the person acting as the intermediary has total independent control over the value.
- Hosted wallets are MSBs (“not your keys, not your coins” types of wallets).
- Unhosted wallets are not MSBs (like RPW, Blockchain.info, Greenwallet and Samourai).
- Multi-sig wallets may be MSBs depending on if they are hosted or unhosted.
CVC Kiosks (Crypto ATMs): These are MSBs (under the “exchanger” category) if they take in fiat and give back crypto or vice versa. Regular bank ATMs are not (this is because a debit card is fully KYC compliant from the bank’s end).
DApps: Because DApp users must pay fees to the DApp to run the software, and that fee is often in CVC, they accept and transmit value and they need to register as MSBs.
Anonymity-Enhanced CVC Transactions: If it’s a transaction in a regular CVC but structured to conceal information that would normally be shown on a blockchain or denominated in a type of CVC that is engineered to prevent tracing on the blockchain (like Monero and Grin), the analysis remains the same. If it’s an administer or exchanger, it’s an MSB. There was a lengthy discussion about the application of the integral exemption, but FinCEN decided the mixing or privacy function in these transfers are not ancillary to the transaction, so the integral exemption does not apply.
Anonymizing service providers that accept and transmit value in a way that is ostensibly designed to protect the privacy of the transmitter are providers of secure money transmission services and not eligible for the integral exemption.
The integral exemption only applies to businesses where the core business is different from the money transmission itself, and the money transmission activity is necessary for the business to operate. For example, the integral exemption applies to situations like the refund of online purchases when the store mails you a gift card that can be redeemed for cash — which takes it out of the closed loop gift card exemption.
Anonymizing service providers are MSBs because they have no other purpose such as protecting client information, and the mixing service is not an activity separate from the transmission itself because the only reason to protect privacy is in connection with the actual fund transmission.
Therefore, a person who provides anonymizing services by accepting value from a customer and transmitting the same or another type of value to the recipient, in a way designed to mask the identity of the transmittor, is a money transmitter under FinCEN regulations.
Anonymizing Software Providers: These are not MSBs because FinCEN exempts “those persons providing the delivery, communication, or network access services used by a money transmitter to support money transmission services.” The supplier of communications, hardware or software that is used in a money transmission, like anonymizing software, are engaged in trade and not money transmission.
Privacy Coins: I think FinCEN got too far into the weeds, which might indicate a lack of understanding. It has conflated the actual coin with a “payment system” and went into an analysis of how “payment systems can change from centralized to decentralized” over time.
Assuming the term “centralized or decentralized payment system” is talking about Monero or Grin, it then clarifies that if you are the administrator or exchanger, you are an MSB, if you are a user, you are not an MSB (the exact same analysis as any other CVC).
There is an additional part saying the developer of the “decentralized CVC payment system” is a money transmitter if it engages as a business in the acceptance and transmission of value.
Payment Processing Services Involving CVC Money Transmission: A financial intermediary that allows a merchant to accept CVC from customers in exchange for goods and services sold (like BitPay) are money transmitters and are not eligible for the normal payment processor exemption. That exemption only applies because typical payment processors before crypto were tied to banks, so the banks had all the KYC already.
CVC Money Transmission Performed by Internet Casinos: If you can place bets with crypto and the company is not covered by the formal regulatory definition of casino, it is considered an exchanger the moment it pays out on a bet (probably directed at Augur).
Specific Business Models Involving CVC Transactions That May Be Exempt from the Definition of Money Transmission
Trading Platforms and DEXs: “Under FinCEN regulations, a person is exempt from money transmitter status if the person only provides the delivery, communication, or network access services used by a money transmitter to support the money transmission services.” So if you only provide a forum where buyers and sellers of CVC post their bids and offers (with or without auto-matching of counterparties), and the parties match through an outside venue (individual wallet or other wallet not hosted by the trading platform), the trading platform does not qualify as a money transmitter under FinCEN.
If, when the match takes place, a trading platform purchases from the seller and sells to the buyer, it’s a CVC exchanger and thus falls under the definition of money transmitter.
ICOs: In presales the exchange of money or CVC for the newly issued ICO token may take place at a later date, the future creation of the ICO token may take place through mining using a decentralized model (here, FinCEN sounds like it doesn’t know how ETH tokens are created and have inadvertently lumped in POW coins, although it later adds back the caveat that the administrator has to be able to redeem and permanently retire from circulation the new units of CVC, which is not possible on POW). Basically, if you create a token, sell it for another form of value, and have the ability to redeem it, you need to register as an MSB.
FinCEN reviewed a second business model that I think it got confused again. It said, in the second business model, the ICO raises funds for a new project by selling an equity stake or debt instrument to early backers or hedges a previous investment in CVC through a derivative, such as a futures contract. To me, that’s not an ICO, that’s a Reg D, under the SEC’s purview. The funded project generally involves the creation of DApps.
In brief, if regulated by the SEC or CFTC, FinCEN rules do not apply. Also, if the Integral test mentioned earlier applies, there may be a slim exemption for actual consumer or utility tokens. Resale on the secondary market in a peer-to-peer nature does not implicate the token purchaser (they are a user).
DAap Devs: Not MSBs.
DAap Users Conducting Financial Activities: The investor/owner/operator deploying the DAap to engage in money transmission denominated in the CVC is likely a money transmitter.
Creators of CVCs and DAaps Conducting CVC Transactions: The creators of a CVC sometimes issue or “pre-mine” CVC units in advance and then distribute those units as payment for goods or services or repayment of obligations (such as amounts owed to project investors). Those are not MSBs. If they instead sell them for another CVC once the market is established, they may be an MSB.
Mining Pools: When the leader of the pool distributes the CVC that was mined by the pool to the pool members, it is not a money transmission because those transfers are integral to the provision of services.
When the leader or cloud miner hosts CVC wallets on behalf of the pool members, it will be considered an account-based money transmission, requiring MSB registration.
This is an op ed by Sasha Hodder. Opinions expressed are her own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.