Bitcoin Regulations News

Brazilian Securities Regulator Bans Bitcoin, Forex Broker

The Brazilian Securities Commission (CVM) has banned a forex broker offering Bitcoin (BTC) options, Cointelegraph Brasil reported on Sept. 25.

On Sept. 25, CVM published a public warning of irregular action concerning XM Global Limited through the Superintendent of Market and Intermediary (SMI) Relations. In its warning, the CVM states that XM Global Limited is not authorized to operate in Brazil or deal with customers residing there.

The CVM ordered the immediate suspension of investment offerings in the forex or derivatives space. If the condition is not met, the firm will be fined 1,000 reals ($239) per day.

Cointelegraph Brazil reports that XM is a major trading platform, but the forex market is banned in Brazil and no company is authorized to sell these kinds of options in the country. The company started trading Bitcoin against the dollar in 2017.

As Cointelegraph reported at the end of August, Thailand’s securities regulator has also warned the public about scam entities posing as legal digital currency trading firms operating overseas.

That same month, Zambian Securities and Exchange Commission CEO Philip Chitalu warned the public that the creator of the OnyxCoin cryptocurrency, Kwakoo, is not licensed to give investment advice or solicit funds from within and outside the country.

Source Cointelegraph

US House Hearing With the SEC on Libra, Crypto and Securities

Disclaimer: This report is being updated live from the Financial Services Committee floor. Check in for the latest on the hearing’s progress. All time notes are in EST.

In advance:

As Cointelegraph reported on Sept. 20, the United States House of Representatives Financial Services Committee is holding a hearing today, Sept. 24, with the Securities and Exchange Commission (SEC) Chairman Jay Clayton and four other SEC commissioners.

At the time of the announcement, the published agenda included such critical topics for Cointelegraph’s readers as the SEC’s “Howey test” for considering cryptocurrencies securities, regulation strategy for Facebook’s Libra, the 144A exemption that crypto offerers like Van Eck operate under, and more general “Environmental, social, and governance” (ESG) matters.

10:06 The hearing begins

Financial Services Chair Maxine Waters began the hearing with statements touching on a wide range of the SEC’s activities, singling Facebook’s Libra out, saying that itt appears that “Facebook is looking to establish a new global financial system intending to rival the U.S. Dollar.”

Republican Ranking Member Patrick McHenry encouraged the SEC “to reduce regulatory barriers,” saying that “you will hear a lot of doom and gloom today. It is not all doom and gloom.”

10:17 Opening statements from the Commissioners

Commissioner Robert J. Jackson Jr emphatically supported greater transparency for corporate political spending and the need to provide greater transparency for consumers and investors. 

Commissioner Hester M. Peirce expressed concern about “overriding investor preferences,” saying that the job of the SEC is not to make decisions for investors. She also emphasized the importance of “regulatory humility,” the need to “always be asking if what we’re doing is right,” entailing work with investors, corporations and other regulators like the Commodity Futures Trading Commission (CFTC). 

Commissioner Elad L. Roisman said that “market integrity is a priority for us.” 

The increase in capital raised in private rather than public markets were front and center in Commissioner Allison Herren Lee’s concerns, as were the role of digital assets and cryptocurrencies, as well as financial intermediaries.

10:36 Chairman Jay Clayton’s remarks

Chairman of the SEC Jay Clayton began his remarks by applauding the commission’s recent progress in IT and cybersecurity, but cautioned: “let there be no doubt: substantial risk remains.”

Clayton also put forward the enduring goal of aligning the interests of “main-street investors” with those of professionals.

10:40 Maxine Waters and Libra

Rep. Waters asked Commissioner Jackson about a 10b5 exception to insider trading law before shifting the conversation to Facebook’s Libra, referring to recent comments from President Trump, as well as the governments of France and Germany. 

Waters’ June call for a moratorium on Facebook’s development of Libra set off a summer full of news on potential regulation of the prospective token.

Clayton responded to Rep. Waters: “what we have developed is an ecosystem of financial assets over the years,” saying that he indeed has a problem with the potential of digital assets to evade those existing regulations. He did, however, praise the efficiency of cryptocurrencies at large. Waters, however, pressed on Facebook’s Libra.

10:45 Patrick McHenry and Crypto

Continuing with the theme of cryptocurrencies and Libra, Rep. McHenry noted that Facebook’s planned token “is just an idea at this point; a white paper.” But he asked if an appropriate ecosystem existed for cryptocurrencies, which Commissioner Peirce responded to with skepticism.

10:50 Further questions from representatives

Rep. Brad Sherman, whose incendiary commentary at the Libra hearings with David Marcus back in July was so memorable, said that: 

“The U.S. dollar is extremely good currency […] It fails, however, to meet the needs of tax evaders, sanctions evaders, drug dealers and terrorists.”

Rep. David Scott asked the commissioners about the broad state of regulatory affairs regarding fintech. Peirce responded that much development is happening overseas, and she would consequently “like to bring more regulatory clarity to the United States so that fintech development can happen here.”

Source Cointelegraph

SIX Swiss Exchange Postpones Launch of Blockchain-Powered Digital Exchange

Switzerland’s principal stock exchange, SIX Swiss Exchange, has postponed the launch of its “fully-regulated” cryptocurrency exchange SIX Digital Exchange (SDX).

As Reuters reported on Sept. 23, a spokesperson familiar with the situation said that SIX moved the full launch of SDX to the end of 2020 primarily due to legal and regulatory issues. The exchange is reportedly still in negotiations with partner banks, the services of which it will offer on the platform. The spokesperson said:

“Future releases will offer more functionality, with a particular emphasis on asset servicing, in Q1 2020. The full launch is expected in Q4 2020.”

SDX’s initial plans

SDX was initially announced in July last year, with plans to be rolled out in mid-2019. At the time, an official press release stated that SDX intended to become “a fully integrated trading, settlement and custody infrastructure for digital assets,” which it claimed would be the world’s first to “offer a fully integrated end to end trading, settlement and custody service.”

SIX previously chose to use blockchain consortium R3’s Corda Enterprise platform for SDX. In February 2019, the company announced it would be testing blockchain integration for SDX, and would use the technology to tokenize stocks, bonds and possibly exchange-traded funds.

Plans to issue a digital token and a stablecoin

In May of this year, SIX revealed that it will look to issue its own digital token as part of SDX’s forthcoming launch. Thomas Zeeb, the head of securities and exchanges and director at SIX, then said:

“Ultimately we want to be able to tokenize existing securities — equities, fixed income, funds. Maybe the token will eventually replace the share one day.”

Recently, SIX asked the Swiss central bank to issue a stablecoin, which will be used to settle payments on SDX.

Source Cointelegraph

No Rush to Pass Fintech Laws: Philippine Senator Grace Poe

Philippine Senator Grace Poe said that local lawmakers should not be in a hurry to pass financial technology (fintech) regulation.

Local news outlet Rappler reported on Sept. 23 that Poe made her remarks after a hearing by the Senate Committee on Banks, Financial Institutions and Currencies. She said:

“To most of our countrymen, this is alien to them, but in fact some of them have been availing of it through online lending. And without the proper information and education, a lot of them are actually victimized.”

A field that needs studying

Senator Francis Tolentino said during the same hearing that regulators should take their time to study the new technology. Poe admitted that lawmakers are not experts in the field of modern financial technology:

“Before we fall prey into this, as I’ve said, the BSP and the SEC already agreed to have a regular discussion so that they can come up with actual suggestions for legislation because we are not experts in this. […] We need people who are really knowledgeable, otherwise we might create more problems as opposed to rectifying the situation.”

Fintech task force suggested

Per the report, senators recommended the creation of a task force dedicated to studying fintech composed of the country’s central bank, securities regulator, deposit insurance corporation, department of finance and the Cagayan Economic Zone Authority — the body that oversees a special economic jurisdiction.

Tolentino also noted that the Department of Labor and Employment should also be included in the task force since “there are concerns that involve overseas Filipino workers.” 

Commissioner of the Philipino Securities and Exchanges Commission Luis Amatong said that the regulator will issue new regulations to “require firms with digital offerings to be registered and be under regulatory scrutiny.”

Meanwhile cryptocurrency is becoming ever more accessible to Filipinos with Bitcoin (BTC) now being sold in over 6,000 local 7-Eleven outlets.

Source Cointelegraph

UBS, Credit Suisse Interest ‘Clearly Picked Up’

Peter Wuffli — the former CEO of major Swiss multinational investment bank UBS — says the advent of new, regulated actors in crypto is drawing the attention of big-name banks.

Wuffli made his remarks during an interview with Finews, published on Sept 23. In 2008, he had left his role as CEO of UBS as the bank’s financial crisis losses spiraled, relinquishing over $10 million of his pay one month after the institution was bailed out by the Swiss government.

More than a decade later, the former banker and recently-appointed board member of licensed Swiss cryptocurrency bank Sygnum observed of the crypto sector:

“I don’t see a bubble right now. I see more serious business planning and solutions addressing client needs, having learned from the last initial coin offering and Bitcoin bubble.”

Legacy banks looking on and assessing the new crypto sector

As reported, Sygnum was recently issued a conditional Swiss banking and securities dealer license and now aims to become a fully regulated bank so as to provide a full suite of financial services, including crypto custody and fiat-crypto conversions.

During the interview, Muffli claimed that the company was the only licensed bank specialized in digital assets worldwide that had fulfilled the conditions required for a banking license “in just five days.” Most critical, he noted, were Anti-Money Laundering and Know Your Customer measures.

When it comes to the traditional financial sector’s response to the emergent crypto asset space and industry developments, he said of large banks such as UBS and Credit Suisse:

From what we hear, interest has clearly picked up since the licenses were granted. Bank executives are asking their middle management to figure out whether this is just another fintech fad that comes and goes, or whether it is really transformational.”

He added: “They are wondering strategically whether they need to commit to this, and what it would mean in terms of changes to systems but also mindset.”

Recent Swiss developments

As reported, the license granted to Syngum was also given in parallel to Seba Crypto AG, which plans to create a digital asset platform for professional traders and institutional clients, as well as to offer custodial and asset management services.

Just last week, Arab Bank Switzerland partnered with blockchain technology firm Taurus to offer Bitcoin (BTC) and Ether (ETH) custody and brokerage services to its clients.

In August, Switzerland’s Financial Market Supervisory Authority released new guidance on regulatory requirements for blockchain-based payments, targeted at cryptocurrency exchanges, wallet providers and trading platforms.

That same month, Swiss private bank Maerki Baumann revealed that it had experienced a deluge of 400 new clients wanting to tap its future blockchain offerings since revealing its interest in the sector.

Source Cointelegraph

VanEck, SolidX Drop Bitcoin ETF Race, SEC Approval Until 2020 Unlikely

On Sept. 17, the Chicago Board Options Exchange’s BZX Equity Exchange withdrew its VanEck/SolidX Bitcoin exchange-traded fund (ETF) proposal a month ahead of the review deadline. The United States Securities and Exchange Commission (SEC) — the regulator on the matter — had until Oct. 18 to greenlight or reject the financial product.

As a result, the race for the first Bitcoin (BTC) ETF seems to be postponed once again. While the SEC is still reviewing two other proposals of this kind, the VanEck/SolidX Bitcoin ETF was generally perceived as the strongest contestant to get regulatory permission and debut this investment vehicle in the U.S. Chances are the industry will not see a crypto-based ETF until 2020 at the earliest.

What is an ETF?

An ETF is a type of investment fund that is tied to the price of an underlying asset — a commodity, an index, bonds or a basket of assets — like an index fund. It is listed and traded on exchanges, normally available to both retail and institutional investors. As of September 2019, ETFs represent a $3.9 trillion market, according to research firm XTF, cited by the Wall Street Journal.

Related: SEC Continues to Stall on BTC ETFs, All in Wait for Breakthrough

A Bitcoin ETF, in turn, would track Bitcoin as the underlying asset. It is an indirect way to purchase cryptocurrency, in which the investor gets the corresponding security without having to hold the actual BTC coins. If listed on a regulated U.S. exchange, a crypto-powered ETF could set the stage for institutional investors, potentially pushing Bitcoin toward the financial mainstream. 

However, no player has secured the permission to list a Bitcoin ETF in the U.S. yet, as the SEC has been denying and postponing all attempts to register a Bitcoin-focused financial product in the country. Some of the financial watchdog’s main arguments against approving Bitcoin ETFs include the supposedly “insignificant” size of Bitcoin futures market, as well as the possibility of fraudulent and manipulative acts and practices.

VanEck and SolidX — a persistent candidate for a Bitcoin ETF

Both VanEck, an investment firm, and blockchain-focused financial service company SolidX had tried registering their ETFs separately beforehand — in August 2017 and in July 2016 respectively — but the SEC shut down both attempts. In June 2018, they teamed up and filed a request to list a collaborative Bitcoin-based ETF on the CBOE BZX Equities Exchange, the second-largest U.S. equities market operator.

The fund is tied to VanEck’s subsidiary index MVIS, which will ostensibly calculate the real-time price of BTC based on executable bids and asks derived from U.S.-based crypto over-the-counter (OTC) markets instead of more conventional crypto exchanges, with SolidX is sponsoring the project. Each share of the VanEck–SolidX Bitcoin Trust is set to $200,000. SolidX CEO Daniel H. Gallancy previously explained that the high price reflects the fund’s intention to attract institutional rather than retail investors.

In August 2018, the SEC postponed its decision on the listing of the VanEck–SolidX ETF for the first time, citing the unregulated nature of Bitcoin market. In November, representatives from VanEck, SolidX and CBOE met with the SEC to discuss their ETF proposal. According to the memorandum that was released after the meeting, the applicants argued that Bitcoin was in fact more resistant to market manipulation than its traditional counterparts — e.g., crude oil, silver and gold — all of which already have ETFs on the market.

Nevertheless, in December, the SEC delayed its decision again. The agency set a new deadline for Feb. 27, 2019 in order to further review the rule change proposals. However, the next month, CBOE withdrew the ETF application just a few weeks before it would have faced a verdict from the regulator. 

As an CBOE spokesperson told Cointelegraph at the time, the decision to pull out was the result of the U.S. government shutdown as the end of the review period on Feb. 27 approached. As Cointelegraph previously reported, the shutdown largely undermine the work of the SEC, among other government agencies. 

On Jan. 30, CBOE, VanEck and SolidX resubmitted their proposal, making it approximately 40 pages longer compared to the previous version. Still, in March, May and later in August the SEC delayed its decision. The reasoning stayed the same, as the commission requested more answers to questions related to protecting investors and public interest from fraud and similar exploitations. According to the SEC, the latest postponement pushed the decision for listing the VanEck–SolidX ETF to Oct. 18.

Latest developments: Limited ETF, second withdrawal

In September, VanEck and SolidX started to offer a limited version of their Bitcoin ETF to institutional investors under the SEC’s Rule 144A, which allows the sale of privately placed securities to “qualified institutional buyers,” namely institutions like banks and hedge funds who have at least $100 million in assets. The broker-traded fund is called VanEck SolidX Bitcoin Trust 144A Shares, and according to its official description, it “looks and feels like a traditional ETF.”

Soon after the launch, industry lawyer Jake Chervinsky took to Twitter to argue that the product did not represent a legal ETF. “This is misleading. The VanEck SolidX Bitcoin Trust is *not* an ETF. It looks exactly like the Grayscale Bitcoin Trust, which was launched almost six years ago,” he wrote.

In any case, VanEck SolidX Bitcoin Trust 144A Shares are off to a rough start. As of Sept. 19, the product’s total net assets are only $40,500, which is less than four BTC, according to the current standings of the market. In the latest move of their continual ETF saga, CBOE, VanEck and SolidX pulled their application out for the second time. 

“After careful consideration in cooperation with our esteemed client, we have decided to withdraw our filing with the SEC to list and trade shares of the VanEck SolidX Bitcoin Trust,” a CBOE spokesperson told Cointelegraph, adding: 

“We continue to believe there are opportunities for Cboe and our clients in the broader cryptocurrency market, and remain open to pursuing ETP and derivative listings and trading.”

Ed Lopez, head of ETF product with VanEck, confirmed to Cointelegraph that “this action doesn’t mean VanEck has given up on its pursuit of a public bitcoin offering.” He elaborated on that statement, saying:

“We still believe investors would be better served having access to bitcoin through a regulated public vehicle. Given the current nature of the regulatory environment, withdrawal of the filing allows us more time to enhance the filing to help better address the concerns of regulators.”

The investment firm did not clarify whether its decision to withdraw was attributed to the performance of VanEck SolidX Bitcoin Trust 144A Shares. Richard Keary, founder of Global ETF Advisors LLC, an independent management consulting firm that specializes in the exchange-traded products industry, doubts that, however. He noted that it “has nothing to do with performance of the 144A shares,” during an email conversation with Cointelegraph, adding:

“This is just a procedural process. Withdrawing before it gets rejected, allows them to submit a new filing and start the clock ticking all over again. So, this filing/approval process will continue.”

Nevertheless, it is unclear when VanEck et al. are planning to submit their ETF proposal, as the regulatory environment remains largely cautious about the idea. Earlier this month, the SEC Chairman Jay Clayton told CNBC that although significant steps have been taken to address regulatory concerns surrounding Bitcoin ETFs, there is “work left to be done.” Clayton went on to say that the SEC’s concerns were not immaterial:

“People needed to answer those hard questions for us to be comfortable that this was the appropriate type of product.”

Most recently, on Sept. 19, Clayton argued that Bitcoin would require stronger regulation before being listed on major traditional exchanges like Nasdaq or the NYSE. Thus, the SEC’s approval will be largely dependent on the maturity of Bitcoin trading markets, Keary told Cointelegraph:

“Currently not enough volume in the Bitcoin Futures, so another market that needs time to mature and become more robust. Futures are needed as a hedge to the ETF, if there’s not enough liquidity for market makers to hedge there will be no liquidity in the ETF.”

The remaining proposals are not likely to make it in 2019

Currently, the SEC is reviewing two other Bitcoin ETF proposals. One of them was submitted by investment management firm Wilshire Phoenix, which aims to include both BTC and U.S. treasury bonds in its trust to make it fund less volatile and hence more favorable in the SEC’s eyes. The company is relatively new to the ETF race, as it first submitted the application in January 2019. 

The other filing is backed by cryptocurrency index fund Bitwise Asset Management with NYSE Arca, a top U.S. exchange. Bitwise first applied for a SEC-regulated ETF in July 2018. Per the document, the calculated value of its index will gather the price of Bitcoin based on data collected from around 10 preapproved exchanges. Wilshire Phoenix will hear back from the SEC by the end of September, while the deadline for the latter proposal is set for Oct. 13.

However, the odds seem to be against the remaining proposals. Chervinsky, who has been closely covering the crypto ETF space on Twitter, puts the chance of approval at 0.01%. Stressing that the SEC’s primary complaint is a lack of surveillance-sharing agreements with regulated markets of significant size, he wrote

“My guess, unfortunately, is that VanEck withdrew its application after becoming convinced that the SEC wouldn’t accept its alternative approach to this problem. If that’s true, it’s *very* hard (though not entirely impossible) to imagine Bitwise’s approach faring any better.”

Similarly, Keary, who thought an ETF would be approved this year, now says that he has “no sense on actual timing.” In his opinion, a Bitcoin ETF will happen when the Bitcoin market and Bitcoin futures markets are more mature, more liquid and less volatile. “But, it will happen,” he told Cointelegraph.

Source Cointelegraph

Do Crypto Payment Restrictions Undermine Blockchain’s Core Values?

The power of cryptocurrency payment service providers is under the spotlight after a $100,000 donation to an Amazon rainforest charity was blocked last month. American cryptocurrency payment service provider BitPay reportedly blocked a Bitcoin payment from charity organization Amazon Watch because it had failed the internal processes of the payment platform.

It is understood that the charity’s pay limit was set below $100,000 before BitPay advised its staff to change it. The process then came to a halt, as the limit could not be changed automatically without separate documentation.

This is the latest incident involving Bitpay, but it highlights a shortcoming of exchanges, wallet providers and payment services. Cryptocurrencies, by their very nature, are supposed to hand users the power to transact with peers directly without the need for third-party services.

In this instance, a donation going toward a worthy cause that has gripped headlines around the world was thwarted due to the power of the platform being used. Below are various examples of similar instances from the past and why it’s important for users to understand how much power they have over their cryptocurrency that is being held by exchanges, wallets and payment platforms.

Sacrificing control for functionality

The majority of cryptocurrency exchanges and payment platforms are centralized organizations that store, process and manage user funds on behalf of their users. Many cryptocurrency users opt to store their holdings with these service providers due to the ease of access and optimized user experience. 

However, what exchange users gain is essentially offset by a loss of control over their cryptocurrency holdings. Centralized exchanges retain control of users’ private keys, which means that they have complete control over the funds in a wallet. Therefore, users become dependent on their crypto exchanges when trading or transacting with their assets.

When a user makes a transaction on a platform, this must be processed by the organization itself. The third party — or any kind of middleman — has the final say over the processing of any given transaction. Payment platforms can choose to block payments if certain requirements are not met.

This is not necessarily a bad thing, as most reputable companies have stringent security and privacy processes that safeguard user funds. With that being said, there have been many cases of hacks and theft from exchanges.

Cases of interference

BitPay has been featured on Cointelegraph on a number of occasions, casting aspersions on the power wielded by some centralized payment processors. Back in October 2017, hardware wallet manufacturer Trezor decided to sever ties with BitPay and end its integration with the platform.

The move was prompted by a dispute around the implementation of the contentious Bitcoin SegWit2x hard fork. BitPay was adamant that it would accept the fork if it garnered enough support and would adopt it as the official BTC.

At the beginning of August 2019, BitPay announced that it would be suspending its services in Germany until it had evaluated new regulations that require a license to operate in the country beginning in 2020. As a result, IT news outlet Computer Base has had to stop its Bitcoin payment support, which was processed by BitPay in the country. 

In June, cryptocurrency exchange Bittrex announced plans to block users based in the United States from trading in 32 cryptocurrencies. Once the change came into effect, the customers were no longer be able to buy or sell any of the listed cryptocurrencies. Open orders were also canceled and any holdings of these cryptocurrencies were moved onto the Bittrex International platform.

While these types of situations seem more likely to be enforced by centralized exchanges, decentralized exchanges (DEX) still have some influence over user activity on their platforms. This was evident in a move made by leading cryptocurrency exchange Binance on its decentralized exchange platform in June.

The Binance DEX website enforced a ban on users from 29 different countries. While the website offers users a list of different wallet service providers that support the Binance mainnet, users are denied the access to the website if they are located in one of the restricted countries.

Political considerations

Geopolitical affairs also play a role in the decisions made by payment service providers toward cryptocurrency use in different countries. A prime example is China and its hardline approach to the use of cryptocurrencies — a number of laws banning cryptocurrency trading and initial coin offerings in the country have been passed in recent years.

The harsh environment has forced the closure of cryptocurrency exchanges and payment platforms, with individual users having to resort to peer-to-peer or over-the-counter trading, which has also been deemed illegal in the country. This is facilitated through messaging applications that have gradually had to enforce their own rules to adhere to government legislation.

The latest instance of this was Chinese social media giant WeChat having to toe the line in supporting cryptocurrency payments on its platform due to the strict regulations in China. As a result, the company announced in May that merchants using its platform would be banned from making cryptocurrency payments.

From the outside, it looks like WeChat’s hand has been forced by the People’s Bank of China, which has implemented new payment management measures that are looking to curb “illegal telecommunications networks and criminal matters.”

Those using the platform to facilitate cryptocurrency trading will have their accounts terminated by the service provider as a result. Considering that WeChat Pay reported over 1 billion daily transactions — the move is set to hurt users.

Related: Is Blockchain Payments Integration in Messenger Apps Good for Crypto?

This move came about eight months after Chinese mobile payment provider AliPay ordered a similar crackdown on its customers, in which users that had been using their accounts to facilitate cryptocurrency trading faced restrictions and bans from the platform. 

Forced measures

Another major consideration along this vein is the necessity for exchanges to stop transactions or withdrawals in the event of hacking and theft by freezing assets. While this response is the most common action taken in such situations, it leaves users powerless and unable to access their crypto holdings.

Over the past few years, there have been a number of high-profile hacks and thefts targeting cryptocurrency exchanges. One of the most lucrative acts of theft involved Japanese exchange Coincheck back in February 2018, during which more than $500 million worth of NEM tokens was stolen from one of the exchange’s hot wallets after hackers gained access to the private keys.

One of the first points of action taken by the exchange was to completely block all transactions as well as withdrawals, leaving its users unable to access their own funds on the exchange. The Coincheck hack is still considered one of the biggest cryptocurrency thefts of all time by value, possibly even eclipsing the infamous hacks of Mt Gox.

Even Binance, the world’s largest cryptocurrency exchange by trade volume, has fallen prey to sophisticated hacking methods. In May 2019, Binance confirmed that attackers had gained access to a large amount of users’ two-factor authentication codes and API keys, which eventually enabled the perpetrators to steal over $40 million worth of Bitcoin in a single transaction from one of the exchange’s hot wallets.

Once again, the exchange’s initial response was to suspend all user deposits and withdrawals on the exchange while a thorough security review was conducted. It was a necessary step, but it meant that users had to wait patiently to regain access to their funds stored on the platform.

Another high-profile incident involved the decentralized exchange Bancor, which fell victim to an attack in July 2018. The initial theft was valued at $23 million worth of Bancor Network Tokens (BNT), Ether (ETH) and Pundi X (NPXS) tokens.

Bancor was able to freeze around $10 million worth of illicit transactions in BNT, having built in the functionality in the event of a large-scale theft. It was handy, considering that hackers had gained access to one of the exchange’s hot wallets storing crypto that belonged to the exchange.

Nevertheless, the exchange had to halt all activity on its platform in the immediate aftermath of the event. The ability to halt part of the illicit transaction saved millions of dollars but caused a community uproar, serving as a reminder that even “decentralized” exchanges still have some third-party authority and power over transactions on their platforms.

Speaking to Cointelegraph, Civic co-founder and CEO Vinny Lingham offered a measured standpoint that explains why exchanges need to have stringent processes in place. As he explained, a major factor is ensuring that customers are correctly identified as the account holders on exchanges, saying:

“If an entity is a bad actor, it’s not a question of whether a single transaction should be stopped, but whether that entity should be investigated by a regulatory body. An efficient, decentralized financial system relies on businesses knowing who their customers are and how they transact in order to prevent illegal activity.”

Lingham believes that identity verification is paramount to reducing fraud and creating a safer environment for the entire sector. In order to do that, he suggested that exchange and wallet platforms should have identity verification technology enabled at every entry and exit point in order to meet regulatory standards.

There are also counter arguments to the ethical considerations of exchanges being able to block payments and freeze funds. Centralized exchanges must meet standards in regulated markets, necessitating action in the case of suspicious account activity.

As Lingham explained, accounts being used by bad actors must be disabled. But this isn’t as easy for cases in which accounts are making transactions using smart contracts and cross-chain protocols, as the activity cannot be stopped or frozen. He said:

“In both instances, the best way to stop bad actors is at the source or destination of the transaction through identity verification. Rather than focusing on freezing transactions, regulators and exchanges should work together on not letting bad actors into the system in the first place. This process can be initiated by business through advanced identity verification technology, and further carried out through partnerships with regulators.”

The original tenets of cryptocurrency

These scenarios are a stark reminder of how exchanges and service providers have somewhat disempowered the original intention of cryptocurrencies. Bitcoin set out to create a completely decentralized, peer-to-peer payment system that would work without the need for a central authority. However, as time passed and the preeminent cryptocurrency gained adoption, more people looked for ways to buy, sell and trade — and so, concessions had to be made.

Nevertheless, any Bitcoin user that has control of their own private key will never have to worry about an exchange or platform blocking their payments or freezing their funds. This is a key point for users of cryptocurrencies to consider when handling or storing their funds. Exchanges offer many benefits, including stable markets and an exceptional user experience, but their use comes at the price of full control over a user’s cryptocurrency.

When asked for his opinion on the control of cryptocurrency exchanges, investor and Morgan Creek co-founder Anthony Pompliano suggested that users simply need to be cognizant of the capabilities their chosen platform has over their digital assets:

“Bitcoin was built on the core ethos of resisting seizure and censorship. There is infrastructure that has been built that aligns with that ethos and there is infrastructure that has been built that goes against it. It is important to understand the limitations of the infrastructure that you use, which never feels important….until it is the most important thing.”

Emin Gün Sirer, Cornell University professor and co-founder of cryptocurrency and smart contracts advocacy group IC3, was blunt in his assessment of the current status quo of exchanges when replying to Cointelegraph’s request for comment.

Sirer believes the situation goes against the central tenets of cryptocurrencies. While there is a big focus on layer-two solutions like the Lightning Network, Sirer points out that most of the working layer-two, off-chain transactions are processed by cryptocurrency exchanges:

“And almost all of today’s exchanges are custodial: they fully take possession of the users’ funds, and fully control all interactions. They require absolute trust in the exchange operator for their function. Fund freezing and blocking are instances of the operator usurping funds using his position of trust. I cannot wait for trustworthy, secure, unblockable decentralized exchanges that cannot engage in these kinds of behaviors.”

Source Cointelegraph

Portugal Could Be a Tax Haven — Not Only for Crypto Traders

The Portugal Tax Authority (PTA) announced last month that cryptocurrency trading and payments in crypto would not be subject to value-added tax (VAT).

According to the announcement, cryptocurrency payments that are subject to the provision of services under Article 9 (27) (d) of Portuguese tax law are exempt from VAT. This applies only to individuals, as Portugal-based businesses are still subject to several taxes such as VAT, social security and income taxes.

This announcement follows another Portuguese tax benefit for cryptocurrency traders: Ruling 5717/2015, which declares that proceeds from the sale of cryptocurrencies for individuals will be tax free. According to the ruling published in February 2018, the sale of cryptocurrencies does not qualify as capital gains if the tokens are derived from the sale of financial products as defined in Portuguese law, which are normally subject to a 28% tax rate. In addition, cryptocurrency trading will not be considered investment income, which is also subject to a 28% tax rate under other circumstances.

As the ruling applies only to individuals, business income derived from trading or other activities are subject to progressive rates for personal income tax. 

To anyone who is familiar with the Portuguese tax regime, these two rulings are not surprising. In fact, Portugal is considered to be a very friendly country for taxpayers, with regulations specially designed to attract wealthy and high-net-worth individuals.

While customarily paid in many other countries, Portugal has no inheritance, gift or wealth taxes levied on its residents. 

These significant tax benefits are reserved for nonregular tax residents in a bid to attract high-value professionals from all over the world. Multiple professions within STEM and the arts are considered to be of high value and range from architect to investor.

These high-value, nonregular groups enjoy a 25% rate on income taxation, avoid a tax of up to 48% that is applied to other resident groups, and pay a 28% tax rate on dividends, capital gains and investment income — which is why the Portuguese government including cryptocurrency investors and traders comes as no surprise.

If all of the above is convincing enough to relocate to Portugal, the residency rules are worth checking.

A person is considered a resident of Portugal if they spend more than 183 days (consecutive or not) in Portugal during any 12-month period. A person who becomes a tax resident in Portugal and has not been taxed as a resident in Portugal for the previous five years may apply for the special tax regime for nonhabitual tax residents. However, in five years’ time, there might be more countries treating cryptocurrency trading as a tax-free activity.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Or Lokay Cohen is the vice president at Bittax, a crypto tax calculation platform. Or has 10 years’ experience with regulation and managing a leading tax consultant firm. She holds an LL.M. law degree, a B.A. in communications and an M.A. in management and public policy. In her work at Bittax, Or promotes the goal of bridging cryptocurrency to the taxation reality to enable tax reporting under a clear regulatory framework and specific identification methods.

Source Cointelegraph

‘Bitcoin Now a Regulated Market of Significant Size’

Crypto index fund provider, Bitwise Asset Management, has given another presentation to the United States Securities and Exchange Commission (SEC) in its bid for regulatory approval of its proposed Bitcoin exchange-traded fund (ETF). 

In a memorandum, issued Sept. 17, the SEC published Bitwise’s presentation outlining why it believes the SEC’s concerns have been largely met.

Bitcoin spot market now more efficient

The presentation started by recapping how the market has evolved and improved over the past two years.

Firstly, the spot market has become more efficient, with the average deviation of Bitcoin price across the top ten exchanges falling. Although this was just under 1% back in December 2017, it has now dropped to under 0.1%.

Institutional-grade Bitcoin infrastructure is being built

In addition, many new institutional-grade Bitcoin custody services are springing up and receiving licenses from local jurisdictions to manage and store Bitcoin for clients. 

Meanwhile, this year has seen record Bitcoin futures volumes on the CME suggesting that the regulated futures market has now become “a regulated market of “significant size,” Bitwise notes in its presentation.

Crypto industry addressing 95% fake volume reports

Bitwise also notes that following research published earlier in the year that 95% of trading volume is fake, there have been several developments.

Data providers responded by addressing the concerns and implementing measures to ensure reported data was more accurate. Nine exchanges reported a 90%+ drop in volume, and three of the 73 named exchanges responded either publicly or privately.

Data patterns on certain other exchanges shifted to match the real-world patterns witnessed by Bitwise. But overall, there is now a greater awareness of the existence of fake volume and more exchanges are taking steps to address these concerns.

Overall, the efficiency of the Bitcoin and cryptocurrency market continues to increase, along with volumes at the top ten exchanges.

Bitwise hopes that this will allay the SEC’s concerns over its Bitcoin ETF application, and finally give it a green light next month. However, SEC chairman, Jay Clayton recently reaffirmed his assertion that more regulation is needed before Bitcoin is traded on major traditional exchanges.

Source Cointelegraph

US Congress Schedules Sept. 24 Hearing With SEC With Crypto on Agenda

The United States House of Representatives Committee on Financial Services has scheduled a hearing with Securities and Exchange Commision (SEC) Chairman Jay Clayton and four other SEC commissioners to discuss, among other topics, crypto.

In a memorandum from Sept. 19, the Committee on Financial Services stated that it will hold a hearing on Sept. 24 entitled, “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat.”

This one-panel hearing will include the Securities and Exchange Commission (SEC) chairman Jay Clayton, commissioner Hester Pierce (AKA Crypto Mom) and another three commissioners.

Libra coin could amount to a security

The Committee on Financial Services has included cryptocurrencies on its list of topics for discussion and points out that the federal securities laws apply to securities — including stocks, bonds, and investment contracts — regardless of whether they are digital. 

The hearing will touch upon Exchange-Traded Funds (ETFs), whether or not digital assets are a security or exempt from securities law, and of course Facebook’s planned launch of its stablecoin Libra in 2020. The document adds:

“The Libra Investment Token could amount to a security since it is intended to be sold to investors to fund startup costs and would provide them with dividends. The Libra token itself may also be a security, but Facebook does not intend to pay dividends and it is unclear if investors would have a “reasonable expectation of profits.” 

Zuckerberg continues tour of Washington DC

Cointelegraph reported on Sept. 19 that Facebook CEO Mark Zuckerberg is making the rounds with policymakers in Washington, D.C. to discuss “future internet regulations,” most recently with Senator Josh Hawley.

Earlier on Sept. 19, Cointelegraph reported that Zuckerberg had dinner with a handful of U.S. lawmakers, where he faced intense scrutiny over the Libra project.

Source Cointelegraph