July 25, 2018

Weekly Brief

Bitcoin price spike, SEC & G20 push regulatory decisions, Coinbase files for PAC...

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The price of Bitcoin surged this week, gaining nearly ten percent across global exchanges. While the exact cause of the spike remains uncertain, pushbacks in regulatory decisions have defined much of the news.

Coinbase is among the first US cryptocurrency service companies positioning itself to participate in campaign financing - the company filed for the creation of a political action committee that will allow it and other firms to donate undisclosed amounts to political candidates. The filling occurred alongside the SEC's latest push of its decision regarding five leveraged Bitcoin ETFs until September. The G20 also pushed its call for clarification among global financial regulators regarding cryptocurrency AML standards until October.

In other news, the rise of cryptocurrency-enabled 'Ponzi-games' have drawn millions in global contributions, and the operator of a defunct cryptocurrency exchange faces up to 40 years in prison after pleading guilty to charges of fraud in US court.

Articles From the week

Cryptocurrency Exchange Coinbase Forms Political Action Committee

Last week, California-based exchange giant Coinbase filed with the Federal Election Commission (FEC) to create a political action committee (PAC). PACs are political committees that are organized to allow groups (often representing businesses, labor, or ideological interests) to raise and spend money to elect candidates, and to influence various types of legislation and regulation.As one of the first major "political moves" by a US cryptocurrency company, Coinbase’s decision marks a significant change from the "wait and see" mindset that many players in the space have historically taken. With that said, the move is not particularly surprising. Given that regulation continues to heavily influence the adoption of cryptocurrencies, Coinbase's PAC will allow the company to assert influence on US campaigns that support their incentives, and follows the well-trodden advocacy strategy that is regularly employed in traditional industries.

Volumes Spike on Ethereum Ponzi 'Games'

Global trading volume spiked on the Ethereum network, largely because of the growing popularity of smart-contract powered Ponzi 'games.' These schemes, which entice users to donate cryptocurrencies towards a shared prize, have exploded in terms users in recent days. Two of the most popular games have accrued over $9 million in trading volume over the past 24 hours alone.

One game, "FOMO 3D", takes user funds in ETH and awards "earnings" to the last contributor during a period of time. However, the period is not specified in advance: every time a donation is made, time is added to the clock, which allows earnings to continue to accrue. The most recent earnings pot currently sits at over $10 million. 

The growing prominence of these games and similar schemes are prompting major concerns for regulators, who are uncertain on how (and if) they should oversee these decentralized services. On the one hand, some are structured more as lotteries than as financial instruments; however, many essentially function as Ponzi schemes, or involve funding mechanisms resembling unregistered securities offerings.

SEC Delays Decision on Asset Manager's Bitcoin ETFs Until September

As pressure builds around the SEC's upcoming decision on whether to approve CBOE's non-leveraged Bitcoin ETFs next month, the commission released notice this week that it will be delaying its decision on five leveraged ETFs until September. While the approval of a non-leveraged Bitcoin ETF has been highly contended for years, these new, leveraged counterparts closely resemble the leveraged commodity ETFs that commonly out-trade stocks on the NYSE, and may garner new support.

G20 Seeks Cryptocurrency AML Standards by October 2018

The world’s top economies continue their effort to apply anti-money laundering (AML) regulatory standards for the cryptocurrency sector, as revealed in notes from a meeting in Buenos Aires over the weekend. In the meeting, The Group of Twenty (G20) forum – which includes finance ministers and central bank governors from 20 of world’s largest economies – reiterated its intent to bring the cryptocurrencies under the purview of international AML standards set by the Financial Services Board (FSB) and other international regulators.

SEC Charges Former Bitcoin-Denominated Exchange and Operator With Fraud

Jon E. Montroll, the operator of the defunct bitcoin exchange Bitfunder has pled guilty to charges including the operation of an unregistered securities exchange and misappropriation of customer funds. In addition to these charges, Montroll is faces up to 40 years in prison for actively trying to deceive the SEC during its investigation of his activities.

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