Tuesday, September 22, 2020

Blockchain Bites: SEC, OCC Issue First Regulatory Clarifications for Stablecoins

Also: The latest crypto fund and the MicroStrategy effect
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September 22, 2020
By Daniel Kuhn
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Top shelf

The OCC published guidance clarifying that federally-regulated banks can work with stablecoin issuers, the ECB thinks stablecoin is a "misleading" term and a group of banking veterans has spun up a new crypto fund. 

Bitcoin funds
Banking veterans who have steered divisions at HSBC, Barclays, Citigroup and Merrill Lynch in the Asia-Pacific region are ditching traditional finance to invest in cryptocurrencies. Their new crypto fund, Liquibit Capital, will manage assets worth $50 million and will arbitrage a portfolio of bitcoin, bitcoin cash, ether, litecoin and eos, custodied with Fireblocks, with an eye to expand into derivatives trading. Elsewhere, tech legend and part owner of the Golden State Warriors, Chamath Palihapitiya’s Social Capital invested in bitcoin (BTC) in 2013, when it was trading around $10. Palihapitiya disclosed the holdings in an investment call as he mulls taking the fund public. The exact amount of bitcoin Social Capital has bought and sold is unknown.

National security? 
The United States Space Force (USSF), the newest branch of the U.S. military, is looking to blockchain to render its computer systems, on earth and in space, unhackable. Xage Security, which is currently working with the U.S. Air Force, won a contract for a data-encryption system. Meanwhile, the Central Intelligence Agency (CIA) launched a new R&D laboratory on Monday to study blockchain technology, along with wireless telecommunications, quantum computing and artificial intelligence.

MicroStrategy effect
Coming on the heels of publicly-traded MicroStrategy’s multi-million dollar investment into BTC, financial services firm Unchained Capital has released an “advanced business account” for firms that want to hold bitcoin and handle their own private keys. “We have companies that you wouldn’t expect, like your local bakery or your local liquor store that hold bitcoin in treasury,” Parker Lewis, Unchained’s head of business development, told CoinDesk. “They are not Bitcoin-centric businesses, but they hold bitcoin and they hold their own keys; both small and large, like the MicroStrategies of this world.”

UNI unity
A group of anonymous Uniswap users is trying to unite the many small holders of the UNI governance token to deal with potential problems in the automated market maker’s (AMM) governance, CoinDesk’s Muyao Shen reports. The group, seemingly backed by unii.finance, is aiming to issue a community token called UNI Innamorare (or UNII). The idea is to create a faction of UNII token holders to counter the power from the founding team and investors, who still hold an outsized amount of control over the decentralized protocol despite a governance token distribution, the group alleges. “We are all minions in terms of voting power,” according to a pre-launched page by the anonymous group. It is unclear whether the proposal will catch on.

Wright's move?
The District Court for the Southern District of Florida has denied Craig Wright’s request for summary judgment in a case that involves claims over ownership of about 1.1 million bitcoin (worth over $11 billion). In an order signed on Monday, Judge Beth Bloom at the Florida court denied Wright’s motion seeking summary judgment that would have prevented the matter from proceeding to a full trial. According to an order issued by the Florida court on Sept. 4, the trial involving Wright’s bitcoin fortune has now been moved to Jan. 4, 2021. 



How to Value Bitcoin: Addresses
In the second episode of CoinDesk Research's webinar series on Bitcoin fundamentals, we unpack a novel accounting method used in Bitcoin and explore how entities are represented and transact on the network. 

Philip Gradwell, chief economist at Chainalysis, and CoinDesk Research will walk through the structure of Bitcoin addresses and wallets, how exchanges operate and how ownership data and transaction data can be interpreted by investors. 

Register to join our 30-minute webinar Sept. 22 at 10:30 a.m. ET on How to Value Bitcoin: On-Chain Transactions.

Quick bites

At stake

Stablecoin junction
European and U.S. financial regulators independently have issued positive statements regarding the viability of fiat-backed digital currencies. 

The U.S. Office of the Comptroller of the Currency (OCC) and the Securities and Exchange Commission (SEC) yesterday published official guidance clarifying national banks can provide services to stablecoin issuers in the U.S. 

This is the first instance of federal clarity around stablecoins, referring specifically to tokens backed on a one-to-one basis by fiat currencies rather than their algorithmically derived counterparts, CoinDesk regulatory reporter Nikhilesh De said. 

Acting OCC Comptroller Brian Brookes said that stablecoin services are responsible for “billions of dollars each day” flowing through the financial plumbing. 

The statements are also the first indication that certain stablecoins might not be securities under federal law.

Meanwhile, European Central Bank (ECB) President Christine Lagarde said the supranational bank is looking into the benefits and risks of a bloc-wide digital currency.

Rather than as a replacement for cash, a digital euro would "complement" traditional money and provide an alternative to "private digital currencies" for EU citizens. This, she said at the Parliamentary Assembly on Monday, would "ensure that sovereign money remains at the core of European payment systems." 

The comments come a month after Lagarde said Europe is losing ground in payments innovation and signals a continued skeptical line over private “stablecoins” like Libra. 

Elsewhere, ECB officials wrote the term stablecoin is “misleading,” adding the term “should be replaced by a choice of terminology to shift the emphasis away from the issuer’s promise of stability.”

Market intel

Follow the leader
Bitcoin (BTC) is once again taking cues from the stock markets and prices may fall below $10,000 if equities see further sell-off, according to analysts. The top cryptocurrency fell by 4.5% on Monday to register its biggest single-day decline since Sept. 4. That came as global stock markets nursed sharp losses and the safe-haven U.S. dollar gained ground on renewed coronavirus fears and uncertainty over the 2020 U.S. election. "Sustained risk-off in broader equity markets will lead to heavy offers across major cryptocurrencies," Matthew Dibb, Stack Funds' co-founder and COO, told CoinDesk. "Bitcoin may revisit September lows [around $9,870]."



First Mover
First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. They follow the money so you don’t have to. You can subscribe here.

Internet 2030

Don Tapscott is author of 16 books about technology in business and society, including the bestseller Blockchain Revolution, which he co-authored with his son Alex. He is also co-founder of the Blockchain Research Institute.

The essay excerpted below is part of CoinDesk's "Internet 2030" looking at the future of the digital economy. 

Digital age social contract
January 2030. Looking back a decade, the COVID-19 pandemic of 2020-2022 did more than take five million lives and devastate the global economy. It revealed with searing clarity, weakness not just in our political leaders, governments and society, but in our systems for everything from supply chains to data and public health.  

The second era of the digital revolution had started to come of age with powerful new technologies like blockchain, AI, machine learning, robots, and the internet of things showing how the traditional systems and their institutions were outmoded. These technologies also created transparency that further revealed deep problems in society.  

It was one of those dramatic turning points in global history. 

The effects of all this were felt strongly in the United States, when President Donald Trump denied science and through his policies, personal example and divisive actions disarmed the nation from responding effectively to the pandemic. We all remember how he lost the election in November 2020, and refused to leave office, mobilizing armed militias and rank-and-file military personnel against their leadership to crush the mass demonstrations wanting to defend democracy. Fortunately, tens of millions of young people mobilized, and a general strike forced him to resign and hand over power. 

The perfect storm and unprecedented social unrest was leading to an inevitable civil war.  But fortunately a miracle of sorts occurred: driven by fear and also a deep hope for a brighter future, people everywhere began to undertake a new process, to reimagine our social contract — the basic expectations between business, government and civil society for a new digital age.

Going back centuries, when we evolved from an agrarian economy to an industrial one, we developed a new social contract for the times — public education, a social safety net, and laws about civil rights, pollution, workplace safety, and financial markets, to name a few. Countless nongovernmental civil society organizations arose to help solve problems. It is time to update these agreements, create new institutions, and renew the expectations and responsibilities that citizens should have about society. 

Op-ed

Activism
Jeff Dorman, a CoinDesk columnist and chief investment officer at Arca, argues that activist investors can help the digital assets industry mature. “The digital assets ecosystem needs to adopt the best practices of traditional finance. A strong governance system is one element that will help keep companies in this space on track and will hold them accountable,” he writes.

Podcast corner

Banks care?
The FinCEN Files, a leaked cache of more than 2,000 suspicious activity reports (SARs) filed by banks with the U.S .Financial Crimes Enforcement Network, show that banks are happy to file their reports and then keep on banking likely money launderers, NLW argues.

Who won #CryptoTwitter?

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