Thursday, November 29, 2018

#106: US to foreign cybercriminals: we're watching your Bitcoin transactions

Chain

Letter

Blockchains, cryptocurrencies, and why they matter

11.29: Nowhere to hide

Welcome to Chain Letter! Great to have you. Here’s what’s new in the world of blockchains and cryptocurrencies.

Bitcoin is not anonymous, part 85 million. Here’s a tip: if you happen to be a criminal hacker trying to outrun US authorities, you probably shouldn’t use Bitcoin.

The Department of Treasury’s Office of Foreign Asset Control (OFAC) made waves yesterday with the announcement that it has added two Bitcoin addresses, for the first time ever, to its list of so-called specially-designated nationals. As the Treasury explains, the list includes identifying information for “individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries” in addition to “ individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.” The move blocks their assets, and US citizens are “generally prohibited from dealing with them.”

The addresses are associated with two men, Ali Khorashadizadeh and Mohammad Ghorbaniyan, who allegedly helped exchange Bitcoin which had been acquired via a destructive ransomware scheme. According to OFAC, the two men used the addresses for 7,000 transactions worth millions of US dollars.

It’s a big deal, at least in a symbolic way. The Wall Street Journal called the news “a sign of a new era in which illicit gains are transacted in code instead of cash.” But it’s not a surprise. First, OFAC revealed in March that it was considering adding digital currency addresses to the list. Besides, as we’ve repeatedly pointed out, Bitcoin doesn’t offer criminals much protection. Law enforcement agencies are getting better at finding clues in its blockchain.

Most importantly, it raises all kinds of new questions. Can’t criminals just change addresses? What happens to addresses that receive transactions from the blacklisted addresses? Do they go on the list too? Is OFAC setting itself up for unending games of cat and mouse? And what will it do if and when more international criminals leave Bitcoin for harder-to-trace coins like Monero and Zcash?

We may find out some of the answers soon, since the Treasury says it will “aggressively pursue Iran and other rogue regimes attempting to exploit digital currencies and weaknesses in cyber and (anti-money laundering and countering the financing of terrorism) safeguards to further their nefarious objectives.” One more question: is this more about cracking down on criminals or about sending a message?

Crypto winter watch:

Steemit, which calls itself a decentralized web publishing platform, has laid off 70 percent of its staff. In a blog post explaining the move, its CEO blamed “the weakness of the cryptocurrency market” and growing costs of running Steemit nodes.
There were apparently plenty of empty chairs at Consensus Invest, CoinDesk’s Wall Street focused conference in New York this week, a far cry from the crowded madhouse that was the main Consensus conference in May.
SEC chairman Jay Clayton headlined the conference and he did his best to rub salt in the cryptocurrency world’s wounds. Some think it would provide a boost to the industry if his agency, which has repeatedly denied requests to list Bitcoin exchange-traded funds, changed course on this issue. But that won’t happen until cryptocurrency exchanges get better at proving that traders aren’t using their platforms to manipulate markets, said Clayton. SEC rules require stock exchanges to use surveillance to prevent market manipulation, but there are no such rules for cryptocurrency exchanges. A recent report from the New York Attorney General’s office slammed ten of the most popular platforms for lacking robust surveillance platforms.

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Loose Change

Fill your pockets with these newsy tidbits.

•

Amazon has a new service it says “makes it easy to create and manage scalable blockchain networks” using Hyperledger and Ethereum. (CNBC)

•

South Korea’s National Election Commission plans to test a blockchain system as a way to enhance security of its existing online voting platform. (CoinDesk)

•

Nasdaq wants to start allowing trading in Bitcoin futures in the first quarter of 2019. (Bloomberg)

•

A blockchain-based platform for trading North Sea crude oil has gone live. (Reuters)

•

Ohio’s plan to let people pay taxes using Bitcoin may be a solution looking for a problem. (Quartz)

The Money Quote

“The session on accounting was standing room only. Everyone was talking about custodians.”

—Rumi Morales, partner at Outlier Ventures, telling Bloomberg about the Consensus Invest conference this week in New York. That would be a rare good sign for crypto. It’s often said what’s keeping many hedge funds, family offices, and other so-called institutional investors on the crypto sidelines is the lack of qualified custodians to store and secure crypto-assets. Apparently crypto winter hasn’t scared them off yet.

We hope you enjoyed today's tour of what's new in the world of blockchains and cryptocurrencies. Send us some feedback, or follow me @mike_orcutt.

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Fidelity gears up

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GROWING FAST: Fidelity Investments is planning to expand its upcoming crypto asset trading platform to include the top five to seven cryptocurrencies in the market today. Revealed at the Block FS conference in New York, the news comes just a month after the firm announced it would launch a crypto trading platform.

Fidelity Digital Asset Services originally planned to offer services for bitcoin and ether, but its head, Tom Jessop, explained Thursday that he believes there is demand for the next four or five assets by market cap.

That being said, the company is waiting on regulatory clarity before looking at certain tokens – particularly those at risk of being labelled securities. “I think when it comes to security tokens or tokens that are likely to be deemed securities, we are waiting for that space to develop,” he explained. Full Story

FUNDING SCORES: The crypto space may be in month 11 of a bear market, but startups are still raising funds. Analytic startup Flipside Crypto raised $4.5 million in a seed round led by Coinbase Ventures and Digital Currency Group, while ConsenSys Labs led a $2.1 million round for AZTEC, a startup looking to make ethereum transactions private.

Flipside tracks network activity and trading patterns, among other factors, and uses such data to examine how different digital assets are being used. It differentiates between different types of activity in the hopes of providing a more in-depth view of how an asset is behaving than simply price.

AZTEC, on the other hand, wants to utilize zero-knowledge proofs – the same cryptographic technique used by the privacy coin zcash – to allow banks to store data privately on CreditMint, an ethereum-based platform. Full Stories

BUILDING BLOCKS: Amazon Web Services, the cloud computing and storage subsidiary of the global tech giant, is launching a fully managed blockchain product. The service promises to aid users in setting up their own blockchain without the overhead that typically goes into building such a platform.

Users can build their new platform on Hyperledger Fabric or ethereum, though the latter is not yet available for use. Once set up, the platform further claims to be capable of automatically scaling to support “thousands of applications running millions of transactions.”

Clients can further store data from the blockchain platform on Amazon’s Quantum Ledger Database, another data storage platform. While QLDB is not a blockchain itself, it is supposed to be immutable, allowing users to monitor any data changes. Full Story

CoinDesk’s Crypto-Economics Explorer aggregates data points across the industry to measure the size and opportunity of crypto markets. In addition to price and market cap, CoinDesk’s explorer provides users with a comprehensive way to view the crypto-economic forces that shape an asset’s market maturity, growth, and potential.

We compared the top two privacy coins: XMR and ZEC from Thursday, November 22 to today, November 29.

Exchange

ZEC went from on par with XMR to rising about 2 percentage points by the end.

Social

XMR started about 8 percentage points above ZEC, but shrank a bit down to 10.67 percentage points compared to ZEC’s 3.27.

Developer

ZEC maintained a 3 percentage point lead ahead of ZEC throughout the week but then hit a tie at 20.5 today.

Network

ZEC started with activity of 6.77 percentage points but retracted down to 2.41. XMR’s network activity is not fully represented because its privacy features hide its on-chain transaction volume.

Price

Prices moved marginally. ZEC saw an increase of .01 percentage point compared to XMR’s .02 percentage point drop over the week.

Use our new tool to learn more.

HISTORY REPEATING? Bitcoin jumped over 11 percent yesterday, marking its biggest single-day gain since April. With the strong bullish move, the 14-day RSI has moved into undersold territory above 30, confirming a bullish divergence. Further, a double bottom breakout was confirmed on the 4-hour chart as prices moved above $4,120. As a result, bitcoin could be in for a short-term bullish reversal, in an echo of a similar move witnessed in April. Full Story

BEST OF THE BEST

FINANCIAL TIMES: Amid recent news that DRW Holding’s real-estate arm Convexity Properties has divided a holding in a high-rise into 955 tokenized shares, a Financial Times article delves into the mindset of institutional crypto and blockchain investors, who appear not to be deterred by the recent drop in crypto prices and tightened regulatory environment.

For one, DRW’s Don Wilson said that tokenizing an asset that is traditionally “cumbersome” to sell in fractions, such as a property, offers advantages for both buyer and seller.

Further, some in the space feel that the advent of digital securities could "bypass the infrastructure of modern finance," the piece says. Selling tokenized shares of an asset and allowing them to be freely traded could potentially make the process cheaper and provide greater liquidity.

However, an analyst cautioned in the piece that with current regulatory uncertainty, the success of this new technology also depends on the “quality assurances provided by the traditional capital markets and the regulation surrounding it.”

THE REST

FORBES: The crypto markets may have taken a tumble of late, but, as an investment, they can still outdo more traditional options like shares in Amazon, U.S. Treasury bonds or property, says Forbes.

Placing your spare funds in a basket of the top cryptos, bitcoin in particular, has the “best chance to deliver the most attractive risk-adjusted returns over the next 10-years,” the feature says.

Bitcoin, the author says, may be volatile, but it is volatility that is not tied to fiat investments and, therefore, “and therefore a true method of diversification that boosts the overall portfolio’s risk-reward.”

REUTERS: Emerging tech like blockchain and AI could be used to remotely monitor the high seas and bolster a proposed deal to preserve the ocean’s biological diversity, researchers and campaigners say in a Reuters piece.

The world’s diplomats met recently at the UN in New York to start hashing out a treaty to preserve marine resources. The area at issue is the so-called “high seas” beyond the recognized 200-mile economic zone that sits off national coasts. With a lack of international rules to govern the resources in these areas, illegal fishing is rife.

And blockchain could play an important role in enforcing the agreement, by monitoring fishing and identifying illegal behavior, said the World Economic Forum’s Center for Global Public Goods in the article.

WHO WON #CRYPTOTWITTER

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ETF won't get approved until...😒

November 29, 2018

SEC Chairman Says Market Manipulation Needs to Be Eliminated Before Crypto ETF is Approved

SEC Chair gives insight on ETF approval

Securities and Exchange Commission (SEC) Chairman John Clayton recently spoke at the Consensus Invest Conference that took place this week in New York.

Of course, cryptocurrency investors were very interested in what the Chairman had to say about his Commission's oversight of the cryptocurrency market.

Among topics discussed during his talk was the pursuit of a cryptocurrency ETF, as well as initial coin offering (ICO) and exchange regulations. Clayton shared with the audience why the SEC is hesitant on approving a cryptocurrency ETF.

No ETF if markets are being manipulated

The SEC Chairman stated that the biggest reason holding the SEC back from approving a cryptocurrency ETF is that the crypto markets still face substantial market manipulation.

Clayton's exact quote regarding the issue reads:

"What investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation. It's an issue that needs to be addressed before I would be comfortable."

In their current state, most cryptocurrency exchanges do not have the proper safeguards in place to monitor and prevent market manipulation. Clayton says investors need a more fair assessment of Bitcoin's price before an ETF can be deemed safe.

The other issue that needs to be solved

In addition to the market manipulation concern, Chairman Clayton is also worried about how the Bitcoin backing an ETF will be stored. The SEC wants to be sure that the underlying assets backing the ETF are secure and there is no chance that they can be stolen or misplaced.

ANALYSIS

Searches for Bitcoin on Google Show Signs of Life

Highs and lows

Mediocre won't get attention. This holds true for Bitcoin. While the coin was ranging from $6,000 to $7,000 with low volatility for the past 6 months, people became bored.

Now, Google searches for Bitcoin have hit levels not seen since April. Ironically though, this uptick most likely came from Bitcoin's most recent plunge to yearly lows.

Who cares about this?

Well, according to a report by Willy Woo in 2017, traders should.

That's because his study outlined the correlation between Bitcoin Google search volume and the price and found that the coin most often finds itself in bubble territory when search volume is high. In contrast, when Bitcoin search volume is low, Willy Woo claims its the best time to buy.

Though data on this insight is sparse, it certainly held true this year when Bitcoin search volumes hit an all-time high just as the crypto market peaked alongside.

STARTUP

Steemit and SpankChain Become the Latest Projects to Layoff Team

70% and 33%

When the market falls, so do the crypto funds that startups in the industry hold. While many have significant funding runways because they sold back into fiat currency early on in the year, some aren't so lucky.

Among those unlucky are the two latest projects to slim down: Spankchain and Steemit.

For Steemit, the company has now laid off over 70% of its staff according to a video posted by CEO Ned Scott yesterday. SpankChain isn't much better after it announced it has laid off about 33% of its staff so far.

Both startups claimed the reason behind the layoffs was growing concern of a prolonged crypto winter.

More to come?

This could be just the start of layoffs in the crypto market. If the bear market continues, layoffs will likely only grow as startups once ripe with cryptocurrency holdings begin to struggle.

For now, however, it seems both Steemit and SpankChain are being proactive in their approach to cutting costs as they reorganize the structure of their startups.

TRADING

Market Rebounds Off of Recent Yearly Lows

Finally in the green

After an almost year-long bear market that looked like it was going to be capped off with an even more extreme downturn, the cryptocurrency market turned into a sea of green on Wednesday.

The sudden turn in the market came as a surprise to many investors as many were calling for lower bottoms as the market seemed like it was in a freefall.

There is not a clear reason for this market turn around, but it may have been caused by the continuance of positive news relating to cryptocurrency investment products for institutions coming into the market in the near future.

Dead cat bounce or holiday rally?

☠️ What is a dead cat bounce? A dead cat bounce is a small, brief recovery in the price of a declining stock. Derived from the idea that "even a dead cat will bounce if it falls from a great height", the phrase, which originated on Wall Street, is also popularly applied to any case where a subject experiences a brief resurgence during or following a severe decline.

Either this market surge is a dead cat bounce or a sign of a potential rally to end the year.

Many experts are calling for even lower bottoms, so this would imply that the market rally is simply a dead cat bounce. If this is true, the move upwards will be shortlived and the downward spiral will resume shortly.

Some, more hopeful investors are saying that this rally is a sign of an impending bull cycle for the market. December of last year is when the market really took off, maybe this December will be somewhat similar.

BITS

But wait, there's more...

Galaxy Digital lost $136 million in the first three quarters of 2018.
The blockchain oil trading platform backed by BP and Shell just launched.
TRON (TRX) announced a $100 million blockchain gaming fund to help "empower developers."

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