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Binance On the Spotlight Over Ties to Betting App in India

Both crypto and betting have been enjoying massive popularity all around the world. The situation is, however, not as rosy in India. The country has been known for its rather strong stance against gambling and the burgeoning digital currency and blockchain ecosystem. Its government has been trying hard to regulate these sectors. The latest casualty of these efforts is Binance, one of the world’s most popular crypto exchanges and brands.

Recently, the Enforcement Directorate, India’s anti-money laundering agency, began a probe into Binance Holdings Limited. The investigation is meant to ascertain whether the crypto exchange had something to do with betting apps. Its executives are currently being investigated.

No official communication is available on the matter. The Enforcement Directory has not commented and representatives from Binance have denied receiving any summons.

“We have always been a proactive player in fighting crime. We comply with regulator requests all around the world and we don’t comment on any specific engagements.”

Binance’s Spokesperson.

However, sources close to the matter have shared differing information that points to some messy issues. It will certainly take a bit of time before any of these matters get settled. It is thus bound to reach the public domain soon.

What Caused the Problem?

Blockchain, digital currencies, and the businesses related to them are no stranger to controversy. Binance is no exception. The company was incorporated in the Cayman Islands and has no corporate headquarters. This raised some eyebrows and the exchange has been facing scrutiny. Many countries including India have concerns that digital currencies can potentially be used to facilitate money-laundering, drug trade, and even terrorism.

Binance’s woes in India may have emanated from its involvement with betting apps which are also still facing some troubles themselves. The operators of said betting apps used wallets with WazirX to buy, convert and transfer funds on Binance. There should be a straightforward way of dealing with this but that is, unfortunately, not the case.

As it turns out, Binance failed to take responsibility by collecting the necessary know-your-customer documents from clients in most of the transactions. In addition to that, the crypto exchange also reportedly failed to collect information as required by the Finance Action Task Force (FATF), the global anti-money laundering watchdog.

Now, this may blow over without too many implications. Still, it represents a clear need for further action concerning the regulatory framework. India in particular has a long way to go when it comes to warming up to crypto and betting.

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Cryptocurrency Exchanges Lost More Than $1.5 Billion in 2018

2018 was indeed a monumental period for the cryptocurrency community primarily because of the various highs and lows of the industry as well as the many innovations that we got to see. Some of the most notable occurrences were the loss of funds by a number of exchanges all over the world. It was hard to keep track of the amounts but now, thanks to a Q4 cryptocurrency Anti-Money Laundering report that was published by CipherTrace, a blockchain intelligence agency, it has been revealed that criminals stole a whopping $1.7 billion of cryptocurrency last year. The company further pointed out that cryptocurrency theft is still on the rise despite the freefalling prices of cryptocurrencies as well as the savage bear market that the sector has been subject to.

Of the $1.7 billion that was stolen from the crypto exchanges and wallet providers, $950 million went to hackers. This was 3.6 times more than what was recorded in 2017 which further shows there is one increase in theft despite market drops – the price of bitcoin, for instance, has dropped in value by almost 80 percent. Obviously, this is a very worrying statistic especially for an industry that is trying very hard to achieve mainstream adoption.

The Reasons

As it turns out, many of the existing exchanges have been in operation for no more than two years and most of them do not have sufficient safeguards in place to prevent hackers from stealing their funds. The lack of these safeguards makes it possible for hackers to obtain simple files of cryptographic private keys and each can be worth anywhere between $30 million and $500 million. While this is the case with most companies, it is also worth noting that not all crypto-related businesses are not immature in terms of funding, implementation, and training – the tools and methods used by hackers are also becoming more and more sophisticated which means that even established companies that are considered to have better safeguards can lose funds or data due to hacks.

At least $725 million of the stolen crypto funds came from “inside jobs” which included exit scams, fraudulent Initial Coin Offerings (ICOs) and Ponzi Schemes.

Proposed Solutions

According to Dave Jevans, the CEO of CipherTrace and co-chair of the Cryptocurrency Working Group at the APWG.org, the cryptocurrency sector needs to implement huge improvement to their infrastructure and increasing education in order to prevent such kinds of attacks. Such measures could involve the use of robust anti-phishing measures, cold storages as well as data sharing and behavioral analytics. Fortunately, thanks to the global wave of regulations that will be going into effect anytime this year, laundering of digital currencies by hackers and criminals will be much harder to do. Hopefully, it gets better from there.

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More Institutional Investors to Venture into Crypto in 2019

The price of a number of cryptocurrencies including bitcoin, which is considered to be the mother of all cryptocurrencies, took big hits in 2018 amid the prolonged Crypto Winter. Even though there is no guarantee that it cannot get any worse than it did in the just concluded year, many investment analysts and financial market experts are expecting the volatility to subside significantly this year largely due to the entry of institutional investors. In fact, according to a report the Australian Financial Review some analysts even believe that bitcoin may make a comeback that will be fueled by the momentum created by institutional investors.

Over the summer of 2018, Wall Street was stunned by the news that some multi-billion-dollar endowments of Harvard, Yale and Stanford had decided to invest in digital currencies. Analysts believe that due to the herd mentality of most institutions, the move is likely to trigger a chain reaction of sorts among other institutional investors like pension funds. This influx of institutional investors was expected to pick up in a major way in late 2018 but the harsh bear market that affected nearly all digital currencies stalled most of the efforts – a number of the institutions were reportedly scared off by the protracted downturn of the crypto market which is an understandable move especially for organizations operating within that particular space.

Financial analysts have projected that, as Wall Street appears to be poised to even more turbulence in 2019, organizations may begin to consider crypto assets even more seriously – these assets are not buoyed since they have no correlation to the regular stock market and this makes a pretty good investment, especially during volatile periods.

Will Crypto Finally be Legitimized?

Well, many observers believe that, as it stands, mainstream adoption hinges on regulatory clarity to help legitimize the market. Regulation is already a big deal and has been defined by the move by US lawmakers in December 2018 to propose legislation that was designed to prevent bitcoin price manipulation and position the United States as a market leader in the crypto space. The US is being encouraged not to ignore the “profound potential” of crypto to bolster the country’s economy and this might just be what is needed to have digital currencies legitimized. The industry is putting a lot of effort into advancing the agenda of mainstream adoption of crypto most by greasing the wheels of Congress.

Unfortunately, there are some setbacks that may still impede the growth of the sector and one of the most serious ones is the scalability. As it stands, most platforms would need about a year to figure out concrete solutions to scaling, but until then let’s hope that the Lightning Network grows further and, hopefully, achieves its full potential.

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UK Lawmaker Proposes Tax & Utility Bill Payments in Bitcoin

Eddie Hughes, a Conservative UK Member of Parliament is calling for local authorities in the country to take the lead and begin accepting tax and utility bill payments in bitcoin. According to the politician, bitcoin and the underlying blockchain technology both have great potential but the lack of reliable or adequate information and knowledge in this regard is one of the things that is preventing wider adoption.

“You’re either ahead of the curve or you’re behind the curve,” he said in a recent interview.

In the interview with the Daily Express, the lawmaker pointed out that the country is in a very interesting position especially because it hopes to be seen as a progressive nation. While the United Kingdom is still at crossroads, the decision to adopt the use of cryptocurrencies could prove to be very beneficial in the near future. If this is to happen, people will first have to understand how the transactions work and see how accessible the technology can be – ideally, the technology needs to appear like an app that can be used to make fast, safe and secure payments.

Being that the technology is talked about a lot in, the member of parliament feels that all the other lawmakers have a duty to understand it, something that will then enable them to make more informed decisions pertaining to the technology. Hughes further cited the Royal National Lifeboat Institution which is currently accepting charitable donations through cryptocurrency – this particular use case proves that bitcoin and other digital currencies can be used for many other services as well.

“The state should focus its attention on using blockchain to enable social freedom, to increase efficiency, and to rebuild societal trust,” Hughes stated.

This is, however, not the first time that Hughes has publicly supported cryptocurrencies and blockchain technology. Back in July, he wrote a report that called for the state to appoint a ‘Chief Blockchain Officer.’

Is This Possible?

Accepting taxes and utility bills in crypto would definitely be a good start for the crypto community and the country. However, regulators in Europe have been very skeptical about cryptocurrencies especially because digital currencies are very volatile and risky and are often associated with such vices as terrorism, fraud and money laundering. These European regulator’s alarmist entreaties have mounted quite a lot of pressure on the government of various European countries to implement some very stringent regulations that are supposedly meant to protect the public and investors while at the same time preventing the risk of financial instability.

As it stands, the future of crypto in the UK is even more uncertain thanks to a revelation by the country’s Finance Conduct Authority that it is considering banning crypto-linked derivative products. All these will be looked into in the first quarter of 2019.

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Bitcoin’s Price Dwindles as Its Dominance Increases

Bitcoin has been on a steep downward trend for the past few weeks. In general, the market has not been very stable with a number of people hoping that it the market will stabilize very soon and bitcoin can regain even a little of the value that it lost in the past month. Both bitcoin and Ethereum, the two most popular cryptocurrencies have had their prices drop by over 40 percent particular because of the rapidly increasing sell pressure and the declining buy pressure. As a result, the crypto market has been struggling to sustain some sort of momentum in a bid to reverse the downward trend but, of course, it might be a while before this happens.

To put this into perspective, when the price of an asset falls significantly without any significant spike in volume, it is representative of a free fall albeit without much sell pressure. This implies that as big sell volumes continue to hit the market, the price of the said asset will be at the mercy of additional sell-offs in the future.

This Is Not the End

Even though bitcoin has undoubtedly had quite a month, it did not take nearly as much a hit as many other digital currencies. In fact, in November, bitcoin’s share of the total cryptocurrency capitalization or rather its dominance saw a notable increase. Over the course of the month, bitcoin’s dominance has spiked from lows of 51 percent in early November to the prevailing 53 percent, something that goes further to prove the digital currency’s appeal to both miners and investors.

Despite the fact that there have been lots of talk about the demise of bitcoin, especially over past two weeks, it is worth noting that the cryptocurrency’s price is still more than what it was last year in the summer. Furthermore, bitcoin has been building quite a loyal customer base over the past decade and there is still a growing appetite for crypto all over the world.

Institutional Investors Are Still Hopeful

It is not only individuals within the crypto community that are still confident about bitcoin. The traditional financial services industry and a number of institutional investors including New York exchange operator, Nasdaq, are still pursuing ventures involving the digital currency. According to Bloomberg, the company on November 27 announced that it is moving forward with its plan to list bitcoin features, a market that it hopes to officially launch in with the first quarter of 2019.

Sources close to the matter have also revealed that the New York exchange has been working closely with the Commodities and Futures Trading Commission (CFTC) to receive regulatory approval for its plans to operate as a compliant bitcoin futures market service provider. There is a huge window for success but knowing how shaky the crypto market can get, it remains to be seen just how far these projects will go.

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Swiss Regulator Imposes 800% Risk Coverage on Crypto Trading

The Swiss Financial Market Supervisory Authority, otherwise known as FINMA, has instructed Swiss banks that are dealing in crypto assets to apply an 800 percent risk weighting the market value of said assets when “calculating loss-absorbing capital buffers. The news of this was delivered in a confidential letter that the regulator recently sent to swissinfo.ch.

What It Means

As per the terms of the regulator’s new requirements, securities dealers and banks will be required to assign a flat risk weight of 800 percent – which will be used to cover both market and credit risks – against digital assets. Therefore, considering bitcoin’s current value or price ($6,000), the banking institutions would be required to value each of the coins on their books at $48,000 when making decisions regarding adequate levels of buffer. This is regardless of whether the positions are held in a trading or banking book.

Even though FINMA has openly allowed banks in the country to trade bitcoin and other crypto assets, the regulator has not made any effort to integrate cryptocurrencies into the country’s liquidity ratios or Base III capital requirements. Risk weightings are a measure of an asset’s volatility as well as their potential to compromise the capital base of any given bank. Naturally, a higher risk weighting is largely an indication of skepticism – the higher the risk weighting, the lesser amount of the asset that a bank should hold.

“FINMA has recently received an increasing number of enquiries from banks and securities dealers holding positions in crypto assets and are subject to capital adequacy requirements, risk distribution regulations and regulations for the calculation of short-term liquidity ratios,” the letter, dated October 15, reads.

This move is an indication that FINMA is clearly still very skeptical of digital currencies despite the fact that some of them have steadily stabilized over the past year. Bitcoin, for instance, has been priced at around $6,000 over the past few months.

Not So Surprising Positive Reactions

It is undeniable that the asset class is extremely volatile but there is a lot of great signs with more and more banks all over the world offering crypto related products. Switzerland happens to be one of the few places where banks and trading products have been in business for quite a while. SEBA Bank, one of the Swiss banks that is hoping to win a license to operate full banking services to bridge fiat currencies and crypto.

“It’s encouraging to see banks no longer turning down the increasing number of client requests for crypto services but asking for guidance and providing their input along the way,” the Bitcoin Association of Switzerland stated. “This is the Swiss financial center’s first step towards moving into the next decade where assets are no longer held in single, central custody but instead are held on the blockchain.”

FINMA’s new regulations are certainly going to present a new set of hurdles for banks hoping to offer crypto trading services but with such positive reactions, something good may eventually come of it.

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UK Regulator Considering Ban on Sale of Crypto Derivatives

On October 29, the United Kingdom’s Cryptoassets Taskforce released a report that detailed its proposal for changes to some of the crypto regulation and raised a number of concerns over the way digital currencies and associated assets are used and traded. The taskforce which was launched earlier this year in March comprises the Financial Conduct Authority (FCA) and the Bank of England (BOE) was tasked with regulating and supporting cryptocurrency-related technologies.

Due to the lack of a widely accepted definition of crypto assets as well the variations in the value and rights that they bestow their holders with, the task force developed a framework that classifies crypto assets into three categories – that is, crypto assets for investment, for use as a means of exchange and for supporting capital raising and the development of decentralized networks through ICOs.

The report explained that, due to their extremely high volatility, failure in use as a unit of account and poor acceptance, crypto assets that are meant to be used as a means of exchange cannot be considered to money or currency. On the other hand, if the crypto assets are used as an investment they would reportedly have the potential to widen access to new investment ventures. However, the report went on to acknowledge that at the current market state, these cryptocurrency assets also have the potential to expose users to varying degrees of risks including illicit or criminal activities.

As for the so-called Initial Coin Offerings (ICOs) the report stated they are very promising ventures especially because most of them present several opportunities that would be great for supporting innovation and competition, addressing certain financing gaps, improving efficiency as well as the creation of a new investor and customer base.

The FCA To Act

With all these in mind, the Financial Conduct Authority (FCA) is reportedly mulling over a potential ban on the sale of crypto derivatives specifically because it believes that digital currencies hold no intrinsic value.

“Given concerns identified around consumer protection and market integrity in these markets, the FCA will consult on a prohibition of the sale to retail consumers of all derivatives referencing exchange tokens such as Bitcoin (BTC), including CFDs, futures, options and transferable securities. The proposed prohibition would not cover derivatives referencing crypto assets that qualify as securities, however CFDs on securities would remain subject to [the European Security and Market Authority’s] temporary restrictions and any future FCA proposals to implement permanent measures in relation to CFDs,” a statement by the FCA reads.

The regulator is also reportedly expecting to launch a wide consultation into whether or not the ban will be a good idea within the first quarter of 2019. Hopefully, the United Kingdom will not go the “Indian route” by completely banning crypt, a move that would be quite devastating considering how deep-rooted digital assets are in the region.

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Institutional Investors Making Huge OTC Crypto Purchases

While most of the world expected the bitcoin ETF to be the tipping point that would allow institutional money to come into the cryptocurrency market, it seems like the institutional investors have once again had their way despite the uncertainty that looms over the BTC ETF. In fact, according to recent OTC Trade Data, these institutional investors now dominate bitcoin markets with high volume trades. Yes, that is right – institutional investors are becoming more and more involved in the $220 billion cryptocurrency market than many people may realize and this is perhaps because they have been using back-doors for the purchases.

Many people believe that the next bitcoin bull run will be entirely driven by institutional investment which will be encouraged by the acceptance of a bitcoin ETF such as the those that are currently in the works at the United States Securities Exchange Commission.

The Current Situation

While some crypto market data analysts and providers estimate that the daily trading volumes of bitcoin are at around $4 billion, ShapeShift’s Coincap.io has revealed that the actual trading volume of bitcoin falls at around $2.7 billion. Coincap.io further revealed that, for most of the large-scale investment companies, institutions, and retail traders, the global crypto market has not reached enough liquidity to process the multi-billion-dollar trading orders. In other words, major digital asset trading platforms could liquidate large orders but it may have a large impact on the short-term price movement of cryptocurrencies.

Over the Counter (OTC) Trading

A number of high-net-worth individuals have been buying into cryptocurrencies and considering the amounts that they have been spending, it is safe to assume that these “individuals” are institutions or are at least part of them. As mentioned above, a peek into recent OTC trading data reveals a huge interest in bitcoin from these supposed institutional investors.

“Bloomberg reports that in April, daily OTC trades varied anywhere between $250 million and $30 billion, while exchanges only handled about $15 billion daily in that time by contrast. Corroborating this, Circle Financial CEO Jeremy Allaire confirmed that his company is seeing a triple-digit increase in OTC volumes. By contrast, according to data from CryptoCompare, exchange trade volumes are down 80 percent from their peaks at the same time as the increasing popularity of OTC,” reads Cryptoglobe’s comment on the issue.

This over-the-counter crypto market has facilitated between $250 million an $30 billion in digital currency trades per day in April, according to researchers. But, why is this happening?

Well, as it turns out, large digital currency traders like private sales simply because exchanges can move coin prices. Private sales are more appealing since the trading parties can fix the price in advance instead of having to worry about the fluctuations that are rife in the crypto market. Also, exchanges sometimes limit the number of coins that can be traded and this is certainly not ideal for large traders.

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Google Ends Cryptocurrency Advertisement Ban

Barely five months after it rolled an advertisement policy that banned cryptocurrency advertisements, Google has decided to lift ban with plans to allow regulated cryptocurrency exchanges to buy ads in the United States and Japan. This new policy is scheduled to be rolled in October 2018 and will require the advertisers to apply for certifications within the specific countries within which their ads will be circulated.

The rapid growth in the popularity of cryptocurrencies has been great for the industry but it has also attracted additional scrutiny. For instance, in the United States, the Securities and Exchange Commission recently created a Cyber Unit tasked with handling online financial crimes to begin investigating companies that had stakes in the crypto or blockchain industry. The Cyber Unit also issued several subpoenas and charged a number of firms for alleged cryptocurrency fraud. Similar and even worse crackdowns have also been seen in other countries including China and India.

Widespread Rollout

Even though the digital currency boom has been a great source of wealth and excitement, it has been accompanied with quite a number of negative aspects that include spawned fraud as well as high-profile scams, both of which resulted from the lack of well-defined regulatory frameworks. It is for this particular reason that for a better part of the first of the year that many of the world’s leading tech giants – Google, Twitter, Facebook and Snapchat among others – moved to crack down on crypto-related advertising in a bid to stop some of the criminal activities associated with crypto. Unfortunately, the restrictions also affected legitimate crypto-related business and this is perhaps why some of the companies, namely Facebook and Google, have taken a step back.

“We don’t have a crystal ball to know where the future is going to go with cryptocurrencies, but we’ve seen enough consumer harm or potential for consumer harm that it’s an area that we want to approach with extreme caution,” Google’s Scott Spencer cited in June during the company’s original crypto ad ban.

The Updated Policy

While the tech giant’s updated ad policy will apply ton advertisers all over the world, the advertisements will only be allowed to run in Japan and the United States – hopefully, this will also change soon. Furthermore, as mentioned earlier the advertisers will be required to apply for certifications from each of the countries that they wish to advertise in (which are now only Japan and the U.S.) to have their ads served in those countries.

“The Google Ads policy on Financial products and services will be updated in October 2018 to allow regulated cryptocurrency exchanges to advertise in the United States and Japan. Advertisers will need to be certified with Google for the specific country in which their ads will serve. Advertisers will be able to apply for certification once the policy launches in October. This policy will apply globally to all accounts that advertise these financial products. For more details, see About restricted financial products certification. The Financial products and services page will be updated once the policy goes into effect,” Google wrote.

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NY AG Says Crypto Exchanges Are at Risk of Manipulation

The New York Attorney General’ office on September 18 published a report that says that cryptocurrency exchanges are vulnerable to conflicts of interests, manipulation as well as many other consumer risks. The 32-page “Virtual Markets Integrity Report” highlights concerns that exchanges are not doing much to protect investors.

Launched in April, the “Virtual Markets Integrity Initiative” kicked off when Eric T. Schneiderman, the then-New York Attorney General, sent letters to thirteen cryptocurrency exchanges requesting information on their operations, internal controls as well as other key issues.

“The New York State Office of the Attorney General (the “OAG”) launched the Virtual Markets Integrity Initiative to protect and inform New York residents who trade in virtual or “crypto” currency. As a medium of exchange, an investment product, a technology, and an emerging economic sector, virtual currency is complex and evolving rapidly. The OAG’s Initiative, however, proceeds from a fundamental principle: consumers and investors deserve to understand how their financial service providers operate, protect customer funds, and ensure the integrity of transactions,” reads the statements from the Attorney General’s office.

“The industry has yet to implement serious market surveillance capacities, akin to those of traditional trading venues, to detect and punish suspicious trading activity.”

The Key Findings

The study found that the absence of accepted methods of auditing virtual assets has resulted in the lack of a consistent and transparent approach to the independent auditing of digital currencies trade on the exchanges. This, therefore, puts the customers’ funds in the various exchanges at risk of theft or cyber-attacks.

“New Yorkers deserve basic transparency and accountability when they invest – whether on the New York Stock Exchange or on a cryptocurrency platform,” Barbara Underwood, New York’s current Attorney General said in a statement. “Many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges.”

One of the more bizarre revelations was that only four cryptocurrency exchanges have mechanisms for market manipulation detection and prevention in place. The four exchanges – HBUS, Coinbase, Gemini and Bittrex – are therefore the safest options for crypto investors.

On the flip side, the report went on to refer three major New York crypto exchanges – Gate.io, Binance, and Kraken – to authorities over charges of violation of state law for allowing trading on the part of New Yorkers.

The report has attracted an equal measure of support and criticism from the crypto exchanges and other stakeholders of the industry. Still, it is going to be a while before we finally see the ramifications of these findings.