Abacus Weekly Crypto Recap #5 | Traditional Finance Joins the Cryptocurrency Frenzy

The Abacus returns with their fifth weekly crypto recap. Their recurring column will bring you up to speed on the most significant recent headlines you need to know about.

The Abacus Crypto Recap is a weekly update focused on two polar yet symbiotic elements of cryptocurrency markets—adoption and regulation. Here’s all the major happenings for this past week in crypto.

Adoption

Traditional asset providers have begun accommodating cryptocurrencies in force, with Bitcoin futures from marketplaces in Chicago and Switzerland becoming vanguard traditional investment vehicles offering cryptocurrency products. Likewise, we continue to see blockchain implementation into big finance, with announcements by Amex and Nasdaq adding to the growing fray of businesses fervently adopting the burgeoning technology.

Bitcoin Futures Preliminary Details Released: Bitcoin prices have been steadily rising on a wave of announcements regarding upcoming futures trading, seen as a crucial step in integrating more formal institutional capital into the space. The Chicago Mercantile Exchange (CME) has now clarified that Bitcoin futures contracts will be available as soon as December 11, with contracts set at 5 BTC and limits of 1000 contracts (in order to reduce the risk of extreme leverage). The smallest possible price fluctuation is set at $5 for each BTC in a contract ($25 total). The Chicago Board Options Exchange (CBOE) has likewise released guidelines regarding their BTC future offerings. While still under review, the agency plans to release their contracts under the XBT ticker, with contracts we set at 1 BTC with a minimum price change of $10. Many have speculated that the incredible leverage allowed by futures contracts is inherently dangerous when applied to something as volatile as cryptocurrency, with others contending that new formal investment vehicles will bring in more capital, in turn begetting more stability.

NEO Teams Up With Microsoft: NEO has announced a partnership with Microsoft to host what they’re touting as “China’s first development conference.” The competition will feature various blockchain entities competing for prizes ranging from $150-500K. The goal is to create apps that interface with the NEO blockchain and likewise utilize Microsoft’s dev tools.

Japanese Village Turns To ICO: The government of Nishiawakura, a prefecture in Japan, is launching an ICO in an effort to bolster the local economy. Interestingly, the ICO is not slated to be launched on Ethereum or any other token platform. Rather, the government is working with a partner to create their own blockchain that will interface with Bitcoin to timestamp transactions.

Bitcoin Demand Continues Surging In Zimbabwe: The price of Bitcoin is once again surging in Zimbabwe following a successful military coup that has seen President Mugabe removed from office. Zimbabwe’s local currency experienced nearly infinite inflation before it was dropped altogether in favor of the dollar, but an extremely limited supply has seen the economy in almost complete stagnation. Bitcoin prices traded as high as $13,499 in the country last week following news of the coup.

Lightning Network Blasts Off: The first off-chain atomic swap, from Bitcoin to Litecoin, has been successfully completed. Being off-chain, this swap was of particular significance as the transaction wasn’t recorded to either blockchain. Atomic swaps remove the need for a third party to transfer between different cryptocurrencies, and make it even cheaper to perform while adding an additional layer of anonymity. Atomic swaps are seen as a key solution to the ongoing scaling issues as blockchains get busier with increased user bases.

Ron Paul Cheers On Bitcoin: Former presidential candidate and congressmen Ron Paul has been in the employ of a Bitcoin-based retirement company, beseeching Americans to trust the benefits of Bitcoin and give their retirement accounts over to the company, a subsidiary of Goldco. As per why he’s suddenly touting crpyto, Ron Paul boasts, “As a firm believer in currency competition, I’m excited to see the options that Bitcoin opens up.”

Leading ATM Manufacturer Integrates Bitcoin: South Korean ATM manufacturer Hyosung has implemented Bitcoin trading into its line of international ATM machines. Bitcoin ATMs are seen as an easier way to facilitate the transfer of fiat currency into and out of BTC, with their increasing presence facilitating increased transactional usage of Bitcoin.

Nasdaq Issues Blockchain Patent: Nasdaq has filed a patent for a blockchain-based system that records the owner of a digital asset, utilizing digital wallets to allow access to said assets. The patent is targeted at increasing security, using cryptographic hashes as a means to protect asset ownership data. Nasdaq still has a relatively conservative stance on blockchain, with the organization stating in their patent application, “While distributed ledger technologies such as blockchain show great potential, further improvements in the performance, efficiency, and capabilities of such technologies are needed.”

Coinbase Custody Targets Institutional Services: Major US exchange Coinbase has introduced a new program dubbed Coinbase Custody, aimed at providing institutional investors with a safe way to store large amounts of cryptocurrency. Employing established best practices from the world of traditional finance, the system utilizes stricter financial controls, dedicated account reps, mult-sig accounts, insurance (for some accounts), and a purported “higher level of cyber and physical security.” The new account comes with a $100,000 setup fee, with 10 basis points per month charged on all deposits stored in the system. The new service is seen as a major step forward in servicing the estimated $10B of institutional funds waiting to enter the cryptocurrency market, with Coinbase CEO Brian Armstrong stating, “Over 100 hedge funds have been created in the past year exclusively to trade digital currency. An even greater number of traditional institutional investors are starting to look at trading digital assets (including family offices, sovereign wealth funds, traditional hedge funds, and more) […]”

Swiss Join The Bitcoin Futures Parade: Two different Swiss entities, Vontobel and Leonteq Securities, have announced that they’re launching Bitcoin futures products. Vontobel’s futures will be released on the SIX exchange, with their Head of Public Distribution of Financial Products Eric Blattmann stating, “We have seen big demand for our long tracker certificate from investors interested in playing the upside potential of Bitcoin and now they have also the possibility to hedge their position or go short.” Leonteq will also launch their offerings on the SIX exchange, with their Head of Public Solutions Manual Dürr stating, “The initial feedback has been extremely positive. Clients do very much appreciate the possibility of choosing between a long or a short investment in Bitcoin.”

AMEX Teams Up With Ripple: American Express has announced a partnership with Ripple that sees the credit card giant using Ripple’s protocol to process B2B payments between US and UK customers banking with Santander. Amex CLO Marc Gordon boasts this is the just the beginning for American Express, stating, “American Express has a long history of integrating new technologies. This collaboration with Ripple and Santander represents the next step forward on our blockchain journey, evolving the way we move money around the world.”

Brave Browser Lets Users Tip YouTube Creators: The Brave web browser, designed to hide ads from users and block bots in order to speed loading times and reduce data usage, is now allowing users to tip youtube creators in crypto. Brave makes it possible for users to opt into seeing ads for content creators they like, with this new feature enabling direct contribution to YouTube channels. In turn, content makers can opt to turn off ads and simply ask for tips directly via crypto.

Tether Hacked: The Tether treasury account has reported a substantial hacking event, losing over $30M from their account. Tokens were discovered to have been sent to an unauthorized Bitcoin address. Following the attack, Tether halted all wallet services pending an investigation, with the team introducing a new version of Omni Core protocol in an effort to keep the hacker from moving funds. The team has assured users that all tokens remain backed by assets in the Tether reserve, though that point remains in contention as recent reports have shown Tether has yet to provide proof any asset backing.

Regulation

The divide between cryptocurrency-friendly nations and those that see it as a continuing threat continues to heighten, with Russia, India, and Morocco making more aggressive calls for regulation or even outright bans. Other countries have taken a more muted stance, seeing Germany issue yet another ICO warning and businesses in Hong Kong making it difficult for those dealing in cryptocurrency to find traditional banking services.

BNP Paribas Takes Aim At BTC: International banking group BNP Paribas has published a report stating that Bitcoin has a limited role in the future economy due to a lack of “lender as a last resort,” something they suggest adds significant risks to a monetary system. BNP, long a critic of Bitcoin, went on to say that high volatility and lack of regulation in conjunction with a fixed supply add to Bitcoin’s problems, stating their primary concern is the lack of a central authority to intervene in the event of a crisis. Central banks often act as lenders during times of monetary strife, ensuring liquidity during tumultuous events to avoid economic meltdown. BNP’s argument continues the long-standing debate over Bitcoin’s decentralization being it’s biggest strength or a central vulnerability.

Russia Shoots Warning On Crypto ATMs: Regulators in the Russian state of Tartarstan have issued a warning following the installation of Bitcoin ATMs in the region. The statement cautions that installation of such ATMs may be a crime, further warning that cryptocurrencies are linked with terrorism with the following statement: “[…] crypto-currency in the Russian Federation is not defined […] exchanging “virtual currencies” for rubles and foreign currency […] is considered as potential involvement in the implementation of questionable transactions in accordance with the legislation on combating the legalization (laundering) of proceeds from crime, and the financing of terrorism.” The aggressive candor of this warning follows signs of Russia’s increasingly hostile stance towards cryptocurrency after the announcement of the government-backed “CryptoRuble.”

Russian Minister Denounces Bitcoin: The Head of Russia’s Ministry of Communications Nikolay Nikiforov has said that Russia will never legalize Bitcoin. Speaking on the sidelines at a youth forum conference, he remarked that while Bitcoin will remain out of the scope of legality, blockchain adoption was entirely possible. The Russian government’s stance on Bitcoin and cryptocurrency in general has weaved a contradictory and often changing tapestry of increasingly emboldened statements, with the anti-Bitcoin sentiment growing in muster recently.

Hong Kong Banks Cut Ties With BTC Businesses: Hong Kong cryptocurrency exchange Gatecoin has lost its banking services, as banks in the area have adopted increasingly cold stances towards doing business with companies in the crypto space. Gatecoin previously had assets frozen in China following the sudden ban of cryptocurrency trading in the country. Gatecoin has looked to crypto-friendly Japan for banking services, but is yet to find a partner there who is equipped to handle their volume. The troubles of Gatecoin highlight a growing issue, with traditional banks unsure how to handle crpyto customers in lieu of set industry regulations.

ECB May Regulate Digital Currencies: The European Central Bank (ECB) has maintained a rather cautionary stance on cryptocurrency, monitoring activity without making many emphatic statements. That may soon change. ECB governing council member Ewald Nowotony recently stated, “We’re asking ourselves if legislators or central banks should intervene, as happened in China where they banned (the use of cryptocurrencies) because they consider them fraudulent.” He further went on to clarify, stating “It is like buying shares on the bourse [stock exchange …] people investing in this product can suffer losses and if that happens, they simply have to accept it” — suggesting that if legislation is to come it may not be nearly as stringent as what transpired in China.

Germany Warns On ICOs Again: The German government has again issued a statement warning investors about the dangers of ICOs. This latest announcement reinforces the notion that ICOs are highly speculative and carry great risk. The redundant warning comes just days after the last one, suggesting that governments are scurrying to properly address ICOs and the greater crypto landscape.

Indian Supreme Court At Odds With Bitcoin: The Indian Supreme Court has called on the country’s central bank to answer a petition urging the regulation of Bitcoin. The petition voiced concerns over Bitcoin’s ability to foster cross border transactions, making it an ideal tool for nefarious agents. The statement sent by the Supreme Court boasts, “The lack of any concrete [control] mechanism pending the regulatory framework in said regard has left a lot of vacuum and which has resulted in total unaccountability and unregulated Bitcoin (crypto money) trading and transactions.” The petition mentioned 2,500 Indian people are joining Bitcoin exchanges every day, with roughly half a million existing users. The Indian government has taken a relatively light stance on crypto thus far, starting in April it had created a committee to study and determine how to regulate cryptocurrencies with no meaningful reports of further action.

Morocco Warns of Crypto Penalties: Morocco’s foreign exchange authority has clarified that the use of cryptocurrency could infringe upon existing exchange regulations punishable by current law. The agency further stated that all international transactions are to be carried out via authorized intermediaries, warning that Bitcoin is a “[…] hidden payment system that is not backed by an organization, the use of virtual currencies entails significant risks for their users.”

Conclusion

The events of this week have highlighted the complex relationship between governments, regulators, and cryptocurrency.

A contingent of enthusiastic nations like Australia, Japan, and several European countries stand in contrast to nations around the world like China and Russia that have worked in various capacities to limit or ban cryptocurrency trading or Bitcoin.

Not unlike the traditional banking sector, it appears there may be a future of nations acting as crypto oases, taking on the role of the Cayman Islands or Switzerland that we see today in traditional sectors.

This country-by-country nature of cryptocurrency legislation belies the instant and decentralized nature of cryptocurrency transference, suggesting that clarity from major regulators like the SEC would go a long way towards enabling a sense of stability with which the technology can even more rapidly globally scale.

The wave of news caused by the announcement of Bitcoin futures is likely just the beginning as institutional capital looks to find ways to legally hold cryptocurrency.

JPMorgan reportedly getting into bitcoin futures trading even though Dimon believes it is a fraud https://t.co/3Aa5RQhzyW — Erik Voorhees (@ErikVoorhees) November 22, 2017

Structured investment vehicles will likely grow in popularity as record Bitcoin earnings continue to garner headlines.

And a growing raft of concern is brewing in regards to inherently speculative financial products such as futures contracts that enable incredible leverage.

Often requiring as little a 5-10% payment in order to secure a contract, many in finance are concerned over the extreme volatility of cryptocurrency making it especially dangerous to own in such an overleveraged capacity, as investors could be asked to contribute to maintain account minimums following large price swings — a scenario in the past that has seen markets become especially vulnerable and reactionary to price fluctuations.

Abacus is a cryptocurrency advisory and independent product development firm specializing in ICO strategy and cryptocurrency investment products. Through our content we aim to provide a voice of reason in the often overzealous world of crypto-markets.

Email hello@theabacus.io to discuss your ICO, chat cryptomarkets or just say hi!

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