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The searing light of regulatory clarity
The President’s Working Group on Financial Markets has issued its Statement on Stablecoins — i.e., Facebook’s Diem, formerly Libra. The essence of this document is: “OK, Facebook, this is how it’s going to be.” [press release; statement, PDF]
The statement doesn’t quite say “that STABLE Act, that’s not too bad, actually” — but the STABLE Act would satisfy most of what’s being asked for here.
This statement admits the possibility of “unhosted wallets” — i.e., holding your own Diem coins. Though you’ll need to supply Know-Your-Customer (KYC) information on yourself to interoperate with the regulated bits of the stablecoin system.
The President’s Working Group is the Secretary of the Treasury, the chair of the Federal Reserve, the chair of the SEC and the chair of the CFTC. For this report, they “also sought the views of the Acting Comptroller of the Currency.”
The four guys on this committee, and the fifth they got advice from, are all going to be replaced by the incoming Biden administration. But the content is mostly pretty straightforward and uncontroversial requirements that both parties were demanding of Libra in the July and October 2019 hearings in front of Congress. (Libra Shrugged, chapters 10 and 13.) I’d be surprised if it changes much.
The only really problematic requirement I can see is that they want a compliance-style real-time feed of all transactions. The paragraph is written in the style of legal compliance requirements for financial institutions. This sort of thing is normal in serious-money financial institutions, but is a bit over-the-top on the surveillance for a coin that’s meant to be a retail-level replacement for cash.
This report is 100% about Facebook-coin — so taking out Tether will mostly be a hilarious side effect.
The FinCEN proposed regulation about “unhosted wallets” — that the crypto industry was being Chicken Little over in November — is also out. It’s completely unremarkable — money services businesses (MSBs) have to track cryptos coming in directly from non-MSBs. Arguably they had to do this already, per the May 2019 clarification from FinCEN — this is then just further clarification. [Treasury; Federal Register, PDF]
Both this and the stablecoin statement are reportedly the work of Steve Mnuchin, the Secretary of the Treasury, who is finishing up soon — but the opinions themselves are completely unremarkable, and I’d be quite surprised if the Biden administration changed either document substantially.
The crypto world is pissing copiously about both these documents, in the manner it does about any possible regulation of crypto — shocked, shocked that if you want access to the world of real money, you have to follow the rules of real money.
I’m really confused by the outrage from Bitcoin maximalists over Mnuchin’s regs. I was under the impression you all obtained your coins via pure methods (barter, mining, or as payment), self-custodied them from the beginning, and were never going to sell for dirty fiat anyway.
— cyber_hokie (@cyber_hokie) December 19, 2020
The Ripples widen
Everyone hates Ripple! After the SEC charged Ripple and two of its executives on Tuesday with issuing an unregistered security to retail, the price of XRP is going down even faster than I thought it would — even BitConnect Coin had a dead-cat bounce after that Ponzi was shut down.
XRP has been dropped by crypto hedge fund market churners Galaxy Digital and Jump Trading. These organisations appear to be two of the market fakers listed in the SEC complaint as being paid by Ripple to churn XRP. [The Block]
XRP’s favourite use case, MoneyGram, is back-pedalling from anything to do with Ripple at the speed of light — “As a reminder, MoneyGram does not utilize the ODL platform or RippleNet for direct transfers of consumer funds — digital or otherwise. Furthermore, MoneyGram is not a party to the SEC action.” This happens to be contrary to all Ripple and MoneyGram’s previous marketing on the subject. Careful wording in MoneyGram’s quarterly reports to the SEC weaseled out of quite supporting the marketing claims either, for what that’s worth. [Press release]
Katherine Wu has written an entertaining and informative annotated guide to the SEC complaint against Ripple. “Skip this part if you’re just here for the tea.” [Katherine Wu, PDF]
Izabella Kaminska and Preston Byrne detail just how screwed not only Ripple, but many other “forgiveness is better than permission” crypto promoters, will be. [FT, paywalled] Stephen Palley thinks a DeFi project will be next. [Twitter]
But I think the next big organisation to feel the Ripple heat will be Coinbase, the biggest crypto exchange that’s still allowed to touch actual money and not just tethers — it’s putting in its S-1 form to go public! [Coinbase blog] Goldman Sachs is doing the IPO — showing the revolutionary potential of Bitcoin to, uh, co-opt the existing structures for the revolution, revolutionarily. [Channel News Asia]
Nicholas Weaver: “Note this is entirely about a16z and the other VCs unloading their ownership-bags, not cryptocurrency bags, before the space implodes because Tether finally gets killed.” [Twitter]
The big problem is that Coinbase still has XRP listed — as well as a pile of other unregistered likely-securities that just happened to be half-dead altcoins that their venture capital funder Andreesen Horowitz (a.k.a. “a16z”) had huge bags of. Ripple was one of a16z’s, too.
I suspect that a16z will be somewhat concerned right now. Compound’s listing on Coinbase, for example, was a blatant pump and dump I’ve written of previously — funded by a16z on the promise of gain (“yield farming”) from the efforts of others. I’d quite like that to be busted next. But it’s rare that a regulator gets a slam-dunk case as blatantly filled with smoking guns as Ripple’s.
— Emptybeerbottle (@Fullbeerbottle) December 22, 2020
The KODAKone saga finally comes to a close — kodakone.com now redirects to ryde.one, which is just Ryde’s old copyright-trolling operation.
The last time the Kodak version of the site was live was November 2020; a post on their Medium on 25 November speaks of “the Ryde platform” — though the blog post’s URL still says “kodakone.” The last SEC filing from Eastman Kodak to mention the project was their Q2 2019 10-Q, which mentions the remarkable things the KODK stock price did in early 2018.
Centra Tech entrepreneur Robert Farkas’s unique skills as a liberty-loving crypto captain of industry and innovator in the field of payments are officially recognised, with a one-year exclusive government contract, inclusive of room and board! After getting busted hard in June for lying his backside off claiming a crypto-funded debit card, with celebrity endorsements from Floyd Mayweather and DJ Khaled — for which they were busted in 2018 — Farkas has been jailed for a year. Statist jackboots, eh? [Bloomberg]
The SEC gets yet another ICO — ShipChain, which ran from November 2017 to January 2018, promising to fund a shipping industry supply chain blockchain. $2,050,000 fine, cease operation. Even in November 2017, they should have known that selling SAFTs to non-accredited US buyers would be trouble. [SEC, PDF]
The SEC seems to be getting a bunch of stuff cleaned up before the holidays — they just busted a crypto hedge fund guy. “Stefan Qin, founder of Virgil Capital, allegedly fabricated records, failed to redeem $3.5 million in investments and sought to withdraw $1.7 million in investor funds to pay off Chinese loan sharks, the SEC said in the lawsuit filed on Tuesday.” The case is SEC v. Qin, U.S. District Court, Southern District of New York, No. 20-cv-10849. [Westlaw]
OH: "i would pretend to have a bl**kch**n product but i'm not sure i could achieve such drastically low throughput without actually using a bl**kch**n"
— Bodgit & hackett inc (@techpractical) December 22, 2020
Good news for Bitcoin
Bitcoin peaked again! $24,300.00 (precisely) at 20:39 UTC, 20 December. I suppose those tethers have to be useful for something. Love those round numbers, let’s just completely take the piss out of Benford’s law.
Here’s the smoking gun that this was a coordinated pump fueled by stablecoins — 127 different addresses trying to deposit stablecoins to exchanges in one block of transactions on Ethereum, just a few minutes before the first price peak. [Twitter]
Bitcoin maximalist Pierre Rochard is desperately worried that the US Government will sell the latest 69,370 BTC seized from the Silk Road. Rochard wants them to HODL. “A large strategic reserve of Bitcoin may be crucial for our national security.” I’m sure you can trust the Bitcoin anarchist who wants bitcoins to be controlled by the government. [CoinTelegraph]
The real reason is, of course, that the Bitcoin whales can’t come up with a billion actual dollars — and not tethers — quickly enough to keep the price from crashing. But even in the normal course of selling seized proceeds of crime, this auction won’t happen for months.
Don’t you hate it when you send $1.18 in BTC with a fee of $82,000? I guess they can call Bitcoin Customer Service and get it sorted out! It’s not clear if this transaction ever showed up in the mempool — or if it was the miner putting it directly into the block, and doing some Bitcoin-laundering. [transaction]
How to keep your crypto mining green and cheap — shuffle assets between companies you own, then claim that means you don’t have to pay for your hydro power. [CoinTelegraph]
Hard Money: Peter Schiff Quickly Closes Coinbase Screen as Wife Walks In Room. [Hard Money]
Horrible News: According to this Bitcoin expert, every single investment besides Bitcoin is horrible and will lead to financial ruin
— Hard Money (@hardmoneymag) December 22, 2020
I want to be anarchy
Chad Elwartowski, the great brain who tried seasteading in a damp floating coffin just off the shore of Thailand in early 2019, bought himself an old cruise ship — Regal Princess, renamed Pacific Dawn, and then renamed Satoshi. (It even has a Wikipedia article.) This would be run as a libertarian seasteading paradise — with all businesses on board having to accept Bitcoin!
Sadly, Elwartowski’s plans to operate an anarcho-capitalist plague ship have fallen afoul of the statist jackboot of maritime regulation — he couldn’t get insurance for this idiot scheme. So the boat’s being sold for scrap. Some people apparently bought cabins already — Elwartowski was still actively promoting the cabins as of two weeks ago — and Ocean Builders has promised to refund them. [Cruise Industry News; Ocean Builders; Viva Vivas; Reddit, archive]
Elwartowski wants to make one thing clear — this is everyone else’s fault:
While we could have spent months and millions of dollars fighting, lobbying (see: bribing), or coming up with some complex alternative insurance solution to comply with the laws, we just did not have the support from the very communities which we created this project to support. Namely the seasteading community and the Bitcoin community. On the contrary, we were constantly attacked by the very people that we were trying to help.
Ross Ulbricht, founder of the Silk Road, the first darknet market, is being considered for a Presidential pardon. What this means is that a bitcoiner in the Trump administration is floating the idea. [Daily Beast]
Nick Bilton, author of American Kingpin, is not impressed. “He was offered a plea deal, which would have likely given him a decade-long sentence, with the ability to get out early on good behavior. Worst-case scenario, he would have spent five years in a medium-security prison and been freed. But, he chose to fight it. He believed that he was smarter than everyone in the room, and that he could beat them all.” [Vanity Fair]
When I was writing the Silk Road section in chapter four of Attack of the 50 Foot Blockchain, I was laughing so much my wife came upstairs and asked what was so funny. Log.txt, goodness me.
The absolute dumbest people on Twitter are the Ross Ulbricht truthers. Ross is an unrepentant psychopath who belongs in a cell. On two occasions he attempted to hire a hitman! We have the logs! https://t.co/Au4Z2tqiqU pic.twitter.com/UAusy3PftW
— Chris Croy (@ChrisCroy) December 16, 2020
A fool and his money are soon decentralised
It has been  days since the last DeFi flash loan exploit. Today’s is Warp Finance, which launched a week before, and was taken for $8 million. [Decrypt]
Be your own insurer! Hugh Karp, founder of Nexus Mutual, an insurer against hacks, gets hacked for $8.25 million of their own NXM token. “The attacker gained remote access to his computer & modified the metamask extension, tricking him into signing a different transaction which transferred funds to the attacker’s own address.” They think they can trace the attacker — who they had full KYC details on. [Twitter; The Block]
NXM has posted its post-mortem on the hack: “DeFi power users should probably assume Metamask is compromised at all times, unless they are running it on a separate clean machine that does nothing but sign transactions.” Being your own bank never sounded more enticing. [Medium]
Tracking Counterfeit Cryptocurrency End-To-End — there’s a pile of tokens that have names very similar to existing stablecoins and wrapped coins, but aren’t those coins. [arXiv, PDF]
If crypto bros tried to disrupt medicine.
FDA: “we ran some tests on your cough pills and they are 83% crystal meth.”
Crypto bros: “we can do it because there’s actually a thousand people each putting just a little bit of meth in the recipe”.
Crypto bros: Exactly.
— Trolly McTrollface (@Tr0llyTr0llFace) December 16, 2020
The iFinex Expanded Universe
Tether has issued 700 million tethers in just the past few days, 400 million of those just today. The market pumpers seem to have been blindsided by the SEC suit against Ripple, and are trying frantically to avert a Christmas crash. I’m sure there’s a ton of Institutional Investors going all-out on Christmas Eve.
Use case for tethers found! Caixin cover story: How Illegal Online Gambling Launders $153 Billion From China. [Caixin]
Amy Castor got on the telephone status conference for Bitfinex money mule Reggie Fowler last week. Fowler has 45 days to find new lawyers. That’ll be fun, given his old lawyers dropped him for not paying them. Maybe he can use the public defender! [Amy Castor]
FXStreet: If Tether falls the whole cryptocurrency market could go down with it. This article is a pretty good recounting of The Problem With Tethers. [FXStreet]
Bitfinex puts zero actual effort into keeping US customers out — I have a solid report from a user in the eastern US who went in directly (without a VPN), created a Bitfinex account, transferred bitcoins to Bitfinex, and sent some out from there. I fear to say that when Larry Cermak from The Block said in November that Bitfinex/Tether maintained proper KYC, they snowed him. [Twitter]
Funny, cause if you’d invested any money into Willy’s Bitcoin trading fund you’d have zero. pic.twitter.com/6zs9FD3pXu
— CasPiancey (@CasPiancey) December 18, 2020
Lionel Laurent, Bloomberg: Facebook’s Libra has a new name and diminished ambitions, but regulators will still see it as a threat in 2021 — with a quote from me, and a link to the Libra book! [Bloomberg]
Zhou Xiaochuan, President of China Society for Finance and Banking and a former governor of the People’s Bank of China, explains how the PBOC wants DC/EP to work. Note how he goes to particular pains to explain how DC/EP is not a simple CBDC, but a rather more complex arrangement. “China’s DC/EP (Digital Currency/Electronic Payment) is a two-tier R&D and pilot project, not a payment product. It may include several payment products that can be tried and promoted.” [CF40]
thanks to whoever dumped the market
my Ukrainian @Ledger kidnappers dropped me back off at home with my hardware saying it just wasn't worth it anymore
— Cryptofungus (@crypt0fungus) December 24, 2020
The Financial Conduct Authority gave UK crypto firms till January 2021 to register — a pile of existing companies applied, but the FCA hasn’t been getting back to them. So now the FCA has how given an extension to those firms who have already put in their application. [FCA]
RIP Blockchain Island: Malta’s new Finance and Employment Minister brings the crypto dream back down to earth. [Lovin Malta]
The International Organization of Securities Commissions (IOSCO) has released its report on Investor Education on Crypto-Assets. This is based on reports from its member organisations. The report is pretty lightweight, but is a useful indicator of regulators’ thinking. [press release, PDF; report, PDF]
I’m on the South Mimms U podcast again, explaining how Bitcoin mining works. [Buzzsprout]
How do you get your crypto market insights? I get mine by watching the remote-viewing guy draw pictures of his psychic impressions on YouTube, personally. [YouTube]
from a happy reader who got these in the post today pic.twitter.com/bM2vVqO1Mu
— David Gerard 🐍👑 (@davidgerard) November 20, 2020
BREAKING: Coinbase will go public and raise money in US Dollars to show everyone that Bitcoin is the best currency
— Hard Money (@hardmoneymag) December 17, 2020
Jay Clayton’s last day in crypto. pic.twitter.com/HpQKLbgB0I
— Jake Brukhman (@jbrukh) December 24, 2020
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