Ep242: U.S. Senate Crypto Hearing, Samsung Bitcoin Miners

The U.S. Senate Banking Committee heard testimony from the heads of the SEC and CTFC regarding cryptocurrencies. The Texas Securities Commission is the ghost busters of vaporware! European Banks may soon have the option to hold bitcoin. The Federal Reserve has a new Governor. Wells Fargo gets punished by Janet Yellen on her way out. China is stopping all exchange based crypto trading. Samsung is going to join the ASIC manufacturer market. Singapore will not ban cryptocurrencies. Greyscale Investments launches more crypto based Funds and Investments. Banks are changing how bitcoin purchases are made with credit cards given the market conditions. Ethereum dApps have to come up with better pseudo-random number generators. The Ethereum Foundation has a new Executive Director. U.S. Based crypto exchange Bittrex is adding U.S. Dollar deposit options to offer an alternative to USDTether.

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Traditional Financial Markets Cryptocurrency Markets
Gold $1,319 SegWit (SW) $8,377
Silver $16.38 Ethereum (ETH) $818
Oil $60.62 DASH $602
Dow Jones 24,234 points Litecoin (LTC) $149
30Y UST Yield 3.128% Bitcoin Cash (BCH) $1,312

Big news, the Senate Banking Committee heard testimony from the chairman of the Commodity Futures Trading Commission (CFTC), Christopher Giancarlo, and the chairman of the Securities and Exchange Commission (SEC), Jay Clayton.

Overall it actually went well considering the tone shift that I’ve seen since covering crypto. Both gentleman had good things to say about distributed ledger technology and the usefulness of the technology for mankind. Naturally issues were brought up with respect to protecting investors and the fraudulent token sales and ponzi schemes.

In his prepared statement Jay Clayton, chairman of the SEC said, “Said simply, we should embrace the pursuit of technological advancement, as well as new and innovative techniques for capital raising, but not at the expense of the principles undermining our well-founded and proven approach to protecting investors and markets.”

CTFC chairman Christopher Giancarlo was much more optimistic in his written statement saying, “We are entering a new digital era in world financial markets. As we saw with the development of the Internet, we cannot put the technology genie back in the bottle. Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response. The evolution of these assets, their volatility, and the interest they attract from a rising global millennial population demand serious examination. “

All positive vibes aside expect regulations concerning crypto exchanges, initial coin offerings, and token sales. “These platforms that these things trade on, they are very easily manipulated and I don’t think investors understand that,” SEC Chairman Clayton said at a separate media appearance.

The Texas Securities Commissioner Travis J. Iles entered an Emergency Cease and Desist Order against BitConnect back on January 4th, 2018 and now he is back with more. This time on February 2nd an Emergency Cease and Desist Order has been entered against Davorcoin — what was once “the number one lending platform in the world”. As of yesterday the Davor blog posted that they are dropping the lending platform due to legal concerns.

A cursory look at the Davorcoin website and white paper reveals only vapors and the fact that 1 quarter of the total coins were premined. The white paper is full of graphics that express the latest tech buzzwords but they don’t even bother to describe any of it. The only points to be gained are that users can lend Davorcoin to other users and be paid back in 299 days or less!

This is actually the 4th Emergency Cease and Desist Order entered by the Texas Securities Commission. Davorcoin is joined by BitConnect, R2B Coin, and USI-Tech.

European Banks could soon hold Bitcoin

While delivering the opening statement and closing remarks at a European Parliament meeting this week, European Central Bank president Mario Draghi stated quote …”Recent developments, such as the listing of Bitcoin Futures contracts by US exchanges could lead European banks to hold positions in Bitcoin”.

Draghi’s remarks suggest a more supervisory – not regulatory – approach to cryptocurrencies that are adopted or allowed among EU banks and nations.

In related news, the European Central Bank’s chief supervisor Daniele Nouy told CNBC on Wednesday, “We scrutinize the issue in a regulatory perspective, we are ready to do something if it was needed, but so far it’s not exactly very high on our to-do list”.

A story that we can’t let fall through the cracks is the changing of the guard at the Federal Reserve. Janet Yellen is being replaced by Jerome Powell in the top spot of Fed Chair. Before she left Janet slapped Wells Fargo with sanctions given the shady history of the mega-bank. In fact the Federal Reserve has arguably punished Wells Fargo far worse than the government.

The unprecedented punishment will limit the bank to $2 trillion in assets and require a shake up of the board of directors. It is unclear how many board members will be replaced but if you listen to Senator Elizabeth Warren, the whole board needs to go.  

The next blow came from the S&P Global Ratings with a long-term credit grade cut from A to A-. The stock is down, the asset cap will cost potential profits going forward, and the board will have at least some members fired. Compare this to the government’s response of a fine of $185 million. Peanuts.

We first covered the scandal back in NeoCash Radio Episode 173 in September of 2016.

New Governor Jerome Powell is moving up from a different position at the Federal Reserve one where he oversaw Wall Street regulations. Jerome is a lawyer who has worked for the U.S. Treasury Department, the Carlyle Group, the Bipartisan Policy Center, and was appointed to the Federal Reserve Board by President Barack Obama.

China is seeking to stamp out all cryptocurrency trading in this story from the South China Morning Post. Two weeks ago the People’s Bank of China banned financial institutions from funding cryptocurrency based projects and activities. Now the central bank is looking to ban all access to foreign exchanges and trading websites. China shut down local exchanges in September and has sought to eliminate all trading of cryptocurrencies by chinese citizens.

What about the exchanges? Huobi has been operating since 2013, about as long as we have been producing NeoCash Radio. Huobi has announced they will be moving operations to Japan and has a deal worked out to open two exchanges with partner SBI. OkCoin is also looking to move operations to Japan and South Korea.

Binance.com and many others join the list of more than 18 companies applying for exchange licenses in Japan. The flippening is happening in a way. China was the biggest player in the crypto trading market with Huobi alone having as much as 60% of the worldwide market at one point. These companies may have closed shop in China but they are capitalized and, barring license, ready to start-up.

This has driven traders to using localbitcoins and other peer-to-peer platforms. There is no news of a clampdown on such sites. The ban has not affected the makers of bitcoin mining hardware call ASICs or application specific integrated circuits. Hardware manufacturing and selling is still big business in China. Unfortunately the downturn in price has affect the profitability of new hardware purchases. I want to share with you a quote from this South China Morning Post article:

“Ye, a 23-year-old college dropout, started selling mining machines last November. She said she was unable to resist the thrill and excitement of her new trade.

“My boss is someone who follows the times,” Ye said. “He sold clothes and snacks as online merchants in the past.

“He told me if you miss bitcoin, it’s like you miss a century.”

Samsung to make its own ASIC Chips

Samsung has partnered with a cryptocurrency mining hardware manufacturer in China to start manufacturing its own ASIC chips.  No specific details have been provided, but a Samsung source confirmed to news agencies that Samsung will be manufacturing ASIC chips.

Samsung will be competing with TSMC, a Taiwan based semiconductor manufacturer.

Singapore is singing a different tune if you’ll pardon the pun. Deputy Prime Minister and head of the countries central bank Mr. Tharman Shanmugaratnam has answered some parliamentary questions regarding crypto. Specifically he was asked about the prospects of banning exchanges and trading in general.

“1. Cryptocurrencies are an experiment. The number and different forms of cryptocurrencies is growing internationally. It is too early to say if they will succeed. If some do succeed, their full implications will also not be known for some time.

  1. The Monetary Authority of Singapore (MAS) has been closely studying these developments and the potential risks they pose. As of now, there is no strong case to ban cryptocurrency trading here. But we will be subjecting those involved as intermediaries to our anti-money laundering regulations. And we will keep highlighting to Singaporeans that they could lose their shirts when they invest money in cryptocurrencies.”

Grayscale Investments launches the Grayscale Digital Large Cap Fund

Grayscale who launched the Bitcoin Investment Trust, the first publicly traded stock that offers exposure to the price of Bitcoin, the Ethereum Classic Investment Trust, and the Zcash Investment trust has now launched the Grayscale Digital Large Cap Fund.  The fund is made up of five major cryptocurrencies, Bitcoin Segwit, Bitcoin Cash, Ethereum, Ripple, and Litecoin.

For the first year, the Digital Large Cap Fund will only be available to SEC accredited investors to buy directly from Grayscale.  After one year, the fund will be available for trade on the public market.

More and more I’m hearing the term falling knife in regards to Bitcoin trading. U.S Credit card issuers are halting purchases of Bitcoin amid the dramatic fall. Having lost so much of its value since December of 2017 the price has big players spooked. JPMorgan Chase & Co., Citigroup, and Bank of America want to avoid the credit risk of bitcoin purchases. The ban relates to known exchanges and only affects personal and business credit cards. Debit cards are unaffected by the ban.

In a recent blog post a researcher from positive.com, Arseny Reutov, took a look at the pseudo-random number generators used in Ethereum-based dApps. The article boils down the issue to a lack of resources for entropy. The blockchain has few parts available to use as a seed for the next random number and some of those parts could compromise the randomness of the result if the incentive to do so was high enough. Like most human actions it comes down to incentives. If there is a bet on the line large enough the current breed of PRNGs may not be secure enough to be trusted.

Ming Chan has resigned her position as the Ethereum Foundation Executive Director giving way to Aya Miyaguchi to take over the top spot. In a pair of thoughtful blog posts Ming and the Ethereum Team describe the change over and express appreciation for the other. Ethereum has progressed quite a bit in the last 2.5+ years and there are still some more huge pieces yet to fully come online.

U.S. based cryptocurrency exchange Bittrex is going to be adding U.S. Dollar deposits to offer an alternative to their USDTether pairings. CEO Bill Shihara talks about the shifting audience: “one of the ways, we get the best of both worlds, we have these partnerships, such as Korean exchange Upbit, they use our liquidity, but is basically a retail shop in Korea. We’ve built this back-end infrastructure and Upbit can just plug into it and build on top of it…We’re going to see more deals like that in the coming year. And we will be doing USD trading; this won’t be open to everybody, available for the majority of our customers as well as foreign partners that build on top of us.”

In regards to tether Shihara said,”tough question, we treat it as another altcoin. The market agrees Tether is backed by something, as it is trading as a dollar substitute. But I always tell people to do their own research and be cautious in crypto.”

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