Interactive Investor

This problem could derail the bitcoin and crypto recovery

Our award-winning cryptocurrency writer rounds up the latest industry news and gossip.

13th June 2019 13:17

by Gary McFarlane from interactive investor

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Our award-winning cryptocurrency writer rounds up the latest industry news and gossip.

Since our last roundup at the end of May, bitcoin has been on something of a rollercoaster.

Although the uptrend is still intact, some damage on a technical front may have been done, with the price seeing lows of $7,567.

However, that level has proven to be strong support, with the bitcoin price trading in a range between that floor and circa $8,000.

Each venture into territory north of $8,000 has proved short-lived, but there are signs that this pattern may be changing today. The price has motored $300 higher to hold on to gains above $8,100.

Given the bullish exhaustion seen in the past few days, it would be reasonable to say that a correction below $7,600 is still possible at this juncture. 

But it is the breaking of resistance at $8,200 that will be on the mind of those inclined to see recent price action as the prelude for the next leg of the upswing after a period of consolidation.

Those who acted on the "buy the dip" hinted at in our previous report (click link above), will be pleased with the recent direction of travel that would have made that a profitable trade. But whether it is to be plain sailing ahead as we also intimated is, on recent evidence, yet to be confirmed. 

Source: TradingView – USD/BTC 4-hour candles on Coinbase exchange market

Litecoin up 30% on looming block reward halving

The big winner this past week among top altcoins was Litecoin (LTC), which has mushroomed in value 30% to $134. 

The surge is in expectation of the halving in block rewards due to happen in early August. Rewards paid to miners will fall from 25 to 12.5, which reduces the supply inflation rate.

Litecoin is a fork from bitcoin and, in the early days of crypto, was known as the silver to bitcoin gold.

Litecoin is off 2% in the past 24 hours as bulls take a pause.

NEO, the so-called "Chinese Ethereum" is 15% higher this past week after a successful network tech upgrade, trading at $13.3. 

Global anti-terrorism financing and anti-money laundering regulations to hit crypto

Although there is plenty to be cheerful about for crypto watchers, there is one looming issue that could derail, at least temporarily, the ongoing price recovery.

Last weekend, G20 finance ministers gathered in Japan for one of their regular meetings and news emerged that could prove a substantial negative for sentiment.

The ministers, as expected, said that each country will fully implement new regulations from the Financial Action Task Force (FATF), expected to be published on 21 June.

The FATF was initiated by G20 countries to clampdown on terrorist financing specifically and the money-laundering more generally. Its rules are enforced by all the major economies so have a global impact.

According to a Bloomberg report, the new rules will affect all companies that handled cryptocurrency tokens. 

Early critics of the proposals fear it will mean application of rules previously confined to banking transactions that could see smaller businesses forced to close as the costs of compliance could be too high to make continuing operations viable. 

That could make stronger the market position of regulated exchanges such as the US's Coinbase and Gemini. (Coinbase announced yesterday that its crypto-fuelled Visa debit card product has rolled out to more European countries).

Each country can interpret the FATF rules as they see fit. 

An early draft of the rules has the crypto industry worried. The FATF note is available here

FATF envisages the current rules being applied in full to what it describes as virtual asset service providers (VASPs). In part the draft states, in section 5:

"VASPs should be subject to effective systems for monitoring and ensuring compliance with national AML/CFT requirements."

And in section 6 the consequences of non-compliance are clear: "Countries should ensure that there is a range of effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, available to deal with VASPs that fail to comply with AML/CFT requirements…"

The FATF expects VASPs "at a minimum to be required to be licensed or registered".

If the rules are applied as currently done with banking and other financial services companies, then VASPs would be required to keep records of the sender and recipient of funds. 

Given the anonymity associated with crypto transactions, that could be highly problematic.

For example, it would mean crypto exchanges would have to know the legal name of the transacting parties when such information may not be available, forcing a tightening in onboarding of customers or turning away business.

More transaction activity could be pushed into the over-the-counter peer-to-peer markets, providing less visibility for regulatory surveillance, thereby defeating the object of the rules.

US SEC gunning for Kik

The regulatory uncertainty that still plagues the nascent asset class is brought into sharp relief by the action taken last week, when the US Securities and Exchange Commission (SEC) move to sue the Kik messaging app for allegedly running an unregistered security sale.

Kik’s KIN token sale in 2017 raised $100 million. The token is currently in use on the platform but it is the way it was sold to investors that concerns the SEC. 

The SEC is accuses Kik of raising the funds to help its bottom line and not primarily as a utility token for use on its messaging platform.

The SEC cites an executive of the firm who described the token sale as a "hail Mary pass" .

Kik set up a campaign called Defend Crypto immediately prior to the SEC’s action. That pre-emptive strike may have led to the SEC bringing forward its action.

Kik had positioned its campaign as a rallying call to the crypto industry to take on the SEC and initially attracted support from Goldman Sachs-backed Circle and US exchange Coinbase. Both of those companies have since apparently withdrawn their support from the campaign, given their removal from the campaign website’s list of supporters. 

Crypto exchange Shapeshift remains a campaign supporter.

UK's Wirex announces initial exchange offering

Token sales - otherwise known as initial coin offerings, or ICOs – raised billions from small investors at the height of the crypto boom but have since been superseded by so-called initial exchange offerings (IEOs), with the Binance exchange leading the way with this new fundraising format.

UK-based Wirex – the crypto payments and card app – is one of the latest to launch an IEO.

It's Wirex Token (WXT) will be offered on the Maltese-based OKEx exchange, beginning today in a pre-IEO open to verified Wirex users, with the general public sale beginning on 26 June.

Owners of the token will be able to access lower fees, receive higher reward earnings and at a later date will be eligible for premium services such as a premium Wirex Visa card.

According to the company press release, the token will allow owners to increase their reward earnings from 0.5% to 1.5% and access lower fees. There are also premium features coming “in late 2019” that include a premium Wirex Visa Card.

Chief executive Pavel Matveev commenting on the news, said: "We believe that the nascent token economy will eventually replace conventional fiat currency as the dominant form of payment. The Wirex Token helps us integrate with the payment environment of the future and offer users a convenient, fast and cost-efficient way to move digital money across borders."

Because of the lack of regulatory clarity, some companies have gone down the security token offering path, where an asset is tokenised and approved for distribution by regulators to accredited investors.

An opportunity from the is the latest such offering. 

The London-based platform is an Appointed Representative of Shojin Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Its first asset for the tokenisation treatment is a student property in Nottingham, with a funding target of £1 million for a 30% equity share.

Touting expected annual returns of 15.72%, Smartlands hopes to attract substantial interest and the minimum investment is £500. The SLT token is used to access investment projects on the platform and is based on the Stellar crypto network.

interactive investor asked chief executive Arnoldas Nauseda how the STO was going. He said:

"We do not disclose intermediate results but it’s more important that we have launched with a ready technology, with a real tokenised asset and with a legal framework for our business to make sure our investment offerings are fully compliant."

Nauseda continued: "Our mission is to democratise investment space and open institutional-grade opportunities to retail investors."

The Financial Conduct Authority (FCA) has a "sandbox" for start-ups to launch STOs, but Smartlands did not go down that road, but is keen to underline that it is an FCA-registered sale. 

"We have launched the STO after having obtained registration with the FCA as an appointed representative of an FCA authorised principal firm and therefore have not followed the path of going into the FCA sandbox. This enables us to serve a large number of potential investors, subject to the normal compliance responsibilities of KYC and AML," says Nauseda.

Smartlands says this is the first property crowdfunding using the tokenisation approach.

In April, start-up 20|30 successfully completed the tokenisation and issuance of equity in the company as part of the FCA Sandbox 4, in collaboration with the London Stock Exchange.

Chief executive Tomer Sofinzon at the time said tokenisation held out the prospect of unlocking value in a range of asset classes, from bonds to fine art.  "We have succeeded in what we hope is the first step in reinventing capital markets" he said.

Facebook coin coming sooner than thought

Elsewhere, yet more information has come out about the Facebook coin. It looks like it could be launching much sooner than previously thought.

Facebook's head of financial services and payment partnerships for Northern Europe, Laura McCracken, in conversation with German magazine WirtschaftsWoche said that a whitepaper would be released on 18 June.

It has also been confirmed that the coin - Libra coin or Globalcoin - will be overseen by an independent foundation.

There have also been reports that the Facebook crypto, which will be a "stablecoin" pegged to fiat currency (USD, YEN, EUR), may pay interest to holders of the coin, which would make it more attractive to both merchants and consumers. 

Stablecoin launches was a theme identified by interactive investor at the start of the year, and that continues to receive confirmation, this time from Binance.

The Binance exchange chief executive Changpeng Zhao  said on Twitter that the exchange will be launching a sterling-backed stablecoin.

Tether has the lion's share of the market for stablecoins but has been plagued by controversy, so there's a fight on for an alternative.

Gemini has the only regulated stablecoin – the Gemini Dollar (GUSD), but there are a host of others.

Binance is thought to have chosen the British pound in order to avoid the US regulatory minefield. In addition, the exchange has a sister company Binance Jersey which offers fat-crypto trading pairs (GBP, and EUR).

A weekend crypto read from Glen Goodman

If you are looking for an accessible and breezy read on all-things crypto you could start with Glen Goodman's book The Crypto Trader: How Anyone can Make Money Trading Bitcoin and Other Cryptocurrencies.

Goodman rose to crypto fame as the man behind the popular trading page on Facebook called The Share Guy, which was once "the biggest the trading page in the world", according to publisher Harriman.

He started buying bitcoin back in 2014 when it was trading at around $300. By his own admission he may have been better not to have been trading in and out of the digital currency. 

It dawned on him that crypto was "going to be a once-in-a-generation paradigm shift from old tech to new tech".

Refreshingly, Goodman points out that  there is no Buffett moat in crypto with a "very valuable castle in the middle".

"Bottom line? Every major cryptocurrency has bitter rivals that threaten to be faster, more secure, more scalable. There's no sure thing in this infant industry.

In an exhilarating journey through the ups and down of his crypto trading learning curve he provides honest and instructive lessons, concluding, for example, that "day trading is for losers". Customers of interactive investors will likely be familiar with guiding principles such as "trade the trend until it bends", "run your winners, cut your losses" – Goodman breaks that down for the layperson and makes sense of those chart patterns.

Goodman, before his crypto days, famously made £100,000 with a £3,000 trade in 2008, betting correctly that a financial crash was imminent.

He also called the top of the crypto market when bitcoin reached $20,000 in December 2017, so he has a record worth taking note of.

Trading crypto may be way too risky for many, but even if it's the furthest thing from your mind, Goodman provides a richly illustrated excursion for a weekend read.

Having said that, you may not agree with him that CryptoKitties is one of the most promising decentralised applications.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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