Rest Easy, Cryptocurrency Fans: Ether and Bitcoin Aren’t Securities

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The world's second-most popular cryptocurrency isn't an investment vehicle, at least according to the Securities and Exchange Commission. William Hinman, the agency's director of the division of corporate finance, said Thursday that ether—the currency that powers the Ethereum network—shouldn't be regulated in the same way as stocks and bonds.

His statements follow similar ones made in April by SEC chair Jay Clayton about bitcoin. Taken together, the two sets of remarks provide the clearest understanding of how the regulatory agency views the cryptocurrency market. In essence, when a cryptocurrency becomes sufficiently decentralized, as the widely popular bitcoin and ether have, the agency no longer views it as a security. In contrast, smaller initial coin offerings, or ICOs, are almost always securities in the SEC's eyes. That distinction matters, because securities are subject to the same regulations as normal stocks.

“Based on my understanding of the present state of ether, the Ethereum network, and its decentralized structure, current offers and sales of ether are not securities transactions,” Hinman said at Yahoo's All Market Summit: Crypto in San Francisco. "And, as with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value."

'Current offers and sales of ether are not securities transactions.'

William Hinman, SEC

Joe Lubin, a cofounder of Ethereum and the founder of CosenSys, a major Ethereum application company, says he is grateful for the SEC's decision. "We applaud the clarity provided by Director Hinman and the SEC today," Lubin said in a statement. "Ether and other next-generation consumer utility tokens will continue evolving the web towards networks that are more fair, secure, and evenly distributed. ConsenSys looks forward to continuing to engage with regulators around the globe to promote responsible adoption of this transformative technology."

Hundreds of different developers run applications on top of the Ethereum network and contribute to its code. A similar number, if not more, help to develop Bitcoin. "The network and the software development is sufficiently decentralized that there isn't a discernible third party upon whom we would really expect investors to be reliant," says Peter Van Valkenburgh, the director of research at Coin Center, a think tank focused on policy issues facing blockchain technology. That's an important distinction from traditional securities, like Apple or Microsoft stock, in which you're betting on a specific company's efforts to develop products and services and generate income.

The SEC's Hinman notably stopped short of declaring that the initial investments made in ether weren't securities. It's possible that investments made early, before the currency became truly decentralized, could still be viewed as traditional investment vehicles. "The director was pretty clear to not be definitive about that activity," says Van Valkenberg, who also suggests that this indicates the people who got in first—and have likely made the most money—could someday face regulation.

Hinman also said that other cryptocurrencies may become "sufficiently decentralized" in the future, to the point where "regulating the tokens or coins that function on them as securities may not be required." But this doesn't mean all cryptocurrencies can evade scrutiny from US regulators. The SEC has held that most so-called token sales and ICOs are likely subject to regulation, because they generally power a single startup's product or application. ICOs are opportunities for investors to purchase the tokens that power a blockchain startup, typically before its product has gone live.

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Complicating the issue: Many tokens run on top of the Ethereum network itself. So while buying and trading ether is not seen as making a traditional investment, buying and selling specific tokens that run on top of that network would be.

The SEC has ramped up its enforcement efforts against fraudulent ICO schemes in recent months. In December, the agency's new cyber unit announced it had filed its first ever complaint, against the cryptocurrency PlexCorps, for allegedly swindling customers out of $15 million. A month later, it halted one of the largest ICOs ever, for the Dallas-based startup AriseBank.

This doesn't mean all cryptocurrencies can evade scrutiny from US regulators.

In February, the SEC told the Senate's Committee on Banking, Housing, and Urban Affairs that it was open to "exploring with Congress, as well as our federal and state colleagues," whether to regulate cryptocurrency exchanges, websites that allow customers to convert and trade different coins for a fee.

And then in April, the agency charged the two founders behind an ICO that raised over $32 million, for allegedly selling fraudulent and unregistered investments. The scheme had received endorsements from professional boxer Floyd Mayweather and music producer DJ Khaled.

Owners of bitcoin and ether, however, now appear safe from that sort of close scrutiny. That doesn't mean that investing in either cryptocurrency is necessarily safer. Researchers at the University of Texas found that a price manipulation campaign may have partially accounted for an increase in bitcoin's price last year, for example. All that the SEC's declarations really say is that you're betting on an entire ecosystem, rather any one player.

Predictably though, both ether and bitcoin prices spiked Thursday, likely in response to the news.


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Read more: https://www.wired.com/story/sec-ether-bitcoin-not-securities/

Bitcoin Fall Extends to 25% as Fears of Crypto Crackdown Linger

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January’s cryptocurrency selloff got fresh impetus on Tuesday when Bitcoin slumped as much as 25 percent, as the prospect of regulatory crackdowns appeared to spread.

While the largest digital coin was down 25 percent at $10,338 as of 4:37 p.m. in New York, it was still at the lowest level since early December, according to composite pricing on Bloomberg. As Bitcoin halted its two-day rally, rival cryptocurrencies also tumbled. Ripple sank as much as 40 percent and Ethereum dropped 26 percent.

Speculators across the globe are struggling to determine when or how market watchdogs may rein in an industry that’s decentralized and derives much of its value from anonymous ownership. Many assertions that digital coins represent a bubble have triggered double-digit selloffs over the past year, only to be followed by rebounds.

In South Korea, shutting down cryptocurrency exchanges is still an option, Finance Minister Kim Dong-yeon said in an interview with TBS radio. But measures first need “serious” discussion among ministries, Kim added, holding out hope for traders that a crackdown won’t go that far. Kim said there’s irrational speculation and that rational regulation was
needed.

“The finance minister made it clear they’re definitely considering banning crypto trading — and it’s probably the third-largest market,” said Neil Wilson, senior market analyst in London for online trading platform ETX Capital. “The news is hitting prices and broader sentiment, and it follows China’s move to shutter mines.”

China, which first began targeting the industry last year, is escalating its clampdown on cryptocurrency trading, particularly online platforms and mobile apps that offer exchange-like services, according to people familiar with the matter.

How China’s Stifling Bitcoin and Cryptocurrencies: QuickTake Q&A

“We’ve heard reports that South Korea, China and Japan have considered a shared approach, a path, to regulation,” ETX’s Wilson said, also citing a challenge to digital coins from a bill in the U.S Senate. “It looks like the light touch that has allowed the crypto-boom to explode may be coming to an end,” he wrote in a note to investors.

Lower-than-normal trading in Korea and Japan may have exaggerated the moves in Asia hours on Tuesday, said Mati Greenspan, senior market analyst for the eToro currency platform.

Bitcoin trading using the Korean won was about 3.3 percent of the total among major currencies, compared with more than 10 percent reached on several days over the past two weeks, according to cryptocompare.com data.

Steven Maijoor, chairman of the European Securities and Markets Authority, said investors “should be prepared to lose all their money” in Bitcoin, in a Bloomberg TV interview in Hong Kong. “It has an extremely volatile value, which undermines its use as a currency,” he said. “It’s also not broadly accepted.”

For more on cryptocurrencies, check out the podcast:

The ESMA warned retail investors against initial coin offerings in November and is monitoring developments in cryptocurrencies, Maijoor said.

    Read more: https://www.bloomberg.com/news/articles/2018-01-16/cryptocurrencies-resume-slide-as-bitcoin-tumbles-to-december-low

    Bitcoin Competitors Are Being Built in Ex-Google Coders’ Laptops

    Bitcoin &#x 2019; s relatively unstoppable rise to tape highs isn &#x 2019; t preventing rivals.

    Former Silicon Valley designers are dealing with a minimum of 2 brand-new variations of the digital currency. Basecoin is looking for to fix bitcoin &#x 2019; s volatility with a group of previous Google Inc. coders that are constructing exactly what they hope will be a more steady variation of the cryptocurrency. Cypherium has previous Google, Amazon Inc. and Microsoft Corp. designers developing a blockchain that intends to be able to manage a broadened work more quickly.

    Competition isn &#x 2019; t brand-new for bitcoin as there are over 1,000 various blockchains, the innovation utilized for validating and tape-recording deals that &#x 2019; s at the heart of bitcoin. While numerous competitors such as ethereum likewise supply applications, others like zCash and monero currently state they &#x 2019; re aiming to surpass the very first and most significant cryptocurrency.

    So far they sanctuary &#x 2019; t prospered in dismissing bitcoin. After briefly dipping listed below 50 percent of the overall cryptocurrency market, bitcoin is back at its dominant position .

    &#x 201C; When you have an entire brand-new market, rivals within that market aren &#x 2019; t actually contending with each other, they &#x 2019; re completing with the old market and typically all boats increase together, &#x 201D; stated Peter Van Valkenburgh, research study director at Coin.

    Basecoin &#x 2019; s financiers consist of venture-capital companies Andreessen Horowitz, PolyChain Capital, Pantera Capital and Mark Cuban-backed 1confirmation , to name a few. The group intends to establish a reserve bank that &#x 2019; s based upon algorithms, carrying out comparable loan supply guideline operates done by the Federal Reserve, other than it &#x 2019; s on the blockchain, needing no human discretion. The hope is to have a steady currency that will make commerce more practical than can be performed provided bitcoin &#x 2019; s wild cost swings.

    In the Cypherium blockchain, designers compose wise agreements and do governance work off-chain, so that all the power can be committed to deals. The goal is for the cryptocurrency to manage countless deals per 2nd, compared to bitcoin &#x 2019; s less than 10.

    Newcomers will have a great deal of reaching do, as bitcoin continues to break brand-new records, now towering above $5,000, as it brushes off divides on its blockchain that come from differences on repairing the really issues these brand-new cryptocurrencies state they fix.

      Read more: http://www.bloomberg.com/news/articles/2017-10-13/bitcoin-competitors-are-being-built-in-ex-google-coders-laptops

      A Crypto Fund King Says Bitcoin Will Be the Biggest Bubble Ever

      Mike Novogratz is transforming himself as the king of bitcoin.

      The arrogant macro supervisor who flamed out at Fortress Investment Group LLC is beginning a $500 million hedge fund to buy cryptocurrencies, preliminary coin offerings and associated business. Novogratz will set up $150 countless his own cash and prepares to raise $350 million more by January, generally from household workplaces, rich people and fellow hedge fund supervisors, stated an individual acquainted with his strategies.

      At that size, the Galaxy Digital Assets Fund would be the most significant of its kind and signal a growing approval of cryptocurrencies such as bitcoin and ether as genuine financial investments. For Novogratz, 52, the fund marks a resurgence to expert finance after humbling losses at Fortress and nearly 2 years of self-imposed exile from Wall Street.

      Novogratz, in an interview with Bloomberg Television, decreased to reject or validate that he &#x 2019; s raising a fund, mentioning regulative restrictions. He did talk at length about his current experience with digital possessions and why he &#x 2019; s excited to trade them.

      &#x 201C; This is going to be the biggest bubble of our life times, &#x 201D; Novogratz stated. &#x 201C; Prices are getting method ahead of where they ought to be. You can make a lot of cash en route up, and we intend on it. &#x 201D;

      &#x 2018; Trading Junkie &#x 2019;

      Just this month, bitcoin struck a record of nearly $5,000 then plunged 30 percent in 2 weeks as purchasers weighed the effect of a Chinese restriction on preliminary coin offerings and domestic trading in virtual currencies.

      &#x 201C; I cost $5,000 or $4,980, &#x 201D; he stated. &#x 201C; Then 3 weeks later on I &#x 2019; m shopping it in the low $3,000 s. It &#x 2019; s a lot of enjoyable if you &#x 2019; re excellent at that and you &#x 2019; re a trading addict. &#x 201D;

      Watch more: How macro trader Novogratz ended up being a bitcoin transform

      It began with a late-2015 see to a pal &#x 2019; s start-up in Brooklyn.

      &#x 201C; I anticipated to see Joe, a canine and one assistant. Rather I saw 30 vibrant youths stuffed in a Bushwick storage facility, coding, talking on the phone, making prepare for this transformation, &#x 201D; Novogratz stated. &#x 201C; Macro men are instinctive. My impulse was, &#x 2018; I wish to purchase a piece of this business. &#x 201D; &#x 2019;

      $250 Million Haul

      He chose rather to purchase ether, the cryptocurrency token utilized on the Ethereum network. Novogratz purchased about $500,000 at less than a dollar per ether and left on a getaway to India. By the time he returned a couple of weeks later on, the cost had actually increased more than fivefold. He purchased more.

      Over the course of 2016 and into 2017, as ether rose to practically $400 and bitcoin topped $2,500, Novogratz offered enough to make about $250 million, the most significant haul of any single sell his profession. He stated he paid tax on the earnings, purchased a Gulfstream G550 jet and contributed an equivalent total up to a humanitarian task for criminal justice reform.

      Novogratz was connected. Today, he hosts a weekly &#x 201C; crypto meet-up &#x 201D; for as numerous as 90 individuals over beverages at his workplace in Manhattan &#x 2019; s SoHo district and waxes gushing about his embraced market.

      &#x 201C; Remember, bubbles take place around things that basically alter the method we live, &#x 201D; he stated. &#x 201C; The railway bubble. Railways truly essentially altered the method we lived. The web bubble altered the method we live. When I look forward 5, 10 years, the possibilities truly get your animal spirits going. &#x 201D;

      Novogratz, understood to his pals as &#x 201C; Novo, &#x 201D; price quotes that he now has about 20 percent of his net worth in digital properties. In addition to cryptocurrencies, his household workplace has actually bought bitcoin mining, trading platforms, preliminary coin offerings, pre-ICO sales and blockchain innovation. He stated Gemini , the exchange run by Cameron and Tyler Winkelvoss, is &#x 201C; among our go-to locations &#x 201D; in part due to the fact that it has a New York State license to trade bitcoin and ether.

      With a $500 million hedge fund, Novogratz will have the ability to catch trading chances that need more scale, in addition to wield impact with business owners, designers and regulators. Naturally, he &#x 2019; ll likewise generate income on other individuals &#x 2019; s loan: The individual acquainted with his fund, who has actually seen early variations of marketing files, stated it will charge financiers a 2 percent management cost and 20 percent of earnings, with a two-year lockup.

      Plus, he #x &doesn 2019; t like the concept of fading away.

      &#x 201C; Everyone would like to leave Wall Street with dignity and few do, &#x 201D; Novogratz stated. &#x 201C; You get begun the knees or begun the belly, you gain from your errors, you type of restore and you begin your brand-new experience. &#x 201D;

      One thing hasn &#x 2019; t altered: Novo &#x 2019; s love of the dangerous bet.

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        Read more: http://www.bloomberg.com/news/articles/2017-09-26/mike-novogratz-is-set-for-comeback-with-crytocurrency-hedge-fund