cryptocurrencies – The Blockchain Report

India cracks down on cryptocurrencies

India didn’t make cryptocurrencies illegal last week. But it might as well have. India’s central bank instructed the nation’s banking system to stop processing transactions related to cryptocurrencies — effectively eliminating payments to and from cryptocurrency exchanges. Industry experts say about 5 million Indians own cryptocurrencies. (CNBC)

Be smart: Cutting off the money flow is the go to move for governments who want to end a behavior without criminalizing it. Both the United States and The Netherlands criminalized online gaming transactions without making online gambling illegal. Both countries eventually authorized and regulated online gaming itself.

Underwater assets: Most Indians entered the cryptocurrency market at its peak last year. So India’s decision to cut off the cash flow to cryptocurrencies comes at a terrible moment. Prices for digital currencies have been dropping all year long — and last week’s action by the Indian central bank depressed them even further. Additionally, Indian investors can no longer sell their assets — and have been given no assurances they’ll ever be able to either profit from or mitigate the financial damage.

Related, but not quite as important: It’s not an accident that Pakistan’s central bank announced cryptocurrencies were illegal at the same time India’s central bank announced it was banning banks from processing crypto-related transactions. Though the two nations are rivals, it makes sense for both of them to coordinate on this front. Otherwise, it would be too easy for a thriving black market to take hold.

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For China, it’s all about control

In order for cryptocurrencies and blockchain startups to thrive, they need a favorable (or at least neutral) regulatory environment. That’s why we’re seeing innovation in Japan and struggles in the U.S. It’s also why we saw digital currency prices fall earlier this year after China cracked down on trading and South Korea adopted new KYC measures. But as we’re starting to discover, China isn’t opposed to all cryptocurrencies. China only opposes the ones it can’t control.

What’s new: The head of the People’s Bank of China told reporters Friday that he envisions a time where digital currencies replace cash because they’re faster, cheaper and more convenient. And his (and the government’s) opposition to crytpocurrencies has nothing to do with utility, but rather because they’re used for “speculation and making people have the illusion that they can get rich overnight.” (Bloomberg Technology)

Then on Monday, the Chinese government announced it was setting up a committee to create technical standards for blockchain technology. (OpenGov Asia)

Why does this matter? Taken in tandem, these two announcements indicate that China recognizes the value of blockchain technology and isn’t anti-crypto. It’s just anti-speculation. China doesn’t view existing cryptocurrencies as payment methods. It sees them as speculative investments — almost like gambling. China has been cracking down on money moving from China to casinos in Macau over the past two years (and wrecking Macau’s economy in the process) and this falls in line with that movement.

Be smart: China was against the Internet until they could control it. Once China figured out how to control it, it embraced the Internet. Cryptocurrencies will follow the same path. China will oppose them until it learns how to control them. The cryptocurrencies and companies that understand this will find success in China. The rest will be spinning their wheels.

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Cryptocurrencies get the John Oliver treatment

I was going to write about the future of cryptocurrencies in China today. Then I saw this John Oliver cryptocurrency explanation on Last Week Tonight. You’re welcome.

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Bitcoin freefall continues

Bitcoin traded for below $8,000 Friday. It’s the first time bitcoin has traded for below $8,000 since November of last year. (CNBC) Bitcoin has lost more than $72 billion in market cap in 2018 (Business Insider via Yahoo).

Bitcoin isn’t the only cryptocurrency having a bad 2018.

Overall, cryptocurrencies are off 34% year-to-date. The entire cryptocurrency field has lost $207.7 billion in market cap, according to data from CoinMarketCap. (Fortune)

What’s going on? There are a variety of factor’s driving the bitcoin freefall and cryptocurrency selloff. Part of it is a market correction. Part of it is a response to regulatory concerns. India appears ready to ban cryptocurrencies as a payment mechanism. (Reuters). Meanwhile, Facebook is cracking down on coin promotions and the SEC and other regulatory agencies are in the midst of investigations.

Be smart: As the blockchain and cryptocurrency markets mature, there’s going to be more regulatory action and news. This is the nature of an emerging industry. On Tuesday, for example, there’s a Senate hearing on what the oversight role for the SEC and the Commodity Futures Trading Commission should have on “virtual currency.” At some point, the market won’t show the same volatility to regulatory intervention that it does now. But nobody knows when that moment will arrive.

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Bitcoin, cryptocurrency prices tumble again

A market selloff sent prices for bitcoin, ethereum and other cryptocurrencies tumbling Tuesday. Bitcoin was down 12 perecent and trading below $10,000 Tuesday afternoon, according to CoinDesk. Ethereum was down 9 percent while ripple fell 10 percent, according to CoinMarketCap. (CNBC)

Be smart: No one exactly knows what sparked the massive selloff. One possibility is South Korea implementing strict KYC rules for trading cryptocurrencies. (CNBC) Another is the SEC freezing the assets of AriseBank and halting its massive ($600 million so far) ICO. (CNBC) A third regulatory action saw the U.S. Commodity Futures Trading Commission send subpoenas to cryptocurrency exchanges Bitfinex and Tether. The subpoenas were issued in December, but reported publicly for the first time today. (Bloomberg Technology) It’s also entirely possible that this trifecta of bad news had nothing to do with the selloff. Nobody knows for sure.

What’s next: Volatility is the norm in cryptocurrency markets. So this wild ride will continue. Just remember the regulators are not going away either. The size and volatility of these markets have caught their attention. And there are going to be more regulatory actions in the future.

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Japanese regulators looking into Coincheck

Losing $530 million in a newly regulated business is the fastest way to get the government looking into your affairs. So it’s no surprise that Japan’s Financial Services Agency (FSA) has decided to investigate Coincheck after hackers stole $530 million from the cryptocurrency exchange last week. Coincheck already has announced it will return 90 percent of the money. But the company has provided no timetable. (CNBC)

The key facts

The FSA said it ordered Coincheck to submit a report on the hack and measures for preventing a recurrence by Feb. 13, and that it will, if necessary, conduct on-site inspections of other cryptocurrency exchanges. The regulator also said it has yet to confirm whether Coincheck had sufficient funds for the reimbursement. (CNBC)

The smart take: Japan began regulating cryptocurrency exchanges last year and believes fintech will be a boon to the nation’s economy. How the government and Coincheck handle this crisis is a major test for both the industry and regulators. Neither can afford a misstep.

If the company doesn’t handle the crisis well, it invites more regulatory oversight and intervention into exchanges. If the FSA responds with a heavy hand, it could choke the industry. If the FSA responds too leniently, it could undermine public confidence.

Most regulated industries suffer through growing pains — especially as regulators and entrepreneurs work together to find the right balance between regulation and innovation. This situation is no different.

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Monero malware incidents on the rise

Monero malware is becoming a serious problem. The number of different malware attacks, which use infected computers to secretly mine monero, is rising precipitously. January alone saw three new attacks. And there were more than a dozen attacks in 2017. (Bleeping Computer)

Key vulnerabilities: Machines running Cleverence Mobile SMART server, Apache Struts and DotNetNuke have all been targeted by malware. So have non-enterprise users in Thailand, Vietnam, Egypt, Indonesia, and Turkey. (Bleeping Computer)

Smart take: As long as mining remains a resource-intensive (and profitable) activity, it will remain a popular use for malware.

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Weiss gives ethereum higher grade than bitcoin

Independent financial ratings firm Weiss Ratings awarded ethereum a B and bitcoin a C+ in its first cryptocurrency ratings report. No cryptocurrency received an A. EOS was the only other currency to receive a B. (CNBC)

The key facts: Bitcoin was dinged for slow transaction times, high transaction fees and no method to upgrade its underlying technology. Ethereum, by contrast, was faster and had better underlying technology. (CNBC)

Market fears: Weiss Ratings had to overcome distributed denial of service attacks to publish the ratings report. The attacks appear to have originated South Korea. Fears of low ratings for certain cryptocurrencies may have prompted the DDOS attacks. (Palm Beach Post)

The bottom line: Weiss Ratings is considered a tough, but fair rating service. As cryptocurrencies gain mainstream acceptance, more ratings like this will come out. And as more ratings come out, cryptocurrencies will move from a speculative market play to a much more informed one.

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Sweatcoin rewards exercise with cryptocurrency

The quick read: Sweatcoin, which rewards exercise with its own private cryptocurrency, has rocketed up the app charts in recent weeks. It sits at number two in the App Store among free apps and claims to have 2 million weekly active users and 5 million users in the past year. (TechCrunch) It is available for both iOS and Android.

How it works: The app counts your steps and gives you “Sweatcoins” based on the number of steps you’ve walked (1,000 steps=0.95 sweatcoins). You can buy fitness gear, classes and other fitness related items using the coins.

Smart take: The key to creating a successful private coin is utility. Is there a market/environment in which the coin is desirable and can be acquired and used easily? The answer to that question in this case is yes. Acquisition is simple. The phone measures your steps. The more steps you take, the more coin you make. And because this is a fitness tracker, the presumption is you’ll spend this coin on items related to fitness and healthy eating. This is the perfect match between incentive and market.

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South Korea eyeing cryptocurrency trading ban

The quick read

The trading of cryptocurrencies is booming in South Korea. And government officials are not happy about it. Authorities raided local exchanges Wednesday and are pressing forward with tax evasion charges. The government also announced that legislation to ban the trading of cryptocurrencies is in the works. The raids and planned legislation initially sent local coin prices tumbling 21 percent and global bitcoin prices down about 10 percent. (Reuters)

The key facts

South Korea is a major player in cryptocurrency trading.

(Bitcoin) still trades at around a 30 percent premium compared to other countries. (Reuters)

And it’s not just bitcoin. The South Korean market trades heavily throughout the cryptocurrency space. Any disruption in South Korea is a disruption in the global market.

The bottom line

The South Korean legislation is still being written and needs a majority vote in the National Assembly to pass. That’s still months away. But regulators and politicians are concerned. And that’s not a good thing.

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