| Market Reports

The Weekly Hash – August 12-16

Check out all the important happenings this week in the world of crypto, presented by the experts at Kraken.

This digest is prepared for informative purposes only and does not represent an investment recommendation or investment advice. Please see our full disclaimer at the bottom for more information.

See below all the important happenings this week in the world of crypto, presented by the experts at Kraken:

  1. CoinDesk: SEC Delays Decisions on 3 Bitcoin ETF Proposals
    • The SEC delayed making a decision on three BTC ETF proposals by asset managers Bitwise, VanEck/SolidX and Wilshire Phoenix, and filed with exchanges NYSE Arca and Cboe BZX
    • Final decisions on the Bitwise and VanEck/SolidX proposals are expected by Oct. 13 and Oct. 18, respectively, while the next decision on Wilshire Phoenix is scheduled for Sept. 29
  2. CoinDesk: New Zealand Tax Office Makes It Legal to Pay Salaries in Crypto
    • New Zealand’s tax office, the Inland Revenue Department (IRD), published a ruling under the Income Tax Act (in relation to section RD 3) that states that an employee can be paid salaries in crypto (and be taxed accordingly) as long as the payments are for services performed under an employment contract, are for a fixed amount and form a regular part of the employee’s remuneration
    • For the wage to be taxable, the crypto being paid must not be subject to a lock-up period and must be directly convertible into fiat, “In the current environment where crypto-assets are not readily accepted as payment for goods and services, the Commissioner’s view is that crypto-assets that cannot be converted directly into fiat currency on an exchange […] are not sufficiently “money-like” [i.e., crypto that provides a general P2P payment system, rather than function similarly to vouchers, shares, or debt securities] to be considered salary or wages”
    • The agency also deems that a significant purpose of the crypto in question must be that it functions as a currency, or is otherwise to be pegged to one (or more) fiat currencies in order to be taxable
    • The ruling doesn’t apply to crypto that’s provided as shares for income tax purposes and are received under an employee share scheme, but rather applies only to salary and wage earners (not to self-employed taxpayers) covering both remuneration for services and bonuses, commissions and gratuities
    • Salaries paid in crypto will be treated as PAYE (pay as you earn) income payments, which are deducted by the employer and passed onto the tax dept.
    • The new ruling will apply for three years from Sept. 1, 2019
  3. The Block: China’s central bank digital currency is “ready” after 5 years of development
    • Mu Changchun, Deputy Chief in the Payment and Settlement Division of the People’s Bank of China (PBOC), announced that the country will soon roll out its central bank digital currency (CBDC) now that they have completed a prototype and the PBOC’s Digital Money Research Group has adopted the blockchain architecture for the currency
    • China’s CBDC won’t rely entirely on a pure blockchain architecture, as this wouldn’t allow the currency to achieve the throughput required for retail usage; the CBDC will employ a two-tier operational structure, “The People’s Bank of China is the upper level and the commercial banks are the second level. This dual delivery system is suitable for our national conditions. It can use existing resources to mobilize the enthusiasm of commercial banks and smoothly improve the acceptance of digital currency”
    • Changchun noted that a two-tier system is preferable due to China’s complex economy, vast territory and large population, “From the perspective of improving accessibility and increasing public willingness to use, a two-tier operational framework should be adopted to deal with this difficulty,” adding that the system will also help avoid concentration of risk and financial disintermediation
    • Link to Reuters’ report
  4. Cointelegraph: Cyber Criminals Netted $4.3B From Crypto-Related Crime in 2019
    • CipherTrace reported that hackers have hitherto netted $4.3B from digital currency exchanges, investors and users in 2019
    • +$124M was stolen from exchanges in 1Q, while the total taken from exchanges for the year was $480M
    • The largest single incident of loss is the PlusToken scheme, which defrauded users and investors of $2.9B
    • The UN claimed that North Korea netted ~$2B by hacking banks and crypto exchanges in 2019
    • BTC was the most popular digital currency used for illicit activities, however, dark markets and malware attacks extensively employed other cryptos including ETH, LTC, XMR, BCH and DOGE, “The results show that privacy coins are barely used in dark markets and at dark vendor sites (e.g. only 4% of instances involve Monero (XMR). Instead, Bitcoin remains the coin of the realm in this shady world, with BTC used in 76% of dark market cases and ETC used in only 7% of instances”
    • Criminals used BTC in 98% of reported malware and ransomware instances, while ETH was used only 1% of the time
  5. The Block: SEC files emergency lawsuit against Veritaseum to stop spending millions of dollars in ICO money
    • The SEC filed an emergency lawsuit in federal court to prevent Reginald Middleton and Veritaseum from spending $8M from an ICO the SEC contends was fraudulently undertaken in 2017 and early 2018; the complaint alleges that Defendants engaged in securities fraud under the Securities Act and the Exchange Act, the unregistered sale and offer of securities under the Securities act, and market manipulation under the Exchange Act
    • The agency claims the offering made “material misrepresentations and omissions” about the VERI tokens, “knowingly misled” investors about prior business success and investor demand for VERI, as well as made manipulative trades to increase the token value in order to increase investor interest
    • The SEC alleges that Middleton tried to escape SEC registration requirements by characterizing VERI as “pre-paid fees”, “software” or “gift cards […] Cognizant of the federal securities laws’ application to VERI, Defendants so-called ‘utility’ token, claiming that the VERI tokens’ supposed uses were variously as (1) a ‘prepaid fee’ that could be exchanged for “consulting and advisory services” and used to buy ‘unlimited access to research,’ (2) a ‘universal key to gain access to Veritaseum P2P OTC Direct Contracts,’ and (3) a means to access ‘Veritaseum Legacy Asset Exposure Pools’”
    • The complaint alleges that 1). the tokens were plainly securities and there was no functional software, “legacy asset pools”, or “consulting service,” and 2). promises about “ready to ship” products and claimed sales to institutional investors were false
    • After the SEC told Defendants’ lawyers that they were likely to recommend filing of enforcement action, Defendants “moved more than $2 million in remaining offering proceeds from a blockchain address they controlled into other addresses, and used a portion of those funds to purchase more precious metals,” and refused to comply when asked by staff to not spend any more of the SEC funds
  6. CoinDesk: SEC Guidance Gives Ammo to Lawsuit Claiming XRP Is Unregistered Security
    • A group of XRP investors filed an amended complaint against Ripple, the latest addition to a year-old lawsuit against the firm, arguing that XRP tokens are unregistered securities under the SEC’s newly released “Framework for ‘Investment Contract’ Analysis of Digital Assets”; the plaintiffs are asking for class-action status, demanding the court to recognize XRP as a security, and compensation for damages incurred by the plaintiffs and (putative) class members
    • The amendment adds that Ripple also violated California’s false advertising and unfair competition laws by “blurring differences between Ripple’s enterprise solutions and XRP to further drive demand,” and “paying exchanges to list XRP, limiting the supply of XRP to drive demand” among other things to argue that investors were misled by Ripple’s promotion of XRP
    • Ripple has until Sept. 19th to respond to this new filing
  7. Reuters: European blockchain company Bitfury launches artificial intelligence unit
    • Bitfury launched an AI division that will analyze and extract value from data, as the firm believes the best and most efficient way to analyze data is via AI
    • Bitfury CEO and co-founder Valery Vavilov said the need to analyze and extract value from tons of available data drove the company to go into AI, “Data is becoming the next oil … We have collected so much data, but only 2% of all this data has been analyzed; 98% is sitting idle and waiting to be analyzed … We also need to trust that data so that’s where blockchain comes in”
    • Vavilov said that Bitfury’s AI group is still in “research mode,” adding that he would have more clarity about the range of AI products the company intends to offer by EOY or early 2020
    • Fabrizio Del Maffeo, former VP and managing director of AAEON Technology Europe, will lead the AI division 
  8. AWS: Amazon Managed Blockchain now supports AWS CloudFormation
    • AWS is integrating its Managed Blockchain platform with its cloud storage service CloudFormation, “With CloudFormation support for Managed Blockchain, you can create new blockchain networks and define network configurations, create a member and join an existing network, and describe member and network details such as voting policies”
    • CloudFormation will assist in “creating and configuring networks, members, and peer nodes”
    • Free to AWS clients, CloudFormation acts as a replication and scaling tool between a client’s web service applications, making it easier to share data between different AWS use cases
  9. Cardano: Cardano Founder Charles Hoskinson Announces Upcoming Release of v1.6
    • ADA founder and ETH co-founder Charles Hoskinson announced that Cardano is rolling out v1.6 within a few days’ time
    • Hoskinson also asked users to send screenshots and comments on the latest version of Daedalus, which is an open source crypto wallet also backed by ADA’s parent firm IOHK (and only wallet that supports ADA)
    • Link to Cointelegraph’s report
  10. Dallas Mavericks: Dallas Mavericks Become Second NBA Team to Accept Bitcoin
    • Following The Sacramento Kings, the Dallas Mavericks have become the second NBA team to accept BTC for match tickets and merchandise
    • Like the Sacramento Kings, the Mavericks will also be using BitPay to process BTC txs 
    • Link to Cointelegraph’s report
  11. Samsung: Samsung Finally Adds Bitcoin Support to Its Blockchain Phones
    • Months after Samsung’s Galaxy S10 was launched in March with a “Blockchain Keystore” offering crypto storage and txs for ETH and related ERC-20s, the smartphone now supports BTC functionality 
    • Samsung has added BTC features to their SDK for S10 models (S10e, S10, S10+ and S10 5G), the Note10,  and Note10+ devices
    • The blockchain features of the phones are still currently only available in limited jurisdictions, including Canada, Germany, South Korea, Spain, Switzerland, the U.S. and the U.K.
    • Samsung has 17 Dapps in its Keystore, is developing their own ETH-based blockchain, and may release their own token
  12. Korea Times: Top Korean bank Shinhan to develop blockchain-based information security system
    • Shinhan, one of South Korea’s oldest and largest banks, signed an agreement with Kakao’s blockchain unit Ground X and blockchain lab Hexlant to jointly develop a blockchain-based system for ensuring increased security of its customers’ personal info, dubbed the Private Key Management System
    • Ground X will provide a blockchain platform, while Hexlant will develop an infrastructure to feature an anti-cracking program for the system
    • The system is expected to test run by October
    • Link to The Block’s report
  13. Newsbtc: Ripple Joins Bitcoin and Ethereum In Gaining Regulatory Clarity in the UK
    • The UK’s FCA listed XRP as exchange and/or utility tokens (and not a security token), “Unregulated cryptoassets (e.g. Bitcoin, Ether, XRP etc.) are not covered by the Financial Services Compensation Scheme and consumers do not have recourse to the Financial Ombudsman Service”
    • Link to NewsBTC’s report
  14. The Block: IRS sends new letters to crypto holders, stating amounts they owe to the agency
    • The IRS is sending out a new round of letters to crypto holders, notice CP2000, this time specifying the amounts individuals owe to the agency
    • Recipients can dispute the stated amounts, but failure to respond to the letters within 30 days may incur penalties  
    • The IRS obtained the third-party info that it used to calculate the proposed tax amount from a Form 1099-K, a document some crypto exchanges send out to customers that have conducted txs above certain thresholds
    • Exchanges are also required to file a separate copy of the same form to the IRS
    • Crypto taxation specialist James Foust posed doubts on the IRS’ methods of using Form 1099-K to calculate crypto taxes since the form only reflects aggregated tx volumes, but not the actual gains that individuals make through these txs, “The 1099-K… isn’t really a good fit for reporting cryptocurrency tax information … But it [1099-K] and the 1099-MISC are the only information reports that the IRS mentions in Notice 2014-21 and I suspect that may be the reason exchanges have opted to use it in the absence of clear guidance from the agency”
  15. USPTO: Walmart Files Patent for Blockchain-Backed Drone Communication
    • Walmart filed for a USPTO patent entitled “Cloning Drones Using Blockchain” for a UAV blockchain-based coordination system, as well as a digital currency patent
    • Blockchain technology would be used to transmit info (e.g., drone ID numbers, flight heights, flight speeds, flight routes, battery info, or loading capacity) to other drones based on the intermediate location between each other
    • The patent claims, “A blockchain ledger may store any kind of information that may be stored in any other format or medium, for example, a large list of instructions of different types, navigational information, and maps. In such a way, a same software profile may be deployed across the cloned drones”
    • Coordination and communication are also listed as valuable uses; by encrypting data on DLT, operational parameters can be executed without fear of being compromised
    • Link to CoinDesk’s report
  16. Coil: Ripple’s Xpring Makes 1 Billion XRP Grant to Drive XRP Adoption and Advance Coil’s Monetized Platform for Creators
    • Ripple’s Xpring participated in the $4M seed round for Coil, a micropayments platform for content creators, spearheaded by former Ripple CTO Stefan Thomas (Thomas and Ripple were the sole participants in the round)
    • Xpring granted 1B XRP (~$264M) to Coil directly from “Ripple’s balance sheet of XRP” in order to improve its business model by making it easier to monetize content using Ripple’s Interledger Protocol that enables streaming micropayments
    • Xpring VP Ethan Beard stated, “Current monetization models are broken, and cater to large companies that are able to collect and sell user data as well as advertise on their platforms”
  17. The Block: Crypto lending sector hits nearly $5B in value, but lenders earn less than 2% interest
    • According to Graychain, the crypto lending sector is currently valued at +$4.7B, but lenders have earned back only $86M (1.83%) in interest
    • Graychain analyst, Robert Walker Cohen, said that ~100% of crypto lending today is collateralized, “but this will change”
    • Around 244,000 loans have been originated over the past 18 months, and Celsius and Genesis have the highest volume with 65% of loan originations
    • Cohen added, ”The number of loans originated grew faster than new addresses and the total origination amount. That means that people are making more small loans, rather than borrowing millions at a time. This suggests adoption (on the public platforms) by more average consumers, rather than institutional borrowers”
    • Graychain sourced its data from public blockchains, including MakerDAO, Compound, dYdX and Nuo, through self-reporting, as well as other public data such as press releases, “We started with what we had, used approximations for any missing data, and summed the results”
  18. Varonis: Varonis Uncovers New Malware Strains and a Mysterious Web Shell During a Monero Cryptojacking Investigation
    • Cybersecurity firm Varonis discovered the cryptojacking virus “Norman”, which that mines XMR and evades detection and is one of many cryptojacking viruses deployed to infect machines at a mid-size company
    • Norman is an XMR miner based on XMRig that evades detection by closing the crypto mining process in response to a user opening up Task Manager, and then uses a process to relaunch the miner after Task Manager closes
    • Norman is based on the PHP programming language and is obfuscated by Zend Guard
    • Researchers believe Norman comes from a French-speaking country, due to the presence of French variables and functions within the virus’ code, as well as French comments within the self-extracting archive (SFX) file; this indicates that Norman’s creator used a French version of WinRAR to create the SFX file
    • Link to Cointelegraph’s report
  19. CoinDesk: A Big Four Audit Firm Lost $1 Million In Bitcoin. Victims Are Losing Patience
    • Former QuadrigaCX (QCX) users are running out of patience with Miller Thomson and EY and are now requesting more transparency into EY’s investigation of their missing funds and how the auditor “inadvertently” lost 103 BTC (now worth +$1M) earlier this year
    • EY accidentally sent 103 BTC to wallets controlled by deceased QCX founder Gerald Cotten in February, but didn’t elaborate on how this accident happened and instead claimed that the transfer occurred due to a “platform setting error
    • Ali Mousavi, one of the creditors, stated, “This sounds like gross negligence to us and many of us want to hold EY accountable for what happened … Instead of giving us the details, they [struck] a deal with [Miller Thomson] to keep the details confidential and [are] making it harder for us to hold EY accountable,” adding that EY was tasked with the court to recover funds, “and EY was not able to return [the funds]”
    • Creditor Xitong Zou said some users are contemplating finding new legal representation due to their frustrations with Miller Thomson, “A lot of people want [Miller Thomson] replaced … although I don’t think that’s going to happen”
  20. Cointelegraph: Alibaba Files US Patent for Blockchain Domain Name Management System
    • Alibaba filed for a USPTO patent entitled “Domain Name Management Scheme for Cross-Chain Interactions in Blockchain Systems,” which describes a system that uses a “unified blockchain domain name” (UBCDN) to denote and share info
    • Alibaba proposes to use a computing system to generate a UBCDN message which contains a blockchain domain name and a chain identifier that is paired with that name; the message contains “a UBCDN of the blockchain instance, a digital signature of an owner of the UBCDN of the blockchain instance (a UBCDN owner) on the UBCDN, and a domain certificate of the UBCDN”
    • This system is to be used as a unified means of managing domain names in cross-chain interactions across blockchain systems, “Furthermore, the UBCDN can include a human readable identifier or label, helping users to memorize and reach a blockchain instance easily, and thus promoting adoption or use of the blockchain instance. As an example, owners or operators of public blockchains, private block chains, or consortium blockchains can choose blockchain domain names that correspond to their names, helping users to remember the identifiers of the blockchain instances”
    • The patent adds, “Unlike existing cross-chain implementations such as COSMOS, that uses a relay chain for cross-chain interactions, in which each blockchain is assigned an identifier (ID) within the relay chain network but the ID only has a local scope and cannot be reused in other relay chain networks, in the described domain name scheme, the UBCDN can be used and is recognizable globally by all blockchain instances in the unified block chain network”
  21. Bitcoinist: Nobody Interested in Working on Litecoin Protocol, Says Charlie Lee
    • Reddit post revealed leaked chat messages between the Litecoin Foundation’s director Franklyn Richards and LTC creator Charlie Lee that confirmed the absence of any progress being made to improving the crypto protocol, ”I was extremely disappointed to discover that no progress had been made on CT [confidential txs] since the announcement, especially when I stand on stage telling everyone it’s happening and we are actively working on it”
    • Lee previously claimed that confidential txs (via Mimblewimble) will be coming to LTC in 2019, however it doesn’t look like this deadline will be hit
    • On Aug. 11th, Lee addressed these speculations claiming that even though the LTC GitHub shows no code commits in 2019, there is still work being done which doesn’t reflect on the master branch, “I dropped the ball on MW/CT [mimblewimble/confidential txs]. For that, I apologize. But it’s not fair at all to say that I strung people along and tricked them. Except for the initial tweet, I haven’t said 2019. When asked, I have only said things are moving slowly and will give an update when there is one … That said, I believe it’s time now for me to shift focus from adoption back to development. I still think fungibility is extremely important and I will get the ball rolling on MW/CT again. This time, I won’t make any promises on dates”
    • Lee noted, “The honest truth is that no one is interested in working on Litecoin protocol development work. At least no one technically competent. You can’t just throw money at this problem. This is true for Litecoin since the beginning. It has only been me, Warren, and Thrasher”
  22. Micky: Warnings issued to Aussies betting 90% of retirement funds on crypto
    • The Australian Tax Office (ATO) sent warning letters to 18,000 Self-Managed Super Funds (SMSFs) who have invested over 90% of their retirement funds in a single asset class (e.g., property or crypto), “We have already seen two instances of SMSFs losing significant amounts of their retirement savings through investment in cryptocurrency … We will also be writing to the auditors of these SMSFs to let them know of our concerns in relation to concentration risk”
    • The letters warn SMSFs they have a ‘duty to comply with legal requirements to adopt investment strategies avoiding risky investments,’ and states that retirees can face fines of up to $4,200 AUD for breaching the regulation
    • Given combined assets of ~$700B AUD, SMSFs are a major growth area for crypto businesses in Australia
    • The crackdown was sparked by concerns over a 10x increase in the number of Limited Recourse Borrowing Arrangements (LRBAs), as +40% of SMSFs with LRBAs have 90% or more of their wealth concentrated in a single asset class (most invest into a single property investment, but some SMSFs are betting the farm on crypto)


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