| Market Reports

The Weekly Hash – November 25 – 29

Check out the biggest events in the crypto industry this past week, brought to you 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.

  1. CoinDesk: Another Class Lawsuit Claims Bitfinex, Tether Manipulated Bitcoin Market
  2. The Block: Hedge Funds Were Net Short CME Bitcoin Futures Going Into This Downturn, CFTC Report Shows
  3. Bangkok Post: Thai Excise Department to Set Up a Blockchain-Based Tax Refund System
  4. NBD: 25,000 Blockchain Firms in China Tried to Issue Cryptos, Senior Official Claims
  5. Binance: Institutional Market Insights – 2nd Edition
  6. CoinDesk: JPMorgan Tests Private Blockchain to Track Auto Dealer Inventory
  7. CFTC: CFTC Division of Enforcement Issues Annual Report for FY 2019
  8. SEC: Ripple Makes Investment in MoneyGram Equity to Complete Original Investment Commitment, Expansion of On-Demand Liquidity Accelerated
  9. Kraken: Kraken Joins the Silvergate Exchange Network!
  10. Upbit: Crypto Exchange Upbit Confirms Theft of $49M in ETH
  11. Reuters: HSBC Swaps Paper Records for Blockchain to Track $20 Billion Worth of Assets
  12. CoinDesk: Ghana May Issue Digital Currency in ‘Near Future,’ Says Central Bank Chief
  13. The Economic Times: India is Developing a National Blockchain Strategy 
  14. Federal Dept. of Finance: Swiss Federal Council Wants to Further Improve Framework Conditions for DLT/Blockchain
  15. New Scientist: Bitcoin’s Climate Change Impact May Be Much Smaller Than We Thought
  16. Cointelegraph: Cyber Criminals Are Using YouTube To Install Cryptojacking Malware
  17. CoinDesk: A Third of Crypto Exchanges Have Little or No KYC, Says CipherTrace
  18. AVA: Afghanistan to Apply Blockchain Technology in Health Sector
  19. Cointelegraph: EOS Block Producer Claims Centralized Misconduct on the Network
  20. RIA: Russian Central Bank Says It Would Support Crypto Ban
  21. Handelsblatt: New Money Laundering Law – Banks are Allowed to Keep Bitcoin Safe
    • BTC traders Eric Young and Adam Kurtz filed a class-action lawsuit against Bitfinex & Tether at a Federal court in Washington on Nov. 22; the exchange claims the suit is a “copycat” of the ongoing case brought by the NYAG in April
    • The plaintiffs allege that Bitfinex & Tether “monopolized and conspired to monopolize the Bitcoin market,” as well as manipulated the market, manipulated info or made inaccurate claims, “Defendants’ misconduct caused prices of Bitcoin futures, and the prices of Bitcoin underlying the Bitcoin futures, to be artificial during the Class Period [Oct. 1, 2014 to present] … Defendants’ control of USD₮ issuances and Bitfinex permitted Defendants and their co-conspirators to coordinate purchases and sales with rising and falling Bitcoin prices. When Bitcoin prices were falling, Defendants and their co-conspirators printed USD₮s and artificially increased the price of Bitcoin. Once Defendants and their co-conspirators artificially inflated the price of Bitcoin, Defendants and their co-conspirators then converted the Bitcoin back into USD₮s to replenish Tether’s reserves”
    • Both lawsuits cite a controversial study by professors at the University of Texas at Austin claiming that a single Bitfinex account used USDT to manipulate BTC’s price to an ATH of ~$20,000 in 2017
    • The suit states, “At all relevant times, Defendants, including the employees that conducted Defendants’ affairs through illegal acts, knowingly and intentionally made false statements to U.S. Bitcoin investors and the public for the purpose of concealing Defendants’ scheme,” adding that the defendants profited at plaintiffs’ expense
    • Bitfinex responded, “As we predicted last month, mercenary lawyers continue to try to use Bitfinex and Tether to obtain a payday. To be clear, there will be no nuisance settlements or settlements of any kind reached. Instead, all claims raised across both actions will be vigorously contested and ultimately disposed of in due course”
    • According to data from the CFTC, hedge funds were overwhelmingly short CME BTC futures during the week of Nov. 12 compared to the sell-side, asset managers, and other groups, “Net short positioning (Short OI – Long OI) among hedge funds that trade the CME bitcoin product was at an all time high over the last two weeks of COT report prints” (price fell from ~$8.8k on Nov. 12 to a low of ~6.6k earlier today)
    • Since the data only shows net positioning of CME BTC futures, some speculate funds could still be exposed to the underlying spot on the long side and be using BTC futures to hedge
    • The Block’s Ryan Todd added, “This is notable as throughout 2Q19, hedge funds have been relatively net neutral, while asset managers and non-reportable traders skew heavily long (>80%); while Other traders have been net short (most likely operating in a dealer/sell-side capacity in making markets?)”
    • The Thai Excise Dept. is in talks with Krungthai Bank to develop a blockchain-based tax refund system for oil exporters, which the dept. expects to adopt by mid-2020
    • Director-General of the Dept. Patchara Anuntasilpa said the current practice requires oil exporters to submit documents for the tax waiver with an inspection that lacks rigor, while the blockchain-based system requires oil exporters to pay excise tax to the dept. and claim overpaid taxes after they ship the fuel, allowing the dept. to inspect tax payments thoroughly
    • An anonymous source from the dept. said blockchain will let the dept. access and verify data related to oil exports quickly and accurately, and is expected to speed up the refund process by 3x and reduce export oil tax leakage
    • The partners are also considering developing blockchain-based, e-bank guarantees and annual fee payment for liquor and tobacco, among others
    • Beijing Blockchain Application Association President Yedong Zhu said ~89% of blockchain firms in China (~25,000) might have tried to create and issue their own tokens, while only 4,000 are fully focused on blockchain applications
    • +50% of blockchain firms in the country are based in the Guangdong province of southern China, next to Chinese Silicon Valley Shenzhen, while the rest generally operate from Beijing and Shanghai
    • Zhu added, “We need to make sure the blockchain firms that illegally raise funds and commit financial frauds are not included in the government blockchain support programs”
    • Coverage by CoinDesk
    • Binance surveyed ~76 of its VIP & institutional clients, which were primarily composed of firms, funds, and institutions with respective allocations to cryptoassets ranging from $100k to +$25M
    • +25% of respondents have +7yrs of traditional finance experience and the vast majority have 1-3yrs crypto experience
    • The three most commonly followed investment strategies were high-frequency prop trading (35.5%), technical analysis (25.0%), and market-making (19.7%)
    • 54% of respondents kept their cryptoasset portfolio between 1-10 assets
    • USDT remained the most widely used stablecoin (40%) due to greater liquidity and higher market cap than its peers, among others
    • 92% of participants keep their crypto with trusted third parties, “Exchanges remain as the most popular choice for cryptoasset storage amongst our institutional and VIP clients at 92.1% […] When moving to self-storage, cold wallets are the second most favored choice, given their improved safety and control. Third-party custody services were the least popular option at 2.6%”
    • JPMorgan filed a patent application for a DLT-based automobile inventory system to digitize floor plan financing and bring efficiency to the commercial lending process
    • The project plans to register every car onto a blockchain registry so that all lenders, dealers, and automakers can access important real-time info, “There is the ability to register this unique identifier onto a shared blockchain registry shared by auto manufacturers, finance banks and companies, and dealerships to enable easier tracking and association with floor plan contracts and key attributes related to collateral audit like GPS location”
    • The system also aims to prevent double flooring, which is when a dealership pledges one vehicle as collateral for floor plan contracts to more than one bank
    • JPMorgan’s Blockchain Lead Christine Moy said the firm completed a pilot using the patent-pending tech and is confident about the overall prospect of the project, adding that the bank plans to finance 100% of the inventory system; however, JPM needs a number of counterparts to agree on having a ledger within their environment
    • The bank is in talks with automobile manufacturers to negotiate making this tech a built-in capacity for all new vehicles
    • The CFTC collected +$1.3B in regulatory penalties in FY2019, +40% more than the FY2018 amount and fourth-highest total in its history
    • The regulator brought 69 actions during FY2019, a slight increase over the average 67.5 for the previous five fiscal years; ~65% of all cases filed involved charges of commodities fraud, manipulative conduct, or spoofing
    • CFTC Director of Enforcement James McDonald said, “The breadth and significance of the enforcement activity in FY 2019 is reflected in the fact that the filed cases involved some of the most significant commodities fraud, manipulation, and spoofing cases in the history of the agency” 
    • The SEC collected +$4.3B in disgorgement and penalties in FY2019
    • Link to annual report (PDF) & coverage by The Block 
    • Ripple bought $20M of MoneyGram equity at $4.10/share (a significant premium above the market price of $3), completing a $50M investment which began in June; the firm now owns 9.95% of MoneyGram’s outstanding common stock “and approximately 15 percent on a fully-diluted basis including non-voting warrants held by Ripple”
    • This funding will support MoneyGram’s operations as the firm increases volume and use of On-Demand Liquidity (ODL), Ripple’s product that “leverages XRP to send money globally, instantly and reliably for fractions of a penny”
    • MoneyGram Chair and CEO Alex Holmes said, “Our partnership with Ripple is transformative for both the traditional money transfer and digital asset industry – for the first time ever, we’re settling currencies in seconds. This initial success encourages us to expedite expanding our use of On-Demand Liquidity. Partnerships with companies like Ripple support innovation and allow us to invest in creating better customer experiences. I anticipate furthering our growth into new corridors and exploring new products and services”
    • MoneyGram is moving ~10% of its MXN FX volume through ODL and transacting in four additional cross-border corridors, including Europe, Australia and the Philippines
    • Kraken joined the Silvergate Exchange Network (SEN), a proprietary internal payments platform developed by Silvergate Bank that enables fast transfers between account holders
    • All verified Kraken Pro clients can now leverage SEN to deposit USD within minutes and with no fees, 24/7
    • Upbit was hacked for 342,000 ETH (~$49M) and has since moved all cryptoassets in its hot wallet to cold storage; +$100M worth of crypto has flowed out from Upbit today
    • The exchange will cover the loss of funds with its own assets
    • Withdrawals and deposits are suspended as a precaution for “at least two weeks”
    • Link to hacker’s ETH address & coverage by Coindesk
    • HSBC plans to move assets worth $20B to a new blockchain-based custody platform by March to digitize paper-based records of private placements
    • The platform, dubbed Digital Vault, will give investors real-time access to records of securities bought on private markets and “seeks to capitalize on booming interest in such investments by yield-hungry investors”
    • HSBC expects the global value of private placements to hit $7.7T by 2022, a +60% increase from five years prior, and allocations by asset manager clients to grow from 9% to 20% 
    • Ernest Addison, Governor of the Bank of Ghana, said the central bank is in talks with “key stakeholders” to explore a digital currency pilot “with the possibility of issuing an e-cedi in the near future” to complement the growth in e-payment systems in Ghana, such as mobile money
    • Addison noted that mobile money tx volumes increased from 982M in 2017 to 1.4B in 2018, “The digital age provides enormous potential for the financial sector to re-orient itself to satisfy the new consumer and business demands for financial services”
    • According to MyJoyOnline, Addison authorized the central bank to issue mobile money backed 1:1 by cedi and held in e-wallets a day before his digital currency announcement, however, he said the mobile money would be different from crypto, “It is just electronic money backed by currency […] So [the central bank] cannot create money; they are only having an electronic representation of the cedi that the Bank of Ghana puts into circulation. So it is not crypto”
    • Coverage by Cointelegraph & The Block
    • India’s Ministry of Electronics and IT is preparing a national blockchain strategy considering the technology’s potential for different uses cases such as governance, banking, finance, and cybersecurity
    • Minister of State for Electronics and IT Sanjay Dhotre said the ministry is developing a blockchain-based “Proof of Existence (PoE)” framework for various uses cases such as authenticating academic certificates, sale deeds, and other documents, “By using PoE framework, [a] solution is developed to authenticate academic certificates. Blockchain technology has also been used and PoC [proof-of-concept] is developed for vehicle life cycle management and hotel registry management”
    • A property registration blockchain solution has also been developed and is already being piloted in Telangana state, while other solutions being developed are focused on trade finance, cloud security and central KYC, among others
    • The Swiss Federal Council adopted a proposal that is aimed at ”increasing legal certainty, removing barriers for applications based on distributed ledger technology (DLT) and reducing the risk of abuse”
    • The legislation, developed as a “blanket framework,” proposes amendments to nine federal acts across civil and financial market law
    • The council said a 2018 report on the legal framework for DLT/blockchain in the financial sector demonstrates that Switzerland is already well suited to dealing with new tech, including DLT
    • The proposed legislation is expected to be examined by the Swiss parliament in early-2020
    • Susanne Köhler and Massimo Pizzol at Aalborg University in Denmark said previous estimates that Bitcoin’s energy consumption may be as high as 63 megatonnes of CO2 annually are inaccurate since they made blanket assumptions that carbon emissions from electricity generation were uniform across China, where they estimate +50% of all BTC mining takes place
    • Breaking down the emissions within China to a more regional level produced 17.29 megatonnes of CO2 in 2018, a -73% reduction from previous estimates
    • While coal-heavy Inner Mongolia accounted for 12.3% of BTC mining, it resulted in +25% of the total emissions; the reverse effect was seen in the hydropower-rich Chinese province of Sichuan
    • It is overwhelmingly the electricity use of BTC mining that contributes to carbon emissions, not the production and disposal of mining rigs, which accounted for just 1% of the emissions
    • Electricity use per newly minted BTC is growing
    • Notably, any estimates on BTC’s carbon footprint should be taken with a grain of salt since there is a lack of data on where mining takes place
    • Köhler added, “On the one hand we have these alarmist voices saying we won’t hit the Paris agreement because of bitcoin only. But on the other hand there are a lot of voices from the bitcoin community saying that most of the mining is done with green energy and that it’s not high impact”
    • Software security firm ESET reported that the Stantinko botnet operators have expanded their criminal reach from click fraud, ad injection, social network fraud and password stealing attacks, into installing XMR cryptojacking malware on victims’ devices using YouTube
    • This crypto-stealing malware reportedly infected ~500,000 devices
    • ESET informed YouTube, which reportedly removed all the channels that contained traces of Stantinko’s code
    • According to CipherTrace’s 3Q Crypto AML Report, 65% of the most popular 120 crypto exchanges have weak or porous KYC policies and aren’t yet able to “comply with the stringent new funds ‘Travel Rule'” by the FATF, which require exchanges to obtain, store and be able to pass on data on their users when txs worth +$1,000 are made
    • Researchers were able to transact 0.25 BTC daily with little or no KYC at 35% of exchanges tested, described as “weak” AML protections
    • 41% of exchanges were “porous,” with “some sort of ID verification process,” while just 35% had “strong” KYC, with multiple levels of verification, including a proof-of-address requirement and perhaps video or telephone calls
    • 63% of exchanges that trade privacy coins have weak or porous KYC measures
    • While crypto-related fraud and thefts totaled $4.4B this year, 3Q witnessed the lowest quarterly thefts and scams in 2yrs
    • The Travel Rule is “problematic” for privacy coins because they’re designed to obfuscate tx data
    • 32% of observed exchanges still list privacy coins
    • The firm states, “Although the report does punctuate a concern for privacy coins that have no compliance strategy, CipherTrace affirms that recent reports of the death of privacy coins have been greatly exaggerated. In fact, many of the top privacy coin developers have already released statements … on how they could comply with the Travel Rule”
    • FATF’s 39 member nations have 7 months left to align legislation with FATF’s ”Travel Rule” guidance
    • Notably, CipherTrace offers paid-for solutions said to help exchanges comply with FATF guidance
    • Afghanistan’s Public Health Ministry and blockchain firm FantomOperations signed a MoU to apply blockchain tech in the country’s health sector to help the Ministry identify fake medications, create medical records in hospitals and computerize patient files
    • Public Health Minister Ferozuddin Feroz said, “The Ministry of Public Health is committed for the institutionalization of electronic government in the health sector and the block-chain technology would help the ministry bring transparency, acceleration and effectiveness in the related affairs” 
    • EOS Block Producer “EOS New York” published data showing that six registered producers are managed by a single entity, “Six registered producers on EOS are managed by a single entity. This is unacceptable. We have requested the signatures of the top 50 registered producers so that all token-holders may know who does and who does not condone such impropriety” 
    • The provided evidence from the eos.net Registry Domain database suggests that each of the six domains “were registered at the same time by the same person/org”
    • The Central Bank of Russian would prohibit BTC payments if an appropriate legislative decision is made, “We continue to believe that cryptocurrencies carry significant risks, including in the field of laundering of proceeds from crime and financing of terrorism, as well as in conducting exchange transactions due to sharp exchange rate fluctuations […] private cryptocurrencies cannot be equated with fiat money and cannot be legal tender. If it is decided to ban cryptocurrencies as a means of payment at the legislative level, we consider it appropriate to support this position”
    • The legal status of smart contracts, cryptocurrencies, ICOs, mining hasn’t yet been determined, but two bills that are designed to eliminate this gap have been adopted – one related to digital rights and the other a law on crowdfunding platforms
    • Coverage by CoinDesk
    • Starting 2020, German banks will be allowed to sell and custody crypto under fourth EU Money Laundering Directive
    • The new bill was passed by the German federal parliament, the Bundestag, and is expected to be signed off by the nation’s 16 states
    • German banking association BdB commented, “Credit institutions are experienced in the safekeeping of client assets and in risk management, are committed to investor protection and have always been controlled by the financial supervision,” adding that banks could “effectively prevent money laundering and terrorist financing” with cryptoassets
    • The bill would also enable investors to invest in cryptos via Germany-based funds and not be forced to put their money abroad
    • Coverage by CoinDesk