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$1.3 Billion and Counting: Major Crypto Heists Spur Calls for More Regulation

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On Friday, Coincheck became the latest digital currency exchange to experience a high-profile breach, resulting in the loss of nearly $500 million worth of NEM tokens. Major crypto heists have now cost exchanges and digital wallets well over $1.3 billion since 2014, and there’s reason to believe these platforms will be targeted more intently in the near future.

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Crypto Heists: By the Numbers

Focusing solely on major cryptocurrency platforms, cyber criminals have compromised more than $1.3 billion within the last four years, according to data captured by Bloomberg Technology.

Below is a breakdown of the biggest known thefts by estimated losses, beginning with Coincheck.

  • Coincheck: ~$500 million (2018)
  • Mt Gox: $480 million (2014)
  • Parity Wallet: $155 million (2017)
  • Bitfinex: $65 million (2016)
  • NiceHash: $63 million (2017)
  • DAO: $50 million (2016)
  • Tether: $31 million (2017)

The attack on Mt Gox, once the world’s biggest bitcoin exchange, led to the platform’s ultimate demise. The DAO organization was delisted from several major exchanges following the 2016 heist. The coin was later deemed a security by the Securities and Exchange Commission (SEC), a decision that is still reverberating through the ICO market.

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Tether, which is no stranger to controversy, recently split with its auditordue to the amount of time it took to go over the company’s balance sheet.

Bitfinex seems to have gotten it together in the wake of its high-profile security breach, but it too has struggled to keep operations running smoothly amid heightened demand for cryptocurrency trading.

Regulators Under Growing Pressure

Against this backdrop, regulators are beginning to act with greater urgency to identify risks and formulate an effective response to the threat. The only problem is, without historical precedent, nobody is exactly sure how to move forward.

Japanese regulators have slapped Coincheck with administrative penalties for failing to safeguard consumers and have also announced that on-site inspections of the digital currency exchange shortly. Cryptocurrency is likely to be an important agenda item for major economies at the upcoming G-20 Summit in March, with Germany and France already prepping a joint proposal for regulating bitcoin.

South Korea recently became the latest jurisdiction to introduce new regulations, although policymakers stopped short of adopting extreme measures like in neighboring China. Meanwhile, the United States Treasury has described crypto assets as an “evolving threat” that need to be examined further. Even the United Kingdom’s Theresa May has said her government will consider an additional clamp down on the digital asset class.

As for Japan, it became one of the first countries to fully legalize cryptocurrencies, with Tokyo’s Financial Services Agency (FSA) introducing a licensing system for domestic exchanges. Interestingly, Coincheck was not registered with FSA when it was breached. Although the exchange has announced plans to compensate account holders exposed to the cyber attack, its ultimate fate remains unknown.

The cat and mouse game between hackers and regulators is perhaps the biggest source of uncertainty facing the global cryptocurrency market. As cyber attacks grow in regularity and severity, regulators may adopt more extreme measures to control the market. If more of them go the way of China, cryptocurrencies could be viewed less favorably among investors looking to diversify into alternative assets.

Then again, not everything is so cut and dry. There are rumblings that China is considering relaxing its ban on cryptocurrencies, and in particular, initial coin offerings. Policymakers in the country are much more likely to support token raises in a risk-controlled environment that offers greater legal certainty.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 415 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Regulation

U.S. Authorities Probe Shady Bitcoin Trading Practices

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U.S. regulators are cracking down on the cryptocurrency market, probing individual coins and projects including a newly launched investigation into possible manipulation of the bitcoin price. According to a report in Bloomberg, the U.S. Department of Justice (DOJ) has launched a criminal investigation to determine if traders are manipulating the price of bitcoin and other cryptocurrencies, known as altcoins.

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DOJ prosecutors have teamed up with the Commodities Futures Trading Commission (CFTC), the regulatory body under whose jurisdiction bitcoin futures trading belongs, to investigate whether price manipulation is occurring. They are focusing most heavily on the No. 1 and No. 2 cryptocurrencies by market cap, bitcoin and Ethereum, respectively.

Wild West Stigma

The investigation is only fueling a stigma already attached to the cryptocurrency market as a Wild West ripe with illicit activities ranging from money laundering to now price manipulation. If cryptocurrency investors are wondering why the broader market can’t seem to get out of the doldrums, it could be the uncertainty that is exacerbated by developments like this one.

The bitcoin price has lost more than half its value from its December 2017 highs of nearly $20,000 and is hovering at about the USD 7,500 level. If the catalyst for the market recovery is institutional capital pouring into the market, investors may need to get used to the volatility. Now the market will either take a step backward or forward, depending on the mechanisms that are put in place to prevent further bitcoin price manipulation.

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Investigators are probing specific nefarious behavior like a rush of fake orders to mislead other traders to buy or sell, a practice that is also known as spoofing. They are also looking into wash trading, an illegal behavior that also occurs in the equities and derivatives markets where an investor takes both sides of a trade — buyer and seller — to create false market demand.

Task Forces and Sweeps

Separately, a North American crypto-sweep is underway, led by the North American Securities Administrators Association. They’re probing the ICO and blockchain startup side of the market and have nearly 70 investigations happening this month alone. Member states and provincial securities regulators are hunting “fraudulent Initial Coin Offerings (ICOs), cryptocurrency-related investment products, and those behind them.”

Exchanges like US-based Coinbase have worked alongside regulators during tax season, while founders of rival bitcoin exchange Gemini, the Winklevoss twins, have launched a self-regulated cryptocurrency trade group, the Virtual Commodity Association. But prosecutors are worried that exchanges aren’t doing enough to uncover fraudulent trading activity in this loosely regulated cryptocurrency market.

Meanwhile, securities regulators like the SEC and lawmakers agree it’s not a good idea to rush into any regulatory policy, so as not to create another cumbersome policy like Dodd-Frank. In the meantime, the cryptocurrency market is largely being policed by regulatory task forces and sweeps.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 7 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. Full disclosure, she's invested in bitcoin.




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Parity Wallet’s ICO Passport Services Are Shutting Down

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Parity Wallet has succumbed to EU regulatory pressure and is shutting down it’s PICOPS services on May 24th, 2018.

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EU Crackdown

PICOPS, a service which allowed customers to associated a single Ethereum address with their identity to simplify KYC requirements, allegedly due to the more stringent requirements of the EU’s new GDPR legal framework.

The Parity Wallet team itself posted a statement saying, “We are looking at ways of resolving the uncertainty and making PICOPS compliant with GDPR while keeping it useful. However, as things stand the solutions we have identified restrict the service to a very limited set of features.

Because of this, the significant resources required to make PICOPS GDPR-compliant, and the fact that PICOPS is not part of our core technology stack, we have decided to discontinue the service despite overwhelming market needs and demand.”

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The team remained open to restarting the service in the future however, stating, “These challenges make running a service like PICOPS more difficult. We are looking at ways of resolving the uncertainty and making PICOPS compliant with GDPR while keeping it useful. However, as things stand the solutions we have identified restrict the service to a very limited set of features.

Because of this, the significant resources required to make PICOPS GDPR-compliant, and the fact that PICOPS is not part of our core technology stack, we have decided to discontinue the service despite overwhelming market needs and demand. PICOPS’s deprecation does not mean that we are going to wait and see what happens to blockchains under regulation.”

Ethereum founder Vitalik Buterin tweeted his disappointment with decision on Friday, but didn’t go into specifics about the state of EU regulation.

Based on the company’s statements, it seems likely that Parity Wallet will continue to be an active voice in trying to steer more crypto-friendly regulations into law. But the shuttering of an incredibly useful tool could be interpreted as a byproduct of international government’s growing hostility to all things blockchain.

Governments around the world are still in the very early stages of understanding, defining and adequately regulating cryptocurrencies. The state of crypto regulation varies wildly across the board, with some nations recognizing cryptocurrency as money and others banning them outright.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Regulation

Asia Sees a Mass Exodus of Cryptocurrency Exchanges

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As Japan rolls out tougher cryptocurrency regulations, exchanges are thinking twice about expanding their services in the world’s third-largest economy. In fact, the Asian region as a whole is experiencing a mass exodus of exchanges. Their destination: Europe.

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Japan Introduces New Crypto Rules

Japan’s financial regulator has announced stricter guidelines for cryptocurrency exchanges in the wake of a large-scale cyber attack earlier this year, according to the Nikkei Asian Review. The new framework, which will be implemented this summer, will govern the operations of cryptocurrency exchanges currently registered with the Financial Services Agency (FSA) as well as any new service providers seeking to enter the market.

Exchanges that fail to meet the new guidelines set forth by the Financial Services Agency (FSA) will be advised to discontinue operations.

The FSA has been developing new regulatory guidelines in the wake of the Coincheck cyber attack, which resulted in the loss of $530 million worth of NEM tokens. It was the largest crypto heist of the year and second biggest of all time.

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Exchanges Step Away from Asia

Japan and the rest of Asia are becoming less attractive for cryptocurrency exchange operators. Last month, digital currency exchange Kraken announced it is stepping away from the Japanese market amid regulatory uncertainty.

Binance is also fleeing the region. The world’s largest crypto exchange has announced plans to relocate to blockchain friendly Malta from Hong Kong. The tiny Mediterranean country has positioned itself as a trailblazer for the blockchain industry, mirroring a highly successful shift in neighboring Cyprus, which has emerged as a global center for forex exchanges.

Meanwhile, Bitfinex announced in March that it was planning to relocate out of Hong Kong, which is one of China’s Special Administrative Regions. The exchange, already the fourth largest by trade volumes, is eyeing Switzerland as its next base.

Binance CEO Jean-Louis van der Velde told Handelszeitung, “We are looking for a new home for Bitfinex and the parent company iFinex, where we want to merge the operations previously spread over several locations.”

Though London was on Bitfinex’s short list, the company seems to favor Switzerland above all.

The country is the home to “Crypto Valley,” a mass effort to bring blockchain businesses to the picturesque European nation. Favorable regulations, a budding startup community and the recognition of blockchain as a future business driver have made Crypto Valley highly attractive.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 415 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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