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South Korea Unveils New Regulatory Guidelines for Cryptocurrency Exchanges

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South Korea cryptocurrency

South Korea’s financial regulators are taking decisive steps to further legitimize the domestic cryptocurrency industry. On Thursday, the Financial Services Commission (FSC) unveiled new regulatory guidelines for cryptocurrency exchanges to further enhance safety in the wake of multiple cyber attacks earlier this month.

New Crypto Regulations

FSC officials are beefing up anti-money laundering (AML) and know-your-customer (KYC) guidelines for domestic cryptocurrency exchanges as part of a wider initiative to better monitor the domestic market. This also includes guidelines for Customer Due Diligence (CDD) and enhanced background checks. These criteria prevent foreigners from accessing domestic cryptocurrency exchanges and limit the ability of criminal networks to launder money.

Under the new guidelines, the FSC has requested the Korea Financial Intelligence Unit (KFIU) to oversee crypto transactions and user activity.

Three major banks –  Nonghyup, Hana Bank, and Kookmin – are also under investigation for providing bank accounts to domestic exchanges. The extent of the investigation is not entirely clear.

The new guidelines are a significant departure from how cryptocurrency exchanges are presently regulated in the country. Prior to the new set of rules, domestic exchanges were regulated merely as “communication vendors,” which means virtually anyone can create an online trading platform for digital currencies.

Bithumb Retrieves $14 Million in Lost Cryptocurrency

Bithumb announced Thursday it had nearly halved the losses of a recent cyber attack that compromised roughly $31 million worth of cryptocurrency.

The exchange, one of South Korea’s largest in terms of trading volume, has retrieved some $14 million worth of stolen cryptocurrency, leaving roughly $17 million outstanding. According to a company post, the extent of the damage has been reduced after working with global exchanges to retrieve the stolen funds.

For the first time, the Seoul-based exchange released the list of cryptocurrencies affected by the breach. A total of 11 coins were compromised, with bitcoin accounting for nearly three-quarters of the stolen funds. Units of Ethereum, bitcoin cash, Ripple XRP and OmiseGo were also snatched up during the heist. It was Bithumb’s third confirmed cyber breach in a span of 12 months.

The attack on Bithumb hastened policymakers’ adoption of more comprehensive regulations. Shortly after the heist took place, the country’s financial regulators announced plans to implement stricter guidelines for digital currency exchanges.

Trading volumes on the exchange plummeted in the wake of the attack as Bithumb restricted users from depositing or withdrawing funds. Daily turnover on the exchange still hasn’t recovered from the attack; as of Monday, Bithumb was ranked ninth in the world by trading volume with daily turnover of $137 million.

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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4.6 stars on average, based on 601 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. Federal Judge Says Initial Coin Offerings Fall Under Securities Laws

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A U.S. federal judge has ruled that initial coin offerings (ICOs) may fall under securities laws, handing regulators a major victory in their efforts to rein in the multi-billion-dollar crowdfunding industry.

Landmark Decision

The decision, which was handed down Tuesday by U.S. District Judge Raymond Dearie in Brooklyn, came in a case against Maksim Zaslavskiy, a fraudulent ICO promoter accused of raising money for assets that never existed. According to Bloomberg, the businessman was charged with conspiracy and two counts of securities fraud related to two coin offerings purportedly backed by investments in real estate and diamonds.

Zaslavskiy’s lawyer argued that the coin offerings in question were currencies and not securities, placing them outside the jurisdiction of the U.S. Securities and Exchange Commission (SEC). The businessman also said that securities laws are not clear enough to apply to ICOs.

“Per the indictment, no diamonds or real estate, or any coins, tokens, or currency of any imaginable sort, ever existed — despite promises made to investors to the contrary,” Dearie said, as quoted by Bloomberg. “Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract – a security – into a currency.”

While a jury will ultimately decide whether Zaslavskiy’s ICOs were securities, the indictment would support such a conclusion.

Zaslavskiy was charged in September 2017 for defrauding investors through several ICO scams, including REcoin, which was allegedly backed by real estate and diamonds.

SEC’s Jurisdiction

The ruling on Tuesday affirms the SEC’s long-standing position that coin offerings fall under federal securities laws. Previously, coin issuers had argued that there was a difference between “security” tokens and “utility” tokens.Under this classification, utility tokens fund the development of a project but are later used to purchase goods or services on the network. However, SEC Chairman Jay Clayton has repeatedly said he has not come across any coin offering that was not a security.

The agency uses the so-called Howey Test to determine whether an asset should be classified as a security. Using this as a baseline, an ICO is a security if it is an investment in money; invests in a common enterprise; expects to earn a profit; and whose profit is generated from the effort of others.

As a security, an ICO would have to satisfy provisions set forth by the SEC Investment Company Act of 1940 in order to raise funds. This means only accredited investors are eligible. What’s more, securities can only trade on regulated exchanges. To avoid getting bogged down by the SEC, many ICO projects have barred U.S. investors from participating in their crowdsale.

Roughly $7 billion has been raised this year by ICOs but funding has slowed considerably in recent months. The crowdfunding method raised in excess of $6 billion in all of 2017.

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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4.6 stars on average, based on 601 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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Market News

Reserve Bank of India Launches Cryptocurrency Research Unit

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India’s cryptocurrency saga has taken another unique turn. According to the Economic Times, the country’s central bank has established a new research unit dedicated to blockchain and cryptocurrency, a sign policymakers are exploring new pathways for regulating disruptive technologies.

Discreet Formation

Under the direct supervision of the Reserve Bank of India (RBI), the new research unit has been tasked with not only exploring emerging technologies but possibly draft rules for their implementation.

“As a regulator, the RBI also has to explore new emerging areas to check what can be adopted and what cannot,” an unnamed source told the Economic Times. “A central bank has to be on top to create regulations. This new unit is on an experimental basis and will evolve as time passes.”

Although the RBI confirmed as far back as September that research into cryptocurrencies was underway, officials have been heavily criticized for their lack of guidance in regulating digital assets. An information request submitted back in April found that the RBI implemented new cryptocurrency regulations without conducting research or consulting experts.

Since early July, state-regulated financial institutions have been barred from servicing digital currency exchanges and their lenders. The new regulation essentially stamps out fiat-to-crypto transactions. As Hacked reported earlier month, black market methods such as Dabba have rushed to fill the void.

Detailed Guidelines Expected

Public and anonymous sources close to the Indian government have confirmed that a blanket ban on cryptocurrency dealings is unlikely to continue in the future. Last month, a senior official from India’s Ministry of Finance confirmed that new cryptocurrency guidelines are already being developed and could be introduced as early as September. It has even been reported that digital assets may be regulated as commodities, which would allow authorities clampdown on money laundering.

A senior official with India’s Department of Economic Affairs had previously stated that a draft bill will be presented to lawmakers in early July. It is not yet clear whether policymakers have reviewed the proposed guidelines.

The future of India’s cryptocurrency market is up in the air as digital currency exchanges, traders and lenders await a final Supreme Court decision on the matter. In July, the Supreme Court upheld the RBI’s blanket ban on crypto dealings despite several exchanges petitioning to get it revoked. Exchanges argued that the RBI’s policy is arbitrary and unconstitutional.

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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4.6 stars on average, based on 601 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

SEC Rejects Nine Bitcoin ETF Applications

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The U.S. Securities and Exchange Commission (SEC) on Wednesday rejected a total of nine proposals to list and trade bitcoin exchange-traded funds (ETFs), sending a strong signal that securitization of cryptocurrencies could be a long ways off.

Applications Denied

In three orders published on its official website, the SEC has denied applications by Direxion, ProShares and GraniteShares to bring bitcoin to market in ETF form. Unsurprisingly, the regulator cited fraud and manipulation concerns as the main reasons for the rejection.

In terms of breakdown, the agency rejected five proposed ETFs from Direxion, two from ProShares and an additional two from GraniteShares. However, in all cases, the SEC issued the following rationale:

“[T]he Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”

In addition to the above, none of the applications could convince the agency that the bitcoin futures market is of “significant size,” which is likely referencing underlying liquidity constraints.

Last month, the agency rejected for a second time a bitcoin ETF application submitted by Cameron and Tyler Winklevoss. However, the ruling didn’t go down lightly at the SEC, with Commissioner Hester Peirce formally objecting on grounds that it inhibits innovation in the sector.

Search for ‘Holy Grail’ Continues

Investors have become so preoccupied with the notion of a bitcoin ETF they’ve virtually ignored a multitude of positive developments tied to institutional trading and custody. Chief among them is the creation of Bakkt, a cryptocurrency holding company backed by Intercontinental Exchange, Starbucks and Microsoft, among others.

Although the latest rejections may seem like a setback, those in the know have long held the belief that a bitcoin ETF is unlikely to be approved this year. What’s more, none of the applications rejected on Wednesday offers quite the same advantages as the joint proposal submitted by VanEck and SolidX. The proposed VanEck SolidX Bitcoin Trust will be backed by physical bitcoin and insured against loss or theft.

The SEC has delayed its ruling on the VanEck application until Sept. 30. However, further delays are possible as the Commission reviews thousands of public comments related to the application.

Bitcoin markets held relatively steady following the announcement. The bitcoin price hovered around $6,415 on Bitfinex, having gained 0.8% during the session. At current prices, BTC accounts for 53.2% of the total cryptocurrency market.

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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4.6 stars on average, based on 601 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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