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Regulation

Vietnam Becomes the Latest to Ban Bitcoin, but in China, the Rules May Be Changing

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Vietnam became the latest nation state to launch an attack on cryptocurrency, as regulators sided with the alarmists without providing much of a rationale.

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Vietnam Issues Ban

The ban, which applies to all cryptocurrencies not deemed legal tender, was issued via formal statement by the State Bank of Vietnam. The punishment for accepting or offering payments in bitcoin can run more than $8,000 USD.

Vietnam’s central bank says only traditional forms of payment are accepted within its borders. This includes cash, checks, credit cards and other electronic payments.

The state-run bank has issued the following statement, according to Mirror:

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“Bitcoin virtual currency and other similar is not lawful means of payment in Vietnam; The issuance, supply, use of bitcoin and other similar virtual currency as a means of payment is prohibited in Vietnam.”

The announcement, whenever it was made, had very little impact on cryptocurrency trading. At press time, bitcoin (BTC/USD) was trading at $6,162 for a gain of $57.

The bulls blew the door wide open this weekend, sending bitcoin north of $6,300 for the first time ever.

Chinese Ban? Let’s Move to Hong Kong

Now that China’s Communist Party gathering has come and gone, sanity appears to be returning to public discourse. That is, according to a recent report from CNLedger, which our pals at CCN.com recently covered.  The trusted news sources have revealed that OKEX is expected to launch its peer-to-peer OTC bitcoin trading platform shortly.

As it turns out, OKEX and several other leading blockchain companies like BTCC and Huobi-Pro are located in Hong Kong. Theoretically, their presence in the Special Administrative Region allows them to circumnavigate the mainland’s recent ban on everything crypto-related.

It should be noted that OKEX is offering a bitcoin-to-crypto trading platform. Regardless of what Beijing thinks, it might not be a good idea to launch this platform on the mainland. That’s because the Chinese government recently blocked a major port for MetaTrader4, which is the engine of the online forex community.

Regulators have apparently shut down port ‘443’, which is used for secure web browser communications. The port also happens to be the one MT4 brokers use to connect to their trading server.

The port probably inhibits the government’s ability to spy on traders, or at least monitor their data flows (like that’s different?). There’s reason to believe this ban could extend to other trading platforms that utilize a similar standard.

Last month, China broadened its online censorship by blocking WhatsApp, the popular messaging platform acquired by Facebook for way too much. The ban was another blow to the social networking giant, as it too is banned on the mainland.

Featured  image courtesy of Shutterstock.

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Op-Ed

Can a New Generation of Regulated Token Sales Save ICOs?

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The bad news first: ICOs are in big trouble.

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You wouldn’t think so just by looking at the stats: just last week, 400 ICOs were announced according to one of the many ICO newsletters that have gained traction. Last quarter, over $ 1,5 bln were raised by projects accepting primarily or exclusively cryptocurrencies and handing out a token in return. The cottage industry around this new vehicle has grown exponentially, with entire marketing firms and PR agencies rearranging their business to exclusively serve the ICO market.

Upon closer inspection though, a rather different picture emerges. More and more ICOs are missing their funding goals (source: Architect Partners).

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And some of the most successful ICOs of the past months are in turbulences, too. One of them is already fighting over money. A second one is having trouble delivering the promised tokens to investors, leading some to speculate on its impending implosion. Compared to startups, most crypto ICOs have failed to deliver on a minimum viable product and real adoption, even with millions of funding in the vaults. And of those startups that successfully raise funds, only 1 in 10 actually use the token in their network.

What about that cottage industry? It’s not looking much better. From scam artists to shady “ICO advisors”, from rampant FB marketing to pump & dump Telegram groups, Russian bots, false followers, fake endorsements, email phishing, and insecure Slack channels with millions stolen from investors as a consequence.

This is very much still a wild, wild west.

But the problems run much deeper.

Originally, blockchain evangelists promised us greater decentralization, democratization and true financial freedom, independent from institutions such as banks and governments. But has this vision of the world really come to pass, or even taken a good step closer to being realized? Is the world more equitable thanks to crypto & blockchain?

In reality, most, or many of the projects are even more inequitable than the broader economy. If you take a look at the Gini coefficient of a couple projects using the ICO Transparency Monitor, here’s what you find:

Gnosis:

EOS:

district0x:

Bancor:

At present, ICOs go mostly to savvy old world investors through pre-sales with the smaller investors often times ‘holding the bag’.

What’s still sorely missing are industry level institutions that take on the task of self-regulation. Any functioning branch of the economy has watchdogs, industry associations, quality certificates, and auditors. Ultimately, any economy needs trust and reliable rules in order to function.

For the first seven years, the crypto world talked mostly about technical innovation and societal critique-by-creating. Now, the conversation has started to shift. The enormous sums of money involved created an urgent demand for answers to questions of legality. What are we to expect from regulators? How will governments treat this new technology? The crypto community is realizing that if it wished to maintain and further develop its reach into mainstream society, tech was not enough to get the job done.

This solves a big problem: how do you enable non-blockchain companies to make use of the technologies advantages? Surveying the current blockchain landscape, the large majority of ventures in the space are themselves blockchain projects.
Current ICOs are also near exclusively run by on-chain companies. They offer utility tokens which you can use for on-chain products. Neufund however allows investors to invest into off-chain companies by putting shares on-chain.On first sight, this is something impossible because shares are some piece of paper or a certificate. Anybody who takes this on faces a huge legal challenge.
But there is a solution: the nominee structure. The nominee holds the shares, the nominee issues the tokens. That is per se totally legal in Germany and any other European jurisdiction.

The first seeds of this self-regulation efforts are forming: the Ethereum Enterprise Alliance (EEA) has been successful at gathering the large corporates under its wings. There are now several initiatives starting the work of educating the public and regulators alike, and crafting policy recommendations for the relevant authorities to adopt (e.g. Blockchain Policy Initiative). Some have even been successful in convincing local and state governments to run entire campaigns for attracting startups in the space to their jurisdiction. Forward thinking mayors and governments are quickly realizing the value of competing early in the coming trend of jurisdictional arbitrage.

Rulesets are a competitive advantage, and an increasingly necessary one in a globalized world. Estonia was one of the earliest to realize this and begin its modernization. In the 90s, the tiny country (1.3M residents) upgraded its governmental and business infrastructure to the internet, making it possible to sign contracts, open bank accounts, and file taxes without ever having to visit a notary or governmental office. Now, the country takes it one step further and offers the benefits of its infrastructure to anyone via the “e-Residency program”. It has attracted thousands of entrepreneurs and digital nomads, many of which also innovating in the cryptocurrency and blockchain space. With the ground prepared for instant adoption, Estonia is even considering to launch an “Estcoin” in their efforts to open source their rulesets for the benefit of all. Many other countries all over the globe have joined the race to be the new ‘silicon valley of crypto’, with Switzerland currently in the lead.

Stricter regulation can benefit startups looking for funding via token sales as well. As Andre Eggert, partner at Lacore LLC, puts it: “Securities law is making sure that the market has the information it needs. An informed market is more liquid and that might even result in increased prices and demand for tokens.”

And already there are a number of companies rising to the challenge. In the US, Equibit and t0 work on bringing equity and financial instruments more generally into the token era. Filecoin, in collaboration with Coinlist, pioneered the SAFT agreement which has since been adopted by a large number of ICOs. Now, Pegasus Fintech is floating the idea for a novel type of token-assisted fundraising they call PIBCO: Public Initial Blockchain Offering.

“The PIBCO model advances the ability of Blockchain and Cryptocurrency based businesses to raise funding in a global environment and meet jurisdictional regulatory compliance.”

~ David Lucatch, Founder & Chair of Pegasus Fintech

In this model, Listed corporates will be able to release Class A shares for conventional currency and Class B shares for cryptocurrency tokens. The tokens are then redeemable for Class B shares, which in turn will be redeemable for Class A shares. Clever!

Over in Europe, a number of ICO platforms routinizing the tech and marketing, but none have brought much legal innovation to the table. The German financial authority BaFin recently announced that it is watching the ICO space closely, warning both ICO organizers and investors to be careful. So far Neufund is the only player in the European market to explicitly push forward the legal and regulatory aspects. A German GmbH (private limited company), Neufund has created what they call Equity Token Offerings (ETO). They plan to make this mechanism available to any number of companies, independent of whether their business model is based on blockchain.

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Regulation

Trump’s Proposed Tax Changes Could Impact Cryptocurrency Investors

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Trump presents tax reform

As the Trump administration nears a historic overhaul of the U.S. tax code, cryptocurrency investors should be on high alert for changes that could impact their holdings. As it turns out, both versions of the new tax bill include tidbits that could impact holders of bitcoin and other cryptocurrencies.

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As a refresher, the House of Representatives and Senate have each passed their own versions of the tax bill. Though considerable overlap exists, there are important differences that need to be reconciled.

Tax Impact on Crypto Investors

Neither versions of the proposed tax legislation make any direct mention of cryptocurrencies, but they do peel back the so-called “like-kind” exchange that many investors used previously.  Under the proposed legislation, like-kind exchanges apply to real property only, which excludes cryptocurrency.

This essentially means that the new bill will remove the ability to defer capital gains taxes on property by switching one asset for another, similar asset. This provision was a boon to crypto investors, who could take advantage of the swap.

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Meanwhile, the Senate version is looking to implement a first-in, first-out (FIFO) framework, which could make it more arduous to report back on crypto holdings.

Both versions of the bill are promising major tax cuts to the tune of trillions of dollars spread out over a decade. This includes a permanent 15 percentage point cut to the corporate tax rate and temporary reductions for individual tax brackets. President Trump has also pushed hard to reform international tax rules and create more leeway for U.S. multinationals to repatriate their profits.

Cryptocurrency Tax Fairness Act Left Out of Bill

Bitcoin investors may be disappointed to learn that the Cryptocurrency Tax Fairness Act was omitted from both versions of the bill. The Act, which is co-sponsored by Arizona Republican David Schweikert, promised to create a de minimis exception for crypto payments below $600. This provision would have applied after Dec. 31.

The text of the bill stipulated that:

“Gross income shall not include gain from the sale or exchange of virtual currency for 5 other than cash or cash equivalents….[if the amount of gain excluded from gross income under subsection (a) with respect to a sale or exchange shall not exceed $600.”

Schweikert is also a member of the Congressional Blockchain Committee, which focuses on crypto regulation, and the Ways and Means Committee, which is concerned with taxation.

The new Republican tax bill, if passed, would be implemented Jan. 1, 2018. If the process is delayed, there’s still a change that the new tax code will be retroactive back to Jan. 1. President Trump had previously vowed to pass tax reform in time for Christmas. That leaves very little time left before Washington shuts down for the holidays.

Crypto investing has exploded in the United States, with San Francisco-based CoinDesk registering more than 13 million trade accounts. This includes more than 100,000 signups during Thanksgiving weekend.

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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Market News

Companies are Lining Up to Launch Bitcoin ETF, According to SEC

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Two companies have stepped forward with applications to the U.S. Securities and Exchange Commission (SEC) to launch a bitcoin exchange-traded fund (ETF), according to a recent report from CCN. The renewed push toward ETFs comes as more institutional investors look to enter the burgeoning cryptocurrency market.

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Bitcoin ETF

According to the SEC’s public filing system, regulators received new applications for the REX Bitcoin Strategy ETF and Rex Short Bitcoin Strategy ETF, as well as the VanEck Vectors Bitcoin Strategy ETF.

REX, which is based in Connecticut, filed its application on Dec. 8. The New York-based VanEck filed its application on Dec. 11 in a sign that more market players were looking to capitalize on a booming market.

VanEck had previously filed to create a bitcoin ETF before the SEC struck down a similar proposal. That being said, VanEck will reportedly provide the pricing data for an upcoming bitcoin futures contract to be made available via the Nasdaq exchange. Unlike the CBOE and CME futures contract, the Nasdaq version will pull pricing information from 50 sources provided by VanEck.

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A bitcoin ETF would make the digital currency widely available to millions of investors through common retirement accounts, such as IRAs and 401(k)s.

The highly coveted but elusive bitcoin ETF has been tried before by Tyler and Cameron Winklevoss, who failed to earn SEC approval earlier this year. Regulators disapproved the ETF on several grounds, including lack of regulation and a general inability to enter necessary surveillance-sharing agreements.

The SEC’s ruling on the Winklevoss ETF puts considerable doubt over whether the new products will ever get approved. Analysts say that ETFs could spark an even bigger rally for an asset class that has already added hundreds of billions of dollars to its value this year alone.

Bitcoin Trade Volumes

Bitcoin’s market cap surged past $290 billion on Monday as institutional money flowed into the asset class following the launch of the CBOE futures contract. Trade volumes over the past 24 hours reached $12.6 billion, according to CoinMarketCap.

Bitcoin-dollar transactions on Bitfinex accounted for 11.6% of the daily transaction. South Kore’as Bithumb accounted for nearly 11% of the daily turnover. Coinbase’s GDAX also saw 6.5% of the daily turnover, data showed.

At press time, BTC/USD was trading north of $17,100. Prices skyrocketed past $19,000 last week.

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 money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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