- China orchestrates successful three-week Bitcoin pump and dump
- SEC will review Bitwise ETF rejection, but approval remains unlikely
- BRICS deliberating unified cryptocurrency to take down the US dollar
- FBI misprizes its unlikely law enforcement ally in cryptocurrency
Bitcoin back on China blacklist? When was it ever whitelisted?
Just a few short weeks ago, remarks by Chinese President Xi Jinping widely misreported as a ringing endorsement of Bitcoin sparked the mother of all feeding frenzies as the cryptocurrency rallied to its largest daily gain in eight years.
The optimism was further fueled when, in the immediate aftermath, the ruling communist party’s publicity department, which is charged with media control and censorship, began circulating various educational articles on blockchain and Bitcoin.
Earlier this month, China’s economic planning agency, the National Development and Reform Commission (NDRC), revised an earlier draft from April removing bitcoin mining from the originally proposed category of industries to be eliminated from China. It should be noted that this wasn’t China lifting a mining ban as deciding against it.
Days later, the state newspaper Xinhua ran a front page story on Bitcoin, dubbed “Bitcoin: The First Successful Application of Blockchain Technology,” which was reported in the west as “China hails Bitcoin as a success.”
Sure, the article detailed the basics of Bitcoin, acknowledged Bitcoin as the first successful implementation of blockchain and described it as “one of the hottest topics in recent years.” But this was far from the encomium it was reported to be.
Just as few cottoned on to the actual intent behind Xi’s remarks on blockchain last month, where he omitted any mention of Bitcoin, few seemed to realize that the purpose of this story was in fact to highlight some of the oft-cited disamenities of Bitcoin. It was an effort by the state media to temper renewed public enthusiasm for Bitcoin as a reaction to Xi’s comments.
The Xinhua article was at large a scathing denunciation of Bitcoin. It claimed that the cryptocurrency’s primary use case was as a vehicle for illicit activities,
“Currently, bitcoin is widely used in illegal transactions. The most important use of bitcoin payments are black market transactions and dark web transactions.”
To make it unequivocally clear that China’s blockchain push had no place for Bitcoin or other cryptocurrencies, the financial task force in China’s tech hub of Shenzhen issued a notice on Thursday to 39 businesses providing virtual currency services. These businesses are set to be investigated further for potential violations under current regulations.
On Friday, the central bank’s Shanghai HQ issued a regulatory update to “strengthen regulation, control and clamp down on cryptocurrency trading.” The announcement criminalized coin offerings and fund-raising activities, offering of services by overseas trading platforms to Chinese citizens and warned investors not to confuse innovation in blockchain technology with speculation in cryptocurrency.
The Chinese government is set to institute new laws in January to “facilitate the development of the cryptography business and ensure the security of cyberspace and information.” Once this legal framework is put in place, the country is expected to launch a digital currency developed by the central bank, called Digital Currency Electronic Payment (DCEP).
It remains to be seen whether the retention of a ban on virtual currency services and trading is an interim measure to thwart overly exuberant traders pending a definitive legal framework or a permanent measure to root out competing digital currencies. In any event, it seems unlikely that private cryptocurrency exchanges and services will ever be allowed to operate in China.
Shady market actors do little to dispel SEC reservations over Bitcoin ETF
Last month, the US Securities and Exchange Commission (SEC) once again rejected an ETF filing with a proposed rule change from Bitwise Asset Management and NYSE Arca stating that the application failed to meet the necessary requirements regarding market manipulation and concerns over custody.
Bitwise managing director and global head of research, Matt Hougan argued that markets had evolved sufficiently to justify a Bitcoin ETF, “Two years ago, there were no regulated, insured custodians in the Bitcoin market. Today big names like Fidelity and CoinBase have hundreds of millions of dollars of insurance from firms like Lloyd’s.”
Since then, the Intercontinental Exchange’s Bitcoin futures platform, Bakkt has launched custodial services to store funds for its clients independent of futures contracts, securing insurance for up to $125 million with a global syndicate of insurers.
In light of these positive developments on the custody front, the SEC announced last Tuesday that the Bitwise ETF filing would be once again up for review and that any party or other person may file a statement in support of, or in opposition to an approval of the filing by December 18, 2019, adding that the earlier rejection would remain in effect pending a review.
However, chances of an approval remain decidedly slim since the major sticking point outlined by the commission in its rejection last month was market manipulation, “NYSE Arca 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 requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices.”
The commission specifically refuted Bitwise’s evidence adducing the claim that the “real” spot market for Bitcoin, excluding “fake and/or non-economic data”, had evolved to constitute a significant portion of the markets and were adequately resistant to manipulation.
In an enduring climate of Tether manipulation lawsuits and a myriad Bitmex controversies, inter alia, it’s hard to make a case that much progress has been made on that front. A study earlier this month went so far as to allege that the rampant late 2017 bull market could be imputed to a single entity – one large account at Bitfinex.
The exchange act in question does allow for a workaround, whereby the listing exchange, NYSE Arca, would be required to enter a “comprehensive surveillance-sharing agreement with a regulated market of significant size,” to provide regulators sufficient transparency to scrutinize market behavior.
The word significant is the operative here. Bitwise argued that the $273 million daily volume through regulated markets was sufficiently significant, but SEC is rightly worried about the $6 billion fake or unverifiable volume which dwarfs the supposedly real volume.
China, India and Russia hatch crypto plot to nix US dollar hegemony in foreign trade
BRICS, a bloc of five emerging economies – Brazil, Russia, India, China and South Africa, is exploring the creation of a digital currency as an alternative payment system which can enable settlements between the member nations.
Speaking at the BRICS forum last week, head of the Russian Direct Investment Fund (RDIF), Kirill Dmitriev proposed the idea, “An efficiently operating BRICS payment system is able to stimulate settlements in national currencies and ensure the stability of settlements and investments between our countries, which form more than 20% of the global influx of foreign direct investment.”
Dmitriev emphasized that a sustainable integration of such a payment system was an important factor in the group’s economic partnership “in the face of increasing non-market risks of the global payment infrastructure,” referring to geopolitical tensions and trade conflicts.
This followed earlier discussions between China, India and Russia to create an alternative to SWIFT to facilitate trade with countries under US sanctions. A tentative agreement is in place to connect the Russian Financial Message Transfer System (SPFS) to the Chinese international system of interbank payments (CIPS) and India’s Immediate Payment Service (IMPS).
At the forum, BRICS countries announced the development of a unified payment system called BRICS Pay, a mobile application through which payments can be made for purchases made in any BRICS country, regardless of the currency in which the buyer holds their account. For such a purpose, it was determined that a unified cryptocurrency would be convenient.
BRICS is arguably the most powerful economic alliance of countries outside the OECD, which is largely responsible for reducing the share of the US dollar in foreign trade from 92% in 2013 to 50% in 2018. But an ambition to ostracize the dollar is not limited to the BRICS bloc.
Leaked draft documents from the European Central bank revealed earlier this month that the European Union is actively pursuing the development of a common digital currency as part of its efforts to ward off what was described as “a threat to monetary sovereignty” from the likes of Libra.
FBI is having a hard time figuring out surveillance of cryptocurrencies
Former federal prosecutor and general partner at Andreessen Horowitz, co-heading its $350 million cryptocurrency fund, Katie Haun dropped a pretty big bombshell last month when she claimed that she was asked at the US attorney’s office to look into shutting down Bitcoin back in 2012, which they quickly found out wasn’t possible.
While working in cyber security, she was asked to investigate Bitcoin. Being unusually discerning for a federal employee in these matters, she quickly realized that Bitcoin, just like cash, may enable criminal activity but it wasn’t responsible. She added that the “digital bread crumbs” on the blockchain in fact helped her track down illegal activity easier than cash or credit cards.
She reasoned that the earliest adopters of new technologies are largely criminals, as they are constantly looking for loopholes and ways to exploit systems. Others are not as well-heeled as Haun in their understanding of cryptocurrency, but it doesn’t seem to stop them from having an opinion.
Former GOP Presidential nominee, Senator Mitt Romney raised concerns over the threat posed by cryptocurrencies to national security during a hearing earlier this month in the Senate Committee on Homeland Security and Governmental Affairs,
“I’m not in the Banking Committee. I don’t begin to understand how cryptocurrency works. I would think it is more difficult to carry out your work when we can’t follow the money because the money is hidden from us and wonder whether there should not be some kind of effort taken in our nation to deal with cryptocurrency.”
FBI Director Christopher Wray responded that cryptocurrency was already a significant issue for intelligence services which was going to get bigger and bigger with the increased capabilities of enemies to use tech and the ability to process anonymous transactions.
Lo and behold, last Monday, the FBI uncovered a nexus between UK-based remittance platform Mayzus Financial Services (MFS) and defunct cryptocurrency exchange BTC-e, which is mired in numerous hacking and money laundering lawsuits across multiple jurisdictions. The link was discovered using on-chain evidence.
Anyone who has watched the Edward Snowden documentary Citizenfour or read his recently released autobiography, Permanent Record, should know that the FBI’s gripe with cryptocurrency has nothing to do with national security but everything to do with surveillance and unconditional invasion of privacy in the name of national security.
BTC/USD ended last week’s trading in an ugly bearish Marubozu, recording an enervating 19% loss to close at 6908 and complete a four-week loss of 30%. It’s back to as you were before the China fillip fake out and these are testing times in the short term.
The daily chart shows the pair trying to establish support above .618 Fibonacci retracement level after a second significant dent in the mid-term trend with a death cross of the 100 MA following the 50 MA death cross. There’s still significant momentum as evinced by ADX so we should expect quite a bit of volatility. A decisive break above 7600 could see a test of 8060.
For day traders and swing traders, the 4-hour chart looks a lot more promising, with bullish OBV and RSI divergences from the price curve and a first parabolic bullish MACD cross this month. If volume recedes, the patterns could be invalidated. Look out for bearish reversal candlestick patterns to scalp retracements.
Altcoins suffered losses across the board as Bitcoin endured a rough week. Ether (ETH/BTC) is struggling to hold support at 0.02 BTC after flirting with and failing to break above 0.022 BTC for the last couple of weeks. Ripple (XRP/BTC) has likewise lost all of its momentum from October, trading at a 2-month low and struggling to hold support at 3000 sats.
Tezos (XTZ/BTC) was the best performer in the top 20, gaining 18% for the week against Bitcoin. Bitcoin’s market dominance is back to just under two-thirds of the total market cap at 66.5%, up .6% from last week.