Wall Street trading firms jump into cryptocurrencies
Intense price swings in cryptocurrencies are luring the highest-volume traders on Wall Street as they search for relief from the low volatility blanketing financial markets. Proprietary trading firms, which bet their own capital in markets from stocks to futures, are wading into bitcoin, ethereum and other cryptocurrencies better known as a playground for small speculators and a haven for money-laundering. DRW of Chicago, one of the world’s largest proprietary trading companies, has led the charge. About a dozen of its more than 800 employees buy and sell bitcoin at a subsidiary named Cumberland Mining, which was established in 2014. Other firms have followed, including Jump Trading, DV Trading and Hehmeyer Trading + Investments, according to industry executives. At a trading industry conference in Chicago last week, a standing-room-only crowd massed for a panel on cryptocurrencies. “The volatility in asset classes is at all-time historic lows — everywhere except for cryptocurrencies. So there’s obviously a lot of interest in this space,” said Garrett See, chief executive of DV Chain, which DV Trading launched as a cryptocurrency affiliate last year.
Even as the stock market crests to record highs, it has notched few daily moves of more than 1 per cent. By contrast, bitcoin, the most widely owned cryptocurrency market, was up nearly 6 per cent on Friday to more than $6,000.
Proprietary trading firms are jumping in ahead of banks, as the estimated value of all cryptocurrencies soars above $170bn.
Such firms are renowned as high-frequency traders, using computing firepower and telecommunications hardware to execute deals in millionths of a second. But in cryptocurrency, they are conducting many of their trades with tools such as email, Skype and phones.
Cryptocurrencies are digital assets that can be used to transfer value from one person to another, secured by cryptography. The controversial technology has struggled to gain traction among established financial firms. Last month Jamie Dimon, chief executive of JPMorgan Chase, dismissed bitcoin as a “fraud” that was “stupid” to trade.
Some proprietary groups said they refused to trade the products until they were listed on established, regulated exchanges.
Scepticism has not dissuaded some hedge funds, family investment offices and wealthy individuals from getting in on the land rush. Proprietary firms make markets for these investors, while also amassing large coin inventories themselves.
“The flavour of the counterparties has definitely shifted pretty dramatically in the last year,” said Don Wilson, DRW chief executive.
DRW has long-term holdings of cryptocurrencies, giving it stocks to be able sell to buyers. In March 2015, it bought 27,000 bitcoins that the US government had confiscated in a case involving a drug marketplace called Silk Road, according to a report by Coindesk. Worth $7.6m at the time of the auction, the sum would now be valued at about $160m.
Jump Trading declined to comment on its trading activities.
Hehmeyer, led by a longtime Chicago futures executive Chris Hehmeyer, was advertising a job opening for a “crypto trade engineer” who has a “passion for cryptocurrencies and the role they play in global markets”.
“It is exploding,” Mr Hehmeyer said. “It’s a rapidly growing set of instruments, unlike anything we have ever seen. There are risks but we are cautiously in.”
Written by The Financial Times.
When Governments Get Intrusive, Bitcoin Provides Way Out
Governments across the world are using technology and banks to keep an eye on their citizens. Decentralized currencies like Bitcoin may be the only way out for people who want to maintain their privacy.
Europe and MiFid
The European Union’s Market in Financial Instruments Directives (MiFiD) are set to be implemented from January 2018. Customers who transact in securities will now have to provide their passport numbers to every platform they register on.
Exchanges are transitioning to MiFiD-ready platforms and have started collection of data. If you do not provide your passport number and other personal data, exchanges may block your transactions. As far as Know-Your-Customer norms are concerned, no data is considered private.
US tracks citizens worldwide
The US, through the enactment of Foreign Account Tax Compliance Act (FATCA), tracks the accounts of its citizens worldwide. US citizens, whether resident or not, have information such as their social security numbers and total assets collected by banks and submitted to the IRS. The US government twists the arms of foreign banks to ensure compliance. This is done by threatening non-compliant banks with a withholding penalty on their US transactions.
The IRS is even trying to use tools like Chainalysis to track down Bitcoin transactions. There is no escaping the long arm of Uncle Sam, except by renouncing your citizenship, which some wealthy Americans have done.
India and Aadhar
The Government of India seems to be pushing forward with its aim to make Aadhar ubiquitous. The Aadhar card, which involves the collection of biometrics like fingerprints and iris scans, has been made compulsory for everything from receiving subsidies to filing income tax returns. In its new push, the government has also ordered the linking of bank accounts and mobile numbers to your unique Aadhar number.
Its motto is one billion, one billion, one billion – a billion bank accounts linked to a billion mobile numbers linked to a billion Aadhar numbers. Privacy? Forget about it, especially when it comes to money. Demonetization is not the only assault by the Indian government on people’s’ rights.
Nothing to hide?
The attitude of governments when questioned about the need for citizens’ privacy is that only criminals need to hide things from the government. Various organizations have taken the issue of privacy to courts and are fighting a battle to safeguard the rights of citizens, but governments are nonetheless chipping away at citizens’ privacy. Thankfully, Bitcoin is founded on the core premise that transactions cannot be censored in any way. If Alice wants to send some of her Bitcoins to Bob, she will be able to do that irrespective of what the government thinks and wants her to do.
Written by CoinTelegraph
Bittrex Issues Official Statement About Bitcoin Gold, Warns Users
Bittrex, the US-based Bitcoin and altcoin exchange has announced its official position on Bitcoin Gold. The exchange, widely regarded as a substantial player in the marketplace, had previously hesitated issuing a formal statement.
However, with the hard fork just a short time away, Bittrex has finally clarified its position on the coming fork. Per the statement, Bittrex will perform a ‘wallet snapshot’ at the time of the hard fork, which will occur at block 491,407. At that time, each BTC will receive an equivalent BTG. According to the statement:
“If you have a Bitcoin (BTC) balance on Bittrex during the BTG snapshot block 491,407 occurring approximately on October 24, 3am PT (10am UTC), you will be additionally credited the equivalent amount of Bitcoin Gold (BTG) on a 1:1 basis. i.e. 1 BTC on Bittrex held during the on-exchange snapshot will get you 1 BTG. BTC held on orders will also be credited. Only the BTC held on your account is eligible for BTG.”
The exchange’s statement gave users a number of warnings about the forthcoming Bitcoin Gold currency. To wit:
“Bitcoin Gold does not currently have:
- Fully formed consensus code
- Implemented replay protection
- Adequate code for testing and auditing
- Publicly known code developers
Bitcoin Gold codebase also contains a private premine of 8,000 blocks (100,000 BTG). Please be aware that if a market does open there is a possibility of the developers selling their premined BTG on the open market.”
Bittrex noted that Bitcoin Gold does not meet the necessary requirements to be listed on its exchange. They also pointed out that taking a snapshot of user balances is extremely disruptive and they will have to suspend all deposits and withdrawals 24 hours before the snapshot is taken.
Nevertheless, in spite of Bittrex’s reservations about the currency and the difficulty involved in creating the snapshot, the exchange appears committed to ensuring its users receive the appropriate amount of Bitcoin Gold.
Written by Coin Telegraph
Macroeconomics, Gambling and Crypto: A Perfect Storm?
The gambling world is no stranger to disruption. Just as online platforms are pushing aside evocative, casino-based settings, they themselves are starting to face big change.
The threat – or the opportunity – comes from two trends, one cultural and one technological.
On the cultural side, we have the explosive growth of eSports, which now spans a range of online venues, genres and demographics. Analysts insist that the recent surge is a small foretaste of what is to come. There is even talk of them becoming a medal event at the Olympic Games.
From technology, we have blockchain. While gambling with cryptocurrencies has been around since the early days of bitcoin (and is expected to grow strongly as customers get more comfortable with the concept), an interesting twist appears to be emerging from platform tokens.
Combine these trends with national legislation and economic strategy, and you begin to see a fundamental shift that has the potential to transform a massive segment of the leisure economy.
And in the process, it could also give a big boost to the development of distributed ledgers and digital tokens.
Rolling the dice
As an example, this past week U.S.-based eSports betting platform Unikrn got an online gambling license from Malta. This enables it to offer real-money betting to most of Europe, and token-based betting to the rest.
What makes this noteworthy is the platform’s new crypto token. A couple of years ago, the company created a platform-only digital token to enable users to place bets on the outcomes of games such as League of Legends. The new version, however, will run on the ethereum blockchain.
This means that it can be traded between players, sold on an exchange and converted to fiat money in many jurisdictions. It also points to the emergence of a community of developers that in theory could extend its utility by creating additional apps and add-ons.
A more intriguing aspect, though, is the strategy of the Maltese government, and where this could lead.
To help offset the decline in manufacturing, the Maltese government over the past few years has focused on attracting technology businesses to the island, offering relatively lenient legislation, low tax rates and lots of sunshine. The efforts have largely centered on the gaming industry, given its potential to foster related sectors such as finance and film.
Malta was the first state in the EU to regulate online gaming platforms, back in 2001. Since then, the industry has grown to be one of the world’s largest, accounting for over 10 percent of its domestic GDP.
By incorporating the potential for eSports gambling and cryptocurrency tokens into the mix, the island is not only signaling a future-first approach to gaming legislation. It also appears to be setting the stage for a broader development of blockchain technology.
To see an example of this strategy in practice, we only need to hop over to the Isle of Man.
Like Malta, it was an early legislator of online betting (which grew to account for almost 20 percent of GDP). This, combined with fast internet and a zero percent corporate tax rate, encouraged an influx of technology businesses, which in turn helped to foster a strong cryptocurrency ecosystem. Official support for blockchain technology was not far behind.
In 2015, the Isle of Man was the first government in the world to trial a blockchain platform – fittingly, for registering digital currency companies. It was also one of the first to regulate bitcoin businesses. Last year, it became the first jurisdiction to officially recognize bitcoin gambling, and just last month it announced its intention to foster a friendly framework for token sales.
Malta appears to be following in the Isle of Man’s footsteps.
It recently announced its intention to legalize bitcoin gambling, and last month unveiled a blockchain advisory board to steward its national strategy around the adoption of the technology. It also is contemplating testingthe impact of cryptocurrencies on the national economy, and last week revealed a trial for putting academic credentials on the blockchain.
However, the potential impact of Malta’s moves is much greater than that of its larger counterpart.
Malta is part of the EU, while the Isle of Man (a self-governing dependency under the British crown) is not. Any licensed business domiciled in Malta can offer its services in other EU countries, without needing a domicile in each one.
While this is interesting for eSports betting sites such as Unikrn, it could be especially compelling for other cryptocurrency startups. Malta has not yet made an official announcement on digital token sales, but it is likely to be only a matter of time.
And its support for blockchain experimentation – both in the private and public sector – points to the development of a forward-thinking ecosystem that in turn will breed further innovation and growth.
Who said that big change needs to come from big players?
Written by CoinDesk
Image Via Shutterstock.
To the Moon – Or Bust? Questions to Ask When Evaluating ICOs
Bruce Fenton is the CEO of Chainstone Labs and Atlantic Financial. He has worked in the investment management industry for over 25 years and is a board member of the Bitcoin Foundation and Medici Ventures, and is the host of the Satoshi Roundtable event.
In this opinion piece, Fenton offers a set of criteria by which investors can analyze ICOs and cryptocurrencies, with a mnemonic device inspired by one of the industry’s favorite slogans.
Before bitcoin came along, I was a financial advisor for many years. So I really don’t like to see people make foolish decisions that cost them a lot of money.
Clearly, digital assets are here to stay. The opportunity is exciting, but we should also be concerned about the rampant proliferation of low-quality offerings and scams.
To make things worse, digital assets don’t even have a common set of criteria by which we evaluate them. With public companies, we can compare earnings, balance sheets and other similarly calculated metrics. For digital assets, there might not even be a balance sheet; you might be making a donation to a non-profit or purchasing an API key.
There is a need for a uniform set of criteria that people can to evaluate the merit of various assets. To help investors sort the rare gems from the abundance of junk, I’ve made a simple tool called Spacesuit X for analyzing the investment merits of coins, tokens, ICOs and similar projects.
What is it?
Spacesuit X is a rating scale of 0–100 which is based on an acronym for 10 categories that investors and analysts might consider regarding tokens, coins and ICO offerings. The tenth category is “X Factor” which allows analysts to assign their own criteria for evaluation.
The default value for each category is 10. Analysts score each category on a 0–10 scale, with 10 being the highest. For example, if an analyst felt bitcoin had very good security they might rate it a 9 or higher.
Each category is then added up and totaled. This gives projects a final score of 0–100, with higher scores being better. The default weighting for each category is 10, so 10 points each in 10 categories add up to a maximum score of 100. Analysts who wish to weight a category differently can do so. For example, if someone thinks security should make up 20 percent of a project’s rating, not just 10 percent, they can change the weighting to 20, and adjust the others downward so the total remains at 100 points.
Alternatively, analysts can keep the default weighting and apply their own additional screens or metrics. For example: “Use the default weighting of 10 for security, but I won’t consider any project which has a security score of less than 7 and an overall score of below 75.”
There is a great deal of flexibility for analysts to adjust the system for their own preferences. For example, the section called “community and management” only lists criteria that should be considered. This analysis protocol doesn’t make a judgement call on whether something is good or bad. That is up to the individual analyst. So, if an analyst strongly prefers open source versus a corporate model they can reflect that in their rating. One analyst might place a heavy importance on a fixed supply, another may rate a coin highly on accounting and legal, depending on the jurisdiction that they are in. This allows each analyst to rate each category according to their own preferences.
Without further ado, here are the categories of analysis:
How secure is this? Security is the foundation of any crytpo or blockchain project. Factors to be considered are the security of the blockchain being used, centralization, control and an analysis of attack vectors on the chain, coin, project and any related smart contracts.
What are you participating in with this token or coin? What portion of earnings or equity of a project does my token represent (if any)? Have you purchased a security? An app API key? A share of future of revenue? Have you simply donated to a non-profit tech foundation? What portion has been diluted and how? How fair and transparent was the issuance process?
Accounting and legal
How are holdings calculated? On a public, open blockchain or by a central party? What, if any, is the corporate structure of this project? Is it open source? Are there significant legal risks for any key contributors, managers or entities involved in this project? Is this project legal in the jurisdictions important to you? What user rights (if any) are a natural part of the code?
Community, management and team
Who is working on this project? Is there a community? For FOSS (free and open-source software), who contributes how when and why? Is it open or controlled? For corporate, non-open-source projects, who is the team and what is their track record? Who are the executives behind this? What have they done before? Have they ever managed similar amounts of money and numbers of employees successfully?
What is the economic size of transactions in this asset? What are the earnings and projected earnings of this project and/or this part of the industry (if any)? Projected growth rates? Is this being used or bought for something other than speculation? Who is buying? What do they pay? What will those amounts be in the future? Most importantly, how does my token tie to these earnings (if at all)?
Supply and demand
Is supply fixed or limited? How many coins or tokens will be issued? How? Who can change this? Who controls large amounts of coins? What is the real market strength and market cap value? Is there enough market depth to actually support significant sales at a similar price or is it too thinly traded?
What will the project, coin or token be used for? If not usable directly, what is the share of equity it gives you? Is the project a useful application? Does the token represent something else of value? What? How? What does this token, coin or project do? What is the problem solved by this? Do people or will people use it? Why?
Are corporations or venture capitalists participating? Do exchanges list this token or coin? Do companies build businesses around this? Does the project have any major industry or non-industry partners? What is the overall market direction? How about for this type of project? What’s the state of the industry? Who is the competition? What is this project’s leadership in the space for this use case?
What are the technical details? If this is using a blockchain, does it need one? How much has this been tested? Are the speed and efficiency drawbacks of a blockchain worth it for this project? Why? Is this blockchain open or permissioned? How resistant to censorship is this blockchain? What anonymity features does the tech offer?
What other factors would you like to include in your analysis? What is the overall thesis? Why will the markets place value on it? What other risks are there?
The X factor slot is your chance to add any criteria that I’ve missed.
Then you tally it all up.
Security: Score 0–10 ___
Participation: Score 0–10 ___
Accounting and legal: Score 0–10 ___
Community, management and team: Score 0–10 ___
Earnings: Score 0–10 ___
Supply and demand: Score 0–10 ___
Usability: Score 0–10 ___
Industry/institutional: Score 0–10 ___
Technical: Score 0–10 ___
X factor: Score 0–10 ___
Total: Score (0–100) ____
Hopefully other analysts will use the Spacesuit X method to rate tokens and explain their own decisions. This tool is published under the Creative Commons license and is free and open source. I’ve tried to make it flexible enough for anyone to use and publish an analysis. You are welcome to use and adapt as you see fit.
Just remember: If you’re doing something as brave, and risky, as flying to the moon, bring your spacesuit.