Daily Bit #176: Triple Whammy

Daily Bit

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The Daily Bit

4 min readSep 12, 2018

Industry Updates

The Malta Stock Exchange is buddying up with Binance to launch a security token exchange.
Despite some legal shortcomings, The Bank of Russia concluded a successful ICO experiment.
Japan-based GMO launched their third digital asset exchange.
TokenSoft opened their ICO platform services to projects built on Stellar Lumens (XLM).
Don’t look now, but Bitmain may have a new competitor in Bitewei’s BTC miners.

Top Story

Triple Whammy

Regulatory groups delivered a volley of slapbacks to blockchain and cryptocurrency projects yesterday. By all means, the market is chafing from the receipt — total market cap contracted an additional ~$7 billion in the past 24 hours.

Bloomberg reported that crypto’s 9-month landslide has officially surpassed the Dot-Com debacle. If there’s a legitimate relationship between legal enforcement and capital pullbacks, more pain could be on the horizon as more projects experience the regulatory gauntlet.

1. The Financial Industry Regulatory Authority accused Rocky Mountain Ayre owner Timothy Ayre of securities fraud for the sale and promotion of HempCoin (THC).

Motive: THC was hyped as “the first minable coin backed by marketable securities” (h/t @katherineykwu). But like Squints risked drowning to swoon Wendy Peffercorn… shooters shoot. Just know your limits — HempCoin painted standards too high to back up.
Takeaway: This is the first time that FINRA is getting involved. So far, Jake Chervinsky says we’ve only seen the SEC, DOJ & FinCEN step into the ring. More gov’t bodies could don gloves in the future if the trend continues.

2. Founders of TokenLot and Crypto Asset Management were hit with securities violations. Both paid six figure settlements spurred by the former being an unregistered broker-dealer and the latter claiming they were SEC compliant.

Takeaway: We are in the dark as far as knowing how many cases are in the works. US gov’t cases are only brought to the public’s attention after they are settled. (h/t @jchervinsky)

3. The Department of Justice pushed an ICO case to trial. The defendant tried claiming that two ICO issuances were not securities, but was flattened by the judge in the process.

Takeaway: Because the sentence was limited to the facts of the case, it won’t necessarily become a watershed moment in crypto court.

Other News

Cryptocurrency Lobbyists Are in the House

No, we aren’t hyping ourselves up — they are literally in The House… of Reps…. or at least they will be soon.

Capitol Hill, meet Blockchain Association.
The organization strives to foster a pro-innovation environment for the budding industry, placing an initial focus on the applications of taxation and KYC/AML policies for crypto exchanges and startups. Kristin Smith, former blockchain lobbyist for Overstock.com, is the group’s first hire.

It’s only fitting that we introduce a few Founding Fathers:

Coinbase
Circle
Polychain Capital
Protocol Labs

Let’s not forget Digital Currency Group. And a fun fact? DCG is invested in Coinbase, Circle, AND Protocol Labs… not to mention another 133 projects(CoinDesk being one). If there was a ringleader behind the movement, our money is on Barry Silbert’s fund. FYI, Polychain ranks second with 21 investments.

Why lobby at all: Quoting Coinbase Brian Armstrong, “There are not clearly defined rules in this industry, which means we have an opportunity to help write them. That is a huge opportunity that requires creative problem solving.”

Pressure Makes Diamonds, Eliminates Crypto

The International Monetary Fund has news for the Republic of Marshall: Don’t Tread On Me.

Context: In February, the central Pacific archipelago announced their intentions to make a digital currency called the Sovereign (SOV), the country’s official legal tender.

The IMF finds this problematic for several reasons:

Their goal is to ensure international monetary stability.
Bagging the USD for an unproven digital currency is inherently risky.
It could result in multiple “economic, reputational, AML/CFT, and governance risks”.

Bullet #3 is the stickler. AML = anti-money laundering. CFT = combating the financing of terrorism. It’s understandable why the IMF wants those procedures air tight. And by their definition, adopting the SOV would riddle the standards with holes.

The Republic of Marshall thinks different
Sovereign’s website claims that its ‘Yowke Protocol’ ensures that SOV tokens are only exchanged between verified addresses. Approved wallets are sent tokens that effectively serve as digital watermarks, or more fittingly — blue Twitter check marks.

But, the IMF isn’t buying it. In fact, they’re threatening the nation with leverage:

Loss of banking relationship (CBR) with Uncle Sam….
….which endangers their annual US funding ($70M through 2023)…
….which is a substantial chunk of their GDP (~$195M in ’16 [WBG])

Food for thought: Could this impact later attempts at currency issuances? Is the IMF overstepping their bounds or saving the country from future volatility?

Hot Seat: Okex’s Star Xu

Shoot for the moon. If you fall, you’ll land among the stars. And if what you’re doing is borderline illegal, you might end up with Star Xu. The founder of crypto exchanges OKEx and OkCoin was arrested by Shanghai police over accusations of fraud related to WFEE Coin.

Here’s what we know:

Xu is a company shareholder in WFEE.
WFEE token prices fell by 98% since July 7th (CoinGecko).
WFEE Coin only traded on OKEx.

And history stains Xu’s character. A 2015 article from CoinDesk notes that Xu (1) was a strong proponent of wash trading (illegal), (2) encouraged employees to trade on OkCoin, despite it breaching company policy (illegal), and (3) was the sole holder of OkCoin’s cold wallet keys (risky AF).