Billionaire Chairman Of China"s Giant Network Invested In OkCoin

Giant Network Chairman Shi Yuzhu has invested tens of millions of dollars in cryptocurrency trading platform OkCoin, according to local media reports citing unidentified people familiar with the matter. According to local media sources, the investment was widely anticipated.

According to Bloomberg, it’s unclear whether the investment took place before or after China halted domestic Bitcoin exchanges. OKCoin CEO Star Xu declined to comment to QQ.com.

Xu Mingxing, founder and CEO of OKcoin, apparently confirmed Shi’s investment. Xu also confirmed that Lei Jun, another celebrity billionaire – though it’s unclear whether the two men made their investments before or after China introduced regulations banning active trading of ICO tokens and cryptocurrencies on local exchanges, forcing many customers to migrate to South Korean, Hong Kong or Japanese exchanges. Lei had previously denied his investment.

Back in 2014, OKCoin raised around ten million dollars in Series A funding from investment institutions (Ceyuan Venture Capital, Mandra Capital, Ventures Lab) and venture capitalists (prominent angel investor Cai Wensheng, founder of e-commerce site Xiu.com Huang Jin, founder of developer community CSDN Jiang Tao, chairman of Chinese Yough Angel Investor Leader Association Yang Ning, founder of angel investor Pre-Angel Wang Lijie, founder of tech media Leiphone Lin Jun, etc.).

In September, Chinese authorities shocked the bitcoin market when they abruptly banned exchanges from actively trading ICO tokens and digital currencies like bitcoin. Exchange-based trading volume in the country immediately plummeted as domestic investors turned to exchanges based in Japan, South Korea or Hong Kong to conduct business.

But local exchanges are apparently surviving after tweaking their business model.

They now facilitate peer to peer transactions, a business model pioneered by website LocalBitcoins.

Since the exchanges shuttered active trading, peer-to-peer trading volume in the country has exploded...

Bitcoin"s Growing Price Gap Between Exchanges Creates Potential Headaches For Futures Trading

On Thursday, as the Bitcoin price made record high after record high, spiking to somewhere between $16,000-19,500, it was one of the top stories across mainstream media outlets, never mind Reuters, Bloomberg and the FT.

However, what exactly was the all-time high for Bitcoin? Because of Bitcoin"s growing "price gap", it depended where you looked. But a price gap of more than $3,000…really? Actually yes, as Bloomberg explains.

Bitcoin traded above $19,000 on Thursday, but you may have missed it. As it was reaching $19,500 just after 11 a.m. on the GDAX exchange, which is run by the popular bitcoin brokerage firm Coinbase, bitcoin was still stuck in the high $15,000"s on other trading platforms. Similarly, most U.S. traders woke up on Thursday to news that bitcoin was above $15,000, unless they were following it on Bitfinex, where it didn"t cross $15,000 until soon before 10 a.m.

This is nothing new. Bitcoin trades on dozens of exchanges, and the prices get out of whack at times. But as the price of bitcoin rises more rapidly into the tens of thousands, the gap seems to be getting worse. It was particularly bad on Thursday, when for several hours in the morning the difference between the price of bitcoin on the exchanges remained thousands of dollars, more than the total price of bitcoin just a few months ago.

The chart below compares the price of Bitcoin on two separate exchanges, GDAX and BitStamp, from 12.00am to 5.00pm yesterday.

To some extent, this might not seem to matter, Bloomberg suggests. So what if you could sell at a higher price on GDAX, it’s likely that you paid a higher price in the first place. As we discussed yesterday, GDAX is Coinbase’s exchange and the higher price probably reflects  Coinbase being the easiest way for new Bitcoin investors to participate. And…let’s face it, most investors in Bitcoin have been making money. Furthermore, yesterday was an unusual day as the whole world seem to be momentarily gripped by Bitcoin mania. Congestion problems on the Gemini exchange, for example, forced it to suspend redemptions for several hours.

While people might not care about the price divergence right now, they might do in the next few days. As we know only too well, Bitcoin trading is about to change dramatically, with the launch of the CBOE and CME Bitcoin futures contracts. The former starts trading on Sunday after which investors will be able to buy, sell and short the Bitcoin price without having to buy the digital currency itself. Unlike the current Bitcoin exchanges, the futures exchanges are heavily regulated (except when it comes to trading gold and silver, of course).

The intersection of trading on "wild west" Bitcoin exchanges with conventional futures exchanges is a potentially dangerous mix. While the CEO of ICE, which owns the NYSE, has lamented that the CBOE and CME have beaten him in launching Bitcoin products. He also said this week that his organisation wouldn’t be offering futures contracts soon due to the lack of transparency and structural integrity in existing Bitcoin markets. Those cautionary words are looking prescient all of a sudden. As Bloomberg notes.

The price gap creates some structural problems for the futures market. Consider hedging. The Cboe and the CME contracts will reference prices on different exchanges. So if investors are trying to hedge a bitcoin purchase, they will have to make sure they buy bitcoins on an exchange that matches up most closely with a particular contract.

But the bigger problem is that the price gap gives some credence to Sprecher"s argument. Large price spreads indicate liquidity problems and a lack of active professional dealers or traders who would normally arbitrage these differences away rapidly. Less liquidity suggests prices will drop more quickly when they inevitability do, though not everyone agrees.

Paul Puey, the CEO of Airbitz, a bitcoin wallet company, told me on Thursday that bitcoin"s fractured market was a feature, not a bug. If a large trade were to start a tumble in one exchange, the prices would be safe elsewhere, the thinking goes, though I"m not sure I believe that the bitcoin whales wouldn"t rush in to sell on a sustained plunge.

On balance, Bloomberg comes down favourably on the introduction of Bitcoin futures trading, expecting it to reduce volatility. However, any conviction is lacking as Bloomberg Gadfly analyst, Stephen Gandel, acknowledges that he might be wrong and it could have the opposite effect.

And more liquidity by way of the futures market should make bitcoin prices less volatile. But it could go the other way, too. A drop in the price could send futures traders heading for the exits, stoking more fears in the traditional bitcoin exchanges. That could create negative feedback loops, like the ones in mortgage markets during the financial crisis. What"s more, if there is some pent-up demand to short bitcoin, a rush of traders could cause futures to plunge when they start trading, pushing down the price of bitcoins.

Exactly.

As the clock running down to futures trading, we are waiting to see whether big banks and “official” interventionists launch a pre-emptive strike in a desperate effort to cool the Bitcoin bull market. Whether or not that happens, we aren’t convinced that Bitcoin’s volatility, or its price, will be tamed for long.

China"s Central Bank Warns "Bitcoin Will Die" - Here"s How

On the heels of a weekend full of threats and promises from governments, bankers, and the mainstream media, Bitcoin was lambasted once again overnight, this time by The People"s Bank of China.

For a brief 6 months or so, China was the dominant region for Bitcoin in the world, but then  - as capital flows accelerated - the government and central bank began to "crackdown" on crypto, first by banning ICOs and then shutting down local exchanges. Volume disappeared...

Looking back at the crackdowns, QZ reports that Pan Gongsheng, a deputy governor of the People’s Bank of China, believes Beijing made the right decisions.

"If we had not shut down bitcoin exchanges and cracked down on ICOs several months ago, if China still accounted for more than 80% of the world’s bitcoin trading and ICO fundraising, everyone, what would happen today? Thinking of this question makes me scared."

QZ further notes that Pan went on to share a recent column by economist Éric Pichet in the French newspaper La Tribune (link in French). In it, Pichet, a professor at the Kedge Business School in France, makes a familiar argument that bitcoin is a bubble waiting to burst, just like the tulip mania in the 1600s and the Internet bubble of 2000.

He predicts that bitcoin will die of a grand theft, a hack into the blockchain technology behind the cryptocurrency (which actually is unlikely), or a collective ban by global governments.

Pan cited lines from Pichet to wrap up his talk:

As Keynes has taught us, “the market can remain irrational longer than you can remain solvent.”

 

There is only one thing left to do: Sit by the river bank and see bitcoin’s body pass by one day.

But for now, while his comments could have taken the shine of overnight trading, Bitcoin is bid again this morning...

The Government Is Coming For Your Bitcoin

Authored by Simon Black via SovereignMan.com,

The same day Bitcoin cracked its all-time high above $11,000, the government dealt its first blow to the crypto world...

On Wednesday, a federal judge in San Francisco ordered the popular Bitcoin exchange, Coinbase, to provide the IRS with information on over 14,000 account holders.

The taxman noticed that only 800-900 people reported gains related to Bitcoin in each of the years between 2013-2015. It seemed unusual given Bitcoin’s meteoric rise.

So the IRS went for its pound of flesh.

Initially, the government wanted complete data on every Coinbase user that transacted between 2013 and 2015. The exchange’s website says it has 13 million users (more than the number of Schwab brokerage accounts).

But Coinbase pushed back… and the government agreed to only take limited data (including name, date of birth, address, tax ID number, transaction statements and account logs) for accounts that have bought, sold, sent or received at least $20,000 worth of Bitcoin in a given year.

Don’t say I didn’t warn you about Coinbase. I told Sovereign Man: Confidential readers last month:

If you’re tempted to purchase Bitcoin from the popular Coinbase exchange, don’t bother.

 

They’ve sold out to regulators.

The IRS is calling this a “partial win.”

But you can be sure, there will be a public beheading. This is something governments almost always do.

They’ll find a prominent Bitcoin person, someone that’s polarizing to the public – like “pharma bro” Martin Shkreli.

It will be a very public trial… and they’ll throw his ass in the slammer.

Government’s always do this because they want to scare people.

Kim Dotcom is the perfect example. Kim founded the popular file-sharing site Megaupload.

The government wanted to stop illegal downloads, so they raided his guy’s house in New Zealand for violating US law.

The government also does this for taxes… everything, really.

Look at Wesley Snipes. The IRS accused him of felony tax evasion. He spent three years in jail.

They had to take a celebrity and throw him in jail to scare everyone else.

Back to Bitcoin…

Now that it’s at all-time highs, the government wants its piece.

I read the 400+ pages of the proposed tax code. How many lines in there do you think deal with cryptocurrency? ZERO.

How many lines deal with e-commerce? ZERO.

The government had every opportunity to set the rules for the 21st century. And they failed miserably.

So the rules remain as clear as mud.

Instead of trying to make it clear, their tactic is intimidation, force and coercion.

This is just the beginning. There will be more.

And my advice is don’t be one of those guys.

Every transaction that you make in Bitcoin is potentially a taxable event.

Let’s say you bought Bitcoin for $1,000 and after it went to $10,000 you buy a business class trip to Australia for $10k. When you pay the airline with one Bitcoin, you’ve just triggered a taxable event.

The IRS would say that you essentially sold your Bitcoin, have a $9k gain and used those proceeds to buy the ticket.

Which means you owe the IRS capital gains tax on $9k, which is 20% plus the Obamacare surcharge.

So, don’t be that guy. If you’ve been doing this, trust me, you don’t want the IRS find out.

You’d rather come forward yourself and disclose it and pay taxes… Rather than be the next Martin Shkreli.

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide. Because... If you live, work, bank, invest, own a business, and hold your assets all in just one country, you are putting all of your eggs in one basket. You’re making a high-stakes bet that everything is going to be ok in that one country — forever. All it would take is for the economy to tank, a natural disaster to hit, or the political system to go into turmoil and you could lose everything—your money, your assets, and possibly even your freedom. Luckily, there are a number of simple, logical steps you can take to protect yourself from these obvious risks.

 

 

Bitcoin Rockets Higher, Then Crashes Lower, Then Repeats

Written by Nathan McDonald, Sprott Money News

 

 

The Bitcoin markets are in utter turmoil at the moment - the cryptocurrency that has become the envy of all speculative assets, possibly one of the greatest in modern history, is experiencing extreme volatility.

 

 

Long familiar with extreme ups and downs, Bitcoin has a history of moving higher rapidly, and also crashing suddenly. This past 24 hours appear to be encompassing both of these directions as the markets engage in an active game of tug of war, with billions of dollars on the line.

 

 

Those who have only recently gotten on the cryptocurrency bandwagon, buying into the recent parabolic rise of Bitcoin, have to be vomiting in disgust as they watch their hard-earned money being beaten like a dirty rug, but this is it - this is what it looks like to be involved in the cryptocurrency space, and something that veterans of the markets have seen time and time again. It is not all peaches and cream.

 

 

It began yesterday, when Bitcoin surged higher, out of nowhere, rising to a high of $11,323 USD from a $9721 USD start of the day. This was a monstrous gain in less than 24 hours. However, it was not meant to last as it promptly plummeted downward to $9435 USD, causing many of the major Bitcoin exchanges to crash themselves and go offline, including Coinbase, which is the most well funded exchange within the sector.

 

 

Following this crazy few hours, Bitcoin began to climb higher once again, easily breaking the $10,000 USD mark in overnight hours trading, but this too was not meant to last.

 

 

 

Chart Source, CoinDesk

 

 

Seeing this extreme volatility has caused many holders of the cryptocurrency to take profits, pulling out their money and causing another rapid crash lower - which as of this writing, has Bitcoin resting around $9,362 USD.

 

 

Compounding these problems is the fact that prominent names within the precious metals space have recently come out and suggested that perhaps it is time to take some gains, as the price of Bitcoin has gone parabolic throughout 2017, shocking even some of its most stout supporters.

 

 

As I have previously mentioned, 2017 has been a phenomenal year for Bitcoin. For those who got in even at the start of the year, you should be congratulated, as you made the right call and are now looking at huge gains. But as I have also seen numerous times in the past, Bitcoin can evaporate the majority of your gains in the blink of an eye. This isn"t the first time, nor will it be the last time that Bitcoin suffers uncontrolled volatility.

 

 

It has been, and continues to be, a wild, uncontrolled and incredibly speculative asset - one that has the potential to either change the financial world for all time, or possibly be the greatest scam we have seen since the Tulip mania.

 

 

I lean towards the former, but remember this always: there are powerful forces actively working against Bitcoin and its success - forces that will not take this change and threat to their fiat power lying down.

 

 

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

Bitcoin Rockets Higher, Then Crashes Lower, Then Repeats

Written by Nathan McDonald, Sprott Money News

 

 

Check out these other articles by our contributors:

Jeff Thomas - What Will Push Them Over the Edge?

Rory Hall - If You THINK About Taking Someone’s Golden “Pet Rock” It Would Be a “Declaration Of Financial War”

Stewart Dougherty - The War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat (Part 1)

John Rubino - “The Money Is Just Sitting There…Doing Nothing for Society”

 

The IRS Is Puzzled: Why Out Of 500,000 Coinbase Users, Only 900 Reported Gains Or Losses

Almost exactly one year ago, the IRS realized that it could be leaving billions of dollars on the table in the form of uncollected taxes, and launched a tax-evasion probe on the largest US Bitcoin exchange, Coinbase, seeking to identify all Coinbase users in the U.S. who “conducted transactions in a convertible virtual currency” from 2013 to 2015.

In a vexing paradox for cryptocurrency traders who had hoped they could avoid the IRS indefinitely as someone, somewhere once may have mentioned, the higher the price of bitcoin rose, the more motivated the IRS was to obtain access to user transaction records. Or, as Bloomberg put it, "the exploding value of the cryptocurrency since its first real-world transaction in 2010 is one reason the U.S. Internal Revenue Service is pushing to see records on thousands of users of Coinbase Inc., one of the biggest U.S. online exchanges. The company’s digital currency platform allows gains to be converted into old-fashioned dollars in transactions that the IRS alleges are going unreported."

To be sure, as we have reported over the past year, Coinbase and industry trade groups are fighting back in court, claiming the government’s concerns about tax fraud are unfounded and that its sweeping demand for information is a threat to privacy. That however, did not stop the IRS which claimed in a court filing that "U.S. taxpayers, including Coinbase users, have made use of virtual currencies to avoid the reporting and payment of taxes." The agency said it needs access to customer records to “gain some degree of visibility into a space where it is already necessarily moving about somewhat in the dark."

Meanwhile, both Coinbase and bitcoin have exploded. Whereas Coinbase had under 5 million users last November when the IRS filed its lawuist, as of last week it had 12.2 million users, deploying 41 million virtual currency wallets in 32 countries that have so far exchanged $40 billion in digital currency. The price of bitcoin hit a record high just under $8,000 at the start of November, more than 10x higher than in November 2016.

The biggest problem, however, and the reason why the IRS is unlikely to relent is that as the IRS said, it detected a "reporting gap" between the 500,000 virtual currency users Coinbase reported between 2013 and 2015 and the less than 900 bitcoin users reporting gains or losses for each of those years.

That would imply that less than 0.2% of coinbase users bothered to report anything on their tax forms. One can see why the IRS is angry.

And, worse for those who believe they will be able to get away with their cryptoprofits unscathed by Federal Taxes, following last week"s hearing, a federal judge is poised to allow a limited investigation into those gains to proceed over the company’s objection that the agency is on “a massive fishing expedition” meant to make itself look tough in the eyes of its critics in Congress, according to Bloomberg.

"It’s legitimate for them to investigate whether people are making money on their bitcoin purchases" and paying taxes on any gains, U.S. Magistrate Judge Jacqueline Scott Corley in San Francisco told lawyers for Coinbase at a hearing last Thursday. "I have to give tremendous discretion to the agency as to how they investigate," she added later.

Coinbase was not impressed. Mike Lempres, the company"s chief legal and risk officer said after the hearing that the company can’t negotiate with the IRS about a "forward-looking, rational reporting system" so long as the agency is suing it. Such discussions aren’t possible "because we’re in this tussle with them where they are improperly searching for private information of our customers with no evidence of wrongdoing," Lempres said. He declined to comment on Corley’s pending ruling before the company has seen a final order in writing.

Last year, the IRS persuaded Corley last year to order Coinbase to approve its summons for customer records from 2013 to 2015 for an investigation into whether taxpayers failed to report income. Coinbase resisted, and negotiations between the company and the agency resulted in a narrowed request for information about 8.9 million transactions and 14,355 account holders. Coinbase argued Thursday the inquiry remains unreasonably broad.

On Thursday, Bloomberg reports, Corley said she would allow the IRS to investigate Coinbase customers who made money on the currency and bar the agency from probing accounts of those who hadn’t. The judge also said she’ll probably give Coinbase time to appeal her decision before it turns over any customer information.

While lots was said of bitcoin"s drop over the past 4 days, much of attributed to suspension of the controversial Segwit 2x fork which was originally due in mid-November, some are wondering if a key catalyst for the price drop wasn"t the latest court ruling, although it in itself should have little impact on trading decisions: after all, at this point it"s a binary outcome: either the IRS will have access to all those who made money trading the crypto... or it won"t.

In retrospect, it will be interesting to find out, if only based on the number of IRS submissions, how many of the over 12 million bitcoin accounts have actually made money trading cryptos. We will soon find out.

To Satisfy Soaring Bitcoin Demand, China"s Exchanges Find A Loophole

It’s been nearly two months since Chinese cryptocurrency exchanges were abruptly shuttered by local regulators, part of President Xi Jinping’s ongoing crackdown on capital outflows and potentially embarrassing or destabilizing market forces in the weeks ahead of last month’s National Party Congress. But now that China"s new president emperor has cemented his grip on power by installing political allies on the Politburo and successfully lobbying to have his name enshrined in China’s Constitution, the exchanges are taking tenative steps to figure out if it’s safe to do business in China again, and what constraints would apply to their operations going forward.

And while providing an online exchange for fiat-to-digital currency transactions is still expressly prohibited, a couple of the country’s biggest exchanges are rolling out an OTC model that resembles the popular peer-to-peer bitcoin trading website Local Bitcoins, and which will "also support fiat currency transactions."

Here’s CoinDesk:

Some of China"s top bitcoin exchanges are now shifting to the over-the-counter (OTC) market in the wake of a crackdown by regulators in the country. In announcements made on Oct. 31, both OKEx and Huobi Pro said they will introduce peer-to-peer trading platforms that support fiat currency transactions, including the Chinese yuan, as an alternative for the country"s domestic cryptocurrency investors.

 

Based in Hong Kong, the two exchanges had previously provided solely crypto-to-crypto trading since being founded by their respective parent exchanges, Beijing-headquartered OKCoin and Huobi. They will now pivot toward a combination of the existing structure and the direct, peer-to-peer model.

The news confirms what most have already known: that Chinese demand to trade, or rather buy, cryptocurrencies is still as strong as ever, if not more. According to OKEx, the yuan is currently the only fiat currency that is available on its P2P platform; it also adds that it has seen increasing demand from Chinese crypto investors since the exchange crackdown.

Lennix Lai, financial market director at OKEx, said the platform has received around 8,000 user applications for account registration since the new service"s launch on Nov. 1.

Lin Li, CEO of Huobi, said in his latest announcement that, besides the P2P platform on Huobi Pro, the company is also eyeing an expansion to overseas markets. The firm is currently in the process of setting up an exchange platform in South Korea to compete with local marketplaces like Bithumb.

The news that China may be returning to crypto trading comes as bitcoin rallied to $7,500 last week , news record highs in recent days, spurred by CME Group’s decision to launch bitcoin futures trading, which in turn resulted in a record 100,000 new users joining America"s largest crypto exchange, CoinBase.

The business model pivot comes as much of China’s trading volume has migrated to nearby Hong Kong and South Korea in the weeks since the shutdown. Whether they will be able to lure most, or some, of it back to the mainland under the watchful eye of Chinese authorities remains to be seen.
 

LedgerX Trades Over $1 Million In Bitcoin Options And Swaps In First Week

Bitcoin derivatives clearinghouse LedgerX has announced that the first bitcoin derivatives trades have taken place on its platform - an important milestone for the nascent digital currency market that could open the door to more institutional involvement and, some say, the creation of the first bitcoin-focused ETF.

LedgerX confirmed rumors that it had already started clearing bitcoin derivatives trades in a statement provided to CoinDesk and a handful of other media outlets. According to figures provided by the company, LedgerX facilitated trading in 176 swaps and options contracts in its first week, an amount with a notional values of more than $1 million, according to CEO Paul Chou.

"This week, a new standard is set for transparency, oversight and counter-party assurance. Institutional investors and traders can now rely on a guaranteed clearing and settlement process when transacting bitcoin contracts," Chou said.

As CoinDesk points out, while the initial LedgerX trades appear to be exclusively bitcoin focused, the details of the license granted to the company by the CFTC in July allow for the creation of derivatives for other digital currencies as well. The company is reportedly working with options trading shops, asset managers, hedge funds, bitcoin miners, family offices, investment banks and virtually anybody else interested in helping it create a market for the new contracts.

"Our regulated, institutional-grade platform enables participants who were sitting on the sidelines, to enter the digital currency market."

LedgerX is licensed as both a swap execution facility (SEF) and a derivatives clearing organization (DCO).

The CFTC gave its blessing to LedgerX back in July when it approved the creation of the first designed bitcoin SEF, or swap execution facility. Previously, bitcoin derivatives were traded exclusively OTC on exchanges like BitMEX. But now, trading in bitcoin options will be centrally cleared in the same manner as option contracts on equities.

Congress mandated the creation of SEFs as part of its Dodd-Frank Wall Street reform bill in a bid to bring greater transparency to derivatives trading after synthetic CDOs and other shady “hedging instruments” tied to the mortgage securities helped wreck the economy in 2008,

Dodd Frank, helped by a raft of CFTC rules, helped create a complex trade-reporting ecosystem in US markets, which RiskFocus has illustrated in the infographic below:

Bitcoin options trading has come a long way since late 2015, when the CFTC officially went after bitcoin company Coinflip for operating a platform for trading bitcoin options without the proper authorization - confirming in the process that bitcoin would be treated as a commodity for regulatory purposes.

We imagine LedgerX won’t have too difficult of a time moving inventory, considering bitcoin’s astounding run of new record highs persists unabated. In a market starved for volatility, giving the "big boys" the ability to trade with massive leverage on what is already the most volatile asset class in existence is just what some funds need to make their year as they swing for the fences with 20x (or more in) margin.
 

Bitcoin Surges Above $4400 As World Realizes Jamie Dimon & China Don't Matter

Bitcoin just topped $4400 for the first time since in over 3 weeks and has now erased all of the plunge losses from Jamie Dimon"s "it"s a fraud" and China"s shuttering of all local exchanges.

It didn"t take long for the world of crypto-currencies to shrug off Jamie Dimon"s self-tighteous denigration of the decentralized currency that could directly "disrupt" his cash cow businesses; and furthermore, as The South China Morning Post reports, China"s bitcoin market alive and well as traders defy crackdown.

As SCMP reports, weeks after Beijing banned fundraising through token launches and ordered some bitcoin exchanges to shut, casting a chill over the cryptocurrency industry, traders say that the market is far from dead.

While several exchanges have announced that they will close by the end of this month, traders have now moved to buy and sell bitcoin directly with each other on peer-to-peer marketplaces and messenger apps.

Although the crackdown has dissuaded large swathes of less-experienced investors from participating in the trade, market participants point to the limits Chinese regulators ultimately face in controlling the industry, where many users are anonymous and difficult to track.

In the short-run, the crackdown has also created an arbitrage opportunity for investors, with the price of bitcoin in China now trading at a discount to overseas exchanges.

“They can’t set rules to stop me from investing in what I want to invest in. They say you are protecting me, but as long as I think this is good, they have no way to intervene,” said a Chinese bitcoin investor named Victor, who declined to give his full name citing current sensitivities.

“I can do over-the-counter trades or I’ll go offshore ... My wallet is my wallet. I’ve never registered my identification card.”

Over 15 exchanges, including the three largest players OkCoin, Huobi and BTCChina, have since announced that they will close their mainland businesses by the end of September.

Trading has spiked generally on peer-to-peer marketplaces, according to data website Coindance. On OTC platform LocalBitcoins, China trading volumes more than doubled in the week starting September 16 from the previous week to 74 million yuan.

It hit an all-time-high in the week starting September 23, reaching 115 million yuan in trades.

“The fact that bitcoin is still being traded is an indication that China isn’t looking to eliminate them, but reposition things in a way to have better control over them,” said Marshall Swatt, the founder of New York-based Coinsetter, a bitcoin exchange acquired by larger peer San Francisco-based Kraken in 2016.

The "Wolf Of Wall Street" Says Jamie Dimon Is Right About Bitcoin

The guy who made tens of millions of dollars misleading American retirees into buying worthless pink sheet stocks says he agrees with J.P. Morgan Chase & Co. CEO Jamie Dimon’s comment that bitcoin is “a fraud.”

Jordan Belfort, the inspiration for Leonardo DiCaprio’s character in the 2013 Martin Scorsese film “The Wolf of Wall Street,” told the Street that he believes Dimon is right, adding that bitcoin “isn’t a great model.”

In what may eventually be revealed as an important distinction, Belfort’s take was somewhat more nuanced than Dimon’s. While the JPM CEO predicted that all digital currencies would eventually become worthless, Belfort said there might be room for one.

"I"m not saying cryptocurrencies, there won"t be one – there will be one – but there has to be some backing by some central governments out there.

If any digital currency demonstrates long-term viability, it will probably be one that’s backed by a central bank."

Two weeks ago, Dimon sent the price of bitcoin tumbling when he called the digital currency a fraud and said he would fire any JPM traders caught trading it. He added that it made people like his daughter feel like “geniuses” for buying in early.  

"It’s a fraud. It’s making stupid people, such as my daughter, feel like they’re geniuses. It’s going to get somebody killed. I’ll fire anyone who touches it."

Surprisingly, given bitcoin’s role in helping disrupt the financial services industry, not every Wall Street CEO shares Dimon’s dim view on the digital currency. Two days ago, Morgan Stanley CEO James Gorman told WSJ that he believes Dimon is wrong and that "bitcoin is certainly more than a fad.” However, he conceded that “there is a government risk to it” – alluding to Chinese authorities’ decision to shutter local bitcoin exchanges. Joining Dimon and Belfort in the skeptics’ corner is Bridgewater Associates Founder Ray Dalio, who said last week that he believes bitcoin is in a bubble.

Circling back to Belfort, he explained to the Street that he just couldn’t wrap his head around bitcoin…

“Basically, the idea that it’s being backed by nothing other than a program that creates artificial scarcity it seems kind of bizarre to me.”

He also claimed that he knows people who lost money in the Mt. Gox hack, and that the incident served as a wakeup call.

“They could steal it from you I know people who have lost all their money like that..."

Of course, Dimon’s statement didn’t stop JP Morgan Securities from transacting in a bitcoin-linked exchange-traded product traded on Nasdaq Stockholm, prompting an algorithmic liquidity provider called Blockswater to sue Dimon for "spreading false and misleading information" about bitcoin.

Traders, meanwhile, have continued to vote with their wallets: Bitcoin finally filled the “Dimon gap” yesterday, and has continued to climb on Thursday...

South Korea Overtakes China As Bitcoin's Third-Largest Market

China-based digital currency exchanges have until the end of September to cease operations after Chinese authorities, spooked by the ICO craze, decided earlier this month to crack down on all exchange-based digital currency trading.

Trading volume in China has fallen dramatically since the country’s exchanges briefly halted withdrawals earlier this year as they implemented new AML controls. Now, it appears that at least some of those displaced by China’s crackdown have migrated to South Korea, which today overtook China as the third-largest market for bitcoin trading by volume.

Today, South Korea surpassed China in #bitcoin trading volume. South Korea"s Bithumb processes more volume than Bitfinex + Bittrex. pic.twitter.com/10fiT4YzJg

— Joseph Young (@iamjosephyoung) September 21, 2017

Japan remains the largest market, followed by the US.

According to CoinTelegraph, the shift suggests that traders have moved to South Korea in response to the Chinese government’s decision to kill the exchanges. The largest exchange in South Korea is processing more transactions than Hong Kong-based Bitfinex and US-based Bittrex combined.

“The change in the processing of transactions indicates that traders have moved to South Korea. The largest exchange in South Korea has processed more transactions than Bitfinex and Bittrex.

The shift represents a substantial movement of the Bitcoin community away from China, where regulators have confirmed that all Chinese exchanges will be closed shortly.

The shift toward South Korea indicates a response to the legalization of Bitcoin in the country in recent months.  A general move away from China has generally occurred, even as the country has begun to tighten its grip on the cryptocurrency market.”

While China’s crackdown triggered the largest selloff in months as investors worried that it could inspire other governments to try and suppress digital currency trading, the shift to South Korea demonstrates bitcoin’s durability. Instead of destroying a portion of the market, shuttering local exchanges simply forced traders to move elsewhere.
 

Dimon Doubles Down: "My Daughter Bought Bitcoin. It Went Up, Now She Thinks She Is A Genius"

Having slammed bitcoin earlier in the day during a Barclays financial conference, calling it a "fraud" which is "worse than tulip bulbs, it won"t end well" and that any JPMorgan "trader trading bitcoin" will be "fired for being stupid", the JPM CEO doubled down later in the day during an interview on CNBC"s Delivering Alpha conference, saying bitcoin "is just not a real thing, eventually it will be closed."

Making the bitcoin advocates" case for them, Dimon said he’s skeptical authorities will allow a currency to exist without state oversight, especially if something goes wrong. “Someone’s going to get killed and then the government’s going to come down,” he said. “You just saw in China, governments like to control their money supply.”

Which, of course, is the whole point behind cryptocurrency: a method of exchange that is independent of and in apposition to conventionally accepted fiat and monetary mechanisms, one which the government frowns upon if not outright rejects, even if it is ultimately unable to block it. As an example of that, observe the reaction in bitcoin to this weekend"s news that China is (allegedly) closing bitcoin exchanges: BTC dropped from $4,700 to $4,200 and... that was about it. Of course, to the CEO of JPMorgan, which incidentally is a founding member of the Enterprise Ethereum Alliance and which nearly two years ago started a trial project using blockchain to cut trading costs, such positioning only has negative connotations:

“If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars. So there may be a market for that, but it’d be a limited market.”

He is right: the market is limited right now because only a handful of modern countries have experienced catastrophic hyperinflation, but the number is rising. And what bitcoin - like gold - provides is protection if the monetary insanity unleashed by "developed market" central banks eventually results in the same outcome as Venezuela, North Korea and so on. It"s insurance, and judging by the soaring price, more and more are eager to buy this insurance.

Imagine what will happen when the market is no longer limited?

Ultimately Dimon does grasp the implications, because as he told CNBC, "I"m not saying go short. Bitcoin can hit $100,000 before it goes down. This is not advice of what to do."

No, his advise is simpler: stop trading bitcoin and instead trade commission-generating equities ideally with JPMorgan: earlier in the day Dimon warned that JPM"s trading revenue in Q3 will tumble 20%.

And then there was the amusing anecdote involving his own daughter: "My daughter bought bitcoin, it went up and now she thinks she"s a genius."

Well, she is more of a genius than equity investors: bitcoin has soared without the Fed and other central banks having to inject $15 trillion in liquidity to keep it from crashing...

Amusingly, a reader sent in the following terse comment on Dimon and Bitcoin:

Two numbers that stand out:

• Over $13b in fines paid by JPM because of fraudulent mortgage practices


• Over $1b in separate fines paid because of its role in the Madoff scheme.

All under Jamie"s watch. But it"s Bitcoin he"s worried is the fraud?

Actually, I"m quite grateful to him. Not only does he reconfirm the existential threat the underlying tech poses to his business, but he"s becoming the perfect contrarian indicator.

Once JPM announces it"s own crypto research and trading desk, complete with structured products and derivatives built around Bitcoin, we"ll know it"s time to sell!

And speaking of contrarian indicators, Bitcoin has already recovered more than half the losses it sustained after today"s Dimon slam.

China Is Planning ICO Crackdown, Threatens Life In Prison For Crypto Fund Fraud

Earlier this year, Chinese digital currency exchanges temporarily halted customer withdrawals to upgrade their AML controls at the behest of financial regulators. The halt, which lasted for months, caused a temporary chill in the local bitcoin market, causing China to forfeit its position as the world’s largest bitcoin market. Now, Chinese regulators have signaled that they intend to stage a similar crackdown on initial coin offerings, the latest blockchain-related investing craze.  

According to CoinDesk, draft legislation meant to curb so-called "illegal fundraising" includes a provision that targets ICOs.

Here’s more from CoinDesk (translation theirs).

"If the department overseeing illegal fundraising activities found a fundraising without proper permission, or a fundraising that violates the relevant provisions of the State, and if one of the following circumstances is found, the department shall launch an administrative investigation. Other relevant departments shall cooperate with the investigation.

…

(2) to raise funds in the name of issuing or transferring equity, raising funds, selling insurance, or engaging in asset management activities, virtual currency, leasing, credit cooperation and mutual funds..."

According to CoinDesk, the draft would require the government to establish an interdepartmental committee to combat illegal fundraising. It also clarified that participants of illegal fundraising would be responsible for their own losses. The release of the draft legislation follows widespread outrage directed at cryptocurrency-related scams. Last month, several college graduates in Tianjin, China were found dead after being imprisoned and assaulted by members of a pyramid-selling organization.

Two Chinese laws presently govern how criminal courts handle unlawful fundraising.  According to CoinTelegraph, the crime of illegally absorbing public deposits carries a maximum penalty of 10 years of imprisonment. The crime of fund fraud, meanwhile, carries a maximum sentence of life in prison.

Now the question is, if such heavy-handed penalties are tied to the law currently under consideration, will the law have a chilling effect on the ICO market? Or will it successfully eliminate fraud and abuse?

According to a team of analysts at Pitchbook, ICO have raised more than $1 billion this year, and are expected to raise as much as $1.7 billion. Earlier this month, the SEC ruled that tokens produced in ICOs meet the definition of a security, and therefore must be registered with the commission. Though exactly how ICOs will be regulated in the US remains somewhat vague.

BTC-E Says It Will Return Customers' Bitcoins After Being Shut Down By DOJ

In what would be a surprising achievement, after the US government seized the site"s domain, BTC-e announced that it has somehow retained access to customer wallets and deposits nearly two weeks after the site was taken down by a collaboration between US and European authorities.

The announcement was published on a bitcoin forum account long associated with the shadowy exchange, so there’s no guarantee that it represents an official statement from the company, or whatever’s left of it.

Authorities arrested the BTC-e’s alleged founder, Russian-born Alexander Vinnik, in Greece late last month after unveiling a 21-count indictment against Vinnik and BTC-e, which included a $110 million fine for the mysterious digital-currency exchange, as we reported.

The full statement is below, translated from the original Russian by Google.

Vinnik was accused of using the exchange to operate a $4 billion money laundering scheme using cryptocurrency. According to the indictment, Vinnik helped the hackers who stole tens of thousands of customer bitcoins from Mt. Gox in the largest, and probably most infamous, cybertheft in digital-currency history. The Fed’s described BTC-e as the “exchange of choice to convert digital currencies like bitcoin to fiat money for the criminal world, especially by those who committed their crimes online.”

This isn’t the first statement purportedly released by BTC-e since Vinnik’s arrest. A day after the site was seized, the same account published a note assuring customers that they would get their money back.

Of course, that didn’t stop some on twitter from making uncomfortable Mt. Gox comparisons.

Too soon? #BTCe pic.twitter.com/g0XeycGyZT

— SirMeow UASF BIP148 (@OneSirMeow) July 27, 2017

Jim Cramer Goes Batty: "Bitcoin May Hit $1,000,000"; Act Now Before It's Too Late!

Authored by Mike Shedlock via MishTalk.com,

It’s hard to know when bubbles will end but when analysis goes ape-sh*t batty, it’s easy to know the bubble exists.

Jim Cramer’s analysis of Bitcoin provides a perfect example.

CNBC reports Cramer says it’s possible bitcoin could reach $1 million one day.

The price of digital currency stockpiled by companies to pay off potential cyberthreats could reach $1 million one day, CNBC’s Jim Cramer said Wednesday.

Cramer was responding to a recent comment by Business Insider CEO Henry Blodget, who said bitcoin could go to $1 million.

“I think it could because the European banks are frantically trying to buy them so they can pay off ransomware. It’s a short-term way to be able to deal with cybersecurity. It is the way to pay off the bad guys,” Cramer said on “Squawk on the Street.”

“When you get hit and you’re not sure how to do bitcoin, these cyberattackers have customer service desks,” Cramer said.

What Blodget Really Said

Blodget also mentioned the downside: “Bitcoin could go to $1 million (or fall to $0),” said Blodget maintains the view that “ultimately, Bitcoin has no intrinsic value.”

New Target $1,000,000

The Coin Telegraph reports Bitcoin Price Can Reach $1 Mln: CNBC’s Jim Cramer.

On the CNBC show “Squawk on the Street,” Cramer stated that the demand toward Bitcoin is rapidly increasing and because of Bitcoin’s decentralized nature, its price could potentially enter the $1 mln region, which would bring the market cap of Bitcoin to tens of trillions of dollars.

However, Cramer’s reasoning behind his Bitcoin price prediction was fundamentally flawed as he failed to grasp the core purpose of Bitcoin and why investors are starting to purchase Bitcoin.

“I think it could because the European banks are frantically trying to buy them so they can pay off ransomware. It’s a short-term way to be able to deal with cybersecurity. It is the way to pay off the bad guys.”

Such claim is evidently non-factual because the European Bitcoin exchange market only accounts for nine percent of the global Bitcoin exchange market and it is behind the US, Japan, China and South Korea in trading volumes.

More importantly, Cramer’s statement fails to consider the fact that Bitcoin is being utilized as a currency and safe haven asset more than it is being used as a lifeline to feed ransomware developers.

In the case of WannaCry ransomware, the biggest ransomware attack in history, the distributors earned less than $100,000. That is only 0.0012 percent of the European Bitcoin exchange market. Thus, to say that Bitcoin price is rising because of 0.0012 percent of traders from the fifth largest Bitcoin exchange market is not an accurate depiction of the surging Bitcoin price.

Regardless, Cramer believes that Bitcoin price will reach $1 mln one day due to its rapidly increasing trading volumes and demand from investors.

Frantically “Trying” to Buy Bitcoins?!

The idea that banks need to “try” to buy Bitcoins is absurd.

Do. Or do not. There is no try.

Customer Service Desks

Cyberattackers have “customer service desks”? really? And they can be trusted? And banks don’t have backups? So banks need to “try” to stockpile Bitcoins as a precaution? And that will push the price to $1,000,000?

At least Henry Blodget discussed the downside without absurd hype.

Action to Take

If you think Bitcoin has any chance of hitting $1,000,000 then buy one for $2,725 or so and relax. Bitcoin is a life-long insurance policy.

Unlike term insurance, Bitcoin never expires. And unlike real estate, it’s easily divisible.

So buy one, put it in your will, and pass it to your kids. But make them promise to hold on to it. After all, a single Bitcoin may very well be worth $1 billion someday!

Why not? Why not $10 billion?

Even at $1 million, the world would be flooded with tens-of-thousands or hundreds-of-thousands of dollar “billionaires”.

Hyperinflation Anyone?

Back in the real world, please think of what it would take for Bitcoin to hit $1,000,000. The answer is hyperinflation. The US dollar would essentially go to zero vs everything.

So when Cramer or anyone else discusses the possibility of $1,000,000 Bitcoins, they are really discussing the possibility of hyperinflation in US dollars.

Act Now Before It’s Too Late

This setup reminds me of a post I did in 2005: It’s Too Late.

I think it’s too late.

In fact I know it’s too late.

How do I know?

The following Email I received tonight should explain it nicely.

When you see stuff like this, not only is it too late, it’s way too late.

As a practical matter, and without all the hype, I will stick with gold even as I wish I had taken out some Bitcoin insurance at $1, $10, $100, or even $1,000.

Supposedly, it’s still not too late.

How To Buy And Sell Gold And Silver Using Bitcoin

Submitted by Ronan Manly, BullionStar.com

Given the very strong price appreciation of Bitcoin recently, Bitcoin holders who are thinking of diversifying or taking some profits on their Bitcoin positions may be interested to know that in addition to transacting in US Dollars, Singapore Dollars, and Euros, BullionStar also accepts Bitcoin as a payment option for its precious metals products, and has done so since May 2014.

Bitcoin Price in US Dollars, May 2017

Using the BullionStar website, customers can quickly and efficiently purchase gold bars and gold coins, as well as silver bars and silver coins using Bitcoin. Customers can also sell gold and sell silver to BullionStar and receive settlement proceeds in Bitcoin.

The maximum transaction size for a purchase order using Bitcoin is currently set by BullionStar at BTC 200 per transaction. There is no minimum transaction size for a purchase order using Bitcoin. For sell orders that settle in Bitcoin, the standard maximum transaction size is currently 30 BTC per transaction, but this can be higher upon discussion with BullionStar.

Bitcoin as a currency is also fully integrated into the BullionStar website. Once you select Bitcoin as the default currency from the Currency drop-down menu at the top right hand side of the BullionStar website homepage, Bitcoin becomes the default transactional currency within the website, and furthermore, all spot prices and associated charts and all product prices on the website will be displayed in terms of BTC.

If logged into your Account, your ‘My Vault Balance’ and ‘Cash Balance’ will also be displayed in BTC. Account history and “My Vault Portfolio” are also displayed in BTC once Bitcoin is selected as the default currency option.

Buying Gold and Silver using Bitcoin

To purchase precious metals on the BullionStar website using Bitcoin:

1, Select Bitcoin in the currency drop-down menu at the upper right hand side of the BullionStar homepage. This will display all product prices in Bitcoin, and will also automatically populate Bitcoin as the default payment method in the online Checkout tool.

Select Bitcoin in the Currency Dropdown menu

2. From the ‘Buy Gold and Silver’ menu option, select the precious metal products you wish to buy. Product prices will be displayed in Bitcoin (BTC).

For example, if you are interested in purchasing a PAMP minted 1 ounce gold bar, select ‘Gold Bars’ from the drop-down menu and the price in Bitcoin of a 1 ounce PAMP gold bar will be displayed in BTC, which, at the time of writing was BTC 0.675530.

BullionStar Product Prices displayed in BTC

3. Fill in the quantity of the product you wish to buy. Then click the green “Add to Cart” button to add the selected product to your Shopping Cart.

4. Repeat Step 3 to add other products to your Shopping Cart, or if finished shopping, select the green ‘Checkout’ button towards the top right hand side of the screen.

5. In the subsequent Checkout screen, Bitcoin will appear as the default payment method. Select your preferred ‘Delivery Method’ of either ‘Vault Storage’, ‘Shipping by Courier’, or ‘Personal Collection (Pick-up)’

Checkout Screen with BTC as the default payment option

Ensure that the order total is less than or equal the maximum transaction size for a purchase order of BTC 200 per transaction.

Fill in your customer information, click the check boxes to indicate that you agree with the Terms and Conditions, and that you agree that the order is binding, then click the “Confirm” button to place your order.

6. After clicking “Confirm”, an order confirmation will appear on the screen. This order confirmation details your order number, the products ordered, the order date, your customer information, and the Bitcoin payment information, i.e. the payment amount in BTC and the unique Bitcoin address to which to send your payment to. An example of a Bitcoin payment amount and a Bitcoin address is shown in the screen below.

Example of Bitcoin payment information on an order Confirmation

Your order confirmation is also sent to your email address.

Upon placing an order and hitting ‘Confirm’, you have 20 minutes in which to send your Bitcoin payment to the unique Bitcoin address that specified on your order confirmation.

7. As soon as BullionStar has received 6 block confirmations of your Bitcoin payment, which can take anywhere from 20 minutes to a few hours, you will automatically receive a payment confirmation update to your email address. BullionStar will thereafter process your order.

For those unfamiliar with the Bitcoin transfer confirmation process, block confirmation is Bitcoin’s way of verifying transactions.

When a Bitcoin transaction is made, it is then verified by Bitcoin miners and is grouped with other transactions into a new block on the blockchain, upon which it is confirmed. Then when subsequent blocks are added to the block chain, all previous blocks are reconfirmed, a process which generates additional block confirmations.

Generally, merchants and retailers who accept Bitcoin require 6 confirmations to ensure that a transaction has been fully validated.

Upon receipt for 6 confirmations, BullionStar will proceed to process your order.

Selling Gold and Silver using Bitcoin

To sell gold or sell silver on the BullionStar website and receive the proceeds in the form of Bitcoin:

1. Select Bitcoin in the currency drop-down menu at the upper right hand side of the BullionStar homepage.

2. Select the “Sell Gold & Silver to us” option from the main menu.

Select the product(s) and quantity you wish to sell.

Ensure that the total value of the sell order in BTC is less than or equal to BullionStar"s current online maximum transaction size for a sell order of BTC 30 per transaction.

(Note: If you would like to place a sell order for an amount larger than BTC 30, please send an e-mail to support@bullionstar.com or call +65 6284 4653  to enquire whether we can settle your sell order in Bitcoins.)

Enter your customer information. The Payment Instructions box will be defaulted to Bitcoin. In the Bitcoin Address box, enter the Bitcoin address where you want to receive your Bitcoin payment to. Then submit your order by clicking “Confirm”.

Bitcoin Sell screen. Payment Instructions defaults to Bitcoin and Bitcoin Address box

For more information, see BullionStar"s help page "Bitcoin as Payment Option and Currency".

To convert Bitcoins to traditional fiat currency, one straightforward option is to use a Bitcoin exchange such as Bitstamp in the USA or FYB-SG in Singapore. The steps to follow would be to open an account with a Bitcoin exchange, transfer your Bitcoins to your account wallet on the Exchange, sell the Bitcoins on the exchange, and then withdraw the proceeds of the sale in a currency such as US Dollars.

Those who currently do not hold Bitcoin but who might want to can also open and fund a Bitcoin account with one of the Bitcoin Exchanges, and then buy Bitcoin to hold in their Exchange account. This Bitcoin could then be subsequently used in a transaction on the BullionStar website to buy gold or buy silver.

BullionStar Charts: View and Create Bitcoin Charts

Note that historic Bitcoin prices are also available on the BullionStar Charts page, where Bitcoin is listed under the Currencies category along with 18 major currencies. The BullionStar charting tool allows you to chart the price of Bitcoin in terms of other currencies and in terms of precious metals, commodities, major stocks, popular stock indices, and in terms of the prices of BullionStar’s product range.

With a Bitcoin price history going back to January 2011, you can use BullionStar charting tools to check and view the price action of Bitcoin over the last 6 and a half years.

This article first appeared on the BullionStar website here.

Why the Winelvoss Bitcoin ETF Was Rejected and How to Create a Regulated Vehicle That Passes Muster

 The Winkelvoss ETF application was rejected by the SEC, and bitcoin dropped about 20% in price. I repetitively warned those that followed me that a very low risk buying opportunity will present itself should the SEC deny the ETF application. Like clockwork, instant 30% profit opp. If you were monitoring hte prices and bought in after prices started rising (almost immediately) the buy returned over $250/coin (~30%) for anyone who took my advice.

 

I"m considering putting together an institutional digital asset (bitcoin and blockchain related assets) investment vehicle. The SEC has clearly delineated what they felt were the deficinecies wee in the Winkelvoss application, to wit:

• Several commenters note that the majority of bitcoin trading occurs on exchanges outside the United States. One commenter claims that most daily trading volume is conducted on poorly capitalized, unregulated exchanges located outside the United States and that these non-U.S. exchanges and their practices significantly influence the price discovery process. Another commenter states that the biggest and most-influential bitcoin exchange is located outside U.S. jurisdiction.

To my knowledge, the bitcoin exchanges abroad aren"t heavily capitalized, but the amount of capitalization needed should be minimal if the exchange is structured properly. Here""s a snapshot of the global bitcoin exchange landscape. Most of the exchange trading is done in USD but the exchanges are domiciled outside of the US (likley due to onerous SEC regulatory requirements). Be aware that I believe most of the institutional trading (in aggregate) is done OTC, and in the US.

• One commenter states that, since 2013, the price of bitcoin has been defined mostly by the major Chinese exchanges, whose volumes dwarf those of exchanges outside China. According to the commenter, those exchanges are not regulated or audited, and are suspected of engaging in unethical practices like front-running, wash trades, and trading with insufficient funds. The commenter interprets pricing data from these Chinese exchanges to mean that the price of bitcoin is defined entirely by speculation, without any ties to fundamentals.32 Another commenter also observes that Chinese markets drive much of the volume in the bitcoin markets and that the bitcoin/Chinese Yuan (BTC/CNY) quote is apt to trade at a significant premium to the bitcoin/U.S. dollar (BTC/USD) quote. The commenter points out that large arbitrage opportunities would not exist for long in efficient markets, but they do persist in bitcoin markets. One commenter claims that a sizeable number of traders and owners of bitcoin do not desire to trade in a well-regulated environment for reasons including tax evasion, evading capital controls, and money laundering. This commenter also states that U.S. exchanges do not offer products such as fee-free trading, margin trading, or options, which drive traffic to the top nonU.S. exchanges. The commenter claims that, because trade is now sparse on regulated U.S. exchanges including Gemini, arbitrage will not occur efficiently or proportionally to mitigate.manipulation from the dominant unregulated bitcoin exchanges. This commenter also claims that several Chinese exchanges actively engage in bitcoin mining operations, creating a conflict of interest, and notes that these exchanges are unaudited and unaccountable.34 Another commenter also claims that the Chinese exchanges that account for the bulk of trading are subject to little regulatory oversight and that existing know-your-customer or identity-verification measures are lax and can be easily bypassed

This is no longer the case. The PBOC (Chinese Central Bank) has cracked down signficantly on Chinese bitcoin exchanges, ending fee free trading, unregulated margin lending and enforcing AML/KYC procedures. Reference:

1. Chinese Bitcoin Exchanges Suspend Client Withdrawals. I Warned You About Heteronomous Wallets!


2. Will Japan"s Declaration of Bitcoin as Legal Tender Accelerate Cryptocurrency Mainstream Adoption?


3. Revisiting the Breakdown of the Macro Drivers Behind Bitcoin"s Price Spike, Exactly As I Foretold 30 Day Ago


4. China"s Central Bank Eliminates Margin Trading of Bitcoin


5. The Macro Truth About The Big Bitcoin Pop and Drop: The Mainstream Media Doesn"t Have A Clue

The result is a signficant drop in bitcoin trading volume in China, passing the crown first to Japan (who just passed heavy bitcoin regulation, while declaring it legal tender) and then to the US - in direct contravention to said commenter"s claim. Take note that once the free trading was halted and central bank regulation took hold, trading volumes in China collapsed in line with the ROW.

•  One commenter states that the market for bitcoin, by trade volume, is very shallow. This commenter notes that the majority of bitcoin is hoarded by a few owners or is out of circulation. The commenter also notes that ownership concentration is high, with 50 percent of bitcoin in the hands of fewer than 1,000 people, and that this high ownership concentration creates greater market liquidity risk, as large blocks of bitcoin are difficult to sell in a timely and market efficient manner. This commenter claims that daily trade volume is only a small fraction of total bitcoin mined. 36 This commenter also states that several fundamental flaws make bitcoin a dangerous asset class to force into an exchange traded structure, including shallow trade volume, extreme hoarding, low liquidity, hyper price volatility, a global web of unregulated bucket-shop exchanges, high bankruptcy risk, and oversized exposure to trading in countries where there is no regulatory oversight.37 This commenter believes that lack of regulation and consumer protection also increase the chance and incentives for market price manipulation and states that approving the ETP before structural protections and controls are firmly in place would put investors at undue risk.

 This was actually countered by the authors of the ETF application, to wit:

The Exchange, in its comment letter, asserts that bitcoin is resistant to manipulation, arguing that the increasing strength and resilience of the global bitcoin marketplace serve to reduce the likelihood of price manipulation and that arbitrage opportunities across globally diverse marketplaces allow market participants to ensure approximately equivalent pricing worldwide.39 The Exchange further asserts, in its comment letter, that the Commodity Futures Trading Commission (“CFTC”) has designated bitcoin as a commodity and is “broadly responsible for the integrity” of U.S. bitcoin spot markets.40 The Exchange acknowledges that the CFTC has not yet brought any enforcement actions based on the anti-manipulation provisions of the Commodity Exchange Act, but notes that the CFTC has issued orders against U.S. and non-U.S. bitcoin exchanges for engaging in other activity prohibited by the Commodity Exchange Act. The Exchange’s comment letter states that a regulatory framework for providing oversight and deterring market manipulation therefore currently exists in the U.S.41

Another response went as follows:

...Bitcoin is relatively uncorrelated with other assets, enabling investors to construct more efficient portfolios,43 and that, as a general matter, the underlying market for bitcoin is inherently resistant to manipulation.44 The author of the paper posits that the underlying bitcoin market is not susceptible to manipulation because (a) there is no inside information related to earnings, revenue, corporate actions, or new sources of supply; (b) the asset is not subject to the dissemination of false or misleading information; (c) each bitcoin market is an independent entity, so that a demand for liquidity does not necessarily propagate across other exchanges; (d) a substantial over-the-counter (“OTC”) market provides additional liquidity and absorption of shocks; (e) there is no market-close pricing event to manipulate; (f) the market is not subject to “spoofing” or other high-frequency-trading tactics; (g) order books on exchanges worldwide are publicly visible and available through APIs (application program interfaces); and (h) it is unlikely that any one person could obtain a dominant market share.45 The author also asserts that listing the shares on a national securities exchange and a shift from OTC trading to trading on exchanges would make the overall bitcoin market more transparent.

 There were also public comments deriding the Gemini exchange, directly. While I don"t, personally, care for the Gemini exchange, some of the issues taken with it were impractical. For instance:

• One commenter states that the Gemini Exchange Auction could be an improvement over other bitcoin pricing mechanisms, but asserts that the auction has not improved volume. The commenter claims that the Gemini Exchange has the lowest liquidity of the three exchanges in the United States and is one of the least-liquid of all exchanges that trade bitcoin for U.S. dollars.56 The commenter observes that the auction data show that traders in the auction are taking advantage of the discounted auction price. The commenter notes that the daily two-sided auction process was designed to maximize price discovery and reduce price volatility that could be the result of momentum pricing, but asks what measures have been put in place to address traders who take advantage of the discounted auction price. The commenter also notes that while other financial products sometimes have auctions to determine price, an auction on a stock exchange does not require money to be deposited in advance with the exchange to be in the auction. The commenter notes that, by contrast, the Gemini Exchange requires dollars or bitcoin to be deposited before participation. The commenter believes that this is a problem because the Gemini auction is limited and “warped” and has failed on at least two occasions.

Listen, no market is perfectly efficient, and early markets are likely to be particularly inefficient. That"s one of the main reasons to introduce an ETF, to inject liquidity and efficiency. Even the largest and most efficient market in the world has trade failures, as has been noted by Bloomberg:Failed Trades in 10-Year Treasury Soar as Note Stays `Special":

The shortage of benchmark 10-year Treasury notes in the market for borrowing and lending U.S. government debt has become so pronounced that uncompleted trades are soaring. Such trades, known as fails, surged into the billions of dollars in recent days for the newest 10-year note, and may have been in the range of $6 billion to $12 billion, according to Treasury market participants familiar with the matter who requested anonymity because the figures aren’t public. While uncompleted trades occur daily, sometimes because of computer glitches, it’s unusual for the level to be so high. There were $132 million in failures for all 10-year Treasuries in the week ended Feb. 24, the latest data from the Federal Reserve Bank of New York show.

 I can go deeper into the SEC declination analysis for insitutional subscribers who may be interested in creating or partipating in an institutional vehicle to access bitcoin exposure. Email me via reggie @ boombustblog.com.