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REGULATION

Flexing the law

New York Judge Rules Securities Laws Can Apply to Crypto

Raymond Dearie

FLEXING THE LAW

  • Yesterday, in a first-time, unique, court case, U.S. New York District Judge Raymond Dearie ruled that federal securities laws can be applied “flexibly”
  • Dearies’ ruling pertains to the recent crypto fraud case in which New York resident Maksim Zaslavskiy scammed at least $300,000 out of investors through ICO sales of two different tokens
  • Because of this, Zaslavskiy’s motion to drop charges on the case has been dismissed and the prosecution will continue

Judge Dearie explained the reasoning behind his ruling in a statement:

“The question is whether the ‘elements of a profit-seeking business venture’ are sufficiently alleged in the indictment, such that, if proven at trial, a reasonable jury could conclude that ‘investors provide[d] the capital and share[d] in the earnings and profits; [and] the promoters manage[d], control[ed] and operate[d] the enterprise.’ For present purposes, we conclude that they are.”NOT SECURITIES

  • Though Dearie will continue the case, he does not define the two cryptocurrencies Zaslavskiy used to defraud investors as securities
  • Rather, Dearie is looking to interpret the Howey Test which determines whether or not the investors can expect profits that mostly stem from another’s efforts
  • Earlier this year, SEC Chairman Jay Clayton clarified that the financial regulator will not bend the securities laws to fit cryptocurrencies saying “if it’s a security, we’re regulating it”
  • As of yesterday, the SEC has only exempted Bitcoin and Ether from being called securities

 


OPINION

Binance CEO and Tron Founder Believe There is Still Room for 1,000x Growth Despite Buterin’s Opinion

BUTERIN’S CLARIFICATION

  • Yesterday, Ethereum founder Vitalik Buterin clarified his recent statement that there is no more room for a 1,000x increase in the crypto market
  • Buterin’s tweet explains that a 1,000x increase from today means there will be $200 trillion in the crypto market and he doesn’t seem to see that happening
  • In a follow-up tweet, Buterin further explains that more growth in crypto must come from “depth” rather than “attention” since a significant portion of the population has already heard of crypto

CALLED OUT

Shortly after Buterin’s tweet, Binance CEO CZ responded:

“I still disagree with this. I will say “crypto will absolutely grow 1000x and more!” Just reaching USD market cap will give it close to 1000x, (that’s just one currency with severely restricted use case), and the derivatives market is so much bigger.”Tron’s founder Justin Sun chimed in on Buterin’s tweet to disagree as well:

“I do believe the entire world wealth will turn into cryptocurrencies like blackhole and grow much bigger in the future. Cryptocurrency will hit 10 trillion USD market cap before @Apple and @amazon do. We will see. Time will tell.”TO THE NUMBERS

  • It is estimated there is $3.63 trillion in “narrow money” in the U.S. alone
  • One study found that if all “narrow money” in the U.S. was swallowed by Bitcoin, the price would stand at $213,000
  • From a broad perspective, there is an estimated $90.4 trillion in the “broad money” supply and that doesn’t even count equities which economists estimate have $73 trillion in value
  • However, the real behemoth in the world is the derivatives market that holds a whopping estimate of $544 trillion

To sum up, there is definitely room for growth, it’s just a matter of how long, and how much we see in the next coming years.

 


REGULATION

‘Blockchain Association’ Formed to Lobby Regulators

NEW LOBBY

  • A group of U.S. blockchain funds, exchanges and businesses have joined forces to form a lobby group called the ‘Blockchain Association’
  • The initial members of the association include: Coinbase, Circle, Digital Currency Group, Polychain Capital and Protocol Labs
  • The organization will focus on educating regulators about blockchain and cryptocurrencies, as well as how to regulate them and educate people on the topic

Coinbase chief legal and risk officer Mike Lempres described the purpose of the founding of the association:

“The Blockchain Association is an effort to get the preeminent companies in the space together so [policymakers] know they’re hearing from companies that welcome regulation when it’s appropriate … We’re not companies looking to game the system, but trying to develop a legal and regulatory system that’ll stand the test of time.”CLARITY

  • U.S. cryptocurrency regulations are currently in a gray area
  • The ‘Blockchain Association wishes to bring clarity to the space and will push regulators towards their mission
  • The first thing on the agenda is tax law and know-your-customer/anti-money laundering rules

 


RESEARCH

New Research Indicates that ICO’s Haven’t Dumped Their ETH… Yet

SPECULATION

  • This year, Ethereum has been hit harder than most coins, especially in the most recent months
  • During the first two weeks of August, Ethereum lost nearly half of its value
  • Many investors speculated that all of the ICO’s who raised ridiculous amounts of Ether during the mania of 2017 have begun to sell off their assets and drove the price down

RESEARCH SUGGESTS OTHERWISE

  • According to new research from Diar, investors who thought ICO’s have already dumped their Ether and caused the price downturn are wrong
  • The institutional publication finds that ICO’s still hold an average of 38% of their initially raised funds
  • This percentage does seem insignificant, but just because the ICO no longer holds the Ether doesn’t necessarily mean they have sold, they could’ve just moved wallets

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ICO’S SHARE OF ETH

  • Diar also found that ICO’s currently hold 3.7% of the total ETH supply, this number is down from 4.5% in April
  • Some ICO’s even hold more ETH than their own token is worth

5abf48ed-00dc-4f96-927a-f4bdd5cc86b5.png

Larry Cermak, head analyst at Diar, discussed ICO’s role in ETH’s price movement:

“Obviously, a lot of the ICO companies will continue selling ETH to cover operating expenses and to fund their businesses. It’s important to realize that the majority of these projects isn’t generating any revenue. And most likely never will. This in turn creates ETH selling pressures, which are unlikely to go away any time soon. The price is affected not only by the ETH mining issuance but also by ICO companies liquidating to cover their expenses.”2049d22b-0afd-4e5c-bc6c-a00fd0946f5f.png


BITS
  • Famous ponzi scheme Bitconnect was finally delisted from its last exchange and is now officially dead.
  • Huobi Group will expand its trading services to Japan via an imminent deal to purchase local licensed cryptocurrency exchange BitTrade.
  • The U.S. Financial Industry Regulatory Authority (FINRA) has filed a complaint against Timothy Tilton Ayre, charging him with securities fraud and the illegal distribution of an unregistered cryptocurrency.