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Deterring adoption? Balancing security and innovation in crypto

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Deterring adoption? Balancing security and innovation in crypto

The cryptocurrency space moves rapidly, so much so that every year, there’s a new trend: from initial coin offerings (ICOs) to nonfungible tokens (NFTs) only a few years have passed. In the face of such astounding innovation, crypto companies and regulators face a growing challenge: balancing security practices with new products and features.

Some companies’ approach is to move fast and adopt new innovations as they become available, leaving security processes such as Know Your Customer (KYC) and Anti-Money Laundering (AML) checks as a secondary objective. Popular cryptocurrency exchange Binance seemingly used this strategy up until this year when regulators started cracking down.

Binance‘s KYC policies initially allowed users who did not fully verify their identities to withdraw up to 2 BTC per day. The exchange listed margin trading pairs with major fiat currencies and allowed leverage up to 125x from its futures trading platform, but had to reduce available leverage and delist margin trading pairs when it reportedly started being investigated by the United States Internal Revenue Service and Justice Department.

The exchange has since taken a compliance-friendly approach to its business and has implemented mandatory KYC processes for “global users, for every feature.” The move saw it lose around 3% of its total user count.

While Binance was forced to remove some of its offerings and scale down leverage on its platform, other exchanges are still providing users with these same products. Speaking to Cointelegraph, Yuriy Kovalev, CEO of crypto trading platform Zenfuse, noted finding regulations that allow compliant companies to compete is a challenge that needs to be addressed:

“Finding a way to balance regulation that protects investors and innovation is hard, especially in a space where new financial offerings appear every few months.”

Speaking to Cointelegraph, CEO of cryptocurrency exchange Bittrex Stephen Stonberg pointed out that cryptocurrency regulations are now “quite complex” and are being handled differently in different jurisdictions

Stonberg implied that customer safety should nevertheless remain a priority as “more robust and clear-cut regulation — like in the traditional financial sector — is needed to really ensure client assets and data are safe and secure.” As an example, Stonberg pointed to Liechtenstein’s Blockchain Act, which “provides a lot more certainty and clarity around how an exchange needs to onboard new clients and protects a clients’ assets.”

Regulatory clarity is seen as a necessity by some players in the industry, as without it, innovation may be left behind. In a recent blog post, Nasdaq-listed crypto exchange Coinbase noted that its plans to launch a lending program were halted by the U.S. Securities and Exchange Commission (SEC), which threatened to sue it “without ever telling [them] why.”

Coinbase said it attempted to “engage productively” with the SEC but never received clarification on the SEC’s reasoning or on how it could alter the product for it to be compliant. A proposed alternative has involved leaving regulators out of the picture. The Commissioner of the Commodity Futures Trading Commission (CFTC) Brian Quintenz has championed this alternative, at one point calling for cryptocurrency exchanges to regulate themselves, echoing the sentiment of many in the industry.

Is self-regulation a viable alternative?

The concept isn’t new: Organizations like the Financial Industry Regulatory Authority (FINRA) have helped enforce initiatives meant to protect securities investors with brokers and broker-dealer firms. In Japan, a self-regulatory body for the country’s crypto exchange sector, the Japanese Cryptocurrency Exchange Association (JCEA), has been formed.

Stonberg does not believe the answer is down the self-regulatory path, as the “complex nature of this digital ecosystem makes regulation tricky.” To him, self-regulation would mean “unwinding” all of the hard work achieved on the regulatory front for crypto and “re-complicating the regulatory environment, putting a block in progress.”

The pseudonymous founder of Flare Network-based decentralized finance (DeFi) platform Flare finance CryptoFrenchie told Cointelegraph that he believes in the “abilities of decentralized platforms and centralized platforms alike to deliver a self-regulated environment that reacts effectively to meet (or exceed) the needs of modern-day regulatory requirements.”

The DeFi project founder added that current systems have “proven to be incapable of meeting the needs of the current financial system,” and added:

“To apply these same systems to an even more fast-paced environment like crypto could prove to be more stifling to its potential than supportive.”

Founder and CEO of crypto exchange CEX.IO Oleksandr Lutskevych suggested self-regulation may be an option, saying that in the firm’s experience, self-regulation is the answer “when there is an absence of an applicable regulatory framework.” Speaking to Cointelegraph on his firm’s path, Lutskevych said:

“Until a framework for cryptocurrencies was formalized in certain countries, we adopted a self-regulation approach, implementing best practices from other leading financial organizations.”

Cryptocurrency platforms, both centralized and decentralized, should “seek to analyze their own systems and develop modules specifically designed to deliver the needs of current regulatory systems,” said CryptoFrenchie.

Do decentralized exchanges pose a threat?

While the debate on self-regulation continues, another one has grown over decentralized trading platforms and their impact on the market. Non-custodial decentralized exchanges allow users to trade directly from their wallets, often without even registering with an email address.

Some critics have argued that decentralized exchanges (DEXs) make centralized platforms’ KYC and AML efforts worthless, as bad actors can carry out their illicit activities through these platforms. Others suggest DEXs, even those run through decentralized autonomous organizations (DAOs), can improve their transparency to help blockchain sleuths and law enforcement organizations find illicit transactions.

To chief investment officer of digital asset investment firm Arca Jeff Dorman, decentralized applications (DApps) and other projects can contribute to the safety of the cryptocurrency space. Speaking to Cointelegraph, Dorman said the industry needs to set standards, adding:

“Companies and projects need to recognize the importance of setting up transparency dashboards, and analysts across the industry need to roll up their sleeves and do the dirty work of bringing transparency to projects that are not doing it themselves.”

Bittrex’s Stonberg pointed out that the “best way to conceal illicit activity isn’t cryptocurrencies, but old-fashioned money.” The CEO added that blockchain-based transactions are “more traceable than any other financial activity.”

Stonberg told Cointelegraph that he believes decentralized exchanges should build AML and KYC policies that they can implement, but added that the industry is “still in the early stages of seeing how decentralized exchanges will play out.”

Lutskevych suggested that tools that can track the origin and previous history of crypto assets could one day be used in decentralized exchanges to keep illicit funds out of their platforms. He noted that “basic information can be traced” on the blockchain, although that data is “far afield from what the Financial Action Task Force guidance requires of centralized exchanges to gather.” Lutskevych added:

“Decentralized mechanisms that can prevent funds of illegal origin (money laundering, ransomware, hack) from entering a DEX with a protocol’s smart contract are currently being explored and developed.”

Lutskevych concluded that it is possible for decentralized platforms to leverage KYC and AML procedures to address regulators’ concerns. He noted that implementing KYC by itself may not be enough to deter illicit activities and protect users.

Raj Bagadi, founder and CEO of DeFi and traditional banking services bridge Scallop, told Cointelegraph that the growth of the decentralized finance industry poses a challenge for regulations, but suggested that a solution could be a “regulated blockchain.” Referring to products in development, Bagadi said:

“We can ensure that wallets on a blockchain undergo a KYC/KYB process. This means that the account holder is identified and that all funds on the chain can be traced — ultimately creating an inhospitable environment for illicit activities and deters it right from the beginning.”

Fundamental crypto rights

Binance has recently seemingly weighed in on the subject by publishing what it called “fundamental rights for crypto users.” The exchange argued that every human being should ”have access to financial tools” that “allow for greater economic independence.” It also noted that “responsible crypto platforms have an obligation to protect users from bad actors” and implement KYC to “prevent financial crimes.”

Commenting on Binance’s crypto rights push, Lutskevych suggested that the move was an “advertising campaign” from a company “that didn’t start touting these values until very recently,” making it more of a “marketing strategy.”

Through a website dedicated to crypto users’ fundamental rights, Binance called on industry leaders, regulators and policymakers to “help shape the future of global finance together.” The exchange added that it believes it should be “up to each nation’s policymakers and their constituents to decide who should have oversight over the industry.”

Related: The stablecoin scourge: Regulatory hesitancy may hinder adoption

Crypto, Binance wrote, belongs to everyone. While the exchange believes that regulations are inevitable, any policymaker tasked with overseeing the space has a monumental task to perform, as keeping bad actors at bay without stifling innovation has so far proven to be a challenge.

The strategy cryptocurrency companies seemingly agree on is based on cooperating with regulators to find solutions that won’t stop users from having access to innovative digital currencies or services created within their ecosystem. Regulators’ lawsuits against large crypto firms appear to show only one side is happy to cooperate.

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PlanB Admits $98,000 November Bitcoin Price Target ‘First Miss’

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PlanB Admits $98,000 November Bitcoin Price Target ‘First Miss’

Some investors reacted angrily after PlanB admitted that his model failed to accurately predict the price of bitcoin (BTC) for November.

The popular crypto analyst aimed for a $98,000 BTC price for the end of this month. Just last week, he insisted the price target was still possible, even as markets declined.

PlanB correctly predicted BTC reaching $47,000 in August and $43,000 in September. He slightly missed the $63,000 target for October, but said the three percent “rounding error was close enough for me.”

Now the pseudonymous Dutch investor says that his $98,000 prediction for this month “will probably be a first miss,” according to a tweet posted on Nov 25. He did not give an exact reason for the failure.

“I see this miss as an outlier, a black swan, that has not occured in the data last 10 years,” he explained.

He spoke as the price of bitcoin tanked to $55,300 on Nov 23, down 20% from its record high of $69,000 reached on Nov 10. Some analysts are blaming the decline on fears of the impending Mt. Gox BTC repayments.

Bitcoin ‘stock-to-flow model still on track to $100,000’

PlanB, who claims 25 years of financial markets experience, is famed for creating the stock-to-flow (S2F) price prediction model. The model is based on the ratio of the current supply (stock) of an asset or commodity to its annual production (flow).

It can be applied to any asset with limited supply really, and the Dutch analyst did so with bitcoin in 2019. The idea is that since the bitcoin supply diminishes with every “halving” event every four years, it will create boom and bust cycles. He then uses these cycles to forecast prices.

PlanB explained that the missed November target relates only to the “floor model,” one of his three price prediction tools. Unlike the S2F, the so-called floor model relies on price and on-chain data, he says.

He insisted the stock-to-flow model had not been “affected and indeed [was] on track towards $100,000.”

Justin Stagner put the miss into perspective. “[It is] not like you just barely missed it either. I mean, its looking like you really blew this one,” he stated.

Mounting criticism

Some investors reacted angrily to PlanB’s admission of failure, blaming the crypto analyst for their financial losses.

“I used my student loans along with a short term loan using my house as collateral to go all in at $68k because you told me it would reach $98k. Now I’ll be homeless and without a degree…” complained Twitter user Brett Lethbridge.

Another lamented: “Now your stock-to-flow model is not reliable anymore. Most people incurred great losses because of your prediction.”

However, several other people replying defended PlanB, and even thanked him for his predictions. Often, they defaulted to a familiar refrain, a disclaimer of sorts, that his forecasts are “not financial advice. Do your own research.”

PlanB himself averred:

It is indeed absurd that when you publish information for free, somehow people make you responsible for their investment decisions and actions. Everybody is responsible for their own (investment) decisions and actions. Blaming others is a sign of immaturity: NGMI (not going to make it).

The Dutch analyst has faced criticism before. He’s often accused of adjusting his price predictions lower once it becomes clear that the S2F would miss its target, and be invalidated.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Bitcoin (BTC) Falls Below $56,000 After Failure to Sustain Rebound Rally

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Bitcoin (BTC) Falls Below $56,000 After Failure to Sustain Rebound Rally

After initiating a bounce on Nov 25, Bitcoin (BTC) decreased considerably the next day and is back at its weekly lows.

Since Nov 19, BTC had been hovering above the $56,500 support. This is both a horizontal support area and the 0.382 Fib retracement support level.

Yesterday, technical indicators started to show some bullish signs.

After 15 successive lower momentum bars, the MACD finally created one higher (green icon). This was a sign that the short-term trend is gradually picking steam. 

Furthermore, the RSI generated a bullish divergence (green line). This is a bullish occurrence in which a price decrease is not accompanied by the same increase in selling momentum.

However, BTC reversed its trend on Nov 26 and is in the process of creating a bearish engulfing candlestick (red icon). This is a type of bearish candlestick in which the entire previous day’s increase is negated the next day. There are still more than 15 hours until the daily close, but the start of the day looks extremely bearish.

If a breakdown were to occur, the next support area would be found at $53,250.

Short-term BTC movement

The six-hour chart shows that BTC has been decreasing under a descending resistance line since Nov 19. This is a sign that BTC is correcting.

Furthermore, BTC created a lower high relative to the price on Nov 20. This is considered a bearish sign since it didn’t have enough strength to reach its previous highs.

The even shorter-term two-hour chart shows that BTC is trading inside a symmetrical triangle and is very close to its support line, which coincides with the $56,500 horizontal support area. 

Therefore, a breakdown from it would likely accelerate the drop.

Wave count

The wave count suggests that BTC is in the C wave (red) of an A-B-C corrective structure. This means that after the correction is complete, the upward movement is expected to resume. 

The sub-wave count is shown in pink. It shows that BTC is in wave five of the correction, which is the final phase. 

There is a considerable Fib confluence between $53,250-$53,800, created by: 

  • Length of sub-wave one (pink)
  • External retracement of sub-wave four (white)
  • Length of wave A (red)

These levels also coincide with the long-term Fib support outlined in the first section. Therefore, BTC is expected to reach a low in this area before reversing.

For BeInCrypto’s previous Bitcoin (BTC) analysis, click here.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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South Korea Crypto P2P Trading Hits New Highs as Regulators Debate Taxation

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South Korea Crypto P2P Trading Hits New Highs as Regulators Debate Taxation

P2P crypto trading has hit a new all-time high in South Korea, data from LocalBitcoins shows. The jump in P2P trading comes at a time when there is a lot of uncertainty surrounding regulation in the country.

Peer-to-peer trading of cryptocurrencies in South Korea is hitting all-time highs as regulators offer some ambivalent comments on regulation. Data from LocalBitcoins shows that over 353 million in Korean Won was traded in the first week of November. This is a significant jump from previous weekly volumes.

South Korean P2P trading volume: Coin Dance

Pondering crypto tax

The increased interest in P2P trading comes as regulators are working on implementing a regulatory framework. South Korea, already one of the leading governments when it comes to cryptocurrency market regulation, is doubling down on its bid to prevent any illicit activity.

The high P2P volume may be a result of investors seeking to make the most of their capital as regulators bear down. Recent reports have indicated that there is some confusion among investors because of the lack of clarity surrounding regulation.

One of the primary issues is the implementation of crypto taxation. South Korea officials announced that it would tax the asset class, to the tune of 20%.

But lately, reports have suggested that there could be a change or complete repeal to this taxation scheme. The taxation law will come into effect in 2022, though it remains unclear about what specific form it will take.

NFT regulation is also throwing more confusion into the mix, as the Financial Services Commission (FSC) said in early November that it would not subject the special asset to taxation. However, later, the Vice Chairman of the organization said that tax provisions would be made for NFTs.

Uncertainty still looms

At the moment, it’s uncertain exactly what the regulatory landscape in South Korea will look like, given the lack of conclusion so far. The South Korean opposition party challenged the taxation scheme and pushed for a delay to 2023, demanding a more generous tax plan.

Exchanges are one of the major elements of the industry under the microscope, with 2021 seeing the first regulatory compliance certifications being sent to them. Several exchanges have had to shut down following regulatory scrutiny.

As it stands, it’s unclear what the specifics of crypto regulation will be. However, it’s almost certain that there will be a framework implemented, and whether or not it is stricter than investors like remains to be seen.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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