EXCLUSIVE: BAKKT AND ETHEREUM: Ethereum Contracts Were Included In Bakkt’s Initial Launch Plans; Next ‘Additional Contracts’ Product

Bakkt remains a hot topic of discussion across the crypto ecosystem. It is seen in some corners of crypto as a bear market savior while others see it as another institution watering down the original intent and purity of Bitcoin itself. Either way, it is the most talked about institutional initiative among many – and a who’s who of crypto venture capital firms have made bets that Bakkt will be a roaring success.

Of interest over the past week, with appearances at Coindesk’s Consensus Invest conference and other appearances, CEO Kelly Loeffler and Intercontinental Exchange CEO Jeffrey Sprecher made comments that hinted at more crypto futures contracts being traded on their network. Bakkt then sent out a tweet that did more than hint at the idea, rather claiming that they remain open to adding ‘additional contracts as the landscape evolves’.

The ‘landscape evolving’ is a reference to regulation, pure and simple. The guidance principally given by the SEC and CFTC will be what rule the day for institutions. But don’t fool yourself here – Bakkt already has a pretty good idea where regulation is going and are planning there next move.

Could that move be adding Ethereum contracts? We believe that it will be and we have information that gives us confidence in that call.

According to three separate sources Bakkt offering documents originally listed Bitcoin and Ethereum as launch cryptocurrency contracts. Sources familiar with those documents disclosed that Bakkt took a step back when they couldn’t get clear regulatory clarity on Ethereum that would make them comfortable enough to launch with it.

One specific quote from a well-connected source:

“Their original offering docs had ETH included but they backed away. The next time we took a look at it (Bakkt), from an investment standpoint, ETH had been removed and only Bitcoin remained. Regulatory approvals are paramount in a launch of this scale, so they thought better than to go the route of ‘ask for forgiveness’ after the fact. I would expect the next contract they offer to be Ethereum.”

The original Bakkt offering documents touted Ethereum in the same way that Bitcoin has been featured on its network. The same custody solution and physical warehousing/delivery facilities that have been all the rage for institutions since Bakkt announced its intentions.

The original inclusion of Ethereum as an ‘additional contract’ in its offering documents sends a strong signal that Bakkt will eventually offer ETH contracts and effectively mushroom ETH trading of scale.

Comments from regulators in different forums have hinted that Ethereum could be the next cryptocurrency to be dubbed a commodity instead of a security. When that happens (and we believe that it will) you can expect Bakkt to add Ethereum contracts.

The parent company by which Bakkt was birthed, Intercontinental Exchange (or better known as the I-C-E) trades trillions upon trillions of global futures contracts connected to commodities and securities of all make and manner; while also being the owner of the ‘crown jewel’ of global stock markets, the NYSE. Ergo, could Bitcoin and Ethereum be seen as the gold and silver of cryptocurrency futures contracts? We believe that to be the case.

A final download and reminder of what Bakkt actually will be doing at launch:

Bakkt is the brainchild of Jeff Sprecher, the founder, chairman, and CEO of ICE, and a disrupter par excellence. Sprecher (pronounced “Sprecker”) stands alone as the leading force in modernizing the world’s exchanges in recent years from open-outcry pits into super-efficient electronic marketplaces. Along the way, Sprecher built a flailing electricity exchange that he reportedly purchased for $1 into a global trading and data empire now worth $44 billion. “In 25 years he’s gone from nothing to the most powerful exchange entrepreneur in the world,” says Larry Tabb, chief of consultancy the Tabb Group. “He hasn’t failed yet.

“Sprecher and his investment partners are putting this one-of-a-kind mission in the hands of a first-time CEO who’s Sprecher’s soulmate in both business and in life: Kelly Loeffler. The ICE executive has ridden shotgun alongside Sprecher since the company’s fledgling days in 2002. In 2004, they married. Loeffler long ran marketing, investor relations, and communications for ICE. Now she’s giving up her ICE roles to run Bakkt.”

Keep your eyes on regulators over the coming weeks and into 2019. They hold the keys to the pace and potential scale of crypto adoption and market cap growth.

 

MORGAN STANLEY: TRADER TALK: “We talk about crypto every day around here – you can bet we’ll trade the sh** out of it in 2019…”

We spoke to three Morgan Stanley trade desk sources regarding the news from Bloomberg that the global investment bank was set to begin offering clients a ‘synthetic’ Bitcoin product and the conversations were ‘illuminating’ to say the least.

As the news of continued ‘legacy’ exchanges adding Bitcoin futures (which will, of course, be followed by other token type listings) the anticipation for client uptake and profits continues to ramp up.

Nasdaq’s announcement of a Bitcoin futures product had traders at Morgan Stanley all abuzz earlier this week. And the talk was all about volatility and profits.

**A brief description of a Morgan Stanley trade desk dude – early 30’s, unmarried, adrenaline-addicted, and in a constant search for volatility to produce market-beating performance and year-end bonuses. Good, got that out of the way.**

These three guys are all well versed in cryptocurrency lingo and practice, as each was able to produce proof that they owned cryptos. We promised to keep their identities anonymous.

One trader talked about the lust for volatility: “Price movements are everything for a trader. The larger the swings the better. As we execute or either the firm or institutional clients, the more volatility the better. If pushes action in large accounts and keeps emotions on edge. Even the choppy movement in the equity indexes over the past three months have been useful in that regard. But cryptos…wow, dude. The volatility in Bitcoin alone would be better than sex for us! Movements of 10%-20% over the course of 24 hours. Huge!

Another trader echoed the profit potential: “Just take the idea that these things trade 24 hours a day and seven days a week. That alone would create renewed profitability on trade desks everywhere. And, of course, the volatility would make bank execs wet. That is why bean counters (lawyers) here are working overtime trying to quantify risks and policies to get us on, at a minimum, Bitcoin, and eventually Ethereum. The bottom line on cryptos, we talk about them every day and the plan is to trade the sh** out of them next year. Nearly all of us have built in those profits into our projected earnings next year.”

Our final contact kept things short: “Give me all of the cryptos and watch what I could do for this place. Clients won’t stop asking about them. I’ve not seen anything like this in my career. I’ve heard, from oldheads, what it was like in 98-99 with the dot-com bubble. But even those guys say this is bigger and more emotionally driven. We’d make a sh** ton if we had access, institutionally speaking.”

These comments and the Bloomberg scoop earlier from Alistair Marsh have set off another round of institutional FOMO:

“The U.S. bank will deal in contracts that give investors synthetic exposure to the performance of Bitcoin, said the person, who asked not to be identified because the information is private. Investors will be able to go long or short using the so-called price return swaps, and Morgan Stanley will charge a spread for each transaction, the person said.”

“The bank is already technically prepared to offer the Bitcoin swap trading, and will launch once there is proven institutional client demand and after the completion of an internal approval process, the person said. A spokesman for Morgan Stanley declined to comment on the initiative.”

Every major institution that has an interest in satisfying the requests of its biggest clients and generating outsized trading profits with significant margins is offering or planning to offer access to Bitcoin and cryptos. Everybody.

It is no longer ‘Institutional FOMO’, but rather Institutional Adoption.

EPIC TROLL: BLOOMBERG CLICK BAIT: Bloomberg’s Crypto Coverage Is A Disaster; Shame On Them

Bloomberg has a dedicated team on crypto reporters. All of which have come from traditional financial markets and other beats – in the hopes to cover a hot market as it hit all-time highs late last year. Maybe that’s why their coverage of the industry, Bitcoin price fluctuations, or what old and irrelevant ‘paragons of fiat currency’ like Jamie Dimon and Warren Buffet think about the digital asset movement.

The terminal services coverage of the crypto bear market sounds like a sad replay of since embarrassed early internet era detractors. All manner of doubters decried the ‘any time now’ death of Amazon, Priceline, Ebay, PayPal, Google, and others. It is downright embarrassing – and we wonder who is approving this mindless drivel.

Take a look at this passage from today’s post about Jamie Dimon and Warren Buffet being ‘vindicated’ with $BTC hovering around $4k (which, as of this print it is actually at $4.5k) :

“The cryptocurrency experts, who clearly didn’t see this coming, are blaming all sorts of temporary culprits — from jittery markets to “hard forks” (blockchain jargon for radical technical changes in a digital currency). But they’re kidding themselves. This is a long-term unraveling of all of the lies, exaggeration and populist fantasies that drove last year’s market mania.”

**We aren’t going to provide a link back to the article, because it is hot garbage and unfit for the eyes. And as far as the above quote “…all of the lies, exaggeration and populist fantasies…” FU** YOU!

Here is another maddening passage from an article just yesterday (they seem to be churning these out at an alarming clip) :

“In September 2017, the JPMorgan Chase & Co. chief executive officer famously called Bitcoin a “fraud” and threatened to fire any employee caught trading it. While the cryptocurrency briefly fell on his remarks, it went on to rally more than fourfold in three months as crypto-mania swept the globe. Dimon became a favorite punching bag for Bitcoin bulls, even after saying later that he regretted the comments and that he believes in the digital asset’s underlying blockchain technology.”

“These days, Dimon’s Bitcoin pessimism is looking more prescient. After tumbling as much as 78 percent from its peak, the cryptocurrency has returned to its level on the day the billionaire banker issued his warning last year. Many of Bitcoin’s peers have sunk even further, with the market value of all virtual currencies tracked by CoinMarketCap.com tumbling almost $700 billion from an all-time high in January.”

Again, we aren’t going to link the article because it is three lazy paragraphs of Jamie Dimon worship and click-bait.

**A word about the term ‘click-bait and why we hate the term. Every media entity in the world engages in click-bait. Two decades ago it was called a headline. Click-bait as a dog whistle is stupid. Welcome to 2018, almost 2019.**

These articles are an embarrassment to a media organization that can clearly afford better and more informed contributors and copy. It is offensive and that is why we are calling them out.

Engaging in the mockery of a community dedicated to technology, finance, and engineering to create the next ‘super asset class’ is debased and beneath them. Do better Bloomberg, do better.

UPDATE: And the coverage has only worsened in the last 48 hours. Bloomberg is producing headlines that are both misleading and seems to be pushing some sort of fiat narrative. Again we ask, who is allowing this stuff to make it to print?

Here is the latest on their SEC Chairman Jay Clayton’s comments on Bitcoin ETF proposals;

“The head of the Securities and Exchange Commission said Tuesday that concern over a lack of investor protections makes it unlikely that his agency will approve a Bitcoin exchange-traded fund anytime soon.”

Actually, no. The commentary by Clayton was neutral at worst and contemplative at best. The last thing you could say about it was some sort of definitive word on the death of current Bitcoin ETF proposals.

FLASHBACK: The New Yorker: Novogratz, Bitcoin, And The Changing Financial Hierarchy

The New Yorker put out a piece chronicling Michael Novogratz’ path to Bitcoin and digital currency fame that is worth reading from start to finish. It is a master class download of how the landscape in finance continues to shapeshift in the aftermath of the financial crisis (or because of it) and the players keep changing places on the chess board.

We’ve put together some highlights of the article and our commentary in the following paragraphs, but implore you to go read the entire article. It is that good.

The ‘story’ is told through the prism of Michael Novogratz’ career and his current Bitcoin fame, post Fortress, and post-post Goldman Sachs ‘pivots’.

Michael is probably the most well-worn Bitcoin and crypto pundit found on CNBC, Bloomberg and any other video media outlets that will take him. Here is The New Yorker describing Novogratz in his current iteration:

“…2017 was proving to be pivotal for him and a motley band of other sidelined investors seeking redemption—think the Winklevoss twins—as they tethered themselves to the year’s most befuddling financial event: the rise of cryptocurrency. Novogratz had recognized its potential when one of his partners at Fortress, Peter Briger, introduced him to one of its earlier evangelists, an Argentinean investor named Wences Casares. In 2013, Novogratz put seven million dollars of his own money in cryptocurrency investments when bitcoin was selling at around a hundred dollars a coin. (A single coin currently sells for more than sixty times that amount.) Citing his luck at being in the right place at the right time, Novogratz has called himself “the Forrest Gump of bitcoin.””

So (and most of you know this) Novogratz got in pretty early and has been a HODLR ever since. A Bitcoin evangelist and a bit of a hero to the community. Here is another portion of the article that further describes Novo; specifically during the financial crisis, and how he was handling it:

“Novogratz was a whiz at raising capital, but Fortress, like much of the financial world, was soon blindsided by the 2008 bankruptcy of Lehman Brothers and the ensuing crisis. “I saw it happening,” Novogratz said. “But I couldn’t move the ship fast enough.” He added, “With hindsight, macro shouldn’t be in a public company.” According to him, Lehman’s collapse alone cost the fund between four and five hundred million dollars. An acquaintance of Novogratz’s described running into him outside the offices of Fortress during that time, eating a hot dog as he braced for a meeting with his co-workers. “He says, ‘I don’t want to go up there. It’s all bad up there.’ The world was melting. He was very emotional.””

Fascinating stuff. Novogratz’ history on Wall Street, and noted in this article, is a modern day living and breathing novel. So now we come to Bitcoin:

“By the fall, Novogratz was a billionaire once more. The price of a single bitcoin had been close to three thousand dollars during the summer; now it was clawing at five thousand. I visited him one Wednesday in October, at his office, walking in past a large statue of Evel Knievel in the lobby—the base reads “Bones heal, pain is temporary and chicks dig scars.” Plush sofas were occupied by representatives of the Brown University endowment, a member of the board of Tesla, and the heads of a major publicity firm, among others. Two weeks earlier, Novogratz had announced his decision to rejoin the hedge-fund world and launch a cryptocurrency fund with a hundred and fifty million dollars of the money he had personally made on crypto and three hundred and fifty million from outside investors.”

The article continues and continues and continues. In a way, it is a short novel describing Novogratz’ journey from traditional finance to crypto, hedge fund culture at large, and the emerging role that cryptocurrencies are playing in that world more and more each day. It is an absolutely fascinating read.

Go read it, now! Michael Novogratz: Wall Street Legend Bets On Bitcoin

Gary Shteyngart is the author of “Absurdistan,” “Super Sad True Love Story,” and “Little Failure,” a memoir.

CLAIM: KRAKEN AND THE SEC: Beyond Rumors, Calvin Ayre Claims Kraken Is Under SEC Investigation, To Release Evidence

Whatever your opinion happens to be about Bitcoin Cash, Bitcoin ABC, or Bitcoin SV (the prevailing opinion across the crypto ecosystem is decidedly negative) and the current ‘hash war’ it seems to be uncovering all sorts of ‘sludge’ in the crypto underbelly.

All manner of spats, quarrels, power struggles, and out and out greed is playing out right in front of us and it is having a decidedly negative effect on the overall value of the crypto markets.

**If we can speak for the larger crypto community – stop it guys. This looks and feels like a high school Instagram cat fight. The sooner it is over and forgotten, the better.**

Until it is over a few new headlines have found there way into our inboxes. Specifically Calvin Ayre and his proclamations that Kraken is under SEC investigation.

Ayre did not provide evidence for the accusations, which he’s promising to release “next week.”

While Kraken has yet to publicly react, Ayre’s words could well end up buried beneath the mountain of rhetoric, which has emerged on social media from all parties in the BCH debacle over the past week.

If true (and that is a big ‘if’ given the immature nature of the BCH battle) it would further develop our exchange story from last week. US authorities continue to evaluate and develop enforcement actions within the crypto space.

To be clear an investigation is much different than an enforcement action, an indictment, or even ongoing conversations to bring an entity into compliance. Still, there is an expectation that the SEC has a long line of coming actions in there crypto ‘zip drive’.

From last week:

Several sources from the AML/CFT, SEC, crypto hedge funds, and other crypto sources have given us thoughts and opinions on where this roadmap could lead and who could be next. Here are parts of those conversations and some explanations as to who, why, where, and when.

A former AML/CFT enforcement agent had this to say based on background conversations with two contacts at the SEC:

“There will be more actions taken. That much I am certain about. Geography is not a factor as they formulate any strategy and are having back-channel conversations. One important point to make here, sticking your thumb up the nose of the SEC over the past six months, or any other regulatory agency, has been noticed and cataloged. It is incredibly stupid to basically dare a federal or state organization to come after you. Which led our conversation to Kraken and the dialogue there CEO decided to air in public. They are firmly in the crosshairs here.”

Further dialogue regarding Kraken and their potential issues with authorities is the reason that their CEO, Jesse Powell, made claims regarding registering with the SEC earlier this year.

Yet making claims and pursuing registration is different than finalizing the process and removing yourself from any pending enforcement action. That could be at the center of Calvin Ayre’s allegations.

And we’ve said this multiple times, it is never a good idea to thumb your nose at regulators:

“I expect Kraken and Bitfinex to be the headliners to get punk’d at some point. How, when, or for what is anybody’s guess at the moment. But one of them has actively antagonized regulators (Kraken) and the other has played all sorts of legal and geographic games specific to avoiding regulators (Bitfinex). Should the SEC begin to really get frisky and take on Bitfinex that would be serious and cause some price destruction. Were I to offer a guess, I think Kraken gets slapped and Bitfinex finds a way to avoid *public* enforcement. I could see a way that a backroom conversation occurs and Bitfinex is given a ‘deal they can’t refuse’ to clean some things up.”

Regulatory actions are in process and are probably in ‘back-channel discussions’ at the moment. Calvin Ayre’s claims may be legitimate, but that doesn’t mean that Kraken is going to get killed. It may mean nothing more than a fine and registration with the SEC.

Let’s see if Ayre is actually holding the cards he claims to be or is it simply a full-throated bluff.

BREAKING: BAKKT MOVES BACK: Bakkt Announces Delayed Launch, January 24th 2019 Targeted

In a newly posted Medium article Bakkt CEO, Kelly Loeffler announced that Bakkt would be delaying its previously slated 12/12/2018 launch.

The Medium announcement reads as such:

“Given the volume of interest in Bakkt and work required to get all of the pieces in place, we will now be targeting January 24, 2019 for our launch to ensure that our participants are ready to trade on Day 1. As is often true with product launches, there are new processes, risks and mitigants to test and re-test, and in the case of crypto, a new asset class to which these resources are being applied. So it makes sense to adjust our timeline as we work with the industry toward launch.”

“Second, as we collaborate to help develop this asset class, we are taking opportunities in our start-up phase to expand our offering. We’ll share more about some of these new features in the coming weeks but as a start, I’m pleased to announce that we have insurance for bitcoin in cold storage and are in the process of securing insurance for the warm wallet within the Bakkt Warehouse architecture. We are focused on every aspect of delivering an institutional grade crypto warehouse solution and believe this is a significant step in building confidence in this asset class.”

This delay may cause some price disruption in the crypto markets as it crosses the wires.

Developing…

BREAKING: CUMBERLAND, GENESIS, CIRCLE: New Index, Based On OTC Data, To Power Coming Crypto ETF Approvals

Genesis, Cumberland, and Circle handle massive amounts of OTC crypto trading and lead that particular part of the market (along with DRW and a few others).

Each of these firms are opening up their respective OTC books to help the markets better understand the movements and pricing swings for BTC and other large-cap crypto brands.

The new ‘data feed’ has been in the works for quite some time, via documents filed with the SEC. In August VanEck said that it planned to use OTC pricing as part of its ETF pricing strategy. Given the amount of volume associated with OTC crypto trading, it makes sense.

The filing added this:

“To address concerns respecting the potential for manipulation of bitcoin exchange prices, the bitcoin held by the Trust will be valued based on an index that tracks the price of bitcoin in the U.S. OTC market. OTC desk prices are not subject to manipulation in the absence of misconduct by the trading desks themselves.”

While there may be some concerns surrounding OTC data and the possibility of some level of manipulation – the scale of the data and the perceived integrity of the three firms involved level sets those concerns.

Developing…

Per the Press Release:

MV Index Solutions today launched the MVIS Bitcoin US OTC Spot Index (MVBTCO), which is the first bitcoin index based on U.S. price feeds from established OTC digital asset trading operations. 

The index shows the spot price of bitcoin by tracking its performance based on three of the leading providers in OTC liquidity, including Circle Trade, Cumberland and Genesis Trading. MVBTCO expands MVIS’ portfolio to a total of 24 digital assets indices. 

“We are excited to be the first provider to launch a bitcoin index based on the pricing feed of OTC trading desks,” said Thomas Kettner, Managing Director at MV Index Solutions. 

“This enables clients who trade over the counter to use this index as a reliable benchmark for their trades or potential investment products.” 

“As a global leader in cryptoassets, we are committed to creating opportunities that help the ecosystem evolve in a sustainable way,” said Jason Leung, Global Head of Cumberland. “We are proud to provide our markets to the MVBTCO Index, which will provide access to robust data and bring more transparency to the OTC space.” 

“MVIS is making significant advancements in providing the institutional community with reliable and transparent data for the Bitcoin market,” said Elisabeth Carpenter, COO, Circle. “We are happy to have Circle’s OTC platform, Circle Trade, participate in the MVIS spot index for the cryptocurrency.” 

“Genesis Global Trading has been an important player in the OTC marketplace for years. We’re excited to participate in the MVIS pricing index to help the space mature and gain further legitimacy,” said Michael Moro, CEO of Genesis Trading. 

“VanEck continues to support market structure developments in the digital asset space. MVIS’ work with our core OTC partners, Cumberland, Circle Trade and Genesis Trading, is a major step forward towards greater transparency and price discovery in the institutional Bitcoin market. 

The index may pave the way for institutionally oriented products, such as ETFs as well as provide further tools to institutional investors to execute institutional size trades at transparent prices on the OTC markets,” said Gabor Gurbacs, Director of Digital Asset Strategies at VanEck/MVIS. 

Detailed information about the MVIS Bitcoin US OTC Spot Index including methodology details and index data are available on MV Index Solutions website. 

TRADERS: BULL RUN: 5 Reasons A Legitimate Bull Run Is Coming (and soon)

The crypto bear market has lasted nearly 11 months, and for all intents and purposes, seems to be accelerating at the moment. Bitcoin logged another leg down overnight and this morning; crypto sentiment seems to be at 2014/2015 levels. Instead of bullish posts being all the rage, the latest crypto twitter meme seems to be rage tweets claiming portfolio destruction and leaving the space altogether.

Sounds perfect – to several tenured crypto traders and crypto hedge fund managers. The screeches and audible pain that is emitting from crypto ‘hodlers’ and traders sounds like the sentiment that occurs just before a turn and the makings of a quiet bull market floor forming.

In discussions with several traders and a couple of crypto hedge fund managers over the weekend, we gathered five good reasons why the next crypto bull run could be upon us. Let’s take a look:

  1. Institutional infrastructure breadth and depth: Beyond individual stories about Goldman Sachs, Fidelity or Bakkt – two hedge fund managers spoke extensively about the breadth of institutional involvement in crypto that is on its way to the markets. Goldman Sachs, Fidelity, DRW and TD Ameritrade (ErisX), BlackRock and Coinbase, Nasdaq, Bakkt and the NYSE, and on and on and on.
  2. OTC Markets are quietly robust: One trader told us that the volume on the OTC markets is at a turning point and volumes have recently spiked higher; and not for sellers, but for buyers. Smart money sees the 2018 bear market as an opportunity to buy ‘digital gold’ on the cheap and stash it away for a couple of years. If traditional markets weaken any further the OTC buyers dynamic will only increase and push Bitcoin prices higher.
  3. The SEC just gave muted guidance (via enforcement) that should embolden the tokenization movement: The latest enforcement actions by the SEC, scolding two separate ICO’s, provided further guidance to the tokenization movement and its actors. The short version is essentially this ‘ICO’s aren’t illegal, and we really don’t mind them, just check in with us, pursue registration, and you should be good.’ The ICO enforcement actions taken late last week amounted to small fines given how much those ICO’s raised. A virtual slap on the wrist. And neither announcement claimed fraud of any kind.
  4. Garbage alt-coins are being destroyed: One crypto hedge fund manager discussed Verge ($XVG) as an example of the kind of waste that needed to be burnt out of the ecosystem for the next bull run to begin, “…a token like Verge, built on nothing more than vaporware, hype, cringe partnerships, and stickers on rented lambos are what needed to go away before capital could consolidate and find it’s way back to the likes of projects that are serious and legitimate. Bitcoin, Ethereum, Monero, Stellar (and others) – these are teams that are legitimately attempting to build something that lasts and you can see money flows moving in that direction.”
  5. Bakkt arrives on January 24th: Bakkt brings serious force to the crypto markets by providing Tier 1 institutions the ability to accumulate and trade Bitcoin no differently than they trade gold, oil, natural gas, silver, copper, etc. Trading Bitcoin globally on the ICE exchange networks is 10x the size of CME and CBOE futures trading. The daily gold futures volume on global exchanges is routinely better than $200B. Yes, that is the DAILY volume. DAILY. The late 2017 bull run was somewhat fueled by the Bitcoin futures ramp up on the CME and CBOE. Expect a similar market reaction to Bakkt.

A look back to how some accomplished traders view Bakkt and its ability to curtail the bear market:

“Nothing else on the horizon comes close to what Bakkt will mean for Bitcoin. The depth and breadth of the ICE (Intercontinental Exchange) network and exchange ecosystem means that adoption/trading volumes will skyrocket overnight. The same pipes and structures that allow Goldman, JPMorgan, Morgan Stanley, among a horde of others, to trade billions in commodities like gold, silver, soybeans, and corn; will be the same architecture used to trade Bitcoin.”

“Think of it this way…with the custody and ‘warehouse facility’ solved inside of Bakkt’s infrastructure you have solved the final issue that institutions have been clamoring for in the digital asset space. Their Bitcoin transactions and investments are ‘safe’ via the warehouse facility, and the ability to go claim their Bitcoin straight from the warehouse should they allow their position to mature to that point.”

“Rather than ‘physical’ Bitcoin per se, you are getting access to Bitcoin being housed in an uber protected, heavily secure facility that will hold the digital asset as the backstop for Bitcoin. That is what the Novogratz’ of the world and Goldman and JPMorgan have been clamoring for.”

“While it would be interesting if Bakkt got the press it deserved, there really isn’t a single ‘name’ banking institution that could accompany them in a headline. And that is precisely the scale of the Bakkt story. The ramp up and volume with be enormous and lightning fast. Within months you will have billions of dollars in institutional cash running through Bakkt’s system, buying and selling Bitcoin.”

“This is ultimately the solution that the biggest players (within banking) want and need. And this move furthers the narrative of Bitcoin as a ‘store of value’ or ‘digital gold’.”

And a reminder regarding the reactions crypto hedge fund managers had to the Fidelity ‘digital assets’ initiative several weeks ago (that aims to compete with Bakkt):

“The rumors out there stem from Fidelity passing on taking a stake in Bakkt and then have run amok from there. They’ve been just as secretive about their build as Bakkt was for nearly two years leading up to their announcement. All we know is what we hear from a couple guys that work at Fidelity, but even that is vague and a wink and a smile. But as we see stuff leaked via the media in some way it makes sense that they would scale up. Bakkt has all the institutional pipes, but Fidelity has that same access, but a massive retail name that can tap millions of customers.”

“The real intrigue here is the rumor that Fidelity considers themselves to be crafting a real competitor to Bakkt. That is a mouthful if you ask me. Bakkt is leveraging fifty plus years worth of exchange infrastructure to establish Bitcoin as a standard and then offer products that evolve from there. Fidelity is said to be further along in the way they plan to leverage that same architecture. If that is true, and that is a big if, it only furthers adoption, and the crypto ecosystem wins. Still, lots of chatter about what could come from a name like Fidelity.”

Even Bank of America keeps grabbing crypto custody and blockchain patents by the armful:

“Describing its place and necessity in the future of financial services, the application reads, “As technology advances, financial transactions involving cryptocurrency have become more common. For some enterprises, it may be desirable to securely store cryptocurrency.” The Bank of America began its development of this online cryptocurrency vault system in 2014. So while top leaders at Bank of America have publicly derided Bitcoin and cryptocurrency in general, actions speak louder than words. And they are preparing for the rollout of custody solutions, structured products, and payment systems. Book it.”

A bull run is coming…and if tenured traders are to be believed, it is just around the corner.

SEC: GUIDANCE BASED ON ENFORCEMENT: As The SEC Announces Enforcement Action Today, It Leaves Crumbs On Token Regulations To Come

Earlier today the SEC announced enforcement actions against two ICO’s that had come under scrutiny within the regulator’s offices. The enforcement actions are interesting in that they announce what steps were taken to decide on the enforcement penalties, but took extensive time to attach those enforcement actions to presumed digital asset regulation that is on its way to crypto markets.

Attached is the enforcement action in total:

“In recent years, we have seen significant advances in technologies – including blockchain and other distributed ledger technologies – that impact our securities markets. This statement[1] highlights several recent Commission enforcement actions involving the intersection of long-standing applications of our federal securities laws and new technologies.

The Commission’s Divisions of Corporation Finance, Investment Management, and Trading and Markets (the “Divisions”) encourage technological innovations that benefit investors and our capital markets, and we have been consulting with market participants regarding issues presented by new technologies.[2]  We wish to emphasize, however, that market participants must still adhere to our well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain.

The Commission’s recent enforcement actions involving AirFox, Paragon, Crypto Asset Management, TokenLot, and EtherDelta’s founder,[3] discussed further below, illustrate the importance of complying with these requirements. Broadly speaking, the issues raised in these actions fall into three categories: (1) initial offers and sales of digital asset securities (including those issued in initial coin offerings (“ICOs”)); (2) investment vehicles investing in digital asset securities and those who advise others about investing in these securities; and (3) secondary market trading of digital asset securities. Below, we provide the Divisions’ views on these issues. 

Offers and Sales of Digital Asset Securities

The Commission has brought a number of actions involving offerings of digital asset securities. To date, these actions have principally focused on two important questions.  First, when is a digital asset a “security” for purposes of the federal securities laws?[4] Second, if a digital asset is a security, what Commission registration requirements apply?[5] The importance of these and related issues is illustrated by several recent Commission enforcement actions involving digital asset securities. In particular, the remedial measures in two of these matters demonstrate a way to address ongoing violations by issuers that have conducted illegal unregistered offerings of digital asset securities.

Today, the Commission issued settled orders against AirFox and Paragon in connection with their unregistered offerings of tokens. Pursuant to these orders, AirFox and Paragon will pay penalties and also have undertaken to register the tokens as securities under Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) and to file periodic reports with the Commission. They have also agreed to compensate investors who purchased tokens in the illegal offerings if an investor elects to make a claim. The registration undertakings are designed to ensure that investors receive the type of information they would have received had these issuers complied with the registration provisions of the Securities Act of 1933 (“Securities Act”) prior to the offer and sale of tokens in their respective ICOs. With the benefit of the ongoing disclosure provided by registration under the Exchange Act, investors who purchased the tokens from the issuers in the ICOs should be able to make a more informed decision as to whether to seek reimbursement or continue to hold their tokens.[6]

These two matters demonstrate that there is a path to compliance with the federal securities laws going forward, even where issuers have conducted an illegal unregistered offering of digital asset securities.

Investment Vehicles Investing in Digital Asset Securities

The Investment Company Act of 1940 (“Investment Company Act”) establishes a registration and regulatory framework for pooled vehicles that invest in securities. This framework applies to a pooled investment vehicle, and its service providers, even when the securities in which it invests are digital asset securities.[7]

On Sept. 11, 2018, the Commission issued the Crypto Asset Management Order, finding that the manager of a hedge fund formed for the purpose of investing in digital assets had improperly failed to register the fund as an investment company. The order found that the manager engaged in an unlawful, unregistered, non-exempt, public offering of the fund. By investing more than 40 percent of the fund’s assets in digital asset securities and engaging in a public offering of interests in the fund, the manager caused the fund to operate unlawfully as an unregistered investment company. The order also found that the fund’s manager was an investment adviser, and that the manager had violated the antifraud provisions of the Investment Advisers Act of 1940 (“Advisers Act”) by making misleading statements to investors in the fund.

Investment vehicles that hold digital asset securities and those who advise others about investing in digital asset securities, including managers of investment vehicles, must be mindful of registration, regulatory and fiduciary obligations under the Investment Company Act and the Advisers Act.[8] 

Trading of Digital Asset Securities

Commission actions[9]and staff statements[10]involving secondary market trading of digital asset securities have generally focused on what activities require registration as a national securities exchange or registration as a broker or dealer, as those terms are defined under the federal securities laws.

Exchange Registration

Advancements in blockchain and distributed ledger technology have introduced innovative methods for facilitating electronic trading in digital asset securities. Platforms colloquially referred to as “decentralized” trading platforms, for example, combine traditional technology (such as web-based systems that accept and display orders and servers that store orders) with new technology (such as smart contracts run on a blockchain that contain coded protocols to execute the terms of the contract). These technologies provide the means for investors and market participants to find counterparties, discover prices, and trade a variety of digital asset securities.

A platform that offers trading in digital asset securities and operates as an “exchange” (as defined by the federal securities laws) must register with the Commission as a national securities exchange or be exempt from registration. The Commission’s recent enforcement action against the founder of EtherDelta, a platform facilitating trading digital assets securities, underscores the Division of Trading and Markets’ ongoing concerns about the failure of platforms that facilitate trading in digital asset securities to register with the Commission absent an exemption from registration.[11]

According to the Commission’s order, EtherDelta—which was not registered with the Commission in any capacity—provided a marketplace for bringing together buyers and sellers for digital asset securities through the combined use of an order book, a website that displayed orders, and a smart contract run on the Ethereum blockchain.  EtherDelta’s smart contract was coded to, among other things, validate order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade.[12] The Commission found that EtherDelta’s activities clearly fell within the definition of an exchange and that EtherDelta’s founder caused the platform’s failure either to register as a national securities exchange or operate pursuant to an exemption from registration as an exchange.[13]

Any entity[14]that provides a marketplace for bringing together buyers and sellers of securities, regardless of the applied technology, must determine whether its activities meet the definition of an exchange under the federal securities laws. Exchange Act Rule 3b-16 provides a functional test to assess whether an entity meets the definition of an exchange under Section 3(a)(1) of the Exchange Act. An entity that meets the definition of an exchange must register with the Commission as a national securities exchange or be exempt from registration, such as by operating as an alternative trading system (“ATS”) in compliance with Regulation ATS.

Notwithstanding how an entity may characterize itself or the particular activities or technology used to bring together buyers and sellers, a functional approach (taking into account the relevant facts and circumstances) will be applied when assessing whether a system constitutes an exchange.[15]  The activity that actually occurs between the buyers and sellers—and not the kind of technology or the terminology used by the entity operating or promoting the system—determines whether the system operates as a marketplace and meets the criteria of an exchange under Rule 3b-16(a).  For instance, the term “order” for purposes of Rule 3b-16 is intended to be broadly construed, and the actual activities among buyers and sellers on the system—not the labels assigned to indications of trading interest—will be considered for purposes of the exchange analysis.[16]

The exchange analysis includes an assessment of the totality of activities and technology used to bring together orders of multiple buyers and sellers for securities using “established non-discretionary methods”under which such orders interact.[17]  A system “brings together orders of buyer and sellers” if, for example, it displays, or otherwise represents, trading interest entered on a system to users or if the system receives users’ orders centrally for future processing and execution.[18]

A system uses established non-discretionary methods if it provides a trading facility or sets rules.  For example, an entity that provides an algorithm, run on a computer program or on a smart contract using blockchain technology, as a means to bring together or execute orders could be providing a trading facility. As another example, an entity that sets execution priorities, standardizes material terms for digital asset securities traded on the system, or requires orders to conform with predetermined protocols of a smart contract, could be setting rules. Additionally, if one entity arranges for other entities, either directly or indirectly, to provide the various functions of a trading system that together meet the definition of an exchange, the entity arranging the collective efforts could be considered to have established an exchange.

Entities using blockchain or distributed ledger technology for trading digital assets should carefully review their activities on an ongoing basis to determine whether the digital assets they are trading are securities and whether their activities or services cause them to satisfy the definition of an exchange. An entity engaging in these types of activities should also consider other aspects of the federal securities laws (and other relevant legal and regulatory issues) beyond exchange registration requirements.

Broker-Dealer Registration

An entity that facilitates the issuance of digital asset securities in ICOs and secondary trading in digital asset securities may also be acting as a “broker” or “dealer” that is required to register with the Commission and become a member of a self-regulatory organization, typically FINRA.  Among other things, SEC-registered broker-dealers are subject to legal and regulatory requirements that govern their conduct in the marketplace and that provide important safeguards for investors.

Section 15(a) of the Exchange Act provides that, absent an exception or exemption, it is unlawful for any broker or dealer to induce or attempt to induce the purchase or sale, of any security unless such broker or dealer is registered in accordance with Section 15(b) of the Exchange Act. Section 3(a)(4) of the Exchange Act generally defines a “broker” to mean any person engaged in the business of effecting transactions in securities for the account of others. Section 3(a)(5) of the Exchange Act generally defines a “dealer” to mean any person engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise. As with the “exchange” determination, a functional approach (taking into account the relevant facts and circumstances) is applied to assess whether an entity meets the definition of a broker or dealer, regardless of how an entity may characterize either itself or the particular activities or technology used to provide the services.[19]

The Commission’s recent TokenLot Order illustrates the application of the broker-dealer registration requirements to entities trading or facilitating transactions in digital asset securities, even if they do not meet the definition of an exchange. According to the order, TokenLot was a self-described “ICO superstore” where investors could purchase digital assets, including digital asset securities, during or after an ICO, including in private sales and pre-sales. The parties’ brokerage activities included marketing and facilitating the sale of digital assets, accepting investors’ orders and funds for payment, and enabling the disbursement of proceeds to the issuers. They also received compensation based on a percentage of the proceeds raised in the ICOs, subject to a guaranteed minimum commission. TokenLot also acted as a dealer by regularly purchasing and then reselling digital tokens for accounts in TokenLot’s name that were controlled by its operators.

Conclusion

The Divisions encourage and support innovation and the application of beneficial technologies in our securities markets. However, the Divisions recommend that those employing new technologies consult with legal counsel concerning the application of the federal securities laws and contact Commission staff, as necessary, for assistance. For further information, and to contact Commission staff for assistance, please visit the Commission’s new FinHub page.”

Deconstructing the attachment to regulations that are coming to the tokenized asset space is best found here: https://twitter.com/MeatTC_/status/1063455967017345025

“Capital conservation is your best option at this time…”

Bitcoin continues to struggle with testing the 5600 support level as downside continues to test recent lows. On the mid-scale (4-hour chart) as shown gives light to this level holding – however, there are some concerns before the long play of BTC can be considered. 

As BTC broke multiple supports over the last two days, it should be noted that support should be confirmed. At this time, there is a small pennant/flag that has formed mid-scale with a flat bottom.

Additionally, there is the MA (moving average) line that puts downside pressure on price action as it attempts to retrace. Considering there has been very little upside along with low volatility, a breakout buildup has begun to form.

 

Hourly signals have produced a soft higher low*, however, this should be carefully watched before any re-entry attempts. At the moment, 5600 support must be confirmed by looking at BTC and whether it will hold 5600 support. 

A break lower looks to seek out 5200 support next. The next major resistance level up still stands at 5600 – also 1/2 retracement of the previous leg down.

Stochastic levels mid-scale now exit the oversold (<20) levels to seek the upper region.

MACD readings now tick positively, however, keep in mind that this should not be used as an entry tool at this time.

BTC is currently a No Play. Risk: High.

If looking for a short-term buy/hold strategy, one option (Risk: High) is to place entry near support with a stop at 5500; as a break below to this level will likely seek new short-term lows.

Futures Traders – trade the trend. The short-term trend is currently sideways – no trade scenario.

Capital Conservation is the best option at this time until trend/pattern is confirmed.