BITCOIN BOSS: NOVOGRATZ: Take A Look At The Crypto Investments Made By The ‘Buffet of Bitcoin’ Over The Last Year

Michael Novogratz is quickly becoming the ‘Oracle of Bitcoin’; to borrow a phrase from traditional finance and the worlds most successful investor, Warren Buffet. It seems that wherever and to whoever Novogratz floats his ‘pixie dust’ (aka crypto venture capital) the masses are sure to not only take notice but quickly deem the investment a crypto move of genius proportions.

But those masses aren’t wrong, and Michael Novogratz has found himself on the right side of the digital assets ledger time and time again. For reference, let’s take a look at the investment he’s made in just the past six months:

  1. The just-announced increased investment in his own firm Galaxy Digital.
  2. A partnership with his firm, Galaxy Digital, and Fidelity Digital Assets is announced.
  3. A strategic investment in Hut 8 Mining.
  4. A strategic investment in Bakkt.
  5. An investment in BlockFi, a lending facility for digital assets.
  6. An equity position in Caspian, a digital asset management solution.
  7. A strategic investment in Wax Express Trade, a digital gaming payment/trading system.
  8. An investment in High Fidelity, a VR blockchain project.
  9. A ‘lead investor’ equity stake in Alpha Point.
  10. Partnering with Bloomberg to create the Bloomberg Galaxy Crypto Index (BCGI).
  11. A co-investment with Goldman Sachs in custody service BitGo.

And we are almost certain there are more that haven’t been announced – and we probably even missed a couple. But the above list is remarkable and proves the ‘Buffet of Bitcoin’ moniker. When Michael Novogratz talks about crypto, digital assets, blockchain, use cases, or any other such crypto ecosystem buzz phrase you need to listen – and listen intently.

**Most of you reading this are acutely aware of Novogratz’s crypto prowess, but may not know his traditional finance history equally as well. So some crib notes regarding his work up to this point: Michael Novogratz is an ex-hedge fund manager, formerly of the investment firm Fortress Investment Group. Prior to joining Fortress, he was a partner at Goldman Sachs where he spent much time abroad including leadership roles in Asia and Latin America.**

Goldman, Fortress, and now quite possibly the most powerful financial firm in crypto, Galaxy Digital. That is a resume’ that commands respect, even with the circumstances that surrounded his exits from both Fortress and Goldman. Exits that were predicated on risk-taking that now serves Galaxy Digital perfectly.

This quote from the Bloomberg BitGo announcement yesterday adequately describes the direction and strategic thinking (common sense thinking) behind most of Galaxy Digital and Michael Novogratz’ investments:

“If you were investing in any other asset class, you’re probably not worried about the asset just disappearing — but this one, people still have that fear,” Mike Belshe, BitGo’s co-founder and chief executive officer, said in an interview. For cryptocurrencies to reach their full potential, “we’ve got to conquer that.”

Problem-solving, married to the concepts pressing digital assets forward are what make up Novogratz’ investment philosophy – at least that is what the above investment roster indicates. Custody, data, trading platforms, warehouse facilities, mining – these are all digital versions of another ‘Oracle’ (Warren Buffet) who’s made a few bucks over the years. Infrastructure and hard assets, so to speak.

In crypto, it is becoming increasingly clear that the concept of following the money will eventually pay off big. Galaxy Digital and Michael Novogratz are leaving breadcrumbs all over the digital assets trail, and you’d do well to chase them, picking up every crumb along the way.

FORTNITE AND MONERO: CRYPTO GAMING: Crypto Comes To Gaming Via Monero Partnership With World’s Largest Gaming Franchise

In a headline-making post on January 1st the online store connected to Fortnite announced an ‘exclusive’ crypto partnership with privacy token Monero. The news has washed over the crypto ecosystem quickly and brought new eyeballs to the space – just as the calendar turns to 2019.

Via Coin Telegraph:

“Fortnite is an online video game released in July 2017 and developed by Epic Games, which reportedly accounts for more than 125 million players worldwide. In October 2018, Epic Games was valued at over $15 billion in its latest funding round.”

“Retail Row supports crypto payments service GloBee, which allows retailers to accept cryptocurrencies including Bitcoin (BTC), Litecoin (LTC) and Ripple (XRP), while XMR is the only digital currency supported by the store. Customers can also make payments with a range of conventional methods including credit cards and PayPal.”

The most important detail lies in the ‘exclusive’ portion of the announcement connected to Fortnite. That is a really, really big deal. These are the kind of ‘use case’ announcement that could propel crypto back into the spotlight as an attempt to leave the bear market of 2018 in its wake.

Introducing crypto to 125 million die hard Fortnite fans is certainly a good start. What will follow is whether or not Monero finds significant usage amongst a percentage of those users/gamers. If so it makes a compelling case for token usage in the gaming space.

Either way, kudos to the Monero team for striking the deal, and Epic Games for instituting forward thinking with its core audience.

REPORT: Bermuda Authorities Issue Far-Reaching Custodian Provider Code of Practice for Consultation; Remain Crypto Friendly

On 18 December, the Bermuda Monetary Authority (BMA) released a draft digital asset custody code of practice for a one month consultation period.1 The draft code is one of the most comprehensive custody provider guidelines to be issued by any jurisdiction.

The draft code is designed to provide additional clarity regarding the standards the BMA will impose when considering whether a custodian is employing an acceptable level of care with its client’s digital assets.2 Failure to comply with the business or technical provisions in the draft code will be taken into consideration by the BMA in determining whether a licensed digital asset firm is meeting its obligation to conduct its business in a sound and prudent manner.3

The provisions in Bermuda’s draft code of conduct for custodian providers incorporate a broad range of business and technology controls. The draft code will likely be closely reviewed, and possibly used as a model, by other jurisdictions, like the UK, which are drafting digital asset laws and regulations.

Proportionality Principle

The BMA will assess compliance with the code of practice in a proportionate manner relative to the nature, scale, and complexity of the firm.4 Higher standards may be warranted when a firm has a unique business model with extraordinary risk or there are generally accepted breakthroughs in cybersecurity risk management and mitigation strategy.5

Hot and Cold Storage Policies 

The draft code strongly recommends that the majority of client private keys, not required for client transactions, be held in cold storage to mitigate against client loss from cyber-attacks.6 The BMA also strongly recommends a minimal balance be kept in hot storage and the mechanism and thresholds for transfer between hot, cold and other storages must be well documented and audited.7 In no case is a firm permitted to hold less than 90% of client private keys not being used for trading or other transactions in cold storage.8

A digital asset firm must also provide rationale for its choice of storage solutions. Factors for determining the best method of storage include, but may not be limited to, the volume of speed at which transactions need to be completed and the client’s risk tolerance.9

Client Address Strategies

The practice of generating a new address for every transaction further ensures a client’s privacy and confidentiality.However, there are cases where traceability of address activity is desirable.The draft code requires the custodian to exercise judgment in determining an address strategy based on the use of its clients and provides justification for the address use strategy.10

Fraud Detection and Due Diligence Standards

The draft code strongly recommends that digital asset businesses develop a protocol for fraud detection that includes a system for identifying suspicious transactions, as well as a procedure for reviewing suspicious transactions.11

Digital asset businesses must also document policies and procedures related to client identity verification requirements that include, but are not limited to, enhanced due diligence, sanction screenings and adverse media screenings.12

Proof of Asset Valuation and Reserves

The draft code mandates that digital asset business have to disclose the methodology related to its asset valuation calculations and, when possible, use recognized benchmarks or observable, bona-fide, arms lengths market transactions. The draft code strongly recommends that firms disclose the source of the asset valuation to the client and all signatories of the transaction.13

The draft code also strongly recommends that firms have a minimum amount of assets on-hand, within the organization, to withstand the withdrawal of all client assets and ensure sufficient liquidity for the protection of client assets. A periodic proof of reserves audit must also be completed.14

Reporting Standards and Insurability Protections

The draft code requires firms to issue customer statements at least quarterly. The statements must be designed to assure the integrity of the client accounts and permit clients to identify any erroneous or unauthorized transactions, withdrawals or balances.15

Digital asset businesses must also demonstrate that assets under custody carry appropriate insurance or other financial protections to cover or mitigate potential loss exposure.16

Custody Safekeeping Standards

The draft code requires firms to have controls in place to ensure digital assets are securely created and stored. Uninterrupted availability of assets is another important requirement.17 The draft code strongly recommends that seeds should be created using a National Institute of Standards and Technology (NIST) compliant deterministic random bit generator.18

The draft code requires firms to have secure deletion and destruction mechanisms in place and ensure unwanted artifacts from seed, key and wallet generation.19 The draft code also requires firms to ensure that fewer than the number of keys required to transact will ever be stored online or in any one physical location. Key/seed backups must be stored in a separate location from primary key/seed.20

Digital asset businesses must ensure that a regular and recurring internal audit-at least quarterly-of the backup seeds is performed on storage devices to ensure that no backups were tampered with or removed.21

Physical Security and Access Requirements

The draft code requires firms to have storage facilities equipped with highly secure vaults that are penetrative resistance to forcible attack and monitor all physical storage areas on a 24/7 basis. Access to storage areas must be limited to persons authorized by the associated entity and confirmed by a third party through multifactor identity verification.22

The draft code also requires firms to have access requirements that require, at a minimum, badge entry that is restricted to authorized individuals; separate access controls from primary workspaces; facility access control logging systems that maintains access records for a minimum of one year on-site and a copy stored for three years at an off-site location; and CCTV that covers entry access entry.23

Key Compromise and Key Revocation Procedure 

The draft code requires firms to have a documented protocol in the event there is reasonable belief that a wallet, private key or seed has been compromised.24 Digital asset businesses must also have procedures in place for immediately revoking a signatory’s access.25

Perpetual Client Access and Location Redundancy

The draft code requires firms to demonstrate that they can provide clients with perpetual access to all assets in custody in the event the business ceases to operate or cannot fulfill its custody agreement.26

The draft code also requires businesses to maintain disaster recovery and redundancy facilities designed to ensure business continuity and client asset preservation.27

Mandatory Reporting of Security Breaches 

The draft code requires firms to have documented policies and procedures to address actions taken, client notifications, and notifications to the BMA regarding an event or suspicion of hack, theft, compromise or attack.Such procedures must be reviewed and audited annually.Within 14 days of a notification, the senior representative must furnish the BMA with a report in writing setting out all of the particulars of the case.28

Custody Transaction Handling and Custody Operations Controls

The draft code requires firms to ensure transactions are secure and trusted and that there are measures in place to prevent fraud. All transactions must be recorded in system audit records, and these records must be periodically audited.29

The draft code also imposes custody transaction handling control standards, including multi-signature authorizations, collusion mitigation, evidence-based signature approvals, periodic audits and data deletion and sanitization policies.30

IT Operational Controls

The draft code concludes with a series of technology operations requirements. Firms must have best practice IT operational controls in place to ensure a secure and stable custody operating environment. 

The mandated controls include multi-factor authentication; security controls to all systems, particularly internet-facing systems; individual access system controls; security vulnerability and custody services testing; and disaster recovery procedures.31

  1. Consultation on Digital Asset Custody Code of Practice 2018,” Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  2. Consultation on Digital Asset Custody Code of Practice 2018, §1.2, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  3. Consultation on Digital Asset Custody Code of Practice 2018, §1.2, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  4. Consultation on Digital Asset Custody Code of Practice 2018, §1.3, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  5. Consultation on Digital Asset Custody Code of Practice 2018, §1.3, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  6. Consultation on Digital Asset Custody Code of Practice 2018, §1.5, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  7. Consultation on Digital Asset Custody Code of Practice 2018, §1.5, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  8. Consultation on Digital Asset Custody Code of Practice 2018, §1.5, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  9. Consultation on Digital Asset Custody Code of Practice 2018, §1.43, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  10. Consultation on Digital Asset Custody Code of Practice 2018, §1.6, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  11. Consultation on Digital Asset Custody Code of Practice 2018, §1.8, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  12. Consultation on Digital Asset Custody Code of Practice 2018, §1.19, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  13. Consultation on Digital Asset Custody Code of Practice 2018, §1.9, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  14. Consultation on Digital Asset Custody Code of Practice 2018, §1.21, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  15. Consultation on Digital Asset Custody Code of Practice 2018, §1.20, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  16. Consultation on Digital Asset Custody Code of Practice 2018, §1.17, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  17. “Consultation on Digital Asset Custody Code of Practice 2018: Technology Controls Part I: Custody Safekeeping,” Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  18. Consultation on Digital Asset Custody Code of Practice 2018, §1.28, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  19. Consultation on Digital Asset Custody Code of Practice 2018, §§1.30-1.31, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  20. Consultation on Digital Asset Custody Code of Practice 2018, §1.31, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  21. Consultation on Digital Asset Custody Code of Practice 2018, §1.31, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  22. Consultation on Digital Asset Custody Code of Practice 2018, §1.33, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  23. Consultation on Digital Asset Custody Code of Practice 2018, §1.41, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  24. Consultation on Digital Asset Custody Code of Practice 2018, §1.35, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  25. Consultation on Digital Asset Custody Code of Practice 2018, §1.37, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  26. Consultation on Digital Asset Custody Code of Practice 2018, 1.38, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  27. Consultation on Digital Asset Custody Code of Practice 2018, 1.40, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  28. Consultation on Digital Asset Custody Code of Practice 2018, §1.42, Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  29. “Consultation on Digital Asset Custody Code of Practice 2018: Technology Controls Part II: Transaction Handling,” Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  30. “Consultation on Digital Asset Custody Code of Practice 2018: Technology Controls Part II: Transaction Handling,” Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).
  31. “Consultation on Digital Asset Custody Code of Practice 2018: Technology Controls Part III: Operations Controls,” Bermuda Monetary Authority, December 2018, (accessed 20 December 2018).

DRAPER DIGS IN: Doubles Down On Bitcoin Price Prediction, 225,000 By 2022

Tim Draper could be Bitcoin’s leading evangelist. And any evangelist worth his salt not only reveals himself as a true believer but acts as such in public and private. Tim Draper revels in doing just that at every turn and stated again that Bitcoin will reach astronomical price levels over the next 42 months.

The Bitcoin [BTC] enthusiast and entrepreneur, earlier predicted that Bitcoin will reach a value of $225,000 in 2022. He mentioned this prediction in his book and stands by it.

In sticking to his prediction that Bitcoin will soar to $250,000 by 2022, he’s effectively carved out the high ground amongst other well-known crypto bulls. At one of his latest conference appearances, he spoke about the potential in technology regarding the banks and venture capital. He spoke about his hopes about cryptocurrency, the new world order, and his bullish beliefs about the token, Bitcoin [BTC].

He also believes that fiat currency will lose its value, he said:

“So, you’ll go in and try to buy coffee with fiat and the barista will laugh at you. Because there is so much more friction with fiat currency than there is with cryptocurrency. And I think you’ll be able to buy it with Bitcoin, Ether, or Bitcoin Cash.”

(**more to come about the above concept later today and throughout the week in reference to Bakkt and their pending ‘pipes’ connected to $BTC).

In 2014, he made a purchase of 30,000 BTC when it was trading at $650 at a public auction. However, it was seized by the US authorities from Silk Road.

And a reminder that Tim Draper doesn’t mind getting all up ‘in his feelings’ about Bitcoin by doing his best old man Eminem impression on cryptocurrency:

“Wherever you are,
Thank you for Bitcoin, the blockchain and more
You started this snowball from the top of the hill
And now it’s pervasive
It’s the people’s will
It’s the people’s will
We want a new world order
We want to play across the border
Just wanna be a Hodler
on my Bitcoin hustle
on my Bitcoin hustle
on my Bitcoin hustle
Get your hustle going
Flex that crypto muscle

LOL! Tim is going to Tim. The enthusiasm can be contagious and he remains the worlds foremost ‘Crypto Evangelist’ at the moment – displacing other high profile personalities. Of course, a middle-aged white guy constructing a rap about a significantly white/male phenomenon seems a bit much.

Still, wherever he goes, whatever he says the crypto world is listening. And holding on to his $225K bitcoin prediction for dear life.

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.

BREAKING: COINBASE AND WEALTHFRONT: Robo-Advisor Disrupting Wall Street Partners With Coinbase To Offer Clients Token Access

In a press release from Wealthfront earlier today, the leading robo-advisor platform has struck a deal with Coinbase to offer clients (read: millennials) access to digital assets such as Bitcoin, Ethereum, and the coming wave of tokens that Coinbase has signaled they plan to list over the next year. 

The continued cross-currents between both Wall Street and the digital asset economy are undeniable at this point. All manner, size, scale, and reputation of traditional finance based exchanges and broker-dealers are set to offer some sort of access to digital assets and tokens. It isn’t slowing down, rather the pass is picking up.

Via Wealthfront: 

“Today, we’re excited to announce you can now track your cryptocurrencies by connecting your Coinbaseaccount to Wealthfront! We’re especially excited because this has been one of our clients’ most requested features.”

“You have always been able to connect a wide variety of account types and asset classes to our Path advice engine—from bank and brokerage accounts to real estate, mortgages, and student loans. But we know many of you like to dabble in other innovative financial products, like cryptocurrencies. So now, we make it possible for you to add information about your cryptocurrency holdings in your Coinbase account to Wealthfront to get a more holistic view of your financial picture. And even more importantly, we factor that information into your free financial plan.”

Rather than offer the ability to trade cryptocurrencies directly from Wealthfront, they’ve created a specific API that allows clients to link their Coinbase account to their platform and be visible on their statements/app/desktop. The same functionality exists for other accounts at Fidelity, Bank of America, Vanguard and others. 

Still, another move of scale forward for the digital assets ecosystem.

BAKKT: FUTURE PRODUCTS: Bakkt Foreshadows ‘Future Crypto Products’ In Dialogue; Bullish Hopium

As if we needed another reason to continue to anticipate the launch of Bakkt. In a late Sunday tweet Bakkt foreshadowed the future of their ambitions with the following line:

“…which could open the door for other products around crypto.”

This from a tweet at 4:42 PM. Deconstructing the backstory on ‘other products’ is the key here. Clearly, Bakkt doesn’t aspire to simply create and trade, ad infinitum, bitcoin futures and bitcoin futures alone. As competitors such as Nasdaq and ErisX push forward with multiple cryptocurrencies and futures that will be traded at their respective launches, Bakkt won’t be left behind.

To get a bit more clear-eyed on what other products Bakkt may be talking about that will come from a more orderly price book from Bitcoin take a look at the gold futures markets, spot markets, etc. What type of products has evolved from the ‘physically deliverable’ gold markets dominated by ICE, the parent company of Bakkt?

Orderly gold markets trade better than $100B worth of the commodity per day. The products that have been born from that type of volume have been the following:

  • Physical gold is readily available to the public from all manner of sources.
  • Gold ETF’s have been approved across the board and trade on several exchanges.
  • Gold mutual funds have also become mainstream.
  • Gold derivatives are traded amongst commodity exchanges.
  • Gold futures are also traded across multiple commodity exchanges.
  • Gold options.

**The collective trading in the above products approaches $500B on a daily basis.

Can anyone guess who manages the largest gold-based ETF’s in the world? Anyone? Anyone? BlackRock. Yes, that BlackRock – the worlds largest asset manager. And there just happens to be a story or two out there that connects BlackRock to Coinbase as the two comingle their efforts on potential crypto ETF products.

Bakkt aspires to be the foundation on which firms like BlackRock, State Street (SPDRS), Invesco, Vanguard, VanEck, and Deutsche Bank create Bitcoin and digital asset ETF’s. Collectively the aforementioned firms manage nearly $4T in ETF assets. FOUR TRILLION.

So it makes a bit of sense for Bakkt to have an interest in processing the type of digital asset volumes connected to an ever-expanding ETF ecosystem.

And this is the reason that Nasdaq, Bakkt, ErisX, and Fidelity have rushed into the custody and trading markets for Bitcoin and other large market cap digital assets. The fees and profits on ETF’s, mutual funds, options, and derivatives are in the 10’s if not 100’s of billion dollars a year.

Would Bakkt, Fidelity, and Nasdaq really announce large-scale crypto infrastructure if the smartest people in those firms have yet to do extensive due diligence on the expected profits? And those expected profits far outweigh the risks involved in digital assets? Of course, they have put the scales to it and their eyes have widened at the expected and potential profits.

Take a look at some commentary directly from Bakkt’s CEO, Kelly Loeffler regarding where Bakkt is headed – and we will highlight specific phrases that point to significantly more than just Bitcoin futures:

“Our goal is to make digital assets more liquid, trusted and accessible; allowing meaningful innovation to follow. Many in our space are working toward this objective.”

“By virtue of passporting ICE Futures U.S. and ICE Clear U.S. into other jurisdictions outside the U.S., institutions operating on a global scale can better serve their customers. Bakkt’s first contracts will be physically delivered Bitcoin futures contracts versus fiat currencies, including USD, GBP and EUR.For example, buying one USD/BTC futures contract will result in daily delivery of one Bitcoin into the customer’s account. This aspect of physically delivery adds to the utility of Bitcoin, beyond simply trading.”

“While there are many aspects of Bakkt that we’ll continue to develop and share, our initial focus is supporting regulated institutions in serving customers in this emerging asset class. The foundation on which we are building our solutions for buying, selling, storing and spending digital assets is not a piece of Italian Carrera marble, like the statue of David, but is built upon the time-tested, regulated futures markets — which have advanced markets ranging from coffee to gold for hundreds of years.”

“Key to cryptocurrency’s success is a trusted market price. We are working to create a regulated for of price discovery, which could open the door for other products around crypto.”

Again, the implications here over the next three to five years are enormous. A regulated and orderly market for large-cap tokens will turn a $150B – $200B market capitalization ecosystem into a $1T – $2T industry of scale. If the gold markets are any indication of what lies ahead for digital asset structured products and daily trading volumes – fill your bags right now.

Don’t be blinded by the pain of a bear market. Bakkt, Fidelity, Nasdaq and other global firms of scale are building and loading up. Shouldn’t you be?



INSIDER: CFTC AND ETHEREUM: As The CFTC Requests Ethereum Comments, Insider Considers Commodity Designation A ‘Done Deal’

Yesterday the CFTC formally requested ‘public comment’ concerning whether or not Ethereum should be designated as a commodity or not (the ‘not’ would then throw it into the security designation and open up a whole mess of issues). Obviously, Ethereum and every coin/dapp that has been built on it has a vested interest in a commodity designation by the CFTC.

Here is the body of the request by the CFTC:

The Commodity Futures Trading Commission (“Commission” or “CFTC”) in furtherance of the LabCFTC initiative is seeking public comment and feedback on this Request for Input (“RFI”) in order to better inform the Commission’s understanding of the technology, mechanics, and markets for virtual currencies beyond Bitcoin, namely here Ether and its use on the Ethereum Network. The Commodity Exchange Act (“CEA”) grants the Commission regulatory authority over the commodity futures markets. The Commission is seeking public feedback in furtherance of oversight of these markets and regulatory policy development. The input from this request will advance the CFTC’s mission of ensuring the integrity of the derivatives markets as well as monitoring and reducing systemic risk by enhancing legal certainty in the markets. The RFI seeks to understand similarities and distinctions between certain virtual currencies, including here Ether and Bitcoin, as well as Ether-specific opportunities, challenges, and risks. The Commission welcomes all public comments on these and related issues.

Many have made the case that Ethereum is significantly more ‘centralized’ than Bitcoin and thus have serious questions about its commodity-type traits. Others believe that the breadth of the ERC-20 (at a minimum) ecosystem makes the case for its decentralization – thus making it a clear commodity.

Whatever the arguments are either way we believe, based on one conversation with a staffer at the CFTC, that the request for comment is a mere formality. Internally the decision to designate Ethereum as a commodity is all but made.

**We have two separate and reliable sources connected to the CFTC. One was willing to give us an anonymous comment, the other spoke with us but asked that the comments be left out of this article.

As per the thinking at the CFTC:

“The request for comment is seen as a reasonable procedural process to check the box before announcing the commodity designation. Chris understands the digital assets landscape really, really well and knows that there is less consensus on this than there was for Bitcoin. This step will give some background to the decision and he expects the comments to be largely in favor of a commodity designation.”

Any policy decision in the crypto space will have long-lasting and even unintended consequences. It makes sense to consider every angle and every reasonable outcome of a commodity designation for Ethereum. Several institutions are counting on the decision going in that direction.

ErisX, Bakkt, Goldman Sachs and others have plans to list/trade Ethereum based on its eventual designation as a commodity. ErisX has already announced its intentions, Bakkt initially listed Ethereum as one of its two launch tokens before they decided to wait for the formal word from the CFTC, and Goldman Sachs is preparing to offer an Ethereum based product for its upper-crust clients.

The ripple effects of this decision will resonate throughout 2019 and give context to every other token that claims to be a commodity/utility and not a security.

The CFTC and Chris Giancarlo are playing it smart.

REPORT: COINBASE AND IRELAND: Why Has The Popular Exchange Established Corporate Residency In Ireland

After Brexit, the UK is likely to remain the European hub for digital asset firms, but digital asset firms with offices only in the UK or firms entering the EU for the first time will have to establish an office in a European Union (EU) member state in order to maintain an EU-wide presence.

These firms will remain reluctant to establish offices in Ireland. The one major exception is Coinbase, which chose Dublin as its post-Brexit base in March, so it could continue operations and services in EU member states after the UK departs the EU in March 2019.1

Other digital asset firms have been hesitant to establish operations in Ireland for a number of reasons. Ireland has not enacted legislation that explicitly regulates digital assets, offerings or services. In addition, the Central Bank of Ireland (CBI) has expressed guarded acceptance of digital asset firms, and Irish banks have also been reluctant to conduct business with digital asset firms.

In March, the CBI released a discussion paper that signaled a change in Ireland’s position on digital assets. Since then, the CBI has established a FinTech “Innovation Hub” to assist firms in developing or implementing innovations in financial services based on new technologies.

These nascent efforts will not be enough to draw firms to Ireland in the short-term, as other EU member states are aggressively pursuing similar strategies.

Lack of a Comprehensive Legal Regime Enhances Regulatory Uncertainty

Ireland has not enacted laws or rules that explicitly regulate digital assets, offerings, and services. This provides digital asset firms that are operating in or considering operating in Ireland with a low degree of regulatory certainty.

Some existing laws apply to digital assets offerings or assets. For instance, if a token issued in an initial coin offering (ICO) is deemed to be a “transferable security,” a range of financial services legislation, including the 2014 European Union Markets in Financial Instruments Directive (MiFID II), will apply.2

In other instances, the specific classification and regulation of a digital asset or offering are determined on a case-by-case basis.3 The lack of clarity poses significant problems for digital asset firms, as issuers who do not adhere to the existing regulations are subject to legal penalty.4

Banks Deny Services to Digital Asset Firms

Digital asset firms ceased operation or were compelled to open foreign bank accounts after Irish banks refused their business.5 The Bank of Ireland explicitly stated that it does not offer services to digit asset companies.6

Allied Irish Banks (AIB) stated that it “does not discriminate” in providing banking services to digital asset companies, but AIB requires digital asset firms to ensure they are in full compliance with domestic AML/CTF laws and regulations before accepting them as clients.

The denial of banking services will likely continue until regulations are enacted that explicitly categorizes digital assets and clarifies the required AML/CTF, customer due diligence and reporting practices.

Virtual Currency and Blockchain Technology Discussion Paper Released in March

In March, the Department of Finance issued a discussion paper that signaled a fundamental change in the government’s approach to digital assets.

The key objectives of the paper include the proposal to create an intra-departmental working group to coordinate the approach to virtual currencies and monitor developments in blockchain technology, and the initiation of further research into the potential implications of digital assets and blockchain. The discussion paper also reiterates earlier concerns, namely risks to consumers and investors.7

The CBI’s Assessment of Digital Assets Has Shifted from Disapproval to Guarded Acceptance

The CBI contributed to the production of the European Securities and Markets Authority (ESMA) statement, published on 13 November 2017, which warned investors of the “high risks” associated with ICOs and virtual currencies. The statement by ESMA also cautioned investors that ICOs are “highly speculative investments” and, in some cases, investors “do not benefit from the protection” that comes with regulated investments.8

A month later, the Central Bank of Ireland (CBI) issued an “Alert on Initial Coin Offerings” that stated ICO investors should be aware of unregulated activity; fraud or illicit activities; the high risk of losing all invested capital; lack of exit options ; extreme price volatility; inadequate information; and flaws in the technology”.9

The CBI has recognized that it needs to incorporate emerging technologies, including digital asset firms, into its existing framework. In April, the CBI established an “Innovation Hub” that allows FinTech firms to engage with the CBI “outside of existing formal regulator/firm engagement processes.”10

The hub will allow digital asset firms to test products, services, business models and delivery mechanisms in a controlled environment.11

Legislative Hurdles Will Continue to Limit Digital Asset Activities

Ireland is actively competing with a number of European jurisdictions that have pursued a more aggressive regulatory path or have been more accepting of digital asset firms, including Estonia, France, Gibraltar, Isle of Man, Jersey, Lithuania, Netherlands, Luxembourg, Malta, Switzerland, and the UK.

Ireland maintains a number of advantages over some of these states, but without a comprehensive regulatory framework in place, the traditional strengths of Ireland, such as a favorable corporate tax regime, strategic geographical location, and a tech-savvy population, will not be sufficient to set itself apart from its European competitors.

  1. “Coinbase expands with new Dublin office,” Coinbase Blog, 15 October 2018, (accessed 19 November 2018). Coinbase’s headquarters outside the U.S. will remain in London.
  2. “Tomorrow’s yesterday: financial regulation and technological change – Gerry Cross, Director of Policy & Risk,” Speech at Joint Session: Banknotes / Identity High Meeting 2018 Security Printers, International Conference & Exhibition Hosted by Intergraf, 20 March 2018, (accessed 19 November 2018).
  3. “Tomorrow’s yesterday: financial regulation and technological change – Gerry Cross, Director of Policy & Risk,” Speech at Joint Session: Banknotes / Identity High Meeting 2018 Security Printers, International Conference & Exhibition Hosted by Intergraf, 20 March 2018, (accessed 19 November 2018).
  4. “Tomorrow’s yesterday: financial regulation and technological change – Gerry Cross, Director of Policy & Risk,” Speech at Joint Session: Banknotes / Identity High Meeting 2018 Security Printers, International Conference & Exhibition Hosted by Intergraf, 20 March 2018, (accessed 19 November 2018).
  5. “Bitcoin sellers claim they are being denied banking services by Irish lenders,” The Irish Times, 21 June, (accessed 19 November 2018).
  6. “Bitcoin sellers claim they are being denied banking services by Irish lenders,” The Irish Times, 21 June, (accessed 19 November 2018).
  7. “Discussion Paper: Virtual Currencies and Blockchain Technology,” Department of Finance, March 2018, (accessed 19 November 2018).
  8. “ESMA Alerts Investors to the High Risks of Initial Coin Offerings
    (ICOs),” European Securities and Markets Authority Statement, 13 November 2017, (accessed 19 November 2018).
  9. “Alert on Initial Coin Offerings,” Central Bank of Ireland Information Notice, December 2017, accessed 19 November 2018).
  10. “Innovation Hub,” Central Bank of Ireland, (accessed 19 November 2018).
  11. “Innovation Hub,” Central Bank of Ireland, (accessed 19 November 2018).

EXCLUSIVE: Dutch Authorities Discussing Sandbox Options with Digital Asset Firms

Based on an e-mail received by Abacus Legal from the Financial Market Authority (AFM), the AFM and De Nederlandsche Bank (DNB) are having discussions about the Dutch regulatory sandbox “with a couple of parties at the moment that are related to digital assets.” It is unclear if the digital asset firms have only submitted questions or have requested a license to operate in the sandbox program.

These discussions about the sandbox between the digital asset firms and Dutch authorities are an encouraging sign. With the UK likely leaving the EU in March, the Netherlands will be one of a handful of EU member states with a regulatory sandbox in place. None of the remaining EU member states have accepted any digital asset firms to operate in their sandboxes.

The Dutch FinTech Sandbox 

The Dutch regulatory sandbox, governed by the AFM and DNB, was established in January 2017.  The sandbox is designed to offer FinTech firms the room for innovation, in order to allow market participants to roll out their products, services or business models.