REPORT: ETHERDELTA SEC TEA LEAVES: What Are The Regulatory Lessons To Be Learned From An Exchange Shut Down?

The Securities and Exchange Commission (SEC) announced on Thursday that it settled charges against Zachary Coburn, the founder of EtherDelta, a digital “token” trading platform. This is the SEC’s first enforcement action against a platform operating as an unregistered national securities exchange.1

The SEC stated that over an 18-month period, EtherDelta’s users executed more than 3.6 million orders for ERC20 tokens, including tokens that are securities under the federal securities laws.2 Almost all of the orders placed through EtherDelta’s platform were traded after the SEC issued its 2017 DAO Report, which concluded that certain digital assets were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption.3

Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement, plus $13,000 in prejudgment interest, and a $75,000 penalty.4 The order also recognizes Coburn’s cooperation, which the SEC considered in determining not to impose a greater penalty.5

SEC Warned Exchanges of Registration Concerns in March

The SEC issued a statement in March asserting that it will continue to “focus on platforms that offer trading of digital assets and their compliance with the federal securities laws” to protect investors.6

The statement also reiterates the SEC’s position that platforms that offer “trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, must register as a national securities exchange or be exempt from registration.”7

Despite these Warnings, Exchanges Did Not Register with the SEC

In early June, Brett Redfearn, SEC Director of the Division of Trading and Markets, raised concerns over the lack of self-reporting by digital asset exchanges. Redfearn stated that the SEC was “underwhelmed by the enthusiasm for coming within the regulatory structure.”8

Redfearn also explicitly stated that there are a “number of exchanges out there trading ICOs” and the SEC would like to see “more registrations” from these existing digital asset exchanges.9

Digital asset firms may have initially declined to self-report with the SEC because they feared the SEC may take enforcement action against them. Exchanges may also have been reluctant to self-report, as they were waiting for concrete guidelines to be issued by SEC. In some cases, exchanges may have been unwilling to register, as they would have had to de-list unregistered digital assets, which would have reduced earnings.

Exchanges Considering Registering with the SEC

In May, Kraken’s Chief Executive Officer Jesse Powell said that the company would “probably get registered” with the SEC. The firm, however, qualified its statement by noting that before it registered, it would require “more clarity from the regulator about which digital coins are securities and how those tokens can trade legally.”10

In June, Prometheum Inc. filed for registration with the SEC to establish an exchange to conduct secondary trading of digital assets.11

Jeremy Allaire CEO of Circle Internet Financial Ltd. (“Circle”) also confirmed in June that the firm had discussed registering as an exchange with the SEC. Allaire stated that the company was interested in becoming a registered exchange through the SEC application process or by purchasing a platform that is already registered with the SEC.12

Digital Asset Firms Acquiring or Partnering with Companies Already Registered with the SEC

Circle is not the only firm to consider forgoing registering with the SEC and purchasing a company already licensed as an exchange.

In June, Coinbase, Inc. (“Coinbase”) announced that it acquired Keystone Capital Corp., (“Keystone”) a financial-services firm. The acquisition of Keystone will allow Coinbase, after receiving federal approval, to take part in broker-dealer, digital asset exchange, and investment advisor activities.13, 14

Other firms are partnering with existing companies that are already licensed as an exchange. In August, Bittrex announced it was partnering with Rialto Trading Technology (“Rialto”), a U.S.-registered trading platform for fixed income products. Under terms of the agreement, Rialto will expand its exchange operations to include digital assets that are registered securities.15

Penalties Against Firms that Self-Report May be Limited

The case against Coburn indicates that the SEC is willing to reduce penalties for individuals who cooperate with investigations. Coburn’s cooperation in the investigation only resulted in a low-six-figure fine. Coburn was not banned from participating in any market activities.16

Operators of unregistered exchanges may take this as an indication that it is time to register with the SEC. If so, the enforcement action against Coburn may herald a wave of registrations.

SEC Likely to Intensify Enforcement Efforts against Unlicensed Exchanges, but Direction of Future Investigations Unclear

If exchanges do not register, the SEC will likely bring more cases against unlicensed digital asset exchanges.

Based on the SEC order against Coburn, however, it may be difficult for market participants, advisors, and investors to determine the direction of future SEC enforcement actions.

The SEC would likely initiate an investigation against an unregistered decentralized exchange that, like EtherDelta, provides 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” that operated on the Ethereum blockchain.17

The SEC would also likely initiate an investigation into an unregistered decentralized exchange that uses smart contracts that are coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade.18

The order against Coburn, however, does provide the market participants with a basic understanding of which digital assets are explicitly considered securities by the SEC. This will likely be clarified in future enforcement actions or-more likely-through the issuance of comprehensive digital asset guidelines that eventually will be issued by the SEC.


This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.


  1. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).
  2. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).
  3. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).
  4. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).
  5. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).
  6. “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets,” Divisions of Enforcement and Trading and Markets, U.S. Securities and Exchange Commission, Public Statement, 7 Match 2018
    https://www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-online-platforms-trading (accessed 12 November 2018).
  7. “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets,” Divisions of Enforcement and Trading and Markets, U.S. Securities and Exchange Commission, Public Statement, 7 Match 2018
    https://www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-online-platforms-trading (accessed 12 November 2018).
  8. ”SEC director ‘underwhelmed’ by rate of cryptocurrency exchanges self-reporting,” CNBC, https://www.cnbc.com/2018/06/06/sec-underwhelmed-by-rate-of-cryptocurrency-exchanges-self-reporting.html (accessed 12 November 2018).
  9. ”SEC director ‘underwhelmed’ by rate of cryptocurrency exchanges self-reporting,” CNBC, https://www.cnbc.com/2018/06/06/sec-underwhelmed-by-rate-of-cryptocurrency-exchanges-self-reporting.html (accessed 12 November 2018); and “Here’s what the SEC’s trading and markets division director had to say about the crypto market (video),” CNBC, 6 June 2018, https://www.cnbc.com/video/2018/06/06/sec-trading-markets-division-crypto.html (accessed 12 November 2018).
  10. “Crypto Exchange Kraken Says It Will Probably Register With SEC,” Bloomberg, 15 May 2018, https://www.bloomberg.com/news/articles/2018-05-15/crypto-exchange-kraken-says-it-will-probably-register-with-sec (accessed 12 November 2018).
  11. “Prometheum, Inc. Enters into a Strategic Partnership with Registered Broker-Dealer Manorhaven Capital LLC, Files for Registration as Alternative Trading System,” AP News, 19 June 2018, https://www.apnews.com/b25503ea7c2e953c8447c55c4774fdc9 (accessed 12 November 2018).
  12. “Crypto Unicorn Circle Aims to Expand Into Regulated Banking,” Bloomberg, https://www.bloomberg.com/news/articles/2018-06-06/circle-in-talks-with-u-s-to-become-licensed-bank-trading-venue (accessed 12 November 2018).
  13. “Our path to listing SEC-regulated crypto securities,” Coinbase Blog, https://blog.coinbase.com/our-path-to-listing-sec-regulated-crypto-securities-a1724e13bb5a (accessed 12 November 2018).
  14. Coinbase Expands With Deal for Broker-Dealer Keystone Capital, Wall Street Journal, 6 June 2018, https://www.wsj.com/articles/coinbase-expands-with-deal-for-broker-dealer-keystone-capital-1528321468
  15. Cryptocurrency exchange Bittrex teams with registered trading venue Rialto, Reuters, 23 August 2018, https://www.reuters.com/article/us-crypto-currencies-bittrex/cryptocurrency-exchange-bittrex-teams-with-registered-trading-venue-rialto-idUSKCN1L81BG (accessed 12 November 2018).
  16. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).
  17. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).
  18. “SEC Charges EtherDelta Founder With Operating an Unregistered Exchange,” U.S. Securities and Exchange Commission Press Release, November 2018, https://www.sec.gov/news/press-release/2018-258/ (accessed 12 November 2018).

BANK OF AMERICA AND RIPPLE: Bank Of America Sends Representatives To Engage Ripple Leadership; Payment Systems Partnership Discussed

Something is brewing between Ripple Labs and Bank of America. Why you might ask? They keep finding themselves in the same rooms together, meet up after meet up, conference call after conference call, and discussion after discussion – all surrounding payment systems that the large bank is considering implementing.

But something of note is happening this week that we are sure will need to be cataloged. In a gathering, last week representatives from Bank of America and others discussed their partnerships with Ripple and the ‘go-forward’ payment processing functionality of the firms’ products.

Other banks and financial firms have discussed the same with Ripple: MUFG Bank, WestPac, Standard Chartered, Banco Santander, American Express, Siam Commercial Bank, and SBI. Clearly, Bank of America would be the biggest name and ‘get’ for Ripple Labs as of yet.

Still, from that above group, headliners being Bank of America, American Express, and Banco Santander – who all possess global presences and brands of scale, are partners that any crypto brand would love to add to their client list. Ripple has obviously rolled out the red carpet for these brands and made a commitment to doing whatever is necessary to partner with them.

Ripple continues to make other announcements that have been highlighted over the past couple of weeks connected to their ever developing payment systems.

Ripple has confirmed the launch of xRapid, a cross-border remittance solution built on the top of Ripple’s proprietary blockchain, last month. The announcement had caused an abnormal bull run in XRP price action, bringing its value up over 100 percent in just a week. The excitement, however, dried off as long position holders began to exit their position on new intraday highs, causing a selloff.

Some of the biggest companies have already nodded to test Ripple xRapid system on their frameworks. These companies include names like MoneyGram, Western Union, Mercury FX, and Cambridge Global Payments. An excerpt from the Ripple website:

“xRapid is for payment providers and other financial institutions who want to minimize liquidity costs while improving their customer experience. Because payments into emerging markets often require pre-funded local currency accounts around the world, liquidity costs are high. xRapid dramatically lowers the capital requirements for liquidity.”

The speculators are expecting these announcements to continue and remain a catalyst for $XRP price action through the end of the year. The team announced that it will launch the system in October (which did actually happen), but the actual date of its commencement remains unclear. Unclear or not, having Bank of America and others in the room partnering with you to launch your product is meaningful. Very meaningful.

To the extent that Bank of America, Banco Santander and others will use Ripple’s product line once is it launched and available daily client customer transactions also remains to be seen. But there aren’t a dozen cryptocurrency and blockchain firms having these kinds of conversations and building this type of architecture.

In fact, you could count on one hand the other blockchain/crypto firms that are involved, to this serious depth, not only building use case products but actually on the precipice of executing those exact use cases.

While some in the crypto community may scoff at Ripple’s ambitions and the way they go about their announcements, there is real substance involved. Bank of America doesn’t send reps to just anywhere for a nice cup of coffee – they don’t need to based on their reputation and scale.

We expect more and interesting announcements to occur throughout the rest of 2018. Should they rise to the level of actual news and use case seriousness, we will bring it to you.

 

REPORT: SWITZERLAND: Swiss Financial Regulators Push ‘Anti-Crypto’ Bank Standards

The Financial Market Supervisory Authority (FINMA) announced in October its holding guidance for banks and securities firms that establish relationships with digital asset companies, according to a report by Swissinfo.ch.1 The guidance classifies “digital assets” as a “highly volatile” asset class and assigns a risk weight of 800% of market value.2

The guidelines also place a cap on digital asset trading activities at 4% of total capital, including long and short positions.3 FINMA also requires institutions to report when they have reached the limit.4

The guidelines are designed to make it easier for digital asset firms to access traditional banking services, but the risk weight imposed on digital assets and associated reporting requirements may limit the number of banks that offer these services.

The FINMA guidance follows in the steps of guidelines issued by Swiss Bankers Association (SBA) in late September for providing firms that carry out ICOs access to corporate bank accounts.

The SBA guidelines also recommend that members impose higher and additional know-your-customer and anti-money laundering requirements for ICOs that raise funds in fiat or digital currencies.5

Basel Committees Studying Risks Associated with Digital Assets

The Basel Committee on Banking Supervision (“Basel Committee”) is studying how to include digital assets in its recommendations on liquidity ratios, as there is currently separate exposure class for digital assets.

The Basel Committee has already exchanged views on some of the risks associated with digital assets, but further work is needed.6

FINMA will likely adhere to its present high-risk weight guidelines for digital assets until the Basel Committee issues its recommendations.

BitCoin Association Switzerland Offers Praise and Criticism of the Guidelines

Despite the stringent requirements placed on banks conducting business with digital asset firms, the Bitcoin Association Switzerland (BAS) reacted positively to the issuance of the new FINMA guidelines.

The BAS stated that it was “encouraging to see banks no longer turning down the increasing number of client requests for crypto services but asking for guidance and providing their input along the way,” BAS also stated that this was “the Swiss financial centre’s first step towards moving into the next decade where assets are no longer held in a single, central custody but instead are held on the blockchain.”7

The BAS also commended the SBA in September for issuing guidelines were that “a step in the right direction,” but a BAS community officer stated that banks expect firms to “to provide more evidence of future business success and stability than other small companies”.8

The information provided in this report is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney, financial advisor, or other professional to determine what may be best for your individual needs.


This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.


  1. “FINMA sets tough restrictions on bank bitcoin trading,” SwissInfo.ch, 5 November 2018, https://www.swissinfo.ch/eng/risk-weighting_swiss-regulator-gives-risk-guidance-on-crypto-trading/44518298/ (accessed 9 November 2018).
  2. “FINMA sets tough restrictions on bank bitcoin trading,” SwissInfo.ch, 5 November 2018, https://www.swissinfo.ch/eng/risk-weighting_swiss-regulator-gives-risk-guidance-on-crypto-trading/44518298/ (accessed 9 November 2018).
  3. “FINMA sets tough restrictions on bank bitcoin trading,” SwissInfo.ch, 5 November 2018, https://www.swissinfo.ch/eng/risk-weighting_swiss-regulator-gives-risk-guidance-on-crypto-trading/44518298/ (accessed 9 November 2018).
  4. “FINMA sets tough restrictions on bank bitcoin trading,” SwissInfo.ch, 5 November 2018, https://www.swissinfo.ch/eng/risk-weighting_swiss-regulator-gives-risk-guidance-on-crypto-trading/44518298/ (accessed 9 November 2018).
  5. Opening corporate accounts for blockchain companies – Swiss Bankers Association publishes guidelines for its members,” Swiss Banking Association, 21 September 2018, https://www.swissbanking.org/en/media/positions-and-press-releases/opening-corporate-accounts-for-blockchain-companies-guidelines (accessed 9 November 2018).
  6. “Basel Committee finalises stress-testing principles, reviews ways to stop regulatory arbitrage behaviour, agrees on annual G-SIB list, discusses leverage ratio, crypto-assets, market risk framework and implementation,” The Bank for International Settlements Press Release, 20 September 2018, https://www.bis.org/press/p180920b.htm (accessed 9 November 2018).
  7. “FINMA sets tough restrictions on bank bitcoin trading,” SwissInfo.ch, 5 November 2018, https://www.swissinfo.ch/eng/risk-weighting_swiss-regulator-gives-risk-guidance-on-crypto-trading/44518298/ (accessed 9 November 2018).
  8. “Blockchain and bank accounts: a Swiss tightrope act,” SwissInfo.com, 26 September 2018, https://www.swissinfo.ch/eng/business/banking-services_blockchain-and-bank-accounts–a-swiss-tightrope-act/44425462 (accessed 9 November 2018).

SEC: EXCHANGES AT RISK: Aggressive Pursuit Continues, 1Broker And EtherDelta Only The Beginning (Bistamp, Kraken, Bitfinex)

The EtherDelta action by the SEC yesterday  (and 1Broker more than a month ago) has spurred a flurry of dialogue and rumor mill conversations behind crypto closed doors. Crypto hedge fund water coolers are abuzz with what the action means, who could be at risk and where crypto money flows should continue and where they should stop, immediately, based on the regulatory risk that could come to bare.

We’ve had extensive conversations with all manner of players in the crypto ecosystem and have put together different angles, analysis, rumors, guesses, and ‘what ifs’ to give you all you need to make decisions with your crypto assets and where they are currently held.

**We use the term ‘held’ in this instance because your crypto assets are not ‘custodied’ at firms like BitMex or Binance. Not even close. That in and of itself is important to remember here as we walk through this story.**

Conversations that we have had with multiple sources across the asset management space, legal, regulatory, and ‘in the know’ crypto ecosystem believe that the SEC is planning more actions based on specific criteria and crypto exchanges. The basis of these actions has to do with the lion’s share of assets, revenue and trading coming from the United States and United States consumers. The SEC believes that it can take significant liberties in enforcement no matter where these exchanges choose to set up their legal entities. That doesn’t matter to the SEC.

1Broker and EtherDelta were just the first two to feel the heft of an SEC action and quickly acquiesce to civil law enforcement.

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.”

A current SEC contact was matter of fact and careful:

“The 1Broker and EtherDelta actions were appropriate and serious. Treated as such by both entities. We are carefully evaluating other crypto exchanges and their policies and consumer protection policies and actions. That is an important distinction. We are interested in both what an exchange prints and what it actually does.”

A crypto hedge fund source:

“We are looking at every exchange carefully and taking necessary steps where we think there is added risk. And our legal team is doing what it can to grab any and all clues in the 1Broker/EtherDelta actions. Can it be mapped over other larger exchanges? Should we move crypto assets based on those findings? I would imagine that others in our space are doing the same. You may find that there is a story in that dynamic alone. Follow where the crypto may or may not flow over the next month and that may give you a firmer hold on who could take a hit.”

A different hedge fund source:

“Whatever the rumors are you can cross BitMex off that list. They have serious legal architecture in place and meet every possible check mark that the SEC could possibly question. Then you add the concept of ‘geofencing’ within their platform and you simply can’t make a connection with 1Broker or EtherDelta in any way. Have we heard other names over the past 24 hours? Yeah – sure. But BitMex is got serious legal cover here – and they are represented by Sullivan and Cromwell. No chance they are under the microscope of the SEC.”

A third crypto hedge fund source made the distinction between the SEC and the CFTC:

“One important point in all the back and forth going on right now is that the SEC may take more action but the CFTC weighing in would be the bigger story, if it were to happen. That is a distinction that needs to be discussed further. Really, 1Broker took a hit because they were giving investors access to US securities via BTC funding. That crosses the border so to speak into SEC territory. That is a line that needs to be closely looked at. Does the CFTC have the appetite to join the SEC in some of these actions? Don’t know. But if that were to occur that would set off serious alarm bells and concern on our end. To be clear, though, we don’t see that happening.”

A crypto twitter voice that we spoke to that has seen it all since their involvement in the space since 2012:

“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.”

When the above source was asked about BitMex being in the clear based on the dialogue above connected to ‘geofencing’ and representation:

“Yeah – even though on the surface you would think that gambling like leverage and liquidations would bring regulatory scrutiny – they’ve legally covered the bases when you enter the gates at that place. It is essentially ‘moted’ as a gambling site.”

Sources, conversations, conjecture, rumors, what if’s, and a feeling that there is still more to come from an enforcement standpoint is the purveying vibe with those in the know across the crypto spectrum.

Offering our opinion based on all of the above feedback, as well as conversations that we didn’t share; BitMex is in the clear, Kraken should be concerned, smaller exchange ‘pop-up’ shops should be very, very concerned. And there will be more regulatory action and exchange shutdowns to come.

 

Trading Crypto: Effective Technical Traders Should Be Having A Scalping ‘Field Day’ With BTC Trading Range

Bitcoin overnight trading (US CST) sees some downside after 6600 was tested. This is not a true resistance area but as discussed over the past few months has provided a pivotal area for BTC throughout the bear market this year. 

After being rejected here, price continued downward as BTC has technically only “retraced” less than 1/2 of the previous leg down* – a sign of higher downside risk. Therefore, the 6460 active downside protection area was hit exactly during the formation of the last 4-hour candle.

BTC has maintained step-ladder-like price action to see the 6600 mark broken but ultimately still struggles to find a point past this area. Keep in mind that the next true resistance area to beat is at 6800 firm. However, 6400 support also continues to hold.

 

Price action has been hanging in the balance between the two – giving an indication of how much indecision remains in the market at this time. Thus, 6460 downside protection remained active to protect profits by keeping any continued fallout to a minimum.

The next stage to watch for will be a channel formation if BTC holds the current area firm while slowly creeping to the upside. This will be shown with the next 24 hours of trading.

Stochastic levels now maintain a downward course, however, they still look to seek overbought (>80) levels. This will trigger continued buy signals near the 6500 area if stochastic pivots once again.

MACD has now crossed to the downside and gives additional reason to protect profits.

BTC is currently a No Play/Sell at this time.

Futures Traders – trade the trend. The short-term trend is short, however, it may pivot if channel formation is at hand. Capital conservation is important at this time – no trade scenario until confirmation of patter + trend.

BAKKT BELIEF: BEAR MARKET BUSTER: Bakkt Narrative Has Believers Anticipating The ICE Initiative Can Jump Start Crypto Bull Market

Bakkt is set to begin trading it’s ‘physically deliverable’ Bitcoin futures on December 12th. The narrative that surrounds Bakkt within the crypto community is that this could be the institutional catalyst that breaks the dam that currently is holding the stagnate price and overall 2018 crypto bear market in place.

Given the scale of the Bakkt architecture and the ‘bones’ on which it is being built (Intercontinental Exchange, or ICE, own and operates nearly all of the meaningful commodities exchanges across the globe – and Bitcoin has been dubbed a commodity by the CFTC) many believe that the largest global investment banks and UHNW clients will rush to the relative safety of Bakkt’s offering. Given the juxtaposition of purchasing Bitcoin via a crypto exchange in Mexico or Malta – family office types will be much more comfortable trading Bitcoin (futures) via the same pipes that gold, silver, and oil futures are traded.

**A quick reminder as to what Bakkt is and will be doing:

Bakkt is designed to enable consumers and institutions to seamlessly buy, sell, store and spend digital assets. Formed with the purpose of bringing trust, efficiency, and commerce to digital assets, Bakkt seeks to develop open technology to connect existing market and merchant infrastructure to the blockchain.

As an initial component of the Bakkt offering, Intercontinental Exchange’s U.S.-based futures exchange and clearinghouse plan to launch a 1-day physically delivered Bitcoin contract along with physical warehousing on December 12, 2018, after receiving CFTC review and approval. These regulated venues will establish new protocols for managing the specific security and settlement requirements of digital currencies. In addition, the clearing house plans to create a separate guarantee fund that will be funded by Bakkt.

In a detailed tweet thread, one of the most respected legal minds in the crypto space put together a clear summary of what Bakkt is about to embark on and how it could positively affect the crypto markets. Below are his thoughts and included links that give context to Bakkt’s potential influence:

Via Jake Chervinsky of Kobre and Kim LLP:

“Bakkt is a brand new platform for institutions, merchants & consumers to trade, store & spend digital assets. It was announced three months ago on August 3 in a detailed Fortune article that’s still one of the best sources of information on it today: Bakkt Fortune article.”

“Bakkt’s goal is to make digital assets easier to buy, sell, store & spend. Bakkt will start by offering one-day, physically-settled bitcoin futures contracts. That means if you buy a futures contract from Bakkt, you get actual bitcoin the next day. Bakkt Medium Article – Kelly Loeffler.”

“One of Bakkt’s most exciting features is the company behind it: the Intercontinental Exchange (ICE), the 2nd largest owner of financial exchanges in the world, including the NYSE. ICE has also attracted big-name partners to the project, like Microsoft, Starbucks, and BCG.”

“CE entering crypto feels like a big deal. It’s an established, respected & powerful player in the finance industry. In other words, large institutions trust ICE with their money, including those institutional investors who many people think are key to the next bull run.”

“Also noteworthy is the fact that Bakkt will custody & deliver real bitcoin. That means institutional inflows would reduce supply & thus (maybe) increase price too. This is different from other regulated futures markets like CME & CBOE, which only deal in cash-settled futures.”

“Bakkt will roll out in two phases. Phase one, set for December 12, is a futures contract where one contract = one bitcoin. This isn’t too useful for commercial transactions–nobody buys stuff in increments of one bitcoin–but it’s perfectly fine for institutional investors.”

“Phase two is a mystery. Bakkt hasn’t said what it is or when it’s coming. Given all the talk about “spending” via Bakkt, I’m guessing it’s some type of consumer-grade payment system. Maybe the kind you’d use at Starbucks to buy coffee with bitcoin. We’ll have to wait and see.”

“n the minds of many, Bakkt’s launch has become a full-fledged narrative for when & how the bear market will end. It plays the same role as bitcoin ETFs as a trusted vehicle to bring that sweet institutional money into the space, but without all the trouble of SEC approval.”

“Hype aside, some people have lingering concerns about Bakkt. The big question is if Bakkt will try to financialize bitcoin in a harmful way, such as through the use of hidden leverage. The leading voice on this issue is , who you must already be following by now.”

“n what seemed like a response to Caitlin’s critiques, Bakkt’s CEO, Kelly Loeffler, wrote a Medium post explaining that: – all bitcoin trades on Bakkt will be fully prefunded, and – Bakkt will not use any leverage, commingling, or rehypothecation. Bakkt Medium post on transparency.”

“Despite Bakkt’s response, Caitlin sees open questions here. Her point is that nothing can be taken for granted when Wall Street financializes scarce assets, so we need to see Bakkt’s paperwork before drawing conclusions. The devil is in the details. Per Caitlin Long: ‘No. Big open question=will lend coins in its warehouse?Rehypothecation could happen at any of 3 levels (futures contract, clearinghouse, warehouse)-Bakkt has only answered regarding futures contract. Warehouse is where it would normally happen & that question not answered.'”

“As for Bakkt’s paperwork, what are we waiting for & when is it coming? Since Bakkt plans to sell futures, it falls under the regulatory jurisdiction of the US Commodity Futures Trading Commission (CFTC). Selling futures without getting CFTC approval first is mostly illegal.”

“But Bakkt falls under an exception to the rule requiring advance approval. ICE is already a CFTC-registered “designated contract market,” so it has the ability to “self-certify” a futures product for listing without prior CFTC approval. It just has to file its papers first.”

“A designated contract market like ICE can file a self-certification submission as late as one business day before initial listing. That means ICE technically doesn’t have to file Bakkt’s papers until Tuesday, December 11 for Bakkt to launch futures on Wednesday, December 12.”

“But just because ICE can self-certify Bakkt’s futures contracts doesn’t mean Bakkt can totally ignore regulatory approval. The CFTC still has jurisdiction over self-certified financial products. Bottom line: if the CFTC doesn’t want a futures contract to trade, *it won’t.*”

“Consider the process that CME & CBOE went through to get approval for their bitcoin futures last year. Both of them ended up self-certifying, but only after *months* of negotiations with the CFTC & changes to their products. The CFTC explains here: https://www.cftc.gov/PressRoom/PressReleases/pr7654-17.”

“As for timing, CME & CBOE self-certified several days before launch. Both of them filed their self-certifications on December 1, 2017. CBOE launched 9 days later on December 10. CME launched 17 days later on December 18. Who knows if Bakkt will follow a similar timeline.”

“Assuming Bakkt does go the self-certification route, its papers will go live on the CFTC’s database here: (). I’m guessing the CFTC will also put out a press release like the one they did for CME & CBOE. All eyes on the CFTC website for news on Bakkt.”

So a few remaining open questions that seem to have easy answers. CFTC licensing/certifications approval is clearly a foregone conclusion or else Bakkt wouldn’t announce a date certain for trading to commence. They would have all manner of egg on their face should they not have clear assurance that licensing/certification is a non-issue.

As stated by the above tweets the CME and CBOE received their certifications a mere 9 and 17 days before their launches. So there is precedence for ‘close to the bell’ approvals.

The remaining issue is whether or not Bakkt will provide the catalyst to end the bear market and push the crypto ecosystem to new highs, as well as new levels of adoption. The infrastructure is in the packaging for Bakkt – but packaging is one thing and real-world implementation and use are another altogether.

Should Bakkt pull off Bitcoin inclusion in the Starbucks mobile app (the largest mobile payment system in the US, by the way), then the Bakkt experiment will almost certainly be seen as a massive 2019 success story.

The cynics would point out that CME and CBOE futures didn’t prove to make any meaningful changes in the crypto markets direction, so why should Bakkt be any different? Let’s hope that the cynics are wrong.

REPORT: INITIATIVE Q: Wild Assumptions, Marketing Hocus Pocus, And Using Hi-Jacked Cryptocurrency Lingo As A Sales Pitch

Several months ago, Saar Wilf, the co-founder, and chairman of five technology start-ups1 launched the marketing campaign for Initiative Q, a new payment network that would use a private currency—the Q token.2

The Initiative Q website makes substantial claims about its planned payment network and private currency. Initiative Q’s website states that it will offer:

  • Lower transaction costs through a streamlined, digital process and better fraud protection;
  • Advanced security measures, including fingerprint, voice and face recognition; multi-factor authentication; and advanced artificial intelligence models;
  • 1-click payments;
  • Enhanced customer protection through internal regulations and buyer feedback to prevent sellers from misrepresenting their products and pricing;
  • Easy online reversibility and efficient dispute resolution;
  • Optimal credit allocation by using richer information and more advanced models to correctly assign credit to lenders;
  • Parental control through sub-accounts that allow parents to control children’s expenses;
  • Assistance with the billions of people who currently don’t have access to financial services.3

The soundness of the claims, however, cannot be assessed, as the payment network will only be put into place if the marketing campaign is successful.

Initiative Q’s Marketing Campaign Has Drawn Comparison to Pyramid Schemes

Initiative Q is conducting an aggressive “member recruitment campaign” on social media. Initiative Q gives tokens persons who join, and more tokens are given to those who invite their friends to join.4

Initiative Q, however, is not a pyramid scheme.5 There is no cost to join Initiative Q, so it does not collect money from new members and distribute it to earlier members.

To quell any concerns, Initiative Q includes a section on its “Frequently Asked Questions” page that is titled “Is this a pyramid or MLM (multi-level marketing) scheme?”.6

Differences Between Initiative Q and Cryptocurrencies

A ‘Q’ token is a private currency and not a cryptocurrency. The tokens will be carefully managed through a monetary body that will assure that the money supply matches current economic activity, so the value of the tokens will remain stable and not fluctuate wildly.7

In addition, Initiative Q will maintain a central ledger and not rely on blockchain technology. Q tokens will also not need the vast amount of energy that is needed to create many of the existing cryptocurrencies.8

Initiative Q Will Not Distribute 20% of the Tokens

The website states that the two trillion Qs distributed as follows:

  • 80% are assigned to buyers, sellers, agents, contributors and to incentivize growth-supporting activities within the Q network;
  • 10% are assigned to the Initiative Q payment company for the purpose of funding development;
  • 10% are assigned to the Q monetary committee monetary reserves, which will be gradually converted to other currencies and financial assets to allow any Q member to easily convert to other currencies if needed. In addition, monetary committee members will be compensated according to industry standards.9

The company will use 10% of the tokens for the undefined purpose of “funding development,” and a portion of another 10% of the tokens will be used to compensate monetary committee members “according to industry standards”.10

Members Unlikely to End Their Relationship With Their Credit Card Companies

Initiative Q states that it is realistic to expect its network to “overtake credit cards”.11 This is based on the assumption that members will be willing to end their existing relationship with credit card companies because they have been compensated with future currency for joining Initiative Q.

As a result, a new payment network will be established that will be widely adopted by buyers and sellers.

It is uncertain if members who signed up in a marketing campaign that promises to give away “future currency,” will later forgo their relationship with long-established credit card companies.

Excessive Valuation of the Tokens

Initiative Q did not release a white paper. Its website contains a large quantity of information on the project, but, at times, it reads like copy written for a marketing campaign with excessively optimistic claims.

The valuation of the tokens falls in this category. The $2 trillion valuation for the Q tokens is based on several assumptions. The world’s annual economic activity is $10 trillion, and cryptocurrencies reached a peak value of $1 trillion. Therefore, the total future value of Qs could reach a few trillion dollars.12

The website does not explain how Initiative Q would react to the measures that existing payments service companies would take to maintain their commanding market share.

Fees for Services Provided by Initiative Q

There will be fees charged for the services provided by Initiative Q. The website states that “agents (will) compete with each other to manage member accounts (buyers or sellers), and receive a small fee for transactions they process.

These may not be the only fees changes to members, as the website does not explicitly state that no future fees will be imposed on members. This is troubling, as a member with Q tokens of sizable value, will likely pay the additional fees imposed by the company to access those tokens.

The information provided in this report is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney, financial advisor, or other professional to determine what may be best for your individual needs.


This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.


  1. “Saar Wilf: Executive Profile & Biography,” Bloomberg, https://www.bloomberg.com/research/stocks/private/person.asp?personId=787446&privcapId=319521716&previous (accessed 8 November 2018).
  2. The economic and monetary models were developed with Economist Lawrence White, a professor of monetary theory and policy at George Mason University, and a senior scholar of the Cato Institute Center for Monetary and Financial Alternatives. “About,” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018); and “Lawrence H. White,” Faculty and Staff, Department of Economics, Georg Mason University, https://economics.gmu.edu/people/lwhite11 (accessed 8 November 2018).
  3. “Frequently Asked Questions: What advantages does the Q payment network offer?,” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
  4. “Frequently Asked Questions: Joining Initiative Q,” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
  5. Frank Chung, “What is Initiative Q? Payment network insists it’s not a ‘pyramid scheme’,” news.com.au, 30 October 2018, https://www.news.com.au/finance/money/investing/what-is-initiative-q-payment-network-insists-its-not-a-pyramid-scheme/news-story/193102b9fbb5c35d6365f7f34226908f
  6. “Frequently Asked Questions: Is this a pyramid or MLM scheme?,” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
  7. “Frequently Asked Questions: How is this different from Bitcoin and cryptocurrency? ” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
    https://initiativeq.com/
  8. “Frequently Asked Questions: How is this different from Bitcoin and cryptocurrency? ” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
    https://initiativeq.com/
  9. “Frequently Asked Questions: How many Qs are there? Who holds them? Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
  10. “Frequently Asked Questions: How many Qs are there? Who holds them? Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
  11. “Frequently Asked Questions: What is your estimate of the Q value based on?” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).
  12. “Frequently Asked Questions: What is your estimate of the Q value based on?” Initiative Q, https://initiativeq.com/ (accessed 8 November 2018).

REPORT: SEC ICO CRACKDOWN: Expect Heavy Handed ICO Regulations To Follow Updated Guidance

William Hinman, Director of Corporate Finance for the Securities and Exchange Commission (SEC), announced at the D.C. Fintech Week conference yesterday that the SEC will issue additional guidance for Initial Coin Offerings (“ICO”).1

Any new guidance is welcome, as the current SEC ICO Guide provides minimal assistance to ICO market participants, advisors, and investors. The ICO guide, which is largely designed to protect investors, provides only basic information on ICO registration, and the various tokens.2

The issuance of new guidance will also ensure market participants that existing security laws and rules and court precedent will continue to be used to regulate ICOs. This makes a good deal of sense, as the SEC does not want to stifle innovation, and having to amend guidelines takes less time than the SEC would need to amend existing rules or Congress to amend securities legislation.

Current SEC Guidance is Limited, So Market Participants Closely Parse Public Statements, Congressional Testimony and Enforcement Reports

In the absence of comprehensive ICO guidelines, market participants can only determine the SEC’s intentions by closely parsing reports and statements issued by the SEC, reviewing congressional testimony and SEC enforcement reports, and assessing public statements given by high-ranking SEC staff members at Fintech conferences.

For example, it was in a July 2017 report on the investigation into DAO (Decentralized Autonomous Organization) that the SEC notably declared that ICO tokens may be securities and subject to federal securities laws.3

In a December 2017 SEC public statement, SEC Chairman Jay Clayton provides a full account of his views on ICO markets and cryptocurrencies. In the statement, Clayton cautions investors who are considering taking part in ICOs. Clayton also encourages market participants and their advisors to consider laws, regulations, and guidance when advising clients, designing products and engaging in transactions.4

ICO market participants must also closely follow testimony provided by high-ranking SEC members at Congressional hearings. In February 2018, Clayton provided testimony on ICOs to the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission. In the testimony, Clayton divulged that every ICO token the SEC has seen so far was considered a security. Clayton also testified that if a crypto-asset issued by a company increases in value over time depending on the performance of the company, it is considered a security.5

With limited guidance provided by the SEC, the annual SEC enforcement report is an invaluable source of information, especially in light of the fact that the SEC is pursuing ICO cases “that deliver broad messages” and have significant “market impact”. The enforcement report is the only source that provides market participants with insight into SEC ICO enforcement actions involving unregistered broker-dealer activity, and fraudulent activity targeting retail investors.6

Hinman’s declaration at a Fintech conference that the SEC would issue additional ICO guidance is just the latest example of information that is not available on the SEC ICO Guide website but was provided by a high-ranking SEC staff member at a public conference.7,8

Formal, Comprehensive Guidance from the SEC is Long Overdue

The issuance of comprehensive guidelines by the SEC would remove the uncertainty surrounding the treatment of ICOs and eliminate obstacles that many consider are hindering innovation in the U.S. and driving business overseas.

The proposed guidance provides an opportunity for the SEC to clarify which ICOs fall under securities laws. The SEC also has the opportunity to explicitly define the various types of tokens, and clarify ICO registration procedures.

In addition, the guidance could address secondary market transactions, as part of an effort to give market participants an understanding of on how the SEC might look at tokens post-initial offering.

The SEC could take this opportunity to provide ICO market participants with relevant information that is only available in official reports and statements, congressional testimony, and enforcement reports. All of this material should be provided in an easily readable format on the SEC ICO Guide website.

The information provided in this report is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney, financial advisor, or other professional to determine what may be best for your individual needs.


This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.


  1. “SEC Official Says ‘Plain English’ Guidance On ICOs Is Coming,” Coin Desk, 5 November 2018, https://www.coindesk.com/sec-official-says-plain-english-guidance-on-icos-is-coming/ (accessed 6 November 2018).
  2. “Initial Coin Offerings (ICOs),” U.S. Securities and Exchange Commission, https://www.sec.gov/ICO (accessed 6 November 2018).
  3. “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,” U.S. Securities and Exchange Commission, Release No. 81207, 25 July 2017, https://www.sec.gov/litigation/investreport/34-81207.pdf (accessed 6 November 2018).
  4. “Statement by Chairman Jay Clayton on Cryptocurrencies and Initial Coin Offerings, U.S. Securities and Exchange Commission, 11 December 2017, https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 (accessed 6 November 2018).
  5. “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission,” U.S. Senate Committee on Housing, Banking and Urban Affairs, 6 February 2018, https://www.banking.senate.gov/hearings/virtual-currencies-the-oversight-role-of-the-us-securities-and-exchange-commission-and-the-us-commodity-futures-trading-commission (accessed 6 November 2018).
  6. Annual Report: Division of Enforcement,” U.S. Securities and Exchange Commission, 2 November 2018, https://www.sec.gov/files/enforcement-annual-report-2018.pdf (accessed 6 November 2018).
  7. “SEC Official Says ‘Plain English’ Guidance On ICOs Is Coming,” Coin Desk, 5 November 2018, https://www.coindesk.com/sec-official-says-plain-english-guidance-on-icos-is-coming/ (accessed 6 November 2018).
  8. “Initial Coin Offerings (ICOs),” U.S. Securities and Exchange Commission, https://www.sec.gov/ICO (accessed 6 November 2018).

EXCHANGE: NASDAQ AND RIPPLE: Executives At Ripple Find ‘Match Made In Heaven’ In Nasdaq Exchange Initiative

Ripple has been searching for a ‘headline’ exchange to offer its $XRP token for nearly a year. And when we say ‘headline’ exchange we are essentially talking about Coinbase. Ripple and Coinbase have had a ‘frenemy’ relationship for nearly a year and both organizations aren’t in any hurry to lock arms and walk down the aisle together.

But Ripple just may have found their knight in shining armor. Nasdaq.

We’ve been chasing this particular story for a month and finally have enough sources on background to print the growing relationship between Ripple and Nasdaq executives. The back and forth has been ongoing for better than four months and $XRP is set to be one of the initial coins listed when Nasdaq launches its crypto initiative in early 2019.

Yes, lovers and haters, Ripple has found its ‘match made in heaven’ and are ecstatic about it.

The foundation for the partnership really gets down to one issue for the Nasdaq – market cap. Executives at Nasdaq are significantly removed from the crypto bubble that remains polarized concerning $XRP and are more interested in listing the largest market cap coins, no matter the narrative that may or may not surround them.

In conversations with two individuals familiar with the Nasdaq crypto talks and one source at Ripple the dialogue largely focused on market capitalization and $XRP’s position as nearly as large as Ethereum.

One source at Nasdaq had this to say:

“We aren’t interested in the noise. We are interested in scale. If we start this initiative with the top five or seven “security coins” by market capitalization, why would we exclude $XRP? There is no good reason to exclude them, at least the way that we are evaluating our work. Look at it this way – there is just as much noise around Bitcoin Cash as there ever has or ever will be around Ripple’s cryptocurrency. And Bitcoin Cash is listed almost ubiquitously across all exchanges. So we see no reason to exclude $XRP. Instead, we’ve leaned in and embraced what they bring to the table. You really can’t argue that the firm has a top-notch executive team and is as buttoned up as you will find in crypto.”

A second source at Nasdaq further developed the market cap thesis:

“Market cap is just about everything here. Ripple and $XRP could be the second largest cryptocurrency at any moment. So the decision to include them in our initial offerings is an absolute no-brainer. Easy to do based on the firms’ management team and their continued execution within the banking sector. And we’ve largely eschewed the ‘security token’ debate. Market cap is what plays for us as we develop these solutions. Ripple checks that box and then some. Not to mention they’ve been extremely forthcoming from a due diligence standpoint and made several different members of their management team available to us at a moments notice. Adding that to the scale of their coin makes it an easy decision at launch.”

A conversation with a Ripple employee confirmed their Nasdaq discussions:

“Yes, we’ve been in discussions with Nasdaq around their exchange initiative and have been willing to answer any and all due diligence questions. We believe in what we are doing here, our products and services, and $XRP as well. Nasdaq will ultimately be the final arbiter of who gets listed next year, but we believe we will be firmly in that group. Without giving too much away, the excitement around here for where this is headed is pretty fun to watch. The Nasdaq exchange and custody product is going to be something special.”

You can imagine that a development such as this would set aside any and all concern regarding Ripple’s ongoing frustration with Coinbase. Being listed on a forthcoming global exchange and brand such as Nasdaq would remove any need to be placed into a more closed ecosystem such as Coinbase.

And that particular line of thinking was verbalized by another Ripple employee yesterday:

“This inclusion justified I might add, gives us less interest in taking whatever unnecessary steps Coinbase would have us take to meet any listing standards they deem relevant. So while it would be welcome to finalize a $XRP listing on Coinbase we simply aren’t interested in moving heaven and earth to do so.”

While engaged in these discussions it was obvious that the overall message from both parties was market capitalization. Very limited talking points were given to issues surrounding the ongoing questions concerning $XRP as a security token or equity tool for Ripple at large. It simply wasn’t discussed as an issue for our Nasdaq sources.

Whether or not it takes on more relevance should US regulators throw a wrench into the crypto movement later this year remains to be seen. But as of now, Rippler’s should embrace Nasdaq and what is to come.

REPORT: NEW YORK CRYPTO REGULATIONS: What Coinsource Had To Navigate To Receive NY BitLicense; ‘Don’t Try This At Home’

New York, one of the first states to adopt virtual currency rules, has taken a relatively strict approach in the regulation of virtual currency activities.1 The rules, enacted on 24 June 2015, established a regulatory framework for virtual currency businesses that requires operations related to transactions involving any form of virtual currency to obtain a “Bitlicense” from the state.2

The strict licensing requirements favor large virtual currency firms and financial institutions. The BitLicense application and licensing process are likely overly burdensome for small companies with limited access to capital and legal resources.

Overview of Bitlicense

Subject to certain exceptions, anyone engaging in any of the following activities is required to obtain a BitLicense from the New York State Department of Financial Services (“NYSDFS”):

  • Virtual currency transmission
  • Storing, holding, or maintaining custody or control of virtual currency on behalf of others
  • Buying and selling virtual currency as a customer business
  • Performing exchange services as a customer business
  • Controlling, administering, or issuing a virtual currency.3

Out-of-state businesses that engage in virtual currency activity involving New York State, or with persons within the state, must obtain a BitLicense to conduct their business.4

Some of the regulatory requirements include:

  • Minimum capital reserves
  • Records of transactions must be kept for at least seven years
  • Quarterly financial statements must be submitted within 45 days of the close of a quarter
  • Background checks on all employees must be performed by an independent investigatory agency
  • Appointment of a dedicated compliance officer
  • Enforcement of written anti-fraud, anti-money laundering, cybersecurity, privacy, and information security procedures
  • Prior written approval from the superintendent of the NYSDFS before the company introduces a “material change” to their business models, such as a new product or service
  • Prior written approval from the superintendent of the NYSDFS before any merger with or acquisition of any company holding a BitLicense5

The application fee for a Bitlicense is $5000 and the applicant must complete a 31-page application form.6

The “one-size-fits-all” licensing process does not provide any exceptions for small virtual currency companies.

Application Approval Process Slow, but Improving

The 2015 rules do not impose a deadline on the NYSDFS for completing the licensing process.7

Since the enactment of the rules, the NYSDFS has approved only eleven charters or licenses for virtual currency companies.8

The license for Genesis Global Trading was not granted for nearly three years, and a license for BitFlyer USA, Inc. was not granted for over a year.9

The number of licenses issued will likely increase over the next 12-24 months.

Focus Remains on Consumer Protection: The 2018 New York Attorney General Report

In September, the New York Attorney General (“NYAG”) issued a report that concluded crypto trading platforms vary significantly in their risk management strategies and in the ways they fulfill customer responsibilities.10

The NYAG identified three broad areas of concern: potential conflicts of interest; lack of serious efforts to impede abusive trading activity; and limited protections for customer funds.11

The NYAG also referred three virtual currency exchanges- Kraken, Binance, and Gate.io-to the state’s financial regulator for possible legal action and raised concerns over price manipulation and conflicts of interest on trading platforms.12

The report concludes that “virtual asset trading platforms have yet to implement serious efforts to monitor and stop abusive or manipulative trading.”13

Draft Virtual Currency Legislation Introduced into the State Assembly

Virtual currency bills have been introduced in the State Assembly this year. New York, however, will not likely amend existing rules or introduce major virtual currency legislation until 2020, after the State Assembly is able to review a task force report that must be completed by December 2019.

  • Bill on the Creation of Virtual Currency Task Force: The bill proposes the creation of a digital currency task force to provide the governor and the legislature with information on the potential effects of the widespread implementation of digital currencies on financial markets in the state. If passed, the bill would establish a group consisting of nine members which would be called on to submit a report to the governor, temporary president of the Senate, and the speaker of the assembly by December of 2019. Additionally, the task force would be required to provide the number of digital currencies and exchanges operating in the state, information about large investors in the field, and the energy consumption necessary for coin mining operations. The task force would also provide a review of laws and regulations on digital currency used by other states, the federal government, foreign countries, and foreign political and economic unions to regulate the marketplace.14
  • strong>Bill on Virtual Currency: The bill proposes eliminating the BitLicense and licensing fees. In addition, the bill mandates that any virtual currency business or entity be subject to routine audits by a public or third-party depository service. Any entity in full compliance will receive a digital New York Seal of Approval to reassure consumers that the outlet is trustworthy and secure.15

Recommendation: We would advise new crypto firms to consider establishing operations in Montana, New Hampshire, Texas, Tennessee or Wyoming.

The information provided in this report is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney, financial advisor, or other professional to determine what may be best for your individual needs.


This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.


  1. “New York State Department of Financial Services, New York Codes, Rules and Regulations, Title 23, Department of Financial Services, Chapter I, Regulations of the Superintendent of Financial Services, Part 200. Virtual Currencies”.
  2. In accordance with the New York State Administrative Procedure Act (SAPA), the final DFS rules for virtual currency business activity have been published in the New York State Register’s June 24, 2015 edition.
  3. New York Codes, Rules and Regulations, Title 23, Department of Financial Services, Chapter I, Regulations of the Superintendent of Financial Services, Part 200: Virtual Currencies, §200.2(q).
  4. New York Codes, Rules and Regulations, Title 23, Department of Financial Services, Chapter I, Regulations of the Superintendent of Financial Services, Part 200: Virtual Currencies, §200.2(q).
  5. New York Codes, Rules and Regulations, Title 23, Department of Financial Services, Chapter I, Regulations of the Superintendent of Financial Services, Part 200: Virtual Currencies, §§200.4, 200.7.-200.19.
  6. New York Codes, Rules and Regulations, Title 23, Department of Financial Services, Chapter I, Regulations of the Superintendent of Financial Services, Part 200: Virtual Currencies, §200.5; and “Application Forms For: License to Engage in Virtual Currency Business Activity,” New York Department of Financial Services at URL: https://www.dfs.ny.gov/legal/regulations/vc_license_application.pdf.
  7. New York Codes, Rules and Regulations, Title 23, Department of Financial Services, Chapter I, Regulations of the Superintendent of Financial Services, Part 200: Virtual Currencies, §200.3.
  8. “DFS Authorizes Coinbase Global, Inc. to Form Coinbase Custody Trust Company LLC,” New York Department of Financial Services Press Release at URL: https://www.dfs.ny.gov/about/press/pr1810231.htm.
  9. “The Ledger: Is New York’s BitLicense an ‘Absolute Failure?” Fortune, 25 May 2018.
  10. “Virtual Markets Integrity Report – New York State Attorney General,” Office of the New York State Attorney General, 18 September 2018, p. 1.
  11. “Virtual Markets Integrity Report – New York State Attorney General,” Office of the New York State Attorney General, 18 September 2018, pp. 5-6.
  12. “Virtual Markets Integrity Report – New York State Attorney General,” Office of the New York State Attorney General, 18 September 2018, p. 2.
  13. “Virtual Markets Integrity Report – New York State Attorney General,” Office of the New York State Attorney General, 18 September 2018, p. 5.
  14. Bill No. S09013: Creates the digital currency task force to provide the governor and the legislature with information on the potential effects of the widespread implementation of digital currencies on financial markets in the state, New York State Assembly website at URL: https://nyassembly.gov/leg/?bn=S09013&term=2017.
  15. Bill No. A09899: Relates to financial technology products and services; establishes a regulatory sandbox program, New York State Assembly website at URL: https://nyassembly.gov/leg/?default_fld=%250D%250A&leg_video=&bn=A9899&term=2017&Summary=Y&Actions=Y&Committee%2526nbspVotes=Y&Floor%2526nbspVotes=Y&Text=Y.