Report: Indictment Reveals Connection to Bitfinex, QuadrigaCX’s Shadow Banking Services

The April 30 indictment of two individuals on multiple counts — including bank fraud and operating an unlicensed money transmitting business — reveals an apparent connection to the shadow banking services that were used in two recent high-profile crypto exchange controversies.

The indictment — charging Arizona resident Reginald Fowler and Ravid Yosef, a resident of Tel Aviv, Israel — was announced in a news release from the United States Attorney’s Office for the Southern District of New York (SDNY) on April 30.

According to the SDNY announcement — published alongside an unsealed indictment document from the Department of Justice — Fowler was arrested on April 30 on charges of bank fraud and operating an unlicensed money transmitting business, whereas his alleged co-conspirator Yosef remains at large.

Fowler and Yosef are alleged to have worked for several interconnected firms that provided fiat currency banking services to multiple crypto exchanges. They are charged with having participated in a conspiracy in which Fowler made several misrepresentations to banks in order to open the accounts that would be used to hold deposits from individuals purchasing crypto.

As The Block Crypto today reports, Global Trading Solutions LLC — one of the defendants’ firms, with a bank account held at HSBC USA — is reportedly presided over by Crypto Capital, the payment processor used to process fiat deposits for crypto exchange Bitfinex.

The Block further claims that an unnamed, but ostensibly implicated firm in the indictment — Swiss-based Global Trade Solutions AG — runs Crypto Capital’s operations, and that it similarly held an HSBC account that was used by Crypto Capital to process fiat deposits for Bitfinex.  

Fowler and Yosef are further accused in the indictment of having falsified electronic wire payment instructions in a bid to conceal the true magnitude of their allegedly voluminous crypto exchange business, which provided services that reportedly enabled hundreds of millions of dollars to flow via their firms’ accounts from banks located worldwide.

According to its website, Crypto Capital also provided services to the now-defunct Canadian crypto exchange QuadrigaCX, which has this year become embroiled in a controversy following the death of its owner, who was ostensibly the sole person with access to the exchange’s wallet keys.

An earlier, archived version of the site — as of February 1, 2018 — had notably listed Bitfinex as one of Crypto Capital’s clients, although all references have since apparently been removed.

As previously reported, the New York Attorney General’s office has this month alleged that Bitfinex lost $850 million in funds allegedly held at Crypto Capital, and subsequently used funds from affiliated USD stablecoin operator tether — which is apparently only backed 74% with cash — to secretly cover the shortfall.

In an official statement, Tether rebuffed the allegations, stating that the “New York Attorney General’s court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million ‘loss’ at Crypto Capital.”

Grayscale to Launch Pro-Bitcoin Ads ‘Drop Gold’ on Social Media, Linear TV

New York-based digital asset manager Grayscale Investments has introduced its pro-bitcoin (BTC) advertising initiative “Drop Gold” in a press release on May 1.

The Drop Gold campaign is based on the emergence of bitcoin as an alternative to gold investments. In particular, the advertising campaign is promoting bitcoin investment within Grayscale’s publicly traded Bitcoin Investment Trust (BIT), which started trading under the ticker GBTC back in 2015.

Grayscale’s pro-bitcoin advertisement includes a provocative commercial arguing that gold investors are living in the past. The commercial presents gold as an old-fashioned asset that weighs down investors’ portfolio, and contrasts it with bitcoin, the up-to-date digital world asset that is touted as being better in terms of speed, security and efficiency. The campaign also includes a branded website offering general information to educate investors about bitcoin.

According to the press release, Drop Gold ads are set to be run on social media and digital platforms, as well as on broadcast TV, targeting key demographics across major cities in the United States.

Barry Silbert, founder and CEO of Digital Currency Group and its subsidiary Grayscale Investments, outlined that there is a generational shift in the investment approach. According to Silbert, investments in gold will be reallocated to bitcoin as baby boomers start moving their wealth to a younger generation of investors.

He stated in the press release:

“The gold industry has done a fantastic job of marketing an overpriced metal, but Bitcoin has superior physical properties and market utility. I believe that Bitcoin will become the store-of-value for our digital age.”

Recently, American VC firm Blockchain Capital published a survey stating that 11% of the American population owns bitcoin.

CoinMarketCap to Remove Exchanges From Calculations If They Don’t Provide Mandatory Data

Crypto market cap tracker CoinMarketCap (CMC) will remove exchanges from its calculations if they fail to provide mandatory data by June, the firm wrote in its sixth anniversary blog post on May 1.

CoinMarketCap, a major source of data about all traded digital currencies, has made a series of announcements to celebrate its sixth birthday today.

As such, CMC has announced a brand new alliance called the Data Accountability & Transparency Alliance (DATA) in order to provide “greater transparency, accountability, and disclosure from projects in the crypto space.”

A broad number of exchanges have already joined the new alliance, including Binance, Bittrex, OKEx, Huobi, Liquid, UpBit, IDEX, OceanEX, Gate.io, KuCoin, HitBTC and Bitfinex, with more partners expected in the future, the announcement states.

As a part of its transparency initiative, CoinMarketCap will also now require all the crypto exchanges to provide mandatory API data that includes their live trading data and live order book data. Stressing that the condition will be mandatory, CMC wrote that any exchange that does not provide this mandatory data will be not be included in the price and adjusted volume calculations on the site.

The exchanges now have a 45-day grace period to send the required data, while changes will come into effect on June 14, 2019, CoinMarketCap noted.

Apart from the DATA alliance announcement, CMC also introduced new features such as CoinMarketCap Block Explorers, CoinMarketCap Shop, API Revised Plans and CoinMarketCap Mobile Apps.

The new announcement comes on the heels of the recently sparked controversy around CMC’s volume statistics. On March 20, crypto index fund provider Bitwise Asset Management released research claiming that 95% of the volume on unregulated exchanges is likely to be fake or non-economic in nature. Following the analysis, CMC officially announced plans to rearrange the rankings of member exchanges.

Dutch Central Bank Will Keep Embracing DLT, But To-Date Findings Are Not All Positive

The Netherlands’ central bank will continue to experiment with blockchain, but its to-date findings are “not that positive,” according to the bank’s director of payments. Finance publication The Banker reported on the comments on May 1.

Petra Hielkema, director of payments and market infrastructures at the De Nederlandsche Bank (DNB), claimed that embracing new technologies such as blockchain and artificial intelligence (AI) will be a key direction in the DNB Payments Strategy 2018-2021.

Hielkema urged that central banks should keep developing and invest in new technologies in order to find out how to use them safely. While expressing confidence in the high potential of distributed ledger technology (DLT) applications in cross border payments, the DNB’s executive still stated that innovation is necessary.

Hielkema further outlined a number of problems exposed by DLT based on the bank’s blockchain-related experience over the past three years. As such, the Dutch central bank faced DLT imitations such as capacity shortages, inefficiency caused by high energy consumption and a lack of full certainty that a payment is completed, the article notes.

So far, the bank has reportedly developed and assessed four prototypes based on DLT.

Last year, Hielkema stated that cryptocurrencies are not real money, but the bank has no plans to ban them.

Earlier this year, Pete Hoekstra, the Netherlands’ Minister of Finance, received official advice suggesting the adoption of a licensing system for crypto-related services.

Five Canadian Banks Employ SecureKey Blockchain System to Identify Users

Five Canadian banks will be employing a blockchain-based user identification system developed by tech startup SecureKey Technologies, Bloomberg reports on May 1.

Per the report, the Verified.Me digital identity system is now available to clients of the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Desjardins Group. The service will soon be available to users of the services provided by the Bank of Montreal and National Bank of Canada as well, while Sun Life Financial will reportedly be the first North American insurer to use the system.

Bloomberg quotes SecureKey CEO Greg Wolfond as stating that he expects the service to be used by consumers to prove their identity to access and open bank accounts, as well as government services, by the end of 2019. He also noted:

“They’re going to be able to share their data in a secure and trusted way, which they never really could before.”

The adoption of this new identification system is reportedly part of a shift towards open banking — letting consumers share their financial data with other companies — called for by the Canadian Bankers Association.

As Cointelegraph reported last month, mainstream media corporation Thomson Reuters was awarded a patent for a blockchain-based identity management system.

Also, at the beginning of April, it has been reported that, in an apparent first, global online payments firm PayPal has made an investment in a blockchain startup — one that focuses on leveraging the technology to give users more control over their digital identities.

Australia Opposition Party Promises $2.1 Mln Blockchain Academy Pending May Election Win

Australia’s main opposition party would inject $3 million AUD ($2.1 million) into blockchain technology should it win next month’s federal election, tech news magazine ZDNet reported on May 1.

Under plans previously outlined as part of its election pledges, the Australian Labor Party said it would divert the funds to set up a dedicated Blockchain Academy in the western city of Perth.

“The Liberal government has failed to tackle major tech skills shortages that are holding back Australian businesses,” the publication quotes Shadow Minister for the Digital Economy, Ed Husic, as saying. He adds:

“Labor wants to address this, investing in Australians to develop job skills that are in high demand now and into the future.”

The current mood on blockchain among Australia’s government is mixed. While last month saw the announcement of a $100,000 AUD ($70,500) funding boost for the emerging sector, not everyone appears convinced of its worth as an investment goal.

“For every use of blockchain you would consider today, there is a better technology — alternate databases, secure connections, standardised API engagement,” Peter Alexander, head of the government-run Digital Transformation Agency (DTA), said in October last year.

Should Labor secure power, the DTA would fall under its jurisdiction, ZDNet notes.

As Cointelegraph reported, Australian authorities likewise continue to take a strict stance on cryptocurrency itself, announcing a policy of data collection from domestic exchanges to go after individual traders with outstanding tax obligations.

“We want to help taxpayers to get it right and ensure they are paying the correct amount of tax,” Will Day, deputy commissioner at the Australian Tax Office, commented this week.

AMD Earnings Surpass Target Amid Talk of Cryptocurrency Bull Market Return

United States transnational IT firm Advanced Micro Devices (AMD) over delivered on Wall Street expectations for earnings, the company confirmed in a press release on April 30.

AMD, which had previously seen volatility in its performance amid challenging 2018 market conditions, posted an adjusted share price of $0.06, 1 cent above the target.

The knock-on effect among investors was immediately palpable, with the company’s share price spiking more than 5% in the hours after the data was published.

“We delivered solid first quarter results with significant gross margin expansion as Ryzen and EPYC processor and datacenter GPU revenue more than doubled year-over-year,” president and CEO Dr. Lisa Su commented. She added:

“We look forward to the upcoming launches of our next-generation 7nm PC, gaming and datacenter products which we expect to drive further market share gains and financial growth.”

Like many hardware manufacturers, AMD experienced a rocky 2018, a situation made worse by the persisting cryptocurrency bear market, which reduced demand for associated mining hardware components.

As Cointelegraph reported, experts had warned the crypto winter could continue to cause a headache for the company, along with others such as Nvidia, which has nonetheless also seen a reversal in its fortunes for Q1 2019.

Bitcoin (BTC), meanwhile, continues to trade above $5,000, buoying sentiment that the bear market is definitively over after holding on to support around that level throughout April.

Diar: Bitcoin Transaction Volume Shows Signs of Bull Market as Quarterly Trend Reverses

On-chain transactions on the bitcoin (BTC) network hit fresh highs not seen since 2017 in April, industry newsletter Diar noted on April 30, quoting blockchain data provider TokenAnalyst.

Continuing a trend that had already started at the end of March, on-chain transaction volume hit a 14-month high in April. This, Diar notes, is similar to the figure from June 2018, when the price of bitcoin circled $7,000.

Far from reflecting increased real-world usage, however, the driving cause of the uptick remains trading and speculative moves.

“On-chain value of both Bitcoins and US Dollar value continue to follow price trends indicating the king of cryptocurrencies has yet to find any footing outside of speculative trading almost two years on from entering the financial challenger hall of fame,” researchers warned.

More bearish was data showing quarterly volume, which has also declined steadily since 2017.

The first quarter of 2019 was no exception, with a 35% drop in volume versus the final segment of last year, which included bitcoin’s price drop from $6,500 to a low of $3,100.

“2Q19 has kicked off on a higher note compared to previous years,” Diar added.

The mood among longtime market analysts nonetheless remains buoyant. After a report from digital assets fund Adamant Capital declared that the crypto bear market was winding down, Fundstrat Global Advisors co-founder Tom Lee continued the bullish sentiment on social media on Tuesday.

His reason for optimism revolved around the lack of long-term market suppression in the wake of legal problems at cryptocurrency exchange Bitfinex and its sister company, stablecoin tether (USDT).

Bart Chilton: Former CFTC Regulator, Crypto Holder and ICO Endorser

Last weekend, Bart Chilton, a former commissioner of the United States Commodity Futures Trading Commission (CFTC) and early advocate for cryptocurrency regulation, died at the age of 58.

Apart from his work for the regulator, he was best known as the host of RT (formerly Russia Today) America’s financial show “Boom Bust” — in which he often covered cryptocurrency news — and as the author of the book “Ponzimonium: How Scam Artists Are Ripping Off America.”

The news about Chilton’s death was broken by RT, his latest employer, on April 27. According to the TV network, the Boom Bust host passed away as a result of “a sudden illness.” Later, CNBC wrote that Chilton died because of complications from pancreatic cancer, citing a family member.

25 years of public service: Chilton’s bio

Prior to working for the Russian state-owned television channel, Chilton had an eventful political career in the U.S. government, which lasted 25 years.

Chilton grew up in Ogden Dunes, Indiana, where he worked at a steel mill for a year before entering Purdue University in 1979. As he told the Wall Street Journal (WSJ), the heavy manual labor shaped his mindset before majoring in political science and communications, as Chilton felt that someone had to look out for “the little guy.”

However, Chilton dropped out one semester before graduation to work on Democratic Party’s 1984 political campaigns. From 1985 to 1995, he worked in the U.S. House of Representatives, serving as a legislative director for three different members of Congress and as the executive director of the bipartisan Congressional Rural Caucus. He later joined the executive branch during the Bill Clinton and George W. Bush administrations, in which he became the deputy chief of staff to U.S. Secretary of Agriculture Dan Glickman and acted as a liaison to the U.S. Department of Agriculture.

In 2007, Chilton was nominated to be a CFTC commissioner by President Bush, and his position was subsequently confirmed by the Senate. He was renominated by President Barack Obama in 2009 and finished his work for the agency in 2014. Chilton chaired the agency’s Energy and Environmental Advisory and the Global Markets Advisory panels.

Soon after becoming a commissioner, Chilton started to champion strong pro-market regulation views, as illustrated by his first official remarks. Specifically, the public servant drew attention to the phenomenon of “massive passives,” arguing that the influx of pension and institutional investments provoked the volatility in commodity prices. As he explained to the WSJ, a “massive passive” could represent as much as 20% of one market — a percentage that “gets to be where you might not be able to control prices, but you have the possibility of moving them.”

Bloomberg describes Chilton as “a U.S. regulator who pushed for tighter regulation of swaps and derivatives.” According to The Washington Post, he was “perhaps best known for his mane of silver white hair and unconventional speeches, loaded with pop culture references and catchy phrases.” For instance, he famously nicknamed high-frequency traders “cheetahs” who race “in and out” of the market.

In November 2013, Chilton announced he was leaving the CFTC “in the not too distant future,” without specifying the reason. Soon, he began working for a high-frequency trading association, as a senior policy advisor at DLA Piper law firm.

“People are going to say, ‘wait a minute, you used to beat the [stuff] out of those guys,’ and I did, but I never said they should go away,” Chilton told CNBC of the move.

Chilton and crypto: From calling bitcoin a “shadow currency” to holding and ICO endorsements

Although Chilton has said that he’s been calling for cryptocurrency regulation since 2012, he never addressed the topic during his congressional speeches while working for the CFTC, as per the agency’s database. In fact, it seems that Chilton first publicly discussed bitcoin in May 2013 on CNBC, when he declared he was not “100% saying we should regulate it, but if anybody is going to, it seems like something we should consider.”

“It [bitcoin] is being potentially used for, you know, guns and money, and nobody is looking after it. It really is a shadow currency.”

Further on in the interview, Chilton argued that cryptocurrency holders “were losing actual money on this [bitcoin],” to support his viewpoint. “If people have the possibility of not being backed up, if things aren’t cleared, if there is no margin requirement, you don’t want this to be just a house of cards that can impact it.”

He then implied that the CFTC might oversee the cryptocurrency sector in the future, given that people seem to hold virtual currencies for future profits. That, in turn, appears to fit the description of a commodity and hence fall within the regulator’s purview, Chilton argued.

“If you guys want to be a shill for the financial industry, and support a shadow currency that people purchase drugs and money with, have a party, man. My job as a regulator, I’m going to look after it.”

In 2016, however, Chilton (no longer a CFTC commissioner) wrote a commentary for CNBC in which he called the bitcoin and blockchain industry “disruptive,” and argued that President Obama should ensure that its growth is not damaged by overly tight regulations, comparing it to the early IT-industry:

“When the internet was being developed, an effort and initiative by the Clinton administration to ensure that the fledgling idea would not be overly regulated was put in place — the 1997 Framework for Global Electronic Commerce. The point: to ensure laws and regulation would not negatively impact innovation. Current CFTC Commissioner Chris Giancarlo recently (and rightly) called for such protection for digital currency. President Obama should heed the call.”

In September 2017, Chilton highlighted bitcoin’s volatility as a major issue, saying that he would have started a probe into potential market manipulation if he still worked at the CFTC at the time. Specifically, he argued that the “blind spot” occurred because virtual currencies cannot be treated like other stocks due to their complicated, digital nature and that there were no Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements established within the industry.

In November 2017, the former CFTC commissioner declared that bitcoin wasn’t “a scam of a fraud”:

“I don’t think it’s, you know, a fraud, like [JPMorgan Chase CEO] Jamie Dimon said, or a pyramid scheme like [Russian] President Putin says. I mean, people are actually using bitcoins to purchase things. So, that’s not a scam or a fraud.”

In January 2018, Chilton disclosed that he owned bitcoin (BTC) and ether (ETH):

“I wish I had been investing when I told everybody to be careful. I had a lot of my friends that said, ‘You told me not to invest.’ They would have been millionaires.”

Around the same time, it was revealed that the former CFTC regulator was involved in an initial coin offering (ICO) project called OilCoin, which billed itself as “the world’s first legally compliant cryptocurrency backed by oil reserves” and planned to launch an ICO in January 2018. However, OilCoin’s social media accounts went inactive as early as December 2017. Chilton’s name is still listed on the startup’s website under the “Founders and Directors” tab, suggesting that his endorsement could have stemmed from a commercial partnership.

“Good, Bad and Ugly of Cryptos”: Chilton’s latest views on crypto

In January 2019, Forbes published Chilton’s article titled “2019’s Good, Bad and Ugly of Cryptos,” which details a parallel between the crypto industry and the Clint Eastwood movie from 1960s. Indeed, as mentioned above, he often drew from pop culture to demonstrate his points — Chilton’s other Forbes piece largely references “Bohemian Rhapsody,” a 2018 biographical film about Freddie Mercury, lead singer of Queen.

In his latest articles, Chilton argued that the industry is becoming more civilized — futures trading on regulated exchanges like CBOE and CME, as well as Bakkt’s potential arrival were mentioned as examples — which, along with the massive price crackdown, are good developments for the market. However, he argued, security remains to be a great concern for crypto, with major hacks happening regularly.

Chilton was also supportive of the underlying technology. In March 2019, he shared his thoughts on various use cases and potential uses of blockchain — comparing it to bamboo — in a video at Hong Kong Blockchain Week called “Blockchain Dreamers and the Properties of Bamboo.” Prior to that, Chilton claimed that banks tend to ignore public ledgers because “they are trying to keep control of the financial system.”

CFTC Chairman J. Christopher Giancarlo, also known as “crypto dad” for his “do no harm” approach toward crypto, was among many of Chilton’s colleagues who lamented his death. “In the aftermath of the financial crisis, Bart used his signature style of humor to draw attention to pressing issues for the agency and the markets at large, with the intent of protecting retail investors,” the chairman said. “With his passing, the commodities world has certainly lost a bit of its sparkle.”

ITIF Releases Guide to Regulating Blockchain for Policymakers

The Information Technology & Innovation Foundation (ITIF) released recommendations for policymakers on how to regulate blockchain technology on April 30.

Founded in 2006, ITIF is an independent nonprofit institute that provides policymakers with information, analysis and recommendations for handling new technology. In its new guide, ITIF included an array of proposals for policymakers to better regulate blockchain based on principles like technology neutrality and public-sector adoption.

The guide predicts that blockchain will likely factor into major applications such as cryptocurrencies, shared data services, smart contracts, decentralized marketplaces, authenticity tracking, and digital identity applications.  It also adds that uninformed lawmaking threatens to hamstring development.

Data-use regulations in particular can affect blockchain deployment. For instance, some of the E.U.’s provisions, the guide explains, are inconsistent with the tamper-proof nature of blockchain transactions.

As blockchains are peer-to-peer networks without intermediaries, it is difficult to edit or retroactively change data. It is possible that some users could exploit the technology to store prohibited information, but the report stresses that “current versions of public blockchains are not optimal solutions to storing or sharing illicit or pirated content.”

Generally, ITIF encourages governments to make more effort to support legitimate blockchain innovation and adoption by developing relevant regulations that do not limit blockchain-based applications out-of-hand.

Reflexive measures run the risk of cutting off blockchain development outright.  Earlier this week it came to light that the Indian government is examining a bill that would ban cryptocurrency entirely.