Gluwa News Digest Vol. 9

21/06/2021 - 19/07/2021

*Quick note that the format of the Gluwa Digest will be changing following this edition. From now on, The Gluwa News Digest will be released monthly instead of bi-weekly, with the next edition covering the month of August. In addition this Digest covers 4 weeks as opposed to the previous norm of 2.

Binance under Scrutiny (Despite Misleading Headlines)...

The world’s largest crypto exchange appears to be facing a fresh wave of regulatory pressure. In the UK, the Financial Conduct Authority allegedly “banned” the exchange according to headlines, prompting quick reactions on social media.

The reality is quite different. The FCA issued a consumer warning to Binance, barring it from conducting certain “regulated” activities. In practice, this will prevent Binance from opening a domestic exchange and engaging in commercial advertising, however, cryptocurrency trading itself is an unregulated activity and therefore unaffected by the “ban”. A classic case of unreliable headlines and a reminder to be wary of overly exaggerated stories in crypto.

Nevertheless, pressure from multiple regulators is mounting. Japan’s finance regulator issued a similar warning to the FCA, stating that Binance was operating without formal registration. In the US, the platform is under investigation for its derivatives offerings to US customers. Last week the exchange pulled out of Ontario due to mounting regulations. And even the Cayman Islands’ financial regulator, where the exchange is officially incorporated, has just announced it lacks the proper authorization to operate a cryptocurrency exchange.

It seems the pressure is starting to tell. Last week, Binance stopped offering "stock tokens" to its customers. Stock tokens are crypto assets tied to the price of regular stocks, however Binance had been previously warned by Bafin (the german finance regulator) that such tokens violated securities laws.

Regulators are openly keen to bring cryptocurrency regulation more in line with traditional finance, and in so doing crack down on money laundering and other forms of illicit finance. Whilst Binance processed $5.4tn in crypto transactions this year, it was also the destination for roughly $770m worth of illicit Bitcoin flows in 2019 according to Chainalysis.

According to sources familiar with the company, Binance simply lacks the resources to properly handle millions of transactions in line with the regulations of dozens of different countries.

Responding to the latest wave of regulatory pressure, Binance CEO 'CZ' responded positively, saying that increased regulatory clarity was needed and that "more regulations are, in fact, positive signs."

One thing is clear: if crypto is to become the finance of the future, it will continue to face increasing regulatory pressure along the way.

Africrypt Bitcoin Heist

A pair of brothers based in South Africa “vanished” along with Bitcoin worth an estimated $3.6 billion, making it perhaps the world’s biggest-ever crypto scam. In April, Ameer Cajee, the elder brother, founder and COO of investment platform Africrypt, informed clients of a hack and urged them not to pursue legal recourse, which quickly aroused suspicions. Lawyers hired by worried investors have since identified the platform’s BTC wallet address. Whilst it once held assets worth $3.6bn, it now sits completely empty.

In a surprising twist this week, the brother’s appeared in an interview from an undisclosed location, claiming that they had in fact only ever managed “just over $200 million” worth of assets, and that no more than $5 million was unaccounted for. Explaining their decision to flee the country, the brothers (aged 18 and 21) said that they dealt with several powerful South Africans who now wanted their money back, including some “very, very dangerous” people. The brothers have said they plan to return to South Africa for a court hearing on July 19. We shall see if they ever do so.

Certainly, making dozens of powerful enemies and heisting over $3 billion dollars worth of Bitcoin at such a young age is, by any metric, very impressive. Such a shame that typing in a Bitcoin address doesn’t exactly lend itself to a good heist movie. If you are interested in learning about a far more elaborate crypto heist, The Missing Cryptoqueen is a good place to start…

Policy & Regulation

• The UK's Financial Conduct Authority (FCA) has issued a warning against 111 crypto entities operating in the UK without a formal registration, reported Reuters.
• As part of its plans to create a new pan-European agency and regulatory frameworks to tackle financial crime, the EU is seeking to extend AML requirements to the crypto-asset sector, which is currently outside the scope of EU anti-money laundering regulations, reported Reuters.
• China has published a whitepaper for its digital Yuan, which has now handled over 70.7 million transactions, reported Bloomberg. Notably, financial inclusion and cross-border payments are two of the primary policy objectives.
• Wyoming has become the first state in America to approve the legal status of a DAO (decentralized autonomous organization), reported Decrypt. Wyoming’s legislation recently allowed DAOs to set up as a limited liability company. In principle, DAOs are governed by (democratic) smart contract operation, instead of the hierarchical organisational structure seen in traditional firms.

Technology

• Ethereum’s London hard fork is set to go live on August 4th 2021, reported Coindesk. Aside from the much-discussed EIP 1559, the London hardfork also includes several other EIPs as described by Decrypt. These include:

  • EIP 3529 - Changes to the gas fee refund mechanisms, designed to reduce the volume of junk data on the network.
  • EIP 3541 - First step in process of creating new types of smart contracts.
  • EIP 3554 – A delay to the ETH mining “Difficulty Bomb” due to take place in December 2021. The bomb was initially planned to incentivise the network to transition away from proof-of-work mining towards proof-of-stake. However, ETH 2.0 is not yet fully operational, therefore the bomb has been delayed.

• Polygon-based stablecoin "SafeDollar" experienced a hefty dose of irony after it dropped to $0 after attackers found a way to mint infinite coins on the protocol, reported Decrypt. It is the second attack against the protocol this month.

Institutions

• JP Morgan has issued a new report on crypto staking, estimating that the “fast growing” industry could be worth as much $40bn by 2025, up from $9bn currently, Decrypt reported
• Visa and PayPal have invested in Blockchain Capital’s new $300M early-stage venture fund as they seek to expand their exposure to the digital assets space, reported Coindesk.
• The German stock exchange operator (Deutsche Boerse), has acquired a mjority stake in the digital assets firm, Crypto Finance AG, in order to help to expand their crypto and digital asset offerings in Europe, reported Cointelegraph.
• Luxury designer Dolce & Gabbana are launching their first collection of NFt wearables called ‘Collenzione Genesi’ (Genesis Collection), reported Decrypt.
• A coalition of banking institutions are partnering up to launch a blockchain-managed carbon offset trading market called ‘Project Carbon’, reported Ledger Insights. The pilot project will be built on a private Ethereum platfrom with ConsenSys and others, with blockchain being used to guarantee transparency and improve verification processes.

Markets

• MicroStrategy announced its purchase of an additional 13,005 BTC at a price of $37,617 per bitcoin on June 21st. Following the announcement, Bitcoin fell below $30k for the first time since January, but has since recovered.
• Despite continued regulatory uncertainty in India, young investors drove crypto investment in the country from $1B last year to over $6.6B now, with daily trading volumes up 1,000%, reported Bloomberg.