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A year on, El Salvador’s bitcoin experiment is stumbling

By Nelson Renteria

CONCHAGUA, El Salvador (Reuters) – A year after El Salvador adopted bitcoin as legal tender, the area where the world’s first cryptocurrency city was meant to be built – a circular metropolis powered by a volcano – is still dense jungle.

President Nayib Bukele had promised that “Bitcoin City” would be a tax haven for crypto investors and miners equipped with an airport, residential and commercial areas, and a central plaza designed to look like a bitcoin symbol from the sky.

“Invest here and make all the money you want,” he said dressed all in white and wearing a reversed baseball cap, in front of hundreds of bitcoin enthusiasts in November 2021.

But on a recent visit to the area in the shadow of the Conchagua volcano in the east of the Central American country, Reuters found no heavy machinery, construction workers, or raw materials to indicate any progress towards building this grand symbol to bitcoin.

To many it has become, instead, a symbol of folly as bitcoin has crashed.

“This experiment has been very risky, too risky for a poor country,” said Oscar Picardo, director of the Institute of Science, Technology and Innovation at the private Francisco Gavidia University.

“It has been seen that (bitcoin) is a very speculative, highly variable financial asset,” he added.

A major part of the problem is that the drop in the value of bitcoin and other cryptocurrencies has alienated investors.

When El Salvador, one of the poorest countries in Latin America, adopted bitcoin as legal tender on September 7, 2021, the cryptocurrency was close to $47,000.

A year later, it is worth less than half and on Tuesday was trading at around $19,770.

The Bukele government declined to comment for this story but has defended doubling down on bitcoin -including the acquisition of 2,381 bitcoins- assuring it is a long-term plan.

It says its bitcoin policy has attracted investment, reduced bank commissions to zero, increased tourism and promoted financial inclusion. But the price drop has elevated El Salvador’s financial risk, complicating its search for funds to pay 1.6 billion dollars of sovereign bonds due in 2023 and 2025.

The International Monetary Fund has called on El Salvador to reverse bitcoin’s status as legal tender citing financial, economic and legal concerns; complicating a deal with the lender.

The use of the cryptocurrency has also failed to catch on, experts said.

Neither the presidency nor the ministry of finance would share figures on the use of bitcoin through the government’s bitcoin digital wallet Chivo.

But a survey by the National Bureau of Economic Research (NBER), a U.S.-based NGO, found that only 20% of Salvadorans who downloaded the Chivo app continued to use it after spending the $30 that the government gave in free credit to promote its use.

The study indicates the vast majority of Chivo downloads occurred in 2021, specifically in September, and that almost no downloads have taken place so far in 2022.

In theory, developing nations like El Salvador are ideal candidates for cryptocurrency adoption due to a continued reliance on cash and a largely unbanked population.

But, according to the April report, “bitcoin is not being widely used as a medium of exchange” because users “do not understand it, they do not trust it, it is not accepted by businesses, it is very volatile, and it involves high fees.”

Despite Salvadoran law requiring all companies to accept cryptocurrency, only 20% do so, according to the survey that interviewed 1,800 Salvadoran households.

Jesus Caceres’ small watch store in central San Salvador is one business that does. Three signs read “We accept bitcoin,” but the 47-year-old watchmaker has only ever made two sales with the cryptocurrency.

“One for $3 and one for $5, it was $8 in total. From then on, no one has approached me,” he said.

The government has also encouraged Salvadorans working abroad to send money home through the Chivo government wallet, or other private ones, without charging commissions. Known as remittances, those transfers from abroad represent 26% of the GDP of the Central American country, one of the highest percentages in the world.

But according to statistics from the central bank, between September 2021 and June 2022, the country received nearly $6.4 billion dollars in remittances and less than 2% was transferred by digital cryptocurrency wallets.

Like the use of bitcoin, the government shares few details about “Bitcoin City”. But its future looks increasingly uncertain since the issuance of the “Bitcoin Bond,” which Bukele said would support the city’s construction, has been postponed following the cryptocurrency crash. Residents of the place where the city is planned, between the Conchagua volcano and the Gulf of Fonseca on the Pacific coast, feel the majority of the country’s 6.5 million inhabitants will not be favored. “It doesn’t benefit us poor people at all,” lamented fisherman and farmer Jose Flores, 48, who has lived in Conchagua for over three decades.

(Reporting by Nelson Renteria; Writing by Sarah Kinosian; Editing by Diego Ore, Stephen Eisenhammer and Alistair Bell)

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Cryptoverse: Bitcoin’s no longer the king of the swingers

By Lisa Pauline Mattackal

(Reuters) – Bitcoin’s been called a lot of things. Buzzy, beguiling, baffling, even bogus. But never boring.

Yet, of late, it’s been eerily subdued.

The king of the swingers has been uncharacteristically treading water for days at around $20,000 and hasn’t ventured far beyond that since June.

That spells trouble for traders and exchanges that profit from bitcoin’s wild price lurches, and is opening the door to its archrival ether which is preparing to up its crypto game by moving to a meaner and leaner blockchain.

“Bitcoin is not dead, it’s just boring at the moment, so traders are already looking for alternatives,” said Martin Leinweber, digital asset product strategist at MarketVector.

Bitcoin’s average 30-day volatility – a measure of how its price varies over a set period of time – has slumped to 2.7% from over 4% in early July, according to data firm Coinglass.

That number has stayed firmly below 5% in 2022, even in the most turbulent months of the “crypto winter” of depressed prices – a departure from the past five years when even periods of lower volatility were followed by spikes as high as 7%.

Similarly, an index from CryptoCompare, which uses bitcoin futures contracts to work out how far prices are expected to change, stands at just over 77, down from above 90 at the start of the year.

Bitcoin has seen periods of reduced volatility in the past, often during periods of depressed or falling prices, with its price swings often coming back as trading activity picks up.

This slump may be different, though.

“This has been a relatively long period of decreased volatility, it’s now beyond anything we’ve seen in even 2019 where these levels lasted around a quarter to a quarter-and-a-half,” said Stéphane Ouellette, CEO at crypto derivatives provider FRNT Financial.

ETHER OVERDRIVE

Leinweber at MarketVector pointed to an uptick in trading for ether and its derivatives as a side-effect of bitcoin’s subdued volatility.

Indeed, the price of ether – the No.2 crypto with a market cap of roughly $190 billion versus bitcoin’s $380 billion – has risen 50% since the start of July while bitcoin has been flat.

Ether doesn’t offer more price drama; it is far less volatile, with its highest level being just over 2% in March 2020 during the worst of the COVID market rout, according to data firm Messari.

Yet it is soaking up a lot of the crypto buzz at the moment as it stands on the verge of its “Merge”, expected to finally happen later this month, when it undergoes a radical shift to a system where the creation of new ether tokens becomes far less energy-intensive.

BURNED BY CRYPTO

For longer-term investors in traditional assets such as stocks or bonds, narrower swings in prices may seem like a positive. But for many investors and major cogs in the bitcoin and crypto economy, that’s not the case. Exchanges, for instance, make money by charging fees on trades; when volatility falls, trading activity tends to evaporate.

For crypto hedge funds, which tend to trade on swings in price, stabler values also offer diminishing chances to profit.

So what’s behind bitcoin’s fall in volatility?

For one, an investor flight from the broader crypto space, meaning fewer people are willing to trade their coins.

Cryptocurrencies have endured a torrid year as investors have dumped risky asset across the board in the face of rising inflation, with bitcoin falling about 60% and ether dropping 55%. Major blow-ups at two major coins and the bankruptcy of a big-name lender have also eroded confidence in the sector.

The dollar value of bitcoin trading volumes on major exchanges over a 7-day period has fluctuated between $127 million and $142 million, according to data from Blockchain.com, the lowest levels since October 2020. Similarly, trading in bitcoin futures is at its lowest levels since November 2020, data from the Block showed.

“The most elevated levels of volatility typically coincide with the greatest levels of interest in crypto,” said Ouellette added. “People got burned and are saying ‘I don’t really care about crypto right now’.”

(Reporting by Lisa Pauline Mattackal in Bengaluru; Editing by Tom Wilson and Pravin Char)

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Binance to convert users’ USDC into its own stablecoin

(Reuters) – Binance, the world’s largest crypto exchange, said on Monday it is introducing “BUSD Auto-Conversion,” which will be used to convert any existing user balances and new deposits of USD Coin (USDC), Pax Dollar (USDP) and True USD (TUSD) into its own stablecoin.

The move is intended to enhance liquidity and capital efficiency for users, the company said in a statement.

Binance said it will remove and cease any trading on spot pairs that include USDC, USDP and TUSD; it will start the conversion on Sept. 29.

USDC, which is principally operated by Circle Internet Financial and is the second largest stablecoin, has a nearly $51.9 billion market capitalization. Binance’s stablecoin, BUSD, is valued at about $19.4 billion, according to crypto data provider CoinGecko.

USDC products affected include saving accounts, DeFi staking subscriptions and crypto loans, which will be closed and liquidated on Sept. 23.

(Reporting by Shivani Tanna in Bengaluru; Editing by Leslie Adler)

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Exclusive-U.S. sought records on Binance CEO for crypto money laundering probe

By Angus Berwick and Tom Wilson

LONDON (Reuters) – U.S. federal prosecutors asked Binance, the world’s largest cryptocurrency exchange, to provide extensive internal records about its anti-money laundering checks, along with communications involving its chief executive and founder Changpeng Zhao, according to a late-2020 written request seen by Reuters.

The Justice Department’s money laundering section asked Binance to voluntarily hand over messages from Zhao and 12 other executives and partners on matters including the exchange’s detection of illegal transactions and recruitment of U.S. customers. It also sought any company records with instructions that “documents be destroyed, altered, or removed from Binance’s files” or “transferred from the United States.”

The December 2020 request, which has not been previously reported, was part of a Justice Department investigation into Binance’s compliance with U.S. financial crime laws that remains ongoing, four people familiar with the inquiry said.

U.S. authorities, the people said, are investigating whether Binance violated the Bank Secrecy Act. This requires crypto exchanges to register with the Treasury Department and comply with anti-money laundering requirements if they conduct “substantial” business in the United States. The law, designed to protect the U.S. financial system from illicit finance, provides for jail terms of up to 10 years.

Reuters could not establish how Binance and Zhao, one of the most prominent figures in the crypto sector, responded to the request from the department’s criminal division.

In response to Reuters’ questions about the letter and investigation, Binance Chief Communications Officer Patrick Hillmann said, “Regulators across the globe are reaching out to every major crypto exchange to better understand our industry. This is a standard process for any regulated organization and we work with agencies regularly to address any questions they may have.” Binance has “an industry leading global security and compliance team” with over 500 employees, including former regulators and law enforcement agents, Hillmann added.

He didn’t say how Binance responded to the Justice Department request. A Department spokesman declined to comment.

The request reveals the broad scope of the U.S. investigation into Binance. The probe’s existence was reported last year by Bloomberg but until now little has been known about it. A Binance spokeswoman told Bloomberg at the time, “We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion.”

The letter made 29 separate requests for documents produced since 2017, covering the company’s management, structure, finances, anti-money laundering and sanctions compliance, and business in the United States. “Binance is requested to produce all documents and materials that are responsive to this letter in its possession, custody, or control,” it said.

Binance was launched by Zhao, known as CZ, in Shanghai in 2017 and as of July controlled over half of the world’s crypto trading markets, processing transactions worth more than $2 trillion that month. Born in China and educated in Canada, where he holds citizenship, Zhao told Bloomberg in March that he will be based for the “foreseeable future” in Dubai, which that month granted Binance a license to conduct some operations.

A series of Reuters articles this year revealed how Binance drove its explosive growth while keeping weak customer checks and withholding information from regulators. Reuters found that the gaps in Binance’s compliance programme enabled criminals to launder at least $2.35 billion in illicit funds through the exchange, which also served traders in Iran despite U.S. sanctions. Until mid-2021, Binance customers could trade crypto by registering with just an email address.

Binance disputed Reuters’ findings, calling them “outdated.” The exchange said it is “driving higher industry standards” and seeking to “further improve our ability to detect illegal crypto activity on our platform.” It said it did not consider Reuters’ calculations of illicit fund flows to be accurate.

U.S. SCRUTINY

Crypto exchanges are under increasing scrutiny in the United States, where top government figures including Treasury Secretary Janet Yellen this year have publicly backed greater regulation of the sector. In February, the Justice Department established a national cryptocurrency enforcement team to “tackle the growth of crime involving these technologies,” with a focus on exchanges.

That month, the founders of another exchange, BitMEX, pleaded guilty to violating the Bank Secrecy Act and were later sentenced to up to two and a half years of probation. BitMEX agreed to pay a $100 million fine to settle separate charges for breaching the Act. BitMEX now says it “fully committed to operating its business in compliance with all applicable laws” and has made “substantial investments” in its compliance programme.

The Justice Department’s 2020 letter was addressed to Binance Holdings Ltd., a company in the Cayman Islands, and to Roberto Gonzalez, a Washington-based attorney at law firm Paul, Weiss. Binance Holdings owns the Binance trademark and, according to regulatory filings, is owned by Zhao. Gonzalez and Paul, Weiss did not respond to requests to comment.

Binance has an opaque corporate structure. It has declined to give details of the ownership or location of its main Binance.com exchange, which has not accepted customers in the United States since mid-2019. Clients there are instead directed to a separate U.S.-based exchange called Binance.US, which also is controlled by Zhao, regulatory filings show. Binance.US registered with the Treasury in 2019; the main exchange never did so.

Since last year, over a dozen financial regulators around the world have issued warnings about Binance, saying it was either serving users without licenses or violating anti-money laundering rules. In July, the Dutch central bank said it had fined Binance over 3 million euros for operating in breach of its financial crime laws. A Binance spokesperson said at the time that the fine marked a “pivot in our ongoing collaboration” with the central bank.

In the 2020 request, the Justice Department sought all documents that identified Binance employees responsible for compliance with the Bank Secrecy Act, details of its policies to combat illegal finance, and any reports of suspicious financial activity it had filed to authorities. Binance was asked to provide information on any transactions between the exchange and users involved in ransomware, terrorism and darknet marketplaces, along with those targeted by U.S. sanctions.

The department also requested documents related to the “business rationale” for establishing Binance.US. It asked for communications involving the 13 executives and partners – including Zhao, his co-founder Yi He, and his chief compliance officer, Samuel Lim – on the subject of “the creation of Binance.US and its relationship to Binance.” Lim and He are still at Binance.

Reuters reported in January that Lim and other senior employees were aware that Binance’s money-laundering checks were not rigorous, according to company messages reviewed by the news agency. Neither Lim nor Binance has commented on the messages.

In addition to the Justice Department request, the Securities and Exchange Commission issued a subpoena to Binance.US’s operator, BAM Trading Services, that same month. The subpoena, reviewed by Reuters, required BAM to hand over documents showing whether any employees also worked for the main Binance exchange and what services it was providing the U.S. company.

Binance.US did not respond to Reuters’ questions. The SEC said it does not comment on possible investigations.

((reporting by Angus Berwick and Tom Wilson; editing by Janet McBride))

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European markets watchdog on red alert for Ukraine war contagion

By Huw Jones

LONDON (Reuters) – The European Union’s markets watchdog said on Thursday it was on red alert for contagion after inflation stoked by Russia’s invasion of Ukraine has threatened markets’ ability to function in an orderly way.

The European Securities and Markets Authority (ESMA) in its latest risk monitor report gave an overall red risk rating for markets, with only credit risks and environmental risks flashing amber, and none green.

Contagion and operational risks, such as liquidity, were very high, it said.

Against a backdrop of already increasing inflation, the Ukraine war has profoundly impacted financial markets, leading to rapid price rises and volatility, especially in commodities.

“These present liquidity risks for exposed counterparties and show the continued importance of close monitoring to ensure orderly markets, a core objective for ESMA,” Verena Ross, the watchdog’s chair, said in a statement.

As European Union states revert to more polluting sources of energy, such as coal to cut dependence on Russian energy, EU investment funds, which tout their environment, social and governance (ESG) credentials saw net outflows for the first time in two years in March.

But the fundamental shift into ESG investments continues overall, with ESG assets averaging 27% of the total in the second quarter of 2022, compared with under 10% in the first half of 2020.

Russia’s invasion of Ukraine raised questions over the compatibility of sustainable investment practices with the financing of non-democratic regimes or weak democracies, ESMA added.

“The Russian invasion highlights the importance of the ‘S’ (social) pillar in ESG investing and its clear link to ‘E’ pillar,” ESMA said.

During the first half of 2022, there was also big drop in crypto-asset prices and liquidity, meaning investors with big positions have limited options to exit, ESMA said.

(Reporting by Huw Jones; editing by Barbara Lewis)

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Fugitive Turkish crypto fraud suspect arrested in Albania resort

TIRANA (Reuters) – Albanian police on Tuesday arrested the fugitive Turkish founder of crypto-exchange Thodex, wanted by Interpol for suspected crypto fraud and at large for a year, police and media said.

Albanian and Turkish media identified the suspect as Faruk Fatih Ozer. The Turkish interior ministry said authorities had launched extradition proceedings.

Police referred to the suspect only by the initials F.O. and said the 28-year-old was arrested in the southern resort area of Himare along with two Albanian helpers in an operation codenamed “Brain”.

“After many searches in several regions of the country, based on the information received on the operative route about the location of a person highly wanted by Turkish justice … Operation ‘Brain’ was organised and finalised,” police said in a statement.

“As part of this operation, Turkish citizen F.O., 28 years old, was arrested and detained.”

Police seized laptops, mobile devices and bank cards, the statement said.

Thodex had been handling daily crypto trade worth hundreds of millions of dollars when Turkish authorities raided it last year and six suspects, including company executives and Ozer’s brother and sister, were arrested and later jailed.

On Turkey’s request, Interpol had issued a red notice for Ozer, who had flown to Albania before news of the company’s problems surfaced while the company closed down its website.

Thodex lawyer Sevgi Erarslan had previously said the exchange crashed due to extreme volatility in some crypto currencies and a hacking attack. She said the suspicion of fraud was unrealistic.

Erarslan also said the company covered the losses of more than 800 people who lost money as the exchange crashed.

Turkish authorities later banned the use of crypto assets for payments while some local exchanges were investigated for fraud. There has been a boom in usage of digital currencies in Turkey fuelled by rising inflation and a slide in the lira currency.

(Reporting by Florion Goga in Tirana and Ezgi Erkoyun in Istanbul; Writing by Daria Sito-Sucic; Editing by Nick Macfie)

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Russia needs higher share of rouble in international trade – PM

MOSCOW (Reuters) – Russia should increase the rouble’s share in international settlements and gradually move towards stopping using currencies of designated ‘unfriendly’ countries that imposed sanctions on Russia, Prime Minister Mikhail Mishustin said on Tuesday.

Mishustin also said that Moscow deems digital assets to be an alternative to foreign currencies in cross-border transactions.

(Reporting by Andrey Ostroukh, Editing by William Maclean)

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Crypto lender Hodlnaut granted creditor protection by Singapore Court

(Reuters) – Hodlnaut said on Tuesday it has been placed under interim judicial management by the Singapore High Court, after the troubled cryptocurrency lender suspended withdrawals earlier this month.

Judicial management allows a financially distressed company to be restructured under court supervision.

The Singapore-based crypto firm said the court had appointed Ee Meng Yen Angela and Aaron Loh Cheng Lee of EY Corporate Advisors as interim judicial managers.

“We will not be able to provide further information at this juncture, but hope to provide further updates once our IJMs (Interim Judicial Managers) determine it necessary to do so,” Hodlnaut said.

Earlier this month, Hodlnaut suspended withdrawals, swaps and deposits to focus on stabilizing its liquidity and preserving the company’s assets.

Hodlnaut is the latest in a string of crypto players globally to run into difficulties following a sharp sell off in markets that started in May with the collapse of two paired tokens, Luna and TerraUSD.

The company also said it had laid off about 40 employees, while also disclosing an investigation by the Singapore police.

(Reporting by Rishabh Jaiswal in Bengaluru; Editing by Krishna Chandra Eluri)

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Cryptoverse: Bleeding bitcoin’s holding out for a hero

By Lisa Pauline Mattackal and Medha Singh

(Reuters) – Who can save bitcoin?

The world’s biggest cryptocurrency can’t seem to catch a break. It finally looked to be regaining strength this month, breaching $25,000 for the first time since its June collapse, only to relapse towards $20,000.

A deflating end to August has forced the market to confront the Big Bitcoin Question: where will a real rally come from?

Right now, doughty retail investors are looking like the most likely source of relief, as institutional players get cold feet in the midst of a macro maelstrom.

The amount of “illiquid bitcoin” across the market – held by wallets that rarely spend or sell – has risen by 73,840 bitcoin over the past week, the largest weekly increase for more than two months, according to Chainalysis data. That equates to roughly $1.7 billion at recent prices.

Furthermore, the amount of bitcoin held for over a year has increased by 54,300 on average in the last four weeks, the largest rise in about four months, Chainalysis said. Meanwhile, cryptocurrency exchanges have seen net outflows for three straight months as investors pulled their tokens into “cold storage” rather than selling, according to Arcane Research.

“It’s clear that longer-term holders at the retail level are also accumulating, the number of wallets holding relatively small amounts of bitcoin is indeed growing,” said Jay Fraser, head of strategy at BSTX securities exchange.

“Don’t underestimate the impact of the retail HODLers,” Fraser added, referring to a cohort whose name emerged years ago from a trader misspelling “hold” on an online forum. “Their lack of selling helps to create more scarcity so that, eventually, a supply shock for bitcoin will again play out.”

INSTITUTIONS ‘DROVE MARKET DOWN’

So what about those deep-pocketed institutional players that jumped on the crypto bandwagon when prices were high?

They have been selling hard, according to some market participants who say these big investors have been the primary driver of the crypto slump over recent months.

In the week to Aug. 19 – the week that saw bitcoin slide anew – the digital asset investment products favored by traditional institutional finance players saw outflows of around $9 million according to Coinshares data.

“The latecomers – institutions that came in close to the highs or the $30,000 to $50,000 levels – they’re the ones that drove the market down, mostly,” said Ed Hindi, chief investment officer at Tyr Capital Partners.

Hindi pointed to a steep discount between futures contract prices and the bitcoin spot price on the CME exchange as further evidence of institutional bearishness.

The discount for the most traded contract hit an all-time low of 3.36% last week, Arcane Research analysts said.

‘READY TO BUY THE DIP’

But don’t count institutional players out – there’s plenty of evidence they haven’t given up on bitcoin, which is down a whopping 70% since its all-time high of $69,000 touched in November, and has lost 56% since the start of 2022.

Some market watchers point to the decision of BlackRock, the world’s largest asset manager, to launch a private bitcoin investment product specifically for institutional investors as a strong sign that demand remains strong and could drag crypto out of the doldrums.

Andy Edstrom, managing director of Swan Advisor Services, said his firm had continued to see interest from financial advisors and their clients in bitcoin investments despite some “fair weather interest” going away.

“Some advisors are ready to buy the dip, they’re telling us ‘I’ve got dry powder to invest in $20,000 bitcoin’,” he added.

(Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Pravin Char)

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Dollar sags below 20-year peak as euro lifted by ECB bets

By Kevin Buckland

TOKYO (Reuters) – The dollar languished on Tuesday after being beaten back from a two-decade high versus major peers by a reinvigorated euro.

The tables turned for the two currencies as traders began ramping up bets for a super-sized 75 basis-point rate hike by the European Central Bank, while paring the odds for one by the U.S. Federal Reserve.

The dollar index – which measures the greenback against a basket of six currencies, with the euro the most heavily weighted – stood at 108.65 at the start of the Asian day, after dropping back from 109.48 overnight, a level not seen since September 2002.

The euro edged 0.08% higher to $1.00045, extending Monday’s 0.32% rally – which was its biggest in almost three weeks – after failing to keep its head above parity for the past week.

“The euro has found some stability near parity with help from reports that a 75bp hike could be on the cards at the September ECB meeting,” said Sean Callow, a currency strategist at Westpac in Sydney.

“But the euro’s yields remain unappetising and the deepening gas crisis in Europe means that more aggressive ECB hikes would only deepen recession. We expect EUR/USD to print fresh 20-year lows in coming days, with 0.98 the next obvious target.”

Traders see better than 50% odds for a 75 bps move by the ECB on Sept. 8 after a parade of ECB speakers at the Fed’s annual symposium in Jackson Hole backed the case for a big hike.

By comparison, bets for a 75 bps increase by the Fed on Sept. 21, while higher at 70%, have receded from as much as 75% on Monday.

Monthly U.S. jobs figures due on Friday will be closely watched for further clues on the rates outlook.

The euro was also helped by a retreat in European gas prices after German economy minister Robert Habbeck said the country was filling gas storage facilities faster than expected.

The dollar slid 0.17% to 138.505 yen, after rising to 139 overnight for the first time since mid-July.

Sterling added 0.1% to $1.17175, recovering from an almost 2-1/2-year low of $1.16495 reached on Monday.

The Aussie edged 0.04% higher to $0.69125, bouncing from $0.6841 in the previous session, a six-week low.

(The story corrects level of Australian dollar’s 6-week low in the last paragraph; $0.6841, not $0.6481)

(Reporting by Kevin Buckland; Editing by Jacqueline Wong)

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Singapore mulls tightening cryptocurrency trading by retail investors

SINGAPORE (Reuters) – The chief of Singapore’s central bank said the city-state is considering new measures that will make it more difficult for retail investors to trade cryptocurrencies at a time when they seem to be “irrationally oblivious” about the risks.

“Adding frictions on retail access to cryptocurrencies is an area we are contemplating,” Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) said at a seminar on Monday.

“These may include customer suitability tests and restricting the use of leverage and credit facilities for cryptocurrency trading,” he added.

The MAS in January issued guidelines to limit cryptocurrency trading service providers from promoting their services to the public, as part of its attempts to shield retail investors from potential risks.

(Reporting by Anshuman Daga and Yantoultra Ngui; Editing by Kanupriya Kapoor)

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Bitcoin drops 1.6% to below $20,000

(Reuters) – Bitcoin was off 1.63% at $19,920 by late afternoon in Europe on Saturday, down $330 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down 58.7% from the year’s high of $48,234 on March 28.

Ether, the coin linked to the ethereum blockchain network, dipped 2.76 % to $1,467.2 on Saturday, losing $41.60 from its previous close.

(Reporting by Akriti Sharma in Bengaluru)

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India’s CoinSwitch cooperating with financial crime agency probe -CEO

By Aditya Kalra

NEW DELHI (Reuters) – India’s top crypto app CoinSwitch is cooperating with the national financial-crime agency, whose agents searched its offices this week to find out about its business model and user-onboarding processes, its CEO told Reuters on Saturday.

CoinSwitch, valued at $1.9 billion, says it is the largest crypto company in India, with more than 18 million registered users. The firm is backed by Andreessen Horowitz, Tiger Global and Coinbase Ventures.

Ashish Singhal, speaking for the first time publicly about Thursday’s search, said his company was engaging with the Indian Enforcement Directorate’s unit in the tech hub Bengaluru on functioning of its crypto platform.

“Most of their engagement with us has been about knowing what CoinSwitch does,” Singhal said, saying the inquiries included operations of crypto exchanges, how users were onboarded and details about know-your-customer norms.

A person with direct knowledge said the case relates to suspected violations of India’s foreign exchange laws. Agents asked about foreign investments, income and outflows to check on compliance, and seized financial documents, the source said.

Singhal declined to specify the agency’s allegations, citing legal sensitivities.

The Enforcement Directorate did not immediately respond to a request for comment.

The investigation into CoinSwitch comes amid tightening regulatory scrutiny of the crypto sector in India.

In a separate case the agency this month froze $8 million in assets of WazirX, a top virtual currency exchange, in an investigation of a possible role in helping instant loan app companies launder the proceeds of crime by converting them into cryptocurrencies on its platform.

WazirX disputes the allegations.

The agency has said it was conducting money-laundering investigations against several shadow banks and their fintech companies for potential violations of central bank norms and predatory lending practices.

The CoinSwitch search was “not about money laundering,” Singhal said. The agency “has been engaged with us with respect to functioning of our crypto platform and we are fully cooperating with them,” he said.

While no official data is available on the size of India’s crypto market, CoinSwitch estimates the number of investors at up to 20 million, with total holdings of about $6 billion.

(Reporting by Aditya Kalra in New Delhi; Editing by William Mallard)

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Cboe says Robinhood and Virtu among potential equity partners in crypto exchange

By John McCrank

(Reuters) – Cboe Global Markets Inc on Thursday said it is in discussions with several market participants, including retail brokers and market makers, about taking strategic stakes in its recently acquired digital asset exchange, ErisX, which will be renamed Cboe Digital.

Cboe said the potential equity partners include Robinhood Markets Inc, Interactive Brokers, Virtu Financial, Jane Street, Jump Crypto, Optiver, DRW, and tastytrade, which is owned by IG Group.

Chicago-based Cboe said the “soon to be formalized” equity partners will join planned commercial partner firms in supporting ErisX, including Fidelity Digital Assets, Galaxy Digital, NYDIG and Webull.

“ErisX was founded with the mission of bringing transparent, well-regulated markets for digital assets and we are excited to further accelerate on this vision with growing support from our partner firms,” said Cboe Chief Executive Officer Ed Tilly.

Cboe closed the acquisition of U.S.-based digital asset spot market operator Eris Digital Holdings (ErisX) in May, which also included a regulated futures exchange and a regulated clearinghouse, as the cornerstone of its new Cboe Digital business.

Last month, Cboe said it took a $460 million writedown on its ErisX purchase due to the plunge in the price of cryptocurrencies.

Cboe announced its intention to acquire ErisX on Oct. 20, when the price of bitcoin topped $67,000. Since then, digital asset prices have plummeted, with bitcoin currently trading in a range of around $20,000 to $25,000.

(Reporting by John McCrank; Editing by Mark Potter)

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Dollar eases from near two-decade peak as Jackson Hole looms

By Kevin Buckland

TOKYO (Reuters) – The U.S. dollar edged back from a near two-decade peak against a basket of major currencies on Thursday as investors awaited a speech by Federal Reserve Chair Jerome Powell the following day for fresh clues on the path for monetary policy.

Gains for Australia’s dollar, a liquid proxy for trading China’s economic outlook, outpaced developed-market peers as it tracked a stronger yuan.

The South Korean won rose after the central bank raised its inflation forecast, pointing to further policy tightening ahead.

The U.S. dollar index, which measures the greenback against six counterparts, eased 0.19% to 108.42, but remained not far from its highest since September 2002 at 109.29, touched in mid-July.

Investors have been bracing for the Fed to double down on its commitment to crushing inflation at its annual gathering in Jackson Hole, Wyoming.

Money markets have pared back expectations that the U.S. central bank could tilt to a slower pace of rate hikes following a chorus of hawkish Fed commentary in recent weeks, and currently lay 58.5% odds on another super-sized 75 basis-point rate hike next month versus 41.5% probability of a half point increase.

“Expectations of a hawkish message from FOMC Chair Powell at Jackson Hole will likely keep upward pressure on the USD,” Commonwealth Bank of Australia analyst Kristina Clifton wrote in a client note.

“However, there is a risk that the speech is deemed not hawkish enough and that we see some retracement in the USD.” 

The dollar retreated 0.25% to 136.78 yen, from this week’s one-month high of 137.705.

The euro edged 0.18% higher to $0.99865, after sliding to a 20-year low of $0.99005 on Tuesday.

The single currency has been hurt by growth concerns as the region faces an energy crisis, with investors on edge before Russia halts gas supplies through the main Nord Stream 1 pipeline for three days from Wednesday for unscheduled maintenance.

Sterling gained 0.2% to $1.1815, after dipping to the lowest since March 2020 on Tuesday at $1.1718.

The Australian dollar rallied 0.59% to $0.69475, up from a more than one-month low of $0.6856 earlier in the week.

That’s as China’s yuan rebounded from a two-year low, helped by firmer-than-expected official guidance, which traders took as a sign authorities are becoming increasingly uncomfortable with rapid losses in the currency.

“In terms of the sharp AUD bounce today, an obvious catalyst appears to be the bounce in CNH on the stronger than expected fixing,” said Sean Callow, a strategist at Westpac in Sydney.

“The positive equity mood in much of the region does help the Aussie in the background.”

New Zealand’s kiwi lagged its Antipodean peer with a 0.35% rise to $0.6212, hampered by data showing a decline in local retail sales early in the session. It was at a one-month low of $0.6157 on Monday.

Against the Korean won, the dollar lost 0.27% to 1,336.96 after the Bank of Korea raised rates by a quarter point, as expected, but also upgraded this year’s inflation forecast to 5.2% from 4.5%, which would be the fastest rate since 1998, and next year’s to 3.7% from 2.9%.

(Reporting by Kevin Buckland; Editing by Christopher Cushing and Kim Coghill)

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NFTs worth $100 million stolen in past year, Elliptic says

By Elizabeth Howcroft

LONDON (Reuters) – Thieves stole over $100 million worth of non-fungible tokens in the year to July, blockchain research firm Elliptic said on Wednesday, as the fast-emerging digital asset became a new front in crypto’s hacking problem.

NFTs are blockchain-based assets that represent digital files such as images, video or text.

The market surged in 2021 as crypto-rich speculators spent billions of dollars on the assets, hoping to profit as prices rose. But since cryptocurrency prices crashed in May and June this year, NFT prices and sales volumes have plunged.

Scams remain rife in the NFT market even as it declines, with July seeing the highest number of NFTs reported stolen on record, London-based Elliptic said in a report.

Security compromises via social media have surged, accounting for 23% of NFT thefts in 2022, it said.

Thieves received on averaged $300,000 per scam, Elliptic said. The true scale of NFT thefts is likely to be even higher, given that not all crimes are publicly reported, it added.

Hacks and scams have long plagued the crypto industry, while regulators around the world are increasingly concerned about the use of crypto assets in cyber crime.

Elliptic put the amount of money-laundering in NFT-based platforms at just $8 million. But almost $329 million worth of funds in the NFT market came from services such as so-called cryptocurrency mixers, which are designed to hide the funds’ origin, Elliptic said.

One such mixer, Tornado Cash, was used for laundering just over half of the proceeds of NFT scams, Elliptic said, before it was sanctioned by the United States this month.

“There is a growing threat to NFT-based services from sanctioned entities and state-sponsored exploits,” Elliptic said, citing a $540 million theft in April which U.S. officials have linked to North Korea’s Lazarus Group.

(Reporting by Elizabeth Howcroft; editing by Jason Neely)

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Celsius crypto lender, now bankrupt, sues ex-money manager over alleged theft

By Jonathan Stempel

NEW YORK (Reuters) – Celsius Network LLC on Tuesday sued a former investment manager, accusing him of losing or stealing tens of millions of dollars in assets before the crypto lender went bankrupt last month.

In a complaint filed in Manhattan bankruptcy court, Celsius accused Jason Stone and his company KeyFi Inc of “gross negligence” and “extraordinarily inept” crypto investing, after Stone falsely portrayed himself as a pioneer in the field.

Celsius said Stone proved “incapable” of deploying coins profitably, causing “many tens of millions of dollars” in losses.

It said he then misappropriated assets to buy hundreds of non-fungible tokens (“NFTs”) that he stored out of reach, and covered his tracks by using Tornado Cash, a crypto “mixer” that the U.S. Treasury Department sanctioned on Aug. 8 because it might help launder cybercrime proceeds.

Tuesday’s lawsuit was filed six weeks after KeyFi sued Celsius in a New York state court in Manhattan.

It claimed that Celsius ran a Ponzi scheme, mismanaged customer deposits, failed to hedge investments, and cheated Stone out of potentially hundreds of millions of dollars of compensation.

Stone worked with Celsius for about seven months ending in March 2021, court papers show.

In an emailed statement, Stone’s lawyer Kyle Roche said KeyFi’s compensation, including NFTs, had been authorized by Celsius Chief Executive Alex Mashinsky.

“Celsius’s most recent filing is an attempt to rewrite history and use KeyFi and Mr. Stone as a scapegoat for their organizational incompetence,” Roche said.

Both lawsuits seek to recoup sums that each side believes the other owes, plus compensatory and punitive damages.

Celsius, based in Hoboken, New Jersey, filed for Chapter 11 protection from creditors on July 13, one month after freezing withdrawals and transfers for its 1.7 million customers because of “extreme” market conditions.

The cases are Celsius Network Ltd et al v Stone et al, U.S. Bankruptcy Court, Southern District of New York, No. 22-ap-01139; and KeyFi Inc v. Celsius Network Ltd et al, New York State Supreme Court, New York County, No. 652367/2022.

(Reporting by Jonathan Stempel in New York; Editing by David Gregorio)

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Cryptoverse: A mixer with your crypto cocktail?

By Lisa Pauline Mattackal

(Reuters) – The DeFi dream is shaken. And stirred.

The grand crypto project has declined in 2022: total user funds deposited in decentralized finance has shrunk to about $61 billion from over $170 billion at the start of the year, according to figures from data aggregator Defi Llama.

In a fresh jolt, the U.S. Treasury has sanctioned one of the industry’s biggest “mixers”, tools that pool and scramble crypto from thousands of addresses to boost anonymity, saying it was used by hackers to launder their gains.

The U.S. intervention this month has forced many DeFi projects to block cash from wallets linked to the Ethereum-based mixer, Tornado Cash, representing a blow to those devotees who dream of a brave new world free of central authority.

“The motion has set back DeFi in its ability to be decentralized and operate in a censorship resistant way,” said Katie Talati, director of research at digital asset manager Arca.

Indeed, the market impact could be significant, given the growing role of mixers, whose proponents argue they serve a legitimate use in creating privacy and say specific users should be targeted by authorities rather than an entire code.

The average usage of such services over a 30-day period hit an all-time high of $51.8 million in late April, roughly double the level a year before, according to a Chainalysis study in July, before declining with the broader crypto market.

“This makes sense given that the timing coincides with DeFi’s increasing prominence within the overall cryptocurrency ecosystem,” Chainalysis researchers wrote.

Tornado Cash didn’t respond to a request for comment on the sanctions.

LOCKED AND CODED

Aave and Uniswap, two of the most popular DeFi platforms that blocked wallets linked to Tornado, have seen user funds, or total value locked (TVL), drop since the sanctions were imposed – $6.4 billion from over $6.9 billion for Aave, and $5.7 billon from $6.5 billion for Uniswap, according to Defi Llama.

This may not be all due to Tornado, as most cryptocurrencies have suffered heavy losses in the past week and the DeFi sector has seen little change in activity – for example, Uniswap says its weekly trading volumes have remained fairly steady at around $8 billion.

“TVL has decreased, but at the same time the price of tokens has decreased,” said Max Krupyshev, CEO of payments provider CoinsPaid. “People didn’t pull money out so much as the value of their investments went down.”

Aave and Uniswap also didn’t respond to requests for comment on mixers.

Graphic: Mixture troubles – https://graphics.reuters.com/FINTECH-CRYPTO/WEEKLY/zdpxozwzlvx/chart.png

BIG CATS PROWL?

While DeFi players may face tough decisions on whether to pull back from mixers, some watchers spy a potential upside for the market should the U.S. measures encourage traditional institutional investors to join the fray.

“Larger institutions may see the sanctions as a step towards legitimacy, potentially giving them more comfort in engaging with or investing in Ethereum and other digital assets,” analysts at digital asset manager Grayscale wrote.

In the immediate future, though, little is certain.

“Illicit” addresses identified by data firm Chainalysis accounted for 23% of funds sent to mixers in 2022, rising from 12% in 2021. As for Tornado Cash specifically, analytics firm Elliptic reported that at least $1.54 billion in criminal proceeds were laundered through the platform.

Arca’s Talati thinks we haven’t seen the end of crackdowns on mixers.

“Tornado Cash is one of the ones that’s been around the longest,” she said. “This isn’t the last thing we’re going to see.”

(Reporting by Lisa Pauline Mattackal in Bengaluru; Editing by Pravin Char)

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Australian govt embarks on crypto stocktake ahead of sector regulation

SYDNEY (Reuters) – Australia said on Monday it would do a virtual stocktake of the country’s cryptocurrency holdings, the first signal from the new centre-left government that it plans to regulate the $1 trillion sector.

Treasurer Jim Chalmers said that his department would undertake “token mapping”, or cataloging the types and uses of digital currency owned within the country, as a first step to identifying which cryptocurrency assets to regulate, and how.

Australia would be the first country in the world to conduct such an exercise, he added in a statement.

“With the increasingly widespread proliferation of crypto assets, to the extent that crypto advertisements can be seen plastered all over big sporting events, we need to make sure customers engaging with crypto are adequately informed and protected,” Chalmers said.

Australia has wrestled for years with the question of how to regulate cryptocurrency – money that is regulated by decentralised computer networks, rather than central banks.

Calls for intervention have increased since 2020 when COVID-19 stimulus payments and home working prompted a surge in the sector’s popularity.

Last year, a Senate inquiry under the previous conservative government recommended wide-ranging regulations to protect cryptocurrency owners, but that administration lost an election this May before any new laws were put in place.

The Australian Securities and Investments Commission has also said it wants the sector regulated, citing its research that found 44% of retail investors held cryptocurrency in late 2021.

Chalmers, the treasurer, did not specify any planned regulations on Monday, but said the token mapping exercise would be “the first step in a reform agenda”.

(Reporting by Byron Kaye; Editing by Jamie Freed)

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Crypto exchange FTX ordered to halt ‘false and misleading’ claims by U.S. bank regulator

WASHINGTON (Reuters) – A U.S. bank regulator ordered crypto exchange FTX on Friday to halt “false and misleading” claims it had made about whether funds at the company are insured by the government.

The Federal Deposit Insurance Corporation said a July tweet by Brett Harrison, head of FTX’s U.S. operations, contained misleading claims that FTX funds and stocks purchased through FTX were FDIC insured, and ordered the company to remove any misleading language from its social media accounts and websites.

(Reporting by Pete Schroeder; Editing by Chris Reese)