Tag: Cryptocurrencies

(Reuters) – Cryptocurrency exchange FTX’s founder has said that bitcoin has no future as a payments network and criticized the digital currency for its inefficiency and high environmental costs, the Financial Times reported on Monday.

Bitcoin, the world’s largest cryptocurrency, is created by a process called “proof of work” that requires computers to “mine” the currency by solving complex puzzles. Powering these computers needs large amounts of electricity.

An alternative to the system is called the “proof of stake” network, where participants can buy tokens that allow them to join the network. The more tokens they own, the more they can mine.

FTX Founder and Chief Executive Sam Bankman-Fried told FT that “proof of stake” networks would be required to evolve crypto as a payments network as they are cheaper and less power hungry.

Blockchain Ethereum, which houses the second-largest cryptocurrency ether, has been working to move to this energy-intensive network.

Bankman-Fried also said he didn’t believe bitcoin had to go as a cryptocurrency, and it may still have a future as “an asset, a commodity and a store of value” like gold, the report said.

Bitcoin touched its lowest since December 2020 last week after the collapse of TerraUSD, a so-called stablecoin.

FTX, which Bankman-Fried co-founded in 2019, was valued at $32 billion in a February funding round, and Bankman-Fried himself is worth $21 billion, according to Forbes.

(Reporting by Shubham Kalia in Bengaluru; editing by Uttaresh.V)

By Steve Scherer and Julie Gordon

OTTAWA (Reuters) – The front-runner to head Canada’s Conservatives and likely challenger to Liberal Prime Minister Justin Trudeau is staging a rare series of attacks on the central bank as inflation soars, in a strategy to win party leadership that could hurt his chances in a general election.

Since February, Pierre Poilievre, a bespectacled 42-year-old suburban Ottawa lawmaker dubbed “Skippy” for his youthful enthusiasm, has marched ahead in the Conservative leadership race by tapping into angst over pandemic restrictions and vaccine mandates.

Instead of targeting any of his five opponents in the leadership race, Poilievre (poh-LEE-ev) has made his attack of the central bank a cornerstone of his campaign as inflation surges to a three-decade high.

But his threat last week to fire Bank of Canada Governor Tiff Macklem if he wins a national election drew criticism from both inside and outside the party.

Former Bank of Canada Governor David Dodge said Poilievre’s onslaught may win him Conservative leadership but would not help him become prime minister.

“Is (Poilievre) damaging the central bank? I don’t think so,” Dodge told Reuters. “Is he damaging himself as a potential prime minister? Absolutely.”

A minister in former Prime Minister Stephen Harper’s government, Poilievre is tapping into Canada’s populist right by blaming “elites” and “gatekeepers” for high living costs while pledging to make Canada “the freest country on earth.”

While economists credit Bank of Canada’s record-low interest rates and aggressive bond-buying program for keeping the economy afloat during pandemic lockdowns, Poilievre says the central bank has become “Trudeau’s ATM” and blames the policies for hot inflation.

The bank has ended its bond-buying program and is in the process of raising rates to cool what it calls an “overheating” economy.

Poilievre declined to be interviewed for this story. The party contest will end with a vote in September, and the next federal election is due in 2025.

Among Conservative voters, 56.5% say they prefer Poilievre compared to 14% for centrist Jean Charest, his closest rival, according to an Ekos Research poll this month.

TRUMP POPULISTS

The attacks come at an awkward moment for the bank, and both Macklem and Senior Deputy Governor Carolyn Rogers have made rare concessions this month, saying high prices may be undermining public trust in the institution. Bank of Canada’s main mandate is to control inflation.

Frank Graves, president of pollster Ekos Research, said Poilievre “is nurturing exactly the same forces that (former U.S. President Donald) Trump nurtured.” Graves calls this voter pool “ordered populists” and says they share the same values on both sides of the border, including a “deep institutional mistrust.”

In February, when protesters railed against vaccine mandates and COVID-19 restrictions, paralyzing Ottawa for three weeks, Poilievre served them coffee and echoed their rage in parliament.

Similar to U.S. Senator Rand Paul’s past push to audit the Federal Reserve Board, Poilievre wants the Bank of Canada bond-buying program to be audited.

Derek Holt, head of capital markets economics at Scotiabank, said he viewed Poilievre’s attacks “as political rhetoric with low probability of policy changes.”

Politicians have taken aim at the Bank of Canada in the past, once in the late 1950s and early 60s, which ended with the bank’s policy-setting independence being enshrined in law, and again in the 1990s by former Liberal Jean Chretien.

Trudeau is defending the bank.

“Canada has one of the most respected central banks in the world, and it is so because of its independence from political actors and political interference,” Trudeau told Reuters in an exclusive interview this month.

Another Poilievre promise is to make Canada the “blockchain capital of the world,” saying alternative currencies like bitcoin will “let Canadians opt out of inflation.”

“That’s total nonsense,” Dodge said. “There is a global economic system … and you can’t sort of stand totally aside from that system.”

(Reporting by Steve Scherer and Julie Gordon in Ottawa; Editing by Richard Chang)

LAGOS (Reuters) – Nigeria’s markets regulator has published a set of regulations for digital assets, signalling Africa’s most populous country is trying to find a middle ground between an outright ban on crypto assets and their unregulated use.

Nigeria’s central bank last year banned banks and financial institutions from dealing in or facilitating transactions in digital currencies.

But the country’s young, tech-savvy population has eagerly adopted cryptocurrencies, for example using peer-to-peer trading offered by crypto exchanges to avoid the financial sector ban.

Nigeria’s Securities and Exchange Commission (SEC) published the “New Rules on Issuance, Offering Platforms and Custody of Digital Assets” on its website.

The 54-page document lays out registration requirements for digital assets offerings and custodians, and classifies the assets as securities regulated by the SEC.

A central bank spokesperson did not answer calls to his mobile phone.

The SEC said no digital assets exchange would be allowed to facilitate trading of assets unless it had received a “no objection” ruling from the commission.

A digital assets exchange will be required to pay 30 million naira ($72,289) as a registration fee, among other fees.

In October, Nigeria launched a digital currency, the eNaira, in the hope of expanding access to banking. Official digital currencies, unlike cryptocurrencies such as bitcoin, are backed and controlled by the central bank.

(Reporting by MacDonald Dzirutwe in Lagos and Camillus Eboh in Abuja; Editing by Mark Potter)

N’DJAMENA (Reuters) – Central Africa’s regional banking regulator sent out a reminder on Friday about its ban on the use of cryptocurrencies, weeks after the Central African Republic, a member state, made bitcoin legal tender.

The Banking Commission of Central Africa (COBAC) – which regulates the banking sector in the six-nation Central African CEMAC zone – said the prohibition was meant to ensure financial stability.

The announcement came as cryptocurrencies nursed large losses on Friday after the collapse of TerraUSD, a so-called stablecoin, rippled through markets.

The Central African Republic’s presidency announced on April 27 that bitcoin had been made legal tender, making it only the second country in the world to do so after El Salvador.

At the time, analysts and crypto experts said they were puzzled by the move in one of world’s poorest nations where internet use is low, conflict is widespread and electricity is unreliable.

The government has provided few details about its reasoning and could not immediately be reached for comment on Friday.

The banking commission held a special meeting on May 6 to examine the impact of cryptocurrencies in the zone, it said in the statement issued on Friday.

“In order to guarantee financial stability and preserve client deposits, COBAC recalled certain prohibitions related to the use of crypto-assets in CEMAC,” it said.

These include the holding of cryptocurrencies of any kind, the exchange, conversion or settlement of transactions relating to cryptocurrencies and a bar on them being used as a means of evaluating assets or liabilities, it said.

“COBAC has decided to take a number of measures aimed at setting up a system for identifying and reporting operations related to cryptocurrencies,” it added.

(Reporting by Mahamat Ramadane; Writing by Nellie Peyton; Editing by Bate Felix and Andrew Heavens)

By Alun John and Elizabeth Howcroft

SINGAPORE/HONG KONG/LONDON (Reuters) – Cryptocurrencies nursed large losses on Friday, with bitcoin just above $30,000 and set for a record losing streak after the collapse of TerraUSD, a so-called stablecoin, rippled through cryptocurrency markets.

Crypto assets have also been swept up in broad selling of risky investments on worries about high inflation and rising interest rates. Sentiment is particularly fragile, as tokens supposed to be pegged to the dollar have faltered.

Bitcoin, the largest cryptocurrency by total market value, managed to bounce in the Asia session and traded at $30,335 at 0843 GMT. It has staged something of a recovery from a 16-month low of around $25,400 reached on Thursday.

But it remains far below week-ago levels of around $40,000 and, unless there is a rebound in weekend trade, is headed for a record seventh consecutive weekly loss.

“I don’t think the worst is over,” said Scottie Siu, investment director of Axion Global Asset Management, a Hong Kong based firm that runs a crypto index fund.

“I think there is more downside in the coming days. I think what we need to see is the open interest collapse a lot more, so the speculators are really out of it, and that’s when I think the market will stabilize.”

BEYOND BITCOIN

Crypto-related stocks have taken a pounding, with shares in broker Coinbase steadying overnight but still down by half in little more than a week.

In Asia, Hong Kong-listed Huobi Technology and BC Technology Group, which operate trading platforms and other crypto services, eyed weekly drops of more than 20%.

But broader financial markets have so far seen little knock-on effect from the cryptocurrency crash.

“Crypto is still tiny and crypto integration within broader financial markets is still infinitesimally small,” said James Malcolm, head of FX strategy at UBS.

“This idea that what goes on in crypto stays in crypto – that’s in many ways where we still are at the moment.”

STABLECOIN SQUEEZE

Selling has roughly halved the global market value of cryptocurrencies since November, but the drawdown has turned to panic in recent sessions with the squeeze on stablecoins.

Stablecoins are tokens pegged to the value of traditional assets, often the U.S. dollar, and are the main medium for moving money between cryptocurrencies or to convert balances to fiat cash.

Cryptocurrency markets were rocked this week by the collapse of TerraUSD (USDT), which broke its 1:1 peg to the dollar.

The coin’s complex stability mechanism, which involved balancing with a free-floating cryptocurrency called Luna, stopped working when Luna came under selling pressure. TerraUSD last traded around 15 cents, while Luna plunged close to zero.

Tether, the biggest stablecoin and one whose developers say is backed by dollar assets, has also come under pressure and fell to 95 cents on Thursday, according to CoinMarketCap data, but was back at $1 on Friday.

“Over half of all bitcoin and ether traded on exchanges are versus a stablecoin, with USDT or Tether taking the largest share,” analysts at Morgan Stanley said in a research note.

“For these types of stablecoins, the market needs to trust that the issuer holds sufficient liquid assets they would be able to sell in times of market stress.”

Tether’s operating company says it has the necessary assets in Treasuries, cash, corporate bonds and other money-market products.

But Tether is likely to face further tests if traders keep selling, and analysts are concerned that stress could spill over into money markets if pressure forces more and more liquidation.

Ratings agency Fitch said in a note on Thursday that there could be “significant negative repercussions” for cryptocurrencies and digital finance if investors lose confidence in stablecoins.

“Many regulated financial entities have increased their exposure to cryptocurrencies, defi and other forms of digital finance in recent months, and some Fitch-rated issuers could be affected if crypto market volatility becomes severe,” it said.

However, Fitch said that weak links between crypto markets and regulated financial markets will limit the potential of crypto market volatility to cause wider financial instability.

(Reporting by Tom Westbrook and Alun John; Editing by Bradley Perrett and Emelia Sithole-Matarise)

HONG KONG (Reuters) – Nomura has begun offering bitcoin over-the-counter derivatives to clients, it said Friday, the latest move by a traditional financial institution into the cryptocurrency industry, even as markets are in turmoil.

The trades, executed on the CME by crypto asset trading firm Cumberland DRW this week, were the Japanese investment bank’s first digital asset trades, said Nomura’s head of markets, Asia ex-Japan, Rig Karkhanis in a statement.

“Working with institutional-grade counterparties will allow us to scale into the increasing demand from our clients,” he said.

Many global investment banks have been looking to offer clients more crypto related services, responding they say to demand from institutional investors and private clients for access to what had been a fast growing sector.

However, crypto markets have tumbled this week as a meltdown in TerraUSD, one of the world’s largest stablecoins, sent digital tokens, already swept up in a sell-off of riskier assets, into meltdown.

Bitcoin hit a 16-month low of around $25,400 on Thursday.

(Reporting by Alun John; Editing by Kim Coghill)

By Elizabeth Howcroft, Gertrude Chavez-Dreyfuss and Hannah Lang

LONDON/NEW YORK (Reuters) – The meltdown in TerraUSD, one of the world’s largest stablecoins, rippled through cryptocurrency markets on Thursday, pushing another major stablecoin Tether below its dollar peg and sending bitcoin to 16-month lows.

Cryptocurrencies have been swept up in a sell-off in risk assets, which has picked up steam this week as data showed U.S. inflation running hot, deepening investor fears about the economic impact of aggressive central bank tightening.

The sell-off has taken the combined market value of all cryptocurrencies to $1.2 trillion, less than half of where it was last November, based on data from CoinMarketCap.

Tether, a reserve-backed stablecoin which is supposed to be pegged 1:1 to the U.S. dollar, dropped to as low as 95 cents earlier in the global session, according to CoinMarketCap price data. It was last at 99 cents.

Despite the volatility, U.S. Treasury Secretary Janet Yellen said stablecoins like Tether and TerraUSD do not yet pose a systemic risk to the financial system.

“I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks we have known for centuries in connection to bank runs,” she said during a House Financial Services Committee hearing.

Bitcoin, the largest cryptocurrency by market cap, hit a low of $25,401.05 on Thursday, its lowest level since Dec. 28, 2020. It was last down 0.9% at $28,751.

In the past eight sessions, it has lost more than a quarter of its value, or around $10,700, and is down 37% so far this year, trading far below the peak of $69,000 it hit in November 2021.

Bitcoin’s correlation with the Nasdaq composite has been on the rise recently and is now up near its all time highest level, based on Refinitiv data. The Nasdaq composite has tumbled around 8% so far this month.

Ether, the world’s second-largest cryptocurrency, fell to its lowest since June 2021, sinking as low as $1,700.

Unlike previous financial market sell-offs, when cryptocurrencies have been largely untouched, the latest selling pressure in digital currencies has undermined the broader argument that they are dependable stores of value amid market volatility.

NOT-SO-STABLECOINS

Stablecoin TerraUSD has been hit by the turmoil and broke its peg to the U.S. dollar, which led to it falling as low as 31 cents on Wednesday. On Thursday it was trading around 38 cents.

“Unfortunately, the fallout from this situation goes beyond the material losses sustained by investors,” said Anto Paroian, chief operating officer at crypto asset hedge fund ARK36.

“The de-pegging will likely result in a substantial regulatory risk – if not for the whole crypto space, then certainly for the stablecoins market.”

Stablecoins are digital tokens pegged to the value of traditional assets, such as the U.S. dollar. But TerraUSD is an algorithmic, or “decentralised”, stablecoin, and was supposed to maintain its dollar peg through a complex mechanism which involved swapping it with another free-floating token.

On Thursday, Terra developers halted the network’s blockchain to prevent attacks following the collapse of its algorithmic stablecoin and the related Luna token. The Terra blockhain, however, has since restarted.

The non-profit Luna Foundation is an affiliate of Terraform Labs, the company behind the TerraUSD.

Even stablecoins backed by traditional assets were showing signs of stress on Thursday.

Tether slipped below its 1:1 dollar peg, hitting a low of 95 cents around 0724 GMT on Thursday, based on CoinMarketCap data.

Paolo Ardoino, Tether’s chief technology officer, said in a Twitter Spaces chat that the stablecoin had reduced its exposure to commercial paper over the last six months and now holds the majority of its reserves in U.S. Treasuries.

Tether is the largest stablecoin by market cap, and, along with USD Coin and Binance USD, they account for almost 87% of the total $169.5 billion stablecoin market, according to CoinMarketCap.

The large number of centralised cryptocurrency exchanges and decentralised venues, each with their own liquidity profile and credit risk, was adding to price distortions across the market, Denis Vinokourov, head of research at Corinthian Digital Asset Management, said.

“The spillover effects into other stablecoins is in part driven by the fragmented nature of the market,” Vinokourov said.

Market players are still assessing the impact of TerraUSD’s troubles on investors.

In its biannual Financial Stability Report on Tuesday, the U.S. Federal Reserve warned that stablecoins are vulnerable to investor runs because they are backed by assets that can lose value or become illiquid in times of market stress.

Graphic – Bitcoin: https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoyaeyvr/Pasted%20image%201652338434667.png

(Reporting by Elizabeth Howcroft, Samuel Indyk, and Saikat Chatterjee in London, and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Hannah Lang in Washington; Editing by Clarence Fernandez, Bradley Perrett, Kim Coghill, Jane Merriman and Bernard Orr)

By Marc Jones and Katanga Johnson

LONDON/WASHINGTON (Reuters) – A top official at the U.S. Securities and Exchange Commission (SEC) signalled on Thursday that stricter rules around crypto stablecoins could be drawing closer.

Cryptocurrency markets have an overall value of about $1 trillion this week amid the collapse of the stablecoin TerraUSD and a destabilising plunge in Tether, currently the world’s largest stablecoin by market cap.

Stablecoins are digital currencies whose values are pegged to traditional assets like the dollar.

Referring to tighter regulations, “one place we might see some movement is around stablecoins,” SEC Commissioner Hester Peirce said during an online panel debate hosted by the London-based Official Monetary and Financial Institutions Forum policy think tank.

“That’s an area that has obviously this week gotten a lot of attention,” added Peirce, underscoring the potential that stablecoins can have future use in the marketplace builds.

She added that the SEC has an opportunity to capture digital currencies, and the technology platforms where they are traded, under the agency’s broad rulemaking authority.

U.S. Treasury Secretary Janet Yellen told a Senate banking panel this week that the turmoil in crypto markets illustrated the need for an “appropriate” regulatory framework.

President Joe Biden in March issued an executive order requiring the government to assess the risks and benefits of creating a central bank digital dollar, as well as other cryptocurrency issues.

The SEC’s chair, Gary Gensler, has said that the agency should address stablecoin risks as the asset-linked cryptocurrencies raise concerns related to financial stability and monetary policy around features that are similar to and potentially compete with bank deposits and money market funds.

He has also said there are issues on their potential use for illicit activity.

But on Thursday, Peirce, the SEC’s lone Republican commissioner, said potential regulation should make room for a “trial-and-error” regulatory framework, saying that “some people have suggested that should be at the SEC; other people want it to be the banking regulators.

“There are different potential options for approaching stablecoins…and with experimentation, we need to allow room for there to be failure.”

(Reporting by Marc Jones in London and Katanga Johnson in Washington; Editing by Hugh Lawson and Leslie Adler)

By Elizabeth Howcroft

LONDON (Reuters) – Most cryptocurrencies have a major problem with price volatility, but one sub-category of coins is designed to maintain a constant value: stablecoins.

As cryptocurrency prices plummeted this week, with bitcoin losing around a third of its value in just eight days, stablecoins were supposed to be isolated from the chaos.

But an unexpected collapse in the fourth-largest stablecoin TerraUSD, which broke from its 1:1 dollar peg, has brought the asset class under renewed attention.

Here’s what you need to know:

WHAT ARE STABLECOINS?

Stablecoins are cryptocurrencies designed to be protected from the wild volatility that makes it difficult to use digital assets for payments or as a store of value.

They attempt to maintain a constant exchange rate with fiat currencies, for example through a 1:1 U.S. dollar peg.

HOW IMPORTANT ARE THEY?

Stablecoins have a market cap of around $170 billion, making them a relatively small part of the overall cryptocurrency market, which is currently worth around $1.2 trillion, according to CoinMarketCap data.

But they have surged in popularity in recent years. The largest stablecoin, Tether, has a market cap of around $80 billion, having surged from just $4.1 billion at the start of 2020.

The No.2 stablecoin, USD Coin, has a market cap of $49 billion, according to CoinMarketCap data.

While data on the specific uses of stablecoins is hard to come by, they play a crucial role for cryptocurrency traders, allowing them to hedge against spikes in bitcoin’s price or to store idle cash without transferring it back into fiat currency.

In its biannual financial stability report on Tuesday, the U.S. Federal Reserve https://www.federalreserve.gov/publications/files/financial-stability-report-20220509.pdf warned stablecoins are increasingly used to facilitate leveraged trading in other cryptocurrencies.

From 2018 onwards, stablecoins have increasingly been used in international trade and as a way to avoid capital controls, says Joseph Edwards, head of financial strategy at crypto firm Solrise. The stablecoin Tether in particular is used for trade in and around China and South America, he said.

HOW DO THEY WORK?

There are two main types of stablecoin: those which are backed by reserves comprising assets, such as fiat currency, bonds, commercial paper, or even other crypto tokens, and those which are algorithmic, or “decentralised”.

Major stablecoins such as Tether, USD Coin and Binance USD are reserve-backed: they say that they hold enough dollar-denominated assets to maintain an exchange rate of 1:1.

The companies say that one of their stablecoins can always be exchanged for one dollar.

Asset-backed stablecoins have come under pressure in recent years to be transparent about what is in their reserves and whether they have sufficient dollars to back up all the digital coins in circulation.

Meanwhile TerraUSD is an algorithmic stablecoin. This means it does not have reserves. Instead, its value was supposed to be maintained by a complex mechanism involving swapping TerraUSD coins with a free-floating cryptocurrency called Luna to control supply.

WHAT CAN GO WRONG?

TerraUSD’s stability mechanism stopped working this week when investors lost faith in Luna, amid a broader downturn in cryptocurrency markets. TerraUSD’s price crashed to as low as 30 cents.

In theory, asset-backed stablecoins should hold firm despite this.

But Tether also broke away from its dollar peg for the first time since 2020 on Thursday, dropping to as low as 95 cents.

Tether sought to reassure investors, saying on its website that holders were still able to redeem their tokens at the 1:1 rate.

WHAT DO REGULATORS SAY?

While regulators globally are trying to establish rules for the cryptocurrency market, some have highlighted stablecoins as a particular risk to financial stability – for example, if too many people tried to cash out their stablecoins at once.

In its stability report, the Fed warned that stablecoins are vulnerable to investor runs because they are backed by assets that can lose value or become illiquid in times of market stress. A run on the stablecoin could therefore spill over into the traditional financial system by creating stress on these underlying assets, it said.

(Reporting by Elizabeth Howcroft; Editing by Michelle Price and Lisa Shumaker)

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said that she believes the Federal Reserve can bring down inflation without causing a recession because of a strong U.S. job market and household balance sheets, low debt costs and a strong banking sector

Yellen told a U.S. House of Representatives Financial Services Committee hearing on Thursday that “all of those things suggest that the Fed has a path to bring down inflation without causing a recession, and I know it will be their objective to try to accomplish that.”

(Reporting by David Lawder; Editing by Andrea Ricci)

NEW YORK (Reuters) – Chainalysis, the New York-based blockchain data platform company, said on Thursday it had raised $170 million of new funding, bringing its valuation to $8.6 billion.

The funding round, its sixth since the company’s launch, was led by GIC, Singapore’s sovereign wealth fund. Previous investors such as Blackstone, Bank of New York Mellon, and venture capital firm Accel also participated.

“There is a whole transformation happening where the world of finance’s operating systems are moving to crypto. Our company will have a big opportunity in this market,” Michael Gronager, Chainalysis co-founder and chief executive officer told Reuters in a phone interview.

“We are growing in regions such as Europe and Asia-Pacific. So far up until now, we had basically no presence in South America, so that is another growth area for us. Clearly, we’re investing in international expansions,” he added.

While government agencies have long acknowledged the importance of blockchain data and analysis, demand has reached new highs in the past year for risk management and business intelligence products from exchanges, decentralized finance platforms, and financial institutions entering the cryptocurrency space, Chainalysis said in a statement.

Crypto’s increasing adoption and acceptance have also led to greater regulatory scrutiny, furthering demand from institutional users for Chainalysis services.

GIC and BNY Mellon confirmed their investment in Chainalysis in a statement. Blackstone and Accel also confirmed their investments in separate e-mails to Reuters.

“Chainalysis is in a unique position of running an SaaS (software as a service) business in the cryptocurrency space due to the stability of its business model as well as the increasing demand for trust and safety in the overall industry,” said Choo Yong Cheen, chief investment officer of private equity at GIC.

SaaS is also referred to as “on-demand” software.

BNY Mellon said its investment in Chainalysis was a “natural progression” of an already established and “productive alliance”.

In June last year, Chainalysis raised $100 million, led by investment firm Coatue.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Mark Potter)

By Marc Jones and Alun John

LONDON/HONG KONG (Reuters) – Global market regulators are likely to launch a joint body within the next year to better co-ordinate cryptocurrency rules, a senior watchdog official has said.

Ashley Alder, chair of the International Organization of Securities Commissions (IOSCO) said the boom in digital currencies such as bitcoin was one of the three main areas authorities were now focused on, alongside COVID and climate change.

“If you look at the risks we need to address, they are multiple and there is a wall of worry about this (crypto) in the conversations at an institutional level,” Alder said during an online conference organised by the OMFIF thinktank on Thursday.

He cited cyber security, operational resilience, and a lack of transparency in the crypto world as the key risks that regulators are lagging behind on.

Focus on crypto markets has intensified again this week amid more wild volatility that has long-alarmed watchdogs.

The collapse of so-called ‘stablecoin’ TerraUSD saw the chairman of the Senate Banking Committee on Wednesday urge U.S. lawmakers to toughen up crypto regulations, while bitcoin has also slumped nearly 20% this week.

Alder said a global group that tried to align crypto rules was clearly needed, likening it to various set-ups already in place for climate finance, including one under the G20 group of leading economies.

“There isn’t anything like that for crypto at the moment,” said Alder, who is also CEO of Hong Kong’s Securities and Futures Commission.

“But I do think now it’s seen as one of the three C’s (COVID, climate and crypto) so it’s very, very important. It has gone up the agenda, so I would not expect that to be the case the same time next year.”

(Reporting by Marc Jones in London and Alun John in Hong Kong; editing by Jason Neely)

(Reuters) – Bitcoin fell 7.23% to $28,758.29 at 22:05 GMT on Wednesday, losing $2,241.68 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down 40.4% from the year’s high of $48,234 on March 28.

Ether, the coin linked to the ethereum blockchain network, dropped 11.56% to $2,071.46 on Wednesday, losing $270.66 from its previous close.

(Reporting by Anirudh Saligrama in Bengaluru; Editing by Chris Reese)

By David Randall

NEW YORK (Reuters) – A collapse in cryptocurrency company Coinbase Global Inc pushed star stock picker Cathie Wood’s ARK Innovation ETF down nearly 8% on Wednesday, putting it within 10% of its low touched in March 2020 at the start of the coronavirus pandemic.

Coinbase, the fund’s second-largest holding at nearly 7% of assets, fell more than 28% to record lows Wednesday after the company missed first-quarter estimates and its chief executive said the company had no risk of bankruptcy.

The declines in Coinbase added to the pain for Wood’s ARK Innovation fund this year.

ARK did not respond to a request for comment.

The fund outperformed all other actively managed U.S. equities in 2020 on the strength of its portfolio of companies such as Zoom Video Communications Inc and Teladoc Health Inc that rallied during the pandemic-induced economic lockdowns.

That strong performance made Wood a household name and led to appearances on magazine covers and billions of dollars in inflows from retail investors, though some now consider her the poster child for the so-called pandemic bubble.

ARK is down nearly 60% for the year to date, and nearly 76% below its high in February 2021. It traded at $37.98 at mid-afternoon, 8.6% above its low of $34.69 hit in March 2020 before the Federal Reserve and Congress unleashed an unprecedented $5.2 trillion to support the economy.

In a webinar Tuesday, Wood blamed much of the fund’s losses on the Fed taking a too-aggressive path of rate hikes at a time when the global economy is in what she believes is a recession.

But other investors disagree. Matthew Tuttle, whose $460 million Tuttle Capital Short Innovation Fund shorts ARK’s portfolio, blamed Wood’s losses on “multiple compression.”

“These companies make no money, in a zero interest rate environment they can, and do, command high multiples (but) in a rising rate environment they don’t,” he said.

(Reporting by David Randall; Editing by Richard Chang)

(Reuters) – Binance on Wednesday named Joshua Eaton, a former Deputy U.S. Attorney in the Northern District of California, as the deputy general counsel of the world’s largest cryptocurrency exchange.

Eaton will be responsible for Binance’s legal affairs, leading the support for global compliance, investigations and law enforcement coordination activities, the company said in a statement.

Legal troubles have plagued Binance lately, which won a dismissal on a lawsuit over digital token sales in late March. Investors had sued the company for violating U.S. securities laws by selling unregistered tokens and failing to register as an exchange or broker-dealer.

Over his 20-year long career with the Department of Justice (DOJ) and the U.S. Army, Eaton was instrumental in developing standard-bearing ethics and compliance practices, Binance’s General Counsel Hon Ng said.

(Reporting by Sohini Podder in Bengaluru; Editing by Shinjini Ganguli)

(Reuters) – The chief executive of Coinbase said a disclosure in its latest quarterly filing did not indicate the cryptocurrency exchange operator faced a bankruptcy risk and it had been made to meet a U.S. Securities and Exchange Commission (SEC) requirement.

Brian Armstrong made his comments after Coinbase said on Tuesday that, in the event of bankruptcy, crypto assets held by the exchange could be considered property of the bankruptcy proceedings and customers could be treated as general unsecured creditors.

An unsecured creditor would be one of the last to be paid in any bankruptcy and last in line for claims.

Coinbase, whose shares plunged 15% in extended trade on Tuesday, also missed estimates for first-quarter revenue and posted a loss as turmoil in global markets curbed investor appetite for higher risk assets including cryptocurrencies.

Coinbase, the largest U.S. cryptocurrency exchange, said its disclosure might lead customers to believe that keeping their coins on the platform would be considered “more risky”, which would in turn materially impact its financial position.

“We have no risk of bankruptcy,” Armstrong wrote on Twitter after the disclosure, which he said was made to meet SEC requirements.

He said it was unlikely that “a court would decide to consider customer assets as part of the company in bankruptcy proceedings”, although he said it was still possible.

He said Coinbase would take further steps to ensure it offered protection for its retail customers.

“We should have updated our retail terms sooner, and we didn’t communicate proactively when this risk disclosure was added,” Armstrong said. “My deepest apologies.”

(Reporting by Akriti Sharma in Bengaluru; Editing by Edmund Blair)

By Huw Jones

LONDON (Reuters) – Blockchain needs its own music industry ‘MP3’ moment as fragmented regulation and technology hamper the development of a digital securities industry that could help realise its full potential, industry officials said.

Blockchain, or distributed ledger technology (DLT), underpins cryptoassets like bitcoin and allows many parties to access a single version of data at the same time.

But extending its application to issuing, trading and settling securities like stocks and bonds requires a common digital format for the securities themselves, said Gerd Hartung, head of new digital markets at Deutsche Boerse.

“The real topic is how do we get to the MP3 digital format you see in the music industry. The next level we are getting to is digitisation of the financial instrument itself,” he said.

The digital MP3 file format, with its inferior audio quality, did not look like a disruptive technology until the arrival of MP3 players and streaming systems dramatically altered the music industry, removing a slew of middle men and almost all the barriers to entry faced by an artist.

A similar pivot in financial markets would allow an instrument to be issued in hours rather than days or weeks, better targeting specific markets and taking advantage of windows of calm to reach more investors faster and free of data errors, industry officials say.

But it would also challenge banks’ dominant position in the revenue chain for issuing and trading securities.

A further step from pilot project to live markets came this week with the launch of LedgerEdge, described as the first regulated, DLT-based corporate bond platform.

“Everyone is looking for greater clarity on the regulatory definition of digital assets,” said David Nicol, chief executive and co-founder of LedgerEdge.

But with many elements yet to fall into place, Arjun Jayaram, founder and chief executive of blockchain company Baton Systems, warned there was unlikely to be a “big bang” moment.

Banks still use “very old” technology, making it harder to interface with DLT platforms, he said, while Javier Hernani, head of securities services at SIX which runs the Zurich and Madrid stock exchanges, said hooking up to blockchain was a cost that needed to be phased in.

Hernani also pointed to the need for digital versions of currencies such as the dollar, euro or sterling to speed up payment and achieve the full benefits of DLT, something the relevant central banks have yet to decide on, let alone launch.

Instead a “bridge” would be needed to allow digitised assets to be traded, but paid for in fiat currencies, he suggested.

Regulators also need time to get to grips with the new technology, with the European Union and Britain preparing to test DLT in market infrastructure.

“We intend to have this up and running next year, and if it teaches us that we need to update the relevant legislation, then we will do that too,” Britain’s financial services minister John Glen said in a speech last month.

The EU said its pilot regime would allow policymakers to identify obstacles in regulation.

PARALLEL SYSTEMS

HSBC and Wells Fargo are already using blockchain from Baton Systems to settle bilateral foreign currency trades, and in July Deutsche Boerse will use its digital central register to offer same day-issuance and paperless processing for digitised certificates and warrants in its Clearstream settlement arm.

“We have done the proof of concepts in the past, but now it’s really about bringing the real, fully-fledged financial, digital market infrastructure in place, and that needs to be productive and scalable,” Hartung said.

Rival Euroclear has joined blockchain consortium Fnality – backed by banks including Santander, Barclays, Credit Suisse, MUFG and UBS – which is aiming to open a payments account for tokenised assets at the Bank of England in October.

Meanwhile, the U.S. Depository Trust & Clearing Corp’s platform that leverages DLT is moving to a development phase for same-day settlement of securities trades, compared with two days at present.

Consultants estimate potential savings of 50% from using blockchain in areas like settlement, mainly through cutting time-consuming ‘reconciliation’ or the fixing of mismatches in transaction data.

Faster completion of trades also means less risk and therefore less capital tied up in backing transactions.

Looking at the derivatives market, Deloitte estimates a “single shared version of trade data” could reduce costs by one-third.

Combining DLT with a machine-readable blueprint for how derivatives are managed and traded could cut the cost base for derivatives dealers by $3.2 billion, it says.

SIX, which launched a digital bond in November, senses progress this year.

“We are going from proof of concept to the real world, slowly,” the company’s Hernani said.

“We will continue to see some real business, but still in the small numbers. I think there will be parallel systems for a while.”

(Reporting by Huw Jones; Editing by Kirsten Donovan)

By Hannah Lang

WASHINGTON (Reuters) – On Tuesday, bitcoin fell briefly below $30,000 for the first time in 10 months, while cryptocurrencies overall have lost nearly $800 billion in market value in the past month, according to data site CoinMarketCap, as investors fret about tightening monetary policy.

Compared with the Fed’s last tightening cycle which began in 2016 crypto is a much bigger market, raising concerns about its interconnectivity with the rest of the financial system.

HOW BIG IS THE CRYPTOCURRENCY MARKET?

In November, the most popular cryptocurrency, bitcoin, hit an all-time high of more than $68,000, pushing the value of the crypto market to $3 trillion, according to CoinGecko. That figure was $1.51 trillion on Tuesday.

Bitcoin accounts for nearly $600 billion of that value, followed by ethereum, with a $285 billion market cap.

Although cryptocurrencies have enjoyed explosive growth, the market is still relatively small.

The U.S. equity markets, for example, are worth $49 trillion while the Securities Industry and Financial Markets Association has pegged the outstanding value of U.S. fixed income markets at $52.9 trillion as of the end of 2021.

WHO OWNS AND TRADES CRYPTOCURRENCIES?

Cryptocurrency started out as a retail phenomenon, but institutional interest from exchanges, companies, banks, hedge funds and mutual funds is growing fast.

While data on the proportion of retail versus institutional investors in the crypto market is hard to come by, Coinbase, the world’s largest cryptocurrency exchange, said institutional and retail investors each accounted for about 50% of the assets on its platform in the fourth quarter.

Its institutional clients traded $1.14 trillion in crypto in 2021, up from just $120 billion in 2020, Coinbase said.

Most of the bitcoin and ethereum in circulation is held by a select few. An October report from the National Bureau of Economic Research (NBER) found that 10,000 bitcoin investors, both individuals and entities, control about one-third of the bitcoin market, and 1,000 investors own approximately 3 million bitcoin tokens.

Approximately 14% of Americans were invested in digital assets as of 2021, according to University of Chicago research.

COULD A CRYPTO CRASH HURT THE FINANCIAL SYSTEM?

While the overall crypto market is relatively small, the U.S. Federal Reserve, Treasury Department and the international Financial Stability Board have flagged stablecoins – digital tokens pegged to the value of traditional assets – as a potential threat to financial stability.

Stablecoins are mostly used to facilitate trading in other digital assets. They are backed by assets that can lose value or become illiquid in times of market stress, while the rules and disclosures surrounding those assets and investors’ redemption rights are murky.

That could make stablecoins susceptible to a loss of investor confidence, particularly in times of market stress, regulators have said.

That happened on Monday, when TerraUSD, a major stablecoin, broke its 1:1 peg to the dollar and fell as low as $0.67, according to CoinGecko. That move partly contributed to bitcoin’s fall.

Although TerraUSD maintains its tie to the dollar through an algorithm, investor runs on stablecoins that maintain reserves in assets like cash or commercial paper could spill over into the traditional financial system, causing stress in those underlying asset classes, say regulators.

With more companies’ fortunes tied to the performance of crypto assets and traditional financial institutions dabbling more in the asset class, other risks are emerging, say regulators. In March, for example, the Acting Comptroller of the Currency warned that banks could be tripped up by crypto derivatives and unhedged crypto exposures, given they are working with little historical price data.

Still, regulators overall are divided on the size of the threat a crypto crash poses to the financial system and broader economy.

(Reporting by Hannah Lang in Washington; Editing by Michelle Price and Matthew Lewis)

By Alun John

HONG KONG (Reuters) – TerraUSD, one of the world’s largest stablecoins, lost a third of its value on Tuesday, spooking cryptocurrency investors and partly contributing to bitcoin’s tumble below $30,000 for the first time in 10 months.

Stablecoins are digital tokens pegged to the value of traditional assets, such as the U.S. dollar. They are popular as safe havens in times of turmoil in crypto markets and are a common medium of exchange, often used by traders to move funds around and speculate on other cryptocurrencies.

TerraUSD, also known as ‘UST’, is a so-called algorithmic stablecoin, one of the largest by market capitalisation. On Tuesday it broke its 1:1 peg to the dollar and fell as low as 67 cents, according to price site CoinGecko.

The token shot to prominence earlier this year when non-profit Luna Foundation Guard, an affiliate of Terraform Labs, the company behind TerraUSD, pledged to amass $10 billion worth of bitcoin to support its dollar peg.

By Tuesday afternoon TerraUSD had rebounded slightly to 91 cents and was ranked as the world’s 10th largest cryptocurrency by market cap, according to CoinGecko.

Unlike other stablecoins that have reserves in traditional assets, TerraUSD maintains its peg through an algorithm that moderates supply and demand in a complex process involving the use of another balancing token, Luna.

Luna Foundation Guard said in a tweet on Monday that it would defend TerraUSD’s dollar peg through $1.5 billion in loans to over-the-counter trading firms, half in bitcoin and half in TerraUSD.

Luna Foundation Guard and Terraform Labs could not be reached for comment.

Justin d’Anethan institutional, sales director at Amber Group, said the use of bitcoin as a reserve had created a vicious cycle for TerraUSD, with sell-offs in both tokens driving the other lower.

“Bitcoin is going down as it’s being sold to defend an ecosystem that is suffering, the ecosystem suffering is creating even more panic on (TerraUSD), which is weighing on the Luna token, which requires the foundation to use more reserves to supplement and defend the peg,” he added.

“It’s not a fun situation to be in.”

In its biannual Financial Stability Report on Tuesday, the U.S. Federal Reserve warned that stablecoins are vulnerable to investor runs because they are backed by assets that can lose value or become illiquid in times of market stress.

“Additionally, the increasing use of stablecoins to meet margin requirements for levered trading in other cryptocurrencies may amplify volatility in demand for stablecoins and heighten redemption risks,” it added.

CRYPTO JITTERS

Stablecoins as an asset class have generally benefited from market volatility in crypto markets. Three stablecoins are now in the top 10 cryptocurrencies by market capitalisation, with TerraUSD ranked eleventh.

Other major stablecoins, such as Tether and USDC, say they are backed by real assets and thus not vulnerable to the same problems that have hit TerraUSD.

But the broader cryptocurrency market has taken a hit in line with falls in traditional financial markets.

Bitcoin fell below $30,000 early Tuesday for the first time since July 2021, weakening alongside other traditional “risk off” assets such as tech stocks, but also weighed by the TerraUSD sell-off.

The world’s most widely held cryptocurrency also rebounded slightly by Tuesday afternoon to $31,272, according to Coingecko.

These drops in the face of weakening risk appetite counter the view among some crypto enthusiasts that cryptocurrencies are a store of value, akin to gold.

Bitcoin has lost more than half its value since it hit an all-time high of $69,000 in November 2021.

Analysts at Singapore’s QCP Capital said in a note that while bitcoin was currently holding at a key support level, “there is material tail risk from the (TerraUSD) de-peg along with macro concerns.”

Graphic – Bitcoin: https://fingfx.thomsonreuters.com/gfx/mkt/znvnemaonpl/bitcoin.JPG

(Reporting by Alun John in Hong Kong, additional reporting by Elizabeth Howcroft in London and Michelle Price in Washington; Editing by Sam Holmes, Louise Heavens and Richard Chang)