Why bitcoin bulls are running for cover

By Gary McFarlane | Fri, 25th May 2018 - 14:17

Bitcoin is languishing at $7,500 as the anticipated post New York Blockchain Week surge
failed to wing. The next support levels could be at around $6,600 marked by the low in
early April, as bulls run for cover.

It would appear a number of factors may have conspired to trigger renewed selling, dating
back to the problems at the South Korean exchanges Bithumb and UpBit that surfaced
following a raid by the authorities on the latter two weeks ago.

That rekindled fears about a regulatory clampdown, and that train of thought has been
strengthened by the news the US Justice Department has opened a criminal investigation
into price manipulation in the crypto markets.

US and UK regulators go hunting for price manipulators and ICO

fraudsters
Practices outlawed in mainstream equity markets are allegedly widespread in bitcoin and
other crypto markets, but crypto exchange surveillance systems are unlikely to be strong
enough to identify problems let alone rectify them.

Bloomberg reports that the Justice Department and the Commodity Futures Trading
Commission are working together on the investigation, which apparently is targeting
activities such as spoofing, where traders make orders they have no intention of following
through on in order to create a false impression of buying and selling activity, and thereby
effecting price manipulation.

Not mentioned in the Bloomberg report is what is thought to be one of the most rampant
forms of manipulation - the "pump and dump".

Pump and dump schemes involve traders acting "in consort" to encourage others to buy a
coin, often by buying low themselves, then spreading rumours about some imminent
positive news flow.

As the price starts to rise the conspiring traders dump their coins forcing the price into a
decline in which the unsuspecting lose money.

With such immature markets where liquidity can be thin, especially among the smaller
coins, manipulation may be fairly easy to accomplish.
Also, there is a thin line between the fact that some coins, including bitcoin, are
comparatively tightly held, which means that the perfectly legitimate actions of relatively few
sellers and buyers can have an outsized impact on the market price and outright dishonest
manipulation.

John McAfee, the tech entrepreneur and fan of crypto, was accused at the end of last year
of orchestrating pump and dump schemes with his "Coin of the Day" tweets, which led to
spikes in the prices of the coins he named.

Many 'pump and dump' and other forms of price manipulation schemes are organised
through messaging apps such as Telegram.

Many of the groups are legitimate, but it is difficult to sift the good from the bad. Wash
trading, where investors "buy" shares they already own to give a false impression of trading
activity in a coin, is also thought to be prevalent in the industry. Greater oversight from
regulators is, to say the least, overdue.

Earlier in the week, the Wall Street Journal revealed that US and Canadian regulators are
working together to close fraudulent initial coin offerings (ICOs). The plan, called Operation
Cryptosweep, has 70 open operations and another 35 pending.

Joseph Borg, president of the North American Securities Administration Association said in
comments highlighting the extent of the investigations, that "the action announced today is
just the tip of the iceberg".

The first results of that clampdown are seen in moves by state securities regulators in
California and Alabama, with cease-and-desist orders issued a couple of days ago to
ShipChain, a logistics blockchain project in California, and Extrabit, LEV and Platinum
projects in Alabama.

All of those ICOs mentioned have been accused of selling unregistered securities.

Billions of dollars have been raised in token crowd sales, and it is probably the most
popular and successful use of blockchain technology to date, and threatens to transform
how tech start-ups raise seed and venture capital funds.

On 17 May, the Wall Street Journal published an investigation it has conducted into 1,450
ICOs, and found that 271 raised red flags, estimating investor loses at $273 million,
although the WSJ did not provide the names of the suspect projects.

Among the most common red flags were fake executive teams, plagiarised whitepapers
and promises of guarantee returns to investors.

Other factors hurting market sentiment include fears about the so called Mt.Gox whale - the
bankruptcy trustee of the now defunct Mt.Gox exchange appointed by the Japanese court
to look after funds once held by the exchange - dumping coins on the market.

Other poorly received news saw the Bitfinex exchange forced to hand over client details to
the tax authorities in the US, although that in itself would not be a cause of selling as such
actions would potentially create taxable events for US crypto taxpayers.

The UK's Financial Conduct Authority is currently investigating 24 crypto-related

businesses, according to a report in the Financial Times today.

Coinbase and Circle moves

Coinbase, likely to be an exchange that would benefit from tighter regulation given its
deeper pockets than most and better surveillance mechanisms, has acquired the
decentralized crypto exchange Paradex.

As part of that move it is rebranding its GDAX crypto exchange Coinbase Pro, as it seeks
to cater for all areas of the trading market.

GDAX, unlike its parent, does not take fiat deposits but Coinbase Pro, which is now live,
does. Both GDAX and Coinbase Pro have markets in Bitcoin, Bitcoin Cash, Ether and
Litecoin.

GDAX and Coinbase Pro, in addition to allowing trading of crypto against other crypto,
provide customers with access to the private keys of their coins, while the more consumer-
friendly Coinbase does not.

You can also make limit orders on GDAX and Coinbase Pro, but only market orders on
Coinbase, where fees are also much higher.

Circle, the payments startup backed by Goldman Sachs, has introduced a “Buy the Market”
feature in which clients can buy an index comprised of a basket of coins.

The Circle Invest app, launched in November last year, will allow investors to buy seven
coins in one go, with each coin weighted according to its market capitalisation. The coins
are bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ethereum Classic, Zcash and Monero.

The app is only available in the US, but the company has plans to expand into Europe,
although no timetable has been released. The company will make money from the index
trades through a 1% spread on the buying and selling price.

Staying with the new breed of trading apps, European mobile financial app Revolut, that
has been making waves recently with a younger crowd, has added Ripple's XRP token and
Bitcoin Cash to its crypto line-up, in addition to Bitcoin, Litecoin and Eth that are already
available.

As with Circle Invest, it charges no commission on trades but has a spread of 1.5%
between the buy and sell prices.

However, unlike Circle, clients are not directly purchasing crypto but instead gain exposure
to the price movements of the underlying assets via contracts for differences (CFDs).

A Series C founding round in April raised a whopping $250 million, which values the
company at $1.7 billion, propelling it into the ranks of the few European-based tech
"unicorns" valued at more than $1 billion.

The latest funding round was led DST Global, the venture arm of Russian billionaire Yuri
Milner, with Index Ventures and Balderton Capital also taking part.

Revolut growth, UK crypto task force meets, EOS to go live

Vlad Yatsenko, co-founder and chief technical officer of Revolut, said: "We've been asking
the Revolut community which Cryptocurrencies they would like to see next, and the
demand for both XRP and Bitcoin Cash has been absolutely overwhelming.

"After months of negotiations and development work, we're incredibly excited to offer
exposure to these two digital currencies to the UK market."
Revolut has 1.7 million customers across Europe and is successfully using its crypto
markets to make its offering more attractive to younger people.

When crypto trading was first introduced on the app last year, users had to pay a £15
charge to trade crypto only to see the company provide it free of charge to all customers at
a later date, attracting complaints and demands for reimbursement from early adopters.

The UK government's Cryptoassets Task Force met this week and representatives from HM
Treasury, the Bank of England and Financial Conduct Authority were in attendance.

The objectives of the group were set out at the meeting and include exploring the impact of
crypto, understanding its benefits and challenges and "assessing what. If any, regulation is
required in response".

Andrew Baily, the chief executive of the FCA, commented:

"Cryptoassets have been an area of increasing interest for markets and

regulators globally including the FCA. We look forward to working with our
counterparts at the Bank of England and the Treasury as part of the taskforce to
develop thinking and policy on cryptoassets."

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