Coinbase CEO Teases Launch of Debit Card in the U.S.

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Coinbase CEO Brian Armstrong has announced that the company is working on introducing its debit card to customers in the U.S.

Armstrong’s announcement came in a live AMA session on YouTube on May 16, 2019, during which he fielded questions and touched on various topics such as community trust ratings for altcoins and fraud prevention. While he did confirm that the debit card is coming to U.S. customers, he didn’t divulge a specific release date.

Last month, Coinbase launched the Coinbase Card, a Visa-based debit card which, according to the exchange, allows customers to make purchases online and in-store using their crypto balances.

But the Coinbase Card, along with the expense-managing Coinbase Card App, have only been released to customers in the U.K. However, according to Armstrong, its entry into the United States isn’t so far off.

Will Coinbase Add Margin Trading?

Armstrong also spoke about the inclusion of margin trading on Coinbase Pro, which he claimed is one of the most frequently requested features from customers.

He said that if Coinbase is to move into margin trading, there will be a lot of regulatory concerns to figure out.

“This is one of those products where you have to innovate not just on the technology, but also on the regulatory side,” Armstrong said.

With margin trading, traders are able to “borrow” money from exchanges to make trades, and the high-yield possibilities tend to encourage traders to make large, risky investments.

Countries like Japan have introduced some very strict laws regarding margin trading for cryptocurrency, adding restrictions like caps on available leverage and requiring exchanges that support the feature to register with financial regulators.

This article originally appeared on Bitcoin Magazine.

Grayscale Reports $3.2 Million Average Weekly Investments in Bitcoin Trust

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The first quarter of 2019 was bullish for the digital asset management firm Grayscale Investments and the company is gearing up to have another run.

According to a first quarter “Digital Asset Investment Report” from the company, published on May 13, 2019, product inflows from Grayscale Investments grew by 42 percent over Q4 2018. The company revealed that its Bitcoin Investment Trust (BIT) saw the vast majority of investments in the quarter, as the trust secured an average weekly investment of $3.2 million out of the firm’s total weekly investment count of $3.3 million — leaving non-bitcoin investment products driving less than $1 million in average weekly investments.

Grayscale’s non-bitcoin investments include trusts for cryptocurrencies such as ether, bitcoin cash, XRP and other digital assets.

Grayscale also reported that its products saw total investment from hedge funds amounting to less than $1 million in Q4 2018 (It should be noted that these products included the BIT). However, during Q1 2019, inflows from hedge funds surged to a staggering $24 million — an increase of over 2,400 percent. Per the report, hedge fund inflows made up 56 percent of all investment inflows into Grayscale for the quarter, helping to propel a 42 percent increase from $30.1 million in Q4 2018 to $42.7 million.

The report also categorized Grayscale’s investors, indicating that 73 percent of them were representatives of financial institutions, much more than 56 percent that was reported in the first half of 2018.

Given the details in the report, it may be that Grayscale’s provocative ad initiative for bitcoin is paying off. Earlier this month, the American asset management firm launched its #DropGold ad campaign which urged investors to ditch gold and invest in bitcoin instead.

Grayscale’s attack on gold didn’t go unanswered. On May 2, 2019, Adam Perlaky, manager of investment research at the World Gold Council, published a rebuttal to the #DropGold campaign, explaining that his organization believes “cryptocurrencies are no replacement for gold.”

In his post, Perlaky also explained that while there is a lot of promise in the concept of cryptocurrencies and blockchain technology, they don’t “represent a substitute for gold either in theory or in practice.”

This article originally appeared on Bitcoin Magazine.

In Light of Tether’s Fractional Reserve, a Shadow of Fiatcoins’ Future

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Tether has taken a lot of heat for admitting it is running a fractional reserve. There’s no doubt that Tether’s unregulated nature makes this approach risky and that its lack of transparency is unsettling, but the entire modern banking system is architected on fractioned assets.

And Tether is not the only stablecoin that admits that it is backing its tokens with cash and “equivalent assets”; all of its competitors state in their terms of use that they can (and/or do) back tokens with cash-like investments, like government treasury bonds or other securities.

So, are these stablecoins any different than the legacy banking system? In practice, they act the same, but in structure, operations and regulation, they are still largely untamed.

Depending on your take, the news of Bitfinex drawing on Tether’s reserves to cover $850 million in losses — and the follow-up news that Tether is running a 74 percent fractional reserve — was either a spicy bombshell or a blandish nothingburger.

It’s either fraud and insolvency or good faith and responsible operations; proof that the writing is on the wall or that business is being conducted as usual. At the very least, both sides likely agree, it’s fiat banking in a nutshell.

But it was never anything else in the first place. And, moreover, Tether isn’t the only stablecoin with the gumption to run a fractional reserve; many of its competitors have terms of use that grant them this leeway and, while they’ve been more transparent about this fact than Tether from the start, this dependency on fractional reserves has been largely shrouded by Tether hogging the limelight.

In Tether’s shadow, however, rising competitors have shown that they’re more like the top stablecoin — and the precedent it is setting for crypto-banking practices — than they’d care to admit.

Wildcat Banking for the Digital Age

By its very nature, Tether — and other stablecoins like it — have always relied on the old model. That investors are buying into a fractional reserve system with notes that exist in another fractional reserve system is not lost on its defenders. The irony, to them, is that people are worried that Tether is not fully backed, but they don’t seem to worry that their own dollars in the legacy system run the same risk.

As Coinmetrics Analyst and Castle Island Ventures Partner Nic Carter summed it up on Twitter, banks are conducting the same business with “far lower capital ratios than tether has.”

There’s some nuance to extrapolate here, however, in that banks are fully regulated and they (typically) invest capital in highly liquid assets. To back its $900 million revolving credit from Tether, Bitfinex and Tether’s parent company, DigiFinex, collatralized this debt with 60,000,000 shares in itself. This type of incestuous lending raises the questions: How sound is this collateral and how legitimate is the underlying loan?

Carter told Bitcoin Magazine that Tether and Bitfinex “definitely concealed the risk of the loan” when they failed to disclose the credit/shares swap to their users. Seeing as DigiFinex represents both Tether and Bitfinex, which means that the exchange basically took out a loan from itself against its own shares, Carter said that the deal is “worryingly recursive — the value of DigiFinex declines as Tether risks insolvency, causing the collateral to be worth less.”

Banks underwrite assets with liabilities all of the time, Ellie Frost, a former investment banker at Deutsche Bank-turned cryptocurrency professional, told Bitcoin Magazine. Using liquid assets such as securities, government bonds and the like to generate capital in the form of debt is the backbone that makes modern banking possible and currencies elastic, the only difference being that these practices are regulated and are done with a greater degree of transparency than Bitfinex’s deal with Tether.

For instance, intercompany loaning like the $900 million Bitfinex-Tether deal isn’t uncommon in traditional banking, but Frost noted that “a loan connected to a subsidiary would immediately be flagged, have extra vetting and would likely have to go through shareholder approval on the company’s end.” This loan also circumvented the usual risk procedures and “credit process” that banks conduct when signing off on a loan.“There is incredibly stringent regulation around practices like this (particularly post-2008, when banks so royally screwed up their risk management around derivatives like CDOs [collateralized debt obligations]) and banks have shareholders to be held accountable to,” Frost told Bitcoin Magazine. “Banks not only release filings, but every single large debt obligation that is loaned out via investment banking goes through multiple regulation procedures.”

“We need to be clear this is institutional, not retail banking,” she added, regarding Bitfinex’s actions to cover up the missing $850 million. Bitfinex used customer funds from Tether to pump additional capital into itself without any “of the transparency that is associated with typical retail customer’s investments” or the regulations for capital requirements that banks adhere to.

“It isn’t uncommon for parent companies to bail out subsidiaries,” Frost concluded. “However, you cannot truly compare [Bitfinex/Tether] to a bank because they lack the risk management and regulations.”

So what Tether has done isn’t out of the ordinary for modern banking — but it is a scrappy, less “legitimate” version of it. The question remains, then, could more stablecoins bring this age-old banking model into maturity within the crypto ecosystem?

The Stablecoin Mold

The answer is a mixture of “they will,” and “they already have.” Though Frost argued that, “it isn’t fair to compare the two” for the same reasons that Tether’s banking is so dissimilar to traditional banking: there’s zero regulation.

Still, if you look at the terms of use of Tether’s most popular fiatcoin competitors, they all qualify that their backing is both in cash and reportedly “highly liquid” cash equivalents. Even if they are largely un- (or under-) regulated, their reserves may not be wholly cash-backed.

Poloniex parent company Circle and Coinbase’s stablecoin USDC, for example, “is fully backed by U.S. Dollars or equivalent assets held by Circle with its U.S. banking partners in segregated accounts, on behalf of, and for the benefit of, Users.” The actual benefit here may be up for debate, because, per the terms, “Circle, not the Users, will earn interest on the U.S. Dollars or equivalent assets in such accounts.”

Earning interest and dividends on customer deposits is the business of banks; after all, money isn’t put to work if it’s sitting in one place, so banks invest it to make revenue, some of which (though an arguably paltry amount of around 2 percent in the U.S.) goes back to customer savings accounts.

Most all fiatcoin issuers make no such promises of interest for their customers. Winklevoss-owned Gemini notes that its GUSD “is strictly pegged 1:1 to the U.S. dollar … correspond[ing] to a U.S. dollar held across one or more omnibus bank accounts,” though “the monies within which are used to purchase money market funds invested in securities issued or guaranteed by the United States or certain U.S. government agencies or instrumentalities.”

The Paxos Standard is the same as well, with its terms of use stating that the “Paxos Trust Company provides cash management for the U.S. dollar deposits backing PAX so that each PAX is backed by an equivalent amount of US dollar deposits or US Treasury bonds.”

TrustToken claims that “each TrueCurrency token is backed by an equivalent amount of fiat deposits,” but that it may “utilize sweep accounts that can protect the deposits through overnight investments in U.S. Government Treasuries” and that, for its GPB equivalent, “U.K. Government Treasuries may be utilized for GBP deposits.”

Sometime after Tether established a credit line with Bitfinex, the stablecoin’s website updated its information to clarify that USDT is backed by “reserves … includ[ing] traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.” The last bit regarding loans from affiliated entities likely refers to the deal in question with Bitfinex.

The Old New Thing

On the surface, the reserves of Tether’s competitors are diversified with the clients in mind. At least, the common response I received when asking issuers why they held assets other than cash was one of risk mitigation.

“This is another measure we’ve taken to ensure nothing happens to the 100 percent reserves backing TrueUSD,” Tory Reiss, co-founder and head of business development at TrustToken, told Bitcoin Magazine. “There is a cap to FDIC insurance for USD and no FDIC insurance for non-USD fiat. Therefore, instead of relying on the solvency of banks, we decided to mitigate risk by relying on the solvency of governments.”

Paxos’ Global Head of Strategic Business Operations Nancy Dornbush also told us that, in line with Paxos’ “top priority to keep [its] customers’ funds safe,” the company “[secures] them with U.S. government obligations” which are “guaranteed by the full faith and credit of the United States government.”

USDC also “believe[s] that diversifying reserves across such asset classes allows for greater security of funds by mitigating individual bank failure as a risk factor,” according to Joao Reginatto, USDC’s product lead at Circle — though he added that USDC “is currently backed entirely by cash deposits.”

Like proper banks, these stablecoins have looked toward U.S. treasury bonds as safe harbors for liquidity because, as Frost put it, “Uncle Sam is on the line for that money at the end of the day.” These cash-like assets also help nourish their balance sheets for further growth.

“As reserve balances grow with increasing adoption of USDC, we plan to also hold reserves in highly liquid and low volatility assets such as U.S. Treasury Bonds,” Reginatto said regarding USDC’s plans. Reiss echoed this sentiment when he noted that as “TrueUSD scales, [government bonds] allow [its] protection of the funds to scale as well.”

Justified as it may be as protecting client deposits, this expansionary strategy has the reach and feel of an elastic banking policy. If funds are left sitting in an account, they make no money. But if you invest them, you can accrue revenue on deposits — and if these companies hope to scale, they’re going to need more than redemption/issuing fees to subsist.“I’m not surprised by stablecoins making other investments, but they are not transparent [and do not] give any say to ‘shareholders’ of the coin,” Frost said. “At the very least, they could be up front about what investments they do have and let retail investors judge for themselves if they are comfortable with the risk the coins are taking on.”

To be fair, they list in the terms of use that cash may be allocated into things like treasuries and securities, albeit they are vague about which ones. Each of these Tether alternatives also conducts monthly attestations to prove their reserves, all of which are public and conducted by reputable accounting firms.

But these are not official audits, which, more than just making sure that a company’s bank account is square, allow a firm to evaluate business practices to see how a company generates revenue and what its operations look like.

Paxos told us that it is internally audited by Grant Thorton LLP (which also runs attestations for USDC) and is externally audited by a Big Four firm. These audits, however, are not public, and none of the representatives from the other four stablecoins Bitcoin Magazine spoke with mentioned anything besides attestation reports.

It would also be unfair to compare these stablecoins to Tether. The regulatorily unfettered grandaddy of stablecoins is beholden to basically zero governmental oversight. On the contrary, Paxos and Gemini are subject to New York State Department of Financial Services trust laws and TrueUSD and USDC are federally registered as money services businesses with the Financial Crimes Enforcement Network.

These regulations certainly make these options “safer” than Tether to some, but Frost encourages potential investors to be more critical when evaluating whether or not any of these stablecoins are safe, while also advising for stablecoins to present more “transparency of their risk models and investments.”

Their regulatory legitimacy and corporate trappings may make them an attractive alternative to banks — and may even provide a presage of what the future of banking may look like — but she cautions that, though they may play the part of a bank, they still lack the substance that defines modern banking institutions.

“I in no way think that traditional banking is perfect, but I think that it is important that these stablecoin companies are upfront with their risks and do not try to compare themselves to these ‘safe’ institutional players,” Frost concluded.

This article originally appeared on Bitcoin Magazine.

Fidelity’s Bitcoin Trading Is Only Weeks Away

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Fidelity’s cryptocurrency subsidiary Fidelity Digital Assets will reportedly launch bitcoin trading for its clients “within a few weeks,” according to Bloomberg.

According to the report, which cites an anonymous source, the new services will be open only to institutional investors.

Speaking with the publication, Arlene Roberts, a spokeswoman for the investment company, said, “We currently have a select set of clients we’re supporting on our platform. We will continue to roll out our services over the coming weeks and months based on our clients’ needs, jurisdictions, and other factors. Currently, our service offering is focused on Bitcoin.”

Fidelity will join the likes of Robinhood and E-Trade, in a short but expanding list of traditional investing platforms who have entered or are looking to enter the crypto space. Last month, it was reported that securities brokerage firm E-Trade was finalizing plans to offer bitcoin and ether trading to its customers, and TD Ameritrade even piloted bitcoin and litecoin paper trades through Nasdaq last April.

This article originally appeared on Bitcoin Magazine.

Delphi Digital’s Latest Report Says Bitcoin’s Market Cycle Is Right on Track

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Delphi Digital has returned with another installment of its unspent transaction output (UTXO) reports. Recalling its report from January of this year, the research firm says bitcoin’s market cycle is right on track. The prior report called Q1 as the bottom of the bear market, and this claim was later corroborated by Adamant Capital’s own evaluation.

As before, Delphi Digital’s evaluates UTXOs as presages of market buying and selling, and by extension, the future trajectory of the market. UTXOs is a technical way of describing the last time bitcoin was moved by looking at the last block a transaction was included in.

“UTXO age distribution over time provides insight into the buying and selling patterns of previous market cycles. This allows us to forecast where we are in relation to prior cycles and what we can likely expect going forward,” the report states.

Bottom In?

The starkest finding in the report is Delphi Digital’s belief that “bitcoin has bottomed,” consistent with its prior analysis.

Going on the assumption that the bottom occurred in December at roughly $3,200, “the 1 Year + holder rate was 53.9% at the time, which falls right in line with the 1 year+ holder rate of 53.5% during the price bottom of the previous cycle in January 2015.”

In a nutshell, this means fewer long-term holders are selling. As price rises, long-term holders move coins to sell, the coins change hands and the number of 1+ year UTXOs falls; as prices fall, 1+ year UTXOs rise as long-term holder selling pressure exhausts. So per the report’s data, long-term holding is inversely proportional to price action.

An encouraging data point, these long-term holders didn’t sell during the previous price rally to $5,000, something Delphi Digital says happened frequently during the market’s rollercoaster price swings in 2018. What’s more, the 1–2 and 5+ year UTXOs are growing, a trend that indicates younger UTXOs are being held onto for longer periods and graduating to older lifespans. Delphi Digital sees this as a strong sign of accumulation.

“This pattern of very gradual hoarding among older bands was also visible in previous cycles after the bottom was decidedly in,” the report states.

Fewer holders are willing to sell right now, the report continues, because the chance that investors/traders will be able to buy back lower is potentially diminishing. Delphi Digital’s data suggests this so-called reflexive scarcity was prevalent in previous market cycles as well, and it’s another indicator that gives it confidence that the worst is behind us.

And there’s plenty of data to suggest as much. Delphi Digital continues throughout the report to cite optimistic measures. One of these shows that, in 2019, bitcoin has outperformed a host of other legacy investments, including oil, the S&P 500 and gold. Interestingly, it also draws correlations between the rise and fall of Chinese equities and tech stocks with bitcoin.

The report winds down by claiming that bitcoin is gaining some momentum, charting this progress with 50-, 100- and 200-day moving averages. Most importantly, when bitcoin transcended $5,600 on exchanges a few weeks ago, the 50-day moving average crossed above the 200-day moving average in what’s known as a “golden cross.” This technical indicator is renowned in all walks of investing as an extremely bullish signal, though Delphi Digital notes that, with the exception of a cross in October 2015 that preceded the 2017 bull market, three of bitcoin’s previous golden crosses have led to “sizable declines.”

Still, in light of its other analysis, Delphi Digital believes that this golden cross is likely a good sign.

“Bitcoin is still trading comfortably above its 200-week MA, offering some reassurance the cycle bottom for BTC was put in back in December. BTC would have to drop 32% from its current level ($5,225) to retest its 200-week MA and nearly 40% to retest its December low.”

Delphi Digital rounds out the report by charting the trading consistencies between the current market cycle and the 2013–2015 cycle, noting that the consistencies “align with [its] UTXO analysis.” It also notes that investor sentiment has been on the rise in recent months, according to research from TheTie.io.

“Further price appreciation is likely to continue if average daily sentiment score remains at current levels. However, if sentiment score starts to roll over, we anticipate price to revert a bit. Overall, it appears traders are still more positive about Bitcoin than the end of 2018, confirmed in recent conversations we’ve had with analysts at TheTie.io,” it concludes.

Trading and investing in digital assets like bitcoin is highly speculative and comes with many risks. This article is for informational purposes and should not be considered investment advice or an endorsement of any product. Statements and financial information on Bitcoin Magazine and BTC Media related sites do not necessarily reflect the opinion of BTC Media and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.

This article originally appeared on Bitcoin Magazine.