SEC Throws Cold Water on Bitcoin ETF Plans

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The US Securities and Exchange Commission (SEC) has thrown cold water on exchange-traded fund (ETF) providers jockeying to list the first bitcoin ETF.

Thought to be a game-changer for cryptocurrency adoption, bitcoin ETFs would provide investors with the ability to obtain exposure to the flagship cryptocurrency through a conventionally-wrapped investment product.

Fund providers have sought SEC approval for cryptocurrency-derived ETFs for years, but the SEC has been reluctant to lend its approval to these products, which would likely be popular among retail investors.

The rush to list a bitcoin ETF intensified following the launch of the first bitcoin futures contracts, as the general consensus among analysts was that the SEC would quickly approve a fund that invested exclusively in futures contracts, which currently trade on two regulated US exchanges.

However, several recent developments indicate that this may not be the case.

Most recently, the SEC sent two investment industry trade groups a lengthy letter outlining a number of “significant investor protection issues” that fund sponsors must answer before the agency will consider approving a bitcoin ETF.

“We believe…that there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors,” Dalia Blass, director of investment management at the SEC, wrote in the letter, which was dated Jan. 18.

Blass said that the SEC was chiefly concerned about the liquidity of the futures markets, as well as how to assign a fair market value to what would be intensely-volatile products. However, she also touched on a variety of other topics, including market manipulation, custodial issues, and arbitrage.

“[T]he innovative nature of cryptocurrencies and related products, as well as their expected use and utility in our financial markets, means that they are, in many ways, unlike the types of investments that registered funds currently hold in substantial amounts. In light of these considerations, we have, at this time, significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy” federal securities laws, Blass said.

Earlier this month, the SEC reportedly asked fund providers to voluntarily withdraw their bitcoin ETF applications, citing some of the concerns outlined in the letter above.

Notably, the agency also pressured the first blockchain-focused funds to remove the word “blockchain” from their names, although these ETFs — which primarily invest in companies experimenting with blockchain technology — were allowed to begin trading this week after complying with this request.

Featured Image from SEC/Flickr

South Korea Cryptocurrency Trading Ban Is Still Undecided

south korea cryptocurrency trading ban

South Korea’s Blue House has clarified that there is not a cryptocurrency ban being considered by the country. Even though two Korean Bitcoin exchanges were raided, the government is not planning to ban cryptocurrency any time soon. They even further clarified that many different government organizations would be coordinating to fully allow regulated cryptocurrency trading.

Yu Yong-seok, a spokesperson for the South Korean Ministry of Justice clarified to Korean press that their previous words were not indicative of the entire South Korean government’s stance he said that the position that cryptocurrency was only used for gambling “[…] is a position of the Ministry of Justice, not a government position.”

South Korea cryptocurrency trading ban won’t be happening in the short term

The political party currently in the Blue House, the South Korean equivalent of the American White House, commented:

“The government announcement should be based on detailed reviews and coordination. If there is a problem, we should warn and prepare in advance. “The behavior we showed today was the opposite. Minister of Justice Park Sang-ki, who is responsible for the announcement today, has lost confidence.”

Some are even petitioning for Attorney General Park’s removal from office. The South Korean Ministry of Strategy and Finance additionally revealed that they first heard of the supposed Korean cryptocurrency trading ban of 2018 through media reports – and were shocked. Cryptocurrency is at a size now that individual arms of government can’t act alone. Even in the United States, the different statuses of Bitcoin in different regulatory bodies has somewhat stifled innovation, even just at the federal level not including individual states’ additional requirements such as the BitLicense.

Microsoft Once Again Accepting Bitcoin Transactions

After its decision to stop accepting bitcoin for some transactions last week, Microsoft has reversed the decision, stating that it had ensured lower amounts of bitcoin are usable. This is apparently due to some sort of agreement between Microsoft and BitPay. Though the nature of the agreement is unknown.  The reason for the original decision was the high volatility and transaction fees on the bitcoin network. So one could infer that whatever the agreement is, it solves those issues somehow.

Microsoft’s decision good news for Steam?

In an earlier blog post, BitPay stated that Microsoft was using it to manage its bitcoin transactions. Bitpay is the same provider that Valve’s Steam used before it ceased its bitcoin transactions last year. Does this mean that Steam will be able to reach a similar agreement with BitPay and reinstate its own bitcoin-based transactions? Is the agreement not available to other BitPay customers? If it is the latter, what exactly is the agreement? Is it that Microsoft’s transactions are worth enough to BitPay that it is willing to lower its profit margin?

Fallout from the rapid-fire stance changes

The bitcoin community seems rather unsure of its opinion of Microsoft over its quick changes in stance towards bitcoin. With some users stating that this move was a power play and others thankful for the decision’s reversal.

Featured image from Wikipedia

BlockExplorer To Support Bitcoin (Cash) Over Bitcoin Legacy

Dear BlockExplorer users,

BlockExplorer.com will be supporting Bitcoin Cash over Bitcoin, which we feel currently has a negative momentum path when it comes to utility. Going so far as to change the default BlockExplorer.com to show Bitcoin (Cash) over Bitcoin Legacy. BlockExplorer CEO, Rick Falkvinge, wrote in the announcement:

In August 2017, Bitcoin forked into two variants. These have taken radically different paths.

Looking at the situation one quarter later, it is clear to us that the Blockstream fork of bitcoin diverges so radically from the ideas presented in the Bitcoin white paper, that it is an evolutionary dead end. While it may still have high trading value, as a mere collectible of curiosity, the Blockstream fork of bitcoin is not part of building any future financial infrastructure, which is what Block Explorer is about.

A currency of the future has subcent optional usage fees and instant transactions. The Blockstream fork of Bitcoin (“Bitcoin Legacy”) is at $20 usage fees and rising, with no end in sight, and can take days to confirm, despite unfulfilled promises to the contrary on both points when Segwit activated in what can only be described as a community fistfight. We are therefore making the decision to consider the Blockstream fork deprecated, and support it as legacy technology only.

Rather, we have made the decision to support the only bitcoin fork with a postive utility momentum, which is Bitcoin Cash. We took an early decision to deploy a Bitcoin Cash block explorer and will continue to roll out related services. We are also deploying tools for other cryptocurrencies we find on a positive momentum path, such as ZCash, which have increased privacy value.

We will not add future support for the Blockstream fork of bitcoin (“Bitcoin Legacy”), and will be deprecating it entirely at some future point in time to be determined. Developments have revealed it to be a dead end. At such a time, we will refer to Bitcoin Cash as Bitcoin only, but will make some effort to not break API calls by changing URLs of legacy automated systems.

Developers: Note the BlockExplorer API is changing

BlockExplorer’s API and website will change, so if your site references BlockExplorer for Bitcoin Legacy, please take note of the following changes:

  • https://blockexplorer.com will be switched over to displaying Bitcoin Cash data.
  • https://bitcoinlegacy.blockexplorer.com will display Bitcoin Legacy data.
  • https://blockexplorer.com/api will continue to serve data from Bitcoin Legacy for now until we feel confident we can deprecate it, in which it will then serve Bitcoin Cash data.
  • https://bitcoinlegacy.blockexplorer.com/api should be used immediately to use the Bitcoin Legacy API.
  • https://bitcoincash.blockexplorer.com/api should be used for the Bitcoin Cash API for now, until it is switched over to https://blockexplorer.com/api

Electrum Releases Update After Google Project Zero Researcher Discovers 2-Year Old Vulnerability in Wallet Client

Electrum’s developers released a new version of their bitcoin wallet client after a security researcher at Google Project Zero discovered a critical vulnerability that allowed hackers to use malicious websites to steal bitcoins from unencrypted Electrum wallets. If you haven’t already, update to Electrum 3.05

Tavis Ormandy, a white hat hacker who has identified a number of high-profile vulnerabilities in software products, discovered a critical bug in Electrum’s JSON-RPC protocol, which is used to transfer data between clients and servers.

The interface was not secured properly, which made any unencrypted Electrum wallet immediately vulnerable to having its balance drained by thieves if both the wallet and a web browser were open at the same time.

Here is an example of how the vulnerability can be exploited to steal the wallet seed from a wallet that is either unencrypted or encrypted with a poor password:

However, Ormandy said that users with encrypted wallets also face potential risks.

“I think just scanning for people in the background of a website is really easy, and seems likely someone will try that. Even with encrypted wallets, you can still change options, change destination addresses, deanonymize users via listaddresses and so on,” Ormandy wrote on Github.

The vulnerability, which affects wallet versions 2.6 to 3.0.3, was initially reported on Nov. 24, 2017, the same day that Bleeping Computer reported that hackers have been scanning the web for Ethereum wallet clients vulnerable to an insecure JSON-RPC interface. However, Electrum developers apparently did not recognize the gravity of the issue, as it went unaddressed until Ormandy discovered it on Jan. 6.

Apparently, the vulnerability was more than two years old, as the affected code was merged on Nov. 30, 2015. Amazingly, there are no known cases of it being successfully exploited, although this will almost certainly change now that the bug has been revealed.

Electrum quickly released an update, version 3.0.4, which addressed part of the issue but may still be vulnerable to some attacks.

Developers are now urging users to update their wallets to version 3.0.5, although they should probably exercise caution while using the wallet until it is clear that the release is stable.

Notably, the vulnerability also affects Electron Cash — a bitcoin cash-based fork of Electrum — so this wallet’s users should update their software clients to version 3.1.1.

Featured Image from Pixabay