Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Monday, March 31, 2014
Bitcoin news March 31 , 2014 -- Neo & Bee Suspends BTC Share Trading Due to ‘Abnormal Activity’ .... UK Bitcoin Exchange Bit121 Temporarily Ceases Operations .... BTC-e Now Offers Trading in Chinese Yuan - very odd in light of this news ........ Bter Has Suspended Chinese Yuan Deposits, Citing Notification Of New Official Regulations
David Andolfatto, Vice President of the Federal Reserve Bank of St. Louis, is not quick to dismiss Bitcoin.
Vice President of the Federal Reserve Bank of St. Louis David Andolfatto released a report on Bitcoin (PDF) yesterday, and it gave the Bitcoin community another peak into what financial regulators really think about cryptocurrency. The report is 36 pages long, but one of the most interesting slides in the report has to do with Bitcoin’s effect on taxation. It talks about how the recent IRS ruling could limit the bitcoin’s attractiveness as a currency, but the St. Louis Fed also admitted that “enforcing an outright ban is close to impossible.” This is a stark contrast to Senator Joe Manchin’s original contention that Bitcoin should be banned immediately, and it’s obvious that there are some regulators and legislators who understand the technology behind Bitcoin more than others.
Bullish on Bitcoin and Ripple
It wouldn’t be far-fetched to say that the entire report from the St. Louis Fed was actually quite bullish for Bitcoin overall. At one point, the cryptocurrency is referred to as a “threat [to] money and payment systems.” Just below that quote, it is noted that Bitcoin “will force traditional institutions to adapt or die.” Although Ripple is noted as a possible competitor to Bitcoin due to its willingness to work within the current financial system, it seems that the conclusion of this report is the cryptocurrency is here to stay in one form or another. In one of the very last slides, the author of the report talks about an independent Federal Reserve operating alongside something like Ripple as a P2P payment system.
A Tool for Criminals?
One of the main criticisms that has been thrown at Bitcoin from the mainstream media and Congress is that it can be used by criminals to facilitate everything from child pornography distribution to terrorism. The report from the St. Louis Fed also makes this point, but it also admits that the same is true of basically every other currency. The report makes the often-cited comparison between bitcoins and caash on the same slide. At the end of the day, bitcoins are a means of exchange, which means they can be used by both good and bad actors.
Any currency can be used by bad actors.
A Single Point of Criticism
Although most of the report looked like a pamphlet on why everyone should be excited about Bitcoin, the one point of criticism was the volatility of the currency. Charts comparing bitcoin volatility against the dollar over the past few months were able to illustrate that Bitcoin still has a ways to go before it can takeover the world monetary system. Although bitcoins have been extremely volatile when compared to dollars or euros, it’s interesting to note that the report from the St. Louis Fed claimed that “well-run central banks should welcome the emerging competition.” One has to wonder what this means when it comes to bitcoins competing with the fiat currencies of countries where the central banks are not so conservative.
The Final Conclusion
Andolfatto’s final conclusion in the report is that the US dollar could actually benefit from something like a Ripple-esque payment system. While payments are definitely the main use case in places like the United States, I’m still more interested in bitcoins disrupting fiat currencies in other parts of the world. Yes, the bitcoin is still a rather volatile form of money right now, but we need to see what happens as developing countries are brought into the mix before we completely write-off its potential as a currency. The idea of cryptocurrencies and fiat currencies living side by side is a logical one for now, but we have to think what would happen in a situation where a few countries started to hold bitcoins as reserves instead of dollars, euros, or gold. This was definitely an interesting report from the St. Louis Fed on Bitcoin in the United States, but bitcoins, as a currency, are going to be made or broken in places like Argentina, Venezuela, India, and Kenya.
The St. Louis Fed admits that a Bitcoin ban is close to impossible.
CoinEx is online again, after being hacked two weeks ago. 50% of missing funds will have to be found in transaction fees. Only BTC and LTC markets are open at the moment.
Two weeks ago, I reported on cryptocurrency exchange Coinex.pw being hacked. All coins were stolen, and the site went offline. After two days, founder Erundook posted a statement at Bitcointalk, saying Coinex would reimburse the stolen coins from their own pockets. Needless to say, the community felt worried and didn’t want to take Erundook’s word for it. As of today, Coinex is back online.
Not enough funds
On March 31st, Coinex customers were able to log into their accounts again. This was made public by Erundook on both Bitcointalk and Coinex’ Twitteraccount. The statement read:
“CoinEx is online. Only BTC & LTC withdrawals will work yet; rest will come next week. Please note that we don’t have enough funds for *all of you* to withdraw *all of your funds* so please only do so if you really need it. We have security audit pending with nccgroup.com, will post more details as it goes on.
Thanks for your patience, - erundook”
Obviously, this is still a vague analysis of the Coinex situation. Yes, the site is back online but only with about 50% of its former funds. Erundook made a post about this prior to the announcement of Coinex being back up.
“We have managed to gather about 50% of missing funds in bitcoins, we will be buying missing altcoins with them this weekend. After some calculations, we came to the conclusion that 50% is a fair number to resume exchange operation, and if all the users won’t withdraw their funds right away, we can keep it running using fee incomes to get the second missing part covered with them.”
With only 50% of the missing funds in the Coinex wallet, bringing the exchange back online is still a very risky move. Many customers will not be happy with Coinex, either because funds are missing or because it’s hard to deem an exchange that has been hacked twice trustworthy. If the majority of customers decides to take their coins elsewhere, that will mean game over for Coinex.
On the other hand, Coinex does not have much of a choice. They went out of their ways to regain half of the missing funds. The other half will have to be found by resuming normal operations and let the exchange do what it was made for in the first place, generate money. Transaction fees will be used to buy the rest of the missing altcoins. Because of this, Coinex made the decision to only open Bitcoin and Litecoin markets for now.
Several people have replied in Coinex’ Bitcointalk thread about their experience after logging in again. Most customers saw a correct balance of coins in their accounts. It seems it is possible to trade altcoins for Bitcoin or Litecoin and, in most cases, it also was possible to withdraw. Only small withdrawals were used as an example so it remains to be seen whether big amounts can also be withdrawn out of the exchange.
Of course, since only half of all stolen funds has been recovered, it’s clear that the balances in people’s accounts aren’t ‘really’ there. Coinex tweeted that it will refund accounts during this week. That is why it’s so important for the exchange to see its customers remain there. If everybody decided to withdraw all funds, Coinex would not be able to fulfill these requests and bankruptcy would be imminent. Luckily, this does not seem to be an issue right now. Most people understand what is going on and look willing to stay put, for now. However, should Coinex fail to refund all accounts soon, it leads no doubt many people will take their belongings and leave.
To restore maximum faith, Erundook promised to have an audit for Coinex. Audits are becoming popular.
“We also called several security audit companies to do an audit for coinex. We’re sorry for this to take so long but it should be understandable that recovering a business from this point is really ALOT of work. I am personally a rare guest at forums and other chats since chatting doesn’t really help to get it back to life, it only takes time from getting the actual things done.”
Last week, Kraken announced results of their own audit. Bitstamp, another popular exchange, also had one some time before. Audits are a great way to convince people an exchange can survive a hack. After Mt. Gox, it seems audits are going to be of utmost importance for every exchange that wants to be taken seriously in the world of cryptocurrencies.
Trading of Neo & Bee bitcoin shares on the Havelock Investments exchange has been suspended “due to an increase of abnormal activity” on parent company LMB Holdings – apparently at the request of Neo & Bee itself.
An update today on the company’s Havelock page said:
“Havelock Investments has been formally informed by the Pass-Through Fund Manager of NEOBEE that the compliance officer of Neo and Bee Ltd has stated that due to an increase of abnormal activity on the LMB share platform, there may be a high possibility of questionable trading activity. While Neo and Bee Ltd investigate the issue further they have strongly recommended that we halt trading and transfers.”
Havelock Investments has halted the NEOBEE fund and is awaiting further instructions from the issuer.”
A jittery bitcoin world, traumatized by years of sudden and high-profile downfalls in the space, immediately leapt on the news that one of its newest flag carriers might be in trouble. It should be stressed that the news at this stage only refers to the temporary share trading suspension, and that Neo & Bee’s regular business continues to operate as usual.
There has been no public statement from Neo & Bee itself, which is a bitcoin company that offers bank-like services, and Havelock Investments has not elaborated on what the “questionable trading activity” might have entailed.
While CEO Danny Brewster is out of the country and has not made an official statement on the events, he denied anything untoward about his actions.
“My silence is for a very valid and personal reason, all the rumors that are flying about are false and couldn’t be further from the truth. I haven’t moved from Cyprus or anything of the kind I am TEMPORARILY out of the country resolving some big issues that were made much worse by people stating incorrect facts in a public forum.”
Whether it was related to Neo & Bee’s request to Havelock or not is uncertain, but this unusual thread appeared on the bitcointalk forums on 22nd March, with a relatively new user expressing an urgent need to sell over 28,000 (despite originally saying 1,000) LMB shares, outside Havelock’s platform.
“I need the money ASAP, and the website says ‘Transfers are typically completed in 1-2 business days.’ which I would rather not wait,” the user wrote.
What’s even stranger is that LMB Holdings’ shares are not traded via Havelock Investments, only Neo & Bee’s.
Neo & Bee, consisting of brick-and-mortar bitcoin savings company Neo and card-based payment processor Bee, exists under UK umbrella company LMB Holdings. LMB also controls cash-to-bitcoin processor Neo Easycoin and has plans for a future Neo Xchange brokerage platform. The first Neo physical bitcoin savings branch opened in Cyprus just last month.
The company launched an IPO on bitcoin-only share trading platform Havelock Investments in September 2013. The price stayed fairly constant at 0.0029 BTC preceding the first Neo branch opening, before jumping to its highest point of 0.00594 BTC on 26th February. It currently sits around 0.00185 BTC.
A revised version of LMB Holdings’ prospectus, by Brewster, was released on 17th March with details of all current operations and future plans, including Crypto Portfolio Management, the ‘Homemall’ merchant marketplace and a remittance service.
Brewster had promised a PDF version of the prospectus with appendices containing all financial projections later that week, but neither has been released as yet. He has also been absent from Twitter since 18th March.
New bitcoin world
Many in the wider bitcoin community had great expectations for Neo & Bee, seeing it as a significant step towards bringing bitcoin out of the media shadows in which it often finds itself, and into the public consciousness. Its first Neo outlet, with plans for others to follow within a month, was backed by a professional image campaign rarely seen in pre-2014 ‘bitcoin financial services 1.0′ businesses.
It stressed full reserve holdings, KYC-AML compliance, records-keeping, fiduciary duties to customers, best practices for bitcoin storage (cold storage, multi-signature), cryptographic proof of reserves and insurance against cyber attacks.
Neo has targeted a more non-technological crowd, hoping to bring new customers and stakeholders into the bitcoin fold with promises of added security and convenience. Neo conducted an extensive media and advertising campaign in Cyprus to accompany its launch.
Questions to answer
Neo & Bee also acquired some high-profile names as endorsements, most notably Andreas Antonopoulos, who was listed as the board’s Technical Advisor.
As news of the suspension of trading broke, Antonopoulos was almost immediately faced with a barrage of questions on various social media sites, to which he replied.
UK-based bitcoin exchange Bit121 has announced that it will suspend trading and temporarily close today, March 31st. Although the exchange has indicated that the closure is not permanent, it has not said when it will reopen.
Bit121 said most of the site’s functionality was removed on March 26th. However, users have been able to view account balances and statements, withdraw any sterling balance greater than £50 with no fee, and withdraw any bitcoins held with the exchange. All orders have been cancelled.
On Thursday (27th March), the exchange started carrying out withdrawal transactions on every account with a positive GBP balance.
Bit121 had urged all users to withdraw their bitcoins prior to today’s closure. The exchange maintained that it has been making every effort to contact all account holders individually to offer any help and support required.
Said the exchange:
“Despite regretfully closing our doors for now, we like to think we have simply gone into hibernation, and we fully intend to re-open at some point in the near future. We have learned a great deal and gained a lot of experience in our 4-5 months of running a bitcoin exchange. It has been a challenging few months without a doubt but also a lot of fun. We would like to thank all our customers for your business, your support, your feedback and your understanding.”
Bit121 added that it is closing down in an orderly fashion and that it has already refunded sterling balances. Returning all customers’ bitcoins, however, will take a little longer, as some customers do not hold personal wallets.
When it launched, Bit121 teamed up with payment service provider PacNet Services Ltd, which in turn worked with Barclays PLC. However, since then, the relationship with PacNet Services has broken down.
The exchange told CoinDesk that it decided to close because it was simply taking too long to secure an alternative banking partner.
Bit121 told CoinDesk:
“Rather than have the website sitting dormant with minimal activity, it made sense to temporarily close Bit121 until a suitable banking partner has been secured. The likelihood is that there will need to be some redesign of back-end processes anyway once we re-launch, so the closure will provide us with some time and space to make some necessary changes to our processes and potentially some improvements to both the back-end processes and the bit121 website.
“Our top priority is our customers and the service that we provide to them. We will only re-launch, when we are certain that we can provide a high-quality and competitive service to our customers.”
Never a large exchange, Bit121 launched last November and a month later chief executive Jim Iddiols said daily trading volume was about £100,000, with more than 500 registered users.
The exchange suffered a few teething problems shortly after it was launched, forcing it to suspend trading in on 28th November. Shortly thereafter, Bit121 resumed services after it found that there was, in fact, no glitch at all.
The exchange stored most of its holdings in cold storage and it maintained only a very small number of bitcoins in its hot wallet. No security issues were reported and, for better or worse, Bit121 didn’t make that many headlines – usually a good thing when it comes to bitcoin exchanges.
For Brits despairing at the lack of exchange options, there is good news, however, as the departure of Bit121 coincides with the launch of Coinfloor, a new outfit that seems intent on becoming Britain’s premier bitcoin exchange.
Popular digital currency exchangeBTC-eannounced today it would begin trading in Chinese ‘offshore yuan’ (CNH), becoming the first international bitcoin exchange to offer both US dollars and yuan, and opening a field of new opportunities for currency speculators.
“We are pleased to inform that new trading instruments with Chinese offshore Yuan has been added. Now btc-e clients can trade 3 new instruments. A unique trading instruments that enables you to benefit either from price fall or increase are now available in your btc-e MetaTrader4 and WebTrader platforms under following symbols: USD/CNH (available on WebTrader only), BTC/CNH, LTC/CNH.”
‘Offshore yuan’ (CNH) refers to the amounts of Chinese yuan (CNY), also called renminbi (RMB), available for trade on international markets by businesses, usually at slightly higher value than the official version thanks to the added accessibility.
Offshore yuan is the fourth fiat currency offered for trading on BTC-e, the others being US dollars, Euros, and Russian rubles. It also allows trading between these currencies, as well as bitcoin and a selection of seven alternative cryptocurrencies including litecoin, namecoin and peercoin. To fund a BTC-e account with CNH, users must wire money via a National Australia Bank (NAB) account in Sydney.
BTC-e’s news came just as a local Chinese exchange, Bter, announced it will halt deposits from banks due to advice related to expected stricter controls over, or outright ban on, interactions between digital currency exchanges and Chinese banks.
At publication time, the BTC/CNH price was ¥2594 ($417.5), slightly below the CNY-proper rates of ¥2755 ($443.46) on Huobi and BTC China.
Limited trade only
Thanks to strict capital controls, yuan is not freely tradable on world forex markets and its value is more rigid. It is not legal tender in Taiwan, Hong Kong or Macau, but often accepted and banks there offer yuan-denominated accounts. Hong Kong started the first offshore market in 2004.
Banks in Singapore and London also allow trading to and from CNH, and Taiwanese banks were permitted to open yuan accounts beginning 2012. Forexconvertibility is limited to businesses for trade, investment and borrowing purposes and there are few, if any, chances for individuals to join in.
The Chinese government has allowed the yuan to float within a limited range since 2006, when a US dollar peg was removed.
Bitcoin another option
These controls are often listed as one of the main reasons for bitcoin’s popularitywith speculators and wealthy investors in China – it offers them a far easier option to move money out of the country, trade it into another more liquid currency and invest in a wider range of foreign alternatives. Investment opportunities within China itself are limited largely to real estate or to a lesser extent, shares in local companies.
Despite reports last week that the People’s Bank of China (PBOC) was about to clamp down with a complete ban on banks doing business with bitcoin exchanges, companies there have reported no official announcement yet. Still, the international bitcoin price fell below $500 after the news and remains around $445.
BTC-e is one of the world’s three most popular bitcoin exchanges, and also the least compliant in the traditional financial sense, requiring only an email address to open an account and trade in any of the available currencies. Funding accounts with fiat is tricky, however, without going through a more compliant bank or payment processing company.
BTC-e has opened up USD/CNH, BTC/CNH, and LTC/CNH markets today. With looming PBOC action that would end Chinese Bitcoin exchange’s access to domestic bank accounts, Chinese traders are undoubtedly looking for new exchanges to trade on. Along with Chinese RMB (CNH to BTC-e) trading comes RMB deposits, which are handled through an international bank. An international bank means that Chinese traders wishing to convert fiat to crypto through this route will be subject to the Chinese $50,000 annual limit. In fact, people are starting to realize that the PBOC’s still shrouded notice to regional banks requiring action by 4/15/14 just forces Chinese exchanges to operate with international banks, and submits all Chinese Bitcoiners to a $50,000 annual buying limit.
BTC-e is accepting Chinese RMB deposits via wire transfer to their Australian bank, the National Australian Bank. As always, this little note is attached:
Our bank may ask your documents due to a high fraud activity. If you seen in your btc-e account a money hold please provide a copy of you ID and utility bill in high res quality (>300DPI), create ticket with your ID in subject at https://support.btc-e.com and upload your docs inside
Details of Payment is required field.
Without correct Details of Payment we can’t credit money to your account.
Funds will be credited within 7-10 days.
We don’t accept international wire transfers from US Citizens or from US Banks
All transfers from US Citizens or US Bank will be refused by bank
China officially maintains a closed capital account, meaning it restricts the ability of individuals and businesses to move money across its borders. Chinese individuals aren’t allowed to move more than $50,000 per year out of the country. Chinese companies can exchange yuan for foreign currencies only for approved business purposes, such as paying for imports or approved foreign investments.
The article goes on to describe a Chinese man who recently bought a ~$390,000 Cypriot beachfront condo. When asked to describe how he got around the $50,000 per year limit he said that he used a method tolerated by authorities in China and utilized by real estate agents in China. The method is to recruit friends to transfer chunks of money, always under $50,000, under their own names.
In order for a Chinese national to exceed the $50,000 limitation in yearly payments out of the country without the aforementioned trick, he or she must submit documents to the local State Administration of Foreign Exchange (SAFE) for approval. Though most Chinese banks are qualified to do foreign exchange business, they never cross the $50,000 individual limit without SAFE approval.
Additionally, within the $50,000 limit on out-flowing money, each transaction at the bank must be clearly marked as outbound regular payments or outbound capital investments, the latter of which is subject to additional stringent regulations. As such, it is highly unlikely that SAFE would approve a larger than $50,000 amount in a wire transfer to BTC-e’s National Australian Bank.
At 12:06 local time, Bter, one of China’s larger Bitcoin exchanges, posted an announcement to its website announcing a temporary suspension of deposits. What’s more is Bter cites official regulation that they were just informed of, as the ultimate reason for this incredible convenience to its users. Bter not only offered RMB to BTC markets but also RMB to LTC, Dogecoin, Auroracoin, and even Counterparty (XCP). Many Bitcoiners on both sides of the Pacific are wondering if other Chinese Bitcoin exchanges will soon follow suit and suspend CNY deposits. In the meantime, CNY withdrawals, as well as all digital currency withdrawals, are still active.
On 3/27/14 I wrote, based on evidence viewed by Caixin reporters, that the PBOC had ordered all Chinese banks and third party payment processors to close Chinese Bitcoin exchanges’ accounts by 4/15/14. Though initially discounted as FUD, the news has been carried by mainstream media in both the Western and Eastern worlds, and the recent actions of Chinese exchanges seem to point to the supposed notice’s authenticity. Bter did not specifically mention the PBOC’s notice, or even their own bank, by name in their announcement. However, it is safe to assume that the notification of new official regulation came from Bter’s domestic Chinese bank, which fits the tale of a PBOC notice handed down to regional banks on 3/18/14 requiring action by 4/15/14. The pieces are starting to reveal themselves.
Hello. We’re sorry to announce that, regarding deposits, Bter just received notice that due to official regulations we will be unable to avoid a temporary suspension of deposits. But, CNY Withdrawals are unaffected. As before, it will arrive within two hours. Everyone can still perform normal withdrawal operations at his or her leisure.
Bter upholds its promises and commitment to maintaining 100% deposit liquidity and guarantee that customer withdrawals will not be affected. Bter provides over 40 digital currency exchange pairs and is the largest Bitcoin and cryptocurrency trading platform in China. It is also the world’s largest dogecoin, futurecoin, and Counterparty (XCP) platform, and is listed in Alexa’s top 1000 Chinese website ranking.
On the other side of the globe, or closer (who really knows), Btc-e has also made headlines today by announcing the formation of 3 Chinese Yuan markets. Users from around the world, and particularly from within China, will be able to buy Bitcoin and Litecoin with RMB on BTC-e, as of earlier today. Btc-e uses an Australian bank to receive RMB wire transfers and as such, Chinese traders looking to deposit into BTC-e will find themselves at the mercy of China’s annual $50,000 outflow limit.
Where will the Chinese traders end up? Some might wonder if the Chinese might abandon Bitcoin altogether; personally, I find that highly unlikely. For a few months, tech savvy Chinese had a useful method for getting value out of their country and the exchange rate prospered as a result. Even if more Chinese Bitcoin exchanges close up CNY deposits later this week, the digital currency infrastructure has been laid.