Another warning for Binance, the US’ top markets regulator wading into the crypto debate and an alleged $2bn bitcoin fraud were among the stories that rocked the sector this week.
In case you missed the action, here are five things worth knowing about.
Crypto exchange Binance faced another regulatory tussle this week, adding to mounting problems as the Monetary Authority of Singapore issued an investor alert against the business.
The Singaporean regulator placed Binance’s global entity Binance.com on an investor alert list on 2 September, listing the firm among entities that are unregulated by the body, but which may be wrongly perceived as licensed or regulated.
The world’s largest crypto exchange has been hit by regulatory warnings in multiple countries around the world in recent months, including the UK, Japan, Italy and Germany. Authorities have taken issue with the company’s lack of transparency and alleged offering of regulated products without the appropriate approvals, such as digital stock tokens and derivatives.
READ Binance faces fresh Singapore warning as CEO eyes up US listing
Binance, which has no official headquarters, operates via a network of local affiliate businesses. However, under questioning from regulators, it has refused to make the names, locations and senior staff of all affiliates publicly available.
The platform, which has applied for a licence to operate in Singapore via its local subsidiary, is permitted to continue operating while it resolves the matter.
BitConnect targeted by regulators over $2bn bitcoin fraud
The US Securities and Exchange Commission this week accused crypto platform BitConnect and its founder, Satish Kumbhani, of an alleged $2bn fraud involving bitcoin raised from global investors.
In 2016, BitConnect sold its own cryptocurrency token to investors in exchange for bitcoin, saying that it had an automated program that would make money by trading the contributed bitcoin. Profits would be shared with investors through interest payments.
However, the SEC said BitConnect didn’t use a program to trade bitcoin — instead, it accused Kumbhani of keeping some of the bitcoin for himself and other promoters of the scheme. The current whereabouts of Kumbhani, who was based in India at the time of the alleged scam, are unknown.
READ BitConnect and founder Satish Kumbhani under regulatory fire over alleged crypto scam
Thousands of people had invested in BitConnect, the SEC said in the lawsuit filed in New York on 2 September, many of whom lost most or all of their funds.
Glenn Arcaro, a US-based promoter for the scheme, pleaded guilty in federal criminal court over his role in fleecing American investors. The SEC said the 44-year-old Arcaro and his company received more than $24m in commission in exchange for promoting BitConnect on YouTube and other platforms.
The SEC’s growing crypto regulation problem
Gaps in US regulation of the cryptocurrency sector must be fixed if watchdogs are to sufficiently protect investors from harm, the SEC’s chair Gary Gensler has said.
Speaking as he gave evidence to the European Parliament’s economic and monetary affairs committee on 1 September, the boss of the US’ top markets authority said there are holes in the country’s legislation through which “the public is going to be hurt”.
Washington’s regulation of cryptocurrency platforms is a work in progress, with lines yet to be drawn over which market regulator should be in charge of the sector’s various parts. Today the task is largely split between the SEC and the Commodity Futures Trading Commission, though whether digital assets are considered securities or commodities is also hotly debated.
READ Crypto regulation must address ‘gaps’ in US oversight, says SEC chair Gensler
Gensler told the EU committee that the two organisations are working together to do what they can on crypto, but that they will still need to update laws that were “written in an earlier bricks and mortar time” if they’re going to make an impact.
“In the US, we have significant authorities that are clear, but we also have some gaps,” he said. “How do you ensure that [crypto platforms] are really inside the regulatory perimeter for guarding against illicit activity and investor protection, bringing them clearly in while at the same time not undercutting your current robust regulatory regimes?”
Gensler, who is also a former chair of the CFTC, added that “the transformation we’re living through right now could be every bit as big as the internet in the 1990s”.
FTX moves into derivatives
Crypto exchange FTX has agreed to acquire LedgerX, the first company to gain federal approval to offer crypto-linked derivatives in the US, for an undisclosed sum. The move means FTX’s US entity, FTX.US, might soon move into the derivatives market.
“We’re excited to take this step and work with US regulators to ensure compliance with the existing derivatives licensing regime,” said Brett Harrison, FTX.US’s president, in a 31 August statement.
“We believe it is incumbent upon the industry to be proactive and to seek out working relationships with regulatory groups like the CFTC to help shape the future of our industry.”
FTX recently set the record for the largest private funding round in the cryptocurrency sector ever, raising $900m at a valuation of $18bn in July. Its founder Sam Bankman-Fried is the richest person in crypto with a net worth of $16.2bn, according to Forbes.
Companies in the UK are banned from offering derivatives linked to cryptocurrencies to retail investors because the Financial Conduct Authority ruled they are too complex for non-professional traders to access. Derivatives products such as futures and options are highly regulated, and others such as Binance have got into trouble for offering them without proper authorisation.
Bankman-Fried had issued a robust defence of crypto derivatives, speaking in comments published one day prior to the announcement of its LedgerX acquisition.
“This is a somewhat misunderstood area. A lot of people are seeing something happening and assume this is the first time it has happened in history. That might be true in some cases, but not in all. I think derivatives are a good example of this,” Bankman-Fried said in a 30 August interview with Forbes.
“I think it adds liquidity to markets and makes them more efficient in general. There are cases where it makes them less efficient, though, and these get a lot of attention in crypto, because they are sometimes quite important.”
Cardano is getting record investor attention
Smaller cryptocurrencies are having a resurgence, as bitcoin posted its eighth consecutive week of outflows and cardano reported record-level inflows.
Altcoins including ether, solana and polkadot made up 32% of total digital assets under management by investors last week, according to data from CoinShares, surpassing levels sighted in 2018 when the crypto market was much smaller.
Cardano, which trades under the ticker ADA, gained $10.1m in inflows in the week to 30 August — setting a new record for the world’s third-largest cryptocurrency, which was founded in 2017.
READ Cardano racks up record inflows as altcoins scale up during bitcoin’s downfall
However, the token’s overall slice of the pie is still tiny compared to crypto behemoths ether and bitcoin. Cardano’s market capitalisation was nearing $100bn as its price rose to a record high on 2 September, far behind ether’s $455bn and bitcoin’s $926.7bn.
Meanwhile, bitcoin continued its slide with outflows of $3.8m. The cryptocurrency has reported outflows in 14 out of the last 16 weeks, CoinShares said, totalling $650m.
To contact the author of this story with feedback or news, email Emily Nicolle