Crypto Correction Hurts Investors in Overstock, Square, and Others

Companies and their investors who have jumped on the cryptocurrency and blockchain bandwagon are discovering the other side of aligning their image to digital currency. During the bullish 2017 market, firms who announced support for Bitcoin, or included blockchain in their branding or business models, experienced sharp rises in their stock price. However, following the news that a crypto clampdown might be soon underway in Asia, the fear and uncertainty surrounding the markets of Bitcoin and its close cousins has spread to traditional stocks associated with the emerging asset class.

Payment processing company Square integrated Bitcoin buying and selling functionality to their app late last year. Following the news, the price of their shares immediately shot up. However on Tuesday, as the price of Bitcoin plummeted to around $10,000, Twitter CEO Jack Dorsey’s company also lost $90 million in market value. Square ended regular trading with a valuation of $15.1 billion. This equates to a loss of around 5%.

Meanwhile, e-commerce company Overstock suffered a similar fate. They’ve been long time proponents of cryptocurrencies and were one of the earliest big names to allow their customers to pay in them. Following the sizeable correction experienced this week, the price of their stock fell 11%. They ended the trading day with a loss of around $200 million. This put their market capitalisation at $1.8 billion.

However, it’s not just these larger names that have been affected by the downturn in the price of cryptocurrencies. Examples like Riot Blockchain (formerly Bioptix), a once-biotech company who recently moved into the crypto space lost 17% of their market cap. Meanwhile Eastman Kodak, the camera manufacturing giant, recently announced that they would offer their own cryptocurrency known as Kodakcoin. The news sent their stock price soaring 60% on the day it was announced. However, yesterday they too suffered 8% losses.

Typically, the South Korean and Chinese cryptocurrency markets have been some of the planet’s largest. It’s therefore not surprising that fear of government hostility towards digital currencies there would create such a downturn across almost all blockchain-based coins. No doubt that cryptocurrency naysayers around the globe will be busy penning yet more Bitcoin obituaries to add to the ever-growing list of times that Bitcoin “died”.

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Soldiers in South Korea will no longer be able to access online cryptocurrency trading websites whilst at military bases. A notification issued Monday by the Ministry of Defence outlined plans to crackdown on digital currency trading. They also began shutting down access to websites about Bitcoin and other virtual currencies at the same time. The notification read:

“According to internal rules, we will gradually shut down internet access to websites on encrypted currency starting Monday.”

The measure is in line with other prohibited material on military bases. This includes pornography and online gambling websites. The Korea Times report that a further crackdown on soldiers using cryptocurrency might be incoming. According to a ministry official:

“We are going to announce specific countermeasures for cryptocurrency transactions made in military units… The ministry is in internal talks to confirm whether it is against military regulations.”

The unnamed source reportedly continued to suggest that the tightening of regulations aimed to protect soldiers’ morale against the potential ill-effects of a market as volatile as cryptocurrency.

As of yet, it’s unclear what additional preventative measures the Ministry of Defence will take against those using cryptocurrrency. However, since Monday access to websites about cryptocurrency and exchange pages have been blocked at internet cafes on military bases.

An online notice posted Monday by the military also said:

“According to internal rules, we will gradually shut down internet access to websites on encrypted currency starting Monday… We urge soldiers to refrain from visiting digital token exchanges to avoid disappointment from our decision to block access to relevant sites.”

In addition to the Ministry of Defence getting tough on cryptocurrency, they have also announced that they will offer troops classes on financial education. This is because it is difficult to access such information whilst staying on a base. However, just how free from bias these classes are remains to be seen. It seems likely that any anti-cryptocurrency sentiment running through the government will trickle down to their soldiers’ education.

The news about the military crackdown on Bitcoin and other cryptos comes amid heightened regulatory fear from South Korea. The government there have been posturing about changing legislation regarding digital currencies. It’s unclear how they will go about this at present. Finance Minister Dong-yeon said on Monday that the government were considering whether to shut down domestic crypto exchanges. According to the government minister:

“The thing is the scope of reasonable regulation, but there is no global standard on it… We are coming up with comprehensive regulatory packages, including taxation or real-name-based trading on digital tokens.”

According to their co-chairman Kong Jianping, a company making Bitcoin mining hardware has posted sales of over 1.2 billion yuan (US$ 185.2 million) during 2017. This translates in a profit of a staggering 300 million yuan (US$ 46.6 million). Kong told Chinese media outlet Yicai Global that he anticipates Canaan Creative’s profits to reach 5 billion yuan. This would mean they’d made sales of 10 billion yaun. However, the mining hardware chairperson did not specify a time frame for such a prediction.

Ejinsight, a domestic technology resource claims that Canaan Creative plan to list its shares on the National Equities Exchange and Quotations stock exchange – an over-the-counter way of selling shares in public limited companies in China.

Canaan Creative are one of the planet’s largest manufacturers of ASIC (application-specific integrated circuit) chips. Such components have been tailored towards solving the complex algorithms required to “unlock” the remaining Bitcoin of the total supply of 21 million. The company filed their interest in listing shares on the NEEQ in August of last year.

Canaan Creative itself was founded in 2013 and according to Ejinsight, units they’d sold up until last April accounted for 22% of the global mining hash power on the Bitcoin network. Sales have been steadily increasing inline with surging interest in cryptocurrency since they began selling hardware chips designed for the purpose of mining. The local technology news source claims that of the 400 unique customers Canaan Creative have served, 97% of them are based in China.

However, with news of Chinese hostility towards the cryptocurrency mining industry and so many of Canaan Creative’s clients being located within the country, it seems hard to believe the projections of Kong. Recently the Chinese government have made efforts to squeeze Bitcoin miners out of their nation. Whilst the Beijing government has not expressly banned the practice, certain clampdowns on allowed electricity and land usage, as well as environmental regulation and tax collection, targets those engaging in the highly profitable and hugely power consuming activity.

According to the Financial Times, as part of their agenda against Bitcoin miners, a multi-agency task force has been set up to aid companies from exiting the mining industry.

The clampdown on mining is not the only hostility the Chinese government have shown towards the cryptocurrency space. During September of last year, legislators there banned the innovative fund raising practice known as initial coin offerings (ICOs). On top of this, several key exchanges also ceasing doing business in the second half of 2017. Evidently, Bitcoin and cryptocurrencies are not currently seen as being inline with Chinese economic interests.

Indonesia’s Central Bank, Bank Indonesia (BI), have united with the national police service to tackle the illegal use of Bitcoin in Bali. According to them, the tourist hot spot is much more likely to attract people trying to use the cryptocurrency for transactions that are outside the law. The Jakarta Post and local language news source Tempo.co report that on Saturday, January 13, a senior member from BI, Causa Iman Karana, announced the clampdown in Dempasar, the capital of the romantic island getaway location:

“We are looking out for bitcoin transactions in Bali, particularly in tourist spots. We will take measures against non-rupiah transactions.”

Karana also called on the people of Bali to not accept transactions using digital money. For the banker, it is the lack of central authority regulating transactions that is a primary cause for concern. Like most central bankers, the fear of their own pending redundancy was also a likely motivating factor behind his words.

This recent  crackdown in Bali is part of a wider initiative against the use of cryptocurrency in the nation of Indonesia. According to national legislators, making transactions in Bitcoin violates Law No. 7/2011 on currency. This recent reiteration underlines the initiative penned at the bank late last year. In early December, Bank Indonesia issued BI Regulation No. PBI: 19/12/PBI/2017. This expressly banned the use of digital currency in Indonesia and stated that all transactions and payments must be made using the national currency, the rupiah. A spokesperson for the bank, Agusman, at the time spoke of the risks posed to those getting involved in the digital currency space. Like Karana, he too deemed the primary issue with virtual money transactions the lack of centralised control:

“We warned people not to carry out transactions with virtual money because there is no authority that regulates the transactions.”

The bank spokesperson went on to highlight the speculative risk of using Bitcoin and other cryptocurrencies. Also amongst his concerns were the dangerous posed to the state because of money laundering, as well as the ease with which virtual currencies could be used to finance terrorism. Agusman concluded with a straight forward message for the people of his country:

Therefore, [BI] wants all parties not to sell, buy or trade the virtual currency.

Indonesia isn’t the first and it certainly won’t be the last country who attempts to stamp out the use of virtual currencies by force. Across the globe, Bolivia, Algeria, Ecuador, and Nepal are amongst those nations that have issued an outright ban on the use and trading of digital currencies. However, such small economies are incapable of moving the price of BTC or any other currency in any dramatic fashion. If the global popularity of crypto continues to grow, it’s likely that these States will be forced to liberalise their knee-jerk legislation or else get left further behind the planet’s larger economies.

 

According to a note issued by HBSC economic analyst James Pomeroy, Sweden could be the first nation to issue their own cryptocurrency. A document, which was sent to clients this week, titled “Sweden’s Big Year: Can the Economy Overcome Some Challenges?” set forth some rudimentary proposals of what an e-krona might look like.

The international bank that is HSBC calls the Swedish economy “one of the world’s most interesting”. It would be a fitting place to roll out a central-bank-issued, digital currency as they have one of the lowest actual cash usage rates on the planet. According to Business Insider, the use of cash is actively discouraged by shops and other businesses offering various goods and services. The business-focused news source also highlights anecdotal stories of beggars and buskers having their own card terminals to take electronic payments out in the street.

The HSBC-issued note states that the launch of a so-called “e-krona” might not happen this year but is something that may occur within the next few years.

Sweden’s Riksbank have identified two possible ways that a centrally issued digital currency could work. One is based on value, the other is on a register system. HSBC claim that the first option “would be more like cash is at present, with value stored on an app or a card rather than in a central database”. Meanwhile, the second option would use a register-based system. This would mean that e-krona would be stored on centrally registered accounts themselves. According to Pomeroy, the second option is:

“… more complex, but may make the framework easier to expand and develop over time, and would likely require the use of blockchain technology.”

Meanwhile, Sweden’s central bank has stated that it would consider using a combination of both options. The HSBC analyst added:

“A Central Bank Cryptocurrency (CBCC) would use blockchain technology, whereas a non-blockchain solution would make the e-Krona a ‘deposited currency account’.”

In addition to the fact that Sweden are already moving quickly towards a cashless society, the history of financial innovation within the State makes their efforts to be the first to launch a national digital currency fitting. Over 350 years ago, it was in Sweden that the first modern banknote was created. It’s therefore appropriate that things have moved full-circle and it is in the Scandinavian nation that cash itself might finally cease to exist.

Sweden are by no means the only country to consider launching their own digital currency though. Over the Christmas break, the Bank of England made headlines after speculation increased over them launching their own virtual currency later this year. There has also been talk of a CryptoRuble from Russia, and recently Ukraine have hinted towards similar via their own Facebook page.

 

Image: PixaBay

 

One of the latest pop groups to emerge out of Japan are the trend-riding Kasotsuka Shojo. The name translates to Virtual Currency Girls and in typical J-Pop style, each of the eight members wear a different costume representing one of the largest cryptocurrencies. Amongst the performers are Bitcoin, Bitcoin Cash, NEM, and Ethereum.

The all-girl band are seeking to educate the public about digital currencies from a wider angle than simply pure speculation. This is evidenced by their first song, “The Moon and Virtual Currencies and Me” and another tune which includes the lyrics, “Don’t forget about two-step verification,” and “Never use the same password twice”.

Kasotsuka Shojo were created by the Japanese girl band factory that is the Cinderella Academy. The entertainment company also manages several other popular groups.

The crypto-themed band played their first show in Tokyo last Friday. It was an action-packed thirty minutes in which the eight-piece explained the benefits of using electronic currencies, as well as the present security risks faced by those in the space. During the performance, various dramas from the digital currency space were acted out on stage. In one such vignette, the girls representing Bitcoin and Bitcoin Cash had a scrap over Hinano Shirahama’s (BTC) assumed leadership of the cryptocurrency world. BCH’s representative, Rara Naruse, declared:

“The surge of Bitcoin caused various problems. To solve these, Bitcoin Cash was established, with smaller fees and quicker transactions. So I think Bitcoin Cash will replace Bitcoin at some point in the future. The market cap of Bitcoin Cash will be number one!”

It should come as little surprise that the world’s first cryptocurrency-themed pop group hails from Japan. Besides the nation’s love of music that often seems quirky but is sometimes downright bizarre to us in the West, Japan are also trend-setters in the treatment of Bitcoin as legal tender there. At one stage, the island State accounted for the largest share of global Bitcoin trading and their Tokyo-based BitFlyer exchange platform continues to be one of the planet’s largest. Quartz report the research of Japanese finance company Nomura. They state that thanks to the sharp rise in the price of Bitcoin over the last twelve months, combined with Japan’s embrace of the technology, has helped their GDP to the tune of 0.3%.

 

Image: PixaBay

 

A prominent Iranian banker has come out in support of digital currencies. Masoud Khatouni, a senior member at Iran’s largest bank, has called for Bitcoin and other cryptos to be recognised and accepted into the nation’s banking system. According to Bank Meli Iran’s deputy for information technology and communications:

“Iran must formally recognise activities using digital currencies as they are currently shaping the future of banking. Banks themselves must also enter this field to use them.”

Khatouni’s stance is markedly different from other prominent bankers in Iran, however. The governor of the Central Bank of Iran (CBI) and their head of innovative technologies have both recently urged citizens to exercise great caution when dealing with digital currencies.

However, Khatouni believes that his nation could benefit from digital currency, particularly as they have a history of dealing with the burden of economic sanctions. He told prominent Iranian financial news source IBENA:

“The future of banking throughout the world is intertwined with digital currencies, which are entering the banks silently as most banks remain oblivious to their presence.”

The BMI official went on to state that there should be “no limitations” on the use of digital currencies. This, he believes, will allow companies to reap the benefits of cryptos with greater confidence and transparency. He proposed that the CBI should create a group entirely focused on integrating digital currencies into their banking practices. Such a department should then be used to determine regulations going forward.

“I ask central bank officials to refrain from creating restrictions for digital currencies by way of laws and regulations, because based on the current realities of the world, they have taken form and the Iranian people have also moved toward them.”

Despite the mixed signals coming from Iran’s banking sector, it appears that the nation is generally supportive of cryptocurrencies. In October last year, we reported on the Iranian central bank’s desire to see a cryptocurrency infrastructure developed for the nation. Nima Amirshekari, head of Electronic Banking at the Monetary and Banking Institute, said:

“CBI views it [Bitcoin] as something that can be controlled and does not see it as multi-level marketing or a pyramid scheme.” 

It’s believed that the Middle Eastern State are aiming to have a regulatory frame work for digital currencies setup by September of this year. How this will sit with the religious elements of the nation’s leadership remains to be seen, however. Member of parliament Mohammad Reza Pour-Ebrahimi believes that digital currency is against Islam. This sentiment was echoed as recently as last week in Egypt too. Counsellor of the Republican’s Mufti, Dr. Magdy Ashour told a local news source that Bitcoin was “not an Islamic concept”.

 

The US Securities and Exchange Commission (SEC) has issued its second warning in a month to those investing in cryptocurrencies. In a statement earlier today, the governmental body advised those involved in the space to “exercise caution” with Bitcoin and other digital currencies. SEC Chairman Jay Clayton, along with Commissioners Kara Stein and Michael Piwowar, said many companies hosting initial coin offerings were not doing so within compliance of federal and state securities regulations.

They went on to state that whilst legislators were attempting to keep pace with the rapidly evolving markets, policing them is difficult and thus investors must use their due diligence when deciding whether to get involved with crypto investments.

According to a report by Reuters, the Commissioners’ statement read:

 “The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”

As mentioned, today’s warning is the second from the SEC in less than a month. On Monday 11 December, Jay Clayton advised caution to those wishing to partake in initial coin offerings. The SEC Chairman’s statement came just hours after the Commission were forced to intervene in an ICO being held by a restaurant review application. The issue arose due to the company not registering as a security:

“A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that … there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation… If an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.”

Despite the frequency with which the SEC are issuing warnings surrounding the cryptocurrency space, the Commission seems much more concerned with initial coin offerings than it does with Bitcoin and existing digital currencies for now. The cautionary words should go without saying to anyone hoping to invest in anything.

One of the Bank of America’s wealth management divisions, Merrill Lynch, has forbidden clients to invest in Barry Silbert’s Bitcoin Investment Trust. The news comes via a memo from the financial advisory firm last December which was seen by Reuters.

The note was sent to around 17,000 brokers at both Merrill Lynch and their subdivision of independent trade managers, Merrill Edge. According to the memo dated December 8, 2017, the wealth management firm will no longer approve new orders for Silbert’s trust. This was due to uncertainty over the “suitability and eligibility standards” of the Bitcoin fund.

The Bitcoin Investment Trust was founded in 2013 by the serial-digital currency entrepreneur Barry Silbert. It’s managed by Grayscale, a subsidiary of the Digital Currency Group, who also own CoinDesk. Silbert himself has also been heavily involved with the financing of several other digital currency ventures in recent years. These include Ripple and Coinbase, and BitPay.

In response to the memo reported by Reuters, Silbert said via email:

 “We look forward to speaking with Merrill Lynch and addressing any questions or concerns they have about the Bitcoin Investment Trust… We are unaware of any similar policies at other brokerage firms.”

Prior to the December ban, those trading through Merrill Lynch and Merrill Edge could buy stakes in the Bitcoin Investment Trust. However, such privileges have been revoked for all but their clients with historic positions with the trust. Those who have fee-based advisory accounts have been forced to sell their holdings.

The attitude of Merrill Lynch towards Bitcoin financial products should hardly come as a surprise. The Bank of America also refuse to offer their clients exposure to either the CBOE or CME Group futures markets that were launched late last year. Such policies represent a growing division within traditional financial institutions over how to treat Bitcoin. These differing stances between large banking and brokerage firms are likely to continue as further trading options become available in the future.

A leading crypto-analyst at EXMO, an exchange based in the UK, has been kidnapped in Ukraine. According to a report in the Telegraph, Pavel Lerner was taken from outside his office in a district of Kiev called Obolon.

The abduction took place on December 26. Reports from local media claim Lerner was dragged into a black Mercedes-Benz as he was leaving work. Exactly who is behind the incident is currently unknown. All the perpetrators concealed their identities using balaclavas.

Curiously, after the news broke about Lerner’s kidnapping, the EXMO exchange experienced a DDOS attack. This temporarily affected trading. However, normal service has since resumed.

Despite the gravity of the incidents affecting the company, a statement from them to RT claimed that the kidnapping would not affect the operation of the exchange and that users needn’t fear the loss of funds from their accounts. It read:

“We are doing everything possible to speed up the search of Pavel Lerner… Any information regarding his whereabouts is very much appreciated. Despite the situation, the exchange is working as usual. We also want to stress that nature of Pavel’s job at EXMO doesn’t assume access either to storages or any personal data of users. All users funds are absolutely safe.”

The kidnapping is the latest in a spate of criminal acts against cryptocurrency exchanges. They’ve become lucrative targets with the prices of digital assets ever-increasing throughout 2017. Being cryptographically-secured, and decentralised, cryptocurrencies themselves, when stored correctly, don’t present many opportunities for cybercriminals. However, vast stores of digital assets, such as those kept by exchanges, provide a suitable honeypot to direct criminal operations toward. This year, several exchanges and centralised cryptocurrency services have had their security comprised.

YouBit fell to cybercriminals twice in 2017 causing them to declare bankruptcy, and Slovenia-based cloud mining firm NiceHash were also victims of similar attacks. Meanwhile, various ICOs have been targeted by cybercriminals, as well as the Ethereum wallet platform Parity. The trend looks set to continue into 2018 as interest in cryptocurrencies increases.

Such examples are causing companies that are new to the space to consider security more than ever. Unnamed sources associated with Goldman Sachs (rumoured to be in the process of opening a trading desk by mid-2018) have acknowledged the importance of keeping their platforms safe from the threat of cyber attacks. The security of client funds represents one of the largest obstacles for them and ensuring they are airtight before they launch is likely behind the delayed the launch of the Goldman trading desk until June of next year.

UPDATE

In the latest statement, EXMO officials reiterated the earlier message and requested the public to share any useful information. The statement reads,

“We are doing everything possible to speed up the search of Pavel Lerner. Any information regarding his whereabouts is very much appreciated. We are kindly asking you to email to [email protected] in case you are aware of any facts that might help the investigation. Despite the situation, the exchange is working as usual. We also want to stress that nature of Pavel’s job at EXMO doesn’t assume access either to storages or any personal data of users. All users funds are absolutely safe.” 

The article originally labeled Pavel Lerner as the Chief Technological Officer at EXMO. However, the company has since then clarified that Lerner was the platform's leading analyst and not the CTO or CEO as few publications have reported.
Image: Shutterstock