On the whole, cryptocurrency prices are down from our previous report on cryptos, with the market slipping on news of an exchange being hacked and a report about Bitcoin manipulation.
However, there have been two bright spots: 1) an official from the U.S. Securities and Exchange Commission (SEC) said that Ethereum is not a security, and 2) Coinbase is expanding its selection of tokens.
Let’s start with the good news.
SEC Says ETH Is Not a Security
Investors have some reason to cheer this week. A high-ranking SEC official told attendees of the Yahoo! All Markets Summit: Crypto that Ethereum and Bitcoin are not securities.
“…current offers and sales of Ether are not securities transactions,” said William Hinman at the event in San Francisco. (Source: “U.S. SEC official says ether not a security, price surges,” Reuters, June 14, 2018.)
This ends several months of back-and-forth speculation as to whether the regulatory agency would impose stricter rules on the biggest cryptos in the world.
The agency did, however, draw a firm line between cryptocurrencies like Ethereum and digital tokens like Basic Attention Token (BAT), which it says explicitly used the promise of future gains to raise money.
“Can a digital asset originally sold in a securities offering eventually be sold in something other than a security?” asked Hinman. “How about cases when there’s no longer a company [involved]? I believe in those cases [the] answer is a qualified yes.” (Source: “SEC announces cryptocurrency ether is not a security,” Yahoo! Finance, June 14, 2018.)
The dividing factor appears to be whether a third party continues to control or depend upon the cryptocurrency. Those that do not are free.
Coinbase Is Adding a Fifth Token & Crypto Index Fund
The long-awaited day is here: Coinbase is adding another cryptocurrency! Unfortunately, it is not Ripple (XRP).
For some reason, the most popular crypto exchange this side of the Atlantic Ocean continues to ignore the world’s third-biggest cryptocurrency. I don’t understand why, but I’ve given up hope that Coinbase will do the right thing. It’s time to look for other trading venues.
In any case, this time the winner is Ethereum Classic (ETC), which you might remember from the dramatic hard fork in July 2015, wherein a small group of developers split off the Ethereum blockchain to form their own cryptocurrency. (Source: “Adding Ethereum Classic Support to Coinbase,” The Coinbase Blog, June 11, 2018.)
Coinbase announced its plan to add support for ETC sometime in the “coming months.” My guess is that they avoided a specific date to beat charges of insider trading, which have plagued the company since Bitcoin Cash (BCH) prices soared ahead of their announcement.
In other news, Coinbase added an index fund that only accepts investments over $250,000 and under $20.0 million. The pooled resources are then divided among Coinbase’s listings, weighted by market cap. (Source: “Coinbase Index Fund is Open For Investment,” The Coinbase Blog, June 12, 2018.)
A $40-Million Crypto Hack Sent Prices Spiraling
Wait a minute, you might be thinking, both of those stories are positive. The SEC not designating ETH a security? That’s good! And Coinbase expanding its selection? Also good!
So why then are cryptocurrencies down from last week?
There are, of course, several reasons that we’ll parse later, but the first was undoubtedly the hack of Coinrail, a cryptocurrency exchange based in South Korea. (Source: “Coinrail Exchange Hacked, Loses Possibly $40 Million in Cryptos,” CoinDesk, June 11, 2018.)
A range of altcoins were stolen from the exchange, including “NPXS,” “NPER,” and “DENT.”
The initial value of the attack was roughly $40.0 million, although falling cryptocurrency prices are eroding that number as I write.
Reports surfaced of the hacker trying to fence the tokens, but we don’t have confirmation on whether those transactions went through.
New Report Suggests Rampant Price Manipulation
Probably the most damning story, however, is a new report from the University of Texas at Austin.
The researchers allege that Tether, a token pegged to the U.S. dollar, was manipulating the rise in Bitcoin (and other cryptos) during the epic rally in late 2017. (Source: “Is Bitcoin Really Un-Tethered?,” SSRN, June 13, 2018.)
If true, the report could instigate a market-wide sell-off.
Also cast as a villain in this story is Bitfinex, the Hong Kong-based exchange with shady ties to Tether. Researchers describe the two organizations as peas in a pod, saying that “entities associated with the Bitfinex exchange use Tether to purchase Bitcoin when prices are falling.”
While this isn’t damning in and of itself, the report goes on to say:
“Such price supporting activities are successful, as Bitcoin prices rise following the periods of intervention. These effects are present only after negative returns and periods following the printing of Tether.” (Source: Ibid.)
Ouch. Cryptos already have a negative perception among the general public, and I don’t see this improving matters. Hopefully, the fallout is limited to Bitfinex and Tether.
On the whole, this was a bad week for cryptos. And not just perception-wise.
A lot of credibility is at stake over the manipulation charges, so it’s important that regulators and industry work together to make cryptocurrency exchanges more transparent and accountable. While I’m not ready to call it quits for 2018, I will admit that the road to recovery just got steeper.