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The Ledger: Binance’s Secret Sauce, Fake Satoshi, Waiting on Bakkt

The Ledger: Binance’s Secret Sauce, Fake Satoshi, Waiting on Bakkt

I’ve written about the tech industry for ten years but never can I recall a firm becoming so dominant so fast as Binance. The exchange came out of nowhere in mid-2017 and rapidly gobbled up a huge share of the crypto trading business, while also launching its own currency—Binance Coin—that now has a market cap over $3 billion, and is the seventh most valuable cryptocurrency in the world.
How did Binance pull it off? A big part of its success lies in a feat of regulatory arbitrage, which has seen Binance skip from country to country in order to avoid serious scrutiny from governments. In doing so, Binance further minimized its legal exposure by focusing on crypto-to-crypto trading and avoiding the heavily regulated fiat banking system.
Steering clear of regulators is only one reason for Binance’s success. Another key factor is its launch of a cryptocurrency that’s actually useful. In a shrewd move, the company tied the use of Binance Coin to trading discounts, and also introduced a so-called “burn” program to purchase and destroy batches of the coins at regular intervals—a policy akin to share buybacks. More recently, Binance has made holding the currency a prerequisite to participate in its Launchpad platform, which offers a curated list of crypto projects to investors.
“What’s unique about Binance Coin is it’s so much easier to value than other tokens,” says Jeff Dorman, a former Wall Street trader who is now Chief Investment Officer at crypto investment firm Arca in Los Angeles. The burn program, for example, “means you could use the same discounted cash flow metrics used to value traditional companies,” he adds.
This month, Binance’s ambitions got even bigger as the company plans to nudge companies to move their token operations from Ethereum to Binance’s own blockchain—where they’ll pay fees in, you guessed it, Binance Coin. If CEO Changpeng Zhao can pull this off, Binance will be richer and more formidable than ever.
But one other thing I’ve learned in a decade of covering tech is that market dominance can be transient, and barriers to competition can be an illusion. Overnight success stories can collapse as fast as they rise.
This, then, will be Binance’s next big test: It has market power but will it have staying power? If Zhao’s company is still on top a year from now, we could have the crypto version of Facebook or Google—monopolists protected by powerful network effects—on our hands. More news below.
***
Speaking of giant crypto companies, our inaugural Brainstorm Finance conference will feature a conversation between the CFOs of the two biggest—Binance and Coinbase—who will tell us what it’s like holding the finance reins. Come join us in Montauk, New York on June 19-20.
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$434,000,000
That’s the fall-off in total crypo investments from Q4 of 2018 ($465M) to Q1 of 2019 ($31M). A quarter-to-quarter change is just that, however, and doesn’t tell the full story. The bulging Q4 figure consists mostly of Coinbase’s Series E and, even in the midst of the so-called crypto winter, investors are still on the prowl for deals. As CB Insights (source of the figures above) notes, new hot sectors include “Ethereum killers,” privacy and custody. The research firm also supplied a list of the most active VC investors. The top three: Andreessen Horowitz, General Catalyst, Union Square Ventures.

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Fake Satoshi Smackdown. Crypto Twitter brimmed with delight when Binance CEO CZ delisted an alt-coin created by Craig Wright, a controversial entrepreneur who says he is Satoshi and threatens to sue those who claim—with ample evidence—that he’s not. It didn’t take long for the smackdown memes to roll in:

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NYSE’s long wait for Bitcoin. The venerable New York Stock Exchange made a splash in 2018 with its plans to get into the Bitcoin business through a subsidiary called Bakkt. It’s more than nine months later and the project is hopelessly tangled in a regulatory morass with no launch in site. What happened? In an interview with the Chair of the CFTC, Coindesk provides a painstaking portrayal of the specific problems. In short: Bakkt’s initial plan to store bitcoin in its own digital “warehouse” fell afoul of complex custody rules, while also making clearinghouses uncomfortable.

Since [NYSE] is not a bank or state-regulated custodian, this would have required an exemption to the rules described by [the CFTC Chair]. … “A potential challenge here, and as we saw with bitcoin futures, is that the other asset class participants in the clearinghouse don’t always want the exposure to mutualize their risk on their interest rate or commodity futures with somebody else’s cryptocurrency holdings.”

We hope you enjoyed this edition of The Ledger. Find past editions here, and sign up for other Fortune newsletters here. Question, suggestion, or feedback? Drop us a line.

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IRS: New cryptocurrency tax guidance coming “soon”

IRS: New cryptocurrency tax guidance coming “soon”

This site uses cookies to enhance your reading experience. By using this site, you consent to our use of cookies.OkayStories Illustration: Lazaro Gamio/AxiosThe Internal Revenue Service is planning to “soon” issue new guidance about the taxing of cryptocurrencies and other digital tokens, the agency’s chief said in a letter to U.S. Representative Tom Emmer. Why it matters: The IRS hasn’t issued guidance on the topic since 2014, leaving investors and enthusiasts increasingly frustrated, especially with new developments like Bitcoin forks that have complicated matters. Members of Congress have attempted to clarify the rules by introducing bills or asking the IRS to provide more guidance.Go deeper: Taxes are tricky for cryptocurrency investors
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SEC Punts on Bitcoin ETF as Unfazed Crypto Bulls Dig in Their Heels

SEC Punts on Bitcoin ETF as Unfazed Crypto Bulls Dig in Their Heels

SEC Punts on Bitcoin ETF as Unfazed Crypto Bulls Dig in Their HeelsThe U.S. SEC has once again kicked the can on a bitcoin ETF decision, but there are too many positive developments in crypto for investors to ignore. | Source: ShutterstockBy CCN: The U.S. Securities and Exchange Commission has decided once again to kick the can on its decision about a bitcoin ETF. In a ruling published today, the securities watchdog revealed that an answer on the VanEck/SolidX Bitcoin ETF as proposed by the Cboe would be postponed for another 90 days, pushing the deadline back to August 19. The crypto community wasn’t shocked by the announcement, but the bitcoin price has retreated modestly from Sunday’s fresh 2019 highs. Despite the pullback in the bitcoin price, the cryptocurrency market has several major catalysts this year that will continue to fuel the bull market. And the SEC can’t stick its head in the sand on bitcoin forever.The bitcoin price pulled back modestly from Sunday’s fresh highs. | Source: CoinMarketCapGabor Gurbacs, director of digital assets strategy at VanEck/MVIS, responded to the latest delay on Twitter, basically saying the firm will not give up and adding:“Bitcoin is too big to ignore. Vires in numeris!”The VanEck SolidX #Bitcoin #ETF decision has been postponed by the SEC. We continue the hard work towards better-regulated, safer and more liquid digital assets markets. Bitcoin is too big to ignore. Vires in numeris! Public document and timelines: https://t.co/F9cV95CHKN pic.twitter.com/hgyhVE0nJr— Gabor Gurbacs (@gaborgurbacs) May 20, 2019The SEC Delayed A Different Bitcoin ETF Last WeekLast week, the SEC decided to delay another bitcoin ETF issued by Bitwise. Its decision to stay mum at the time about the VanEck product left many wondering what the fate of the most high-profile ETF would be with the May 21 deadline right around the corner. According to attorney Jake Chervinsky on Twitter, the fact that the SEC needed more time to issue its decision on the VanEck bitcoin ETF product was likely due to semantics.15/ To be fair, the fact that the SEC delayed Bitwise & stayed silent on VanEck could mean nothing at all.Maybe SEC staff just hasn’t had time to finish the VanEck delay order yet. These things take time & there’s no reason why the SEC has to issue ETF delays at once.— Jake Chervinsky (@jchervinsky) May 19, 2019While they ultimately decided to punt on both bitcoin ETFs, they didn’t issue a flat-out rejection. It seems as though they are just waiting as long as possible to drag this out until either there is a regulatory framework from which to work or the crypto community gives up, the latter of which isn’t going to happen.Many Reasons to Remain Bullish on BitcoinThe attitude emanating from Crypto Twitter was basically one of annoyance. For example,“The market will pump with or without the ETF news.”Another said:“Apparently no one cares about an ETF. Just buy a bitcoin.”Bitcoin’s Higher Highs and Higher LowsA bitcoin ETF would be nice but the crypto revolution is much bigger than one single product. Sure, it would incentivize big investors whose capital remains sidelined to jump in, and the SEC knows this. It means that the average Joe will probably gain exposure to bitcoin in their retirement fund. So they are being probably overly cautious. In the meantime, bitcoin has proven its resilience in 2019. It has been trading on positive developments and taking setbacks such as the ETF delay in stride, as evidenced by a market cap that remains close to Sunday’s $140 billion.Bitcoin is back to $140 billion market cap.This thing just refuses to die.— Pomp 🌪 (@APompliano) May 19, 2019As industry leaders have been saying, the BTC price lows are getting higher and the highs are getting higher. Over the weekend, CBS/60 Minutes shared bitcoin with millions of American households. Fidelity is poised to roll out its bitcoin trading service to institutional investors, and the launch of Bakkt is right around the corner. Bitcoin has plenty of catalysts until the SEC finally realizes that it’s not in charge of deciding how much risk investors choose to inherit. About The AuthorGerelyn TerzoGerelyn is Assistant Editor at CCN. Before crypto, she was covering institutional investing on Wall Street but caught the bitcoin bug soon after. She resides 13 miles outside of New York, close enough but also far enough away to escape it all. Follower her on Twitter (@cryptogerelyn) or email [email protected] Disclosure, she “hodls” bitcoin.This article was edited by Gerelyn Terzo.
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