The ex-SEC attorney David Labhart will also act as co-general counsel for the platform.
Blockchain platform TRON has hired a former United States Securities and Exchange Commission (SEC) supervisory attorney as its first chief compliance officer. The company has revealed this to Cointelegraph in a press release on Jan. 9.
David Labhart, who previously worked as an attorney for the U.S. regulator, will also take on the role of co-general counsel at the company.
TRON, along with its associated TRX token, has built a major presence over the past year, in part due to the continued, and at times controversial, publicity efforts centred around CEO Justin Sun.
Designed to offer an alternative platform for decentralized applications (DApps) to Ethereum, TRON celebrated its one millionth user account last month.
TRX has risen 6.4 percent in the past 24 hours according to CoinMarketCap data, making it the best daily performer in the top twenty cryptocurrencies by market cap.
Evolving regulatory compliance obligations remain an issue for cryptocurrency entities serving both the U.S. and most other major markets. As Cointelegraph reported, some businesses such as crypto exchangeBittrex have opted to split their operations in order to segregate U.S. users, who are bound by different rules.
Unexpected words from a regulator, but then again, Hester Peirce, one of the five commissioners at the U.S. Securities and Exchange Commission (SEC), isn’t an average regulator.
When she speaks of the disruptive role of cryptocurrencies, her words could pass for those of any aspiring blockchain disruptor.
“I’m excited to see what’s going to happen over the next 10 years, how our lives will be affected and I’m excited to see how that will happen,” she remarks over conversation in Washington, D.C., blocks away from the very agency many believe is doing its best to slow that transition, at least when it comes to cryptocurrencies.
Yet, unlike most regulators in Washington, Peirce is unabashedly optimistic about the changes blockchains could bring to society.
It’s not exactly a secret either that she feels that way. You probably know Peirce as “Crypto Mom” – a nickname given after her now infamous remarks dissenting a decision by the SEC to reject an exchange-traded fund (ETF) offering exposure to bitcoin.
But Peirce’s dissent didn’t just contest the disapproval of what would have been the first exchange-traded vehicle of its kind. It was also a rallying cry for bitcoin believers who reject arguments the SEC has been using to delay a key milestone in its market maturation.
To Peirce, it’s an overstep; she argues it’s not the role of regulators to tell investors where they should invest their money.
So, if others at the SEC see crypto as a market that needs to be kept at arm’s length, Peirce’s concern is that regulators risk taking over the narrative around crypto innovation.
“I say we let them give it a try,” she says, with a gaze to match.
Indeed, the very idea that she’s been selected for this list is a symptom of the problem in the eyes of Peirce, who tells CoinDesk:
“I don’t want this world to be a world about regulators. I want it to be a world about entrepreneurs.”
Creating change from the inside
Sure, other regulators have said supportive things about cryptocurrency in 2018.
Even Peirce’s nickname is a nod to the Commodity Futures Trading Commission’s J. Christopher Giancarlo, who earned the moniker “Crypto Dad” for remarks at a U.S. Senate hearing in which he framed the technology as a generational issue.
But if others have made similar comments to less effect, it’s perhaps Peirce’s assured tone that separates her.
Her voice seems to always ring clear, even through the ambient bustle of a D.C. pizzeria. Sitting back in her chair, she confidently rattles off use cases for blockchain in remittances, micropayments, prediction markets and more.
Inside the SEC offices. (Photo by Christine Kim for CoinDesk)
Although, if she sounds like someone who’s about to jump to the private sector, Peirce, who spent over a decade in government before the SEC, clearly sees herself as a regulator first.
It’s also the role of the agency itself that has amplified her actions. Due to the swift rise of initial coin offerings – at one point in 2017, they even surpassed VC funding as a way of raising capital – the SEC has found itself in need of a clear position on just who can issue cryptocurrencies.
Still, it’s less clear what Peirce’s public emergence infers about that question. For one, she alone isn’t able to overturn what she called consensus-driven decisions at the agency.
Labeling her dissent one incremental step “to making the Commission a little more open to innovation,” Peirce gets that the SEC won’t change its apprehensive attitude on crypto “overnight.”
“I came to the SEC, having been here before, knowing that [regulators] are not particularly good with innovation,” she says.
For 2019, she’s eager to work on key “non-enforcement guidance” for cryptocurrencies, listing three different goals for the agency: clarifying whether a cryptocurrency is a security or not, helping people determine when a cryptocurrency might transition from a security into something else and helping trading platforms understand when they are falling short of SEC requirements.
Peirce isn’t concerned about whether those efforts will pay off; she believes they will, over time, and you believe her when she says it.
Ohioan at heart
If she’s out of place at the SEC, though, Peirce also feels like an outsider in Washington.
Despite having resided in the city for 20 years, Peirce doesn’t consider the city her home. She tells me that her heart is still in Ohio. “I still hope to go back to Cleveland one day,” she admits flipping through a menu, “My family is still there. My parents are still there.”
At the same time, Peirce feels drawn to the SEC for its key role in enforcing and creating the framework under which the U.S. capital markets operate.
These markets being a fascinating and powerful force in Peirce’s eyes, her aim as a commissioner from the outset was and still remains all about expanding market access.
“The reason I took this job is because I think our capital markets are an amazing resource for the country and so I care about them. I think they’re a key to unlocking potential in people. … I want to look at ways that we can make it easier for people, a broad range of people, to use those markets.”
Peirce recounts that studying economics at Case Western Reserve University “fundamentally changed” the way she viewed the world. Going on to pursue a law degree at Yale, Peirce would spend close to a decade working in the early days of her career at the SEC as a staff attorney and counsel.
From there, she went on to work for a period under Senator Richard Shelby on the Senate Committee on Banking, Housing and Urban Affairs. Another pivotal moment in Peirce’s professional career was her work on Capitol Hill overseeing regulatory reform after the 2008 financial crisis.
The aftermath of what economists now describe as the worst financial disaster since the Great Depression ultimately got Peirce thinking.
“What is broken in our [financial] system? What is that causes that problem?… Are we responding to it in the right way? Are we making problems worse?” she asked.
The role of a regulator, Peirce now believes, is to ensure regulation is written in such a way that “allows disruptive technologies to come in, allows innovators to come in and challenge the way things have traditionally been done.”
‘Not knocking people over’
So, is she living up to that ideal?
Waiting now for the check, I begin to pry a bit more about her role inside the agency: “Are you able to disclose whether you were responsible for starting the reviews of the nine ETFs that were rejected?”
Peirce’s response to my burning question is a kind but unmoving no.
“Some votes get disclosed and other votes don’t. That’s a vote that doesn’t get disclosed,” she explains.
As for that mystery, it seems, we have only our suspicions. Outside of Peirce’s dissent in July, she tweeted in August that the SEC would move to review a decision disapproving nine different bitcoin ETF proposals, effectively breaking the news ahead of the agency.
Showing a photo where she’s seated with fellow commissioners. (Photo by Christine Kim for CoinDesk)
With no evidence to suggest the action for review had been petitioned by either of the two exchanges filing the proposals (as was previously done in the case of the Winklevoss Bitcoin Trust), proponents in the crypto industry could only guess “Crypto Mom” was behind the action.
Neither do we know how this conversation is progressing inside the SEC itself, as the outcome of the review has yet to revealed. What’s more, one additional proposal – submitted by money management firm VanEck and startup SolidX – remains undecided upon by the SEC, which has until late February of next year to either approve or reject.
As such, there is hope yet in the new year for investors wanting greater exposure to bitcoin through traditional stock exchanges.
At the same time, chances for regulatory approval aren’t exactly high especially given a recent address by SEC chairman Jay Clayton.
Speaking at CoinDesk’s Consensus: Invest conference in November, Clayton warned of persistent concerns over market manipulation barring widespread support from regulators for the open sale and trade of a bitcoin ETF.
This year alone having seen both the launch of an official investigation by the U.S. Department of Justice into cryptocurrency trading, as well as the publication of new academic research suggesting evidence of illicit market tactics to boost bitcoin price, regulators like Clayton at the SEC are hesitant to endorse crypto-based securities.
“How that [manipulation] issue gets addressed, I don’t have a particular path. But it needs to be,” Clayton stated at the conference.
Bringing up these same concerns with Peirce now, she begins by questioning the “statutory authority” she and her fellow commissioners have at the SEC to consider the behavior of the underlying bitcoin markets.
Shaking her head, she tells me:
“Underlying markets are often very messy. Minerals are often mined and traded on exchange in parts of the world that we don’t have any say over or have any regulatory authority over. … From my perspective, we shouldn’t have to look at that. The community itself is looking at those issues.”
“If the regulator is too involved in how that all works, they can mess it all up,” insists Peirce.
Getting up to gather her things, Peirce accidentally bumps into one of the servers at the restaurant, a move she quickly uses to underscore her point.
“See! Regulators are supposed to be in the background, not knocking people over.”
Full steam ahead
Back inside the SEC, Peirce is showing me a picture of a steamship, not exactly an example of “cutting-edge” technology. But to Peirce the picture is a useful reminder of “how technology changes” over time.
Thinking now to the present-day, Peirce likens present market trends in the cryptocurrency industry to a healthy process of “winnowing.”
Commissioner Hester M. Peirce. She was sworn in January 11, 2018. (Photo by Christine Kim for CoinDesk)
“I think people are getting more sophisticated in thinking through: these are the markers of a potentially successful project and these are the hallmarks of one that’s nothing more than a scam,” she remarks.
In the same way, she also seems to understand the SEC needs to take its time, undergoing a lengthy process of review before reaching a conclusion.
“Don’t sit on the edge of your chairs waiting for something to happen from the SEC. You have to go on with what you’re doing,” Peirce advises.
For her part, Peirce affirms that she will continue to work “in the background” to allow innovation in the crypto markets to flourish.
How impactful will those efforts be? Time will tell. But if this resolve isn’t already shared by nearly all innovators and entrepreneurs in the crypto space already, this next one surely is.
“I would suspect that I will continue to want things to move faster than they sometimes do.”
Art by Diego Rodriguez (Plasma Bears by @NeonDistrictRPG)
New research reveals the scope of crypto pump-and-dump schemes.
The Social Science Research Network (SSRN) recently published research studying the phenomenon of pump-and-dump groups within the crypto community. The paper — conducted by seven academics from Tel Aviv University, the University of Tulsa and the University of Mexico — concluded that “regulators should be very concerned that price manipulation via pump and dump schemes is so widespread.”
What is a pump-and-dump scheme?
A pump-and-dump scheme is a type of price manipulation where a group of traders aim to drive an asset’s price up through coordinated buying. Once outside investors notice the surge in price, the insider group starts selling the positions they previously acquired at lower prices, thus making a profit.
SSRN study: Pump-and-dumps are ‘widespread’ on Telegram and Discord
The SSRN study focused on the scope of pump-and-dumps schemes involving cryptocurrencies. During their research, the academics established that such insider groups are usually organized through two messaging apps popular within the crypto community: Telegram and Discord. “These platforms are the main outlets for pump and dump schemes,” the paper argues.
Specifically, after collecting “as many pump signals as possible from all channels in these platforms,” the researchers located 1,051 and 3,767 pump-and-dumps schemes on Discord and Telegram respectively, which were operating for almost six months, from mid-January 2018 to early July 2018.
There were three different types of pump-and-dump channels, the paper notes: “obvious pumps,” “target pumps” and “copied pumps.”
The first category openly used the words “pump” and “dump,” and hence was “the most straightforward to identify.” Those channels reportedly had only a few pump announcements, which initially would start between 24 to 48 hours before the pump, the researchers argue. Then, more updates about the time and the place (i.e., the crypto exchange where the pump would occur) would follow. The name of the coin was posted right before the pump. Moreover, most of those channels allegedly had “premium membership plans,” which could be either purchased or earned through recruiting new members.
Target pump channels, in turn, “were not as brazen as the first category,” albeit they allegedly had many more signals. Those chat rooms normally avoided the words “pump” and “dump,” as their members “were not sure if pump and dump was legal.” They reportedly posted the name of the asset and its current price without any previous announcement, and “usually tried to announce the exchange” as well. Unlike the first type of group, these channels “typically did not a have premium membership option,” but some required payment for regular membership.
Finally, there were copied pumps — the channels that simply referenced the pump signals from other sources. Those were mainly avoided by the researchers, as they sought data from original sources, but were nonetheless studied “to ensure complete coverage, i.e., to find the pump sources and follow them.”
After identifying these schemes, the study measured their results, defined to be the percentage increase in the price following a pump. On Telegram and Discord, 10 percent of the pumps increased the price by more than 18 percent and 12 percent respectively in just five minutes. Given that trading volume and crypto prices were falling during the January-July 2018 period, even modest percentage increases were considered “an achievement for the pump.”
Moreover, the researchers established that pumps using “obscure coins” with low market capitalization were much more profitable than pumping the dominant coins: “The median price increase was 3.5% (4.8%) for pumps on Discord (Telegram) using the top 75 coins; it was 23% (19%) on Discord (Telegram) for coins ranked over 500.”
Interestingly, Bitcoin (BTC) — traditionally the most dominant asset on the market — was not immune to pump-and-dump schemes. According to the study, there were at least 82 pumps of BTC on Discord and Telegram during the period analyzed. However, those pumps accounted for only 1.7 percent of all identified actions, and their extent was unspecified in the paper.
“The proliferation of cryptocurrencies and changes in technology have made it relatively easy (and virtually costless) for individuals to coordinate and conduct pump and dump schemes,” the academics argue.
Further, they conclude that the scope of pump-and-dump schemes within the crypto community should raise red flags for regulators, “especially as mainstream financial institutions begin investing in cryptocurrencies.” Indeed, they cite “the regulatory vacuum” as one of the potential reasons why some of those groups are operating openly:
“With the exception of insuring [sic] that taxes are paid on cryptocurrency profits, US regulatory policy towards cryptocurrencies and initial coin offerings (ICOs) has been [sic] generally been ‘hands-off.’ One problem in moving forward in the regulatory sphere is that – unlike stocks, commodities, or fiat currency – cryptocurrencies do not have a regulatory agency in charge of all cryptocurrency policy.”
Imperial College London study: Pump-and-dump schemes account for about $7 million worth of trading volume per month
Pump-and-dump schemes in the crypto market were also recently studied by researchers Jiahua Xu and Benjamin Livshits of Imperial College London, whose paper was published in late November.
The study found that pump-and-dump schemes account for about $7 million worth of trading volume per month, which is about 0.049 percent of total 24-hour trade volume.
Xu and Livshits investigated 237 pump-and-dump schemes between July 21 and Nov. 18, including the Telegram channel “Official McAfee Pump Signals,” which allegedly pumped the BVB coin at the time. The researchers concluded:
“The study reveals that pump and dump organizers can easily use their insider information to take extra gain at the sacrifice of fellow pumpers.”
Moreover, Xu and Livshits appealed to the historical data from known pump-and-dump schemes to train a machine learning algorithm that attempts to identify frauds before they occur.
Regulatory measures: CFTC’s warning and whistleblowing program, congressional bills on the way
Price manipulation represents a major concern for regulators. While it seems to be much less common in regulated, fully compliant markets, the crypto market remains to be a largely unregulated territory, where insider trading is arguably easier to perform. However, the regulators have started to take notice.
“Customers should know that these frauds have evolved and are prevalent online. Even experienced investors can become targets of professional fraudsters who are experts at deploying seemingly credible information in an attempt to deceive.”
The advisory even quoted messages from an online chat room coordinating a pump-and-dump scheme to provide an example:
“15 mins left before the pump! Get ready to buy.” “Five minutes till pump, next message will be the coin! Tweet about us and send everyone the link to telegram (sic) for outsiders to see what we are pumping so they can get in on the action too!! lets (sic) take it to the MOON!!!!!”
Apart from warning potential investors about the dangers of such market manipulation schemes, the CFTC also rolled out a 10-30 percent bounty for pump-and-dump whistleblowers who are able to lead the CTFC to monetary sanctions of $1 million or more in the crypto market specifically.
Dubbed “The Virtual Currency Consumer Protection Act of 2018” and “The U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2018,” the bills will be reviewed by the House of Representatives.
The second bill, in turn, advocates a “comparative study of the regulation of virtual currency in other countries” in order to “make recommendations for regulatory changes to promote competitiveness.”
While regulators seem to linger over taking more straightforward action, some crypto market participants have started to deal with the issue of price manipulation with the help from mainstream players. Thus, in November, Nasdaq — the world’s second-largest stock exchange — announced that its market surveillance technology could “stamp out manipulation” in crypto markets, including pump-and-dump schemes in particular. The exchange’s first crypto client who adopted its surveillance system is Gemini, the compliance-oriented U.S. crypto exchange owned by the Winklevoss twins.
Following last week’s delay of the SEC to decide on whether to approve or not the proposed, commodity-backed bitcoin ETF proposal of VanEck and SolidX, legal expert Jake Chervinsky now says that there is a 10 percent chance of its approval.
‘I Think the ETF is in Trouble’
Jake Chervinsky, a legal expert who correctly predicted that the SEC will delay its final decision on the VanEck/SolidX Bitcoin ETF proposal into February 2019, now believes there’s a 10 percent chance of its approval.
In a series of tweets, he laid our arguments for why the Bitcoin ETF is now in jeopardy. According to him, the most important reason for a potential rejection is market manipulation.
“The SEC had many concerns — enough for 18 multi-part questions,” he explains. The most important question was about market manipulation. The SEC wanted to know if CBOE BZX (the exchange proposing the ETF) had ‘a surveillance-sharing agreement with a regulated market of significant size.’”
3/ The SEC had many concerns–enough for 18 multi-part questions.
The most important question was about market manipulation. The SEC wanted to know if CBOE BZX (the exchange proposing the ETF) had “a surveillance-sharing agreement with a regulated market of significant size.”
Chervinsky believes this is the most important issue because it was the main reason the Winklevoss ETF proposal was rejected in July 2018 by the Commissioners.
It’s noteworthy that Commissioner Hester Peirce formally dissented against the decision, however, outlining that it “contributes to further delay” of the cryptocurrency market’s maturation.
Lack of Jurisdiction
The legal expert also notes, however, that a big problem for the SEC is their lack of jurisdiction. Chervinsky:
The SEC’s problem is that it doesn’t have jurisdiction over crypto exchanges, so it can’t force them to provide the information it needs to identify & prosecute manipulation (like spoofing & wash trading). Also, it can’t tell if the exchanges themselves are committing fraud.
He concludes, largely predicating on the issue of manipulation, that “if the deadline were today, I’d give the ETF a 10% chance of approval.”
It’s important to note, though, that even if the SEC rejects the VanEck/SoldiX Bitcoin ETF, there is always the possibility of an appeal. This means it will have to be revisited by the Commissioners and their current lineup is different than the one which rejected Winklevoss’ ETF proposal earlier this year.
Currently, there are two Republicans (Peirce and Roisman), one Democrat (Jackson) and Chairman Clayton (listed as Independent but appointed by a Republican). According to analyst John Galt, this may give the Bitcoin ETF a better chance this time around. He notes:
When SolidX is decided, Republicans Peirce and Roisman favoring approval puts Chairman Clayton in the opposite position he was in for Winklevoss. If he opposes approval and sides with Jackson — regulatory gridlock. If he sides with his fellow Republicans, we have approval of a physical Bitcoin ETF. This is how I believe SolidX gets approved.
The final deadline for the decision on the VanEck/SolidX Bitcoin ETF is set for February 27, 2019.
What do you think of the commodity-backed VanEck/SolidX bitcoin ETF proposal? Will it get approved? Don’t hesitate to let us know in the comments below!
To say that advocates of crypto are dedicated would be putting it lightly. Since Bitcoin’s earliest blocks, true innovators have discovered value in the crevices of the cryptocurrency world, finding it logical to latch onto this nascent industry in times of despair and euphoria alike. While this zealous faith in this decade-old innovation has taken many forms over the years, in the recent downturn, investors have sought a newfound light at the end of the tunnel — a U.S.-based, fully-regulated Bitcoin (BTC) exchange-traded fund (ETF).
But, as recently divulged by a commissioner from the U.S. Securities and Exchange Commission (SEC), the advent of a crypto-backed ETF might be nothing more than a quixotic dream, or at least for now.
SEC’s Clayton On Bitcoin ETF: Market Surveillance, Custody Still A Concern
Speaking at the Consensus Invest Conference in New York, SEC incumbent Jay Clayton, who assumed office in May 2017, exclaimed that he isn’t ready to greenlight a Bitcoin ETF.
Giving his heated statement some credence, while referencing the SEC’s role of mitigating investor risk in financial markets, Clayton first brought up the lack of market surveillance in crypto markets.
While blockchains are predicated on a semblance of transparency, in juxtaposition to this nature, the SEC decision-maker noted that there’s an evident lack of bonafide surveillance implementations on crypto platforms at large. Talking with CNBC’s Bob Pisani, also commenting in response to a query regarding a Bitcoin ETF’s prospects, Clayton stated:
“Those kinds of [surveillance] safeguards do not exist currently in all of the exchange venues where digital currencies trade… It’s an issue that needs to be addressed before I would be comfortable.”
He then explained that investors expect that a commodity-backed fund is free from manipulation, alluding to his sentiment that Bitcoin is susceptible to questionable price action on a group’s whim, or through orders executed by bad actors.
Along with his fears regarding proper surveillance measures, Clayton also touched on his opinion that while strides have been taken towards impenetrable custody solutions, these crypto-centric services still are lacking.
Discussing the Bitcoin ETF applications on Consensus Invest’s stage, the recently-appointed SEC commissioner brought attention to “some thefts around digital assets that will make you scratch your heads,” likely referencing situations where startups’ cold storage wallets have been accessed without authorization. Keeping this in mind, Clayton closed off his comments on the matter by noting that storage solutions “need to be improved and hardened.”
Interestingly, Clayton’s comments on the cryptocurrency market contradict statements released by VanEck’s in-house Bitcoin ETF consortium, who sat down with SEC representatives in an October closed-door meeting.
As reported by NewsBTC previously, through a slide titled “VanEck SolidX Bitcoin Trust Should Be Approved,” VanEck’s crypto branch divulged that monumental progress has been made towards solving regulatory qualms, seemingly knocking down the SEC’s most-pertinent concerns in one fell swoop. Most notably, the investment firm claimed that there now “exists a significant regulated derivatives market for Bitcoin,” before adding that CBOE’s rules dictate that market surveillance will be of utmost priority in the proposed vehicle.
Still, with Clayton’s most recent bout of criticism fresh in investors’ minds, the fear that an ETF is still months, if not years away has been rekindled. But then again, there’s a silver lining, as the SEC’s 4,600 employees aren’t known to have homogeneous views on specific markets and products, whether nascent or otherwise.