Everything you need to know from the past few weeks: Globally, governments tighten definitions of digital assets to prevent legal confusion; SEC enforcement action leads to $2.7 million fine; Crypto users doubled in 2018; Trump’s new Chief of Staff is pro-crypto

Before diving into developments from the digital asset space, check out Solidus CEO Asaf Meir’s op-ed in Finance Magnates: The Bitcoin ETF Saga: Rethinking Trade Surveillance

Regulation and Legislation News

• Today, two U.S. congressmen introduced a bill that seeks to put on paper much needed definitions regarding digital assets, provide boundaries but also wiggle room to allow innovation.
• SEC Chairman Jay Clayton stated that key safeguards, namely effective market surveillance and custody solutions, are necessary for his agency to approve a crypto ETF.

• The SEC chief of Cyber warned that decentralized exchanges are just as liable to existing regulation, via the person who created them. The agency is currently looking into an Etherum-based DEX that allegedly operated outside of regulation.
• In the second digital assets primer released by the CFTC, focusing on Smart Contracts, the agency “points out that smart contracts are subject to existing laws” — adding to increasingly prevalent instances of traditional financial regulation being applied to digital assets.
• In Hong Kong, regulators suggested a rule according to which “if an investment fund has 10% or more digital assets they will now need to obtain a license.” The Japanese FSA is moving to officially classifycryptocurrencies as “crypto- assets” to prevent legal confusion. In Europe, the Dutch Central Bank is considering a system where digital asset businesses will only receive a license based on demonstrated ability to identify malicious activity.
• Finally, President Trump’s incoming Chief of Staff, Mick Mulvaney, has formerly expressed pro-crypto sentiments, raising hopes his appointment can be good for digital assets adoption in the U.S.

‍Our take: Governmental efforts to better define digital asset regulation are intensifying worldwide. Wherever you look, regulation is coming, in the form of new crypto-specific law, or based on existing finance rules.

Enforcement News

• The SEC fines California-based blockchain protocol CoinAlpha $500k and issues a cease and desist order for issuing securities without a license or exemption.

CoinAlpha’s cease and desist. More examples for enforcement that’s harsh, but still relatively forgiving

• Texas District Attorney is indicting the CEO of a Dallas-based cryptocurrency firm for defrauding investors our of $4 million, with criminal charges pending and a potential 120-year prison sentence.
• The British FCA, reportedly, is investigating 50 cryptoasset businesses for operating unregulated financial businesses. U.S. authorities are currently investigating at least 250 digital asset firms.

Our take: With enhanced regulation comes enforcement that’s harsh but still relatively forgiving. Regulators are signaling to the market that actors that don’t work towards self-regulation and compliance, will pay a heavy price.

Blockchain and Digital Asset Ecosystem Growth News

• A study by Cambridge University finds that the number of verified (as in, real people) digital asset users has doubled in 2018.

• A study by FinTech experts estimates that by 2023 78% of retail business will incorporate blockchain into their workflow.

Our take: As the cryptocurrency pricing and trading volumes continue to fluctuate, we continue to look at undercurrents indicating the ecosystem is growing.

Digital Asset Market Manipulation News

• The Blockchain Transparency Institute released its new exchange rankings, revealing over 80% of top 25 BTC trading pair volumes are potential wash trading.
• A study by two data scientists at London Imperial College used machine learning and AI to detect pump and dump schemes in cryptoasset exchanges, concluding that on average, at least two instances take place every day, generating $7 million in daily volume.
• Another study of pump and dump schemes, by professors from various universities, identified as much as 4818 pump and dump schemes involving 300 different cryptocurrencies during six months.

Our take: The sheer size of manipulation in blockchain-based exchanges continues to be revealed as new studies shed light on the challenge.

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Solidus Labs uses 20 years of Wall Street FinTech experience to provide machine learning-powered trade surveillance tailored for cryptoassets. Our products help exchanges, broker dealers, market makers and other financial service providers detect and combat manipulation in digital asset trading, and streamline reg-reporting.

To learn more about our product schedule a demo, visit www.soliduslabs.comor contact us at hello@soliduslabs.com. We’re always happy to start a conversation.

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