The Solidus Brief: Digital Asset Market Surveillance, Compliance & Regulation News | June 2019

Solidus Labs

All the crypto news compliance professionals need to know. This month's highlights: SEC Chairman Jay Clayton again calls for better market surveillance and reduced manipulation before the agency can approve a crypto-ETF; A study by The Block raises concerns that 86% of volume in 48 exchanges is potentially wash trading; 94% of surveyed US, UK and Canadian endowment funds are actively engaged with crypto investments

Regulation, Legislation and Enforcement

SEC Chairman Jay Clayton restated the need for surveillance, as another Crypto ETF is postponed

Our take: The fact that digital asset regulation is intensifying globally is not news, though the repercussions of non-compliance are becoming increasingly clear. Even major actors are required to scale down, limit operations or in some cases shut down. One result is increased tension with regulators, which in Kik’s case led to litigation. At Solidus we acknowledge litigation is a legitimate form of dialogue between innovators and regulators. Nonetheless, it’s important to stress that the key to moving the industry forward is innovators and regulators working together.

Tensions between innovators and regulators manifested in Kik raising money to sue the SEC

Market Integrity and Manipulation Concerns

  • A report by The Block, based on a 6-month analysis of 48 crypto exchanges cross-examining volume and website visits, concludes 86% of total reported volume is likely fake. The report joins many others that raised concerns of crypto market integrity including a report submitted by Bitwise to the SEC late in May.
  • Major Exchange Huobi admitted some marketing integrity concerns raised by the Bitwise report, stated it does not engage in wash trading and announced it is taking steps to further combat manipulation.

Our take: Across the board, manipulation continues to be a major issue holding back mainstream and institutional adoption, and troubling regulators. It seems that the combination of studies consistently demonstrating the magnitude of the problem and intensifying enforcement is beginning to resonate with major exchanges, which in turn take action. At Solidus, we believe the two keys to addressing market integrity are [a] better surveillance and monitoring solutions tailored for crypto markets and [b] improved industry standards. We are working tirelessly with our partners and clients to promote both.

Adoption and Industry Growth

  • According to a recent study, 94% of 150 endowment funds surveyed in the U.S., UK and Canada, including those managed by Ivy League universities, are already investing in crypto and digital assets. 55% plan to increase allocations in the next year.
  • CME hits record high in Bitcoin futures demand, reaching 13.6K volume, +36% versus April.
Bitcoin futures trading on CME breaks records in May (Source: CME)
  • CFTC chair Giancarlo stated that blockchain is a tool that may allow us to know the exposure of one financial institution to another. Just this week, the CFTC announced Giancarlo, who recently earned the nickname “Crypto Dad” for his light-handed approach to digital asset markets, will step down in July.
  • A Yahoo-backed cryptocurrency exchange was launched in Japan, receiving FSA regulatory approval.
  • It is now official: Facebook plans to launch a GlobalCoin and is engaged in preliminary talks with the CFTC regarding KYC/AML implementation.
  • Fidelity will offer cryptocurrency trading focusing their service on Bitcoin.
  • AWS launched a blockchain service with AT&T and Nestlé already subscribed.
  • AT&T now allows customers to pay their bills using Bitcoin.
  • Samsung considers integrating crypto payments to expand its user base.
  • Japan’s SBI holdings expands its crypto exchanges’ retail focus to also service to institutional investors.
  • EY publicly released its Nightfall blockchain protocol for one week.
  • UBS partners with 14 banks to invest $60 million in a token to ease cross-border payments.
  • Walmart pushes blockchain initiatives to track pharmaceutical products with FDA.

Our take: Up until a few months ago, each time a large mainstream institution indicated an interest in blockchain or digital assets, it was major news. Nowadays not a week goes by without a few major announcements. Institutional adoption isn’t approaching — it’s already here.