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Quick Take

• Miners are exploring their options after China’s central government cabinet recently discussed a potential crackdown on bitcoin mining and trading.
• The uncertainty has created a challenge for China’s miners and an opportunity for foreign hosting facilities.

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Aya Kantorovich, head of institutional coverage at FalconX, has been experiencing a bit of déjà vu. 

Kantorovich, a former associate at crypto hedge fund Pantera, joined The Scoop to unpack the crypto market’s recent bouts of volatility and how the market is stuck in a cycle of retail-led drawdowns. FalconX — an aggregator of crypto trading flows — has a window into both the retail and institutional market. 

According to Kantorovich, liquidations across off-shore market venues, cascading liquidations, and the inability for traders to access crypto exchange platforms drive prices down. When money can’t move around, price drawdowns are amplified. 

“We saw $2 billion worth of liquidations happening across BTC,” she said. “Retail liquidations was a large portion of this … and then a cascading effect.”

“When you have this level of heightened volatility you see some exchanges begin to shut down their trading capabilities and when these centralized trading platforms shut down those capabilities then traders don’t have the ability to top off on their margin so you see a continued cascade,” she added. 

Kantorovich doesn’t think this is a cycle that will break because many new institutions have to sell when the price reaches a certain threshold. Unlike crypto native whales, which have driven the buying at the dip, large billion-dollar plus asset managers “have a completely different level of drawdowns that they’re allowed to maintain.”

“Let’s say the market falls down by 30%, they have a fiduciary obligation to take money off the table,” she said. “These aren’t the momentum diamond hands that we’re so used to seeing in crypto.”

“I think the reason for that is we are going to continue to see institutions that do not have a momentum-long venture persona … and that could be both good or bad for the space.”

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Following a recent high-level government mention of a potential crackdown on bitcoin trading and mining, Chinese government mouthpieces have now published a series of reports criticizing the crypto markets.

Much of the criticism from the state-owned Xinhua News Agency and the China Central Television focused on telling the audience about “rampant” market manipulation, citing anecdotal examples. It is an effort to dissuade the Chinese public from crypto trading. 

In its latest report on Thursday, Xinhua even detailed the reasons why it has been “going after” the crypto market.

Although the government mouthpiece recommends that the public stay away from the risky and volatile crypto markets to ensure their financial safety, it admits that the state also does not necessarily consider crypto trading to be illegal.

“If virtual currencies like bitcoin are treated as virtual commodities that can be bought and sold, then the general public has the freedom to participate in the trade at their own risks,” Xinhua wrote in the report.

However, it said that it will continue exposing projects or platforms that draw retail investors by marketing virtual currencies as speculative investments that can make people rich overnight.

China Central Television also published a news clip on Wednesday in an attempt to educate the public on how easy it is to create blockchain tokens “out of thin air” and how various types of scams have been using such methods to defraud unwitting retail investors.

The somewhat mixed messages from state-run media outlets reflect China’s complicated attitude towards the crypto industry.

While there’s no law that outright considers individuals buying, selling or owning crypto assets as a criminal offense, the state generally does not want the public to deal with the crypto markets. That’s why it has curbed the intermediary services that can serve as crypto on-ramps.

In its landmark policy change in 2017, the People’s Bank of China ordered domestic financial institutions and non-banking payment providers to stop serving crypto-related clients. The ban subsequently cut off Chinese crypto exchanges’ fiat on-ramp channels.

Crypto investors have since then been relying on over-the-counter desks for fiat on- and off-ramps. That’s gotten more complicated and risky since 2020.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto exchange FTX has launched a marketplace for trading non-fungible tokens (NFTs).

A number of NFTs are already listed on the marketplace, which is hosted on both the main FTX exchange and the FTX.US exchange websites.

NFTs are unique digital tokens tied to digital content. They are based on blockchain technology, which proves their authenticity and ownership.

One of the NFTs on the new FTX marketplace is “SBF Lunch,” which is redeemable for an in-person lunch or 30-minute Zoom call with FTX CEO Sam Bankman-Fried. The highest bid for the NFT at the time of writing is $100,000. The bidding for the NFT closes on June 17.

Other NFTs available on the marketplace include FTX and FTX.US branded caps, hoodies, t-shirts, and socks. A number of third-parties have also listed NFTs.

These tokens appear to be based on Solana and Ethereum. Block explorers for both platforms are available to view on the platform.

Users of the marketplace will be able to buy, sell, and hold NFTs. They will also “soon” be able to withdraw the tokens to their personal wallets, according to a statement on FTX’s website. FTX will charge a 5% fee to both buyers and sellers of NFTs.

FTX is the latest crypto exchange to enter the NFTs space. In April, crypto exchange Binance said it would launch an NFT marketplace in June. Last week, Binance-owned Indian crypto exchange WazirX and South Korea’s Korbit crypto exchange also launched NFT platforms.

NFTs made global headlines when MetaKovan (also known as Vignesh Sundaresan) paid $69.3 million for an NFT created by the digital artist Beeple. The purchase came via an auction hosted by the centuries-old auction house Christie’s in March. Since then, many well-known artists, content creators, and brands have joined the NFT bandwagon.

In recent weeks, however, the NFT activity has declined. Weekly NFT trading volumes, weekly users, as well as transactions of NFT platforms are all down, according to The Block Research.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto market-making firm GSR has committed to using carbon credits to make its entire business carbon neutral, according to an announcement Thursday.  This will also include its recently launched bitcoin mining business, which is already powered in part by hydroelectric energy.

Hong Kong-based GSR is one of the oldest liquidity providers in the crypto space. According to the firm, it provides more than $1 billion in liquidity per day for more than 50 crypto protocols and some of the biggest crypto exchanges. It said it has 500 institutional clients and is involved in the over-the-counter market for cryptocurrency options trading.

The firm has been steadily growing its bitcoin mining operations since they began in the first half of 2020. While the firm declined to state its current hash rate, or computing power, according to previous reporting by The Block, its custom products produced an annualized run rate — projected yearly revenue — of $250 million by the end of 2020.

To offset its carbon emissions, GSR has partnered with environmental platform MOSS, which uses blockchain technology to make carbon credits easier to buy. MOSS works by turning its carbon credits into MCO2 tokens on the Ethereum blockchain. When these tokens are bought and burned (sent to an inaccessible address), this offsets 1 ton of CO2, according to the company.

GSR will buy tokenized carbon credits for the Fortaleza Ituxi Project, which finances projects that prevent deforestation. The project, which started in 2013, reduced an estimated 11.8 million tCO2 of greenhouse gas emissions within two years. The firm declined to state how many carbon credits it expects to purchase.

According to GSR, half of its bitcoin mining operations are already powered by hydroelectricity. The firm plans to use carbon credits to offset the other half.

GSR anticipates that it will expand its North American bitcoin mining operations in the second half of 2021, with a plan to use clean energy sources. In the long run, it hopes to evolve its mining operations away from carbon credits, to becoming fully carbon neutral through renewable energy.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Cryptology Asset Group, an investment firm co-founded by billionaires Mike Novogratz and Christian Angermayer, has committed to invest $100 million in crypto-related venture funds over the next two years.

Announcing the news on Thursday, Malta-based Cryptology said it intends to invest in first-time funds and emerging managers that are focused on blockchain and crypto-related businesses. Cryptology is listed on several German stock exchanges, including Borse Dusseldorf, Gettex, and Tradegate.

“We are at the very beginning of the crypto revolution, and we strive to become one of the leading global investors in this very nascent asset class,” said Angermayer.

Founded in 2018, Cryptology has $548 million in assets and its portfolio includes firms such as Block.one and Northern Data.

Novogratz is the CEO of crypto firm Galaxy Digital, which is involved in businesses such as trading, asset management, investing, and mining. Galaxy Digital is listed in Canada and hopes to list on a U.S. exchange in the second half of this year. Last month, the firm acquired crypto custodian BitGo for $1.2 billion.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Paxful, a peer-to-peer (P2P) marketplace with over six million users, announced Thursday the launch of its e-commerce tool Paxful Pay, according to a release from the firm. 

“To date, Paxful Pay has only worked with a limited number of merchants — just over 100 — in select regions to test the product and improve its capabilities,” Paxful CEO and co-founder Artur Schaback told The Block. “With the official launch of Paxful Pay, we’re ramping up onboarding and expect to bring on more merchants globally.”

The tool lets customers pay merchants through over 400 payment methods that are then converted into bitcoin and sent to the merchant’s digital wallet. While bitcoin is the primary cryptocurrency used for Paxful Pay, the P2P platform plans on adding Tether and other stablecoins in the future, as well as add BTC to local currency conversions in the future. 

“Our goal for Paxful Pay is to bring better financial freedom to both merchants and users and open up e-commerce and crypto adoption globally,” Schaback says. 

Paxful had also made previous moves in other parts of the retail sphere, having presented debit cards to customers in November of 2020 and allowed users to trade gold with bitcoin in April of 2020.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The U.K.’s Financial Conduct Authority (FCA) has once again extended the registration deadline for existing crypto businesses in the country. The new registration deadline is March 31, 2022, the FCA announced Thursday.

The FCA established a temporary registration regime last December after struggling to deal with hundreds of applications. The initial deadline was January 10, 2021, before it was pushed back to July 9. The regime allows existing crypto firms, who have applied to be registered with the FCA, to continue trading.

The FCA has had to extend the deadline twice because many applications are still pending review. “An unprecedented number” of firms are also withdrawing their applications, according to the FCA, because they are not meeting the required standards under the money laundering regulations.

Indeed, last week U.K. Treasury official John Glen said more than 90% of the firms assessed to date have withdrawn their application following the FCA intervention. According to Glen, many crypto firms have failed to hire the right people to implement anti-money laundering processes.

Stuck in limbo

There are 167 crypto firms still awaiting registration, said Glen last week. There are also 77 new crypto startups whose applications are pending a full assessment.

To date, only five crypto firms have been registered in the U.K. Those are Ziglu, Archax, Digivault, and two Gemini entities. 

People familiar with the FCA’s registration process recently told The Block that the watchdog lacks enough manpower and expertise. “Applicants are being subjected to three-hour-long interviews over their anti-money laundering procedures over the phone and there’s an average of about 80 document requests per application,” one source said at the time.

The FCA’s inaction has already led to interventions from lobby group CryptoUK, which called for help from U.K. finance minister Rishi Sunak in March. Last month, member of parliament Tom Tugendhat called on HM Treasury to create a “safe space” for crypto innovation in the U.K.

The FCA today said it will “only register firms where it is confident that processes are in place to identify and prevent [money laundering and terrorist financing] activity.” The extended deadline allows crypto firms to continue operating while the FCA continues with its assessment.

The FCA today also once again warned that crypto is speculative and investors should be prepared to lose all their money. “Even if a firm is registered with the FCA, it is not responsible for making sure cryptoasset businesses protect client assets (ie customers’ money), among other things,” said the watchdog.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Kais Mohammad, a 37-year-old man from Yorba Linda, California, was sentenced to two years in federal prison for allegedly illegally operating a bitcoin-based money transmission business, according to a release from the U.S. Department of Justice. 

Court records suggest that Mohammad, a compliance-trained former bank employee, operated his business “Herocoin” from 2014 to 2019, where he allegedly met clients to transfer their virtual currency into cash through in-person means or by using bitcoin ATMs.

Mohammad was said to have operated multiple Bitcoin ATMs that did not require identifying information necessary for anti-money laundering protocols, according to the DOJ.

Mohammad purportedly knew his client’s funds were sometimes obtained through illegal means or used in illicit dark web activity but did not report it, nor did he properly register his business with the Financial Crime Enforcement Network (FinCEN), a U.S. federal agency tasked with monitoring financial transactions for national security purposes. 

Mohammad allegedly exchanged between $15 million to $25 million through his money transmission business and had to give up 17 ATMs, 18.4 BTC, and 222.5 ETH during the investigation. 

Bitcoin ATMs are becoming more prevalent across the United States — with over 20,000 currently active in the U.S. — and the U.S. Drug Enforcement Administration reports they are “increasingly” used to launder money, especially as a result of the COVID-19 pandemic. However, these particular ATMs are largely hidden from public view, according to the DEA’s report.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.