Hong Kong Regulator to Unveil New Cryptocurrency Exchange Rules

Hong Kong’s financial regulator — the Securities and Futures Commission (SFC) — will publish a new set of regulations for Bitcoin (BTC) and cryptocurrency exchanges today. The news, reported by Reuters on Nov. 6, was announced by Chief Executive Ashley Alder at a local fintech event. 
Regulatory clarity for crypto exchanges operating in Hong Kong
The new requirements will detail how exchanges much approach custody, compliance such as Know Your Customer and Anti-Money Laundering rules, among other issues.
“The framework will enable virtual asset trading platforms to be regulated by the SFC, a major development which builds on a way forward I outlined at the same time last year,” said Alder. 
As Cointelegraph reported, the SFC first established guidelines for crypto funds and exchanges in November 2018. Now, a year later, the regulator is taking that work forward, Alder told the conference on Wednesday.
Huobi could become first licensed exchange in HK
Commenting on the news, private investor Dovey Wan says that this is a big deal for the entire cryptocurrency industry. She points out that Huobi, in particular, may already be on its way to becoming the first licensed exchange in Hong Kong.
“WOW this is BIG,” wrote Wan. “Hongkong SEC will announce detail in about an hour regarding cryptocurrency exchange application criteria.” She added: 

“Considering Huobi has already backdoor listed on HKex, this will def play them a huge favor to be the first legalized Chinese crypto exchange.”

Earlier this year in March, the SFC also released regulatory guidelines for Security Token Offerings. The agency outlined that security tokens are “likely to be ‘securities’” under Hong Kong’s Securities and Futures Ordinance, and thus fall under existing securities laws.

Official: Binance Chain and BNB Will Be Traceable via CipherTrace

American blockchain security firm CipherTrace will provide Anti-Money Laundering (AML) controls for Binance Chain and its native asset Binance Coin (BNB).
CipherTrace to increase AML checks on Binance Chain
Binance Chain, a public blockchain of major crypto exchange Binance and the underlying blockchain for Binance DEX, is expected to improve its AML procedures through CipherTrace, Binance announced on Nov. 5.
Specifically, CipherTrace will be providing Binance Chain with institutional-grade AML controls to increase adoption of the Binance Chain blockchain.
Within the initiative, CipherTrace will enable global developers, investors and regulators to access the Binance Chain blockchain for discovering data such as high-risk addresses. Moreover, CipherTrace will be helping those entities to set various controls to protect decentralized applications, exchanges or other crypto-based applications, Binance wrote in its blog post.
Customer data will not be shared with third parties, Binance COO says
Samuel Lim, chief compliance officer at Binance, claimed that the initiative will not affect Binance users’ security and data protection. Speaking to Cointelegraph, the executive noted that customer information will not be shared with third parties as a result of the new AML practice, adding:

“Users can rest assured that Binance will uphold its usual high standards of user security and data protection.”

Lim also denied to specify to Cointelegraph whether this move would affect listing of privacy coins such as Monero (XMR) in the future, saying that Binance does not comment on specific tokens and maintains the highest integrity in its listing due diligence process.
In the announcement, Lim considered the move as a “major win for the community-driven Binance Chain,” noting that Binance users can soon expect more digital token support across its ecosystem.
Meanwhile, online critics have outlined the third party disclosure risks associated with AML practices by companies such as CipherTrace and Chainalysis. Twitter account theonevortex wrote:

“Looking forward to chain analysis companies like @ciphertrace and @chainalysis getting hacked. These people sell your data to 3 letter agencies and governments WITHOUT your permission.”

CipherTrace recently expanded its platform to support 700 tokens
CipherTrace’s support for BNB and Binance Chain follows the recent expansion of CipherTrace services to up to 700 cryptocurrencies including Ether (ETH), Tether (USDT), Bitcoin Cash (BCH) and Litecoin (LTC) on Oct. 15. Claiming that CipherTrace has expanded to support 87% of the transactional volume of the top 100 cryptos, the firm denied to specify which cryptos will not be supported on the platform at the time.
On Oct. 21, CipherTrace CEO David Jevans argued that crypto regulations by global regulators such as those by the Financial Action Task Force’s would trigger a shift of criminal activity from Bitcoin (BTC) to privacy coins.

New Official Register in San Marino Recognizes and Regulates Blockchain Firms

The Republic of San Marino has officially adopted the Register of Blockchain Entities, inviting companies in the industry to apply for certification.
Companies can apply for blockchain certification online
The project was initiated by San Marino’s fully state-owned tech innovation company, the Institute for Innovation of the Republic of San Marino, Cointelegraph Italia reports Oct. 22.
According to local public service broadcaster San Marino RTV, companies in the microstate of San Marino can now apply to be recognized as a blockchain entity via an official form on the official website of the Republic of San Marino Innovation Institute. As per the report, the certification will be granted in accordance with the provisions of the Delegated Decree number 86 of 2019.
Annual checks for certification renewal
According to the report, the newly launched Register of Blockchain Entities will only include entities that fully comply with the rules in the industry. The applicants will have to pass necessary examinations in order to ensure transparency, quality and proper market positioning, the report notes. Additionally, the Institute will conduct constant checks as well as annual examinations in order to renew certifications. Sergio Mottola, president of San Marino Innovation, said:

“The interest of foreign investors has been very high and we believe that this project will have a significant impact on the entire economic system of the Republic, giving the Blockchain Entities the great advantage to act in a legislative framework with clear and defined rules. The registry will allow a fast and clear dialogue with all public and private stakeholders…”

In July 2019, the Republic of San Marino signed an agreement with blockchain application platform VeChain to deploy blockchain tech to provide incentives for sustainable ecological behavior from citizens. In June, the captains regent of the Republic of San Marino, Nicola Selva and Michele Muratori, issued a governmental decree on blockchain tech for businesses.

Court Orders $4M in Penalties for Investment Fraud Involving ATM Coin

A New York court has ordered defendants to pay $4.25 million in penalties for investment fraud involving the cryptocurrency ATM Coin.
Case first brought by the CFTC in April 2018
On Nov. 1, the United States Commodity Futures Trading Commission (CFTC) announced that the U.S. District Court for the Eastern District of New York has entered an order against several entities for committing fraud and misappropriating client funds.
The defendants include Blake Harrison Kantor and Nathan Mullins as well as four related corporate entities: United Kingdom-based Blue Bit Banc, Turks and Caicos-located Blue Bit Analytics and two firms from New York — Mercury Cove and G. Thomas Client Services.
Binary option scam involving ATM Coin cryptocurrency
Brought in connection with the CFTC’s Division of Enforcement’s Virtual Currency Task Force, the case was initially filed by the CFTC on April 16, 2018. At the time, the regulator charged the defendants with fraud in connection with a binary options scam involving a virtual currency dubbed ATM Coin.
While the court eventually charged that the defendants committed fraud and misappropriated client funds through investment in binary options, the ATM Coin cryptocurrency was reportedly used by the defendants as part of the scam scheme. According to the CFTC, the defendants converted Blue Bit Banc investments into ATM Coin — a “worthless” cryptocurrency that Kantor had misleadingly told investors was worth significant sums of money.
According to the CFTC’s Fraud Advisory on binary options, there are several binary options that are listed and registered on exchanges or traded on a designated contract market that are overseen by the CFTC and the Securities and Exchange Commission (SEC). However, it states that a large number of them operate on internet-based platforms that are not always compliant with U.S. financial regulations. 
In late September, decentralized data governance startup Band Protocol released its Bitcoin (BTC) and Ether (ETH) binary options app running on the Ethereum’s blockchain. Users of the BitSwing platform can bet on Bitcoin’s price movements, while a correct guess allows them to double their staked Ether.

British Tax Authority Updates Cryptocurrency Guidelines, Says It Is Not Money

The United Kingdom’s tax, payments and customs authority, Her Majesty’s Revenue and Customs (HMRC), has updated its cryptocurrency taxation guidelines for businesses and individuals.
On Nov. 1, the U.K. government tax agency, which manages taxes alongside other financial policies, released tax guidance updates that further clarify its stance on how businesses and individuals involved with cryptocurrency will be taxed.  
Crypto is not money or currency
The guidelines set out HMRC’s view on cryptocurrency transactions, which taxes apply, how to file tax returns and accounting practices, among others. It also considers the taxation of exchange tokens, while stating that rules for utility or security tokens will be added in the future.
Companies that buy or sell tokens, mine, exchange tokens for other assets or provide goods or services in return for tokens are liable to pay for one or more different types of tax. Those taxes include income tax, corporation tax, capital gains tax, stamp taxes and National Insurance contributions. 
The tax authority explicitly stated that it does not consider any of the current types of cryptocurrencies to be money or currency.
HMRC further recognized that the cryptocurrency sector is a fast-moving one and it will therefore look at the facts of each case separately and apply the relevant tax provisions according to what has actually taken place, rather than by relying on theory alone.
HMRC had previously considered cryptocurrency trading to be the same as gambling. However, the latest tax guidance update states that the agency does not consider the buying and selling of cryptocurrencies as such.
HMRC requests user data from cryptocurrency exchanges
In August, HMRC requested that cryptocurrency exchanges provide it with records of customers’ identities and transaction histories. The agency aimed to address the perceived problem of tax evasion on digital asset trading platforms. At the time, sources familiar with the matter said that HMRC only requested records from the last two to three years, meaning that early investors in the cryptocurrency space would not be affected.

Bitmain's New IPO Attempt in Jeopardy as In-Fighting Goes Public

In 2017, Bitmain ruled the roost and all eyes were on China, but 2018 was a barren year for cryptocurrency. Prices plummeted. Companies crumpled. The long-awaited initial public offerings of two crypto mining titans, Bitmain and Canaan Creative, failed at the final hurdle as the crypto winter humbled even the most ambitious crypto companies. 
But not for long. After biding their time in the shadows, following months of rumors and tumultuous events, the two hardware behemoths are filing to go public in the United States. 
Bitmain bites back 
Founded only six years ago by Jihan Wu and Micree Zhan, Bitmain has presided over the transformation of Bitcoin mining from a quirky hobby into a multibillion-dollar industry. In a cutthroat environment where new technological advances are the lifeline of companies trying to stay ahead of the game, Bitmain has proven itself a fearsome competitor. 
Six years on, and tens of billions of dollars later, Bitmain has secured investment from major companies across the globe. Though the company seemed immortal only a matter of months ago, it has struggled to shake off the legacy of its failed 2018 IPO on the Hong Kong stock exchange, along with increased pressure from advancing competitors and disappointing financial results in 2019. 
Bitmain’s controversial rise to the top and a rapid fall from grace in 2018 created dramatic headlines in equal measure. However, in an unexpected turn of events, the company discreetly filed an application with the U.S. Securities and Exchange Commission last week.
According to a Tencent report published on Oct. 30, anonymous “informed sources” claim that the German multinational Deutsche Bank is sponsoring the application, although the target for funds raised has not been made public. A Bloomberg report published in June forecasted that the amount could be between $300 million to $500 million. 
Listing with the SEC is no easy feat, and the application will undergo some serious scrutiny before a decision is made. The SEC’s review process reportedly comprises of three rounds of inquiries and lasts between one and two months. A source familiar with the process told Tencent News: 

“The SEC has no biased position on the blockchain business, but it is more concerned about professional and technical issues, so the SEC’s inquiries will be more professional and more focused.”

However, as many have come to expect with Bitmain, the news of the IPO listing was followed by an event that could threaten to extinguish any hope of its success. Only one day after the SEC filing, Bitmain co-founder Jihan Wu ousted fellow founder Micree Zhan in what is being referred to as a “coup.” Bitmain refused to provide any further comments regarding the situation following a request from Cointelegraph.
Bitmain enjoys a 75% market share of the crypto hardware market worldwide, and this was a major incentive for prospective investors in the lead up to the scrapped 2018 IPO. However, the manner in which Zhan was forced out by his former partner is likely to unsettle investors already wary of a company that operates in the gray area. 
While rumors of acrimony between the two have long abounded, it is widely known that differences became obvious after the 2018 push to go public. Since then, tougher times have followed and Wu appears to have chosen his time to strike carefully. 
While Zhan was promoting Bitmain’s AI products in Shenzhen, Wu — who had previously renounced his titles in the wake of the IPO failure — returned from the sidelines to “take control of the ship.” And Wu proved to be a brutal captain. 
Zhan’s company email was immediately deleted and the co-founder whose technological insights played a central role in the company’s rise to the pinnacle of the crypto world was banned from entering the premises. 
Shortly afterward, employees were banned from interacting with Zhan and were told they would face punishment if any communication with him was discovered. David Pring-Mill, a consultant to tech startups, argued that in the cutthroat world of crypto mining, such an aggressive management style is not that surprising: 

“Jihan Wu contends that the company hastily and indiscriminately made R&D investments and that a directional change was needed. The power clash here isn’t surprising given the stakes and volatility of the crypto market. Mining technologies hinge on decentralization so arguably chaos and disruption are part of the premise.”

According to the Tencent report, both the purging of Zhan from Bitmain, along with Wu’s self-promotion to chairman of the board was done without stakeholder agreement. The matter is not just one of courtesy and transparency toward investors. To do either would have required explicit consent. Bitmain is a company famed for its all-or-nothing approach to business, but after such a tumultuous tale of cloak and dagger politics, the IPO efforts are a serious gamble. 
Dovey Wan, founding partner of Primitive Crypto and prominent Twitter commentator, documented the events as they unfolded this week. Wan tweeted that the fight between to two founders would be toxic for stakeholders, “There are hundreds of other ways to make power struggle civil and sophisticated. I still don’t get why this happened”
As the fight played out publicly, alarming commentators across the industry, Wan theorized the ways in which Zhan’s ousting would alienate the company: 

“To be completely rational, even giving Jihan credit for his chad gangster coup 1. normal investors will not trust either one of them can manage company. 2. Lawsuit will follow, US IPO plan screwed. 3. Bitmain customer will not trust them. The company is basically a banana.”

Wan suggested that minimal external shareholder influence could have led to the remarkable action from Wu as the top three external shareholders only own around 5% of Bitmain, “No wonder there is little to none proper governance of the company,” Wan finalized. 
Unless Bitmain alters its course, it could become the WeWork of the crypto world. WeWork spread across the world, and enjoyed both huge investment and a large customer base. When the company opened up to the public, the company had to face some ugly truths and its vastly overinflated valuation plummeted. With a serious decrease in profits, a hostile corporate culture and some astounding management issues, Bitmain already seems worse off. 
Plouton Mining CEO Ramak J. Sedigh told Cointelegraph that, while the companies are likely to have a similar experience with regulators, Bitmain will face greater challenges: 

“WeWork had received large multi-billion dollar investments at 10 and 20 billion dollar valuations before attempting an IPO. They were also in a business that people understood. The same can be said of Uber and Lyft. Canaan and Bitmain could have a much harder time, especially if the recent US–China trade war continues. Add to that losses, and the road forward becomes much harder and the climb to success steeper.”

For Pring-Mill, the furious in-fighting at Bitmain is a sad detraction from the company’s true purpose, “From an efficiency standpoint alone, this is all unfortunate because it detracts from the hard work of building and scaling an innovative, meaningful business.”
Third time’s the charm for Canaan? 
Canaan is often mentioned in the same sentence as Bitmain, usually as its main competitor. While this may give it some reputational edge, its crypto hardware market share of only 15% is dwarfed by Bitmain’s 75%. 
However, Canaan has seemingly been biding its time, waiting in the wings for Bitmain to consume itself. With the recent public in-fighting between Bitmain co-founders, Canaan’s IPO listing seems to have come at a fortuitous time. 
Looking to raise $400 million, Canaan filed for an IPO with the SEC on Oct. 28, aiming to be listed on the Nasdaq under the ticker CAN. The firm reportedly filed a $200 million IPO request with regulators in July but the form was not made available to the public until this week. While it would represent a major victory over its competitors if the company receives regulatory approval first, a number of factors also stand in the way of a successful IPO for Canaan.
Although Bitmain may be struggling to shake off the aftermath of its failed IPO, Canaan has the weight of two failed launches permanently around its neck. In 2016, Canaan tried to list in China by buying a Shandong-based electric equipment maker that was listed on the Shenzhen stock exchange. 
Then, last year, the company filed to be listed once more, this time on the Hong Kong stock exchange. Both plans, however, fell through after regulators pored over their business model and financial outlook. 
But Canaan has trouble beyond its chequered past with regulators. According to an SEC filing, Canaan reported $394 million in revenue in 2018, with a bottom-line net income of $8.3 million. As the company moves toward a public listing, potential investors and regulators alike will be wary of the fact that the firm reported a comprehensive income loss of $45.8 million in the first half of 2019. 
What are the odds? 
Although the market may be ripe for product launches in the wake of China’s blockchain boost, companies expecting a wave similar to that of the Libra effect may be mistaken. Product launches and IPOs are two very different kettles of fish. 
Related: China Is Pushing Blockchain Adoption, Seizing the Momentum From US
Both companies have faced serious issues in their pasts, all of which could have long-lasting ramifications when it comes to assuring both investors of their potential to generate a return on investment and for their business models to face up under intense regulatory scrutiny. 
Plouton Mining’s Sedigh acknowledged that both mining titans will have to make some serious changes to meet industry standards, although he maintains that a successful listing from either company could pave the way for wider adoption: 

“It’s also very likely that both Bitmain and Canaan will need to make deep adjustments to their corporate culture. Neither firm is known for its transparency or post-industrial style corporate governance. Regardless, the industry is watching and cheering for them to succeed.”

Pring-Mill admitted to Cointelegraph that IPOs are unpredictable, at best. Bearing in mind the scale and importance of these companies in an industry that is renowned for its volatility, Pring-Mill believes the public listings could go either way: 

“Today, IPO strategies are faced with an increased measure of unpredictability. So when you combine the two, who knows where that might go? Overall, however, I would say that the traditional methods of disclosure and scrutiny are largely working in the public interest.”

Belgian Regulator Blacklists Another 9 Crypto Websites Suspected of Fraud

Belgium’s Financial Services and Markets Authority (FSMA) has made an additional update to its blacklist of cryptocurrency-related websites associated with fraud.
On Oct. 29, Belgium’s financial watchdog updated its list of cryptocurrency trading platforms for which it has detected indications of fraud, by adding nine new suspect sites, bringing the total of suspected crypto scams to 131.
The financial authority said that it continued to receive new complaints from consumers who made crypto investments on those trading platforms, adding that cryptocurrency fraud continues to find new victims in Belgium, despite prior warnings.
The FSMA has issued previous warnings to Belgian crypto investors to be wary of companies that claim to hold authorizations from supervisory authorities, adding:

“This is a very frequently used technique. However, these are often cases of identity theft. Feel free to ask the FSMA to confirm the information you have received.”

Many of the blacklisted crypto firms purportedly offer financial services without complying with Belgian financial legislation. However, most of these crypto firms mentioned in the list operate outside the jurisdiction of the FSMA, which makes it near impossible for the agency to legally charge them. 
Although the FSMA cannot charge the suspected websites of fraud, an alert could still minimize the risks for potential cryptocurrency investors.
The FSMA added that the blacklist is based solely on the findings of the authority and warns that it does not include all of the crypto companies that might be operating illegally in Belgium.
Raising awareness of risks associated with crypto investment
In June 2018, the Belgian financial authority FPS Economy (FPS) launched a website to raise awareness of the risks associated with cryptocurrency investments. Belgian investors reportedly lost about $2.5 million in crypto scams in 2017, which accounts for only 4% of overall crypto fraud cases, with the total losses estimated at $152 million.

21 Crypto Exchanges Ask for License From Malta’s Financial Watchdog

The Malta Financial Services Authority (MFSA) has received queries from 21 cryptocurrency exchanges seeking licensure under the Virtual Financial Assets (VFA) Act.
21 firms out of 34 potential VFA providers are crypto exchanges
According to an official announcement on Nov. 1, the 21 exchanges are among the 34 prospective VFA service providers that sent their letters of intent to the Maltese financial regulator in order to acquire a VFA Services Licence.
The MFSA clarified that, until Oct. 31, crypto providers have been operating under the transitory provisions specified in Article 62 of the VFA Act. In order to continue their operations in or from Malta, those firms will be now required to apply for authorization with the MFSA.
VFA license applicants to fall under one of four categories
According to a report by Finance Magnates, applicants will be classified at the discretion of the MFSA into one of four categories that define the requirements of license holders. The regulator is also planning to enforce administrative penalties for compliance violations, the report states.
In the official announcement, the MFSA said that it will soon be contacting the applicants to schedule a preliminary meeting. Once the meeting is held, applicants will have 60 days to submit a full application back to the authority.
18 VFA agents registered so far
According to the announcement, the MFSA has received 30 applications for registration of VFA Agents, with 18 of them having been registered. The list of the registered agents is available on the MFSA website.
The VFA Act is part of Malta’s blockchain-related legislation adopted in July 2018 alongside the Malta Digital Innovation Authority Act and the Innovative Technological Arrangement and Services Act. In September, the MFSA published its strategic plan claiming that it will actively monitor and manage business-related risks related to cryptocurrency firms.
Yesterday, the regulator warned of a new Bitcoin (BTC) scam scheme dubbed “Bitcoin Future,” noting that it shares the same features as a previously identified fraudulent entity called “Bitcoin Revolution.”

Telegram’s Grams Wallet Is Available on GitHub in Test Mode

Telegram’s crypto wallet Grams Wallet is now available for MacOS, Windows and Ubuntu in testing mode, with the source code published on GitHub.
Grams Wallet users can get test tokens
Users can now download the test wallet client from its website, create an address and receive private keys as well as request and test Gram tokens in the app via a special Telegram bot called TestTonBot.
Specifically, TestTonBot invites users to test out the service by requesting 5 to 20 tokens to the generated crypto address on the app. After users request a specific amount of tokens, the bot notifies them about the start of the request execution before sending a separate message that test Grams were credited to the wallet.
Transactions are tracked on the TON testnet
The test transactions are visible on the Telegram Open Network (TON) testnet explorer with details such as transaction time and amount as well as the TestTonBot’s wallet address (sender) and the last recorded transaction.
The TON testnet explorer and node software were released on Sept. 6, 2019, in preparation for the Telegram’s subsequently aborted plans to launch the Gram digital currency in late October. The launch was delayed when the United States Securities and Exchange Commission deemed Telegram’s $1.7 billion Grams token offering illegal on Oct. 11.
The launch of the test version of the Grams Wallet follows a report on Oct. 19 that the District Court for the Southern District of New York postponed a hearing on the SEC injunction filing against the TON. The court moved the hearing to Feb. 18–19, 2020.

Two Pro-Crypto US Congressmen Note Bitcoin White Paper’s 11th Birthday

U.S. Representatives Patrick McHenry (R-NC) and Warren Davidson (R-OH), have encouraged Bitcoin (BTC)-powered innovation on the Bitcoin white paper’s 11th birthday.
U.S. policymakers should not attempt to deter Bitcoin’s tech
U.S. congressman McHenry, who represents North Carolina’s 10th District, urged that American authorities should not stifle the new technology in a tweet on Oct. 31.
According to the official, policymakers should facilitate the development of new technologies. McHenry reiterated his previous bullish sentiments about Bitcoin, stating:

“The world that Satoshi Nakamoto envisioned, and others are building, is an unstoppable force. As policymakers, we should not attempt to deter this technology, but instead ask ourselves: what are we doing to meet the challenges & opportunities of this new world of innovation?”

Bitcoin has big potential in protecting privacy
Rep. Davidson outlined Bitcoin’s potential to protect online privacy, retweeting Cointelegraph’s article on Bitcoin’s whitepaper turning 11 years old. The congressman stated:

“Eleven years ago, this anonymous white paper opened up infinite possibilities for technological innovation and #privacy protections. It’s time the US harnesses this potential and establishes a framework for American #blockchain innovators.”

Earlier in October, Davidson suggested that Facebook adding Bitcoin to its native crypto wallet Calibra would be a “way better idea” than launching their own cryptocurrency Libra.
Unprecedented growth
In a blog post on Oct. 31, major U.S. crypto exchange and wallet service Coinbase pointed out that Bitcoin’s adoption has been developing much faster than other transformative technologies such as email and television. The exchange wrote:

“The television set was invented in 1927 but by the end of the 1940s only 2% of American families owned one. Bitcoin, on the other hand, went from an idea in 2008, and a first transaction in 2009, to over 27 million users in the US alone in 2019, or 9% of Americans.”

According to a survey last spring, as much as 11% of the American population owned Bitcoin as of April 2019.