The Currency that flew over the Cuckoo's nest could easily be $40,000 by end 2018

30 November 2017, By Bachir El Nakib (CAMS)

In one month time Bitcoin flew over the cuckoo's nest

The digital currency spiked through $11,000 early Wednesday, hours after surpassing the $10,000 level for the first time. By 9:16 a.m. ET, bitcoin had leaped all the way to $11,377.33, according to CoinDesk.

But just over an hour later, bitcoin was back below $11,000 trading near $10,777.27 as the new milestones brought with them rapid volatility.

"Parabolic rallies are inherently unsustainable, otherwise bitcoin's value would surpass all the wealth of the world within a few years," Ari Paul, CIO and managing partner at cryptocurrency investment firm BlockTower Capital, said in an email to CNBC. "But ... while the pace of the rally is unsustainable and there will inevitably be corrections and crashes over time, it remains 'cheap.'"

Since bitcoin's market capitalization is less than $200 billion, enthusiasts point out the digital currency could rise dramatically if it draws even a tiny fraction of the world's $200 trillion in traditional financial market assets.

Much of bitcoin's incredible initial gains came just about 12 hours after the cryptocurrency smashed through the $10,000 mark that many analysts had been hyping for months. But few saw it happening this quickly.

The emergence of bitcoin in 2009 as the first decentralized digital currency using cryptography as a security feature has spawned more than 1,200 new digital crypto-currencies, with coins, or tokens, sold by crypto-currency firms to fund their projects one of the fastest growing applications.

• Bitcoin jumps more than $1,000 in about 12 hours as gains accelerate.
• The digital currency jump follows increased investor interest in bitcoin around the Thanksgiving holiday and the U.S. launch of the world's largest bitcoin exchange by trading volume, Tokyo-based bitFlyer.
• Digital currency ethereum also hit a record high Wednesday of $519.85, according to CoinMarketCap.

Bitcoin jumped above $9,000 over the weekend — just about a week after topping $8,000 — as about 300,000 users joined Coinbase, the leading U.S. platform for buying and selling bitcoin, around the Thanksgiving holiday, according to data compiled by Alistair Milne, co-founder and chief investment officer of Altana Digital Currency Fund.

U.S. dollar-bitcoin trading volume only made up about 21 percent of the total Wednesday, according to CryptoCompare. Japanese yen trading in bitcoin dominates at about 64 percent, while trading in South Korean won accounts for about 8 percent, according to CryptoCompare.

"It's really a global phenomenon, not just a U.S. phenomenon ... which probably pulls the [bitcoin] price higher over time," Nick Colas, co-founder of DataTrek Research, said Wednesday on CNBC's "Squawk on the Street." Colas pointed to Google search trends for "bitcoin" that show South Africa and the Netherlands consistently rank near the top. The U.S. typically ranks 11th or 12th, Colas said.

In another move toward establishing bitcoin's legitimacy as an asset class, the world's largest futures exchange, CME, is planning to launch bitcoin futures in the second week of December. More than 120 "cryptofunds" have launched, including some run by Wall Street veterans, according to financial research firm Autonomous Next.

Former Fortress hedge fund manager Michael Novogratz predicted on CNBC's "Fast Money" in October that bitcoin would reach $10,000 in the next six to 10 months. As bitcoin rose above $9,700 Monday, Novogratz said in another "Fast Money" segment that bitcoin could "easily" be at $40,000 at the end of 2018. But he told attendees of CoinDesk's Consensus Invest conference in New York Tuesday that crypto "is going to be the biggest bubble of our lifetimes by a longshot."

With more than $3 billion raised in "initial coin offerings" (ICOs) this year so far, dozens of regulators around the world have responded with some form of regulations or guidelines. Here are some responses:

ABU DHABI
The Financial Services Regulatory Authority adopted a technology-neutral approach in its guidelines released in October. The regulator said as long as the virtual tokens were used to enable or facilitate a regulated activity, they were generally permitted.

ANGUILLA
The British territory in the Caribbean has said it planned to enact a law covering the registration of initial offerings of "utility tokens" that give buyers access to a service or a product. The law, called the Anguilla Utility Token Offering Act, establishes the registration process for a crypto-currency offering.

CAYMAN ISLANDS
The Cayman Islands Monetary Authority (CIMA) has not made any public comment about ICOs, but coin issuers are required to register as a provider of a "money services business."

CHINA
Beijing banned the sale of crypto-currencies and tokens outright in September this year, saying in a statement ICOs have disrupted the economic and financial order. Any individuals or organizations that have completed fund-raising through a coin offering should make arrangements to return the funds, and ensure that the legitimate rights and interests of the investors are protected.

DUBAI
The Dubai Financial Services Authority has issued a warning on ICOs in September, but in an emailed response to Reuters it said it needed to review the types of ICOs and their potential impact on investors and markets, before formulating its views on any need for action. 

GIBRALTAR
The British territory said in September that starting from January 2018 it would have a new regulatory framework for firms operating or based in Gibraltar using the blockchain technology.

ISRAEL
The Israel Securities Authority (ISA) has announced a plan to form a panel to regulate initial coin offerings and consider to what extent securities regulations would apply to coin sales.

JAPAN
Japan's Financial Services Agency has issued a warning in late October about the risks of investing in ICOs. Although Japan has no specific laws on ICOs, they may be regulated by two existing laws: the Payment Services Act and the Financial Instruments and Exchange Act.

MALAYSIA
The country's Securities Commission warned investors in September that digital coin offerings may be unregulated, possibly exposing them to fraud. It said such sales could also be parts of money laundering schemes or the financing of terrorism.

SINGAPORE
The Monetary Authority of Singapore said in August while in general it did not regulate virtual currencies, it would do so if the digital tokens constituted products subject to Singapore's Securities and Futures Act. 

SOUTH KOREA
The nation's financial regulator in September prohibited domestic companies and startups from participating in ICOs and said that those involved would face "stern penalties." (Full Story) South Korea has no plans to regulate bitcoin trading.

SWITZERLAND
While its Financial Market Supervisory Authority does not have rules designed specifically for ICOs, some parts of the procedure may be covered by existing regulations depending on how such an offering is structured, the regulator has said. The authority said in September that it had started to investigate a number of ICOs for possible breaches of Swiss law. (Full Story)

UNITED KINGDOM
The Financial Conduct Authority warned in September that coins issued in public offering were subject to extreme volatility, often carried little or no investor protection, and were high-risk given their unregulated nature and early stage of many projects. It is now considering whether to introduce specific regulations on digital coin sales.

UNITED STATES
The Securities and Exchange Commission has declared that public token sales are subject to federal security laws. Tokens can be considered securities, and therefore, may need to be registered unless a valid exemption applies.
The Commodity Futures Trading Commission has said crypto assets may also be regarded as commodities.

The New York Department of Financial Services (DFS) said on Tuesday it has granted a license to Tokyo-based bitFlyer, allowing the virtual currency exchange operator to launch in the United States. The license authorizes bitFlyer to operate an exchange, as well as provide 'custodial wallet' services for bitcoin, or a secure online address to hold the digital currency. It has approval to operate the exchange in 41 states.

The value of cryptocurrency bitcoin BTC=BTSP is hovering around the historic $10,000 level after surging more than 900 percent since the start of the year.

"As New York's financial services regulator, DFS's mission is to encourage innovation while protecting markets and consumers," said DFS Superintendent Maria T. Vullo in a statement. 

"As the virtual currency market expands, New York will continue to support technological innovation while enforcing strong state-based regulation." BitFlyer has already been registered as a virtual currency exchange by Japanese regulators and has traded more than $100 billion in virtual currencies so far this year in Japan.

The DFS has previously granted virtual currency licenses to Coinbase Inc., XRP II, and Circle Internet Financial, and charters to Gemini Trust Company and itBit Trust Company. The bitFlyer platform enables traders to place market, limit and complex trade orders. Its U.S. trading platform is designed for professional traders who trade $100,000 or more in virtual currency each month. 

"Our expansion and upcoming cross-border trading addresses a huge unmet need in the U.S. by institutional traders looking to access large amounts of liquidity across multiple virtual currency markets," said bitFlyer USA's chief operating officer, Bartek Ringwelski, in a statement. In early 2018, bitFlyer said it plans to expand its cryptocurrencies to include alternative coins such as Litecoin, ethereum, ethereum classic, and bitcoin cash, among others. 

AML RED FLAGS

Regulators across Europe have urged financial institutions that are involved in initial coin offerings (ICOs) to ensure they comply with relevant applicable EU legislation, including in particular anti-money laundering/counter terrorist financing (AML/CTF) requirements.
Initial coin offerings are a relatively new means of raising public capital for the financing of commercial projects, where the issuer issues digital tokens using blockchain technology. In many cases, these ICOs fall outside of the scope of EU laws and regulations. 

The European Securities and Markets Authority (ESMA) has said, however, that in some structures the coins or tokens could qualify as financial instruments, which would bring them within the scope of a number of EU regulations, such as the Prospectus Directive (PD), the Markets in Financial Instruments Directive II (MiFID II), the Alternative Investment Fund Managers Directive (AIFMD) and the Fourth Anti-Money Laundering Directive (4MLD). 

The PD requires publication of a prospectus before the offer of transferable securities to the public or the admission to trading of such securities on a regulated market situated or operating within a member state. Depending on how the ICO is structured, the coins or tokens could, potentially, fall within the definition of a transferable security, and could therefore necessitate the publication of a prospectus which will be subject to approval by a competent authority.

Initial coin offerings could also be captured by MiFID in the event that a coin or token qualifies as a financial instrument. In that case, the process by which the coin or token is created, distributed or traded is likely to involve some MiFID activities/services, such as placing, dealing in or advising on financial instruments. 

The AIFMD could be applicable if the ICO scheme qualifies as an alternative investment fund, which is also possible depending on the structure and the extent to which it is used to raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy.

4MLD applies to firms such as credit institutions and financial institutions, including MiFID investment firms, collective investment undertakings marketing their units or shares and firms providing certain services offered by credit institutions without being one. 

AML risk

In the Netherlands, De Nederlandsche Bank (DNB) said that providing services for ICOs, tokens and cryptocurrencies could conflict with the AML/CTF requirements. The regulator said banks and other financial institutions involved in the offering of ICOs or the trade in crypto tokens ran the risk of getting caught up in manipulation, money laundering, terrorism financing and other fraudulent practices. 

This risk was increased given the anonymous character of the transactions. DNB said that, in turn, banks and other institutions could be confronted with liability risks, legal infringements and reputational damage. 

DNB said financial institutions that did facilitate ICOs or the trade in tokens would need to take sufficient measures to manage the financial economic crime risks and would need to demonstrate their risk management practices to the regulator in a convincing manner. 

In France, the Autorité des Marchés Financiers (AMF) has taken the issue of fundraising based on cryptocurrencies and blockchain technology seriously enough to launch a consultation into possible supervision, as well as a programme involving the support and analysis of these transactions, called UNICORN(1). 

The AMF said it had carried out an initial high-level study of these transactions and their legal implications. "This first assessment indicates that while some of the ICOs identified may be covered by existing legal provisions (regulation applicable to intermediaries in miscellaneous assets, to the public offering of financial securities, or to managers of alternative investment funds, in particular), most of these issues would fall, in the current state of the law, outside of any regulation for which the AMF ensures compliance," the AMF said.

The consultation considers three options for supervising ICOs, including promoting best practices without changing existing legislation; extending the scope of existing texts to treat ICOs as public offerings of securities and proposing ad hoc legislation adapted to ICOs.

In Germany, BaFin said it decided on a case-by-case basis whether an offeror was required to obtain authorisation pursuant to the German Banking Act (Kreditwesengesetz – KWG), Investment Code (Kapitalanlagegesetzbuch – KAGB), Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) or Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) and whether they must fulfil prospectus requirements. That decision is based on the specific formulation of the contract for each ICO.

Generally speaking, BaFin said cryptocurrency tokens constituted financial instruments (units of account) within the meaning of the KWG. That meant that undertakings and persons that arrange the acquisition of tokens, sell or purchase tokens on a commercial basis, or operate secondary market platforms on which tokens are traded were generally required to obtain authorisation from BaFin in advance.

"If BaFin receives information indicating dealings which might be prohibited, it investigates them and, where necessary, intervenes by administrative means. Independently of this, trading without the required authorisation is punishable by law and the law enforcement authorities are responsible for the prosecution of such criminal offences. Therefore, commercial offerors of token sales and operators of brokerage platforms in Germany also face substantial risks," the regulator said.

Sources:

https://www.cnbc.com/2017/11/29/bitcoin-surges-through-11000-less-than-24-hours-after-topping-10000.html

https://www.financemagnates.com/forex/brokers/analysis-two-major-bitcoin-cfd-providers-raise-red-flags-snb-type-event/

https://steemit.com/bitcoin/@cliff-on-crypto/bitcoin-cash-its-official-red-flags-for-control-finance

https://clmr.unsw.edu.au/article/market-conduct-regulation/austrac-throws-regulatory-lifeline-to-%22de-banked%22-bitcoin-operators