Bitcoin exchange BTC-e has revealed new details about a cryptographic token it plans to issue as part of a bid to refund users following a US law enforcement crackdown.

As CoinDesk previously reported, BTC-e – the long-running and mysterious bitcoin exchange that was taken down late last month following the arrest of one of its alleged operators – has said it plans to pay back user funds held by the exchange.

Posting via cryptocurrency forums and Twitter, those involved say they have regained control of just over half of the funds tied to the exchange. Further, echoing a previous effort by bitcoin exchange Bitfinex, which issued a token to users after it lost $60 million in bitcoin to a hack last summer, BTC-e says it will distributed tokens to cover the deficit.

Among the new details, BTC-e says it will offer free trading in a market for those tokens (called BTCT), through which users can sell at the prevailing rate. The tokens will trade at "any price, but no more than their face value," the representative said.

The post goes on to explain:

"For example, you had 1 BTC. You will receive 0.55 BTC and 0.45 BTCT. 0.55 BTC you can output immediately. The remaining 0.45 BTCT you can either exchange for BTC at the market rate, or wait for their exchange at face value."

In an earlier post, BTC-e said that it was in the process of obtaining outside capital to support the exchange relaunch. As part of that process, BTC-e has indicated that it will rebrand, though what name the site will use remains to be seen.

Trading image via Shutterstock

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Original author: Stan Higgins

Bitcoin can be an intimidating place for the new investor.

Scrolling through your news feed, you're more than likely to be greeted by apocalyptic headlines and strange terms – and you might not immediately understand the risks either poses to your investment.

Take the term "forks," for example. They're certainly a pertinent issue without an analogue for more traditional investors. So, what exactly is a fork? And why are they so important to the value of bitcoin and other cryptocurrencies?

The simplest answer is that all cryptocurrencies are software, and that a fork is a change to that software.

When you own an asset like bitcoin, what you really own is just a pair of network password keys. Those keys represent the ability to access the network that keeps track of who owns what and how much.

As such, when that software is modified, it can change the value of user's claims dramatically. In a very real sense, the software itself defines the asset – and, therefore, the price that investors are willing to pay for it.

An example

While there are many types of forks, most are relatively simple in nature.

A hard fork makes transactions processed on the new software incompatible with the previous versions. In a soft fork, the new version remains backwards compatible.

Earlier this August, bitcoin experienced a high-profile hard fork when a subset of the community split off the software and created a new version called bitcoin cash.

The contention came from bitcoin's move toward a certain scaling upgrade, one which the bitcoin cash contingent was against. With two competing and incompatible "bitcoin" blockchains and "bitcoin" assets, analysts anticipated considerable price volatility, with many believing that prices would trend down.

But, that's not what actually happened.

On August 1, right before the blockchain split, bitcoin was trading at $2,759, according to CoinDesk's Bitcoin Price Index. More than a week later, bitcoin was trading at an all-time high above $4,100. At press time, the price had passed $4,230.

While that might seem odd, several analysts theorized that bitcoin's long-drawn-out scaling debate had posed a major headwind, and its culmination led to a relief rally.

Data shows the bitcoin cash price shooting up to around $700 24 hours after the blockchain split, but because of market dislocations, it's difficult to know how reliable that data is.

In the following two weeks, the price of the new cryptocurrency has mostly hovered between $250 and $300.

The old narrative

While all this may sound a little wonky, the underlying narrative of headwinds and tailwinds should be familiar to anyone who has invested even casually.

In market terms, a headwind is a risk factor or negative trend that is likely to push prices lower. A tailwind represents just the opposite – a positive movement, a bit of favorable news, or a halo effect caused by some underlying trend.

Headwinds are often discussed when risks come into play that are specific to a company. When the risks diminish, the headwinds are said to subside, and the price of the stock often rises. Stock investors see this sort of rally in the stock market on a fairly regular basis.

The classic example of a headwind is when a company settles a lawsuit or agrees to pay a fine to end a government or regulatory investigation.

Markets despise uncertainty, so when a potentially risky situation gets resolved, investors often see it as a buying opportunity.

In the cryptocurrency space, most analysts have tended to think of forks as a headwind – an event that threatens to destroy value. As such, it's reasonable to expect cryptocurrency prices to rise after the headwind created by a potential fork subsides.

Turning tide

Yet, this thinking is showing signs of shifting. 

Every holder of bitcoin on August 1 had the potential to automatically receive an equal amount of bitcoin cash as part of the fork. So, if bitcoin cash is trading at $300 and bitcoin is trading at $3,000, bitcoin holders have received an additional 10% value because of a software change, all with no additional investment.

But, what if the rise in bitcoin prices after the fork isn't a simple case of an asset price rising because risk has been reduced? What if investors don't see forks as net destroyers of value, which must be discounted with lower prices, but as potential net creators of value?

In this scenario, the total value of bitcoin increases as new cryptocurrencies based on different technologies bloom. When investors hold on to cryptocurrencies in the face of potential forks, it's possible they aren't just weathering a storm, they're emerging from the rain with a richer bouquet of assets in their portfolio

In that case, some forks may be poised to transform into a classic tailwind which could drive prices ever higher.

If we take price to be a reasonable proxy of sentiment, then the forks-create-value view of bitcoin is clearly ascendant right now.

Fork image via Shutterstock

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Original author: Ash Bennington

Benjamin Sauter and David McGill of Kobre & Kim LLP are civil litigators and criminal and regulatory defense attorneys. They are also part of the Digital Currency & Ledger Defense Coalition, a group of over 50 lawyers dedicated to protecting US blockchain innovators.

In this opinion piece, Sauter and McGill examine how a new class of cryptocurrency-based financial products could impact the balance of power between US regulators.

There is more than meets the eye to recent announcements that LedgerX and CBOE will soon be offering digital currency derivatives in the U.S.

In addition to delivering new financial products to the public, these initiatives may also usher the U.S. Commodity Futures Trading Commission (CFTC) into the underlying digital currency markets. If so, this would be a regime change in how cryptocurrency trading is regulated, particularly with respect to manipulative or disruptive trading practices.

In light of recent reports of rampant "spoofing" and "wash trading" in some markets, the CFTC may be called upon to rule with an iron fist.

At the same time, the recent announcement that the U.S. Securities and Exchange Commission (SEC) will consider many (if not all) new currency offerings as "securities" portends a looming game of thrones for regulatory dominance in these markets.

The Westeros of digital currency trading

Currently, the CFTC is "beyond the wall" of the digital currency markets.

This is because, as a general matter, the CFTC regulates the trading of commodity derivatives (for example, wheat futures and options), not the trading of underlying commodities themselves (for example, wheat).

The CFTC has designated bitcoin and other virtual currencies as "commodities," thereby removing them from the ordinary scope of what the the CFTC regulates. As readers may recall, the CFTC's lack of oversight in this area, and the possibility of unregulated manipulation in the digital currency markets, was a key reason why the SEC recently denied a bid by investors Cameron and Tyler Winklevoss for approval of an exchange-traded bitcoin ETF.

There are two primary exceptions to the rule that the CFTC does not oversee commodities trading:

First, as brandished in the CFTC's enforcement action against Bitfinex in June 2016, an obscure provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act gives the CFTC jurisdiction over commodities trading when: (a) the trading is done on a leveraged or margined basis, and (b) the commodity is not actually delivered to the customer within 28 days.

Due to a quirk in how Bitfinex held the private keys for customer bitcoins, the CFTC found that these conditions were met and, therefore, that Bitfinex should have been registered with the CFTC. Bitfinex agreed to settle the matter, so the CFTC’s interpretation remains untested and open to dispute in court.

In any event, the CFTC's enforcement action was largely hollow because digital currency exchanges now appear to be sidestepping this jurisdictional provision by ensuring "actually delivery" of customer private keys. Thus, this provision is unlikely to sustain meaningful regulation by the CFTC of the digital currency markets.

Second, the CFTC has brought enforcement actions for manipulative trading in underlying commodity markets (such as silver) when that trading also affects derivatives markets subject to CFTC oversight.

Again, this basis for the CFTC's jurisdiction is open to dispute in court, but it is clear that the CFTC believes it has this authority. By extension, one could expect the CFTC to assert some degree of authority over digital currency trading to the extent that trading impacts digital currency derivatives markets.

The CFTC's gambit

To date, there have been no digital currency derivatives markets in the U.S. to speak of, and thus no opening for the CFTC to break through the jurisdictional wall separating it from the underlying digital currency markets. (Recall that the CFTC tried to shut down derivatives trading on Derivabit and TerraExchange in 2015.)

This is why the CFTC's recent approval of LedgerX and anticipated approval of CBOE for digital currency derivatives trading is so significant.

With digital currency derivatives trading set to begin, the CFTC may well have found the jurisdictional allies it needs to breach the wall. At a minimum, one can expect the CFTC to assert authority over trading practices on the underlying digital currency markets that provide reference prices for the newly approved derivatives products.

But because the digital currency markets and related derivatives markets are all linked through arbitrage, there may be no natural stopping point once the CFTC crosses the threshold. That could mean a new regulator sitting on the digital throne.

Wars to come

Not to be outdone, the SEC has also been busy plotting its own run at the throne.

The SEC's recently published "Report of Investigation" on The DAO and Slock.it signals that new coin offerings may be deemed "securities" subject to SEC oversight.

A key implication of this finding is that the secondary trading of these securities would fall under the SEC's Section 10(b) anti-fraud mandate – including its prohibitions on market manipulation and insider trading. In other words, the SEC appears to have just carved for itself a large slice of the underlying digital currency markets, at least with respect to newly issued digital currencies.

Given that the CFTC has already found digital currencies to constitute "commodities" within the meaning of the Commodity Exchange Act, there is tension between these two regulatory campaigns.

Which agency would regulate the secondary trading of a new coin offering that serves as a reference price for a derivatives contract?

This regulatory conflict is not unique to digital currencies, and the SEC and the CFTC may end up sharing power as they do with other single-security futures products. But security futures products are subject to an arcane set of rules and joint-registration requirements that are sure to chill the digital currency trading environment.

Prepare for a long winter

Regardless of whether the SEC, the CFTC or both ultimately assert power over trading in the digital currency markets, recent developments suggest that a new regime is coming. Digital currency traders in the U.S. and abroad should prepare for a long winter of uncertainty and, ultimately, regulatory scrutiny of trading practices.

Toy tank image via Shutterstock

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Original author: Benjamin Sauter & David McGill

A U.S. economist and businessman known for his work in spearheading the early development of futures contracts is seeking a cryptocurrency patent.

Richard Sandor, a former Chicago Board of Trade chief economist and vice president, advanced the utilization of financial futures back in the 1970s, earning him the moniker "the father of financial futures" and, later, "the father of carbon trading," according to Time.

Notably, perhaps, Sandor is now listed as the first of three inventors for the "Secure Electronic Storage Devices for Physical Delivery of Digital Currencies When Trading" patent application, released on August 10 by the U.S. Patent and Trademark Office.

Sandor is currently the chairman and CEO of Environmental Financial Products LLC, which is listed as the applicant for the patent. The application itself details a hardware concept for the storage of digital currencies tied to derivatives contracts.

It explains:

"The invention relates to a method to facilitate trading of digital currencies, which comprises electronically storing an amount of a digital currency on an electronic storage device or electronic registry; and physically storing the storage device or electronic registry in a secure, physical repository that is not publicly accessible with the storage device or electronic registry available for use in subsequent delivery of the digital currency."

It's the latest submission to focus on cryptocurrency-related derivatives, coming on the heels of news that options exchange CBOE is planning to launch products in this area later this year.

Firms like CME have also moved to obtain intellectual property tied to cryptocurrencies. As CoinDesk previously reported, CME's patent applications reveal an interest in bitcoin mining derivatives.

Richard Sandor image via Jon Lothian News/YouTube

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Original author: Stan Higgins

Bitcoin has continued to trade at over $4,000 since reaching a record level of $4,225 yesterday, and has now set a new all-time high of over $4,300.

According to the CoinDesk Bitcoin Price Index, average prices across exchanges today opened at $4,111 and have seen a 4.97 percent increase so far. At press time, a bitcoin was worth $4,315

Notably, since the price passed the $4,000-mark for the first time yesterday, prices have maintained a level fluctuating at around $4,100, only dipping to below that level once when bitcoin was trading briefly for around $3,900. However, prices soon returned to above the $4,000 point.

The record-breaking price levels would seem to indicate money coming into the market that had been held back pending the uncertain outcome of a split of the bitcoin network that resulted in a new cryptocurrency called bitcoin cash.

Bitcoin cash, which was created on August 1, already stands as the fourth largest cryptocurrency by market capitalization and currently has a value of around $306, according to CoinMarketCap.

The total market cap of all cryptocurrencies has again reached previously unseen levels, and has now reached $138 billion – a billion higher than yesterday's all-time high.

Climbing image via Shutterstock

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Original author: Daniel Palmer

Loi Luu is the co-founder and CEO of KyberNetwork, a decentralized, trustless, cryptocurrency exchange. 

In this opinion piece, Luu discusses the challenges facing technologists seeking to popularize decentralized exchanges for cryptocurrency trading, framing liquidity as one of the key obstacles to production.

The total market capitalization of cryptocurrencies is now above $137 billion, up from $16 billion at the beginning of the year.

But before the world can conduct a significant amount of its transactions via cryptocurrency markets, the problem of liquidity must be addressed.

Liquidity refers to the extent to which a market allows assets to be bought and sold at stable prices. Lower liquidity tends to result in a more volatile market (especially when large orders are placed), and it causes prices to change more drastically; whereas higher liquidity creates a less volatile market, and prices do not fluctuate as significantly.

Today, cash is the most liquid asset. If a transaction of $1 million takes place, the market is able to absorb that transaction easily without the value of the dollar drastically changing. Costs associated with the transaction, and the value of the currency at the time of the transaction, are also known beforehand.

However, the same transaction in bitcoin, or any other cryptocurrency, has a much greater effect on the cryptocurrency's value.

This is because of the market's lack of liquidity. The amount of cryptocurrency available on a specific trading platform can run out, requiring the buyer to complete the transaction at 1–10 percent more than expected.

To complete the same transaction of $1 million, it could end up costing between $10,000 and $100,000 more than the original price to make the trade.

Decentralized trading platforms

Until now, the cryptocurrency space has been dominated by centralized exchanges that help facilitate transaction from government currencies to cryptocurrencies.

Centralized exchanges, like Coinbase, are easy to access and easy to use. However, as many have failed to adequately secure their customers' funds, decentralized exchanges are becoming a popular concept.

Centralized exchanges have been simply unprepared for the recent influx of users, causing major system failures and attracting the attention of hackers. While some centralized exchanges are more secure than others, there's still been a number of security failures, like last year's Bitfinex hack, which resulted in thousands of users losing their savings (until it was later repaid).

Decentralized trading platforms offer an alternative, and perhaps even more valuable service, by promising greater security and transparency. They do not rely on third-party services to hold customer funds. Instead, peer-to-peer transactions are possible through an automated process.

The benefit of using a decentralized exchange is that there is no need to put any trust in the exchange platform itself, as the funds are held by the user in a personal wallet, rather than with a third party. Decentralized exchanges can also provide more privacy, while reducing the risk of server downtime, if only for those who are more tech-savvy.

Unfortunately, decentralized trading platforms still lack the commodity, easy of use, and overall "user support" to attract a mainstream user base. Therefore, the liquidity and market depth of these exchanges is still quite low.

Addressing the liquidity challenge 

Improving the liquidity in decentralizing trading platforms is one way to help encourage mainstream adoption. Of course, many factors contribute to the liquidity of an asset. But, if the ways in which consumers make monetary transactions using cryptocurrencies could be simplified, then it's not difficult to imagine that the demand for such assets would increase.

There's little doubt that trading cryptocurrencies will continue to take place on different kinds of exchanges for the foreseeable future without a single, more stable asset emerging to keep their value in check. This means that overcoming market fragmentation and liquidity problems will require a unique solution.

One approach to solving the challenges that exist in decentralized exchanges is to reduce the cost of the switch for cryptocurrency traders. If an on-chain platform can tap into multiple reserves, and lower the barriers of switching from one exchange to another by working with various wallet providers, then users can log into their wallets and execute a token conversion without ever leaving their wallets.

This allows receipts to access payments from any token that a decentralized platform supports.

Token-to-token convertibility is not the only approach to solving the liquidity challenge. There are many other unique ideas on how to help users execute cross-network transactions seamlessly and at reasonable rates – and these solutions are opening up entirely new ways for the greater public to participate in the cryptocurrency ecosystem.

Furthermore, liquidity is not the only factor in the adoption of the technology, but it stands to be a critical component in how the market matures. Promoting liquidity in the blockchain ecosystem, and specifically in decentralized exchanges, will be key to improving the general public's perception of cryptocurrencies as a valuable way to trade currencies safely and securely.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase.

Liquid paint image via Shutterstock

The leader in blockchain news, CoinDesk strives to offer an open platform for dialogue and discussion on all things blockchain by encouraging contributed articles. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of CoinDesk.

For more details on how you can submit an opinion or analysis article, view our Editorial Collaboration Guide or email This email address is being protected from spambots. You need JavaScript enabled to view it..

Original author: Loi Luu