Word on the Street: A market miracle out of the ether

Ether provided the miracle news needed to halt the market sliding to a new nadir but it was delivered by an unlikely messenger – Yahoo.

While all eyes were on the crypto glitterati piling into the Consensus conference at the New York Hilton in May and the market waited for the prophesized "Consensus rally", the Yahoo Finance All Markets Summit: Crypto on Thursday was a townhall gathering in comparison. Flying under most traders’ radars the name William Hinman also went largely unnoticed but the event marked the most pivotal moment of 2018 in crypto so far.

Hinman, the SEC’s head of corporation finance, could not have offered the market kinder words when he said: "Putting aside the fundraising that accompanied the creation of ether, based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions."

The news rallied the entire crypto-market, though tokens built on the Ethereum network can still be deemed securities by the regulator, depending on how they are sold and marketed.

“If the network on which the token or coin is to function is sufficiently decentralized — where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts —  the assets may not represent an investment contract.                                                           – William Hinman, SEC head of corporation finance

Hinman outlined the conditions for a non-security: “cases where there is no… central enterprise being invested in or where the digital asset is sold only be used to purchase a good or service available through the network on which it was created.”

This statement from Hinman takes SEC Chairman Jay Clayton’s definition a step further. Talking to CNBC in June, Clayton said explicitly “cryptocurrencies, replacements for sovereign securities, like bitcoin are not a security. A token, a digital asset where I give you my mine and you go off and make a venture… and get a return in the secondary market by selling your token – that is a security.” In this sense, he views most ICOs as security offerings, though wouldn’t specify on any altcoins.

Hinman and Clayton’s definitions around ICOs are congruous and sounds simple: promoting a coin that isn’t backed by a product but only a promise of one and selling it widely to investors beyond those that would actually use the final product will be deemed a security issuance.

Security tokens can also ‘evolve into non-securities’

Although Hinman didn’t comment on specific altcoins he left a huge caveat for cryptos that start off classified as securities to evolve into another form of decentralized asset, and this is exactly the tipping point the SEC says bitcoin and ether have reached.

“What about cases where there is no longer any central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created?” When a project becomes truly decentralized Hinman believes “in these cases the answer is a qualified ‘yes’.”

This statement alone resounds bullish for Ripple who are defending lawsuits against the XRP token being deemed a security while simultaneously being in the process of decentralizing their network.

“We are pleased that the SEC has announced that it does not view Ether as a security,” Ripple spokesman Tom Channick said in an emailed statement. “We believe that XRP likewise should not be classified as a security and look forward to confirmation from the SEC.”

SEC clears the way for Ether futures 

The regulator’s stance also clears the way for the impending ether futures contracts. President of CBOE, the creators of the bitcoin futures contract, Chris Concannon told bloomberg that this decision increases the chances of an ETH contract being signed off by regulators.

“We are pleased with the SEC’s decision to provide clarity with respect to current Ether transactions,” Concannon said in a statement. “This announcement clears a key stumbling block for Ether futures, the case for which we’ve been considering since we launched the first Bitcoin futures in December 2017.”

Tom Lee navel-gazing on BTC price: Futures linked to sell-offs

Meanwhile, the self-styled bitcoin oracle Tom Lee of Fundstrat has revealed another price prophecy: the recent BTC sell-offs are driven by the nearing expiration of CBOE futures contracts.

Lee wrote in a note on Thursday that since the CBOE futures listed in December there has been a sharp sell-off in bitcoin leading up to every contract expiration.

"Bitcoin sees dramatic price changes around CBOE futures expirations. This was something flagged by Justin Saslaw at Raptor Group. We compiled some of the data and this indeed seems to be true," Lee wrote Thursday. "Overall, bitcoin has fallen 18 percent in the 10 days prior to CBOE contract expiration."

CBOE’s Chris Concannon defended his company’s influence on the spot price: "While we are excited about our recently launched Bitcoin futures, the notion that they have materially affected the bitcoin price overstates their influence and ignores other critical facts. Our strict position limits and the limited open interest in our May and June settlements, suggest that the fall of Bitcoin can be more easily explained by other factors such as the recent regulatory scrutiny around the globe, steps by government tax collectors, the rise of other cryptocurrencies, and declining media interest in the asset."

Novogratz fund Galaxy Digital invests $15m in crypto startup

AlphaPoint, the company that powers many of the world’s cryptocurrency exchanges and helps digitize assets, is the latest company added to the orbit of billionaire former hedge fund manager Mike Novogratz.

“We are in the early stages of a fundamental transformation in financial markets due to the digitization of assets,” Novogratz said in a statement Thursday. “We are excited to partner with AlphaPoint as we continue to help drive this revolutionary change in digital markets.”

After his fallout from Wall St in 2015, Novogratz is making his comeback as the crypto king of institutional investing with the ambition of turning his fund Galaxy Digital into the “Goldman Sachs” of crypto merchant banking.

Founded in 2013, Alphapoint provides software-as-a-service and includes CME Group and Scotiabank among its customers and has also attracted investment from Blockchain Capital. In April it announced it would work with the Royal Mint and CME to launch a platform for trading digital gold.

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A timely reminder of the impact crypto conferences and events play on prices and why we should keep a close eye on the list of speakers at the less glamorous events. From the SEC to CBOE, it all went down on Thursday…