2018 April 09 - Volume.2 Issue.14

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2018 April 09 - Volume.2 Issue.14

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Bitcoin Births Blockchain Analysis Firms, "Know-Your-Transactions"

Chainalysis, a New York-based blockchain analysis company, announced that it had raised a further $16Mn, as well as revealed their competitor knock-out real time analytics tool they've dubbed as Know-Your-Transactions (KYT). Chainalysis is the first company that focused solely on Bitcoin compliance for regulatory obligations such as anti-money laundering (AML). The company developed investigation software that tracks and analyzes the Bitcoin blockchain and determines the source and destination of each transaction. Their analysis allowed banks, such as Barclays, one of their clients, to comply with regulations in the case it wished to provide banking services to cryptocurrency operations, such as Coinbase - who recently revealed a partnership with the bank. Previously, blockchain analysis was done retrospectively but the new tool will now provide feedback on the underlying purpose of transactions, which can detect risky customers and suspicious activity in real-time.

Public records indicate that the US government entities have entered Purchase Orders (PO) with Chainalysis to the cool tune of $1,500,000 from 2015 to date. Blockchain forensics has become a lucrative opportunity and has seen new entrants into the space.

London-based Elliptic is Chainalysis’ biggest competitor. The company was launched in 2013 with the intention to provide a Bitcoin storage product. Since 2015, it has stopped providing storage and focused only on blockchain analysis including compliance and criminal investigations. Elliptic has aided authorities in many ransomware investigations including WannaCry. In cooperation with a pro-Bitcoin Silvergate Bank, Elliptic introduced a solution focused on helping banks asses bitcoin-based business clients and comply with necessary regulations.

In early 2017, Jeff Garzik’s Bloq acquired a blockchain analytics firm Skry. Bloq specializes in developing enterprise grade blockchain technology to companies worldwide. BitFury Group announced their blockchain analysis solution dubbed Crystal, which will feature a risk scoring solution that estimates the likelihood of a particular address being involved in illicit activities. Bitfury’s solution will also have a feature that will supposedly untangle previously tumbled transactions used to obfuscate the trail (Diar, 30 October 2017). Other lesser known blockchain analysis solutions are DMG Blockchain Solutions, Scorechain, CipherTrace, Blockchain Intelligence Group and Coinfirm.

Chainanalysis & US Agencies Purchase Orders Pass $1.5Mn

wdt_ID Governent Agency Purchase Orders
1 U.S. Immigration And Customs Enforcement 514,256
2 Internal Revenue Service 454,835
3 Federal Bureau Of Investigation 336,180
4 Drug Enforcement Administration 96,144
5 Bureau Of The Fiscal Service 90,528
6 Securities And Exchange Commission 80,045
7 Commodity Futures Trading Commission 10,344
8 Total $1,582,333

Source: Federal Procurement Data System, Diar


Potential Concerns Requiring Blockchain Analysis

wdt_ID Agency Possible Concerns
1 FBI Money Laundering And Terrorist Financing
2 IRS Tax Evasion
3 DEA Drugs Dark Markets
4 ICE Human Trafficking, Remittences
5 SEC BTC Flowing Into ICOs And Scams


Blockchain Analytic Firms Raise Bank

wdt_ID Company Funding Investors
1 Chainalysis $17.6Mn Benchmark, DCG, CVP, Techstars, FundersClub, Point Nine Capital
2 Elliptic $7Mn Paladin Capital Group, Santander, DCG, Octopus Ventures
3 Bloq (Skry) - SixThirty, CMT Digital
4 Bitfury (Crystal) $90Mn Bill Tai, Chong Sing Holdings, Blockchain Capital, QueensBridge Venture Partners
5 DMG Blockchain Solutions - -
6 Scorechain $570k -
7 CipherTrace - -
8 Blockchain Intelligence Group $100k -
9 Coinfirm $500k -


US Securities & Exchange Commission Looking at Bitcoin ETFs, Again

According to a report published by the Securities and Exchange Commission (SEC), the agency is considering a rule change, which would enable the listing of two Bitcoin exchange traded funds (ETFs) on NYSE Arca.

The two ETFs that are currently being considered have been proposed by ProShares in September of 2017. One ETF would allow investors to go long while the other one would allow going short. The company withdrew the application in January following the SEC’s push back expressing concerns regarding the liquidity and volatility.

VanEck filed for Bitcoin ETF in August last year and also withdrew in January. Direxion, Exchange Listed Funds Trust, First Trust and REX filed for Bitcoin ETFs in December after CME and CBOE began Bitcoin futures trading. All of these funds were also withdrawn back in January. It was anticipated that the futures would be one of the key factors that would push regulators to approve ETFs as they set a reliable price level for valuation and a stable base. In comparison, about 85% of commodity ETFs are based on futures contracts with the exception of precious metals. In late March, CBOE’s president Chris Concannon sent a letter to the SEC in which it encouraged the agency to reconsider approving cryptocurrency ETFs.

Some fund managers are attempting to design traditional ETFs that are indirectly exposed to blockchain and cryptocurrencies. For example, the Reality Shares Nasdaq NexGen Economy and Amplify Transformational Data Sharing launched ETFs that are investing in publicly traded companies (Overstock, IBM, Intel, Citigroup

Bitcoin ETF Applications

wdt_ID Name Date Applied Action
1 Winklevoss Jul-13 Denied
2 SolidX Jul-16 Denied
3 Bitcoin Investment Trust Jan-17 Withdrawn
4 VanEck Aug-17 Withdrawn
5 ProShares Sep-17 Being considered
6 Direxion Dec-17 Withdrawn
7 Exchange Listed Funds Trust Dec-17 Withdrawn
8 First Trust Dec-17 Withdrawn
9 REX Dec-17 Withdrawn

Source: Diar


and Goldman Sachs and others), which are investing in blockchain technology themselves.

If the volatility of Bitcoin decreases and liquidity on the futures market increases, it’s plausible that a Bitcoin ETF will be approved by the SEC. The only question is when and who will be the first company to get approved. Until then, over-the-counter trusts by Grayscale will continue to dominate the market.


India Goes on Final Cryptocurrency Offensive

The Reserve Bank of India (RBI) issued an order on Friday saying that regulated financial institutions will have three months to sever ties with any entities that are dealing with cryptocurrency. Even though RBI recognized that technological innovations including blockchain can potentially improve the efficiency of the financial system, it said that cryptocurrencies raise concerns of consumer protection and money laundering amongst others. At a press conference, the deputy governor of RBI Bibhu Prasad Kanungo said that cryptocurrencies can potentially “endanger financial stability”.

While the possession of cryptocurrencies will not be made illegal in India, acquiring them will prove to be challenging. The Indian exchanges with fiat pairs (see table) will have to either relocate to a different jurisdiction or shift to purely cryptocurrency pairs as opposed.

Following the announcement, the price of Bitcoin in India traded more than $1,000 below the global average. Since then, the price has partially recovered and is currently trading approximately $700 below the global average. Over the counter (OTC) trading through services such as LocalBitcoins will become the main method for fiat on-ramps. Along with the order, RBI also released a Statement on Developmental and Regulatory Policies where it states that it is considering issuing its own central bank digital currency (CBDC). The RBI has constituted an interdepartmental group “to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency”. The resulting report will be submitted by the end of June.

Coinbase Looks to Alumni for Investment Opportunities

Last week, Coinbase President Asiff Hirji announced on CNBC that the exchange has now launched their own investment arm, Coinbase Ventures Fund. The fund aims to focus on early stage companies, not cryptocurrencies, that are aligned with the company's own vision of building an open financial system.

"We are going to invest in early stage companies, primarily around founders that we know, part of the alumni network who are building compelling businesses that move the mission forward for a more open financial network" Mr Hirji said in the interview.

The fund, that has already started releasing working capital, is already at $15Mn.


Select Companies/Projects with Former Coinbase Employees

wdt_ID Company Former Employees
1 District0x Joseph Urgo
2 dYdX Antonio Juliano
3 Dharma Nadav Hollander
4 Aragon Maria Paola Gomez Gelvez
5 Polychain Capital Olaf Carlson-Wee
6 Scalar Capital Linda Xie, Jordan Clifford
7 1Confirmation Nick Tomaino

Monero Forks Off ASIC
Monero underwent a scheduled semiannual fork, which implemented a new consensus algorithm to maintain ASIC resistance. Following the fork, the hash rate has dropped by more than 80% to levels that were seen 7 months ago indicating that ASIC mining has been underway for several months.
Russia Looks to Spearhead EAEU Payments System
Speaking to local media, the First Deputy Governor of the Central Bank of Russia said that they plan to launch a settlement network across the Euroasian Economic Union on Masterchain, a platform developed on Ethereum to potentially sidestep the current payments network.
All Lightning Network Projects Deployed
Last week saw Acinq, one of the three Bitcoin Lightning Network teams release their Eclair wallet that works on the Mainnet. This follows on Lightning Labs who also released their Mainnet beta for micropayments earlier last month. The network now nears 6000 open channels.
Ripple's Billions in Stash Fails to Get Listing
A story by Bloomberg last week revealed that remittance focused blockchain business Ripple attempted to pay hefty sums to the tune of 7 figures for a listing on Coinbase and Gemini - both of which were declined. Payment for listing on exhanges have become a business norm post-ICOs.

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