CryptoAM: EtherDelta vs. the SEC, Shipping on the Chain, and Fork Madness

Thursday, November 8th

📉 Happy Thursday CryptoAM crew!

Some big news dropping today with the announcement of an SEC action against Zachary Coburn, the Founder of EtherDelta. The markets took a slight dip on the news.

Come join us on telegram, and discuss all this madness.

3 things you need to know:

One: SEC charges EtherDelta founder with operating an unregulated securities exchange

The first SEC lawsuits involving a decentralized exchange dropped today, sending a warning shot to all exchange operators with U.S exposure. The SEC claims that Zachary Coburn knowingly facilitated the exchange of securities on the EtherDelta platform without regard for U.S securities law.

“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division.

Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The Commission's order recognizes Coburn's cooperation, which the Commission considered in determining not to impose a greater penalty.

- SEC Report

Be smart: SEC investigations take time and it’s unlikely that EtherDelta is only one they will be hitting. Over the next few years, expect to see many different organizations hit with fines, cease and desists, etc. We’re in the first inning of a very long game.

Robert Jackson Jr, an SEC Commissioner has claimed there is not a single ICO on the market that doesn’t fit the mold of a security — so legally, every single exchange was/is breaking the law. However, the SEC has made it clear they don’t want to stifle innovation, and take “good faith” into account meaning that they are likely to be lenient towards those that make an effort to stay lawful.

Decentralized exchanges are particularly vulnerable, as they often invite an “open door” policy towards coin listings meaning that any coin can list itself. I expect to see this action stall the development of truly decentralized exchanges, as they scramble to stay compliant. Only anonymous devs will be able to effectively create a truly decentralized exchange moving forward.

Go deeper: Read the SEC Press Release and the CoinCenter Analysis

Two: Nine leading shipping companies and terminal operators have signed a MoU to pilot a DLT platform

The MoU is aimed at forming a consortium of shipping industry leaders focused on the nascent distributed ledger technology; participants include:

  • CargoSmart who initiated the alliance and will provide the software solution for the network

  • Large port operators and shipping groups such as PSA International, Shanghai International Port Group, CMA CGM, and Yang Ming Marine Transport Corporation

This is not the first logistics/shipping blockchain alliance; Maersk and IBM launched a similar alliance back in August with 94 participants. So, while this isn’t the first or biggest such organization, it is still significant in that more and more maritime logistics companies globally are looking to blockchain technology to usher in new efficiencies.

Go deeper: Read the announcement

Three: Poloniex introduces the ability to trade pre-fork versions of BitcoinSV and BitcoinABC

Polo is allowing users to trade the Bitcoin Cash fork tokens before the fork actually happens, in one of the most innovative plays I’ve ever seen by an exchange.

Some context: Poloniex is backed by Goldman Sachs and was once the top exchange, but has fell to the wayside in recent times. The exchange is trying to rebrand itself as an institutional-grade exchange and is rapidly de-listing sh*tcoins. On top of that, they are offering this never-before seen pre-fork trading service that is sure to draw in significant interest and volume from speculative traders and investors - both retail and institutional.

“Pre-fork trading is available for the following pairs: BCHSV/USDC, BCHABC/USDC, BCHSV/BTC, and BCHABC/BTC.

Customers can convert Bitcoin Cash into equivalent amounts of BCHABC and BCHSV and, also convert BCHABC and BCHSV back into BCH if they’d like to withdraw funds.

Customers won’t be able to withdraw BCHABC and BCHSV ahead of the hard fork.”

- Poloniex press release

Poloniex is taking a neutral stance on the fork and is facilitating a market for both ends, and Poloniex BCH traders and hodlers can choose whether or not they would like to participate in those markets.

Since there are now liquid pairs for these tokens, we can use them to see what the market is thinking. As of now, BCH ABC is leading the fight, at almost 5x the BCH SV.

If you buy BCH and hold through the fork, as of now you make a cool 17.50!

Also in the news:

Market Outlook:

Quick Take

Direction: We experienced a slight pull as expected yesterday, dropping about 1.2% down to the 6410 resistance level.

Key Support:  6410, 6380, 6320

Key Resistance: 6460, 6500

Actions:  I’m looking toward the green band. I’m leaning bullish, but will reduce my long position if we break below 6380. I will exit completely on a break of 6320.

Fear & Greed

Still decidedly greedy today. Based on overall market structure, I’m still bullish — but, we could be due for more pullback.

Here’s a reminder of what these criteria mean

CoinSavage: Truth in Crypto

There’s a big problem with crypto trading. Too many fraudulent actors. People actually take trade signals from random people in twitter— with no way to vet anything.

CoinSavage is the platform to change all of that. They have built a fantastic (and free) platform where all portfolios, trades, and ideas are open sourced and timestamped. No more hindsight TA, now you can actually see for yourself if people are performing, and prove to your audience you know what you’re talking about.

Around the corner:

What I’m reading today:

Closing the Cash Gap With Cryptocurrency

I read this Bloomberg article yesterday and thought it provided great examples of why Bitcoin is both so hard to grasp by most in the high income world, while being simultaneously so attractive for those in low income countries.

Fundamentally, Bitcoin is about trust. When you buy into a system, you’re staking trust in the system as collateral for the value the system provides — because if the system you’re using crashes tomorrow you are now left with nothing. Bitcoin removes this element of “trust in people” and introduces the ability to “trust in code”. Generally, I view code as more trustworthy than humans (when audited). It’s difficult to audit the intentions, intellect and capability of us meaty humans.

People in low income countries have every reason to mistrust their governments and financial institutions. Mismanagement of finances has ruined thousands of societies before, and it will continue to do so long into the future. People in developed nations are lucky to have robust institutions and competent people in charge (and in the minority).

What’s is also interesting to me is the concept of leapfrogging, in which low income countries skip technological developments that are widespread in high income countries because by the time the tech reaches them it’s already outdated.

Take credit cards for example. Credit cards never really took hold in China, because by the time China was wealthy enough for it’s citizens to demand better payment models, digital payments were already on the scene. So China went straight from cash to Venmo-like equivalents in WeChat and AliPay.

This preponderance of digital payment systems is not unique to China. Mobile payments are not ubiquitous in India, Kenya, and other formerly low income countries. This makes it easy to introduce the concept of cryptocurrencies, and easier to get people to adopt.

This perfect storm of tech infrastructure, cultural acceptance and mistrust in institutions leads me to believe that the revolution will take off in low income countries, and I will be looking for any opportunity to help!

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CryptoAM is a Ledger Group project. We offer consultancy, advisory and research services for established companies and start-ups interested in the blockchain & digital asset space.