Tuesday, July 30, 2013

Life-Saving Remittances Smothered by Anti-Money-Laundering Laws

By Jon Matonis
American Banker
Wednesday, July 24, 2013


The law of unintended consequences strikes again. This time NGOs and political leaders are declaring a "humanitarian" crisis.

It is both sad and amusing to watch members of the U.K. Parliament proclaim disgust with Barclays' (BARC) decision to sever relationships with money transfer agents that facilitate remittances to Somalia. The legislators are the ones who blindly supported the imposition of restrictive anti-money laundering guidelines in the first place, even if they are simply following the U.S. lead.

Now these same British MPs, some with large African migrant population constituencies, have pressured Barclays to agree to a 30-day stay for some agent accounts that will be ending in mid-August.

Barclays is scheduled to close the accounts of about 80 money-transfer businesses because the bank fears that proper checks are not in place to spot criminal activity and that the funds could go towards terrorist financing. Among the banks, there is justified concern that the U.S government's forced $1.9 billion settlement against British bank HSBC for weak money laundering controls could also affect the business of overseas remittances. So, Barclays is merely exercising caution. "This is solely about the company's controls, not where they send money to," a Barclays spokesman told American Banker.

Apparently the money transfer agents operating in the U.K. do not have a problem with law enforcement or regulators because the funds transfers that they make are serving humanitarian purposes such as feeding children and purchasing medicines. The agents make the point that "cash going to extremists in Somalia is sent in sacks by plane, not from a London suburb a few hundred dollars at a time," according to The Economist magazine.

Dahabshiil, the largest Somali money-transfer agency in the UK, estimates that $500 million per year is sent from Britain to Somalia. About one-third of Somalia's $2 billion gross domestic product enters through money transfer businesses.

Without a formal banking sector, millions of Somalis rely on money sent from abroad. Underground agents could potentially fill the void. Alternatively, migrant workers could simply transfer new cryptographic commodities like bitcoin, which are not against the law.

Also included in the countries put on notice by Barclays are Nigeria, Ghana, India, and Bangladesh with the resulting impact certain to be felt by Somalia's neighbors, Kenya and Ethiopia.

The wholesale closure of accounts with U.K. money-transfer businesses parallels the situation in Minnesota last year when a local bank, citing the risk of strict penalties, ceased transfers to Somalia for migrants wanting to send money home. Wells Fargo (WFC) and U.S. Bancorp (USB) were dragged into the fight as customers threatened to close bank accounts at the two leading banks in the market unless they offered remittances to Somalia. Banks face a no-win choice over remittances.

A chilling effect in the provision of certain banking services has been created and we are witnessing its global expansion. If banks sufficiently fear punitive action from the authorities, it matters not whether an actual law is being violated. The fear of prosecution is enough to warrant an abundance of caution.

"We are regulated by the U.K. government. We are a licensed institution as is any other legal company," Abdirashid Duale, CEO of Dahabshiil, told the news service IRIN. "Dahabshiil's anti-financial crime controls are fully compliant with all applicable legal requirements and industry best practice and have been regularly audited by HMRC, the UK's customs and tax department, for a number of years on behalf of the Financial Services Authority, without any adverse findings."

Omar Abdinur, managing director of Tawakal U.K., another remittance firm affected by Barclays' decision, told IRIN, "There is no other bank willing to open an account for us in the U.K….. We have approached many banks but they are not willing. They say that money transfer is a risky business, but there is no single case in the U.K. where it has been proved that our firms are under-regulated or that we have transferred money to people under sanctions."

The chilling effect running through the banking industry goes well beyond hawala agents and money transfers to the horn of Africa. Last week in the United States, Amagi Metals, a broker of gold, silver and copper, had its account at Bank of the West closed with little warning simply because the firm accepted some payments in the digital currency bitcoin. These types of incidents are on the rise.

Financial journalist Christopher Alkan calculates that the U.S. approach of extending the scope of its laws beyond its territory will eventually backfire.

Recognizing that the Barclays action on Somali transfers is a private commercial decision based on calculated risk-reward parameters, the bank should be applauded for staying in the game as long as it has, remaining one of the last few financial institutions operating with the money transfer agents.

According to The Economist, "Some observers are calling for the creation of new institutions that could replace private banks. One suggestion is a 'remittance bank' hosted by the UN or a multilateral agency. Another is a code of conduct worked out by remitters, banks and regulators."

Adding to that sentiment and despite the fact that government has gotten us to this crisis point, Leon Isaacs of the International Association of Money Transfer Networks says, "This needs to be driven by government or the banks won't get the comfort they want." Worldwide financial inclusion is at stake.

Increasingly, it's looking like the solution may reside in not going through the banks or government at all.

Sunday, July 28, 2013

Banks Get One Last Mulligan in Payments

By Jon Matonis
American Banker
Thursday, July 25, 2013


Rightly or wrongly, banks are often thought of as the dinosaurs of financial services because they typically wait for clear market penetration and several upgrade releases before adopting any new technology. Now, rather than simply following a revolutionary change in the financial industry, banks may get another chance at leading it.

After failing to respond to customer demand and missing the tectonic shifts in money services businesses and online/mobile payments, banks are about to get a third mulligan with the emerging futuristic area of cryptographic money.

For example, money services businesses like Xoom and TransferWise provide a wide variety of services, essentially filing the gaps of what traditional banks ignore or for one reason or another cannot provide.

Alternative payment companies like PayPal and Square have essentially built their businesses around what banks were not responding to and now they are national powerhouses – international, in the case of PayPal. Also, Stripe has become the online version of Square making it easy for software developers to integrate and accept payments on the web.

There was once a time when bankers led rather than followed. One example is the evolutionary shift to card payment networks; banks were the genesis of today's leading card brands. Visa originated from the BankAmericard project launched in 1956, when an in-house product development team pursued a mass mailing in Fresno, Calif., for a general purpose credit card.

By 1975 Bank of America had given up control of the BankAmericard program and Visa founder and former CEO Dee Hock took it from there. The term Visa was conceived by Hock because he believed that the word was instantly recognizable in many languages and he felt that the term denoted universal acceptance in most countries. (Interestingly, the term Visa has become a recursive backronym for Visa International Service Association.)
In true startup fashion, the bank-owned card brands of Visa and MasterCard eventually had successful IPOs. The inspiration is clearly there. But where are the visionaries in banking now?

With the breakthrough development of cryptographic money, banks appear paralyzed about understanding and harnessing its transformative power. This does not bode well for the future of banks. Just as they block and freeze the accounts of competitive money transmitters in the U.S., banks routinely freeze the bank accounts of innocent bitcoin exchanges, hiding behind the rationale that they are being watchful of and adhering to regulator guidelines.

Bitcoin exchange services like Mt. Gox, TradeHill, and CampBX are the primary way to purchase and sell bitcoin for national fiat currencies. They are mostly launched by technology experts who may or may not have any experience in the intricacies of federal and state anti-money laundering laws or know-your-customer guidelines. Exchanges depend on their banking partners to keep the funds flowing in both directions. But rather than provide expert counsel and cultivate a business customer relationship, banks have routinely pulled the rug out from under these new companies usually without warning.

Taking it a step further, banks could brand and offer bitcoin exchange services themselves, quickly becoming the de facto leaders because of their regulatory status and supreme customer identity procedures.

Banks are missing out on a huge and glaring opportunity in the area of exchange services, but it gets worse. Startup companies are springing up around the bitcoin ecosystem that replicate some of banking's other core competencies such as asset safekeeping and escrow services.

Online bitcoin wallet companies like Blockchain My Wallet and Coinbase are providing direct safekeeping services for the holding of customers' bitcoin balances. Amazingly, these companies look and feel like banks of the future because they offer sophisticated access control and integrate seamlessly with mobile phones. Coinbase, even has a direct username and password connection to a U.S. bank account, access that is granted voluntarily by the depositor. If it walks like a duck and quacks like a duck, it's probably a duck.

Transaction escrow companies protect online buyers and sellers via an impartial dispute resolution service. The services from BTCrow, Blockchain’s multi-signature escrow, and the now-closed ClearCoin, have filled the gap for trust in online transactions. Performing the role of ensuring customer satisfaction and keeping merchants honest, these services emulate what chargeback rights have done for consumer protection in the payment card world.

Finally, in the area of merchant processing, banks again have an opportunity that leverages their skill set staring them in the face. Similar to credit and debit card merchant processors, bitcoin merchant processors like BitPay, BIPS, and Coinbase help get merchants online and accepting bitcoin in a quick and easy way. In addition to robust merchant wallet solutions with detailed reporting capabilities and shopping cart plug-ins for electronic commerce, the essential service of a bitcoin processor is to “lock in” or guarantee the exchange rate for merchants that elect not to maintain bitcoin balances. This is accomplished by the bitcoin processor managing the risk associated with conversion through internal treasury trading or external hedging.

The message is clear. Architect the future. Develop a fintech startup company organically or acquire an existing best-of-breed team for a massively competitive head start. Either way, banks have to start thinking like Silicon Valley and Silicon Alley startups.

Banking institutions are ideally suited to all of these mentioned cryptocurrency functions. More importantly, they play directly to the core competencies of banks. When the market is nascent and still maturing, like now, is the perfect time to exert a leadership role and show the financial service newbies how it's done. It looks mighty doubtful that banks will be getting another mulligan anytime soon.

Monday, July 22, 2013

Bitcoin Foundation Comments on Liberty Reserve Special Measures

The application of “Special Measures” to Liberty Reserve by FinCEN provided a unique opportunity for the Bitcoin Foundation to clarify several important topics related to Bitcoin, as FinCEN solicits feedback from the financial community whenever they issue a “Notice of Proposed Rulemaking,” or NPRM. Here is a link to those comments that were formally submitted to FinCEN.

Bitcoin Foundation Comments on Liberty Reserve Special Measures NPRM

Sunday, July 21, 2013

Bex.io Lets Anyone Launch a Bitcoin Exchange

By Jon Matonis
Tuesday, July 16, 2013


Have you ever imagined starting your own bitcoin exchange? Soon, Vancouver-based Bex.io will make that possible by deploying exchange functionality under a Software as a Service (SaaS) model.

By removing the technical complexity of running a bitcoin exchange, Bex.io will allow entrepreneurs to focus on the financial services aspects of the exchange business, such as payment processing and capital-intensive regulatory compliance. Bex.io could potentially commoditize the bitcoin exchange market, allowing companies to focus on customer service and the breadth of their currency offerings.

Three years ago, the provision of bitcoin exchange services could have emerged in one of two ways. Either the established foreign exchange platforms, such as MetaTrader 4, would add a hook for digital currencies like bitcoin (which did not occur due to low awareness and currency definitions around ISO 4217) or the trading capacity would evolve organically driven largely by players not that familiar with financial trading. The Bex platform is an advancement upon the latter model.

So far, most bitcoin exchanges have lacked operational support for a wide variety of payment methods and national currencies. Additionally, a plug-and-play exchange architecture in the cloud should allow for more rapid deployment of new bitcoin currency pair trading, like exchanging bitcoins for euros or pounds sterling.

With the company's first exchange launch planned in the Asia-Pacific region, the Bex platform will evolve as more partners are integrated into the network. Bex.io expects to release a stripped-down version of its platform this summer. The system uses a subset of the de facto industry standard for the real-time electronic exchange of securities transactions (FIX 5.0).

Bex.io was born after providing a bespoke exchange for a client and then decided to make it a resalable service, CoinDesk reports. The project has funding from two customers who are eager to see the service flourish.

Bex.io’s strengths include security and performance. The system will operate with hot data sets held completely in-memory, speeding up transactions. Processing a day's worth of orders in a matter of minutes, the architecture is optimized for order execution speed, back pressure control and distribution of work. For security, the company plans cold storage management features, independent audits by a third-party penetration tester, and distributed hosting to reduce denial-of-service issues.

According to Jesse Heaslip, one of the Bex.io founders, "the goal is to have 5-10 exchanges operational by the end of Q1 2014. We have had about 1,500 people sign up to operate a Bex exchange."

There will be long-term opportunities for "linking the exchanges to create a global liquidity pool and leveraging the data we will have access to as a result of managing the exchanges," Heaslip says.

With enough exchanges contributing liquidity, the Bex platform starts to resemble a wholesale clearing house for exchanges, which is a positive factor for market depth and price discovery. However, Bex.io will have to be vigilant about distributing the network across redundant systems and geographies and also protecting themselves from not becoming a single point of failure.

Indeed, by democratizing and decentralizing the exchange business itself, the Bex platform has elevated core functionality to a higher wholesale level. If successful, Bex.io may not be a single point of failure on the technical side, although that doesn't remove similar political jurisdictional risk for the associated, and centralized, legal entity.

Friday, July 19, 2013

Bitcoin Foundation’s Legal Defense Fund and Regulatory Outlook

By Brian Cohen
Bitcoin Magazine
Wednesday, July 17, 2013


On July 9th, Jon Matonis accepted the position of Executive Director of the Bitcoin Foundation. Jon Matonis is a tech contributor to Forbes Magazine, editor of The Monetary Future, and also serves on our editorial board at Bitcoin Magazine. Previously Jon was the CEO of Hushmail and Chief Forex Trader at VISA.

How the Bitcoin Foundation will move forward on regulatory and legal issues is of crucial importance to the Bitcoin community. Jon announced a Legal Defense Fund and that it will be structured similarly to that of the Electronic Frontier Foundation.  

The Foundation intends to file amicus curiae Briefs in decisive bitcoin-related legal cases and offer pro bono legal defense. Amicus curiae (Latin: “friend of the court”) briefs are filed with the court by someone who is not a party to the court case. Take a look at EFF’s Legal Cases to see a sample what the Foundation’s amicus brief might look like.   He envisions “building a legal defense dream team…I’m talking about keeping people out of jail and pressing our case in the grey areas.”

The Foundation is only nine months old and the core list of issues are still being ironed out.  However, the first “two phases” of the fund have been established.  Phase I will focus around the Bitcoin exchanges while Phase II will focus on businesses that accept Bitcoin who are feeling indirect pressure to abandon adoption.

The Foundation was recently in the spotlight responding to cease and desist letter from the State of California  Department of Financial Institutions for being a “money transmitter” – an act that is as humorous as requiring chef to first become a certified farmer.  While this cease and desist was directed towards the Foundation, The Legal Defense Fund anticipates engaging the Bitcoin community at large.

In a podcast interview, Adam B. Levine, co-host and Editor in Chief of Let’s Talk Bitcoin!  asked Jon Matonis for specific examples where the Foundation would be proactive in exploiting the Legal Defense Fund.  Contemplated were two recent high profile situations interjecting themselves in Bitcoin legal grey areas (there are no known court actions in this regards): The BitBills Cold Storage Patent and the DEA Bitcoin Seizure.

The Foundation will not be involving itself in asset seizure cases such as the DEA bitcoin seizure.  The BitBills situation is “still under discussion” whether or not it fits within the scope of the Fund; Gavin Andresen, the Chief Scientist and Core Developer of the Bitcoin Foundation is regarded by most as the  progenitor of the cold storage paper wallet technology.

The “defensive intellectual property registration” of the fund might extend to defensively trademarking rights to names and logos.  It would be “broad and sweeping but not an aggressive portfolio.”

There may be good reasons for doing this. In 2011, a New York criminal law attorney attempted to trademark the term “Bitcoin”, and similar incidents in other countries led to Mt. Gox applying for the trademark Bitcoin themselves in a number of jurisdictions as a service to the Bitcoin community to prevent others from doing the same.  Max Keiser also caused a bit of a stir earlier this year when he pondered in The Huffington Post if “A Patent Lawsuit Could Take Down the Bitcoin Exchanges Like MtGox?“  Max Keiser is the former CEO of the Hollywood Stock Exchange (HSX) and inventor of the “Virtual Specialist Technology” now generally known as the “prediction market” business model. The company along with its patents were eventually sold.  The plan was to have a real hollywood futures contract exchange based on box office receipts.  It was initially approved by the CFTC, but was soon banned by the Dodd-Frank Wall Street Reform and Consumer Protection Act through Hollywood lobbying efforts.  Mr. Keiser speculates that the HSX patents could land the Bitcoin exchanges in a legal quagmire.  Shortly thereafter after we learned that the CFTC commissioner Bart Chilton announced on CNBC news state that he is interested in regulating Bitcoin.  He reasoned that if it is “commodity that is used as a derivative” than the CFTC can regulate it. Showmanship?   Maybe.  Regardless, this is the type of legal/regulatory/lobbying environment the Bitcoin Foundation will find itself head to head with.

Jon stated that the Foundation would look at Mt. Gox’s account being seized by Federal authorities at Dwolla regardless of whether Mt. Gox was on the Board or not.  LTB called compliance  a moving target and it was generally agreed that  the “rules get changed on you without you having  enough time to react.”
“rules get changed on you without you having  enough time to react.”
“Doug Jackson of e-gold knows you can have the rules changed on you at any time” cautioned Matonis.  The e-gold case is a good analogy when looking at the regulatory environment.  Wikipedia explains how “e-gold presaged Bitcoin as an alternative internet transaction system that operated completely outside of and independent of the legacy banking system.”    Bitcoin Magazine’s Vitalik Buterin’s recent interview (“Bitcoin at Porcfest Part 3”) with  James M. Ray of Omnipay (and  former exchanger for e-gold) shared James’ experience with the regulatory environment at the time. “Doug Jackson of E-gold tried very very hard, I witnessed it, I was there, to cooperate with the government, he testified in front of Congress and all the various agencies, but he finally got raided anyway.  If they could have raided Bitcoin they already would have, and the meme I’m trying to spread, I would love to see someone like Jeffrey Tucker say it, is that Bitcoin is karma for E-gold…”

Returning to Mt. Gox and the Bitcoin exchanges, Matonis noted the regulator concern of tax evasion vs. war on money laundering and terrorism.  Without putting words in his mouth I think Jon was alluding to is that regulators might be using the potential threat of terrorism as leverage to go after Bitcoin exchanges for tax evasion.

In any case, of all the Bitcoin related stories swirling around the news these days it is curious that the Department of Homeland Security would choose to highlight on July 2nd in its daily news clippings a story by SoftPedia that  the CNN Political Ticker blog was hacked: “July 1, Softpedia – (International) CNN’s Political Ticker hacked, fake Bitcoin operator story published. CNN’s Political Ticker blog was hacked and used to post a fake story about the shutdown of Bitcoin operator Btc-e.com after a user’s third party  publishing platform credentials were compromised.”

Other cases that come to mind are Bitfloor and Bitspend.  Bitspend has stated on its homepage since June 19th that “Bitspend is Unavailable: The TL;DR is that Bitspend has had its accounts frozen by our banks. We cannot operate without access to our funds.” and further provided updates on Reddit.  BitFloor Posted on April 13th that “I am sorry to announce that due to circumstances outside of our control BitFloor must cease all trading operations indefinitely. Unfortunately, our US bank account is scheduled to be closed and we can no longer provide the same level of USD deposits and withdrawals as we have in the past. As such, I have made the decision to halt operations and return all funds.”

“Bitfloor was Bullied” said Matonis.

In the next 30 days, the Foundation is scheduled to submit comments to FinCEN’s guidance and request for industry feedback on rulemaking.  They will have to submit their comments in the next few days on the NPRM or Notice of Proposed Rulemaking for “Imposition of Special Measure against Liberty Reserve S.A. as a Financial Institution of Primary Money Laundering Concern (May 28, 2013).”  Additional information on the Liberty Reserve can be found in the June 6th Federal register.

On regulation, Matonis noted that “The U.S. is taking the lead on being one of the most aggressive jurisdictions towards Bitcoin regulation.”  Further, “The U.S. regulatory crackdown on Bitcoin does not harm Bitcoin or the targeted companies, it harms U.S. citizens.”  Just like U.S. citizens can’t do online gambling or online poker, the rest of the world doesn’t care.”
“The U.S. regulatory crackdown on Bitcoin does not harm Bitcoin or the targeted companies, it harms U.S. citizens.”
One need only look at SatoshiDice.  “SatoshiDice is the most popular Bitcoin betting game in the universe.”  However, attempting to access SatoshiDice from the United States will flag you with the following message: “Beginning tomorrow, Thursday May 16, SatoshiDice.com will close to US players and all US-based IP’s will be blocked from the website…”  SatoshiDice posted the decision to vacate the U.S. market on Reddit on May 15th: “This decision was made on the basis of extensive legal counsel. The best way to limit legal risk for SatoshiDice, and thereby protect its stakeholders, is to block US players.”

Consensus and Education Needed

The groundwork for governmental education will come before advocacy.  “The role of education is paramount and its so far behind the world of Washington when it comes to Bitcoin and virtual currencies in general” said Matonis.

The Foundation has not proactively engaging anyone in a long term relationship for representation in Washington in regards to government affairs.

Moreover, the membership of foundation might not want advocacy for different regulations.  The lobbying effort is an ongoing conversation within the membership and is quite active in the member forum and the main Bitcoin Forum.

Right now the Legal Board on the Bitcoin Forum has more than 6,600 post with about 350 topics.  See you there?

Reprinted with permission.

Saturday, July 13, 2013

Bitcoin Payments Could Quickly Become Competitive Wedge In Online Gaming

By Jon Matonis
Thursday, June 27, 2013


Have you ever wondered why new technology tends to be exploited in the adult entertainment and online gambling industries first? An ultra-competitive market environment and a willingness to try anything in the quest for traffic and profits has made these two industries technology’s early adopters. Typically, innovations that start in these fields go on to become core features in more mainstream commercial applications.

From brave use of multimedia, new scripting languages, and yes even payment technologies, adult entertainment and gaming have led the way. Now, a new digital currency threatens to disrupt the old payments paradigm and it’s no surprise that it is gaining traction in the online gaming world. Bitcoin payments could quickly become the preferred competitive wedge in online gaming.

After attending the Gaming in Holland conference and iGaming Super Show in Amsterdam this month, it became clear that bitcoin is indeed picking up momentum in online gaming. However, the early adopters probably won’t be the larger established brands. In sidebar conversations with the leading mega-brands, they confessed to me that, although they appreciate Bitcoin technology, the two primary reasons for holding back on adoption are the additional unwanted scrutiny from gaming regulators and the fact that players aren’t demanding it.

The young industry upstarts do not feel plagued by those concerns. In the regulated gaming jurisdictions, player identity is already a requirement so the money laundering concerns are the same across payment types. Bitcoin enhances the privacy on the customer-facing side only. Regarding player demand, the new and smaller gaming outfits view bitcoin as a way to radically differentiate themselves while also tapping into the growing universe of bitcoin users.

Covering sites that allow play in bitcoin, mem’s Bitcoin Gambling List is the definitive directory for bitcoin-based online gaming. Bet with Bitcoin provides another bitcoin gaming directory.

Online gambling news site CalvinAyre.com is an official media partner of this year’s Bitcoin London conference in Canary Wharf. Becky Liggero of CalvinAyre.com reported that Jez San, founder of online 3D poker site PKR, will be attending the conference and has attended previous Bitcoin-related events and local meetups. Also, in February, a guest author published an article on “Why Bitcoin Can No Longer Be Ignored.”

Bitcoin is the ideal digital casino chip — immediate, irreversible, and private. Here’s a sample of its extraordinary benefits to gaming companies worldwide:

1. Extend acceptance to 60+ countries not reached by Visa, MasterCard, and PayPal and to markets with weak banking penetration, because bitcoin is accessible with only an Internet connection;

2. No disallowed or blocked merchant category codes (MCCs) typically seen with centralized payment networks;

3. No possibility of a politically-motivated payments embargo or confiscation of holdings by a third-party intermediary, because bitcoin’s public ledger is decentralized;

4. Eliminate costly merchant chargebacks and fraudulent transfer reversals due to bitcoin’s payment finality;

5. Realize dramatic savings on processing fees that approach zero, because bitcoin fees are user-determined and substantially less than conventional payment methods;

6. Achieve near immediacy of payment settlement in both directions when compared to wire transfers, because bitcoin confirmations occur in about 60 minutes, more closely resembling a live casino environment.

To the extent that these features enhance the customer gaming experience and drive new traffic, net operating profitability will be impacted in a positive way. Then, the decision for management becomes: “Do we allow direct play and payouts in bitcoin or do we convert to national currency units along the way?” The related financial and gaming regulations will vary across legal jurisdictions.

If the player uses bitcoin for deposit, betting, and withdrawal, then the exchange rate risk stays with the player. If the operator converts bitcoin in to and out of national currencies, then the player essentially deploys bitcoin as a transfer mechanism only and the operator acts as a exchange. Either way, the operator maintains bitcoin gaming profits or player inventory in bitcoin with a need to determine a settlement currency. That exchange rate risk requires treasury management and hedging similar to any other multi-currency business.

Since the above decisions undoubtedly have risk management implications for both players and operators, management should consult with professional experts prior to launching their bitcoin-enabled gaming platform.

In the meantime, Becky Liggero suggests watching Bitcoin events for gambling industry attendees in order to answer the current online gambling grapevine question: “Who will be the first big operator to accept Bitcoin as a payment method?”

Exante Adds Share Trading To Global Bitcoin Fund

By Jon Matonis
Tuesday, June 25, 2013


A lot has happened since Malta-based broker Exante debuted the world’s first Bitcoin-only hedge fund last March. In addition to the bitcoin price more than quadrupling in value, the company presented at the Bitcoin 2013 conference in San Jose, added a regulated United States feeder fund to allow for U.S. investors, and started promoting the investment brokerage on media outlets like MaxKeiser.com.

Now, Exante is marking another first in the world of bitcoin investing. They have opened up the Automatic Trading Platform (ATP) for their landmark Bitcoin Fund to allow share trading by investors, thus providing the capability to take long or short bitcoin positions depending on investment outlook.

The proprietary client that accesses the trading platform is quite robust with charting tools, portfolio management, and user-friendly order screens. A demo client is also available for Windows, Mac OS, and Linux and the company has an excellent customer support team.

Of course, one has to be an existing Exante customer with available equity to trade the Bitcoin Fund shares, however it’s not necessary to be an investor in the actual Bitcoin Fund itself. This presents a number of interesting possibilities, because commercial processors and large merchants of bitcoin now have a reliable method to hedge their bitcoin inventories without having to liquidate actual bitcoin on a daily basis. For instance, if a bitcoin merchant processor, such as BitPay, wanted to “lock in” a certain aggregate exchange rate for their merchants or for their own books, they could initiate a short position in the shares of the Bitcoin Fund without the need to sell bitcoin on the open market.

Also, it’s easy to see how investors in other Exante assets could speculate on the long side or short side for bitcoin without physical redemptions, similar to an ETF or contract for difference (CFD) instrument.

Although the data for the demo feed is delayed by 30 minutes and trading volume is still relatively light, the bid/ask spread sits at about 2.0% on average. Expect spreads to tighten up as volume increases. Given the range of other bitcoin margin trading and derivatives solutions in various jurisdictions, Exante seems to offer the most reliable platform for high-volume commercial traders with documented avenues for legal recourse should anything go wrong.

Setting the standard and constantly raising the bar, Exante is the king of bitcoin funds. The tradeable fund shares are distributed exclusively through the Exante Hedge Fund Marketplace platform. Authorized and regulated by the Malta Financial Services Authority, Exante offers the Bitcoin Fund with an initial minimum subscription of $100,000 and a 0.5% fee for subscriptions and redemptions (1 Bitcoin Fund share = 1 bitcoin).

The fund carries a 1.75% annual fee (payable in bitcoin to preserve the ratio) for managing the intricate security necessary to safeguard the bitcoin private keys. “Comparable fees are charged for other dedicated services which are designed to protect bitcoin holders against physical loss of the medium which holds their bitcoins,” according to Exante Partner Timothy Enneking.

Current assets under management in the Bitcoin Fund are $9.76 million (93,000 BTC) and there is no performance-based fee. The Exante Bitcoin Fund master wallet address is the second largest bitcoin address on the network as recently published by Bitcoin:Views. Their holdings represent nearly 1.0% of all bitcoins in existence.

With respect to Exante’s SEC-regulated feeder fund, BCF (US) is registered as a Delaware LLC with the general partner, Bitcoin GP, LLC, based in San Francisco, CA. Michael Bodnyk serves as the general partner representative, but the company has not registered any U.S. clients yet, claiming that U.S. securities law makes the fund open only to “qualified purchasers” with a minimum of $5.0 million in investment assets.

Aside from the Winklevoss brothers, that might be a little too rich for the average U.S. bitcoin bug.

Tuesday, July 9, 2013

Why I Accepted Executive Director Position for Bitcoin Foundation

By Jon Matonis
Bitcoin Foundation
Tuesday, July 9, 2013


I am proud to have been associated with the Bitcoin Foundation since its launch just nine short months ago. A nonprofit organization for Bitcoin can add greatly to the political and economic discourse for cryptographic money and monetary freedom. As Executive Director, I welcome the new challenge.

The Foundation has never claimed to represent all of Bitcoin nor all of its users because that would be impossible for any organization. Rather, the Foundation has consistently attempted to fill the gap where market-based incentives may not have produced the same outcome, such as in the areas of specialized grants and compensation transparency for volunteer developers as well as legal challenges to bitcoin usage and the sponsorship of aggressive legal defense.

For instance, we made our "cease and desist" correspondence with the State of California publicly available which can assist bitcoin exchanges and other bitcoin organizations in the future. Also, we intend to file amicus briefs in significant bitcoin-related legal cases and to offer pro bono legal defense where appropriate. In the next 30 days, we are scheduled to submit comments to FinCEN's guidance and request for industry feedback on rulemaking. This will be made publicly available too.

The Foundation is not pro-regulation as some have claimed, but it is pro-education. I fully support across the board bitcoin education for legislative and regulatory entities. Proper education is not anti-market and I also agree with economist Peter Šurda who stated that lobbying on behalf of Bitcoin is not necessarily anti-market. However, constructing barriers to market entry and being complicit in certain crony capitalism regulatory outcomes is anti-market. I will steadfastly oppose a crony capitalism direction for the Bitcoin Foundation.

One of my primary near-term objectives for the Foundation is to become more inclusive of the various constituencies within the global bitcoin community. This will involve being more responsive to and communicative with member requests. It will also involve being more open to internationalization. Currently, 60% of the Foundation's membership is non-US based and we need to do a better job behaving like a global organization. To this end, we will hold the next Bitcoin conference outside of the United States and we will sign on local Foundation chapters in several countries where interested parties have taken the lead on expanding the principles of Bitcoin in their region.

The bursting of Bitcoin technology on the scene at this time in history is not a mere  coincidence. It is a reaction to three separate epochal developments largely emanating from the developed economies: (1) centralized and oppressive monetary authority, (2) a dominant and complicit legacy banking system, and (3) the eradication of financial privacy.

Future generations will not be very forgiving if the Foundation fails in its mission to standardize and protect Bitcoin worldwide. The youth of today, including the youth of the legislative and ruling classes, certainly grasp this movement and the demographics clearly bear that out. Choice in currency is the free speech of commerce.

Just as those against file sharing and BitTorrent technology were on the wrong side of history, so too are the institutional forces opposed to unfettered bitcoin growth. The great challenge and mandate for our time is in encouraging them to see it that way. Please join us.

I also recorded an audio interview with Let's Talk Bitcoin shortly after accepting the Executive Director position.

Monday, July 1, 2013

Bitcoin Foundation Response to California Cease and Desist Letter

The Bitcoin Foundation submitted its formal reply to the State of California Department of Financial Institutions on July 1, 2013.

Bitcoin Foundation Response to California DFI