Coinbase And Gemini Weigh In On The Business Of Crypto Custody

Coinbase And Gemini Weigh In On The Business Of Crypto Custody

Recently, there has been much discussion over what is a ‘qualified custodian’ for digital assets, including the curiosity of the Securities and Exchange Commission (SEC) staff exploring the concept as of this Monday. For many investors, learning what cryptocurrency is can be a daunting enough task; having to also decipher the financial vocabulary around the meaning of custody for digital assets is a journey into the metaphysical realm from which you may never return.

This article will walk you through the definitions and meaning of some of the key concepts that are being discussed so you can decide for yourself whether it is safe or not to custody your cryptocurrency with a particular company.

When you hear someone talk about how their crypto is held in custody, that typically means their crypto is held like you would hold precious jewelry or physical cash in a vault. The important thing to consider when you are going to entrust your cash, are things such as what is the experience of the company in safekeeping precious items for customers, how well do you trust the organization that has the vault, and how strong is the vault in being able to prevent a criminal from ‘cracking the safe’.

BRITAIN-EU-BREXIT-IRELAND-GOLD

Seamus Fahy, co-founder of Merrion vaults removes a safety deposit box from a wall of boxes in … [+] Merrion vaults in Dublin on January 7, 2019. – In a vault under the streets of Dublin a pot of gold owned by anxious investors is growing every day Britain edges closer to leaving the EU without a deal. (Photo by PAUL FAITH / AFP) / The erroneous mention[s] appearing in the metadata of this photo by PAUL FAITH has been modified in AFP systems in the following manner: The picture was taken on [January 7, 2019] instead of [January 7, 2018]. Please immediately remove the erroneous mention[s] from all your online services and delete it (them) from your servers. If you have been authorized by AFP to distribute it (them) to third parties, please ensure that the same actions are carried out by them. Failure to promptly comply with these instructions will entail liability on your part for any continued or post notification usage. Therefore we thank you very much for all your attention and prompt action. We are sorry for the inconvenience this notification may cause and remain at your disposal for any further information you may require. (Photo credit should read PAUL FAITH/AFP via Getty Images)

However, when you hear the terms ‘qualified custodian’ and ‘fiduciary’, these reference the concept around active trading for your crypto. The company has a ‘fiduciary’ responsibility or duty of care and loyalty, in acting in your best interest financially when you are entrusting your assets . Additionally, the company also needs to be a ‘qualified custodian’, a term defined by the Securities and Exchange Commission (SEC).

The latest ‘Final Rule’ on Custody of Funds defines ‘Qualified custodians’, “…under the amended rule include the types of financial institutions that clients and advisers customarily turn to for custodial services”. The amended rule by the SEC from 2004 also notes, “In order to allow advisers that also offer futures advice to comply with Commodity Futures Trading Commission rules, “qualified custodians” also include registered futures commission merchants”.

Coinbase Custody, a division of Coinbase and part of the Forbes Blockchain 50, currently serves as a qualified custodian under the SEC definition for Grayscale Investments. The world’s largest digital currency asset manager with more than $5.9 Billion in assets under management as of September 30, 2020, Grayscale has two investment products that are designated as SEC reporting companies (Grayscale Bitcoin Trust and Grayscale Ethereum Trust). The custodial agreement filed with the SEC for the Grayscale Bitcoin Trust states the following, “Trust Company (Coinbase Custody) is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act of 1940, as amended, and is licensed to custody Client’s Digital Assets in trust on Client’s behalf”.

A Coinbase Custody spokesperson explained, “As you can see on our website, we indicate that we are a qualified custodian (here). It might be helpful to take a few steps back and understand that the requirements of a “qualified custodian” is provided under the Investment Company Act of 1940, as amended (the “1940 Act”), and the Investment Advisers Act of 1940, as amended (the “Advisers Act”). So, based on the definition of a “qualified custodian” as provided in the 1940 Act and the Advisers Act, we believe that Coinbase Custody is a qualified custodian and satisfies the definition of a qualified custodian under the definitions set forth in each of the Investment Advisers Act and Investment Company Act.”

The agreement between Coinbase Custody and Grayscale also highlights the fact that Coinbase Custody is only a fiduciary holding the Bitcoin in trust and that Grayscale as the client remains the owner of the assets at all times. This is important to understand since Coinbase Custody is chartered as a Trust company in New York and is acting as a Trustee through the exercise of its fiduciary powers with Grayscale.

Coinbase Custody highlighted its commitment under this charter and the level of compliance as a custodian it has achieved. According to the Coinbase Custody spokesperson, “…our status as a limited purpose trust, chartered and supervised by the New York State Department of Financial Services, reinforces Coinbase’s commitment to maintaining the highest standards of security and compliance. Coinbase Custody is the only crypto custodian to attain both its SOC1 and SOC2 compliance reports.”

BITCOIN COINBASE

Signage is displayed at the front desk of the Coinbase Inc. office in San Francisco, California, … [+] U.S., on Friday, Dec. 1, 2017. Coinbase wants to use digital money to reinvent finance. In the company’s version of the future, loans, venture capital, money transfers, accounts receivable and stock trading can all be done with electronic currency, using Coinbase instead of banks. Photographer: Michael Short/Bloomberg

The important thing regarding what Coinbase is doing is not related to its size in the market – the key appears to be in the SEC amended definition that a qualified custodian can be who is ‘customarily used’ to custody assets. Whether it is Bakkt for Bitcoin Futures, or Coinbase Custody for the Grayscale Bitcoin Trust, it seems fair these companies are customarily used to custody crypto – as well as being licensed by a state regulator.

Gemini, a fierce competitor to Coinbase, also spoke out on the issue of being a crypto custodian. “In order to build trust in crypto markets it is important for crypto custodians to be properly regulated under appropriate regulatory frameworks, including as a New York Department of Financial Services licensed and regulated Trust company,” stated a Gemini spokesperson.

Bitcoin NY Regulator

ASSOCIATED PRESS

The spokesperson went on to explain crypto custody is a fast developing space with an emergence of custodial frameworks at the state and federal level. “Regulation is a core pillar at Gemini, and we have always believed in the importance of thoughtful and constructive dialogue with regulators, including the DFS and the SEC, as regulation around the safeguarding of customer digital assets continues to evolve,” said the Gemini spokesperson.

For something that is a complicated issue, the SEC appears to signal that perhaps it is ready for the industry to come together and work on standards around qualified custodianship for digital assets. The SEC does appear to caution the example of the letter from the state regulator in a footnote that regulators should be coordinating and consulting with one another when standards such as what a bank is becomes applicable.

“With respect to one aspect of this analysis – whether any entity’s business consists of exercising fiduciary powers similar to those permitted to national banks as required by the definition of “bank”– the Staff expects that it would consult with the staff of the Office of the Comptroller of the Currency,” states the SEC letter. The SEC subtly suggests that state and federal regulators also work together – which is of course as an ex-regulator, you would hope to be the case to help foster the growth of the crypto industry here in the United States.

Source: otcpm24.com

Author: News Bureau


Coinbase And Gemini Weigh In On The Business Of Crypto Custody

Coinbase And Gemini Weigh In On The Business Of Crypto Custody

Recently, there has been much discussion over what is a ‘qualified custodian’ for digital assets, including the curiosity of the Securities and Exchange Commission (SEC) staff exploring the concept as of this Monday. For many investors, learning what cryptocurrency is can be a daunting enough task; having to also decipher the financial vocabulary around the meaning of custody for digital assets is a journey into the metaphysical realm from which you may never return.

This article will walk you through the definitions and meaning of some of the key concepts that are being discussed so you can decide for yourself whether it is safe or not to custody your cryptocurrency with a particular company.

When you hear someone talk about how their crypto is held in custody, that typically means their crypto is held like you would hold precious jewelry or physical cash in a vault. The important thing to consider when you are going to entrust your cash, are things such as what is the experience of the company in safekeeping precious items for customers, how well do you trust the organization that has the vault, and how strong is the vault in being able to prevent a criminal from ‘cracking the safe’.

Seamus Fahy, co-founder of Merrion vaults removes a safety deposit box from a wall of boxes in … [+] Merrion vaults in Dublin on January 7, 2019. – In a vault under the streets of Dublin a pot of gold owned by anxious investors is growing every day Britain edges closer to leaving the EU without a deal. (Photo by PAUL FAITH / AFP) / The erroneous mention[s] appearing in the metadata of this photo by PAUL FAITH has been modified in AFP systems in the following manner: The picture was taken on [January 7, 2019] instead of [January 7, 2018]. Please immediately remove the erroneous mention[s] from all your online services and delete it (them) from your servers. If you have been authorized by AFP to distribute it (them) to third parties, please ensure that the same actions are carried out by them. Failure to promptly comply with these instructions will entail liability on your part for any continued or post notification usage. Therefore we thank you very much for all your attention and prompt action. We are sorry for the inconvenience this notification may cause and remain at your disposal for any further information you may require. (Photo credit should read PAUL FAITH/AFP via Getty Images)

However, when you hear the terms ‘qualified custodian’ and ‘fiduciary’, these reference the concept around active trading for your crypto. The company has a ‘fiduciary’ responsibility or duty of care and loyalty, in acting in your best interest financially when you are entrusting your assets . Additionally, the company also needs to be a ‘qualified custodian’, a term defined by the Securities and Exchange Commission (SEC).

The latest ‘Final Rule’ on Custody of Funds defines ‘Qualified custodians’, “…under the amended rule include the types of financial institutions that clients and advisers customarily turn to for custodial services”. The amended rule by the SEC from 2004 also notes, “In order to allow advisers that also offer futures advice to comply with Commodity Futures Trading Commission rules, “qualified custodians” also include registered futures commission merchants”.

Coinbase Custody, a division of Coinbase and part of the Forbes Blockchain 50, currently serves as a qualified custodian under the SEC definition for Grayscale Investments. The world’s largest digital currency asset manager with more than $5.9 Billion in assets under management as of September 30, 2020, Grayscale has two investment products that are designated as SEC reporting companies (Grayscale Bitcoin Trust and Grayscale Ethereum Trust). The custodial agreement filed with the SEC for the Grayscale Bitcoin Trust states the following, “Trust Company (Coinbase Custody) is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act of 1940, as amended, and is licensed to custody Client’s Digital Assets in trust on Client’s behalf”.

A Coinbase Custody spokesperson explained, “As you can see on our website, we indicate that we are a qualified custodian (here). It might be helpful to take a few steps back and understand that the requirements of a “qualified custodian” is provided under the Investment Company Act of 1940, as amended (the “1940 Act”), and the Investment Advisers Act of 1940, as amended (the “Advisers Act”). So, based on the definition of a “qualified custodian” as provided in the 1940 Act and the Advisers Act, we believe that Coinbase Custody is a qualified custodian and satisfies the definition of a qualified custodian under the definitions set forth in each of the Investment Advisers Act and Investment Company Act.”

The agreement between Coinbase Custody and Grayscale also highlights the fact that Coinbase Custody is only a fiduciary holding the Bitcoin in trust and that Grayscale as the client remains the owner of the assets at all times. This is important to understand since Coinbase Custody is chartered as a Trust company in New York and is acting as a Trustee through the exercise of its fiduciary powers with Grayscale.

Coinbase Custody highlighted its commitment under this charter and the level of compliance as a custodian it has achieved. According to the Coinbase Custody spokesperson, “…our status as a limited purpose trust, chartered and supervised by the New York State Department of Financial Services, reinforces Coinbase’s commitment to maintaining the highest standards of security and compliance. Coinbase Custody is the only crypto custodian to attain both its SOC1 and SOC2 compliance reports.”

Signage is displayed at the front desk of the Coinbase Inc. office in San Francisco, California, … [+] U.S., on Friday, Dec. 1, 2017. Coinbase wants to use digital money to reinvent finance. In the company’s version of the future, loans, venture capital, money transfers, accounts receivable and stock trading can all be done with electronic currency, using Coinbase instead of banks. Photographer: Michael Short/Bloomberg

The important thing regarding what Coinbase is doing is not related to its size in the market – the key appears to be in the SEC amended definition that a qualified custodian can be who is ‘customarily used’ to custody assets. Whether it is Bakkt for Bitcoin Futures, or Coinbase Custody for the Grayscale Bitcoin Trust, it seems fair these companies are customarily used to custody crypto – as well as being licensed by a state regulator.

Gemini, a fierce competitor to Coinbase, also spoke out on the issue of being a crypto custodian. “In order to build trust in crypto markets it is important for crypto custodians to be properly regulated under appropriate regulatory frameworks, including as a New York Department of Financial Services licensed and regulated Trust company,” stated a Gemini spokesperson.

ASSOCIATED PRESS

The spokesperson went on to explain crypto custody is a fast developing space with an emergence of custodial frameworks at the state and federal level. “Regulation is a core pillar at Gemini, and we have always believed in the importance of thoughtful and constructive dialogue with regulators, including the DFS and the SEC, as regulation around the safeguarding of customer digital assets continues to evolve,” said the Gemini spokesperson.

For something that is a complicated issue, the SEC appears to signal that perhaps it is ready for the industry to come together and work on standards around qualified custodianship for digital assets. The SEC does appear to caution the example of the letter from the state regulator in a footnote that regulators should be coordinating and consulting with one another when standards such as what a bank is becomes applicable.

“With respect to one aspect of this analysis – whether any entity’s business consists of exercising fiduciary powers similar to those permitted to national banks as required by the definition of “bank”– the Staff expects that it would consult with the staff of the Office of the Comptroller of the Currency,” states the SEC letter. The SEC subtly suggests that state and federal regulators also work together – which is of course as an ex-regulator, you would hope to be the case to help foster the growth of the crypto industry here in the United States.

Source: www.forbes.com

Author: Jason Brett


US Representatives Rip OCC, Brooks for ‘Excessive Focus’ on Crypto

US Representatives Rip OCC, Brooks for ‘Excessive Focus’ on Crypto

Several U.S. lawmakers are displeased by the Office of the Comptroller of the Currency and its focus on crypto and fintech during a pandemic-caused recession.

Six members of Congress faulted the banking regulator’s stance on crypto custody and stablecoin services, as well as its plans to offer a fintech charter, in a sharply-worded letter Tuesday that questioned whether acting chief Brian Brooks has his priorities straight during COVID-19’s health and economic crises.

Brooks has no business bolstering crypto banking while millions of Americans are still waiting for economic relief, wrote Reps. Rashida Tlaib (D-Mich.) and Stephen Lynch (D-Mass.) in a letter cosigned by Deb Haaland (D-N.M.), Ayanna Pressley (D-Mas.), Jesús García (D-Ill.) and Barbra Lee (D-Calif.). They blasted OCC’s “unilateral actions” as short-sighted calls that they said could put “the entire hierarchy” of dollar-denominated financial assets at risk.

“The OCC plays an important role in providing stable forms of currency. However, the decisions of your agency have the potential to adversely affect banking and financial activities well beyond your jurisdiction,” they wrote.

The letter appears to be the first substantial Congressional critique of a financial regulator that has indeed thrown its weight behind crypto. In July, OCC gave national banks the go-ahead to custody assets like bitcoin and ethereum for their clients. Then, in September, the agency allowed banks to begin offering stablecoin issuers banking services.

Those twin decisions could take crypto banking mainstream in the United States. But according to the representatives, they’re not OCC’s calls to unilaterally make. They castigated Brooks, a former Coinbase lawyer, for failing to consult Congress and other agencies on his crypto regulation first.

“We also question whether this is an appropriate priority for the OCC in the midst of this pandemic,” the representatives wrote.

Cryptocurrency should not take precedence over America’s systemic banking access issues, the representatives wrote. Around 8% of Americans use crypto. But a combined 25% of their fellow citizens are either unbanked or underbanked. Their shaky financials are deteriorating further amidst the pandemic, representatives said.

“Arguably, the immediate needs of millions of at-risk individuals who have not yet received an economic stimulus check and/or cannot deposit their funds in a bank, deserve greater attention than an effort to increase access to financial services to the “banked community” via mobile phones,” they wrote.

The representatives asked that Brooks explain OCC’s stance on stablecoin regulation and consumer protection by Dec. 10.

Wednesday’s letter isn’t the first asking Brooks to explain himself; Senator Mike Crapo (R-Idaho), chairman of the Senate Banking Committee, wrote to Brooks in September, asking him to update the committee with the OCC’s findings and detail the next steps the regulatory agency would be taking. Crapo also called for clear regulations to be drafted around cryptocurrency services in the letter.

Source: www.bit-cointalk.com


Institutional money is pumping the DeFi markets back up

Institutional money is pumping the DeFi markets back up

Home / Uncategorized / Institutional money is pumping the DeFi markets back up

Since making its first investment in October, Polychain Capital is now the 10th-largest holder of YFI.

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Bitcoin Hash Rate Recovers as Another Buy Signal is Expected

Bitcoin Hash Rate Recovers as Another Buy Signal is Expected

Bitcoin BTC mining

On-chain metrics for Bitcoin are improving as prices begin to consolidate; this could lead to further buy signals as observed by industry analysts.

The decline in Bitcoin’s hash rate over the past few weeks has been seasonal, coinciding with the end of the rainy season in China where most of the mining occurs.  As reported by CoinGape, Chinese miners powered down their rigs to relocate in order to source cheaper energy once the abundance of hydroelectric power dried up.

This caused a 38% decline in hash rates as there were fewer computers competing for the next block. Now that the relocation appears to have occurred, mining hardware is powering up again and hash rates are returning to their previous highs.

Bitcoin hashrate rebounds after 2nd largest negative difficulty adjustment

data: @glassnode pic.twitter.com/9fhvKc6m6x

— unfolded. (@cryptounfolded) November 10, 2020

According to bitinfocharts.com, the hash rate has just hit 138 EH/s which is an increase of 40% from the low it hit late last month.

Capriole Investments founder and on-chain analyst, Charles Edwards, noted that the miner move takes around two weeks and another Hash Ribbon buy signal is expected this month.

Looks like we will get another Hash Ribbon Buy in November.

Hash Rates are recovering perfectly in line with the expected post wet season energy transition in China.

The #Bitcoin miner move from hydro takes 10-14 days to complete, and Hash Rates are now back at previous highs. pic.twitter.com/wvLHVT6u2c

— Charles Edwards (@caprioleio) November 10, 2020

Hash rate provide a leading indicator over difficulty which can be used to identifying capitulation periods. However, simple moving averages of Bitcoin’s hash rate can be combined to identify market bottoms, miner capitulation, and good times to buy BTC.

When the one month SMA of hash rate crosses over the two month SMA, the worst of the miner capitulation is typically over, and the recovery has begun leading to good buying zones. Historically, buying at these signals has led to very good returns for Bitcoin.

Additionally, Bitcoin’s mempool shrank to its smallest size since mid-October this week after the hash power recovered. The mempool could be viewed as a type of ‘waiting room’ for transactions so the decrease in size leads to a reduction in competition among fresh transactions and lower transaction fees.

Transaction fees peaked at over $13 at the end of October when more than 140,000 transactions were pending in the mempool. That has all now been cleared according to mempool.observer.

Following the massive 16% difficulty adjustment on November 3, it is expected to increase when the network automatically makes the next correction.

On the short term time frame, Bitcoin appears to be consolidating around the mid-$15k price level. This could lead to another leg up if the monthly close for November could close above its previous high, as noted by trader and analyst Josh Rager.

$BTC

Every time Bitcoin has closed above the previous monthly all-time high – a 700% to 1000% uptrend has followed

November could be the first monthly close that we see breaking the previous high and historically that’s been a very bullish sign for the crypto market pic.twitter.com/5SBTtE600U

— Josh Rager 📈 (@Josh_Rager) November 10, 2020

At the time of press, BTC was trading flat over the past 24 hours at just below $15,400.

The post Bitcoin Hash Rate Recovers as Another Buy Signal is Expected appeared first on Coingape.

Source: cryptomoneyteam.co

Author: By TeamMMG


Coinbase And Gemini Weigh In On The Business Of Crypto Custody


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