Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.
The U.S.–China trade war continues its brazen spillover into tech. In response to concerns over where data from TikTok and WeChat was going, President Trump sent out twin executive orders banning both applications last night.
The new action is distinct from, for example, squeezing Huawei out. Huawei’s hardware is tied up in international supply chain and military networks, forming a more obvious security risk. TikTok and WeChat are consumer apps, more occupied with viral dance videos than top secret intelligence.
More obviously salacious is the prospect that Microsoft may end up buying TikTok at what you could generously call the wholesale rate, provided it pays the government what you could cynically call its cut for muscling out a competitor.
Social media has been a critical political arena for a long time, even before earlier administration attacks on home-grown social media like Facebook and Twitter. Regarding TikTok and WeChat, their data-gathering practices are genuinely cause for concern, but these executive orders don’t read like good-faith efforts to protect citizens.
Broadly, we are witnessing tech become a place for nations to duke it out — not for the first time, but tech’s heavy hitters of the 21st century have until recently portrayed themselves as more utopian and international. Something Gene Roddenberry would’ve thought up. Which is a vision that still reigns in conversations about, say, Bitcoin. But as various government agencies take pains to onboard blockchain, and as the Space Force steals the logo of the Federation, it is an open question of how this all plays out.
Blockchain analytics brings in the Twitter hacker in 16 days
Using blockchain analytics and Coinbase KYC documents, the FBI was able to track down three suspects in the July 15 Twitter hack, leading to arrests on July 31.
Many in the crypto industry noted that the Bitcoin blockchain enabled law enforcement to track down the alleged perpetrators and make arrests incredibly quickly, with a turnaround that cash would have made unlikely.
Comically, hearings to reduce Graham Ivan Clark $725,00 were cut short by an aggressive Zoombombing campaign that replaced many of the screens in the virtual hearing with pornography.
Less comically, the primary suspect, 17-year-old Clark, faces 30 counts and up to 200 years in prison for the hack, which netted $117,000 in Bitcoin.
For comparison, Jonathan Mattingly, Myles Cosgrove and Brett Hankison shot and murdered Breonna Taylor in her bed on March 13. All three remain free.
CryptoMom will stay on as SEC commissioner
Following perfunctory confirmation hearings before the Senate this week, Hester Peirce is set to stay on as a commissioner at the Securities and Exchange Commission until 2025.
Familiar to Cointelegraph’s readers as “CryptoMom” due to her long-term interest in protecting the industry, Pierce is behind a proposed safe harbor policy that would protect new blockchain networks that are transitioning from centralized to decentralized formats.
Recently, Peirce publicly came down against the SEC’s attack on Telegram’s TON, one of the most famous legal disputes over whether a blockchain network and its native tokens were independent of the team behind their initial launch.
Peirce initially joined as commissioner in 2018, filling a seat that had been vacant since late 2015 for a term that was formally supposed to end this past June. Longtime SEC attorney Caroline Crenshaw will round out the roster of five commissioners.
The Blockchain Caucus keeps pushing the IRS
In a recent letter, four congressmen asked the IRS to reconsider plans to tax staking rewards as income.
The latest letter is in some sense a political “per my last email” ping following a similar request in December for clarity from the IRS on taxing crypto-specific events like hard forks and airdrops. Both letters feature signatories from the congressional Blockchain Caucus, as well as representation from the Fintech Task Force.
For crypto insiders, hard forks and staking are worlds apart. Bear in mind the overall mission of the Blockchain Caucus. Though its members have introduced legislation pushing for greater use of blockchain technology in a wide range of fields, the caucus itself doesn’t have the status of a subcommittee and so doesn’t formally consider new laws. Most of the Blockchain Caucus’ work right now falls under the category of education.
In the halls of power, “education” often translates into persistent on-message hassling. The IRS has been slow to respond to crypto with consistent guidance, though it has worked to expand its ability to track transactions and demand more money. It’s really only through outlets like the Blockchain Caucus that the IRS has any incentive to give the crypto industry a voice at all.
In an opinion piece for the Financial Times, Tom Braithwaite breaks down the links between Chinese and American tech sectors and the impossibility of fully separating the two.
For Electronic Frontier Foundation, Adam Schwartz warns of the privacy dangers of California’s proposed bill to mandate blockchain-backed COVID-19 test certification.
Lawyers for Manatt, Phelps & Phillips write on the limits to recent authorizations for federal banks in the United States to custody crypto.
What’s the tipping point for Bitcoin Futures on top derivatives exchanges like the CME, an exchange that has recorded a daily trading volume of over $300M and Open Interest of over $400M, consistently, for the past 3 months.
Well, a small shift in Open Interest or trading volume can have a cascading effect on Bitcoin Futures’ performance in the next 180 days. Such a shift will be influenced by several factors, and it begins at the tipping point. Three factors, to be more specific.
In the current phase of Bitcoin’s market cycle, these factors are more relevant for traders on derivative exchanges. This becomes more evident when the Liquidations chart for BitMEX is observed. Over the past 3 months, sell liquidations have paid for buy liquidations. However, over the last few days, this trend has been reversed, and buy liquidations have covered for sell liquidations on BitMEX.
The point here is to detect the source of the domino effect before the dominoes start falling. In the case of Bitcoin Futures, the tipping point may be closer than anticipated.
One of the top factors influencing the tipping point is the Law of the Few.
The Law of the Few states that “the success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts.”
In the case of Bitcoin, institutional investors, derivatives traders, and whales fit the bill. The success of Bitcoin Futures in the global trading community heavily relies on institutional investors trading on CME. In fact, the daily trade volume and Open Interest on CME influence the trading sentiment across spot exchanges as well.
The last time a cascading effect was witnessed was when BTC Futures’ Daily Trading Volume hit $445M on CME and there was a rally all the way up to $614M. At the time of writing, the Daily Trading Volume was up 63.3%, when compared to the figures 6 months ago, and it has the potential to hit $614M with one move in the right direction.
This effect heavily relies on another key factor – The Stickiness Factor.
Back in 2017, when Google search results for “Bitcoin” and “Crypto” broke the record, the trading community witnessed a historic Bitcoin bull run and altcoin rally. Institutional interest and growth of Bitcoin derivative products ensued. A similar event transpired when Bitcoin Futures’ aggregated daily volume hit $184B on 27 July 2020. This event was a unique occurrence, and it made Bitcoin Futures stick in the portfolio of the average institutional investor and the derivatives trader.
The aggregate trade volume hasn’t dropped to pre-July 2020 levels since then. Despite drops in Bitcoin’s price on spot exchanges, Futures contracts continue to trade at a premium and there is more optimism. Volume is not directly impacted by Bitcoin’s price and when the spot market is riddled with bearish sentiment, long contracts continue feeding shorts on BitMEX. This stickiness is a driver of the aforementioned tipping point.
Inching closer to the tipping point, the powerful context is the rise of stablecoins and their instrumental role in lowering the barrier to entry on spot and fiat-crypto exchanges.
Over the past three months, stablecoins like USDT have added $100M in volume every day and their market capitalization and dominance have risen tremendously. In fact, Tether has also crossed a market capitalization of $15B.
This directly influences the tipping point for Bitcoin Futures as it makes Futures trading more accessible to traders. Bitcoin held on exchanges has nearly doubled over the past month, corresponding to an increase in Tether’s market capitalization and circulation. This resonates with derivatives traders who opt for physically-settled Bitcoin Futures contracts on exchanges like Bakkt. In fact, on Bakkt, the daily trade volume was upwards of $80M for the past week, while the Open Interest has been consistently above $10M.
All of these factors are highlighting a shift in derivatives traders’ strategy, while also underlining increased activity on derivatives exchanges. The race to the tipping point has begun – An increase in aggregate trading volume on physically-settled Futures contracts or CME may trigger the much-awaited domino effect.
Tron was observed to have hit a strong zone of resistance, before being rejected and pushed to the downside, at the time of writing. In fact, such bearish momentum appeared likely to continue for TRX. At a time when Ethereum was increasingly being criticized for high Gas fees and a congested network, it could have been Tron’s moment to shine, but things didn’t pan out that way at all.
Further down the charts, Synthetix continued making lower highs in its downtrend while VeChain broke out upwards after a few days of relative calm.
TRX was seeing oversold conditions a few days ago when its RSI hit a low of 23, before ascending just past 50. However, the RSI was unable to remain above 50, and its drop beneath the level highlighted the fact that TRX’s recent 12% surge from $0.263 to $0.296 was merely a bounce.
TRX found a zone of strong resistance at $0.3 and looked likely to drop towards the support at $0.265.
Interestingly, a recent Reddit post has raised questions about JustSwap’s vetting process, claiming that the Tron Foundation has whitelisted a DeFi project that has since pulled a $2 million exit scam. This, despite DappRadar listing the project as “high-risk.”
Synthetix underlined the possibility of dropping lower on the charts. The Directional Movement Index did not yet show a strong trend, but ADX (yellow) was inching towards 20 and could move further north. Also, the rising -DMI (pink) denoted a bearish trend.
Over the past week, every SNX bounce off the level of support has been overwhelmed by selling pressure. This can be expected to continue. With the price registering lower highs, the way down remained the path of least resistance for SNX.
The next level of support after $4.23 lay at $3.36, representing a 20% depreciation.
VeChain showed bullishness in the market after a period of consolidation. The Bollinger Bands expanded to indicate heightened volatility, while the price broke out towards the upper band. At the time of writing, the price was staying above the 20-period moving average, a moving average that could be tested as support as VET steadily climbs toward its resistance around the $0.158 zone.
The breakout was also accompanied by high trading volumes, legitimizing the breakout.
The Seoul Metropolitan Police Agency has summoned the chairman of Bithumb for interrogation regarding the alleged fraud. The chairman of the firm, Lee Jung-hoon has been accused of a lot of fraud activities. The fraud is related to the failed listing of the BXA token and defrauding the investors.
As revealed in earlier reports, this token has been promoted as the native token of Bithumb. However, the token has never been launched or listed on any platform. Due to the promotion of a fake token, Lee is now involved in a huge fraud, which includes the damages of around $25 million funds of the investors.
Seoul Police Conducted Initial Investigation at Bithumb Office
It needs to be mentioned that this police raid did not happen all of a sudden as earlier also Seoul police had investigated this case. The initial investigation that police conducted was on September 02, 2020 at the office of Bithumb. Lee has also been accused of using the investors fund purchasing the properties overseas or some other offshore investments.
According to the latest report, Kim Byung-gun who is another chairman of Bithumb, is also accused of getting involved in this BXA fraud along with Lee. However, the Seoul Police did not send any summon for investigation to Kim regarding this case.
Police Siezed The Shares Related to Lee
Along with this summon, the police has also siezed a lot of shares of the Bithumb Holdings that belonged to Lee. Not only this, the firm is also help responsible for a data breach incident which took place in 2017. Even though the exchange is accused of different allegations, it is still holding quite a firm position in the South Korean market. Not only in South Korea, it is still counted among the top ten largest crypto exchanges across the world. The daily trading volume of the exchange is around $250 million, which might be due to its huge user base.