Blockchain Bites: BitLicense at 5, Lawsky's Fallacy and Hehmeyer's Pivot

As the BitLicense turns five, the issuing watchdog looks to lure blockchain startups to New York, while a major brokerage firm is pivoting to crypto.

AccessTimeIconJun 24, 2020 at 4:38 p.m. UTC
Updated Sep 14, 2021 at 8:56 a.m. UTC

Today marks five years of the BitLicense, the controversial crypto safety rail enacted by New York State's top financial watchdog.

In half a decade only 25 licenses have been doled out, including two to a firm associated with the BitLicense's architect, former head of the New York State Department of Financial Services (NYDFS) Benjamin Lawsky.

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CoinDesk takes a beat to break down what the BitLicense is, how the NYDFS is looking to reform it and why it hasn't caught on as originally hoped.

Top shelf

BitLicense at 5
The NYDFS marked BitLicense's five year anniversary today with an offer of conditional licenses, under which startups can partner with existing licensed entities to begin operations in the Empire State, finalizing guidance on coin listings, as well as signing a Memorandum of Understanding with the State University of New York (SUNY) allowing fledgling prospective licensees to experiment with use cases under the school’s supervision. All this is meant to make it easier for companies to engage with the department and secure licenses. In half a decade, a total of 25 entities have been awarded licenses.

When the BitLicense was pitched by creator Benjamin Lawsky, then the head of the New York State Department of Financial Services (NYDFS), it was intended to become a model for the rest of the states to rely on. Five years later, the BitLicense has gained little traction. “New York’s BitLicense was usually brought up to illustrate how overzealous a state can be,” said William Haynie, owner of Pelicoin bitcoin ATMs. “It seemed like there was agreement from both sides of the aisle in that no one wanted something that was going to be oppressive to operators in the state of Louisiana.”

Crypto Pivot
Hehmeyer Trading + Investments is pivoting to crypto full-time and ceasing its traditional brokerage services, prop trading, commodity pool or trading advisor services. The Chicago-based company, which entered crypto in 2017, will focus on being a market maker and algorithmic trader in the space, rebranding to Hehmeyer in the process. “I hope to see people liberated from the burdens of intermediaries and liberated in their interactions with other people,” founder and CEO Chris Hehmeyer said. “I think it allows people to have more control of their lives and their assets.”

Rules and Regulation
The Financial Action Task Force holds its summer plenary meeting Wednesday, covering a gamut of topics around anti-money laundering (AML) and counter-terrorist financing (CTF). It’s been close to two years since FATF said it was including virtual assets within its ambit and a year since the final recommendation was made. During the June 2020 plenary, the FATF will be gauging regulatory and industry progress towards the implementation of its AML Recommendations. This comes as lawmakers in Spain are working on amending the nation’s anti-money laundering and terrorist financing laws in compliance with European Union law, six months after the EU’s deadline, by requiring virtual currency service providers to register with the Bank of Spain. 

National Blockchain Initiatives
SmartContract, the company behind the Chainlink oracle network, will help China’s state-backed Blockchain-Based Service Network (BSN) with sourcing of reliable information about the real world. Meanwhile, Iris Foundation, an “inter-chain” services firm that integrates businesses with the Cosmos network, will assist BSN with interoperability, or allowing different systems to work in conjunction with each other. BSN is a blockchain infrastructure project allowing developers to build blockchain applications.

Meanwhile, the U.S. Department of Homeland Security’s (DHS) startup booster, the Silicon Valley Innovation Program (SVIP), renewed its hunt for interoperable, blockchain-based anti-counterfeiting projects. Officials are offering $800,000 in funding and potential to contract with the government for startups building alternatives to Social Security numbers, e-commerce, and supply chain traceability projects. Finally, Sweden’s Riksbank has looked into the viability of central bank digital currencies (CBDCs) for its local market and declared mixed results.

Security & Privacy
One group of cyber criminals might be behind attacks on five crypto exchanges (including “decentralized” exchanges) dating back to 2018, Israeli cybersecurity firm ClearSky claimed in a report released on Wednesday. The attacks – perpetrated by an unnamed group likely based in Eastern Europe – follow a particular pattern and may have totaled $200 million in stolen funds over two years, the firm said.

Elsewhere, institutional digital asset technology firm Metaco is partnering with the Frankfurt School Blockchain Center (FSBC) to better inform the security and service design of its infrastructure tech. As Alethea AI, a synthetic media company, is piloting “privacy-preserving face skins,” or digital masks that counter facial recognition algorithms and help users preserve privacy on pre-recorded videos. 

Going Public?
Billboard Hot 100 artist Ja Rule has inked a deal with Ethereum-based social-money platform Roll. By tokenizing access to their output, social money allows artists to have birth-to-death control over their content, paid in their own currency and let them set monetization rules. For fans, purchasing artist’s social money on Roll allows them to interact with an artistic community in a more familial way. Motivational rapper Lil “Basedgod” B marked the occasion with a new track.

In other news, crypto exchange Bithumb has reportedly started its initial public offering work with Samsung Securities as an underwriter. (The Block) Finally, the publicly listed mining firm Argo has nearly doubled its mining capacity for zcash, possibly to diversify from bitcoin. The firm has added 750 Antminer Z11s that specialize in the Equihash algorithm zcash runs to its existing fleet of 1,000 rigs. Still, Argo’s mining power is focused on bitcoin. In May, the firm had a total of 18,000 mining rigs, 17,000 focused on Bitcoin’s SHA-256 algorithm.

Open Finance
Balancer Labs, the maker of an automated portfolio management tool, has begun distribution of its BAL token. Since June 1 liquidity providers for Balancer’s token pools have been earning BAL, but none of those tokens have been distributed. Going forward, earnings will be minted and distributed on a weekly basis. The price of DeFi protocol Balancer’s governance token surged more than  200% on its first trading day. (The Block) Meanwhile, privacy project Beam will hard fork on June 28, adding two features that will lend itself towards supporting DeFi applications. (Decrypt) Finally, SEBA Bank has launched a new bitcoin structured product, the Dual Currency Certificate, that allows investors to earn a 3.23% yield, linked to the BTC/USD exchange rate. (The Block)

Market intel

Mining Outflows
Bitcoin outflows from miner wallets have spiked, with the majority of coins finding their way onto cryptocurrency exchanges. The net flow of coins into or out of miner addresses fell to -2,935 BTC on Tuesday to hit the lowest level since June 2019, according to data source Glassnode. To put it another way, miner wallets witnessed the highest outflow of coins for a year. Comparatively, on Monday, only 404 BTC were deposited on exchanges. With the sudden rise in the number of coins available on exchanges for liquidation, the cryptocurrency may be vulnerable to a price crash.

Stuck With the S&P?
Since the start of May, bitcoin’s price has rarely strayed outside its $9,000 to $10,000 range. Occasions where it has crossed the $10,000 boundary, or sunk beneath $9,000 have, so far, remained short-lived, as the crypto markets continue to track traditional assets like stocks and gold. While analysts have highlighted inconsistencies in bitcoin’s “digital gold status” and pointed to its weak correlation with the S&P 500, Bitcoin’s price has stayed relatively stable and unaffected by industry-centric developments. “Movements in the S&P 500 will play a major role in BTC price movement so changes in macroeconomic conditions is something we should keep an eye on,” CoinGecko’s Bobby Ong said. 

Trillions in Inflows
Messari’s Ryan Watkins asked, “What would it look like if institutional investors followed Paul Tudor Jones and allocated a ‘low single-digit percentage’ to bitcoin?” He found it would lead to “hundreds of billions if not trillions $ in inflows.” (Messari)


Bitcoin Is Money
CoinDesk columnist and partner at Castle Island Ventures Nic Carter challenges the assumptions drawn by two staffers at the New York branch of the Federal Reserve in their provocative "Bitcoin Is Not a New Type of Money" op-ed. “As someone who has used bitcoin for payments, savings and a means of wealth transfer for the last half decade, this was news to me,” Carter said. “The more useful distinction is not between inherently valuable and worthless monetary goods. It’s between those that the market spontaneously chooses to use for trade, and those that governments coercively impose upon us.”


Shale Revolution 
On the latest episode of The Breakdown, Tracy Shuchart, an oil and commodities expert, looks at how the shale revolution reshaped global energy power and why oil went below $0 earlier this year.

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