Europe

With New Regulations, Europe’s Crypto Companies May Be Running Out of Options

13/01/2020 by Idelto Editor

European crypto companies are finding themselves in a changing regulatory environment. The new realities they have to deal with stem from the fifth edition of the European Union’s anti-money laundering directive. AMLD5 introduces stricter customer due diligence requirements and some in the industry have realized their business models, based on key principles of the crypto space, are hardly sustainable under the new rules.

Also read: EU Countries Commence Crypto Regulations as Mandated by New Directive

Netherlands to Introduce Licensing When New Directive Requires Only Registration

Although the amendments had to be transposed into national law by Jan. 10, 2020, member-states are at different stages of their implementation. The approach to complying with the Pan-European directive also varies between countries with some governments opting to expand their regulatory frameworks beyond what Brussels requires at this point. Several EU nations have indicated this is the direction they want to move in and the Netherlands is one of them.

The new Dutch legislation transposing AMLD5 is yet to enter into force. The bill prepared by the government is more restrictive than the directive requires, Luuk Strijers, CCO at Deribit, told news.Bitcoin.com. The Amsterdam-based crypto derivatives exchange announced recently its decision to relocate to Panama because the “new regulations would put too high barriers for the majority of traders, both – regulatory and cost-wise,” the company detailed on its website.

The Senate of the Netherlands is scheduled to discuss the new law on Jan. 28, 2020. Strijers pointed out that the draft framework has the characteristics of a licensing regime, while AMLD5 dictates the obligation to register instead of obtaining a license. “If Deribit falls under these new regulations, this would mean that we have to demand an extensive amount of information from our current and future customers,” the executive said and emphasized:

We believe that crypto markets should be freely available to most, and the new regulations would put too high barriers for the majority of traders, both – regulatory and cost-wise. The implementation of these changes would greatly affect the exchange and its customers.

Therefore, Deribit have decided to operate their platform out of Panama. From Feb. 10, 2020, it will be assigned to a new entity, DRB Panama Inc., a wholly owned subsidiary of the Dutch company, Deribit B.V. “The team and leadership will remain the same, with John Jansen as the CEO,” noted Luuk Strijers. All open client positions, holdings, equity, trade history, fees, rate limits, wallets, portfolio margin arrangements, and other system settings will be transferred from Deribit B.V. to DRB Panama. The platform’s servers, which will also remain the same, will be moved to London. The Deribit CCO explained:

We considered multiple other (EU) jurisdictions in an elaborate regulatory review performed over the past period and came to the conclusion that Panama is the best option for our clients.

Crypto Companies Can Run but Can They Hide?

Despite the relocation, however, certain changes regarding Deribit’s due diligence procedures will be implemented. “As of Feb. 10, 2020 our new KYC requirements will be applicable to all our clients, so our European clients will have to meet the same requirements as clients from (most of the) other counties in the world,” remarked the company executive. Like up until now, residents and citizens of the United States will not be allowed to trade on the exchange. Clients will have to accept DRB Panama as their new contracting partner under a new set of terms and conditions in order to continue to use the services provided by Deribit.

Although various changes in the global regulatory landscape do not apply to Panama, Deribit will introduce two KYC levels. All current users will initially be registered as Level 0 clients, which comes with some restrictions. Withdrawals will be limited to up to 1 BTC per 24 hours. Providing a passport or other government issued ID will raise user status to Level 1, remove the withdrawal limit and unlock portfolio margining, for example. Deribit will use a solution by Jumio aimed at providing client identity verification and services by blockchain forensics firm Chainalysis to monitor transactions for anti-money laundering purposes, Strijers revealed.

The announcement, the company representative assured, “has received positive response from our clients as it clearly outlines the strategy going forward and addresses concerns they might have had.” Deribit’s decision to change the jurisdiction from which it operates shows that relocation can be a solution, but only a partial one for crypto companies that want to keep their privacy-sensitive clients happy. In a world where most governments abide by global standards adopted by international organizations such as the Financial Action Task Force (FATF) and customers’ residence matters, moving a platform to a different jurisdiction is not likely to bring much change for its users.

In December, U.K. crypto payments provider Bottle Pay announced it’s ceasing operations because of the latest update in the EU’s anti-money laundering regulations, despite raising $2 million in seed funding a few months earlier and expanding its user base significantly. “We have taken the painful decision to shut Bottle Pay down completely rather than become subject to these new regulations,” the company stated in a blog post, explaining that “the amount and type of extra personal information we would be required to collect from our users would alter the current user experience so radically, and so negatively, that we are not willing to force this onto our community.”

Panama is one of the alternative destinations suggested to Bottle Pay by members of their Telegram channel. “How come BottlePay can’t just move operations to a new jurisdiction outside of the UK like say Panama?”, asks one of them. “That’s what I also was curious about. But I guess that even they will gonna move to the different jurisdiction people who would want to use bottle in the Europe through the twitter or whatever will not be allowed to do that,” comments another. “So, Malta certifications will not help”…

“Wow sounds more like prison than citizenship,” the conversation goes on. “Bitsahara sent compliance notices yesterday. I can’t help but think that this is EXACTLY everything crypto was created to fight,” remarks someone else. “Why you don’t want to hire attorney to help avoid this stuff?” queries another member, to which Bottle Pay founder Peter Cheyne replies: “we were working on it for months behind the scenes. so we already pursued those kind of avenues, and the feedback led us to the decision we made last week … the trade offs would have been substantial.”

Several other crypto companies operating in Europe have shut down so far due to the new EU regulations, including crypto mining pool Simplecoin and bitcoin gaming platform Chopcoin. News.Bitcoin.com’s questions about Bottle Pay’s plans for the future are as of yet unanswered by the group at the time of publication. On a positive note, however, the Get Started page on its website currently states: “Effortless Bitcoin payments will be back soon.”

What future do you see for crypto companies in Europe and around the world? Share your thoughts on the subject in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Images courtesy of Shutterstock.

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European Central Bank’s CBDC Borrows Bitcoin’s Pseudo-Anonymity

20/12/2019 by Idelto Editor

On December 17, the European Central Bank (ECB) published a report that showcased its blockchain technology proof-of-concept. One particular feature the central bank digital chain holds is the ability to issue “anonymity vouchers.”

Also read: Lagarde Sees Demand for Stablecoins, Plans to Put ECB ‘Ahead of the Curve’

ECB Report Explores Anonymity in Central Bank Digital Currencies

These days, central banks have dedicated research and development teams focused on building distributed ledger technology (DLT). Many central banks like the People’s Bank of China (PBoC), the U.S. Federal Reserve, and the European Central Bank (ECB) have shown strong interest in blockchain. On Tuesday, the ECB published a new report called “Exploring anonymity in central bank digital currencies” that explains how a “central bank digital currency” (CBDC) could work. The CBDC research is part of a proof-of-concept that aims to contribute to the broader discussion of central bank chains. The concept deploys several features that were created by R3 and Accenture and the ECB calls the network “Eurochain.” The Eurochain report highlights the benefits of the hypothetical network and discusses how anonymity can fit into the logistics.

European Central Bank's CBDC Report Borrows Bitcoin's Pseudo-Anonymity — The European Central Bank’s CBDC units are based on Corda (R3’s blockchain model).

Eurochain Borrows Bitcoin’s UTXO Design and Users Must Deal With Intermediaries

One interesting point within the 10-page report describes how the ECB plans to enforce AML/CTF limits on the amount that a CBDC user can spend without the AML authority’s involvement. The ECB’s “CBDC has cash-like features” and details that “a novel new concept – ‘anonymity vouchers’ – has been devised.” “The ongoing digitalisation of the economy represents a major challenge for the payments ecosystem, requiring that a balance be struck between allowing a certain degree of privacy in electronic payments and ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFT regulations),” the report highlights.

After the ECB’s research published, cryptocurrency community members discussed the subject on forums and social media. One critic tweeted that the ECB’s Eurochain CBDC borrows from Bitcoin’s UTXO model. John-Paul further said: “Already it is apparent the chain cannot have ‘anonymity’ as they call it, at best it can only match Bitcoin’s pseudo-anonymity — They even admit this — No surprises here.” John-Paul added:

Users cannot generate their own wallets. They have to apply to ‘intermediaries’ (think retail banks) to gain a new account — Eurochain has the ability to control wallet access and CBDC volume.

Peer-to-Peer, Censorship-Resistant Money Trumps Any Hypothetical CBDC

Since 2015 and the blockchain hype that followed, bitcoiners have taken issue with bank chains. Still, to this day, central banks have been discussing, releasing papers, and even creating CBDCs. In fact, the petro (PTR) is the first CBDC created by the president of Venezuela, but there are plenty of rumors of more CBDCs on the way. However, not every nation state’s central bank is down with the CBDC trend, as a few countries have warned against them. In February, South Korea’s central bank explained that a nation state that adopts a CBDC could suffer from liquidity shortages and cause interest rates to rise. The Bank of Korea’s (BoK) report followed another study that disclosed roughly 70% of the world’s central banks are researching CBDCs.

Even though the paper talks about leveraging privacy-enhancing techniques, most crypto enthusiasts scoffed at the ECB’s paper. BCH supporter @Btcfork created a graphic that shows a visual representation of the ECB’s proof-of-concept CBDC versus Bitcoin Cash. “Not being forced to use intermediaries in Bitcoin Cash means that no one party can block (censor) your transactions,” Btcfork’s read.cash blog post said. “It would take collusion of majority of miners on the network to block them – that is highly unlikely since Bitcoin Cash is a global, open peer to peer network.”

What do you think about the European Central Bank CBDC proof-of-concept Eurochain? What do you think of a CBDC compared to a decentralized public blockchain network like Bitcoin Cash? Let us know what you think about this subject in the comments section below.

Image credits: Shutterstock, ECB, Wiki Commons, Fair Use, ECB December CBDC Report, Pixabay, and @Btcfork.

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Fidelity Launching Crypto Services in Europe, Citing ‘Significant Interest’

18/12/2019 by Idelto Editor

Fidelity Investments is expanding its crypto services to European clients after seeing increasing potential in this market. The expansion builds upon the company’s U.S. crypto business. “We’ve seen significant interest and engagement by the institutional community, which show no signs of slowing,” the company revealed.

Also read: Regulatory Roundup – Crypto ‘Inevitable’ in India, China Rankings, NY Streamlines Policy

Entering European Crypto Market

Fidelity Investments announced on Tuesday the establishment of its new entity to serve European clients investing in crypto assets. Fidelity Digital Assets Ltd. will offer digital asset custody and trade execution services to investors such as hedge funds, family offices, and market intermediaries. The custody service consists of a cold storage vault and “multi-level physical, operational and cyber controls,” the announcement details, adding that the trade execution service will provide clients access to multiple sources of liquidity.

Tom Jessop, head of Corporate Business Development for Fidelity Investments and president of the U.S. digital asset subsidiary, explained that the group is “encouraged by continued corporate and venture investment in market infrastructure companies as well as the entry of traditional exchanges into the digital assets ecosystem,” elaborating:

These and other market indicators, alongside interest expressed from U.K. and European client prospects, indicate a market with increasing potential which gives us the confidence to expand the digital assets business geographically.

According to Financial News publication, the new entity was incorporated in the U.K. on Dec. 16, but does not currently hold any regulatory permissions. Michael O’Reilly, COO of the U.S. digital asset subsidiary, clarified to the publication: “Obviously we’ll make sure that we’re compliant with any U.K. or any other licences that are required, but at this point our understanding is that we do not require any additional licensing to do this in the U.K.”

Building Upon U.S. Crypto Business

One of the world’s largest financial services providers, Fidelity Investments claims to have more than $7 trillion in client assets under administration and over 1.3 million trades processed each day, according to its website. The company began exploring cryptocurrency and blockchain technology in 2014. In 2018, it launched Fidelity Digital Assets, a subsidiary for providing crypto services to U.S.-based institutional investors. Jessop remarked:

Since launching Fidelity Digital Assets in the U.S. over a year ago, we’ve seen significant interest and engagement by the institutional community, which show no signs of slowing.

The U.S. digital asset subsidiary gained approval from the New York State Department of Financial Services (DFS) in November, allowing it to start operating as a limited liability trust company in the state of New York. The Bitlicense regulator detailed at the time that it had authorized the company “to provide a virtual currency custody and execution platform, on which institutional investors and individuals can securely store, purchase, sell, and transfer bitcoin.”

Moreover, O’Reilly told Financial News that London is the right base for Fidelity’s European arm for digital asset services despite the uncertainty of Brexit. “Both the fintech and crypto communities in London are strong and that’s evident from what we’ve seen from client demand or client requests,” he said. While Fidelity only supports bitcoin currently, it hopes to add other digital assets in 2020, the COO revealed, noting that the company will also monitor expansion opportunities in Asia.

What do you think of Fidelity expanding its crypto services to Europe? Let us know in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Images courtesy of Shutterstock and Fidelity Investments.

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European AML Directive Pushes Crypto Startup Bottle Pay Out of Business

15/12/2019 by Idelto Editor

Bottle Pay, a cryptocurrency payments provider from the U.K., has announced its decision to cease operations by the end of the year. Despite attracting some serious funding and expanding its user base significantly in the past few months, the company has found it unacceptable to continue to work under the upcoming EU regulations. AMLD5, the latest update of the EU’s anti-money laundering policy, introduces stringent requirements for crypto businesses.

Also read: Almost 70 Crypto Funds Close This Year, Twice as Many Launch

Bottle Pay Shuts Down Because of New KYC Rules

As a custodial crypto wallet provider based in the United Kingdom, Bottle Pay will be obliged to comply with stricter regulations to be introduced with the Fifth Anti-Money Laundering Directive of the European Union. AMLD5 comes into effect January 2020 and has to be transposed into national law by all EU member states. It expands the coverage of the relevant legislation to include the crypto space imposing extensive KYC and AML practices.

“After having built a fantastic community around our service, and seeing huge growth in user numbers over the last few months,” the British company remarked in a blog post published on Friday, “it is with heavy hearts that we announce Bottle Pay will cease operating on Tuesday 31st December 2019 at 13:00 GMT,” the announcement details.

Bottle Pay shuts down after raising $2 million in seed funding this past September. The startup, which was launched in June, developed a tipping service that allowed users to send small amounts of cryptocurrency on social media networks and messengers through its browser extension for Chrome, Firefox and Brave.

A recipient’s social media account or a handle was all the sender needed to transfer the digital cash. Bottle Pay was available on multiple platforms including Telegram, Twitter, Instagram, Github, Discord, and Reddit. Money sent to users of these networks will now be returned to the sender within a week. Active users have to withdraw their funds by Dec. 31 and new subscriptions will not be accepted as signups and deposits went offline this week.

In the blog post, Bottle Pay further emphasizes that “the amount and type of extra personal information we would be required to collect from our users would alter the current user experience so radically, and so negatively, that we are not willing to force this onto our community.” The company wants to maintain its integrity as a service provider and protect the interests of its team, investors and users. “We have taken the painful decision to shut Bottle Pay down completely rather than become subject to these new regulations,” the startup concludes.

What’s Special About AMLD5

The European Union regularly updates its anti-money laundering and counter-terrorist financing framework. AMLD5 is its latest edition. The directive was adopted and published in 2018 and will come into force on Jan. 10, 2020. One of its key features is the expansion of its scope to encompass crypto activities within the EU.

AMLD5 addresses regulatory challenges related to high value goods, prepaid cards, high-risk countries, and politically exposed persons as well as the legal treatment of virtual currencies. It introduces a legal definition of cryptocurrency which has been described as “a digital representation of value that can be digitally transferred, stored or traded and is accepted as a medium of exchange.”

Providers of crypto-related services, such as exchanges and custodial wallets, are considered “obliged entities” and will have to comply with the union’s AML regulations in the future. That means abiding by the rules applicable to other financial institutions including the obligation to perform customer due diligence and submit suspicious activity reports. That also applies to investment firms, tax advisors, accountants, notaries, and lawyers who transfer or receive payments equivalent to €10,000 and more.

Crypto companies will have to register with the respective authorities in their jurisdictions such as Bafin in Germany or Britain’s FCA. What’s more, the financial intelligence units of member states have been authorized to obtain the private data of virtual currency owners and users, including their identities and addresses. The information will be kept in central registries and will allow the identification of both private individuals and corporate entities holding accounts with crypto platforms. Brussels’ main goal is to reduce anonymity associated with crypto transactions and use.

Do you expect more crypto businesses to close down due to AMLD5? Share your thoughts on the subject in the comments section below.

Images courtesy of Shutterstock.

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The Country With Europe’s Highest Interest Rate Has Cut It 5 Times This Year

14/12/2019 by Idelto Editor

The Country With the Highest Interest Rate in Europe Has Cut It 5 Times This Year

Around half of European countries, over 20, now have 0% interest rates and a few are already in negative territory. Ukraine, which has the highest benchmark interest rate on the continent, has just reduced it again, for the fifth time this year. The race between central banks to cut rates, when there is inflation, has made it costly to keep fiat money in a bank account or under the mattress.

Also read: European Banks Struggle With Low Interest Rates and Strict Regulations

Ukraine Slashes Interest Rate by 2 Percentage Points

There are over 40 countries in Europe but only half of them nowadays have their interest rates above 0%, and just a few come close to Ukraine’s high rates. But the Eastern European nation, which has also been facing high inflation amid political turmoil, economic crisis and an unresolved military conflict, has reduced its benchmark rate five times this year.

This past Thursday, the National Bank of Ukraine (NBU) slashed its key interest rate again, from 15.5% to 13.5%, which is its lowest level in two years. As Reuters and local media noted, the decision has been motivated by Ukraine’s inflation that is slowing faster than expected, to 5.1% year-on-year last month, a strengthening hryvnia, and prospects of new loans.

Kiev reached a provisional agreement with the International Monetary Fund (IMF) on Saturday. But a new deal, expected in the first months of 2020, will depend on the progress of important reforms. For example, the IMF wants to make sure the government gets its money back from bailed out banks and ban the return of failed institutions that have been nationalized to their previous owners, as in the case with Ukraine’s largest lender, Privatbank.

Ukraine has maintained double-digit interest rates since 2014, when protests led to a change of the government administration in Kiev, followed by Crimea’s annexation by Russia, and the eruption of a bitter conflict with pro-Russian separatists in the country’s Eastern regions of Donetsk and Lugansk. Only a couple of countries in Europe come close to Ukraine’s interest rate figures, like Turkey with 12% and Belarus at 9%.

Europe’s Low Interest Rate Pandemic

Nations such as Sweden, Switzerland and Denmark are at the other end of the spectrum. Sweden’s key interest rate is currently at -0.25% but there have been reports of even lower rates imposed by Swedish banks on euro accounts, -0.40%. The other two countries have their interest rates set at -0.75%. Both Switzerland and Denmark have kept them below zero since early 2015 and they are currently at their record lows. None of the three countries belongs to Europe’s single currency area.

According to the Trading Economics website, 21 European countries currently have 0% policy rates and the majority of them, including the region’s largest economies, are members of the Eurozone. The benchmark refinancing rate in the monetary union reached its all-time low in March 2016 and has remained there. The main deposit rate, at which banks leave money at the ECB, was cut to a record low of -0.5% in September. During its Dec. 12 policy meeting, the European Central Bank (ECB) left its key rates and stimulus measures unchanged. They are likely to remain so or be slashed even further until inflation moves closer to the 2% target.

Most of these countries have a positive inflation rate, however, which averages 1% in the euro area and 1.1% for the whole European Union. In Sweden the annual inflation rate increased to 1.8% in November, from 1.6% the previous month and above market expectations of 1.7%. This means the citizens of the majority of European nations are losing on their savings every day, regardless of how they store their funds, in a bank account, in a safe deposit box, or at home.

The Country With Europe's Highest Interest Rate Has Cut It 5 Times This Year — BCH, 1-year inflation rate and price.

Inflation goes hand in hand with fiat money and attempts to stimulate the economy through quantitative easing and interest rate cutting is the recipe of choice for most governments nowadays. Decentralized cryptocurrencies, on the other hand, come with a limited supply. By design, bitcoin’s inflation rate follows a steady long-term downward trend.

A quick look at the Bitcoin.com Charts shows that the BCH inflation rate has been hovering around 3.74% in the last month and that of BTC has negligibly increased from 3.85% in early November to 3.89% now. At the same time, the growing crypto banking industry offers interest rates that are quite higher than what you’d get in the fiat world. For example, the global financial services platform Cred lets you earn up to 10% on your BTC and BCH holdings. And let’s not forget that the prices of cryptocurrencies can increase as well.

Do you think the interest rate cutting spiral is going to end in the foreseeable future? Share your expectations and thoughts on the subject in the comments section below.

Images courtesy of Shutterstock, Bitcoin.com.

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