Bitcoin ETFs: SEC Postpones Decision on Direxion’s Proposals Until September

Avi Rosten

The SEC (the US Securities and Exchange Commission) has said today that it has deferred its decision on approval for five bitcoin ETFs (Exchange Traded Funds) until September.

The proposals, filed by Boston-based ETF provider Direxion Investments on January 4th comprise five applications: one for an ETF directly linked to BTC price, and four related to its price variation.

The SEC's report in the Federal Register – its Daily Journal – explains that the Commission:

finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change. Accordingly, the Commission, ... designates September 21, 2018, as the date by which the Commission shall either approve or disapprove the proposed rule change.

Importantly the SEC has not made any comment with respect to the highly-anticipated decision regarding ETF proposals from VanEck and SolidX – which have generated enormous expectation in the crypto-community, as well as over 250 comments on the proposal on the SEC website. The Direxion application in contrast, at the time of writing had only two comments.

With many believing this market excitement surrounding ETFs to be behind much of the bullish activity that prompted bitcoin’s substantial rise in price in the last week and today’s push past $8,000, prominent figures believe that the time is ripe for serious institutional investment into cryptocurrency.

Mike Novogratz, founder and CEO of Galaxy Digital Capital Management, in this vein recently remarked that he believes a “herd of institutional investors” is coming towards the cryptocurrency ecosystem” adding that they are “slowly coming to the realization that blockchain will be internet or Web 3.0.”

 

Featured Image Credit: "Securities and Exchange Commission" by "Scott S" via Flickr; licensed under "CC BY 2.0"

QuadrigaCX Co-Founder Traded Away Users’ Funds as Sole Operational Director: Report

  • More than $220 million worth of users' funds absconded-with by QuadrigaCX co-founder
  • Stollen funds used for trading on "competitor exchanges" - for a loss

Reportedly deceased QuadrigaCX co-founder Gerald Cotton withdrew customers' funds to trade on both spot and leveraged margin exchanges, incurring significant losses in the process, alleges the latest public report on court proceedings surrounding the incident.

The report, the fifth commissioned to the global accountancy firm Ernst and Young (EY) by the Supreme Court of Nova Scotia, found that a vast sum of cryptoassets were transferred from QuadrigaCX exchange wallets to wallets operated by “competitor” exchanges and controlled Cotton, between the period 2016-19. The vast majority of the transfers occurred under Cotton’s alias “Chris Markay.”

Specifically, 9,450 bitcoin, 387,738 ether and 239,020 Litecoin were said to be transferred from QuadrigaCX in this way, and the questionable transfers resulted in “overall trading losses” trading on both spot and margin exchanges.

An additional sum of 21,501 bitcoin was also transferred to an exchange wallet controlled by Cotton, although it is unknown precisely how much of this sum originated from QuadrigaCX wallets. The proportion is unknown because the wallet is held in an offshore location not obliged to comply with EY’s requests for full accounting details. EY added however, that this information has been given to law enforcement of the unspecified jurisdiction.

 

 

EY also claim that Cotton traded on QuadrigaCX itself, using what were likely false deposits of fiat currency to buy cryptocurrency on the platform and counter-trade customers. About 300,000 trades were made from these “unsupported deposits,” which helped beef up QuadrigaCX’s trading volume and trading revenues.

The EY report outlines some generally poor practices that seem to have enabled the scandal, includin poor Know-Your-Customer (KYC) standards enforced on the exchange, which enable the easy exploitation of the platform; no separation between users’ wallets and the exchange’s wallets; and a “significantly flawed” financial reporting and operational control operating infrastructure, which EY claim were largely directed by Cotton alone and in which “typical segregation of duties and basic internal controls did not appear to exist.”

An Unpaid Bill

The QuadrigaCX story has been so big as to make it to non-crypto media in Canada. It has recently been reported by the CBC that Cotton’s alleged exploits have left former customers in the lurch, to as much as $250 million (Canadian) of unreturned funds.

EY claim that roughly 76,000 users’ funds are stuck in limbo as, in effect, unpaid IOUs, and confirm a figure of $214.6 million CAD remains unpaid.