Zimbabwe’s central bank (RBZ) has banned the transacting in and trading of cryptocurrencies.
Reserve Bank of Zimbabwe Bans Cryptocurrencies
Mataruka also specified that accepting cryptocurrencies as collateral, opening accounts at cryptocurrency exchanges, and the transfer or receipt of money in accounts relating to digital currencies are also prohibited.
“As monetary authorities, the Reserve Bank of Zimbabwe is the custodian of public trust and has an obligation to safeguard the integrity of payment systems,” Mataruka said. “Cryptocurrencies have strong linkages and interconnectedness with standard means of payments and trading applications and rely on much of the same institutional infrastructure that serves the overall financial system.”
The moves by the RBZ were further outlined in a separate statement made by John Mangudya, the bank’s governor, who issued a warning to the public about trading in the coins, according to NewsDay. Mangudya also stated that the BitFinance exchange (who operate the largest local exchange, Golix) is not licensed or regulated by the institution.
“Any person who buys, sells, or otherwise transacts in cryptocurrencies, whether online, or otherwise, does so at their own risk and will have no recourse to the Reserve Bank or to any regulatory authority in the country,” Mangudya said.
“The Reserve Bank of Zimbabwe has not authorised or licensed any person or entity or exchange for the issuance, sale, purchase, exchange or investment in any virtual currencies/coins/tokens in Zimbabwe. Exchanges such as BitFinance (Private) Limited (Golix) and Styx24 are not licensed or regulated by the Reserve Bank.”
Mangudya added that the RBZ would continue to monitor both regional and global cryptocurrency developments in order to inform policy direction moving forward.
In the nearer future, the individuals and financial institutions that are currently trading cryptocurrencies have been given 60 days to cease operation and terminate relationships. The RBZ has not yet made it clear what action(s) will be taken if institutions do not comply with the directive, or if there will be any exceptions to the new policy.
The Importance of Cryptocurrencies in Africa
The moves by Zimbabwe’s central bank are particularly unfortunate for local cryptocurrency users, as many of Africa’s underbanked population use the coins to pay for transportation, buy food, and top-up cellphones. It seems to be an attempt at consolidating power, as the decentralized nature of cryptocurrencies has allowed them to become alternatives to weak, local fiat currencies that are facing rampant inflation.
The remittance market in Africa — worth $429 billion worldwide in 2016 — is also tied in with cryptocurrencies and associated blockchain technology. Already the continent has some of the highest remittance costs in the world, and it would seem likely that the cryptocurrency ban will only make things worse.
“It’s so hard to send money from Nigeria to Zimbabwe, or from the United States to Sudan,” West African entrepreneur Olaoluwa Samuel-Biyi said. “Banks are very tedious and payment companies generally exploitative, he added. “There’s heavy discrimination, definitely. We have to go all around them to succeed. Bitcoin is technology that allows financial inclusion.”
Crypto Derivatives: A Corner of the Market or the Market Itself?
Emmanuel Goh is co-founder & CEO of skew. – a financial technology startup headquartered in London since 2018. These opinions are his and do not necessarily reflect the view of CoinDesk.
The following article originally appeared in Institutional Crypto by CoinDesk, a weekly newsletter focused on institutional investment in crypto assets. Sign up for free here.
The race is on.
One business day before the much-awaited ICE/Bakkt launch, the CME announced it would be listing bitcoin options in Q1 2020. ICE returned the favor by announcing it would also be launching options contracts but in December this year/
Why are two of the largest exchanges in the world competing so openly for a space that was considered, until recently, as secondary by most industry insiders?
Almost every week, a new player is announcing its intention to enter the increasingly crowded crypto futures market. Most recently crypto behemoths Binance and Bitfinex launched their own futures products, with varying degrees of success.
This optimism wasn’t always there. The rise of Hong-Kong based BitMEX – home to the most liquid bitcoin contract globally – was for a long time met with skepticism by industry leaders, who dismissed the product as only serving gambling addicts with the use of high leverage.
The crypto futures market really took off in 2018. Volumes increased by a factor of ten compared to 2017 levels – a year widely seen as the peak of the crypto market. Bitcoin futures and other perpetual swap instruments are now trading, on average, 10x more volume than the underlying bitcoin spot market according to data compiled by skew and Bitwise.
In hindsight, it is relatively simple to explain why. As the market entered a prolonged downturn starting in 2018, market participants looked for ways to profit from, or at least hedge against, the falling prices. The growth in futures markets came from that need to short the market.
The market evolved rapidly from very little two years ago. In Q4 2017, the Financial Times published, in a well-researched article, how shorting the stock of chipmaker Nvidia – the products of which were very popular with cryptocurrency miners – could be one of the most convenient ways to get short exposure to cryptocurrencies.
A crypto anomaly? Not really…
Traditional markets also experienced a “derivatives moment” in response to increased volatility in the market. The seventies were a period of incredible financial turbulence as Richard Nixon abolished the Bretton Woods system in 1971, moving to a fiat monetary system, and allowing all currencies to float. The world subsequently went through the first oil shock in October 1973, sending the price of black gold skyrocketing in what was previously a quiet market.
A few months prior, in 1973, in a (not so) curious twist of events, Fischer Black and Myron Scholes found a simple analytical formula to price options, which won the 1997 Nobel Prize two decades later. The conjunction of those two events is widely seen as having started a glory period in derivatives products across all asset classes.
It wasn’t just a fad. The Office of the Comptroller of the Currency in Washington estimates banks currently have exposure to more than $200 trillion notional of derivatives. Derivatives have gradually become the place where the majority of interested parties are coming to trade – across all markets.
“We will tame Bitcoin” – Emeritus CME chairman Leo Melamed
Should we believe the prediction from the legendary futures trader?
There has been a consensus view that bitcoin is too volatile to be a medium of exchange – triggering a wave of “stable coin” projects in 2017 and 2018. The inelastic supply function of bitcoin is, by construction, indifferent to demand or supply shocks – making all the adjustment occurring through price and creating volatility as a result. Good logic, but not necessarily true in practice. For instance, this argument is also valid for gold, which is one of the lowest volatility assets around, with an average daily move of 0.6% in 2019 according to data obtained from the Federal Reserve of Saint Louis.
There are a number of factors that contribute to an asset’s volatility. One of them is its market structure. Academics have extensively researched the impact of developing derivatives markets on the volatility of underlying assets and have overwhelmingly concluded that derivatives help to stabilize prices.
This is particularly true for options, as flows are usually dominated by call overwriting (selling calls to overlay an underlying position) as investors are looking to generate extra yield. The income fund launched by LA-based Wave Financial is a first step in that direction within the crypto markets.
Bitcoin’s volatility will decrease structurally as those markets keep growing.
Derivatives rhyme with leverage, which essentially allows you to do more with less. That’s great, but only to a certain extent. As Warren Buffet famously said, derivatives are financial weapons of mass destruction and require careful risk management.
Regulators have as a result been working on curbing the use of leverage globally. In May 2019, Japan’s FSA asked bitFlyer to reduce leverage for its perpetual swap product. The UK FCA is taking even more drastic action by planning to ban the offering of crypto derivatives to retail investors. The regulator also asks retail brokers to warn their customers of the risks of investing using derivatives products, across all asset classes.
“CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider.” – Welcome message on a popular retail brokerage platform
If 72% of investors lose money trading CFDs on low volatility underlyings, what could go wrong trading 100x levered products on the infamously volatile bitcoin?
It is likely that, over time, regulators or simply Darwinism will increasingly put the derivatives market in the hands of professionals.
Not only about volumes
Most participants – including us at skew. – spend probably too much time worrying about volumes. Derivatives volumes are mostly a function of leverage. When Japan’s FSA asked bitFlyer to reduce the maximum available leverage from 15x to 4x on the 28th of May, its volumes declined overnight by at least 50%.
Derivatives are zero sum contracts between two counterparties. Traders and investors have to maintain collateral against those open positions. Leading venue BitMEX asks for a minimum maintenance margin of 0.5% and a minimum initial margin of 1%. The CME on the other hand asks for 37% of initial margin. That means if you would like to open a $1 million long position on BitMEX, you can post as little as $10,000 in collateral versus at least $370,000 at CME.
The total $ amount of bitcoin futures contracts opened – called open interest – at CME currently stands at $150 million contract in comparison with $1.1 billion at BitMEX. Because of margin requirements it is likely there is a similar amount of money “working” to trade Bitcoin derivatives at CME and BitMEX despite the later trading 10x more volumes. The “herd” might be closer than people think.
This is a great setup for the offshore exchanges which are able to make significantly more money from the same amount of capital as they collect their fees from the volumes traded.
An increasingly central question: what is the price of bitcoin?
Victims of their own success, derivatives venues were hit in 2019 with a first-world problem.
As trading occurs on margin, derivatives exchanges have been careful to design a spot price index derived from the price of what were, initially, much larger physical exchanges. The index is used to settle the contracts at expiry, and decide when to initiate margin calls. It was a smart way of preventing manipulation of the then not-so-liquid crypto derivatives contracts.
However, as the derivatives market has grown exponentially, we have now entered a period where the underlying physical exchanges are much smaller than the derivatives exchanges – only 10% of total volumes in aggregate. It has become tempting to try to manipulate the less liquid underlying exchanges to yield some profits trading the derivatives.
This was most visible earlier this year in May when a relatively small-size order on physical exchange Bitstamp triggered a wave of liquidations at BitMEX and took the entire market down.
Exchanges seem to have been increasingly aware of the problem and have been attempting to strengthen their indices – sometimes with unfortunate consequences, as with a recent miscalculation at Deribit costing the exchange $1.3 million.
“There’s a whole ocean of oil under our feet! No one can get at it except for me!” – There Will be Blood’s Daniel Plainview
With the CBOE officially out, expect the competition between CME and ICE to be heating up in 2020 as the two exchanges roll out their options offering.
It would be particularly encouraging to see corporate hedging flows taking off, led by mining companies and supported by physically delivered and options contracts. The Mexican government is said to have spent $1 billion on put options this year to hedge its 2020 oil production. Still some way to go for crypto derivatives.
China Is Poised for Another Crypto Trading Crackdown as Speculative Fever Returns
Financial regulators in China appear set to crack down on cryptocurrency trading again after President Xi Jinping’s praise for blockchain technology revived speculation in the sector.
Regulators in each district of Shanghai must search and inspect local crypto exchange-related services before Nov. 22 and report to the central bank for further actions, according to an official notice signed by the Shanghai Internet Finance Rectification Agency and the Shanghai Bureau of the People’s Bank of China.
The notice emerged online on Friday. Chinese business publication Caixin confirmed its authenticity in a report published later that evening. The effort is led by the Shanghai government’s finance bureau, Caixin said.
The move underscores China’s complicated relationship with emerging decentralized technologies. In his speech earlier this month, President Xi called on his countrymen to “accelerate the development of blockchain technology,” and China has long been a favored location for bitcoin miners. On the other hand, the government banned crypto-to-fiat trading and initial coin offerings (ICOs) two years ago, near the height of the bubble. Crypto-to-crypto trading remained accessible.
According to the notice, regulators in each district of Shanghai are required to look for any entity that is organizing virtual currency trading activities inside China, or ICOs using a blockchain.
Promotional and brokerage services inside China for ICO projects that are registered outside of the country also fall under the inspection scope of the local financial regulators.
Caixin said speculation on crypto has reemerged in China following President Xi’s speech earlier this month.
Social media ban
Meanwhile, China’s social media platform Weibo has banned users from publishing any posts that contain “blockchain” and “crypto trading” at the same time.
Such content “contains information that violates related laws and regulation or Weibo’s community terms,” according to the message that pops up when a user tries to mention both terms. It is not clear when the restriction was put into place, and as of Friday, it was still possible to publish the phrase “crypto trading” or “blockchain,” just not together.
The Shanghai government’s notice also comes at a time when some exchanges are expanding their local presence to tap into the Chinese market.
Binance, which has a dedicated team in Shanghai, recently rolled out peer-to-peer trading on its platform that enables users to buy or sell cryptocurrencies using Chinese yuan through bank wires, AliPay or WeChat.
On Nov. 14, Binance’s official Weibo account was abruptly suspended by the social media platform for “being complained [about] for violating laws and regulations.”
The exchange said that the suspension was due to a “malicious report” filed by some users to the social media platform and it’s appealing to Weibo to reopen the account. Similarly, the official Weibo account of blockchain project Tron was suspended on Nov. 15.
A few weeks ago, a little-known Beijing-based cryptocurrency exchange called Biss, which claims to offer a channel for Chinese investors to buy U.S. stocks using cryptocurrency, was reportedly under investigation by local police. The exchange said in an announcement on Nov. 4 that some of BISS’ operational staff are “actively assisting the investigation by authorities.”
Crypto.com Launches New Exchange Eyeing Top-10 Spot Within 5 Years
Hong Kong-based cryptocurrency platform, Crypto.com, announced the launch of its cryptocurrency exchange on Nov. 14.
The Crypto.com Exchange is intended to drive the mass adoption of cryptocurrencies by enabling over one million users the ability to trade digital assets through the Crypto.com web interface, trading API, or through its app.
“Creating an exchange has been a natural extension and next step to ensure that everything stays in our own ecosystem,” Kris Marszalek, co-founder and CEO of Crypto.com, told Cointelegraph at BlockShow Singapore 2019.
Notable features of the Crypto.com Exchange include liquidity, competitive trading fees, institutional-grade custody and security, and intuitive experience through what Crypto.com says is a very easy-to-use interface.
9 cryptocurrencies supported
Although Crypto.com already has over one million users and is one of the first cryptocurrency companies to have obtained the CryptoCurrency Security Standard requirements, Marszalek noted that the next challenge is to onboard users.
“The Crypto.com platform is trusted, secure and has never been hacked. The success rate for the new exchange is high due to these factors. Now, we have to onboard users, which we plan to do by generating activity from our retail platform,” said Marszalek.
While the Crypto.com exchange will initially support popular cryptocurrencies including Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), EOS, XLM, MCO and USDT.
Meanwhile, the platform will be powered by the Crypto.com Coin (CRO). This native digital token will provide additional utility and benefits to users including liquidity, low fees and better execution prices.
For example, CRO staking will provide users with up to 100% discounts on trading fees. Also, new digital assets will be listed on the exchange through “The Syndicate,” which is a Crypto.com fundraising platform.
“CRO holders will receive propriety token allocation. We will also sell every new coin on the exchange at 50 percent off. The exchange won’t charge listing fees and will give users cash back for whatever they sell,” said Marszalek.
Moreover, to increase the liquidity of the CRO coin before the mainnet launch, it will be paired with all coins listed on the Crypto.com Exchange.
Building influence through an exchange
While Marszalek mentioned that he once had doubts about launching an exchange due to the high number of cryptocurrency exchanges already in the space, he now views an exchange as a necessary component for growing the influence of Crypto.com.
“Not only is an exchange a proven revenue model — it’s also where most of the value occurs in the entire crypto ecosystem today. I’m not saying that it will be like this forever, but today having an exchange is a must,” Marszalek explained. He continued:
“I was also against launching an exchange before we had a customer acquisition strategy. Launching an exchange isn’t difficult, but what do you do afterward is.”
Marszalek is confident that the Crypto.com Exchange will thrive, as the company has already met compliance regulations and has a large user base.
“We are assuming it will be easy for us to break into the top 10 exchanges in the next 5 years or so. We have a systematic way to grind our way to the top,” he said.
Crypto.com Exchange is currently in a closed beta phase and will be open to the public in December 2019.