‘Bad things could happen’: Turning to tech to tame the crypto jungle

© Reuters. Joel Fruhman, right, and Dan Fruhman, directors of BCB Group pose for a photograph in London © Reuters. Joel Fruhman, right, and Dan Fruhman, directors of BCB Group pose for a photograph in London

By Tom Wilson

LONDON (Reuters) – “Hi guys, could you please show me a firm bid for 100 bitcoin?” a seller texts on Skype.

“One sec. $ 10270.”

Two minutes later: “Sorry guys, that was an old order from Friday when skype wasn’t working.” 

“I really think we should get off skype. Bad things could happen. Someone is going to make an expensive mistake.” 

*****

A messaging exchange over a potential $ 1 million deal, between a European asset manager looking to sell bitcoin and broker Joel Fruhman, illustrates the casual and often chaotic nature of cryptocurrency dealmaking.

Trades involving hundreds of thousands, or millions, of dollars are routinely struck via brief chats on apps like Skype, WhatsApp, WeChat or Zoom, often with scant certainty over the identities of participants or the legal basis of agreements.

“We’d end up in a Zoom call with about five ‘introducers’ – we didn’t really know who any of them were,” said Fruhman, a physicist by training who started a cryptocurrency brokerage business with his brother Dan in their British hometown of Manchester in 2018.

“And who were we? What was our credibility?”

Over-the-counter (OTC) trading – buying and selling through a broker – is now beginning to change, however.

It is moving toward electronic automation as the cryptocurrency sector matures from the province of online enthusiasts to emerging financial assets drawing increasing mainstream interest, Reuters interviews with more than a dozen industry players show.

This is a fundamental shift, as messaging apps have for years been the predominant platforms.

It is a key front in attempts by cryptocurrency enthusiasts with roots in the traditional finance industry to drag into the mainstream a singular, largely unregulated sector born on the web a decade ago as a symbol of rebellion against the establishment and offering users near-anonymity.

OTC trading is favored by big investors like hedge funds because cryptocurrency exchanges often suffer from thin liquidity, and large buy and sell orders can move the market.

But the opaqueness of the messaging process and its impracticality for use on a large scale, plus the glitches that could cause the “expensive mistake” warned of by Fruhman, have left it fraught with risk.

Now, as spreads – the differences between bid and ask prices for immediate orders – tighten as liquidity in crypto markets grows, OTC brokers and market makers are seeking to move away from unsophisticated chats and offer quotes electronically, with automated execution and settlement.

“Things have shifted quite rapidly toward electronic trading,” said George Zarya, CEO of London-based cryptocurrency exchange BeQuant, which also runs an OTC desk and is planning to switch toward automation.

“Anything that is liquid – bitcoin or ethereum – these markets are going to go electronic. That’s a natural path that traditional markets have gone through.”

The changes are likely to appeal to larger investors using algorithms and high-frequency trading for whom split-second timings are important, according to the interviews with cryptocurrency OTC brokers, market makers and investors.

Alameda Research, a crypto trader based in California and Hong Kong, launched an almost entirely automated OTC desk around six months ago that is already seeing flows of $ 20 million-$ 30 million a day, said Ryan Salame, its Asia-Pacific head of OTC.

For Salame, the future of OTC trading is electronic, with prices for all but the smallest coins to be quoted electronically.

“This is just the next step how you stay more competitive. Each desk is trying to be more competitive and making better systems,” he said. “It’s just a by-product of spreads coming in so much that I can’t update in the chat fast enough to give people the pricing they’re expecting.” 

‘CAN YOU SELL A FEW MILL?’

The Fruhman brothers, Joel aged 29 and Dan 28, built a contact book packed with bitcoin miners they met on internet forums and apps as they grew interested in the emerging technology.

Miners use computers to solve complex mathematical puzzles, competing against others and earning rewards in the form of new digital coins. As recently as a few years ago, individual crypto enthusiasts could mine bitcoin from their bedrooms.

But many had a problem, the Fruhmans found: They were producing bitcoin faster than they could convert them to the cash they needed to clear the hefty electricity bills run up by their high-powered computing gear working overtime. 

“We saw something very clear: A bunch of guys with a lot of bitcoin valued in USD, who had no idea how to turn that into money,” said Joel. “It started with one request, which was just one of these guys, our mate, who was like: ‘Can you sell a few mill?'”

Late last year, in an attempt to tap bigger investors and offer more sophisticated back-office services, the brothers swapped their contact book for a stake in a startup run by ex-financiers well-versed in the infrastructure of the financial system, from escrow accounts to settlement systems.     

The startup, BCB Group, then based in London’s financial district, offered something the Fruhmans lacked: regular access to clients from mainstream finance willing and able to buy the regular supply of digital coin offered by their mining contacts.

“It’s not the stoned 22-year-old that we were dealing with a year and a half ago,” said Joel. “And it’s not the equity traders, the Goldman Sachs (NYSE:). They’re kind of in between – it’s growing from one into the other.”

    

TRADE BLOSSOMS IN BITCOIN BUBBLE

Global cryptocurrency trading volumes are highly erratic. Over the past year, bitcoin alone – by far the largest coin – has seen daily volumes of between $ 900 million and $ 3 billion, according to research firm Coin Metrics.

Brokers estimate the OTC market typically accounts for 10% to 30% of global volumes on any given day.  

The OTC market blossomed as bitcoin’s value soared during its 2017 bubble. That was when miners, wealthy individual investors, hedge funds and companies earning revenue in crypto grew active in the market.

Now, said the industry players who spoke to Reuters, the market is seeing a new shift as the predominance of messaging apps wanes and the more sophisticated tools used in traditional markets like equities and bonds become increasingly common. 

“Doing stuff over Skype and over these voice chats is not really scalable,” said Kevin Zhou, co-founder of San Francisco-based OTC desk Galois Capital.

The evolution is partly being driven by newer entrants to the sector, many of whom are tooled up with cutting-edge tech. Some, like Chicago-based Jump Trading, are from the traditional proprietary trading worlds. Others, such as Alameda Research, specialize in cryptocurrencies. 

And the changes are popular with big investors.

“I prefer to use electronic because all our algorithms are fully automated,” said Andrea Leccese, president of Bluesky Capital in New York, an investment firm that often runs orders of $ 5 million-$ 10 million through OTC desks. “If we can send our quote electronically to the OTC broker, it’s much better for us.” 

“It’s fair to say more or less half of OTC trading is going through technical innovation like making fully electronic platform, and that’s even better on our side.” 

Cryptocurrency regulation is patchy across the world, with curbs on the illegal use of digital coins the priority, and the implications of increasing automation in OTC trading are unclear. But, some market players say, because the changes are likely to attract more mainstream investment they could be a factor in speeding up the introduction of the kind of securities rules seen in traditional markets.

MACHINE VS MAN

While increasing automation may be inevitable, many OTC desks are in a bind. Some clients are loath to ditch the personal relationships they have established with their brokers and the apps they use to communicate.

New York-based Genesis Global Trading sees around $ 1 billion a month in volume, CEO Michael Moro said. While that’s down from the $ 2 billion-$ 2.5 billion a month during bitcoin’s 2017 boom, volumes are now rising between 10% and 20% a month.

Genesis uses TradeBlock, a New York firm that provides tools for trading cryptocurrencies, to execute its deals – but can’t completely abandon messaging apps.

“We will give market color over (Skype), but the actual transactions are over TradeBlock,” Moro said. “When your clients that are buying $ 5, $ 10 million say, ‘Hey, let’s just chat on Skype’, to get them to change their behavior and say, ‘No, we don’t do Skype’, you end up creating a friction.”

For the Fruhman brothers, personal relationships will remain key. 

“The plan is to go to an automated platform, where they’ll be able to request quotes on our front-end website,” said Dan. “But the interesting thing is that a lot of people actually like the human-to-human interaction.” 

“It’s not just ‘like’,” said Joel, quickly. “If you’re trading $ 20 million, you’re not clicking a button – you want to push on the price, you want to get a feel, you want to maybe break it up.”

“I think there’ll always be this human OTC component for institutional clients.”

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Forex News

Lights around the world are turning off for Earth Hour

It may be darker than usual in your neighborhood tonight, but don’t be alarmed. People around the world are participating in a movement called Earth Hour. Every year, people turn their lights off to spread awareness about sustainability and climate change. 

This year, Earth Hour takes place on March 30 from 8:30 p.m. to 9:30 p.m. local time. Supporters can sign a pledge to decrease their environmental footprint by taking part in the blackout, and share their experience on social media using the hashtags #Connect2Earth.  

Earth Hour was first started by the World Wildlife Fund — the leading organization in wildlife conservation and endangered species — in 2007 in Sydney, Australia. WWF encouraged millions of people to switch their lights off for one hour to support climate change action. 

Since then, the movement has grown globally and is now the world’s largest grassroots movement for the environment. 

Landmarks including Big Ben in London, Egypt’s Great Pyramids, Brazil’s Christ the Redeemer statue, the Sydney Opera House, the Colosseum in Rome, the Eiffel Tower in Paris, Burj Khalifa in Dubai and New York City’s Empire State Building have all taken part in going dark.     

Millions of people are expected to participate this year in more than 180 countries. WWF hopes the event will send a message to government officials that protecting the planet should be their top priority. 

“We’re the first generation to know we are destroying our planet,” WWF said. “And we could be the last that can do anything about it.”

This year, climate change is at the forefront of the conversation more than ever, thanks in part to an initiative by teen climate activist Greta Thunberg, who was has been nominated for the Nobel Peace Prize. She started the Youth Climate Strike movement last September, which has since grown to include hundreds of thousands of students around the world who skip school on Fridays to urge world leaders to act on climate change. 

The world faces an “existential crisis, the biggest crisis humanity ever has faced, and still it has been ignored for decades by those that have known about it,” Thunberg said during a strike on March 15. “And you know who you are, you that have ignored this and are most guilty of this.”

HONG KONG-ENVIRONMENT-EARTH-HOUR
The Victoria Harbour is seen after its lights went out for the Earth Hour environmental campaign in Hong Kong on March 30, 2019.  Dale De La Rey/AFP/Getty Images

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World – CBSNews.com

The Mueller Report: A Turning Point

Watch the CBS News special report in the video player above.


Special counsel Robert Mueller has been investigating Russian interference in the 2016 presidential election for nearly two years and Sunday, America finally learned at least some of his findings: In a letter to congressional leaders, Attorney General William Barr quotes the report as saying, “The investigation did not establish that members of the Trump Campaign conspired or coordinated with the Russian government in its election interference activities.”

But there are still many unanswered questions. Mueller didn’t make a determination as to whether Mr. Trump obstructed the investigation, but Barr said there was insufficient evidence to establish that the president committed obstruction of justice. Democratic lawmakers continue to investigate, and say the full report must be made public.

Why was the special counsel appointed? And why did American voters and elected officials alike come to question if the president of the United States colluded with a foreign government?

The Hacks

It all started with a hack. During the 2016 Democratic National Convention, Russian hackers gave WikiLeaks 20,000 emails stolen from the Democratic National Committee, which WikiLeaks then released. They included private communications of Hillary Clinton’s campaign staff, notably Clinton campaign chair John Podesta, emails that continued to be leaked until just prior to election day.

The hackers were intelligence officials working for the Russian government, according to a U.S. indictment, which led some commentators to dub the hack and interference in a U.S. election as “an attack.”

Only months earlier, U.S. intelligence agencies discovered George Papadopolous, a Mr. Trump campaign aide, had spoken to an overseas contact about his knowledge of Moscow having acquired emails damaging to Hillary Clinton’s campaign. Papadopolous was indicted for lying to the FBI, pleaded guilty and served a short jail sentence.

Roger Stone, a self-proclaimed “dirty trickster” and longtime friend of Donald Trump, has since been indicted by federal agents for allegedly lying to Congress about his communications with WikiLeaks. Stone has pleaded not guilty and currently faces trial for making false statements to Congress, obstruction and witness tampering. The group of Russian hackers who carried out the plot have also been indicted.

Spy Games

The Russian email hack of the DNC was only one part of an involved and coordinated campaign to interfere with the 2016 U.S. election, one spearheaded by the dissemination of false information aimed to influence millions of American voters.

The Russian election interference was traced back to a physical “troll factory” in St. Petersburg that had been set up by Russian agents to be a digital headquarters for their efforts to create social media accounts that would incite division and spread false information among the American voting public.

Starting in 2014, the Russian digital operation, which employed hundreds of people and went by the name Internet Research Agency (IRA), began to track U.S. political trends and create hundreds of fake webpages and social media accounts, where it posted false political advertisements and denigrated certain candidates, notably Hillary Clinton.

Tradecraft

Russian election interference did not end on the internet. On June 9, 2016, Donald Trump Jr., Jared Kushner, and campaign chairman Paul Manafort met at Trump Tower with Natalia Veselnitskaya, a Russian lawyer with ties to the Kremlin, at her request. Trump Jr. had been informed by email prior to the meeting that Veselnitskaya might be able to offer him compromising information on Hillary Clinton, an allegation which he later denied and then admitted.

U.S. intelligence agencies also discovered Mr. Trump’s first attorney general, Jeff Sessions, met with Russian Ambassador Sergey Kislyak twice during the 2016 campaign.

Paul Manafort was Mr. Trump’s former campaign chairman and federal investigators uncovered his lobbying work on behalf of former Ukrainian President Viktor Yanukovych. They also discovered that on August 2, 2016, Manafort shared polling data with Russian operative Konstantin Kilimnik.

Manafort has been sentenced to serve more than seven years in prison stemming from guilty verdicts in two separate cases — one for tax fraud and bank fraud relating to his work in Ukraine, and another for conspiracy against the United States and conspiracy to obstruct justice. Manafort faces additional charges by prosecutors in New York relating to mortgage fraud, conspiracy, and falsifying business records.

Michael Flynn and the FBI

Before taking the oath of office, Mr. Trump had been warned by President Barack Obama against hiring Michael Flynn. Flynn worked under Obama as director of the Defense Intelligence Agency from 2012 to 2014, when he was fired. 

Mr. Trump chose Flynn to be his National Security adviser, but had to force him to resign weeks into his presidency after it was revealed Flynn lied to the FBI about his contacts with Russian foreign minister Sergey Kislyak during the transition and his business ties to foreign governments. Flynn has since pleaded guilty to lying to the FBI.

After allegedly telling FBI Director James Comey privately that Flynn “is a good guy,” and saying he hoped Comey “can let this go,” Mr. Trump fired Comey on May 9, 2017, setting off a chain of events that would change the course of his administration.

When asked by NBC News’ Lester Holt why he fired Comey, Mr. Trump answered, “When I decided to just do it, I said to myself, I said, ‘You know, this Russia thing with Trump and Russia is a made-up story.'”

Former FBI Director Robert Mueller was appointed special counsel in wake of the Comey firing, where he was given the broad mandate to investigate “any links and/or coordination between the Russian government and individuals associated with the campaign of President Donald Trump; and … any matters that arose or may arise directly from the investigation.”

Andrew McCabe, FBI acting-Director at the time of the Comey firing, would later tell “60 Minutes” he briefly discussed whether there were the votes in the cabinet for invoking the 25th Amendment with Deputy Attorney General Rod Rosenstein, a complex constitutional procedure designed to remove the president from office in the event that he or she “is unable to discharge the powers and duties of his office.” In a statement, The Justice Department said, “As the Deputy Attorney General previously has stated, based on his personal dealings with the President, there is no basis to invoke the 25th Amendment, nor was the [deputy attorney general] in a position to consider invoking the 25th Amendment.”

All the President’s Men

With the special counsel’s investigation growing and James Comey’s Senate Intelligence Committee testimony emboldening Democrats, the White House hired a powerful legal team to defend Mr. Trump. 

Lawyers Ty Cobb, John Dowd and Jay Sekulow were brought in to assist White House Counsel Don McGahn, with Cobb publicly stating his belief that the Mueller investigation would be wrapped up early. After Cobb, Dowd, and McGahn departed, Emmet Flood, a legal veteran from Bill Clinton’s impeachment defense, was added along with Rudy Giuliani, who proceeded to make headlines on Sunday morning talk shows, at one point telling NBC’s Chuck Todd that “Truth isn’t truth.” 

Through it all, Trump and his defense team maintained his innocence, stating alternatively that there was “no collusion,” to “collusion is not a crime” to “there is no evidence Donald Trump knew anything.”  

The Fixer

No member of Donald Trump’s political orbit generated more controversy than Michael Cohen, the president’s former personal attorney and self-proclaimed “fixer.” Cohen has claimed he and Trump coordinated hush-money payments to two women, adult firm star Stormy Daniels and Playboy model Karen McDougal, who each claim they had affairs with Trump, and that these payments were made to influence the 2016 election. Cohen pleaded guilty to breaking campaign finance laws in connection with these payments.

Cohen has also claimed he tried to cut a deal for the building of a Trump Tower in Moscow during the 2016 election, before that fell apart. In blockbuster testimony to Congress in February, Cohen publicly accused Trump of criminal conduct and racism, calling him “a con man” and “a cheat.” 

While Cohen begins a three-year prison sentence in May for violating campaign finance law, his allegations remain at the center of an ongoing investigation being conducted by the U.S. Attorney’s office in the Southern District of New York, which is investigating Mr. Trump’s alleged campaign finance violations, Trump Organization financial dealings, and possible illegal donations to the Trump inaugural committee.

What’s Next

Now that the conclusions of the Muller report have been released, Democrats and Republicans are bracing for their next steps in a bitter political dispute. House Judiciary Chairman Jerry Nadler, D-New York, has opened up an investigation into President Trump’s administration, seeking emails, memos, and financial documents from 81 entities and individuals connected to Trump. 

Republican Sen. Lindsey Graham said it was time for the country to “move on” and “get ready to combat Russia” in the 2020 elections. Rep. Jim Jordan, an ally of Mr. Trump’s in the House, simply tweeted: “No collusion! No obstruction! It’s time to move on.”

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U.S. – CBSNews.com