Bakkt Launches Custody Solution for Institutional Investors

Bakkt, the institutional Bitcoin (BTC) trading platform backed by Intercontinental Exchange, has announced on Monday the launch of its custody feature for its entire client base.

The news was shared in a blog post on November 11th by Bakkt, confirming that it had received regulatory approval from the New York Department of Financial Services (NYDFS) to offer custody services to any institution. Prior to this, this feature was only available for those trading its BTC futures.

The news came just weeks after the company said it would begin offering options on top of its existing BTC futures contracts, which in turn came less than a month after the company went live with its long-anticipated physically delivered offerings.

The new service provides is an extension of the company’s Bakkt Warehouse and will offer bitcoin custodial services to institutional investors. At the moment, several companies have signed on as initial customers for Bakkt Warehouse, including Pantera Capital, Galaxy Digital and Tagomi. Other marquee firms are expected to join in the next few weeks.

Following the release, Bakkt COO Adam White has claimed that the company believes that the custodial feature is a critical link in the institutional adoption of bitcoin is custody.

The blog post further noted that:

“Safely storing digital assets demands a comprehensive approach to custody. Institutions and sophisticated investors need more than cutting-edge technology. They require proven infrastructure, robust operational controls, and independent oversight.”

White further added that whilst technology provided the foundation by which the company stored customer funds, “the Bakkt Warehouse employs extensive physical, operational and cybersecurity safeguards too.”

He noted that due to the relationship between Bakkt and Intercontinental Exchange allowed them to uniquely address client needs in the digital asset custody space, including on-premises data centers and dedicated network connectivity between operational sites,that remove the need to rely on third parties.

According to Bakkt, the new tool will employ a range of security and safeguards, such as redundant secondary facilities, geographically-distributed signing operations, as well as independent reporting structures amongst others. The company is currently working with BNY Mellon to support its geographically separated key storage feature.

In addition to that, the company will also protect its systems with 24 hour video monitoring, armed guards, and security operations and incident response teams. The trading platform has also secured its SOC2 certification – a review of its systems by a third-party auditor.

Although a number of other companies are currently developing their own platforms for physically-settled bitcoin futures in the U.S., Bakkt has been the only one to launch so far.

In the meantime, Bakkt has also recently announced its plans to launch a cryptocurrency consumer app and merchant portal – Starbucks – which would launch in the first half of 2020 with Starbucks.

Meanwhile, Bakkt Warehouse is entering a market with a fair amount of competition, including Fidelity Digital Assets, which fully rolled-out its platform in October. Another market competitor is Coinbase Custody, which launched in 2018 and now manages over $7 billion thanks in part to its acquisition of Xapo’s institutional business.

Hong Kong Publishes Regulatory Framework for Cryptocurrency Exchanges

Hong Kong’s financial regulator — the Securities and Futures Commission (SFC) —  has published a new set of rules on Wednesday that would allow cryptocurrency exchanges to receive an operating license, a step intended to improve regulation standards and help prevent fraud.

Initially, the announcement was made by Chief Executive Ashley Alder at a local fintech event on November 6th. Speaking at a fintech conference on Wednesday in Hong Kong, Alder explained:

“The framework will enable virtual asset trading platforms to be regulated by the SFC, a major development which builds on a way forward I outlined at the same time last year.”

The new rules, under which exchanges can apply to be regulated from Wednesday, draw on the standards the SFC expects for conventional securities brokers.

According to Alder, the new regulatory framework will focus on how exchanges must approach custody and compliance, particularly with regards to Know Your Customer (KYC) and Anti-Money Laundering rules.

“A platform operator should comply with the KYC requirements which are applicable to a licensed corporation. It should take all reasonable steps to establish the true and full identity of each of its clients, and of each client’s financial situation, investment experience and investment objectives.”

Additionally, it is stipulated that an exchange that wants to be licensed must provide services to professional investors only, have an insurance policy to protect clients in case assets are lost or stolen, and will be required to file a monthly report to the Commission.

On top of that, exchanges must have an independent auditor and only alter existing products or offer new products with the regulator’s approval.  Adler further noted that cryptocurrency exchanges do not need an SFC license to operate as long as they do not trade any products defined as a security.

The SFC adds that non-custodial exchanges will not be considered for licensing, stating:

“The SFC will not accept licensing applications from platforms which only provide a direct peer-to-peer marketplace for transactions by investors who typically retain control over their own assets (be they fiat currencies or virtual assets).”

Last year, the SFC published a license last year that provided fund managers of virtual assets permission to sell digital products to potential investors. However, very few have been able to meet the regulator’s requirements.

Now, the new regulatory framework was developed following consultation with the operators of several crypto-asset trading platforms, which led the SFC to conclude that a credible regulatory framework could allow it to regulate at least some digital asset exchange platforms.

That being said, Singapore-based cryptocurrency exchange Huobi could become first licensed exchange in Hong Kong. The exchange is reportedly planning a backdoor initial public offering (IPO) in Hong Kong. In addition to that, the exchange recently teased a possible push into the securities market, which could tie in with its potential listing on the Hong Kong Stock Exchange (HKEX).

DX.Exchange Platform Shuts Down Less Than A Year From Launch

DX.Exchange, a Nasdaq-powered cryptocurrency and tokenized securities trading platform, has announced its closure just 9 months after its launch in January. According to the announcement, the company cited financial hardships as the main reason for its decision.

On November 3rd, the Estonia-based platform announced via a blog post about its imminent shutdown. However, the blog post notes that the shutdown is only temporary, as the remaining members are looking for an acquisition or a merger to continue running.

The blog post reads the following:

“We must inform the community that the board of directors of DX.Exchange has decided to temporarily close the exchange as we pursue a merger or outright sell of the company. […] The costs of providing the required level of security, support and technology is not economically feasible on our own.”

Upon the announcement, the exchange suspended trading on the platform as well as blocked all deposits. In addition to that, all open orders had been canceled at 12:00 GMT on Sunday. The exchange further asked users to withdraw their funds by November 15th in order to allow a merger/sale to proceed.

For the withdrawal process, the exchange requires that users email its support team with a copy of their government ID used for the initial signup, the wallet address and the amount for each asset they are withdrawing, as well as a selfie with a paper with the date and the words DX Exchange. Users are required to use the same email they set up the account with.

Meanwhile, if a merger or acquisition does not happen soon enough, then the exchange will stop operations permanently, according to the announcement. However, the exchange remains hopeful as it wants to achieve “success for its shareholders and compete in this challenging market.”

With the shutdown announcement, it remains unclear what will happen to the platform’s staff, which ranges between 51-200 employees, according to LinkedIn. The firm has yet to comment on the matter.

DX.Exchange launched its platform in January of this year, and offered trading in cryptocurrencies as well as tokenized securities such as stocks of Tesla and Apple and exchange-traded funds or ETFs like Invesco QQQ and SPDR S&P 500.

Noteworthy, DX.Exchange was the first cryptocurrency trading platform to be built with Nasdaq trading technology in combination with the exchange’s in-house tech, making it a potential powerhouse.

BitMEX Inadvertently Leaks E-Mails, Making Users Susceptible to Phishing Attempts

Largest cryptocurrency derivatives exchange platform BitMEX, has been making the headlines today, with an error leading to the mass leak of user e-mails, followed by a temporary misappropriation of their official Twitter account.

In a recent email sent out by BitMEX, with an update to their index pricing to all its users, the recipient email addresses were accidentally added as carbon copy (CC) instead of the blind alternative (BCC). This means that every person’s email that was on the list of recipients was visible to every other recipient.

Thousands of emails have been compromised and hackers could potentially use other databases and easy passwords to attempt hacking BitMEX accounts. This mistake means that many BitMEX accounts are now susceptible to potential hacks and phishing attempts.

As a user, if you don’t have two-factor authentication (2FA) enabled, you should enable this security setting to protect yourself against unauthorized access from hackers.

In the wake of the incident, BitMEX’ Twitter account had also been compromised, which was reportedly flagged as misconduct from an employee that had been let off due to the user e-mail leak. In an official statement, BitMEX stated:

“Our team have acted immediately to contain the issue and we are taking steps to understand the extent of the impact. Rest assured that we are doing everything we can to identify the root cause of the fault and we will be in touch with any users affected by the issue. The privacy of our users is a top priority,” the exchange added.

Following news of the leak, competing exchange platform Binance advised all affected BitMEX users who also hold an account on Binance to change their Binance account email immediately. Hackers may attempt using the leaked e-mails on other exchange platforms as well.

One of the largest crypto derivatives markets known for its leverage rates of up to 100x, BitMEX operates out of Seychelles. Its largest product, the XBT/USD trade pair, had a 24-hour trade volume of $2.8 billion. As big as the platform is, it remains to be seen whether this email leak will end up negatively affecting customers and as a result its business reputation.

Crypto Capital Executive Indicted in NY Court

Crypto Capital executive Oz Yosef has been indicted on three criminal counts by the U.S. Attorney’s Office of the Southern District of New York.

Citing court documents from October 23rd, Oz Yosef has been indicted by the U.S. authorities on three criminal counts, which are conspiracy to commit bank fraud, bank fraud and conspiracy to operate an unlicensed money transmitting business.

It appears that the filing confirmed allegations from cryptocurrency exchange Bitfinex, which has recently claimed to have been a victim of fraud regarding Crypto Capital — its former payments processor. Bitfinex has issued a statement on the matter, saying that it was not involved in money laundering and that it has been lied to by Crypto Capital representatives including its former president and Oz Yosef.

Accordingly, Crypto Capital spread the firm’s funds across multiple bank accounts in several countries, making it difficult to access. The crypto exchange further added that Crypto Capital provided false reassurances regarding its reputation, expertise and operations, which lead to the disappearance of $880 million.

Bitfinex presented itself as the victim of Crypto Capital following the latter’s president arrest by Polish authorities due to money laundering scandals involving the Columbian Cartel. On Thursday, Crypto Capital president Ivan Manuel Molina Lee was extradited by Polish authorities on charges of money laundering, subsequently charged with laundering 1.5 billion zloty ($390 million).

Upon Lee’s arrest, Stuart Hoegner – Bitfinex’s general counsel – released a statement last Friday, on behalf of the exchange, maintaining its claim to be a victim of fraud and will pursue the company in retrieving its lost funds.

Following investigations conducted over this past spring by multiple international authorities, including U.S. authorities, Crypto Capital’s funds have been frozen, out of which $880 million belonged to crypto exchange Bitfinex.

Meanwhile, there have been doubts circulating about both the company’s heads stem from the losses of the $880 million. Previous reports revealed that Tether – a cryptocurrency governed by Bitfinex – had previously stated that the lost funds weren’t actually lost but had been “seized and safeguarded.”

The lost funds triggered an investigation by the New York Attorney’s Office into the relationship between Bitfinex and sister firm Tether. The New York General Attorney has been investigating this case since last year and found damning messages exchanged between a senior Bitfinex executive and a representative of Crypto Capital.

The exchanged messages were centered around the $880 million funds, with the Bitfinex exec urging Crypto Capital to release the money but was told it was seized by the U.S. and Polish authorities. Bitfinex didn’t buy the excuse and said that it fears that Crypto Capital is engaged in fraud, speculation that ultimately landed Lee behind bars.