- Numerous exchanges, like Bittrex, have delisted coins that have features to protect user privacy.
- Explanations of why they’ve done so have been vague or non-existent.
- It has set up clashes between the exchanges and Zcash, Monero and Dash over whether there is actually regulatory pressure to do so.
On New Year’s Day, cryptocurrency exchange Bittrex announced it would be delisting these three so-called “privacy coins” as of Jan. 15, adding its name to a growing list of exchanges that have done the same.
In a blog post announcing the development, Bittrex did not provide a reason for doing so.
Bittrex: No explanation offered
The assumption has been that the delistings are related to know-your-customer and anti-money laundering (KYC/AML) concerns. But by and large, exchanges have delisted without much explanation, leaving users and privacy advocates out in the cold, with little recourse.
“Where privacy is opt-in and not mandatory such as in dash or zcash, which allows the vast majority of transactions to remain traceable, the difference between these assets and bitcoin [or] ether is often just in focus and marketing,” Reuben Yap, project steward of the privacy coin firo told CoinDesk, as he saw exchanges also delisting firo in December.
“In some cases – even where coins did not have any meaningful privacy features or even had them disabled – they weren’t spared from delistings, supporting the claim that many of these bans were established for form over substance.”
Bittrex did not cite any specific regulatory challenges or reasons for the delisting in its post, and declined to comment for this piece. Notably, the crypto exchange continues to host other privacy coins such as firo, verge and horizen at the time of writing, giving little insight into the rationale.
‘No public regulatory rationale’
In response to Bittrex’s decision, Electric Coin Company (ECC), the makers of zcash, published a blog post that criticized the decision and asked a question that has yet to be answered – why?
“In spite of all the conjecture on Twitter, there is no public regulatory rationale for delisting zcash,” the company said in the post. “Law firm Perkins Coie recently published a paper that lays out how regulated entities can comply with regulatory requirements and support cryptocurrencies that include privacy as a feature.”
According to the paper, “Not only do privacy coins provide public benefits that substantially outweigh their risks, existing AML regulations properly and sufficiently cover those risks, providing a proven framework for combatting money laundering and related crimes.”
Perkins Coie declined to comment for this article.
With a lack of specific regulation to point to, it seems that the decision to delist these coins is a decision made by the businesses themselves, rather than responding to some perceived immense, yet still unclear, regulatory pressure.
In response to Bittrex’s decision, Kraken CEO and co-founder Jesse Powell tweeted, “Haven’t heard of anything on the regulatory side. Presumably, it’s something specific to their business.”
As Justin Ehrenhofer, a Monero developer, previously said, the most common reason given for delistings is de-risking from perceived (or direct) pressure from regulators and banks.
“Most jurisdictions do not impose strict bans on these privacy-preserving cryptocurrencies, but they may require more detailed AML programs before feeling comfortable with them,” he said.
ShapeShift and Bittrex’s responses
Indeed, “derisk” is the term that the exchange ShapeShift used when it delisted zcash, monero and dash last year.
“We’ve taken down the privacy coins because of their regulatory concerns,” Veronica McGregor, ShapeShift’s chief legal officer, told CoinDesk’s Brady Dale in an interview. “At least for the moment, we’re not working with those coins.”
They “were delisted at the same time for the same reason – to further derisk the company from a regulatory standpoint,” McGregor wrote in a followup email.
This week though, ShapeShift pivoted to routing orders through decentralized finance (DeFi) applications and integrated with multiple decentralized exchanges, abandoning the KYC regulations that sapped users from them when they were implemented in 2018.
Even as ShapeShift has added back support for dash, Dash Core Group CEO Ryan Taylor said in a recent Zoom interview with CoinDesk that they’d never heard from the exchange about being re-listed. They’d sent along their material arguing that their coinjoin function, introduced in 2014 and advanced for the time, was no longer enough to classify them as a privacy coin, particularly with bitcoin also having a coinjoin function. Eventually, with no communication from ShapeShift, they saw they’d been relisted.
“There’s no definition you can set where we’re dash falls in the privacy coin bucket, and bitcoin falls out,” said Taylor. “All we’re asking for is fair treatment.”
Need for privacy coin education
In Taylor’s experience with regulators around the world, he proactively engages with them and tries to educate them. This education effort isn’t new, and isn’t a reaction to Bittrex.
“We’ve been working on this for a couple of years,” said Taylor. “And in my interactions with regulators, they don’t even understand how the technologies work. Almost always, when you ask them, ‘Why was dash included?’ They say, ‘I googled it.’”
“There is no regulatory requirement in the USA that would result in a coin being delisted due to it protecting the user’s privacy,” said Zooko Wilcox, cypherpunk and CEO of the Electric Coin Company.
ShapeShift did not respond to questions regarding whether it would now add support for zcash and monero, or why they decided to re-list dash.
Almost always, when you ask them, ‘Why was dash included?’ They say, ‘I googled it.’
ECC’s blog post also pointed out that both Coinbase and Gemini, prominent U.S. exchanges, support zcash. In September 2020, Gemini launched support for zcash shielded withdrawals, a first for a regulated exchange.
ECC then questioned whether the decision came in response to the New York Department of Financial Services (NYDFS) rejecting the exchange’s application for a virtual currency and money transmitter license in part because of “deficiencies in Bittrex’s BSA/AML/OFAC compliance program.”
Coinbase and Gemini, both of which support privacy coins, hold such licenses.
“ShapeShift and Bittrex have not told us why they delisted zcash,” said Wilcox. “Coinbase and Gemini continue to work with us to further increase their support for zcash.”
Bittrex declined to comment when sent a list of questions about the rationale behind the delisting, whether regulatory requirements forced it to do so, and if the action was linked to the concerns NYDFS raised.
But given the numerous concerns about transaction monitoring, sanctions violations, major compliance issues such as inadequate customer due diligence, trying to strike down some of the more popular privacy coins could be a low-effort way to address these, but not if other privacy coins remain listed.
No big deal
Kristin Boggiano, co-founder and president of CrossTower, a global digital asset infrastructure platform, said she did not see delisting of privacy coins as a trend in the industry, and that most digital asset trading platforms will evaluate the tokens they trade from time to time.
When asked why some exchanges were able to list these coins while others declined to, Boggiano said she couldn’t speak to other platforms’ listing decisions or frameworks but that CrossTower’s current Digital Asset Risk Assessment Framework takes a number of factors into consideration when listing a token.
“We consider trader feedback, market demand, whether our technology can support it, whether our vendors support it, regulatory considerations, and other compliance considerations,” she said in an email to CoinDesk. “The framework is dynamic because the industry is clearly rapidly changing.”
She did recognize that it’s natural there is a market for privacy tokens, especially given there is a growing awareness in the U.S. and internationally that the disclosure of certain personal information can cause serious issues.
“There may be data mining, which can cause minor inconveniences if their information is sold,” she said. “However, it could also be sold to advertising agencies and other entities without consent, causing significant friction in digital operations. Worse, it may also be used for malicious purposes such as hacking, identity theft, blackmail and other harmful purposes.”
Whether such delistings continue will seemingly be up to the perceived regulatory environment and exchanges involved, but a good place to start addressing the merits of the issue is the reasoning behind why these decisions are taken, rather than leaving users with little or nothing to go on.
Coin Metrics Report Details Surges in ETH, Doge Trading
Coin Metrics: Altcoins Are Taking Over
While bitcoin is still the world’s number one digital currency by market cap (it is currently trading for about $35,000 per unit), the asset has experienced some serious dips over the past month, while by contrast, Dogecoin and Ethereum have exhibited gains and are regularly moving up the digital ladder.
Coin Metrics garnered much of the information for its report by looking at data from Binance, arguably the largest and most popular crypto exchange on the planet in terms of daily trading volume. Additional statistics were gathered from exchanges such as Coinbase and FTX. Coin Metrics points out that thus far, 2021 has been the year for “smaller altcoins,” suggesting that a great many of them have surged heavily between the months of January and early May. From there, however, a serious crypto crash has taken precedence, with Coin Metrics unable to pinpoint what, exactly, might have been the cause.
For the most part, numerous altcoin pairs are offered on Binance, which explains why the company’s trading volume for many of the world’s smaller assets likely overtook that of bitcoin. The report says:
ETH volume surpassed BTC volume on Coinbase by a wider margin than on Binance. Coinbase did not offer Dogecoin trading in May (although they introduced it in early June), so it did not have a Doge rush similar with Binance, but it did have a relatively high amount of volume for some other altcoins, led by MATIC, ADA and Ethereum Classic (ETC)… Continuing the trend, ETH volume edged out BTC on FTX, although not by much, but comparatively, the top altcoins made up a lower percentage of total volume on FTX than on Binance and Coinbase.
Some of the world’s smaller exchanges – such as Huobi – also saw Ethereum and Dogecoin trading surge to levels beyond what people were doing with bitcoin. The report continues to say:
Similar with Binance, DOGE volume surged on Huobi, taking the spot as the third most traded currency by volume.
Bitcoin Hasn’t Been Fully Cut Out Yet
The only place – according to the document – where bitcoin trading appears to remain dominant at the time of writing is the CME in Chicago, Illinois. The company delves in bitcoin futures trading and has recently opened the door to ETH futures, though this is still in its early stages. Coin Metrics writes:
The markets continued to move mostly sideways over the last week. Bitcoin and Ethereum usage both stayed relatively flat, with daily active addresses dropping 2.5 percent and growing by 3.3 percent, respectively. Ethereum daily transaction fees dropped by over 35 percent week over week as gas prices continued to fall, and bitcoin transaction fees followed a similar pattern, dropping by 40.5 percent.
How will the drop in this metric affect UNI, CAKE, SUSHI, AAVE?
Bitcoin maximalists are currently gaining from the dropping altcoin market capitalization. Another group in on that is DeFi project traders and HODLers. This weekend, the altcoin market capitalization dropped further. In the past 7 days, the altcoin market capitalization has dropped along with a drop in altcoin prices. BNB, ADA, DOGE, XRP, DOT and CRV have dropped and this has increased the accumulation, investment inflow.
Low marketcap projects have offered high returns over the past 7 days. There are several factors supporting this narrative. Increasing trade volume of DeFi projects has increased in proportion to altcoin market cap. The demand across exchanges has increased and there is an increase in the number of unique wallet addresses and TVL. This may change the narrative of DeFi to bullish.
High market cap projects may lead to the increase in demand and investment inflow proportionate to the interest of their users. The low market cap projects continue to face a correction when traders exit. The drop in altcoin market capitalization has a direct impact on DeFi users.
The diminishing altcoin market capitalization has had a direct impact on the investment inflow, the number of traders and the demand across exchanges. This is bullish for DeFi projects as the rising number of users and the metrics related to number of trades, wallets and users indicate a growing interest, investment, institutional investment inflow and growth in DeFi market capitalization.
With the rise in the number of DeFi projects, there is a surge interest from institutions. With the upcoming biggest smart contract event of the year, it is likely that DeFi projects like UNI, CAKE, SUSHI, AAVE that haven’t rallied in the past 2 weeks would rally following increasing demand and popularity, social media mentions.
When the average price chart of these projects is observed, and they are ranked in accordance to their ranking of growth in Active users, there is a strong correlation between users and market capitalization. AAVE, UNI, SUSHI have ranked the highest. Though ranking does not have a direct correlation with social volume and price, it has increased following drop in altcoin market capitalization. This builds a bullish case for DeFi in the following two weeks.
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Bitcoin Taproot upgrade finally achieves activation lock-in!
The much-anticipated Bitcoin Taproot upgrade passed the Speedy Trial, which was a signaling period which gauged support for the upgrade from bitcoin’s mining sector. Since SegWit, Taproot has been touted as the next significant upgrade for Bitcoin.
Data from Taproot.watch, a webpage created by Bitcoin developer Hampus Sjöberg, released an interesting yet hilarious video to announce the completion of the lock-in stage.
— Hampus Sjöberg 🥕🟩 (@hampus_s) June 12, 2021
On the official page, it read:
“This period has reached 1815 Taproot signaling blocks, which are required for lock-in.”
Different mining pools tweeted their support for the upgrade on their respective platforms with Slush Pool being the first to do so.
TAPROOT LOCKED IN AT BLOCK 687285 BY SLUSHPOOL 🟩 pic.twitter.com/FFDdibtmGt
— pourteaux (@pourteaux) June 12, 2021
AntPool also supported the upgrade.
“As of block 687284, Taproot signalling has reached 1815 blocks this period, guaranteeing that absent very deep reorgs, it is guaranteed to lock in. Following that, it will activate at block 709632, probably around mid-November 2021.”
He also addressed that ‘there is a lot of work left of course’, which included:
a) PSBT extensions to communicate Taproot keys/scripts/signatures,
b) MuSig2 standardization so the software can cooperate in signing,
c) Output descriptors,
Why is it so important?
“With this upgrade, you’ll see Bitcoin to be the settlement network. Funds are transferred from one institution to another, say one bank to another.”
“The update would lower the data size of smart contracts, in turn lowering transaction costs. Taproot is also expected to enhance smart contract functionality and efficiency.”
Jeremy Rubin, a Bitcoin Core contributor and founder of Judica projected a similar optimistic narrative,
“With taproot, you get optimization of Bitcoin, much different from how people know Bitcoin today- little too inefficient or reveal too much information about what you’re trying to do. Taproot helps to be private and efficient.”
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