Katherine Wu was up until 3 a.m. Wednesday annotating Kik’s response to its complaint from the U.S. Securities and Exchange Commission (SEC).
“That’s what I do for fun,” she told CoinDesk later that morning.
And now Wu is once again employed to dig deep, into startups.
Revealed exclusively to CoinDesk, Wu has been named a principal at Notation Capital, a venture capital firm that invests across the technology sector, including parts of the crypto industry.
Founded by Nicholas Chirls and Alex Lines, Brooklyn, N.Y.-based Notation invests based on its teams’ areas of interest, which has included several blockchain-related investments, such as Filecoin, Livepeer and Bison Trails, to name a few. Notation is also known for investing in the very early stages of a company or project.
In a draft blog post shared with CoinDesk in advance, the company writes:
“We weren’t hiring for this role – and then we met Katherine. For anyone that’s been fortunate enough to spend some time with K-Wu, it’s clear within minutes that she has a unique talent to bring people together, ask the right questions, and then get shit done in a way that is very much her own.”
Last month, the firm hired crypto mining veteran Thomas Bailey. Wu makes it a team of four.
Down the rabbit hole
A graduate of the Cardozo School of Law in New York, Wu discovered crypto while studying to be a securities attorney.
“I fell into crypto first and then fell in love with the tech world later, which I feel like is the opposite of most people,” Wu said. “When I first got into crypto was when SAFT was starting to become a thing and ICOs were starting to become a thing.”
The legal questions raised by those token sales interested her first, but then she became more interested in the technology. “It was simply the most intellectually challenging topic I’d ever come across,” Wu said. “You’re constantly being questioned on every assumption you make.”
She was a member of the founding team at Messari, where she served as director of business development before leaving the crypto data firm in March.
While Wu will not be exclusively crypto-focused at Notation, she does expect to help the company source some of those deals. She’s reluctant to identify specific areas of the industry she’s on the lookout for.
“Because of how quickly the landscape changes and how quickly your assumption changes, it’s sometimes hard to hold onto one cool idea at a time and look at it on a long term horizon,” Wu said, concluding:
“It’s definitely really exciting for me to be given this role to write checks and support businesses if I really feel strongly about that.”
A small bank in New York City has started doing business with cryptocurrency firms, joining the very short list of U.S. financial institutions to embrace the sector.
Quontic Bank opened a checking account for a bitcoin ATM company a few weeks ago and is in the process of completing a contract to deliver banking services to another crypto startup. The bank wouldn’t name either client.
“We’re just taking steps so that when the regulatory environment becomes more crypto-friendly, we don’t have a lot of catching up to do,” said Quontic chief executive Steven Schnall, who acquired the bank in 2009. “We’re looking to diversify our product offering and our customer mix by entering into that field.”
While Schnall wouldn’t say how big he wants Quontic’s crypto business to be, he claimed the pending contract “could impact millions of Americans.”
Crypto-friendly banks are extremely rare, in part because of the extra work they have to do complying with know-your-customer (KYC) and anti-money laundering (AML) regulations.
“Banks and other financial institutions have to look out for any suspicious activity,” said Joshua Klayman, head of the blockchain and digital assets practice at law firm Linklaters. “If you have a startup that raised money doing an ICO and didn’t do proper KYC or AML, that bank doesn’t know who the proceeds are from.”
Like those institutions, Quontic is a relative pipsqueak in the banking industry. With $420 million in assets, it is only 0.015 percent the size of JPMorgan.
Yet Quontic stands out because its leaders caught the crypto bug early on.
Students of crypto
Schnall, a longtime mortgage lender, became interested in bitcoin when it was worth less than $1, bought his first bitcoin at $75 in 2013 and lost 500 BTC in the Mt Gox debacle.
Patrick Sells, now the bank’s chief innovation officer, said Schnall began to educate him on bitcoin the first few times they met, while Sells was doing mortgage lead generation for Quontic through his own firm.
To learn more about the mechanics of cryptocurrency, Schnall and Sells built an ethereum mining operation, independent from Quontic, in January 2018. (Schnall said he is now more bullish on bitcoin than any other cryptocurrency.)
The two executives even came close to launching their own cryptocurrency, also separate from the bank, called QCoin. They lined up $2.5 million for an initial coin offering (ICO) but called it off after the market crashed.
Undeterred by the ups and downs, the bankers said that they believe banking and crypto can have a symbiotic relationship and are exploring what steps toward that goal might look like under the U.S. regulatory framework.
The bankers helped educate their staff of 180 by giving them each $20 in bitcoin when the price of bitcoin was around $3,000, and they’re looking to hire employees with experience in cryptocurrency.
“We can teach them the banking side,” said Sells, vaping in a white v-neck and jeans at Quontic’s Manhattan headquarters. “It’s easier to do that than vice versa.”
While the bank wants to let cryptocurrency companies know that it’s open to banking them, Quontic said it has high standards for crypto customers.
When the bitcoin ATM network approached Quontic a year ago, the company was not prepared for the bank’s compliance vetting.
It didn’t have a disaster recovery plan, it was not properly tracking the currency transaction reports (CTRs) filed to regulators, and the company’s reporting was not up to Quontic’s standards.
After working closely with the bank for a year, the company opened an account at Quontic a few weeks ago.
To Schnall, such professionalism is necessary for crypto startups to be taken seriously.
“You don’t have mom-and-pop financial institutions. You’re not going to have mom-and-pop crypto players of any significance,” Schnall said. “Crypto companies have to have strong controls, internal audit, and a very robust system of compliance.”
Additionally, the juice has to be worth the squeeze for Quontic to bank a crypto firm.
“There must also be a strong strategic motivation for us as well – such as meaningful deposit balances, etc.” Schnall said. “‘Meaningful’ is relative to how complex, risk-laden and labor-intensive the account will be.”
Arrington XRP Capital-backed financial startup Nexo has unveiled a crypto card with a line of credit backed by the user’s crypto holdings.
Nexo partnered with an unnamed intermediary to issue the card, which offers a way for users to “spend the value of their crypto without actually spending it,” said firm partner Antoni Trenchev.
Unlike other crypto credit cards like TenX and Crypterium that convert cryptocurrencies to fiat for every transaction, Nexo collateralizes users’ crypto and supplies them with a fiat loan. Since its founding, the startup has extended more than $700 million in crypto-collateralized loans to over 200,000 clients. Now, the loans can be used to make purchases at merchants that accept MasterCard, through a co-branding.
After swiping, an oracle confirms the user has enough collateral to cover the purchase, instantaneously executes a loan, and settles the transaction in fiat. Trenchev claims the card’s issuer is licensed within the European Economic Area.
Through additional partnerships with intermediaries, Nexo aims to expand to the U.S. and Asia by the end of the year.
The cards are available independent of a client’s credit history, as the staked collateral reduces default risk. Likewise, interest rates are set between 8 and 24 percent APR based on the loan structure and local regulations.
Users can repay their loans in either crypto or fiat, though using Nexo’s token will reduce interest rates to 8 percent. Additionally, minimum payments will be eliminated if the value of bitcoin increases. This is because the credit line is “dynamic,” meaning as the value a client’s collateralized assets increases relative to the market, their fiat debts decrease.
In fact, crypto entrepreneur Brock Pierce mortgaged a house in Amsterdam through a $1.2 million line of credit through Nexo, and hasn’t made a single repayment due to the rising value of bitcoin since he took the loan, Trenchev said.
Conversely, if cryptocurrencies crash, users will either have to “deposit more crypto, pay a part of their loan to reduce exposure, or sell a portion of their collateral to restore the loan-to-value ratio,” Trenchev said.
The company complies with know-your-customer ustomer protocol, follows international sanctions, and has integrated with blockchain investigators Chainalysis to check if collateralized crypto has been ill-gotten, it says.
Nexo has previously paid out dividends of 30 percent on $3 million of profit made during its first 7 months in operation to token holders.
The Financial Intelligence Unit (FIU) of South Korea’s Financial Services Commission has revealed plans to bring cryptocurrency exchanges under its direct regulation.
On August 7, Business Korea reported on the FIU’s decision to shift away from its current practice of regulating crypto exchanges indirectly by providing administrative guidance to domestic banks.
A shift away from indirect regulation
In order to bring crypto exchanges into the country’s regulatory system, an FIU official revealed on Aug. 6 that the South Korean government will introduce a crypto exchange licensing system, as recommended by the Financial Action Task Force (FATF). This will reportedly enhance the transparency of cryptocurrency transactions.
At a public hearing held at the National Assembly Member’s Office in Seoul, Lee Tae-hoon — who serves as head of administration and planning at the FIU — stated:
“If an amendment to the Act on Reporting and Use of Certain Financial Transaction Information, which reflects the FATF’s international standards for cryptocurrencies, passes the National Assembly, it will be possible to prevent money laundering through cryptocurrencies.”
Lee added that should lawmakers approve the decision to shift away from “indirect regulation through commercial banks to direct regulation,” oversight of the sector would be more effective.
Commentators reportedly noted that regulatory amendments would need to integrate existing stipulations, which hold that banks must issue real-name accounts to crypto exchanges. This would ensure that crypto exchanges adhere to the same know-your-customer and anti-money-laundering standards as traditional financial institutions.
Impact of FATF guidance
This week’s news aligns with recent unofficial reports that four South Korean crypto exchanges were facing stricter regulation as they attempted to renew their banking accounts.
The tightened requirements were reportedly imposed in the wake of the FATF’s new June 2019 guidance for strengthening control over crypto exchanges in order to better combat money laundering.
Wednesday, July 31 — crypto markets are seeing widespread green, with Bitcoin (BTC) breaking back above $9,700 and many large market cap altcoins seeing solid gains of between 3 and 9% on the day.
Despite trading in a lower price range since dropping back to a four-figure price point in a recent corrections, BTC is today up a solid 2.4%, bringing it to $9,717 by press time.
This mild uptick nonetheless stops short of bringing the coin back into the green on its 7-day chart, where Bitcoin is still reporting a fractional 0.7% loss. On the month, losses are starker, topping 8%.
Yesterday, Peter Tchir — a former Executive Director at German multinational investment bank Deutsche Bank — argued that Bitcoin is an indicator of hidden geopolitical tensions, pointing to the coin’s momentous performance this May at a time of fraught trade talks between the United States and China.
Also this week, erstwhile Bitcoin bear and CNBC host Joe Kernen predicted that the top coin could hit $55,000 — a 500%+ price surge — by the time of its next halving in May 2020.
Top altcoin Ether (ETH) — which celebrated its fourth birthday yesterday — has posted a 1.9% to trade around $212 by press time. In corrections earlier this week, the coin had circled perilously close to the round $200 mark, but has since recovered ground and is just slightly in the red, at 2.2%, on its 7-day chart. On the month, however, Ether is down over 18%.
XRP is reporting a 2.7% gain on the day, while among the remaining top ten coins several alts are seeing stronger upward momentum: Bitcoin Cash (BCH) is posting a 7.5% gain on the day, Litecoin (LTC) is up 3.6% and Binance Coin (BNB) is up 4.1%.
In the context of top twenty coins, Tezos (XTZ) is outstripping all other assets, seeing a 24% gain on the day following news of the token’s listing on major United States crypto exchange Coinbase. At press time, XTZ is trading at $1.24
Still among the top twenty, strong gains are being reported by Chainlink (LINK) — up over 9% — as well as by NEO (NEO), IOTA (MIOTA) and Cosmos (ATOM), all of which are up by 4-5%.
Total market capitalization for all cryptocurrencies is at $261,434,827,781 at press time, according to Coin360 data.
Dominating the crypto headlines this week is the hearing devoted to examining regulatory frameworks for cryptocurrencies and blockchain held at the United States Senate Banking Committee. Cointelegraph reported live on the most important developments during the hearing as it unfolded.
Yesterday’s Committee hearing notably follows upon earlier hearings in mid-July that had examined the regulatory hurdles surrounding Facebook’s Libra.
The United States Committee on Banking, Housing and Urban Affairs has ended the hearing on “Examining Regulatory Frameworks for Digital Currencies and Blockchain” today, July 30.
Circle CEO Jeremy Allaire, Rebecca M. Nelson, a specialist in international trade and finance; and Mehrsa Baradaran, a professor of law at the University of California Irvine School of Law all testified before the committee.
Lawmakers want the U.S. to lead in blockchain
Senator Michael Crapo of Idaho began the hearing saying that cryptocurrencies and blockchain technology are inevitable and could be beneficial, further noting that the U.S. should establish itself as a global leader in this sector. Crapo concluded:
“I want the U.S. to stay at the forefront of this technology, which both has incredible potential and incredible risk.”
Sen. Catherine Marie Cortez Masto of Nevada said that she believes in the potential of blockchain, and the importance of leading in this technology over China.
Facebook’s Libra concerns many
For many lawmakers, the issue of crypto has now become synonymous with Facebook’s Librastablecoin. Sen. Sherrod Brown of Ohio pointed out that the social media giant has “proved over and over that they can not be trusted.” Brown stipulated that Facebook intends to undermine the U.S. dollar and payment systems, while hiding behind the phrase “innovation.”
Parrying Brown’s statement, Nelson said that Facebook could be a game changer for cryptocurrencies, however it has raised both regulatory and systemic concerns before it can be implemented. Nelson also stated that Facebook has changed the debate about cryptocurrencies.
Sen. Mark Warner of Virginia then asked about the literal meaning of the 1:1 backing of the Libra, wherein Allaire explained that while the first wave of these types of digital currencies were focused on establishing a global digital currency, the critical mainstream use cases for the financial services sector has needed the development of stable coins, with Libra as an example.
Allaire further noted the government’s restrictive stance towards crypto-related companies, which led them to be based overseas rather than in the U.S. Allaire said that it is necessary to regulate digital assets, however, Congress should define digital assets as a new asset class. Allair stated:
“Digital money will move frictionlessly, everywhere in the world, at the speed of the internet, hopefully with a high level of security and data protection.”
Today’s hearing is part of a recent trend of increased regulatory scrutiny toward cryptocurrencies in the U.S., following the hearings on Libra. Industry players thus tend to discuss an array of relevant issues such as identity, privacy, data security, domestic and international approaches to regulation, as well as the potential of blockchain and crypto solutions for finance in the near future.
OB1, the developers behind the online decentralized marketplace and currency trading platform OpenBazaar announced a mobile counterpart called Haven.
Haven allows users to buy and sell goods and services directly with each other, using cryptocurrencies, without relying on middlemen who take a cut of merchants’ transactions or gather shoppers’ data.
The app is organized into four sections: shopping, social, chat, and a non-custodial multi-wallet. For all features of the peer-to-peer network, user information is stored locally and protected with end-to-end encryption, meaning only the parties involved in the sale or conversation are able to see the details.
Since OB1 launched its 2.0 of OpenBazaar, 250,000 nodes joined the permissionless network. Jenn Cloud, OB1 communications lead, said “there is a core user base of several thousand who frequently use the software and many more are casual users.” A substantial proportion of the “long-lasting nodes” are merchants.
“We’ve heard many stories from merchants about finding OpenBazaar a refugee from the high fees, restrictive terms and conditions, and poor treatment of merchants on eBay and Amazon.”
The app has many of the same features as OpenBazaar, but does not support P2P cryptocurrency trading. Additionally, dispute moderation is only supported by the desktop client.
The social feature is new and enables users to easily communicate with each other. Importantly, it is “not connected to transactions or any other activities on the network and will never post anything automatically,” said Cloud.
Like OpenBazaar, Haven will support BTC, BCH, ZEC and LTC. The representative said plans for a previously reported native token, OBC, are currently on hold.
Looking forward, however the team plans to add Ethereum support. Also, though “no firm plans have been made by the OB1 team… several in the OpenBazaar community have begun work to see if it’s possible to support Monero,” said Cloud.
Haven is available in the Apple App Store and Google Play. This week, the company is offering special deals, such as fifty percent off select electronics and Haven store gift cards, posted in the app “at undisclosed times.”
OB1 has raised $9.25 million to date from investors including Union Square Ventures, Andreessen Horowitz, OMERS Ventures, BlueYard, Bitmain, Digital Currency Group, and venture capitalist William Mougayar.
While post offices sometimes offer banking services, Croatian Post is looking at launching a nationwide cryptocurrency exchange service.
For a pilot effort, Croatian Post, or Hrvatska Pošta, is now offering crypto-to-fiat exchanges in three post offices in the coastal town of Zadar – a place popular with tourists.
Hrvatska Pošta said Thursday that the trial run will allow it to gauge the market interest for such a service and, if successful, it may roll out crypto exchanges “in all major towns and tourist centers in Croatia.”
According to the announcement:
“Over the past few years, cryptocurrencies have developed more and more users, and Croatia will, with its network of 1,016 post offices, surely contribute to their popularity. Digitalization is one of the Croatian postal development strategies and a driver of numerous business projects. Entering the digital currency market, Croatia Post confirms its position as one of the leaders in digital transformation.”
The pilot – which allows users to convert cryptos into the Croatian national currency, the kuna (HRK) – comes via a collaboration with Croatian crypto brokerage and payments firm Electrocoin, which has been in operation for five years, Hrvatska Pošta said.
Cryptocurrency mining is now an official industrial activity in Iran after winning approval from the country’s cabinet.
In a session on Sunday, chaired by the country’s president, Hassan Rouhani, cabinet ministers endorsed the activity and said industry participants would need to seek the required licenses from the Ministry of Industry, Mine and Trade, the Mehr News Agency reports.
As CoinDesk reported last week, crypto mining had already being given approval by the Chamber of Commerce, Industries, Mines and Agriculture, a government economic commission.
On Sunday, the cabinet also said cryptocurrency users must accept the risks of the technology and that neither the government nor the banks would provide any guarantee.
Cryptocurrencies are still not allowed in domestic transactions, according to Mehr. Mined cryptos will be taxable under the country’s rules, unless the cryptocurrencies are exported and the revenues brought back to Iran.
The deputy minister energy for electricity and energy Homayun Haeri said recently that the government will also vote on a measure to approve an electricity rate for mining farms. Mehr’s report indicates that decision hasn’t yet been made.
Global crypto finance firm XBTO International (XBTOI) has gained legal status in Bermuda. XBTOI acquired a Bermuda Monetary Authority License under the island’s 2018 Digital Asset Business Act according to a statement.
Moving to Bermuda in April 2018, XBTOI is the third firm to receive a license from the regulator to date.
Per its domain, XBTOI operates on multiple finance fronts including over the counter desk trading, consulting, asset management, and VC work. The firm is looking to capitalize on the licensing with new product rollouts concerning digital asset solutions.
Solutions, it said, that were not available in other countries.
Commenting on the announcement, Chief Operating Officer Julien Auchecorne pointed out the importance of growing within Bermuda’s friendly regulatory environment:
“Our local commitment extends beyond our own office presence and working relationships with service providers on the island. We presently have a mandate to expand our office following our license obtention and remain committed to collaborating with all Bermudian stakeholders to explore how we can educate the island on the Digital Assets industry.”
XBTO first launched in 2015 under the name XBT, a play on the original bitcoin ticker symbol. The firm maintains offices in Paris and New York.
Smart Valor has secured a fresh $3.25 million round of investment, led by Venture Incubator, alongside Tally Capital and other Asian and U.S. investors.
With the news, the Zug-based startup is also announcing a new exchange operating from both Switzerland and Liechtenstein that will provide custody, trading and brokerage services. Initially, the exchange will offer BTC and ETH, each of which can trade against the fiat currencies CHF, EUR, GBP and USD.
Smart Valor CEO Olga Feldmeier told CoinDesk in an email:
“Today, Switzerland is the largest global wealth destination, home to a quarter of all global offshore wealth. For over 200 years this place stands for data privacy, safety and security, with an impeccable reputation and high-quality banking services. The same is true for Liechtenstein. But until today, ironically enough, neither Swiss Crypto Valley, nor Liechtenstein, had an exchange offering trading and custody of digital assets. Smart Valor is changing this, giving the privilege of stable, safe-haven jurisdiction not only to the rich, but to all.”
Smart Valor was approved as a regulated financial intermediary in Switzerland late last year. Venture Incubator is a joint initiative of ETH Zurich and consulting firm McKinsey & Company, and has backing from 10 of Switzerland’s most significant companies.
With the basic exchange now live, more tokens will be added monthly, with the goal of making it a leading exchange for security tokens backed by real-world assets, the company said in a press release.
“While hundreds of exchanges were created during the last several years, today there are just about a dozen which are legal, compliant, licensed and safe,” Smart Valor investor David Johnston said in a statement. “Switzerland, being at the top of the hierarchy of financially savvy but crypto-friendly jurisdictions, needs its own Coinbase.”
The exchange’s launch is accompanied by a campaign that gives initial users fee-free trading and brokerage services during the first three months. Not surprisingly, the full capacity of the early access program has been taken up by 5,000 users registered on the platform prior to today’s launch.
Feldmeier said in a release:
“This brings us a huge step forward to our vision of becoming the world’s first security token exchange for alternative investments.”
The cash-counting machines were softly buzzing in an office with floor-to-ceiling windows overlooking Moscow’s landmarks.
“Hear that sound?” asked the head of an over-the-counter (OTC) cryptocurrency trading desk — let’s call him ‘Oleg’ — who requested his real name and company be withheld. “You can hear it 24/7 in here.”
Business is brisk thanks to a constant flow of Chinese merchants who come in daily with heavy bags of cash. Oleg said his OTC desk sells about $3 million worth of crypto every day. Most of it usually goes to China. But what’s perhaps most surprising is which crypto.
Only 20 percent of Oleg’s sales are in bitcoin, the oldest cryptocurrency with the largest market capitalization. The other 80 percent is in the dollar-pegged token known as tether, or USDT.
Tether’s best-known application is allowing crypto traders to move money between exchanges quickly to take advantage of arbitrage opportunities. But according to several Moscow OTC traders, it has at least one real-world use case – as the go-to remittance service for local Chinese importers.
The total volume of USDT purchased by Chinese businesses can reach $10 million to $30 million daily, these traders said.
“They accumulate a lot of cash in Moscow and need tether to transfer it to China,” said Maya Shakhnazarova, head of OTC trading at Huobi Russia, the Moscow office serving high-roller clients of Singapore-based exchange Huobi Global.
It’s a simple process.
“A client comes with cash, we register the price at exchanges, when we agree on a price, we make a deal,” Shakhnazarova told CoinDesk. “The client hands over cash and a wallet address, the seller sends USDT to the wallet.”
Why tether? It has the usual advantages of crypto – no limits on how much money can be sent or where – without the volatility that makes most coins infeasible for moving millions across the border daily.
Despite longstanding questions about USDT’s purported dollar backing, exacerbated by the New York State Attorney General (NYAG) court case against the issuing company Tether, the stablecoin usually trades around $1.
The tether-for-rubles purchases often take place in offices like Huobi’s in the steel-and-glass skyscraper district of Moscow City.
“There are a lot of OTCs here in Moscow City, a bunch of offices in every building, and the volumes for them all can reach several dozens of millions of dollars a day. It’s all paid for in cash,” Shakhnazarova said.
Tether’s killer app
Chinese grey-market importers used to rely on bitcoin before the 2018 bear market, another OTC dealer, Roman Dobrynin, told CoinDesk. As the price was ever-growing, merchants and the intermediaries helping them buy crypto could make some extra money along the way.
But since the beginning of 2018, hoping that your bitcoin will still be worth the same or more at the end of the transfer became too risky.
“As the price was going down, tether became much more convenient to use,” said Dobrynin. “China is totally reliant on USDT, they trust in it a lot, plus it’s very liquid.” His own clients are mostly Chinese, and they usually find him by word of mouth, connecting via Telegram.
To buy or sell USDT for dollars from Tether itself, a trader must be verified through the company’s know-your-customer (KYC) process. However, since the token runs on top of public blockchain networks (bitcoin, ethereum and tron), anyone can receive or send it, and secondary trades are unrestricted.
Tether did not respond to requests for comment by press time.
Back in China, the merchants can exchange USDT for fiat easily, even though the People’s Bank of China banned fiat-to-crypto spot trading in September 2017, forcing the exchanges to move out of the country and limiting trading to crypto-to-crypto pairs.
Chinese traders who need to liquidate crypto assets into Chinese yuan can still go to an OTC market maker, such as those registered on exchanges like Huobi and OKEx, to get matched with buyers and send them crypto after receiving a wire transfer via a bank, AliPay or WeChat Pay.
Critics of Tether have long questioned whether the stablecoin was fully backed 1:1 with dollars, as the company long insisted. The NYAG case revealed that Tether had loaned a big chunk of its capital reserves to Bitfinex, an exchange with overlapping management and owners, leaving the coin only 74 percent collateralized by cash and equivalents.
None of this seems to faze the Moscow traders or their Chinese clients.
“Nobody actually cares if tether is backed or not,” says Konstantin Plavnik, chief operating officer of Moscow-based crypto derivatives exchange Xena. Confidence in Tether’s solvency relies on long-time habit and convenience: this market needs tether, so tether is trusted.
OTC traders also point out that USDT’s daily volume exceeds its supply in circulation several times over, which indicates that people turn the token around multiple times during the day. For example, according to CoinMarketCap, on July 29, the 24-hour volume of USDT was recorded at $17.5 billion, while the total supply was just around $4 billion.
The turnaround of tether is fast, so for the merchants using the token for remittances, whether it’s worth something or not matters only within one day. Large batches of USDT get transferred to China overnight and then exchanged for yuan, crypto entrepreneurs in Moscow told CoinDesk.
“USDT will stay propped by the power of habit and trust of its users,” said Vladislav Bulochnikov, the head of product at crypto wallet app provider Chatex. “Even if it loses half of its backing — it’ll still be out there.”
Skirting capital controls
Stepping back, the Chinese government maintains strict capital controls, limiting the amount of foreign currency anyone can buy or sell to $50,000 a year. People can apply for an additional quota, but still the amount of currency they can buy and sell will be limited. In this situation, some Chinese have opted to use crypto to move money across the border, Bloomberg reported in 2017.
The fact that Chinese merchants bringing cheap goods to Moscow’s shopping malls use crypto to move money around was all but officially recognized by the Russian authorities last year.
Several large malls in the city account for around $9.5 billion of unregulated cash flow monthly, and most of the merchants are from China, said Yuri Polupanov, the Bank of Russia’s head of financial monitoring and currency control, during an event hosted by Thomson Reuters in Moscow in April 2018.
These malls, located inside huge warehouses on the outskirts of Moscow, host multiple retail stands, selling mostly clothing, usually for cheap and for cash. They are shopping Meccas for people who can’t afford to spend much on their wardrobes and avoid even mass-market chain stores.
“We see most of the revenue turned into cryptocurrency, which is not reported in any way at the moment,” Polupanov said at the Thomson Reuters event, according to the RBK news agency. “We see simultaneous transfers of that cryptocurrency via email to the homeland of those merchants and producers, and the following exchange of it for the local currency there.”
According to a March 2019 report in the Russian newspaper Novaya Gazeta, cash would be received at places like a hotel called “Druzhba” (“Friendship” in Russian), located next to the shopping mall named “Moscow.” Then this cash would be swapped for crypto and sent to Hong Kong.
The wholesale trade offices at Druzhba could be turning around $10 million to $12 million daily, Novaya Gazeta’s sources estimated.
The operations were ceased for a short time after police raided the hotel, along with the malls mentioned by the Bank of Russia, in March of this year.
Small crypto desks are still functioning at those malls, OTC trader Dobrynin believes, though they likely don’t provide the volumes merchants need.
Outside traders are often afraid to go to those areas to make deals as things can get dangerous there, he said, explaining: