Comment by Animats | Hacker News Reader

Comment by Animats | Hacker News Reader

"As is typical of most bitcoin/fiat intermediaries when promoting their products, the new exchange is being touted as a first and a means to bring legitimacy to Bitcoin." - Qntra. We've heard that story many times before. Kraken makes similar claims. (Kraken uses the same address, 548 Market St, SF, as Coinbase. It's a mail-forwarding service. Few people know where either exchange really is.)

So what is this "licensed" thing? "Licensed" by whom? The US SEC? The State of New York? Some other state? FinCen.

There have been many exchanges registered with FinCen, the anti-money-laundering regulator, including Mt. Gox. That provides no investor protection. A few have been licensed as state money transmitters. That may provide some investor protection. Nobody as yet has been licensed as a broker, dealer, or exchange with the Securities and Exchange Commission, something every stockbroker and dealer in the US has to do.

Being licensed as a broker/dealer means SIPC insurance for investors up to $500K per customer, FINRA supervision (they fine a few brokers every month), outside audits, exams for personnel (even the people in a call center have to pass an exam, so they know what they can and can't do) and exams top management (yes, even top management at a brokerage has to pass an exam).

There are significant advantages for being a real broker/dealer. You can plug into the financial system at a higher level, and moving money around becomes much easier.

An existing broker/dealer could set up a market in Bitcoin if they wanted to. So far, no one has bothered.

When a Bitcoin exchange gets licensed by the SEC, let us know. Until then, it's just hype.

Edit: the article says they claim to be licensed in California. Here's the list of money transmitters licensed in California: http://www.dbo.ca.gov/Licensees/money_transmitters/money_tra... Not seeing Coinbase on the list. Silicon Valley names on the list include Google, Square, AirBnb, Xoom, Paypal, Intuit, etc. No Coinbase, or anything in SF that looks like it might be them.

Is there any significant difference between this exchange and the upcoming Winklevoss exchange?[1]

Both claim to be "regulated," but it doesn't look like the Winklevoss version will offer SIPC protections either.[2]

[1] http://dealbook.nytimes.com/2015/01/22/winklevoss-twins-aim-...

[2] http://www.sec.gov/Archives/edgar/data/1579346/0001193125132...

The Winklevoss Bitcoin Trust is not an exchange, it's an Exchange Traded Fund. Basically you can think of it as a shell company that exists solely to possess (approximately) 0.2 BTC per share; buying into it is _approximately_ equivalent to buying BTC (less the trust's expenses). It's no different in theory from precious-metal ETFs like GLD or PPLT, although I'd expect expenses to be lower since no precious metals need to actually be stored.

The operation of a trust like this is simplified by the fact that the Trust itself never buys bitcoins, and sells bitcoins only as necessary to pay the Trust's expenses. The day-to-day arbitrage that causes the price to track that of actual bitcoins is something that third parties do; they can exchange a certain number of bitcoins for a certain number of shares (and vice versa).

Anyway, it's a lot easier to run a trust like this than an actual exchange; you don't need to track lots of tiny transactions, allow every random person on the internet to open accounts, generate 1099-B forms, hold significant US dollar deposits, etc.

Heck, it doesn't even need a hot wallet; in that prospectus, exchanges of BTC for shares take three business days for settlement, which is more than enough time for a quorum of people to get their keys out of their respective bank safe deposit boxes around the country and sign a multi-signature settlement transaction offline.

The big advantage of this trust, though, is that once it is listed on a big stock exchange, you'll be able to go to any stock broker and buy an interest in bitcoin. Your accountant will be able to deal with the tax implications easily, since it's just a stock, and you'll even be able to do margin transactions through properly licensed and insured brokers. It'll take a lot of the infrastructure risk out of a bitcoin investment (although volatility risk will of course remain in full force).

Apparently they are launching both an ETF and an exchange("Gemeni")...

He was not talking about the ETF he was talking about Gemini, the actual exchange that the Winklevii recently announced.

Ah, the prospectus linked was for the ETF, and the other link was paywalled, so I assumed that was what he meant to refer to.

Note that the S-1 for Winklevoss Bitcoin Trust linked by the parent describes the forthcoming ETF and not the Gemini exchange.

I don't know the specifics, but this being a U.S. exchange, it needs to comply with a whole lot of regulations in order to deal with customer money. So, while I am not sure what exact level of protection it offers, whatever it is, it is higher than non US based exchanges, which should be a positive step for development of bitcoin

"whatever it is, it is higher than non US based exchanges".

Riiight, because nowhere except the US imposes financial regulations. Hey remember that time Europe existed?

What sets Coinbase apart right now is not what country they happen to be in, it's that they've sought extra levels of conformity with their local authorities. If Bitstamp were to register with the British Financial Conduct Authority for example, people would have a lot more confidence.

Lets not be so arrogant to imply that bitcoins future rests on the US market.

"Lets not be so arrogant to imply that bitcoins future rests on the US market" - first of all I never said this. Have you actually read what I said? I said this development is a net positive for bitcoin. Why? Because if you run afoul of US regulations, it's hard to deal with any banks that do business in the US.

IIRC it's possible to get a money transmitter "sublicense" (not sure if that's the right term) from another licensed money transmitter, which is perhaps what Coinbase is doing.

To the best of my knowledge, it's not. Instead they've hired Thomas P. Brown at Paul Hastings LLP/UC Berkeley as well as the former DFI Commissioner, Bill Haraf, to lobby on their behalf for forgiveness while they perpetually violate the California Money Transmission Act. Both have done quite well. Brown met with Robert Venchiarutti at DBO on October 25, 2013 at the very least, and also filed documents with the CA Office of Administrative Law, which he revoked when the DBO promised to be nice to him over the phone.

https://archive.org/stream/california-dbo-emails-ii/Producti...

For his part, Venchiarutti got his current job with the then-DFI 12 days after settling a legal malpractice claim in Los Angeles, which he lied about under oath in 2010. In the same deposition where he lied about having been sued, he also admitted to having no qualifications at all for his work.

https://archive.org/details/robert-venchiarutti-letter

This is the guy responsible for letting money disappear at Mt. Gox (via Dwolla, with a San Francisco office) and most recently Xoom, where $31 million vanished overnight. But don't worry, his assistant Julio Prada literally has a blood pressure cuff in his office for when he gets too stressed and angry. (We know this because a former DFI employee sued them both.)

Just can't make this stuff up.

SIPC doesn't insure all types of investments, I'm not sure if BTC would qualify. And if it doesn't qualify cash intended to purchase BTC probably wouldn't be insured either.

It was decided in the Shavers case that Bitcoin is a "security" or "investment contract" for regulatory purposes. The SIPC insures securities, including investment contracts, and cash you have with a US regulated broker, up to their limits of $500K securities/$250K cash. They don't do commodities. The SIPC successfully unwound Lehman Brothers, Madoff, and MF Global, and everybody got their money back up to the SIPC limits. Dealing with a failed Bitcoin exchange would be a small job.

The SIPC is good at finding and getting back assets that somehow wandered off. See "http://www.madofftrustee.com/". Some insiders who thought they'd gotten away with big gains from Madoff funds had them "clawed back" by the litigation trustee. Billions of dollars were clawed back.

Madoff himself is Federal Prisoner #61727-054, in a cell at Butner Federal Correctional Institution, scheduled for release in 2139. That's what should be happening to heads of Bitcoin exchanges where the assets just "disappeared".

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