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On October 20, 2020, the amount of Bitcoin (BTC) held at major exchanges fell below 2.5 million BTC for the first time in two years.

Nexo co-founder Antoni Trenchev opined to Cointelegraph that this trend is driven by the world finally realizing that only Bitcoin offers sound monetary policy:

He also noted that the community is resorting more to self-custody solutions, including platforms like Nexo, where they can tax-efficiently borrow against their assets rather than selling them." Cointelegraph noted yesterday thatthe Bitcoin supply is currently diffused more than ever.

Alex Mashinsky, co-founder of the Celsius crypto lending platform, told Cointelegraph that the exodus will likely continue unless exchanges begin offering better terms to their customers:

From the chart above, we can see that this swing has not impacted all exchanges equally. While balances at BitMEX and Bitfinex were decimated, decreasing by more than half, Binance has continued to accumulate additional funds. Coinbases coffers have remained mostly unchanged as well.

The growth of DeFi may have also contributed to this trend. The amount of Bitcoin locked on Ethereum through wBTC and renBTC presently exceeds 130,000. Just a few months ago, these numbers were negligible. Another likely culprit is institutional adoption. Aside from the continuous growth of Grayscales Bitcoin Trust Fund, publicly-traded companies like MicroStrategy and Square began adding crypto assets to their treasuries.

It seems that there is either a general trend towards users withdrawing Bitcoin from custodial exchanges, or perhaps a few major exchanges are simply losing the trust of their customers. The latter may be a reasonable conclusion, as a mere three platforms (BitMEX, Huobi, and Bitfinex) were responsible for the bulk of the trend their balances decreased by 390,000 BTC, making them accountable for almost 80% of the total decline.

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For the first time since 2018 Bitcoin balances on exchanges fell below 2.5M - Cointelegraph

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Bitcoin blew past $12,000 to its highest price in two months, bringing into view the prospect of a fresh 2020 high.

The largest cryptocurrency was changing hands Wednesday around $12,200, within striking distance of the years high around $12,500. And that was even before the news emerged that electronic consumer payments giant PayPal had been granted aconditional New York state licensefor a partnership to buy and sell cryptocurrencies.

Coupled with a seemingly constant flow of reports of traditional funds and companies investing or allocating some of their balance sheet toBitcoin, we were due for a move up, Matt Blom, head of sales and trading for the publicly traded digital-asset firm Diginex, told subscribers in his daily newsletter.

Intraditional markets, European equity indexes were lower, U.S. stock futures fluctuated and 10-year Treasury yields rose on renewed speculation that lawmakers in Washington might still be moving toward a stimulus package. Gold rose 0.6% to $1,919 an ounce.

Market moves

While tether (USDT), with a market cap surpassing $16 billion, continues to hold the lions share of stablecoins in circulation, two smaller rivals are trouncing it in cryptos hottest market this year,decentralized finance(DeFi).

Measured by the total value locked in six of the most popular DeFi protocols Compound, Maker, Uniswap, Curve, Aave and Balancer USD coin (USDC) is in the lead among stablecoins followed by dai(DAI), the native stablecoin to MakerDAO. Thats according to data compiled by Flipside Crypto as of Oct. 19.

USDC and DAI have market caps of $2.74 billion and $608 million, respectively. Yet, unlike on centralized exchanges, where tether is the go-to stablecoin in dollar-based crypto trades, USDC and DAI seem to have found their niche as the preferred stablecoins in decentralized trades.

In an interview with CoinDesk, Jeremy Allaire, peer-to-peer payments company Circles co-founder, attributed USDCs success in DeFi to his companys early efforts in building relationships with the DeFi communities. The fact the two companies that co-founded USDCs governing Centre consortium, Circle and crypto exchange Coinbase, are both registered financial entities in the United States may also have something to do with USDCs recent upturn. According to Allaire, USDC is preferred by institutional investors for being safe, trusted and regulated.

Authorities around the globe are giving more direction on how cryptocurrencies should be used and regulated.In late September, for instance, the U.S. Office of the Comptroller of the Currency (OCC) published its first regulatory guidance for stablecoins, clarifying that national banks can provide services to stablecoin issuers in the U.S.

Having guidelines creates more certainty, which makes mainstream market participants ready and willing to engage in it, Allaire told CoinDesk.

Total value locked by day aggregated across Compound, Maker, Uniswap, Curve, Aave and Balancer for DAI, PAX, USDC and USDT.

Bitcoin watch

Bitcoin daily price chart.

Bitcoins price has jumped to two-month highs, and data from the options market shows traders are positioning for a continued rally.

The top cryptocurrency by market value rose to $12,303 early today the highest level since Aug. 18 and was last seen trading near $12,250, representing a 2% gain on the day.

The market sentiment has turned quite bullish, with firms like Square, Microstrategy and Stone Ridge disclosing their bitcoin holdings and bolstering the digital assets popularity as a store of value.

The momentum is certainly picking up with support from large corporations buying into the market, Wayne Chen, CEO, and director of Interlapse Technologies, told CoinDesk in a LinkedIn chat.

The move above $12,000 has exposed the August high of $12,476, above which significant resistance is seen directly at $13,880 (June 2019 high).

Options market data shows investors are expecting a continued price rally. Bitcoin is breaking out, and the options market is preparing for a bigger rally, Skews CEO Emmanuel Goh told CoinDesk in a Telegram chat.

The bullish mood is evident from the negative one-, three-, and six-month put-call skews, which measure the cost of puts relative to calls.

In other words, calls or bullish bets are drawing higher prices than puts or bearish bets a sign of investors positioning for a price rally.

Token watch

Ether (ETH):Validators of Ethereum blockchainsdrop off of test networkas more developers say theyre ready for first phase of 2.0 upgrade.

Compound (COMP):DeFi lenders governance token falls below $100 in sign thatsector might be cooling.

Bitcoin (BTC):In a case of the new economics, largestcryptocurrencys demand should increase as price goes up, while supply stays fixed,Bloomberg Intelligence analyst Mike McGlone writes:

Bitcoin's price and supply curve, charted versus total assets on central bank balance sheets.

What's hot

PayPal granted New Yorks first conditional BitLicense to offer crypto services. (CoinDesk)

Bahamas officially launches sand dollar central bank digital currency, first of its kind in the world to have been fully deployed. (CoinDesk)

BitMEX exchange accelerates mandatory ID verification after charges of lax anti-money-laundering controls. (CoinDesk)

Funding rates for bitcoin perpetual futures have stayed flat or turned negative as spot prices shot past $12K, suggesting futures traders arent as bullish in latest rally. (CoinDesk)

U.S. demurral on digital dollar deprives officials of crucial ability to rapidly and precisely disseminate stimulus funds directly to citizens during a recurring pandemic or lingering depression, attorneys argue. (CoinDesk)

Digital assets could become the next realm of shadow banking. (Roll Call)

In Q3, Binances spot trading hit an all time high a sign retail traders are prefering the exchange to its competitors. (The Block)

MicroStrategy CEO Michael Saylor says bitcoinmarkets data are garbage and that liquidity is far more limited than reported, based on his own experience; he says its tough to buy more than $35M of bitcoin without people knowing. (CoinDesk)

Mode Global, a London Stock Exchange-listed fintech company, plans to convert 10% of cash reserves into bitcoin to protect investors assets from currency debasement. (CoinDesk)

Crypto-friendly Signature Bank raked In $4B in deposits in Q3 2020. (CoinDesk)

Peer-to-peer bitcoin trading in North America now exceeds volumes during bull run of 2017. (Arcane Research)

North American weekly peer-to-peer trading volumes in bitcoin.

Analogs

The latest on the economy and traditional finance

As European Central Bank floods zone with stimulus, yields on 10-year government bonds from Greece, Italy are now under 1%, just like Germanys. (WSJ)

Commodities traders increasing bets that U.S. dollar will weaken versus euro. (WSJ)

China initial stock offerings booming as economy recovers, markets surge. (WSJ)

Global trade recovered somewhat in third quarter but remains about 4.5% lower than a year earlier, United Nations report shows. (Reuters)

Japanese equities rise on U.S. stimulus deal being reached before Presidential elections. (Reuters)

U.S. economy has lost 3.9M jobs since President Donald Trump took office. (Yahoo Finance)

Chart comparing U.S. presidents on jobs growth.

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First Mover: PayPal Rushes In and Bitcoin Breaches $12K, While USDC Gains on Tether - CoinDesk - CoinDesk

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We all know its illegal to kidnap someone and ask for a ransom payment. But should it also be illegal for the victim to pay the ransom?

Earlier this month the U.S. Treasury Department did just that. It notified the world that certain ransom payments are illegal, specifically those to sanctioned ransomware operators. Should a victim pay a ransom to a sanctioned entity, that person may face a big fine.

J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and a financial writer at a large Canadian bank. He runs the popular Moneyness blog.

Punishing ransom victims seems heartless. But it may be one of the best ways to protect the public from extortionists. And if it wants to make a serious dent in the growing ransomware market, the Treasury Department will have to go much further than putting a few entities on its sanctions list.

On Oct. 1, the U.S. Treasurys Office of Foreign Assets Control (OFAC) published a notice reminding everyone that several ransomware operators have been put on OFACs list of sanctioned entities, otherwise known as its Specially Designated Nationals (SDN) List. The agencys letter clarifies that should a victim make a ransom payment to an OFAC-sanctioned ransomware operator, that person could be breaking the law.

The ransomware wave

Ransomware is malicious software that blocks access to a computer system by encrypting data. Once the data is locked, the ransomware operator demands the victim pay a ransom in exchange for a decryption key.

The emergence of bitcoin, a digital, uncensorable asset, has made it particularly easy for ransomware operators to profit from their attacks. The earliest bitcoin ransomware strains targeted regular consumers with $300 or $400 ransoms. In 2019, operators like Sodinokibi, Netwalker and REvil began to move on to attacking corporations, municipal governments, school boards and hospitals.

The ransoms have gotten much larger. This summer, the University of Utah paid $457,059 in bitcoin for a decryption key. CWT, a travel company, paid $4.5 million to Ragnar Locker ransomware operators in July. The list of victims grows longer by the hour.

The damage involves more than just the ransom fee. Many organizations bravely refuse to give in to the ransomware operators demands. Rebuilding their network often costs more than the actual ransom payment. The crippled system will likely remain down for days, even weeks. The Government of Nunavut, a Canadian territory, couldnt serve citizens for almost a month after it refused to pay Dopplemayer ransomware operators.

A collective action problem

Societys response to ransomware is an example of a collective action problem. The public would be better off if everyone cooperated and refused to pay money to ransomware operators. With no incoming ransom income, the ransomware business would be unprofitable, attacks would cease and the collateral damage would stop.

Unfortunately, spontaneous cooperation between thousands of corporations, governments, and nonprofits is difficult to achieve. Any attempt to boycott ransom payments must rely on appeals to solidarity. But organizations will face pressure from shareholders or citizens to recover as quickly as possible, and so they will secretly pay. If 10% or 20% of victims defect from the boycott and pay the ransom, then the ransomware industry will be profitable and so everyone suffers as the blight continues.

Banning ransomware payments may not be the perfect option for stopping the growing ransomware wave, but it may be the best option weve got.

One way to fix the collective action problem is for the government to help push the public towards the best solution. The government can do this by declaring ransom payments illegal, and setting a penalty for rule breakers. The punishment for breaking the law would be a $20 million fine, or something like that.

Now when a ransomware operator attacks, all the victims cooperate by default. No, we cant pay you. If we do, well have to pay an even larger fee to the government. Ransom payments will stop, ransomware operators will cease their attacks and the damage ends.

The market for bribes as an analogy

Using the government to arrive at the best solution to a collective action problem isnt without precedent. Another type of shady payment, the payment of bribes, provides a useful analogy.

If companies must habitually bribe foreign government officials for contracts, then that drives up the costs of doing business. The public would be better off if everyone refused to pay a bribe. But cooperation is difficult.

Until the 1970s and 80s, foreign bribes were valid tax deductions in many countries. But efforts like the U.S.s Foreign Corrupt Practices Act of 1977 (FCAP) made it unlawful to bribe foreign government officials. Multinationals can now push back against bribery requests by pointing to FCAP. This helps push society arrive at the no-bribe solution.

The U.S. Treasurys recent clarification about the illegality of certain ransom payments only goes part of the way. It prohibits payments to a few bad actors, but there are many ransomware operators that do not appear on OFACs SDN list. To help solve the collective action problem, OFAC would have to be more proactive in designating ransomware operators.

Sussing out the names and identities of all the producers and distributors of ransomware seems like an impossible task, however. It would be much easier to declare a blanket ban on all ransomware payments, just as how FCAP bans bribery. Ransom bans arent without precedent. In response to a wave of kidnappings by organized crime, Italy prohibited ransom payments in 1991. Colombia and Switzerland have also made ransom payments illegal. The Group of Seven has a long-standing policy of refusing to pay ransoms for hostages of terrorist groups.

The knock against prohibiting either bribes or ransom payments is that it forces the market to become more opaque. If it is legal to make a bribe, then the bribe payer can report the bribe taker. This serves to limit the market for bribes. Ban bribes and the bribe payer is incentivized to cooperate with the bribe taker to keep things secret.

This is why Kaushik Basu, the former chief economist at the World Bank, has long advocated for legalizing bribe payments.

As for ransomware, victims who pay a ransom can report the attack to law enforcement agencies like the Federal Bureau of Investigation without fearing a fine. This allows the FBI to follow up. But if it is illegal to pay a ransom, then victims that choose to pay will keep their actions a secret. Lacking accurate data, the FBI will do a poorer job of defending against ransomware.

The other knock against banning ransomware payments is the perceived inhumanity of it. Try telling a mother or father that it is illegal for them to pay a ransom to free their kidnapped child. The same goes for ransomware. A school board that has been crippled by ransomware can immediately resume classes by paying a $20,000 bitcoin ransom. But under a prohibition, children may have to go a week or two without classes as the school board rebuilds its systems.

There are also civil liberties concerns. Businesses will argue that a ban on ransoms infringes on their ability to control their property.

Bitcoin isnt Green Dot

When extortionists find profitable ways to bilk the public, one way to fight them is to make changes to the underlying payments platform that the scammers are using. Internal Revenue Service scammers converged on Green Dot MoneyPak cards in the mid 2010s as a useful way to extort innocent Americans. The chosen solution wasnt to tell victims that paying ransom was illegal. Rather, Green Dot Bank pulled the product for a year and reprogrammed it. And it worked. Criminals have moved on from using MoneyPaks to do IRS scams.

Unlike MoneyPaks, bitcoin cant be reprogrammed. That leaves society with one less option for protecting itself from ransomware attacks. And so the no payment solution to the collective action problem beckons. Banning ransomware payments may not be the perfect option for stopping the growing ransomware wave, but it may be the best option weve got.

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Ban All Ransomware Payments, in Bitcoin or Otherwise - CoinDesk - CoinDesk

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