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The week in fintech: CFTC to look into ether flash crash

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The week in fintech: CFTC to look into ether flash crash

This weekly recap features updates on bank technology, payments, online lending and other news in the financial technology space. Send tips, ideas and chatter to rachel.stone@spglobal.com. For other recent fintech news, click here.

As investor interest in cryptocurrencies continues to grow, the industry has reportedly moved a step closer to receiving some clarity regarding regulations in the U.S.

The Commodity Futures Trading Commission has requested information from the trading platform of Coinbase, a cryptocurrency broker, about a flash crash in ether earlier this year, the Financial Times reported. As it stands, the Securities and Exchange Commission has been fairly open about how it views cryptocurrencies; the CFTC recently took action for the first time against activities in the virtual currency market.

On June 21, ether's price plummeted to as low as 10 cents from about $319 in less than 45 milliseconds. Ether is the digital token that powers ethereum, the world's second-largest blockchain. The flash crash was caused by a $12.5 million sell order for 39,300 ether, causing a sudden and brief shortage in buyers for the token, according to the FT. Prices returned to normal levels within 10 seconds.

Bernstein analyst Lisa Ellis believes the CFTC will be looking at whether Coinbase has the right controls, compliance and procedures in place to ensure orderly conduct among the members of the exchange. The commission has similar oversight over the Nasdaq and New York Stock Exchange. But unlike the Nasdaq and NYSE, cryptocurrency exchanges are often "extremely opaque," Ellis said in an interview.

"Often you have to say you want to convert your currency from bitcoin into dollars, and it's not transparent up front what the bid ask or what the fee structure is that you're going to be paying," she said.

Another cryptocurrency, called Monaco, rose by as much as 695% since May 17, the day its issuing company tweeted it would offer a Visa Inc.-branded payment card, Bloomberg News reported. But Monaco did not actually have a deal with the card company. It is working with a Visa-licensed issuer, Wirecard AG, but Visa is currently vetting Monaco, a spokeswoman told Bloomberg.

A relationship with a company like Visa or Mastercard Inc. provides potential cryptocurrency investors with a "perceived safe, reliable way" to convert the cryptocurrency back into fiat currency if the investor wishes, Bernstein's Ellis said. Users of a future Monaco card would not need to worry about converting their cryptocurrency holdings to fiat currencies when purchasing goods or services; it would be up to Monaco to pay merchants in the applicable currency.

"You want money to be widely usable," she said. "What gets all this interest and excitement around all these cryptocurrency systems is if there's some perceived liquidity, some way to get your money out of it, then you're going to attract a whole bunch of speculative money."

Ellis cautioned that cryptocurrencies should not be viewed as actual currency, however. She said it is a "pretty unanimously" and "broadly held" view that cryptocurrencies much more resemble commodities, like gold or silver.

Cryptocurrencies are becoming a part of mainstream conversations as big name executives continue to comment on the industry. On Oct. 3 Goldman Sachs Group Inc. CEO Lloyd Blankfein tweeted that he was "still thinking" about bitcoin.

"No conclusion — not endorsing/rejecting," he wrote. "Know that folks also were skeptical when paper money displaced gold."

Though its efforts are still in the early stages, Goldman is reportedly looking into setting up a bitcoin trading operation.

Insurtech startup Ensurem LLC announced this week that it secured about $12.3 million in investments from an affiliate of A-CAP, a New York City-based insurance holding company that specializes in life and health insurance and related services. Ensurem is a technology and digital marketing platform that tries to simplify buying insurance.

In other insurtech news, Pinnacol Assurance will launch a digital platform called Cake that makes it easier for small businesses to purchase workers' compensation policies without using an agent. Cake, which will start selling policies on Oct. 10, will make it easier for small businesses to get a quote.

Also this week, deVere Group launched deVere Investment, an investment app that will allow clients to buy structured notes, exchange-traded funds and mutual funds.

From Sept. 28 to Oct. 5, the SNL U.S. Financial Technology Index gained 2.05%.

S&P Global Market Intelligence released a fintech primer on four areas — digital lending, payments, blockchain and digital wealth management — of particular interest due to their rapid pace of growth, technological disruption, and regulatory and other risks. Click here to read the primer.