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NYC Financial Regulator Tells Crypto Firms to Submit Coronavirus Emergency Plans

NYC Financial Regulator Tells Crypto Firms to Submit Coronavirus Emergency Plans

Published: March 18th, 2020

New York's Department of Financial Services (NYDFS) has told local crypto companies to submit detailed crisis plans for how they plan to manage the coronavirus outbreak.

The regulator laid out an exhaustive list of requirements in a letter on March 10, telling all local companies in the crypto space to explain how they will address the ‘operational and financial risks’ posed by the rapidly-spreading pandemic.

The NYDFS letter asks for details on how crypto firms will handle operational impacts, protect employees, communicate with customers during a period of disruption, the specific effects of the outbreak on their businesses, and other risks.

Part of the assessment is to consider the risk of fraud and cyberattack amidst any market confusion caused by the outbreak. The regulator expressed specific concern about heightened threat levels as cybercriminals seek to take advantage of COVID-19 and find new exploits.

NYDFS also warned firms to consider possible custody risks and measures to mitigate them, potentially moving digital currencies from cold to hot wallets, for example, through any period where the majority of staff are working outside the office.

Thirty-day deadline

Numbers from Built In NYC suggest at least 50 crypto firms are operating in the city. BitLicenses have been issued to 18 companies, including BitPay, Gemini, Ripple, Square and Coinsource, which allows them to deal with cryptocurrencies. It also puts them under the state regulatory jurisdiction of the NYDFS.

The threat of disrupted operations is undoubtedly real. Aside from any lack of oversight due to remote working, crypto markets have been walloped alongside traditional financial markets. US stock prices have collapsed in the last two weeks, hitting lows not seen in 30 years as the countries struggle to slow down the COVID-19 outbreak.

Bitcoin lost more than 40 per cent of its value in just two days last week, dropping from $9,000 to lows around $4,000.

Tech firms across the country are directing staff to work remotely and self-isolate. Major crypto events are being cancelled worldwide.

New York’s crypto sector hit hard by crisis

Every major blockchain event in New York has been cancelled through to May. Coindesk’s huge annual Consensus event in May will be all-digital this year, promising a ‘Television-like experience’ that attendees can take in safely from home. The company says current ticket holders should expect refunds within 60 days. The Ethereal Summit, sponsored by Ethereum production studio ConsenSys, will also be digital this year.

These moves have been driven by a state ban announced last week on all gatherings of more than 500 people. However, trade and sales event producers in every category have seen mass cancellations since February due to rapidly dropping attendance figures as people put travel plans on hold.

The fate of deposits required for venue hire, AV, catering and other services remains an unknown – along with sponsorship money provided by crypto firms using the events to promote their products and services.

Considered by many in the industry to be the most significant event in the crypto space, moving the annual Ethereal Summit to a digital format is a significant change that will impact sales, marketing and partnership activity well beyond Q2.

The event drew more than 4,000 attendees last year (down admittedly from the 8,500 who attended in 2018 at the height of the crypto bubble). Deals made at such events can be the source of millions in new revenue and account for the majority of a firms annual business growth.

ConsenSys also said it would hold a separate in-person event in Autumn, though firm plans are still in the works and dates haven’t been set.

New York’s Digital Asset Summit has also been postponed. Initially scheduled for 13 May, organisers have said they aren’t sure at this stage when the new dates will be.

Bitcoin crashes twice in two days

While the industry scales back on events and re-thinks sales and marketing strategies, Bitcoin’s price has been dropped remarkably this week, seeing swings from $9,000 to as low as $4,100.

Volatility is nothing new in the crypto industry, but consecutive big losses are relatively rare.

In this case, the crash of traditional financial markets appears to be the cause. US equities prices have suffered for the last two weeks, moving into a full bear market as major indices fell by 10 per cent or more.

The sell-off in traditional markets has had a knock-on effect, even impacting safe-haven assets like gold where values have also taken a hit.

Analysts point to recession fears and a sharp loss of investor confidence caused by government restrictions to slow the spread of the virus and the difficulty that financial authorities are having as they struggle to limit the economic impact of the outbreak.

Investors are losing confidence in every asset, so digital currencies like Bitcoin are effectively caught up in a tidal wave of negative sentiment.

Bitcoin futures exchange BitMEX said this week that $750 million in BTC trading positions had been liquidated when the price dropped.

Analysts believe that the price drop triggered the liquidations, creating a doom loop that led to further price losses.

In the wake of Bitcoin’s price rout, BitMEX may find itself under renewed pressure from politicians and regulators. The UK’s financial regulator recently pointed out that it was an unregulated entity operating in the Seychelles (a tax haven).

On March 13, just as Bitcoin prices were in free fall, BitMEX suffered an ‘operational outage’ lasting nearly half an hour. Bitcoin’s price fell to around $3,700 while exchange systems were down.

The company has since tweeted that the outage was caused by a hardware issue at its cloud provider, and posted a more detailed explanation on its company blog.