CBOE CEO Reveals What is Keeping Out Wall Street’s Billions From Cryptocurrency Market?

During the conference at a media luncheon on Jan 16, 2019, Ed Tilly, CEO of CBOE (Chicago Board Options Exchange) indicated what is hindering the Growth of Bitcoin Futures and keeping the Wall Street money out of the cryptocurrency market. According to him, Electronic Traded Notes (ETNs) is keeping out wall street’s billions.

Why ETNs are must for the success of Bitcoin Future?

Since Electronic Traded Notes can be denominated in smaller amounts, retail investors can easily access them. On the other hand, an institutional investor who would use Bitcoin futures needs to have a separate account set up to enter into the market. Tilly conveys the importance of ETN as the entry point for institutional investors. He says;

“The power of having that future there is also having an ETN that is more attractive to retail, and then institutions can lay off risk on the listed futures market”,

He asserted that both the products are critical to each other – it becomes a base for both market, wall street and main street. Nevertheless, he sees ETN is easily accessible to average investors and doesn’t have a higher barrier to enter into the market, whereas, Bitcoin futures would demand ‘significant amount of legwork’.

Absent that leg and introducing trackers or notes, I think we will be in this, ‘It trades every day, but it is not the story.

Govt. shutdown delaying the launch of Cryptocurrency products

He says that the regulators are always reluctant to approve ETNs and in tenure of a government closure, it is even more difficult to predict the launch of new products like Ether futures. Moreover, Coingape reported SEC’s latest order on freezing all pending proceeding doesn’t necessarily change the status of Bitcoin ETF Approval. Tilly says that ‘we cannot move for future products;

“I have two regulators that are not taking calls right now, that doesn’t mean there is nothing we are interested in. It means nothing is going to happen in this government shutdown.”

Furthermore, as far as the ETF’s are tied with the regulators, they’re left with a difficult question. With this he says;

“How do I protect the US customer from manipulation in a market that I don’t regulate?. You answer that question, you get your first ETN.”


Regulators are Still Uncertain on Cryptocurrency regulations

The launch of first CBOE’s bitcoin futures in 2017 when the Bitcoin prices reached nearly $20000 was a historical entry and the open interest for the future counts 5306 contracts. However, after a year, the number of open interest declined to 3420 contracts. With this, Tilly also talks about the success behind CBOE’s Volatility Index (VIX) futures which significantly has 370,354 contracts in open network on Thursday, 17th Jan 2019. Consequently, he adds that there are a number of financial products in connection with the VIX contract.

“Why is VIX successful? Really calls upon the pool of liquidity in the S&P 500. Oh, and there is an institutional futures contract that is traded at the CME. There is a most successful ETF, SPDR. There are trackers and replicating notes that lever up that exposure. All of that works together.”

While appreciating VIX’s contract, he adds that the crypto market has also tried offering new financial products to the market but regulators are uncertain to approve. Tilly link the growth of bitcoin with the approval of ETFs by regulators however, we have seen SEC in the month of August 2018 has already rejected 9 ETFs including Winklevoss Bitcoin Trust.

Seems like Govt. shutdown is affecting the crypto market and product launches are getting delayed. Further, the rumors that Trump might call for an emergency situation if true is not a very good sign for the cryptocurrency market. 


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Author: Tabassum
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Days Could be Numbered for SEC Role in Crypto

A new law is under consideration that, if becomes legislation, could see the SEC’s role in cryptocurrency regulation come to an end.

The bill set to be introduced, the Token Taxonomy Act, has been formulated by pro-crypto Republican Warren Davidson and Florida Democrat Darren Soto.

The main point of conflict with the industry is the labeling of certain cryptocurrencies as securities and not as assets, particularly after SEC Chairman Jay Clayton‘s declaration earlier this year that cryptocurrencies and ICOs would be classed as securities by the US financial regulator.

Clayton’s comments were made despite SEC William Hinman commenting in June that both Bitcoin and Ethereum were not securities because their platforms don’t have a controlling body. Davidson commented on the plans to introduce the new bill; one that could potentially remove SEC from the picture, a fact that would be a great Christmas present for many cryptocurrency investors around the US:

“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space.”

The Republican crypto trailblazer went on the point out that such as change would have the effect stabilizing the industry and adding further much-needed clarification to investors, many still hanging on decisions to be made by the SEC regarding ICOs and EFTs. He added that a law such as this would ensure that “securities laws would not apply to cryptocurrencies once they become a fully functioning network”.

Last week SEC Senior Adviser for Digital Assets and Innovation Valerie A Szczepanik indicated that in certain circumstances, ICOs may be able to avoid registration requirements.

Speaking in New York at a gathering hosted by the Wall Street Blockchain Alliance, the SEC official has suggested that in certain cases an application doesn’t fit SEC law or regulation “but that it perfectly fits the spirit accomplishing all the goals of investors protection”.


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Author: Harold Vandelay
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SEC Slaps $50,000 Fine on Delaware-Based Crypto Investment Fund

On December 7, 2018, the United States Securities and Exchange Commission (SEC) issued a cease and desist order and a penalty of $50,000 against Delaware-based crypto assets fund firm CoinAlpha Advisors LLC.

SEC Hits Crypto Fund for Violating Securities Law  

According to the filing published on the commission’s website, the SEC charged CoinAlpha Advisors LLC for acting as an unregistered securities dealer. Additionally, the filing highlights that the accused company violated SEC laws by offering securities through interstate commerce.

Reportedly, CoinAlpha LLC was established in July 2017 to act as manager of the investment fund dubbed CoinAlpha Flacon LP. The fund was launched in October 2017 with the sole purpose of investing in digital assets.

From October 2017 to May 2018, the investment fund managed to raise over $600,000 from twenty-two investors spread across multiple U.S. states. As part of the investment, investors gained limited partnership interest in the crypto-focused investment fund. The SEC filing states:

“Through this offering, the investors purchased limited partnership interests in the Fund in exchange for a pro rata share of any profits derived from the Fund’s investment in digital assets.”

The order notes that CoinAlpha filed for a “Notice of Exempt Offering of Securities” a month after it was set up. However, the request for exemption was turned down by the securities regulator citing that the firm was not eligible for such an indemnity.

Additionally, the agency pointed out a number of irregularities in the CoinAlpha’s know-your-customer (KYC) system. The SEC states that the investment fund failed to ensure the status of the accreditation status of its investors.

CoinAlpha Cooperates with the SEC

Notably, CoinAlpha agreed to halt its offering after being contacted by the securities regulator in October 2018. Furthermore, the Delaware-based fund cooperated with SEC to get its website, offering strategy materials, and social media posts audited.

The commission reached an agreement with CoinAlpha by imposing a $50,000 fine and instructing the firm to reimburse all its investors, to which the company has agreed. The filing read:

“Respondent further voluntarily reimbursed all fees it had already collected, surrendered all rights to future management and incentive fees, unwound the Fund, and made payments to ensure that no Fund investor suffered a loss. During the Commission staff’s investigation, Respondent retained a third party who determined that all 22 investors were accredited investors.”

Recently, the SEC has been aggressively pursuing crypto-related firms and individuals. Just a week back, the commission fined American professional boxer Floyd Mayweather Jr. and music producer DJ Khaled for illegally promoting crypto projects. Both celebrities paid a combined penalty of over $750,000.


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Author: Pratik Makadiya
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SEC Postpones VanEck Bitcoin ETF Decision Until February

The Securities and Exchange Commission has extended the deadline to make a decision on VanEck’s bitcoin ETF (exchange traded fund) application. Due to the bearish attitude of digital asset market, the delay was largely estimated. The decision is postponed until February 27, 2019.

SEC has declared the delay in an announcement stating, “The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change.” Notably, the original proposal was submitted on July 2, 2018.

Before the announcement, VanEck’s director of digital asset strategy, Gabor Gurbacs seemed confident about SEC’s approval of the investment firm’s bitcoin ETF application. He believed that the approval for the same was around the corner.

Gurbacs said that it is reasonably certain that America wants a bitcoin ETF. He added, “We think that we’ve met all market structure obstacles and requirements on pricing, custody, valuation, and safekeeping, so we are cautiously optimistic.”

The SEC has a very strict approach so far, reasonably. Reportedly, in August 2018, the SEC rejected nine applications of Bitcoin ETF, noting the applicants’ inability to demonstrate how they could prevent fraud and market manipulation. Infect, in the past, SEC declined applications from the Winklevoss twins, Tyler and Cameron for bitcoin ETF. Even after the rejection, the Winklevoss twins remain optimistic about the application.

While most crypto space is skeptical about bitcoin ETF, Larry Fink, the CEO of BlackRock has expressed his views in this. He said that the firm would not launch a bitcoin exchange-traded fund until crypto becomes “legitimate.” He stated, “I wouldn’t say never — when it’s legitimate, yes.”

Fink added “It will ultimately have to be backed by a government. I don’t sense that any government will allow that unless they have a sense of where that money’s going.”

Because of its decentralized nature, Fink said that he is concerned about the possibility of scams, money-laundering, and tax evasion, considering the fact that crypto market is anonymous and largely unregulated.


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Author: Ruti Vora
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No Bitcoin ETF Before Important Changes to BTC Markets: SEC Chairman

SEC Chairman Jay Clayton has claimed that bitcoin exchanges lack sufficient transparency and monitoring for the market to see approved Bitcoin Exchange Traded Funds (ETFs).

According to CNBC, at the Consensus Invest Conference in New York City recently, Clayton said:

What investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation. It’s an issue that needs to be addressed before I would be comfortable.

Clayton primarily feels that a Bitcoin ETF would be too easily manipulated and that not enough safeguards are in place to prevent as much. This goes in line with ongoing actions and investigations by the federal government into Tether and Bitfinex, where they may ultimately allege that Tether was used to manipulate the moving price of Bitcoin as a whole.

Overall, the Bitcoin market is too nascent to have the sort of tools that the SEC would like to see at the disposal of its exchanges in order to approve an ETC, which would essentially be a method of investing in the entire Bitcoin market without holding Bitcoin. After the Winklevii were denied their application for an ETF, they enlisted the help of Nasdaq to use its monitoring software on their own exchange.

In the distant future, there could be several Bitcoin ETFs, but for now there won’t be any. The push toward regulated exchanges and regulated tools within them (the recent resurgence of itBit and the rise of its Paxos Standard being a good indicator in this direction) will need to be much further along before the regulator can safely say that the market isn’t vulnerable to mass manipulation.

The other issue is safe custodians of Bitcoin, which are seen as lacking as well. There are only a few actually regulated custodians on the market. Coinbase’s recent launch of Coinbase Custody is an example, and itBit has always been highly respected for its regulatory approvals. Clayton attributed his further unease to Bitcoin heists past and present:

We’ve seen some thefts around digital assets that make you scratch your head. We care that the assets underlying that ETF have good custody, and that they’re not going to disappear.

In short, Bitcoin markets have a ways to go before the SEC is going to allow anyone to offer a Bitcoin ETF. People are still legally allowed to buy and hold Bitcoin on their own, of course, but the prospect of trading against the whole Bitcoin market or simply adding Bitcoin to one’s portfolio is a ways off. There is still currently the option of the Bitcoin Investment Trust (GBTC), which entitles holders to a small amount of Bitcoin per share.


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Author:  P. H. Madore
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Floyd Mayweather and DJ Khaled Fined for Promoting Possibly Fraudulent Cryptocurrency

Floyd Mayweather and DJ Khaled are paying up after promoting initial coin offerings of new cryptocurrencies without revealing to investors that they were being paid for their trouble.

 

The Securities and Exchange Commission made Khaled and Mayweather the first people to be charged with ICO violations. Both the record producer and the semi-retired boxer touted the benefits of Centra Tech Inc.’s cryptocurrency ahead of its first public offering on their social media without sharing that they were paid by the company to do so.

“Get yours before they sell out, I got mine,” Mayweather wrote of the coins on his Twitter.

Khaled called the cryptocurrency a “game changer” ahead of its offering. Khaled and Mayweather were paid $50,000 and $100,000 respectively. In addition to that, Mayweather drew the ire of the SEC for failing to disclose another $200,000 in promotional payments from 2 more ICOs.

Khaled and Mayweather agreed to a settlement where they neither admitted nor denied the findings of the SEC. As part of the settlement, Mayweather will pay $300,000 in disgorgement, a $300,000 penalty and $14,775 in interest. Khaled will have to pay $50,000 in disgorgement, a $100,000 penalty and $2,725 in interest.

Centra is in further trouble that goes beyond their spokespeople being fined. The SEC and the Justice Department have filed civil and criminal charges against the company, alleging that the ICO promoted by the stars was entirely fraudulent. The founders of Centra are currently facing charges for “making false claims about their product and about relationships they had with credible financial institutions” and going so far as to create “a fictitious Centra Tech CEO,” according to a DOJ press release.


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Author: ALEX GALBRAITH
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SEC Commissioner Peirce: ETF “Definitely Possible”

In a podcast aired on 24 November, SEC commissioner Hester Peirce has commented that the launch of a future cryptocurrency ETF is “definitely possible”.

Her comments could signal a change in the SEC’s stance on ETFs which until now have failed to get through the regulator’s screening process.

However, the comments by Peirce are her own, as she makes clear in the podcast, and not necessarily those of the SEC as a whole. Nonetheless, the commissioner has pointed out that she sees “significant intellectual capital” being invested by both institutional investors and exchanges towards the development of a Bitcoin ETF.

It is worth noting that Peirce represents one-fifth of the SEC’s regulatory body in terms of managing the entire regulatory landscape environment for security investments in the United States, so her views carry significant weight in terms of being a mouthpiece for the government body.

Peirce is perhaps better known for her criticism of how the SEC handled the Winklevoss twins’ rejected application for an ETF in July of this year. At the time, she commented:

“I think that one of the reasons is that in the past, with other applications for commodities – you might think of metals – [the SEC] also looked at the underlying markets. I would argue that this also was not the right approach at looking at those. Of course, that was well before my time here. But, in addition, I think that there is concern around new technologies, and I think some of that is reflected in the disapproval order.”

She added that she felt that the SEC in general treats innovation with caution, feeling that the body maintains it is safer to simply “put the brakes on” than to approve ETF applications. The commissioner suggests that the SEC needed to figure out a way of being less cautious and letting “innovation go forward” rather than being concerned about criticism if projects fail.

The ETF debate is a topical one at present, particularly with Bitcoin struggling to find any stability in the market, and along with the adoption of cryptocurrencies by institutional investors, the approval of ETFs is now being seen as the industry’s saving grace.


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Author: Harold Vandelay
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U.S. Trader Fined $1.1 Million and Sentenced to 15 Months for Commiting Bitcoin Fraud

According to a report by Bloomberg, published November 13, 2018, U.S. resident named Joseph Kim has been fined $1.1 million and sentenced to 15 months in prison for orchestrating fraudulent schemes related to bitcoin (BTC), and litecoin (LTC), thus duping his employer and several other customers of their money.

Illegal Transfers and Fund Misappropriation
In 2017, the U.S. Commodity Futures Trading Commission (CFTC) found out that Kim had transferred $601,000 worth of bitcoin and litecoin from his employer’s cryptocurrency exchange wallet to his wallet.

The misappropriation of funds was done sometime between September and November 2017, when Kim used to work for a Chicago based trading firm.
Later, Kim was interrogated by the firm’s officials regarding the illegal transfers. However, at the time, Kim falsely claimed that he moved the digital currencies because of the platform’s security concerns. Subsequently, the company discovered the illegal transfer of funds in November 2017, after which Kim was fired.

In an attempt to better his sorry situation, Kim started to solicit funds from individual investors stating that he had left his previous job to start his trading venture. Kim boasted about his “low-risk virtual currency arbitrage strategy,” and was able to hit the right chord with some investors.

Finally, Kim was successful in accumulating close to $45,000 from five investors who he had tricked into the fraudulent scheme. The investors entrusted Kim with their money for good investments in the cryptocurrency market.
Much to Kim’s misfortune, he lost all $45,000 as a result of poor trading decisions. To hide the losses, Kim even managed to forge the account statements sent periodically to investors to show them profits.

However, luck ran out for Kim when he got slapped with $1,146,000 fine by the U.S. CFTC. Also, the CFTC also permanently banned Kim from participating in crypto trading, and from soliciting funds.

Regarding the dramatic turn of events leading to Kim’s arrest, director of enforcement at the CFTC, James McDonald stated:

“Today’s Order stands as yet another in the string of cases showing the CFTC’s commitment to actively police the virtual currency markets and protect the public interest.”

U.S. SEC Having a Busy Time
Keeping a vigilant eye over the players in the crypto industry has been a tough cookie to crack for regulatory bodies the world over.
BTCManager reported on November 8, 2018, how the U.S. SEC penalized EtherDelta founder for failing to register cryptocurrency exchange despite offering the buying and selling of security-like assets on a secondary market.


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Author: Aisshwarya Tiwari
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Tokens Continue to Take a Hit: is SEC Preparing to Target Crypto Projects?

The price of Bitcoin has dropped by 10 percent over the last 24 hours following a severe sell-off. Yet, several low market cap crypto and tokens have plunged by twice that amount, posting losses in the range of 20 percent.

ERC20 tokens launched on top of the Ethereum blockchain network have performed especially poorly against both Bitcoin and the US dollar over the past several days.

Waltonchain, Lisk, ICON, Ontology, Golem, VeChain, WanChain, and many other tokens backed by active developer and investor communities declined substantially in the last week. Even Basic Attention Token (BAT) and 0x (ZRX), which experienced strong short-term upward movements prior to the Coinbase listing, dropped by more than 36 percent.

Is the US Going After ICO Projects?

The listing of BAT and ZRX by Coinbase confirmed that the two tokens are not considered securities under existing regulations set forth by local financial authorities in the US. Coinbase was cautious in listing tokens on its platform because in an event wherein the tokens listed by the exchange are identified as securities, Coinbase could be targeted by the US Securities and Exchange Commission (SEC) for the distribution of unregistered securities.

It is possible, as government enforcement defense and securities litigation attorney at Kobre & Kim, Jake Chervinsky, said, the SEC is preparing to take down many cryptocurrency exchanges and initial coin offering (ICO) projects, with many pending cases in the hands of the commission.

“Most enforcement actions are kept confidential until they’re resolved to protect both the defendant (from bad press) & the government (from losses & inconsistencies). That’s why this case was settled before it was announced. On that point, remember all those subpoenas the SEC sent out earlier this year? Just because you haven’t heard about them recently doesn’t mean there aren’t dozens of investigations going on behind the scenes. Sooner or later, the floodgates will open,” Chervinsky said.

In an official announcement, the SEC disclosed that EtherDelta co-founder Zachary Coburn agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty, showing that the case was settled between Coburn and the SEC prior to the release of the statement.

At the Investment Adviser Association conference in Washington, D.C., Stephanie Avakian, co-director of the SEC’s Enforcement Division, confirmed that dozens of investigations into ICOs are underway and expects to see more in the future.

“We are very active, and I would just expect to see more and more,” she said, according to Bloomberg.

ICO Projects on Thin Ice

In the upcoming months, the cryptocurrency space is expected to see several pending cases against cryptocurrency exchanges and ICOs brought up by the SEC. The regulatory uncertainty in the ICO market surrounding tokens could lead to a decline in confidence from investors towards small market cap cryptocurrencies.

EtherDelta co-founder Zachary Coburn and the exchange were charged with the distribution of unregistered securities, which suggests that the SEC has cooperated with Coburn to understand the nature of several, if not dozens, of tokens considered securities under US regulations.

The drop in confidence from investors and the market could lead to a bleed out for tokens until the SEC provides a clear guideline to provide clarity in the space.


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Author:  Joseph Young
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SEC Report: Reducing Cryptocurrency Scams Among Their Top Priorities

In the U.S. Securities and Exchange Commission’s (SEC) latest annual report, the regulatory authority explained that reducing the number of cryptocurrency-related scams is currently among their top priorities. The report specifically cites initial coin offerings (ICOs) as one such sector of the industry that they are focusing on.

The report comes amidst an exponential increase in crypto-related scams that has resulted from increased public interest and the complex nature of the industry that leads many neophyte investors to fall prey to savvy scams.

Cryptocurrency, DLT, and ICO Markets Their Primary Focuses

In a section of the report titled “Focus on the Main Street Investor,” the agency explains that their main goal is to protect traditional retail investors from falling prey to complex scams that specifically target their lack of technological knowledge.

Naturally, the cryptocurrency industry is one such industry that has a problem with scams due to its unregulated nature, and the SEC states that they are launching multiple initiatives with partner agencies to reduce fraud in the crypto and DLT sectors.

“Additionally, in partnership with the Division’s Cyber Unit and Microcap Fraud Task Force, as well as the Division of Corporation Finance’s Digital Asset Working Group, the RSTF has launched a lead-generation and referral initiative involving trading suspensions related to companies that purport to be in the cryptocurrency and distributed ledger technology space.”

With regards to ICO-related regulation, they explain that in 2018 alone they have already brought 20 stand-alone cases against ICO companies that have been accused of legal misconduct and/or misleading investors.

“Since the formation of the Cyber Unit at the end of FY 2017, the Division’s focus on cyber-related misconduct has steadily increased. In FY 2018, the Commission brought 20 stand alone cases, including those cases involving ICOs and digital assets. At the end of the fiscal year, the Division had more than 225 cyber-related investigations ongoing.”

As for their strategy to reduce fraud and misconduct in the nascent markets, they say that they have focused on increasing the public’s alertness to the amount of fraud, prosecuting cases to the full extent of the law, requiring that issuers have the proper broker-dealer licensing to offer tokens, and by holding platforms accountable for the quality of the tokens being offered.

Despite the SEC being keen on reducing fraud, they have yet to lay out a formal regulatory framework that focuses specifically on cryptocurrencies and ICOs, rather than using existing laws that are geared towards traditional investments.

Thailand’s main regulatory agency (also called the SEC) is one example of an agency that is regulating the markets through the use of specific frameworks that are designed to help the markets progress while still reducing fraud and misconduct.

The Thai SEC states that, with regard to ICOs, funding must be done through approved venues and that token issuers must receive licensing from the government:

“ICO fundraising needs to be done through an ICO portal approved by the SEC. The ICO acceptance criteria may include due diligence and screening of funders from dishonest people. The source code of the smart contract will automatically be enforced against the contract. After the sale, the SEC publishes a copy of the statement on the SEC website.”

There are currently no signs as to whether or not the U.S. SEC will eventually release a similar framework that is designed specifically with cryptocurrencies and token offerings in mind, but until then it is likely that accusations of fraud and misconduct will continue growing.


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Author: COLE PETERSEN
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