XRP Isn’t A Security, Declares Former CFTC Chairman
https://preview.redd.it/8yehv8lzsce51.jpg?width=960&format=pjpg&auto=webp&s=69f0a6eb4973a5a9974e42d15709434719a26a81 When Chris Giancarlo was the chairman of the Commodity Futures Trading Commission he became a rock-star of sorts in certain corners of the cryptocurrency community, helping establish criteria that eventually led to bitcoin and ethereum being declared commodities, more like coffee or sugar than stock in a company. The U.S. Securities and Exchange Commission largely followed suit, eventually also declaring that bitcoin and ether, the cryptocurrency powering the ethereum blockchain weren’t securities. Now chairman emeritus Giancarlo, who was deemed “Crypto Dad” following an impassioned speech he gave to Congress where he credited bitcoin for finally getting his kids interested in finance, is at it again, having co-written a detailed argument published this morning in the International Financial Law Review for why XRP, the cryptocurrency formally known as “ripples,” was also not a security. The only problem is he’s no longer a regulator. In fact, his employer is on the payroll of Ripple, the largest single owner of XRP, whose co-founders actually created the cryptocurrency. The bombshell paper, titled, “Cryptocurrencies and U.S. Securities Laws: Beyond Bitcoin and Ether,” co-authored by commodities lawyer Conrad Bahlke of New York law firm Willkie Farr & Gallagher LLP, methodically reviews the criteria of the Howey Test, established by the SEC in 1946 to determine whether something is a security, and point-by-point argues that XRP does not qualify. Rather, the paper argues, like its name would indicate, cryptocurrency is a currency of perhaps more interest to the Federal Reserve and central banks than securities regulators. What’s at stake here to the cryptocurrency world cannot be overestimated. XRP is now the fourth largest cryptocurrency by market cap, with $5.9 billion worth of the asset in circulation according to cryptocurrency data site Messari. While Ripple was valued at $10 billion according to its most recent round of funding, the company continues to fund itself in part by selling its deep war chest of 55.6 billion XRP, coincidentally valued at the same amount as the company itself. Not only could an eventual decision by the SEC to classify—or not classify—XRP as a security impact the untold individual owners of the cryptocurrency, but other clients using Ripple services that don’t rely on the cryptocurrency, including American Express, Santander, and SBI Holdings could stand to be impacted positively or negatively depending on the decision. After all if XRP were to be rescinded it would be a huge cost to their software provider. If Giancarlo is right though, Ripple could end up being one of the most valuable startups in fintech. “Ultimately, under a fair application of the Howey test and the SEC’s presently expanding analysis, XRP should not be regulated as a security, but instead considered a currency or a medium of exchange,” Giancarlo and Bahlke argue in the paper. “The increased adoption of XRP as a medium of exchange and a form of payment in recent years, both by consumers and in the business-to-business setting, further underscores the utility of XRP as a bona fide fiat substitute.” Giancarlo was nominated to be a commissioner of the CFTC by then-President Barack Obama in 2013. In 2015, he helped lead the thinking behind the CFTC’s decision that bitcoin and other cryptocurrencies were commodities, paving the way for the SEC’s related comments that neither bitcoin nor ethereum are securities. Then, at the height of the 2017 cryptocurrency bubble President Trump nominated him to be Chairman of the CFTC, where he oversaw the creation of a number of bitcoin futures projects, including at CME Group and the short-lived effort at Cboe. While many blame the creation of bitcoin futures for popping the 2017 price bubble, which almost hit $20,000 before halving today, others have seen the works as a fundamental process of maturity, helping pave the way for more sophisticated crypto-enabled financial offerings. Giancarlo’s last day in office at the CFTC was in 2019, after which he promptly got involved helping envision the future of assets issued on a blockchain. In November he joined as an advisor to American Financial Exchange, using ethereum to create a Libor alternative. The following January he co-founded the Digital Dollar Project leading the push to use blockchain at the Federal Reserve and now it would seem he’s hoping to influence the classification of XRP as he did for bitcoin and ethereum, but from the other side of regulation. Importantly however, a footnote in the report discloses that not only is Giancarlo and Bahlke’s firm, Willkie Farr & Gallagher LLP counsel to Ripple Labs, but they “relied on certain factual information provided by Ripple in the preparation of this article.” While it’s impossible to parse what information came from the co-authors and what came from Ripple, the resulting legal argument is fascinating, even if it does leave room for doubt. The Howey test Giancarlo uses to bolster his arguments is a three-pronged definition used by the SEC, none of which he says apply to XRP. The first prong, is that an investment contract should be implied or explicitly stated between the issuer of the asset, in this case XRP and the owner, in which money exchanges hands. “The mere fact that an individual holds XRP does not create any relationship, rights or privileges with respect to Ripple any more than owning Ether would create a contract with the Ethereum Foundation, the organization that oversees the Ethereum architecture,” he writes. This does however overlook the fact that OpenCoin, credited on Ripple’s own site in 2013 for creating XRP (then tellingly described as “ripples”), was run by many of the same people that founded Ripple. The original creators of XRP then donated the vast majority of the assets to Ripple, which they also ran, creating a sense of distance, tacit though it may be. The actual data around the creation of XRP was also muddled by a glitch in the code that means unlike bitcoin and ethereum the crucial genesis data is no longer attached to the rest of the ledger. The rebranding of “ripples” as XRP further extended the sense of distance between XRP and Ripple, followed by an aggressive campaign to get media to stop describing the cryptocurrency as “Ripple’s XRP.” With so much distance between the company that actually created XRP and the company that now owns more than half of it, one would be forgiven for wondering, if there was an implied contract between OpenCoin and XRP owners, does the donation from one group of people at one company to a very similar group of people at another company sever that responsibility? In spite of the sense of distance created by Ripple between itself and the cryptocurrency its co-founders created, a number of active lawsuits alleging securities violations have been filed. In all fairness though, Giancarlo appears to recognize this prong may not be Ripple’s strongest defense and concludes the section, hedging: “Even if XRP were to satisfy one or two of the “prongs” of the Howey test, it does not satisfy all three factors such that XRP is an investment contract subject to regulation as a security.” The second prong of the Howey test stipulates that there can be no “common enterprise” between shareholders or a shareholder and the company. While refuting both relationships, Giancarlo curiously goes onto to write that “given the juxtaposition between XRP’s intended use as a liquidity tool, its more general use to transfer value and its potential as a speculative asset, XRP holders who utilize the coins for different purposes have divergent interests with respect to XRP.” Ironically, there has always been a widely held belief that owning a cryptocurrency would unify interests around a single goal: to co-create the infrastructure that lets the cryptocurrency exist and ensure it was vibrant and diverse. Meanwhile, XRP, in spite of its aggressive supporters on social media, is one of the least diverse ecosystems, with the vast majority of serious development being done within Ripple. If XRP owners aren’t expecting an increase in value from the work being done by Ripple, they certainly aren’t nearly as involved in helping build that future as are owners of bitcoin and ethereum. In a related issue, the third prong of the Howey test stipulates that “no reasonable expectation of profit should be derived from the efforts of Ripple,” according to the paper. Supporting this position, Giancarlo writes: “Though Ripple maintains a sizable stake of the XRP supply and certainly has a pecuniary interest in the value of its holdings, it is not enough to suggest that a mutual interest in the value of an asset gives rise to an expectation of profits as contemplated by Howey.” Again, this strains credulity. According to its own site, Ripple currently has access to 6.4% of all the XRP ever created. But that doesn’t count the 49.2% of the total XRP Ripple owns, but is locked in a series of escrow accounts that become periodically available to Ripple and Ripple alone. Adding those two percentages together leaves a float of only about 44% of XRP that has been distributed for public ownership. For some comparison, Facebook went public the same year XRP was created and has a 99% float, according to FactSet data, meaning almost all of its stock is in the hands of traders.While Ripple does also have more traditional stock, this distribution shows that Ripple might not be as distributed as it claims. While it’s perhaps no surprise that Giancarlo would come out on the side of his own client, there’s also plenty of other reasons to believe his argument may in fact hold water. In February 2018, the notoriously compliant exchange Coinbase added support for XRP, something it would unlikely do if it were concerned it might accidentally be selling an unlicensed security. Perhaps most tellingly though, Ripple has also been granted a difficult-to-obtain BitLicense from the New York Department of Financial Services, giving it the blessing of a respected regulator. However, while the license was granted after then-superintendent Benjamin Lawsky stepped down from the regulator, it's perhaps no coincidence that a year later he joined Ripple on its board of directors and is now active in the cryptocurrency space. Perhaps a similar fate is in store for Giancarlo. Editor’s note: This article has been updated to clarify that Ripple Labs is a client of Giancarlo’s law firm.
Want to start fresh after the crypto crash? Here is a comprehensive guide on how to invest and prosper over the long term.
Well its happened, the crypto market just experienced the worst crash since 2014, the bubble has burst. The idiocy of newbies FOMO-ing into anything with low nominal value lead to endless twitter timelines like this, and now nobody has any idea where the market settles. What do you do now? In the following weeks it will be a good time to rethink your investment approach and how you arrive at your decisions. Just buying whatever is shilled on Twitter or Reddit and jumping from one crypto to another isn't going to work like it did these last two months. The good news is that we're finally back closer and closer to our long term moving average which is much more healthy for entrants, the bad news is that the fear might continue compounding if outstanding issues are not dealt with. Tether is the big concern for me personally for reasons I've stated many times, but some relief in the short term may come if the SEC and CFTC meeting on February 6th goes well. Nobody really knows where the bottom is but I think we're now past the "irrational exhuberance" stage and we're entering a period of more serious inspection where cryptos will actually have to prove themselves as useful. I suspect hype artists like CryptoNick and John McAfee will fall out of favor. But perhaps most importantly use this as a learning experience, don't try to point fingers now. The type of dumb behavior that people were engaging in that was rewarded in a bull market (chasing pumps, going all in on a shillcoin, following hype..etc) could only ever lead to what we are experiencing now. Just like so many people jumped on the crypto bandwagon during the bull run, they will just as quickly jump on whatever bandwagon is to be used to blame for the deflation of the bubble. Nobody who pumped money into garbage without any use case will accept that they themselves with their own investing behavior were the real reason for the gross overvaluation of most cryptocurrencies, and the inevitable crash. So if you're looking for a fresh start after the massacre (or just want to get in now), here is a guide:
Part A: Making a Investment Strategy
This is your money, put some effort into investing it with an actual strategy. Some simple yet essential advice that should apply to everyone, regardless of individual strategy:
Slow down and research each crypto that you're buying for at least a week.
Don't buy something just because it has risen.
Don't exit a position just because it has declined.
Invest only as much as you can afford to lose.
Prepare enter and exit strategies in advance.
First take some time to think about your ROI target, set your hold periods for each position and how much you are actually ready to risk losing. ROI targets A lot of young investors who are in crypto have unrealistic expectations about returns and risk. A lot of them have never invested in any other type of financial asset, and hence many seem to consider a 5-10% ROI in a month to be unexciting. But its important to temper your hype and realize why we had this exponential growth in the last year and how unlikely it is that we see 10x returns in the next year. What we saw recently was Greater Fool Theory in action. Those unexciting returns of 5-10% a month are much more of the norm, and much more healthy for an alternative investment class. You can think about setting a target in terms of the market ROI over a relevant holding period and then add or decrease based on your own risk profile. Example: Calculating a 2 year ROI target Lets say you want to hold for 2 years now, how could you set a realistic target to strive for? You could look at a historical 2 year return as a base, preferably during a period similar to what we're facing now. Now that we had a major correction, I think we can look at the two year period starting in 2015 after we had the 2014 crash. To calculate a 2 year CAGR starting in 2015:
Total Crypto Market Cap
Jan 1, 2015:
Jan 1, 2017:
Compounded annual growth return (CAGR): [(18/5.5)1/2]-1 = 81% This annual return rate of 81% comes out to about 4.9% compounded monthly. This may not sound exciting to the lambo moon crowd, but it will keep you grounded in reality. You can aim for a higher return (say 2x of that 81% rate) if you choose to take on more risky propositions. I can't tell you what return target you should set for yourself, but just make sure its not depended on you needing to achieve continual near vertical parabolic price action in small cap shillcoins because that isn't sustainable. Once you have a target you can construct your risk profile (low risk vs. high risk category coins) in your portfolio based on your target. Risk Management Everything you buy in crypto is risky, but it still helps to think of these 3 risk categories:
Core holdings - This is the exchange pairing cryptos and those that are well established. These are almost sure to be around in 5 years, and will recover after any bear market. The Coinbase pairs (Bitcoin, Litecoin and Ethereum) are in this class of risk, and I would also argue Monero.
Medium Risk Speculative - These would be cryptos which generally have a working product and niche, but higher risk than Core. Things like ZCash and Ripple, relatively established history but still uncertainty over long term viability.
High Risk Speculative - This is anything created within the last few months, ICOs, low caps, shillcoins...etc. Most cryptos are in this category.
How much risk should you take on? That depends on your own life situation for one, but also it should be proportional to how much expertise you have in both financial analysis and technology. The general starting point I would recommend is:
50-70% for newbies in Low Risk Core, then you can go down to 30% as you gains confidence and experience
Always try to keep at least a 1/3rd in safe core positions
Don't go all in on speculative picks.
Some more core principles on risk management to consider:
Diversify across sectors and rebalance your allocations periodically.
Consider using dollar cost averaging to enter a position. This generally means investing a X amount over several periods, instead of at once. You can also use downward biased dollar cost averaging to mitigate against downward risk. For example instead of investing $1000 at once in a position at market price, you can buy $500 at the market price today then set several limit orders at slightly lower intervals (for example $250 at 5% lower than market price, $250 at 10% lower than market price). This way your average cost of acquisition will be lower if the crypto happens to decline over the short term.
Don't have more than 5-10% of your net worth in crypto.
Have the majority of your holdings in things you feel good holding for at least 2 years. Don't use the majority of your investment for day trading or short term investing.
Remember you didn't actually make any money until you take some profits, so take do some profits when everyone else is at peak FOMO-ing mode.
Have some fiat in reserve at a FDIC-insured exchange (ex. Gemini), and be ready to add to your winning positions on a pullback. This should be part of your entry strategy.
Consider what level of loss you can't accept in a position with a high risk factor, and use stop-limit orders to hedge against sudden crashes. Set you stop price at about 5-10% above your lowest limit. Stop-limit orders aren't perfect but they're better than having no hedging strategy for a risky microcap in case of some meltdown. Only you can determine what bags you are unwilling to hold.
You can think of each crypto having a risk factor that is the summation of the general crypto market risk (Rm), but also its own inherent risk specific to its own goals (Ri). Rt = Rm +Ri The market risk is something you cannot avoid, it is essentially the risk that is carried by the entire market over things like regulations. What you can minimize though the Ri, the specific risks with your crypto. That will depend on the team composition, geographic risks (for example Chinese coins like NEO carry regulatory risks specific to China), competition within the space and likelihood of adoption and other factors, which I'll describe in Part 2: Crypto Picking Methodology. Portfolio Allocation Along with thinking about your portfolio in terms of risk categories described above, I really find it helpful to think about the segments you are in. OnChainFX has some segment categorization but I generally like to bring it down to:
Think about your "Circle of Competence", your body of knowledge that allows you to evaluate an investment. Your ability to properly judge risk and potential is going to largely correlated to your understanding of the subject matter. If you don't know anything about how supply chains functions, how can you competently judge whether VeChain or WaltonChain will achieve adoption? If you don't understand anything about the tech when you read the Cardano paper, are you really able to determine how likely it is to be adopted? Consider the historic correlations between your holdings. Generally when Bitcoin pumps, altcoins dump but at what rate depends on the coin. When Bitcoin goes sideways we tend to see pumping in altcoins, while when Bitcoin goes down, everything goes down. You should diversify but really shouldn't be in much more than around 12 cryptos, because you simply don't have enough competency to accurately access the risk across every segment and for every type of crypto you come across. If you have over 20 different cryptos in your portfolio you should probably think about consolidating to a few sectors you understand well.
Part B: Crypto Picking Methodology (Due Dilligence)
Do you struggle on how to fundamentally analyze cryptocurrencies? Here is a 3-step methodology to follow to perform your due dilligence:
Step 1: Filtering and Research
There is so much out there that you can get overwhelmed. The best way to start is to think back to your own portfolio allocation strategy and what you would like to get more off. For example in my view enterprise-focused blockchain solutions will be important in the next few years, and so I look to create a list of various cryptos that are in that segment. Upfolio has brief descriptions of the top 100 cryptos and is filterable by categories, for example you can click the "Enterprise" category and you have a neat list of VEN, FCT, WTC...etc. Once you have a list of potential candidates, its time to read about them:
Critically evaluate the website. If it's a cocktail of nonsensical buzzwords, if its unprofessional and poorly made, stay away. Always look for a roadmap, compare to what was actually delivered so far. Always check the team, try to find them on LinkedIn and what they did in the past.
Read the whitepaper or business development plan. You should fully understand how this crypto functions and how its trying to create value. If there is no use case or if the use case does not require or benefit from a blockchain, move on.
Check the blockchain explorer. How is the token distribution across accounts? Are the big accounts selling? Try to figure out who the whales are (not always easy!) and what the foundation/founder account is based on the initial allocation.
Look at the Github repos, does it look empty or is there plenty of activity?
Search out the subreddit and look at a few Medium or Steem blogs about the coin. How "shilly" is the community, and how much engagement is there between developer and the community?
I would also go through the BitcoinTalk thread and Twitter mentions, judge both the length and quality of the discussion.
You can actually filter out a lot of scams and bad investments by simply keeping your eye out on the following red flags:
allocations that give way too much to the founder
guaranteed promises of returns (Bitcooonnneeeect!)
vague whitepapers filled with buzzwords
vague timelines and no clear use case
Github with no useful code and sparse activity
a team that is difficult to find information on
Step 2: Passing a potential pick through a checklist
Once you feel fairly confident that a pick is worth analyzing further, run them through a standardized checklist of questions. This is one I use, you can add other questions yourself:
Crypto Analysis Checklist
What is the problem or transactional inefficiency the coin is trying to solve?
What is the Dev Team like? What is their track record? How are they funded, organized?
How big is the market they're targeting?
Who is their competition and what does it do better?
What is the roadmap they created and how well have they kept to it?
What current product exists?
How does the token/coin actually derive value for the holder? Is there a staking mechanism or is it transactional?
Is there any new tech, and is it informational or governance based?
Can it be easily copied?
What are the weaknesses or problems with this crypto?
The last question is the most important. This is where the riskiness of your crypto is evaluated, the Ri I talked about above. Here you should be able to accurate place the crypto into one of the three risk categories. I also like to run through this checklist of blockchain benefits and consider which specific properties of the blockchain are being used by the specific crypto to provide some increased utility over the current transactional method:
Benefits of Cryptocurrency
Decentralization - no need for a third party to agree or validate transactions.
Transparency and trust - As blockchain are shared, everyone can see what transactions occur. Useful for something like an online casino.
Immutability - It is extremely difficult to change a transaction once its been put onto a blockchain
Distributed availability - The system is spread on thousands of nodes on a P2P network, so its difficult to take the system down.
Security - cryptographically secured transactions provide integrity
Simplification and consolidation - a blockchain can serve as a shared ledger in industries where multiple entities previously kept their own data sources
Quicker Settlement - In the financial industry when we're dealing with post-trade settlement, a blockchain can drastically increase the speed of verification
Cost - in some cases avoiding a third party verification would drastically reduce costs.
Step 3: Create a valuation model
You don't need to get into full modeling or have a financial background. Even a simple model that just tries to derive a valuation through relative terms will put you above most crypto investors. Some simple valuation methods that anyone can do: Probablistic Scenario Valuation This is all about thinking of scenarios and probability, a helpful exercise in itself. For example: Bill Miller, a prominent value investor, wrote a probabilistic valuation case for Bitcoin in 2015. He looked at two possible scenarios for probabalistic valuation:
becoming a store-of-value equal to gold (a $6.4 trillion value), with a .25% probability of occurring
replacing payment processors like VISA, MasterCard, etc. (a $350 million dollar value) with a 2.5% probability
Combining those scenarios would give you the total expected market cap: (0.25% x 6.4 trillion) + (2.5% x 350 million). Divide this by the outstanding supply and you have your valuation. Metcalfe's Law Metcalfe's Law which states that the value of a network is proportional to the square of the number of connected users of the system (n2). So you can compare various currencies based on their market cap and square of active users or traffic. We can alter this to crypto by thinking about it in terms of both users and transactions: For example, compare the Coinbase pairs:
Daily Transactions (last 24hrs)
Active Addresses (Peak 1Yr)
Metcalfe Ratio (Transactions Based)
Metcalfe Ratio (Address Based)
Generally the higher the ratio, the higher the valuation given for each address/transaction. Market Cap to Industry comparisons Another easy one is simply looking at the total market for the industry that the coin is supposedly targeting and comparing it to the market cap of the coin. Think of the market cap not only with circulating supply like its shown on CMC but including total supply. For example the total supply for Dentacoin is 1,841,395,638,392, and when multiplied by its price in early January we get a market cap that is actually higher than the entire industry it aims to disrupt: Dentistry. More complex valuation models If you would like to get into more fleshed out models with Excel, I highly recommend Chris Burniske's blog about using Quantity Theory of Money to build an equivalent of a DCF analysis for crypto. Here is an Excel file example of OMG done by Nodar Janashia using Chris' model . You should create multiple scenarios with multiple assumptions, both positive and negative. Have a base scenario and then moderately optimistic/pessimistic and highly optimistic/pessimistic scenario. Personally I like to see at least a 50% upward potential before investing from my moderately pessimistic scenario, but you can set your own safety margin. The real beneficial thing about modelling isn't even the price or valuation comparisons it spits out, but that it forces you to think about why the coin has value and what your own assumption about the future are. For example the discount rate you apply to the net present utility formula drastically affects the valuation, and it reflects your own assumptions of how risky the crypto is. What exactly would be a reasonable discount rate? What about the digital economy you are assuming for the coin, what levers affects its size and adoption and how likely are your assumptions to come true? You'll be a drastically more intelligent investor if you think about the fundamental variables that give your coin the market cap you think it should hold.
Summing it up
The time for lambo psychosis is over. But that's no reason to feel down, this is a new day and what many were waiting for. I've put together in one place here how to construct a portfolio allocation (taking into consideration risk and return targets), and how to go through a systematic crypto picking method. I'm won't tell you what to buy, you should always decide that for yourself and DYOR. But as long as you follow a rational and thorough methodology (feel free to modify anything I said above to suit your own needs) you will feel pretty good about your investments, even in times like these. Edit: Also get a crypto prediction ferret. You won't regret it.
Understanding Tether: Why it accounts for a substantial part of the crypto market cap and why its the #1 outstanding issue in crypto markets today
In this post I will go in-depth on:
How Tether got to be what it is today
Why Tether's market cap is a lot more than 0.5% of the total market cap for crypto you see on CoinMarketCap
Tether printing timing
What could happen to the market if Tether is found to not be backed by reserves
Tether is incredibly important to the cryptocurrency market ecosystem and I've noticed far too few people understand what is going on. Very little actual discussion of the 2nd biggest crypto by volume happens here and whenever someone starts a discussion they most often got slapped for "FUD". Tether themselves recently hired the major New York based PR firm 5W to spread positive information online and take down critics, I'm sure some of their operatives are probably on Reddit. But its absolutely critical you understand the risks behind Tether and especially now with the explosion in reserve liability, breakdown in relationship with banks and their auditor and recently announced subpoena.
What exactly is Tether and what happened so far?
Tether is a cryptocurrency asset issued by Tether Limited (incorporated in the British Virgin Islands and a sister company of Bitfinex), on top of the Bitcoin blockchain through the Omni Protocol Layer. It is meant to give people a "stablecoin", for example a merchant who accepts bitcoin but fears its volatility could shift bitcoin into tether, which can be easier to do than exchanging bitcoin for dollars. Recently they've also added an Ethereum-based ERC20 token. Tether Ltd claims that each one of the tokens issued is backed by actual US dollar (and more recently Euro) reserves. The idea is that when a business partner deposits US dollars in Tether’s bank account, Tether creates a matching amount of tokens and transfers them to that partner, it is NOT a fractional reserve system. Tether makes the two following key promises in its whitepaper on which the entire premise is build:
Each tether issued will be backed by the equivalent amount of currency unit (one USDTether equals one dollar). Professional auditors will regularly verify, sign, and publish our underlying bank balance and financial transfer statement.
Tether is centralized and dependent on your trust of Bitfinex/Tether Limited, and that the people behind it are honest people. For the new entrants to this market it will be greatly beneficial understand the timeline of Tether and their connection to Bitfinex. A brief timeline:
Bitfinex operators Phil Potter and CFO Giancarlo Devasini set up Tether Limited in the British Virgin Islands, but told the public that Bitfinex and Tether are completely separate. Throughout 2015 and 2016, the amount of Tether stays relatively flat.
In August 2nd, 2016, the second-largest digital currency exchange heist in history happened, when Bitfinex lost nearly 120,000 bitcoin. Bitfinex never revealed full details of the hack, but BitGo (the security company that had to sign off on the transactions) claims its servers were not breached.
Just 4 days after the hack Bitfinex “socializes” its losses from the theft by announcing a 36 percent haircut for almost all of its customers. In return, customers receive BFX tokens, initially valued at $1 each.
Two weeks after the hack Bitfinex announces it has hired Ledger Labs, to investigate the theft and perform a financial audit of its cryptocurrency and fiat assets. The public nevers sees the results of the investigation, and months later, Bitfinex admits it never actually hired Ledger Labs to perform an audit to begin with.
In May 2017, after long standing calls for an actual audit, Bitfinex hires Friedman LLP to "complete a comprehensive balance sheet audit."
November 7, 2017: Leaked documents dubbed “Paradise Papers” reveal Bitfinex and Tether are run by the same individuals.
November 19, 2017: Tether is hacked, with 31 million USDT suddenly disappearing. Tether Limited reacts to this by creating a hard fork.
December 4, 2017: Right after hiring the PR firm 5W to help improve their image, Bitfinex hires law firm Steptoe & Johnson and threatens legal action against critics.
December 6, 2017 - CFTC issues a subpoena to Tether and Bitfinex. This news isn't made public until the end of January.
December 21, 2017 : Without making any formal announcement, Bitfinex appears to suddenly close all new account registrations. Those trying to register for a new account are asked for a mysterious referral code, but no referral code seems to exist.
After a month of being closed to new registrations, Bitfinex announces it is reopening its doors, but now requires new customers to deposit $10,000 before they can begin trading.
Friedman LLP completely cut ties with Tether on January 27, 2017.
Most common misconception: Tether is only a small part of the total market cap
One of the most common misconception people have about cryptocurrencies is that the "market cap" amount they see on CoinMarketCap.com is actually the amount of money that is invested in each coin. I often hear people online dismiss any issue with tether by simply claiming its not big enough to cause any effect, saying "Well Tether is only $2.2 billion on CoinMarketCap and the market is 400 billion, its only 0.5% of the market". But this misunderstands what market capitalization for cryptocurrency is, and just how different the market cap for Tether is to every other token. The market cap is simply the last trade price times the circulating supply. It doesn't take into account the order book depth at all. The majority of Bitcoin (and most coins) are held by those who either mined or purchased for a very low price early on and simply held on as very small portions of the total supply was rapidly bid up to their current price. An increase in market cap of X does NOT represent an inflow of X dollars invested, not even close. A 400 billion dollar market cap for crypto does NOT mean that there is 400 billion dollars underwriting the assets. Meanwhile a 2 billion dollar Tether market cap means there should be exactly $2 billion backing up the asset. Nobody can tell for sure exactly how much money has been invested in cryptocurrency market, but analysts from JPMorgan found that there was only net inflow of $6 billion fiat that resulted in $300 billion market cap at the time. This gives us a roughly 50:1 ratio of market cap to fiat inflow. Prominent crypto evangelist Julian Hosp gives the following estimate: "For a cryptocurrency to have a market cap of $1 billion, maybe only $50 million actually moved into the cryptocurrency." For Tether however the market cap is simply the outstanding supply, 2.2 billion USDT is actually equal to 2.2 billion USD. In order to get $50 USDT you have to deposit $50 real U.S. dollars and then 50 completely new tokens will be issued, which never existed before on the market. What is also often ignored is that Bitfinex allows margin trading, at a 3.3x leverage. Bitfinexed did an excellent analysis on how tether is entering Bitfinex to fund margin positions There are $2.2 billion in Tether outstanding and the current market cap of the entire market is $400 billion according to CoinMarketCap. You can actually calculate Tether as a % of total fiat invested in the market according to the JP Morgan estimate, the following table outlines for a scenario of no margin lending and 15/25% of tether being on a 3.3x leverage margin account:
Fiat Inflow/Market Cap Ratio
Tether as % of total market (no margin)
Tether as % of total market (15% on margin)
Tether as % of total market (25% on margin)
JP Morgan estimate (50:1)
Even without any margin lending Tether is underwriting the worth of about 27.5% of the cryptocurrency market, and if we assume only 25% was leveraged out at 3.3x on margin we have a whole 43% of the market cap being driven by Tether inflow. A much better indicator on CoinMarketCap of just how influential Tether is actually the volume, its currently the 2nd biggest cryptocurrency by volume and there are even days where its volume exceeds its market cap. What this all means is that not only is the market cap for cryptocurrencies drastically overestimating the amount of actual fiat capital that is underwriting those assets, but a substantial portion of the entire market cap is being derived from the value of Tether's market cap rather than real money. Its incredibly important that more new investors realize that Tether isn't a side issue or a minor cog in the machine, but one of the core underlying mechanisms on which the entire market worth is built. Ensuring that whoever controls this stablecoin is honest and transparent is absolutely critical to the health of the market.
Two main concerns with Tether
The primary concerns with Tether can be split into two categories:
Tether issuance timing - Does Tether Ltd issue USDT organically or is it timed to stop downward selling pressure?
Reserves - Does Tether Ltd actually have the fiat reserves at a 1:1 ratio, and why is there still no audit or third party guarantee of this?
Does Tether print USDT to prop up Bitcoin and other cryptocurrencies?
In the last 3 months the amount of USDT has nearly quadrupled, with nearly a billion being printed in January alone. Some people have found the timing of the most recent batch of Tether as highly suspect because it seemed to coincide with Bitcoin's price being propped up. https://www.nytimes.com/2018/01/31/technology/bitfinex-bitcoin-price.html This was recently analyzed statistically:
Author’s opinion - it is highly unlikely that Tether is growing through any organic business process, rather that they are printing in response to market conditions. Tether printing moves the market appreciably; 48.8% of BTC’s price rise in the period studied occurred in the two-hour periods following the arrival of 91 different Tether grants to the Bitfinex wallet. Bitfinex withdrawal/deposit statistics are unusual and would give rise to further scrutiny in a typical accounting environment.
https://www.tetherreport.com I'm still undecided on this and I would love to see more statistical analysis done, because the price of Bitcoin is so volatile while Tether printing only happens in large batches. Simply looking at the Bitcoin price graph over the last 3 months and then the Tether printing its pretty clear there is a relationship but it doesn't seem to hold over longer periods. Ultimately to me this timing isn't that much of an issue, as long Tether is backed by US dollars. If Bitfinex was timing the prints then it accounts to not much more than an organized pumping scheme, which isn't a fundamental problem. The much more serious concern is whether those buy order are being conducted on the faith of fictitious dollars that don't exist, regardless of when those buy orders occur.
This engagement does not contemplate tests of accounting records or the performance of other procedures performed in an audit or attest engagement. Our procedures performed are not for the purpose of providing assurance...In addition, our services do not include determination of compliance with laws and regulations in any jurisdiction.
They state right from the beginning that this is a consultancy job (not an audit), and that its not meant to be assurance to third parties. Doing a consultancy job is just doing a task asked by your customer. In a consultancy job you take information as true from the client, and you have no mandate to verify whether your customer's claims are true or not. The way they checked is simply asking Tether to provide them the information:
All inquiries made through the consulting process have been directed towards, and the data obtained from, the Client and personnel responsible for maintaining such information.
Tether provided a screenshots of twp bank balances. One of these is in the name of Tether Limited, and while the other is a personal account of an individual who Tether Limited claims has a trust agreement with them:
As of September 15, 2017, the bank held $60,919,810 in an account in the name of an in individual for the benefit of Tether Limited. FLPP obtained an engagement letter for an interim settlement plan between that individual and Tether Limited and that according to Tether Limited, is the relevant agreement with the trustee. FLLP did not evaluate the substance of the letter and makes no representation about its legality.
Even worse is that later on in Note 1, they clearly claim that there is no actual evidence that this engagement letter or trust has any legal merit:
Note 1: FLLP makes no representations about sufficiency or enforceability of any trust agreement between the trustee and the Client
Essentially what this is saying is that the trust agreement may not even be worth the paper it’s printed on. And most importantly… Note 2:
“FLLP did not evaluate the terms of the above bank accounts and makes no representations about the clients ability to access funds from the accounts or whether the funds are committed for purposes other than Tether token redemptions”
Basically Tether gave them a name of an individual with $60 million in their account according to a screenshot, Tether then gave them a letter saying that there is a trust agreement between this individual and Tether Limited. They also have account with $382 million but no guarantee that this account holds to any lien or other commitments, or that it can be accessed. Currently Tether has 2.2 billion USDT outstanding and we have absolutely no idea whether this is actually backed by anything, and the long promised audit is still outstanding.
What happens if its revealed that Tether doesn't have its US dollar reserves?
According to Thomas Glucksmann, head of business development at Gatecoin: "If a tether debacle unfolds, it will likely cause quite a devastating ripple effect across many of the exchanges that see most of their volumes traded against the supposedly USD-backed cryptocurrency." According to Nicholas Weaver, a senior researcher at the International Computer Science Institute at Berkeley: "You could see a spike in prices in tether-only bitcoin exchanges. So, on those exchanges only you will see a run up in price compared to the bitcoin exchanges that actually work with actually money. So you would see a huge price diverge as people see that only way they can turn tether into real money is to buy other cryptocurrency then move to another exchange. That is a bank run." I definitely see the crypto equivalent of a bank run, as people actually try to secure their gains an realize that this money doesn't actually exist within the system:
If traders lose confidence in it and its value starts to drop, “people will run for the door,” says Carlson, the former Wall Street trader. If Tether can’t meet all its customers’ demand for dollars (and its Terms of Service suggest that in many cases it won’t even try), tether holders will try to snap up other cryptocurrencies instead, temporarily causing prices for those currencies to soar. With tether’s role as an inter-exchange facilitator compromised, investors might lose faith in cryptocurrencies more generally. “At the end of the day, people would be losing substantial sums, and in the long term this would be very bad for cryptocurrencies,” says Emin Gun Sirer, a Cornell professor and co-director of its Initiative for Cryptocurrencies and Smart Contracts. Another concern is that Bitfinex might simply shut down, pocketing the bitcoins it has allegedly been stockpiling. Because people who trade on Bitfinex allow the exchange to hold their money while they speculate, these traders could face substantial losses. “The exchanges are like unregulated banks and could run off with everyone’s money,” says Tony Arcieri, a former Square employee turned entrepreneur trying to build a legally regulated exchange.
Tether-enabled exchanges will see a massive spike in Bitcoin and cryptocurrency prices as everyone leaves Tether. Noobs in these exchanges will think they are now millionaires until they realize they are rich in tethers but poor in dollars.
Exchanges that have not integrated Tether will experienced large drops in Bitcoin and alts as experienced investors flee crypto into USD.
There will be a flight of Bitcoin from Tether-integrated exchanges to non-Tether exchanges with fiat off-ramps. Exchanges running small fractional reserves will be exposed, further increasing calls for greater reserves requirements.
The exchanges might slam the doors shut on withdrawals.
Many exchanges that own large balances of Tether, especially Bitfinex, will likely become insolvent.
There will be lawsuits flying everywhere and with Tether Limited being incorporated on a Carribean Island whose solvency and bankruptcy laws will likely ensure they don't ever get much back. This could take years and potentially push away new investors from entering the space.
We can't be 100% completely sure that Tether is a scam, but its so laiden with red flags that at this point I would call it the biggest systematic risk in the crypto space. Its bigger than any nation's potential regulatory steps because it cuts right into the issue of trust across the entire ecosystem. Ultimately Tether is centralizing one of the very core mechanics of the cryptocurrency markets and asking you to trust one party to be the safekeeper, and I really see very little reason to trust Bitfinex given their history of lying and screwing over their own customers. I think that Tether initially started as a legit business to facilitate the ease of moving money and avoiding regulations, but somewhere along the lines greed and/or incompetence took over (something that seems common with Bitfinex's previous actions). Right now we're playing proverbial hot potato, and as long as people believe that Tether is worth a dollar everything is fine, but as some point the Emperor will have to step out from hiding and somebody will point out they have no clothes. In the long term I really hope once Tether collapses we can move on and get the following two implemented which would greatly improve the market for all investors:
Actual USD fiat pairings on the major exchanges for the major currencies
Regulatory rules on exchange reserve requirements
I had watched the Bitconnect people insist for the last 2 years that everything about Bitconnect made perfect sense because they were getting paid daily. The scam works until one day it suddenly doesn't. Tether could still come clean and avoid all of this "FUD" by simply getting a simple review of their banking, they don't even need a full audit. If everything was legit with Tether, it would be incredibly easy to have a segregated bank account with the funds used solely to back up Tether, then have an third party accounting firm simply review the account and a bank reconciliation statement then spend a few hours in contact with the bank to ensure no outstanding liabilities are held on that balance. This is extremely basic stuff, it would take a few hours to set up and wouldn't take a lot of man-hours for a qualified account to do, and yet they don’t do it. Why? Why hire a major PR firm and spend god knows how much money to pay professional PR representatives to attack "FUD" online instead? I think I know why.
"For the Commodities Futures Trading Commission, if the bill is accepted then it means that the CFTC will have to regulate and develop a framework for the crypto-commodity asset class, which is expected to boom in the coming years, from scratch." (bold emphasis mine) CFTC has already gone on the record that Bitcoin is a prime example of a commodity. "New chairman Heath Tarbert, sworn in during June 2019, already made his voice heard in October last year by confirming that Ethereum is also a commodity and not a security in the eyes of the CFTC, which supports the organization’s viewpoint since 2015 that they consider virtual currencies like Bitcoin, the world’s most popular digital asset, to be commodities." Which beggars the question. Just which do they believe is Bitcoin?
Inside Chainalysis’ Multimillion-Dollar Relationship With the US Government
It started with a $9,000 data software contract for the FBI in 2015. But just five years later, Chainalysis is now the cryptocurrency-tracing equivalent of Palantir, the data analytics company flush with lucrative government software contracts. Chainalysis is, right now, doing millions of dollars worth of business each year with the U.S. government, dwarfing its competitors in the young industry of blockchain surveillance. The company is by far Uncle Sam’s leading crypto analysis contractor by spending and has become the go-to firm for 10 federal agencies, departments and bureaus. In short, the feds want to catch up on, and make sense of, the tangled transactional web of bitcoin and other cryptocurrencies to stop all sorts of crimes – and they’ll spend big to do it. Federal agencies have spent at least $10 million ($10,690,706 to be precise) in American tax dollars on Chainalysis’ tools, services and training since 2015, when Chainalysis was founded, according to 82 records of federal procurement contracts reviewed by CoinDesk. Counting contracts with possible extensions, the company stands to take in more than $14 million. No competing firm’s federal contracts match Chainalysis', and none are as prevalent across agencies. CipherTrace, led by CEO David Jevans, has made about $6 million through mostly research and development contracts; Elliptic, a British firm, has had only one contract worth $2,450 with the Internal Revenue Service, according to federal data. Chainalysis’ contracts open a small but prescient window into the federal government’s nascent relationship with the cryptocurrencies some use to evade detection. Bitcoin is a pseudonymous system with inherent traceability – a network moving billions of dollars in value on a public ledger that anyone can track. And though Chainalysis data show only 1.1 percent of bitcoin transactions were illicit in 2019, that proportion is growing: up 180 percent over the year before. The U.S. government has responded in kind, raising its spending on Chainalysis every year, the data show. It paid the company over $5 million in 2019, a 20 percent increase from 2018 and a 22,558 percent increase from 2015, when the FBI and the Internal Revenue Service were Chainalysis’ only federal clients. Nowadays, Chainalysis’ federal money comes from many corners: the Federal Bureau of Investigation, the Drug Enforcement Agency (DEA) and Immigration and Customs Enforcement (ICE), from financial regulators in the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Financial Crimes Enforcement Network (FinCEN), from the IRS, the Secret Service (USSS), the Transportation Security Administration (TSA) – even from the Department of the Air Force. Most have signed six-figure deals with Chainalysis, although some agencies spend more than others. For instance, the TSA spent $40,000 on one contract in 2018 while the IRS, Chainalysis’s biggest federal partner spent $4.1 million over five years – $3.6 million of it since 2018, according to the data. ICE, with $2.6 million in total contracts, holds the number two spot, and the FBI’s $2.4 million is third. But the FBI plans to spend millions more in the next two years, and will overtake the IRS as the U.S. government's most prolific Chainalysis partner. On Dec. 18, 2019, it paid Chainalysis $377,500 for "Virtual Currency Tracing Tools," with an option to spend at least $3,628,775 through 2022. By contrast, when Vice reported on Chainalysis’s government contracts in 2017, the fledgling New York firm had received $330,000 from the FBI, $88,000 from the IRS and $58,000 from ICE in its history.
A Hybrid Model of Decentralization - Why VeChain is Best-Equipped to Lead
In the past few months, I saw a number of posts / comments where some confusion was expressed regarding regarding the logic behind hybrid blockchain models that try to balance centralization and decentralization. Many people, particularly outside the VeChain community, shun VeChain for being too centralized, mentioning the fact that only 101 Authority Nodes are involved in transaction validation, and that these Nodes are only required to reveal themselves to the VeChain foundation, not necessarily the public.While these may be valid concerns from an idealistic perspective, they nevertheless miss the bigger picture. Full decentralization, where one need not worry at all about possible centralization short-comings down the line, has even bigger problems than some are willing to concede. I came across an article recently that was written almost a year ago; it did not mention VeChain, but felt as though it was written precisely about it! Take a look: https://medium.com/@victordsantos/why-the-future-of-the-token-economy-will-not-be-fully-decentralized-4b8785ed6847 Below are a few snippets with some of my observations: Utopia
"In theory, the idea of a completely decentralized economy sounds great. It evokes images of a world in which corruption is impossible, and no centralized institution is ever deemed 'too big to fail.' But dreams of an entirely decentralized economy are unrealistic." "Psychologically, there’s a reason the idea is attractive. People lust after innovations that promise revolution — that aim to upend our limited and imperfect present and replace it with something better, something more honest. This idealism is what inspired so many people to 'invest' in Bitcoin, after all. Bitcoin promised freedom. Bitcoin promised utopia."
Think Bitcoin Maximalists... those who still latch on to the idea that Bitcoin - and only Bitcoin - will grant everyone around the world freedom from invasive governments, greedy banks, etc. But will it? Not any time soon, if at all. The Failure of Pure Decentralization
"Companies governed communally, with too many chefs in the kitchen, don’t work — yet that’s precisely what full decentralization demands." "In a Utopian society where human nature and behavior economics don’t exist, decentralization works extraordinarily well — in theory. It’s like Communism. But as soon as you factor in free will, human ambition, emotions, and all the rest, decentralization crumbles."
Unfortunately, the speed of our social evolution doesn't quite match the pace with which technology is progressing. Semi-Decentralization
"For blockchain companies to succeed, they need to be operate like a startup, consisting of structure and managed by a leader who can will the company forward." "The future of tokens and cryptocurrencies as regulation increases = semi-decentralized token governance. Future blockchain companies should issue tokens that grant holders equity and voting shares" "A centralized entity will retain responsibility for developing partnerships and realizing the company’s vision, but owners of company tokens will have a say in the direction of the company and its ethos. For example, token holders might require company leaders to obtain X percent approval from the decentralized community before implementing a new strategy or idea — an agreement which could even be written into a smart contract. In another scenario, majority token holders could elect an independent board member to represent the rights of token holders."
I don't think I could have expressed this any better. This is literally VeChain. The Limits of Full Centralization
"a world of fully centralized authorities — maintaining siloed, private databases of information — is unreliable and often dangerous. The two methods are not mutually exclusive. As CFTC Chairman, J. Christopher Giancarlo described in his Senate testimony: 'What a difference it would have made on the eve of the financial crisis in 2008 if regulators had access to the real-time trading ledgers, rather than trying to assemble piecemeal data to recreate complex, individual trading portfolios.'"
VeChain Keep in mind that all of this... VeChain figured it out around 2015/2016, more than 3 years ago ,when other blockchain projects were too busy obsessing about futile matters like when forks will be needed and how many transactions per second they can achieve. That should give you an idea about far along we actually are, and how close we are to achieving the objectives that many of us have been day-dreaming of since the summer / fall of 2017. So close yet so far... for me, that's what it feels like at the moment.
Playing with fire with FinCen and SEC, Binance may face a hefty penalty again after already losing 50 percent of its trading business
The Great Bitcoin Bull Market Of 2017 by Trace Mayer
By: Trace Mayer, host of The Bitcoin Knowledge Podcast. Originally posted here with images and Youtube videos. I just got back from a two week vacation without Internet as I was scouring some archeological ruins. I hardly thought about Bitcoin at all because there were so many other interesting things and it would be there when I got back. Jimmy Song suggested I do an article on the current state of Bitcoin. A great suggestion but he is really smart (he worked on Armory after all!) so I better be thorough and accurate! Therefore, this article will be pretty lengthy and meticulous. BACKGROUND As I completely expected, the 2X movement from the New York Agreement that was supposed to happen during the middle of my vacation flopped on its face because Jeff Garzik was driving the clown car with passengers willfully inside like Coinbase, Blockchain.info, Bitgo and Xapo and there were here massive bugS and in the code and miners like Bitmain did not want to allocate $150-350m to get it over the difficulty adjustments. I am very disappointed in their lack of integrity with putting their money where their mouths are; myself and many others wanted to sell a lot of B2X for BTC! On 7 December 2015, with Bitcoin trading at US$388.40, I wrote The Rise of the Fourth Great Bitcoin Bubble. On 4 December 2016, with Bitcoin trading at US$762.97, I did this interview:
As of 26 November 2017, Bitcoin is trading around US$9,250.00. That is an increase of about 2,400% since I wrote the article prognosticating this fourth great Bitcoin bull market. I sure like being right, like usual (19 Dec 2011, 1 Jul 2013), especially when there are financial and economic consequences. With such massive gains in such a short period of time the speculative question becomes: Buy, Hold or Sell? FUNDAMENTALS Bitcoin is the decentralized censorship-resistant Internet Protocol for transferring value over a communications channel. The Bitcoin network can use traditional Internet infrastructure. However, it is even more resilient because it has custom infrastructure including, thanks to Bitcoin Core developer Matt Corrallo, the FIBRE network and, thanks to Blockstream, satellites which reduce the cost of running a full-node anywhere in the world to essentially nothing in terms of money or privacy. Transactions can be cheaply broadcast via SMS messages. SECURITY The Bitcoin network has a difficulty of 1,347,001,430,559 which suggests about 9,642,211 TH/s of custom ASIC hardware deployed. At a retail price of approximately US$105/THs that implies about $650m of custom ASIC hardware deployed (35% discount applied). This custom hardware consumes approximately 30 TWh per year. That could power about 2.8m US households or the entire country of Morocco which has a population of 33.85m. This Bitcoin mining generates approximately 12.5 bitcoins every 10 minutes or approximately 1,800 per day worth approximately US$16,650,000. Bitcoin currently has a market capitalization greater than $150B which puts it solidly in the top-30 of M1 money stock countries and a 200 day moving average of about $65B which is increasing about $500m per day. Average daily volumes for Bitcoin is around US$5B. That means multi-million dollar positions can be moved into and out of very easily with minimal slippage. When my friend Andreas Antonopolous was unable to give his talk at a CRYPSA event I was invited to fill in and delivered this presentation, impromptu, on the Seven Network Effects of Bitcoin. These seven network effects of Bitcoin are (1) Speculation, (2) Merchants, (3) Consumers, (4) Security [miners], (5) Developers, (6) Financialization and (7) Settlement Currency are all taking root at the same time and in an incredibly intertwined way. With only the first network effect starting to take significant root; Bitcoin is no longer a little experiment of magic Internet money anymore. Bitcoin is monster growing at a tremendous rate!!
SPECULATION For the Bitcoin price to remain at $9,250 it requires approximately US$16,650,000 per day of capital inflow from new hodlers. Bitcoin is both a Giffen good and a Veblen good. A Giffen good is a product that people consume more of as the price rises and vice versa — seemingly in violation of basic laws of demand in microeconomics such as with substitute goods and the income effect. Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases in an apparent contradiction of the law of demand. There are approximately 16.5m bitcoins of which ~4m are lost, ~4-6m are in deep cold storage, ~4m are in cold storage and ~2-4m are salable. (http://www.runtogold.com/images/lost-bitcoins-1.jpg) (http://www.runtogold.com/images/lost-bitcoins-2.jpg) And forks like BCash (BCH) should not be scary but instead be looked upon as an opportunity to take more territory on the Bitcoin blockchain by trading the forks for real bitcoins which dries up more salable supply by moving it, likely, into deep cold storage. According to Wikipedia, there are approximately 15.4m millionaires in the United States and about 12m HNWIs ($30m+ net worth) in the world. In other words, if every HNWI in the world wanted to own an entire bitcoin as a 'risk-free asset' that cannot be confiscated, seized or have the balance other wise altered then they could not. For wise portfolio management, these HNWIs should have at least about 2-5% in gold and 0.5-1% in bitcoin. Why? Perhaps some of the 60+ Saudis with 1,700 frozen bank accounts and about $800B of assets being targetted might be able to explain it to you. In other words, everyone loves to chase the rabbit and once they catch it then know that it will not get away. RETAIL There are approximately 150+ significant Bitcoin exchanges worldwide. Kraken, according to the CEO, was adding about 6,000 new funded accounts per day in July 2017. Supposedly, Coinbase is currently adding about 75,000 new accounts per day. Based on some trade secret analytics I have access to; I would estimate Coinbase is adding approximately 17,500 new accounts per day that purchase at least US$100 of Bitcoin. If we assume Coinbase accounts for 8% of new global Bitcoin users who purchase at least $100 of bitcoins (just pulled out of thin error and likely very conservative as the actual number is perhaps around 2%) then that is approximately $21,875,000 of new capital coming into Bitcoin every single day just from retail demand from 218,750 total new accounts. What I have found is that most new users start off buying US$100-500 and then after 3-4 months months they ramp up their capital allocation to $5,000+ if they have the funds available. After all, it takes some time and practical experience to learn how to safely secure one's private keys. To do so, I highly recommendBitcoin Core (network consensus and full validation of the blockchain), Armory (private key management), Glacier Protocol (operational procedures) and a Puri.sm laptop (secure non-specialized hardware). WALL STREET There has been no solution for large financial fiduciaries to invest in Bitcoin. This changed November 2017. LedgerX, whose CEO I interviewed 23 March 2013, began trading as a CFTC regulated Swap Execution Facility and Derivatives Clearing Organization. The CME Group announced they will begin trading in Q4 2017 Bitcoin futures. The CBOE announced they will begin trading Bitcoin futures soon. By analogy, these institutional products are like connecting a major metropolis's water system (US$90.4T and US$2 quadrillion) via a nanoscopic shunt to a tiny blueberry ($150B) that is infinitely expandable. This price discovery could be the most wild thing anyone has ever experienced in financial markets. THE GREAT CREDIT CONTRACTION The same week Bitcoin was released I published my book The Great Credit Contraction and asserted it had now begun and capital would burrow down the liquidity pyramid into safer and more liquid assets. (http://www.runtogold.com/images/Great-Credit-Contraction-Liquidity-Pyramid.jpg) Thus, the critical question becomes: Is Bitcoin a possible solution to the Great Credit Contraction by becoming the safest and most liquid asset? BITCOIN'S RISK PROFILE At all times and in all circumstances gold remains money but, of course, there is always exchange rate risk due to price ratios constantly fluctuating. If the metal is held with a third-party in allocated-allocated storage (safest possible) then there is performance risk (Morgan Stanley gold storage lawsuit). But, if properly held then, there should be no counter-party risk which requires the financial ability of a third-party to perform like with a bank account deposit. And, since gold exists at a single point in space and time therefore it is subject to confiscation or seizure risk. Bitcoin is a completely new asset type. As such, the storage container is nearly empty with only $150B. And every Bitcoin transaction effectively melts down every BTC and recasts it; thus ensuring with 100% accuracy the quantity and quality of the bitcoins. If the transaction is not on the blockchain then it did not happen. This is the strictest regulation possible; by math and cryptography! This new immutable asset, if properly secured, is subject only to exchange rate risk. There does exist the possibility that a software bug may exist that could shut down the network, like what has happened with Ethereum, but the probability is almost nil and getting lower everyday it does not happen. Thus, Bitcoin arguably has a lower risk profile than even gold and is the only blockchain to achieve security, scalability and liquidity. To remain decentralized, censorship-resistant and immutable requires scalability so as many users as possible can run full-nodes. (http://www.runtogold.com/images/ethereum-bitcoin-scability-nov-2017.png) TRANSACTIONS Some people, probably mostly those shilling alt-coins, think Bitcoin has a scalability problem that is so serious it requires a crude hard fork to solve. On the other side of the debate, the Internet protocol and blockchain geniuses assert the scalability issues can, like other Internet Protocols have done, be solved in different layers which are now possible because of Segregated Witness which was activated in August 2017. Whose code do you want to run: the JV benchwarmers or the championship Chicago Bulls? As transaction fees rise, certain use cases of the Bitcoin blockchain are priced out of the market. And as the fees fall then they are economical again. Additionally, as transaction fees rise, certain UTXOs are no longer economically usable thus destroying part of the money supply until fees decline and UTXOs become economical to move. There are approximately 275,000-350,000 transactions per day with transaction fees currently about $2m/day and the 200 DMA is around $1.08m/day. (http://www.runtogold.com/images/bitcoin-transaction-fees-nov-2017.png) What I like about transaction fees is that they somewhat reveal the financial health of the network. The security of the Bitcoin network results from the miners creating solutions to proof of work problems in the Bitcoin protocol and being rewarded from the (1) coinbase reward which is a form of inflation and (2) transaction fees which is a form of usage fee. The higher the transaction fees then the greater implied value the Bitcoin network provides because users are willing to pay more for it. I am highly skeptical of blockchains which have very low transaction fees. By Internet bubble analogy, Pets.com may have millions of page views but I am more interested in EBITDA. DEVELOPERS Bitcoin and blockchain programming is not an easy skill to acquire and master. Most developers who have the skill are also financially independent now and can work on whatever they want. The best of the best work through the Bitcoin Core process. After all, if you are a world class mountain climber then you do not hang out in the MacDonalds play pen but instead climb Mount Everest because that is where the challenge is. However, there are many talented developers who work in other areas besides the protocol. Wallet maintainers, exchange operators, payment processors, etc. all need competent developers to help build their businesses. Consequently, there is a huge shortage of competent developers. This is probably the largest single scalability constraint for the ecosystem. Nevertheless, the Bitcoin ecosystem is healthier than ever before. (http://www.runtogold.com/images/bitcoin-ecosystem.jpg)(/images/bitcoin-ecosystem-small.jpg) SETTLEMENT CURRENCY There are no significant global reserve settlement currency use cases for Bitcoin yet. Perhaps the closest is Blockstream's Strong Federations via Liquid. PRICE There is a tremendous amount of disagreement in the marketplace about the value proposition of Bitcoin. Price discovery for this asset will be intense and likely take many cycles of which this is the fourth. Since the supply is known the exchange rate of Bitcoins is composed of (1) transactional demand and (2) speculative demand. Interestingly, the price elasticity of demand for the transactional demand component is irrelevant to the price. This makes for very interesting dynamics! (http://www.runtogold.com/images/bitcoin-speculation.jpg) On 4 May 2017, Lightspeed Venture Partners partner Jeremy Liew who was among the early Facebook investors and the first Snapchat investor laid out their case for bitcoin exploding to $500,000 by 2030. On 2 November 2017, Goldman Sachs CEO Lloyd Blankfein (https://www.bloomberg.com/news/articles/2017-11-02/blankfein-says-don-t-dismiss-bitcoin-while-still-pondering-value)said, "Now we have paper that is just backed by fiat...Maybe in the new world, something gets backed by consensus." On 12 Sep 2017, JP Morgan CEO called Bitcoin a 'fraud' but conceded that "(http://fortune.com/2017/09/12/jamie-dimon-bitcoin-cryptocurrency-fraud-buy/)Bitcoin could reach $100,000". Thus, it is no surprise that the Bitcoin chart looks like a ferret on meth when there are such widely varying opinions on its value proposition. I have been around this space for a long time. In my opinion, those who scoffed at the thought of $1 BTC, $10 BTC (Professor Bitcorn!), $100 BTC, $1,000 BTC are scoffing at $10,000 BTC and will scoff at $100,000 BTC, $1,000,000 BTC and even $10,000,000 BTC. Interestingly, the people who understand it the best seem to think its financial dominance is destiny. Meanwhile, those who understand it the least make emotionally charged, intellectually incoherent bearish arguments. A tremendous example of worldwide cognitive dissonance with regards to sound money, technology and the role or power of the State. Consequently, I like looking at the 200 day moving average to filter out the daily noise and see the long-term trend. (http://www.runtogold.com/images/bitcoin-price-200dma-nov-2017.png) Well, that chart of the long-term trend is pretty obvious and hard to dispute. Bitcoin is in a massive secular bull market. The 200 day moving average is around $4,001 and rising about $30 per day. So, what do some proforma situations look like where Bitcoin may be undervalued, average valued and overvalued? No, these are not prognostications. (http://www.runtogold.com/images/bitcoin-price-pro-forma.png) Maybe Jamie Dimon is not so off his rocker after all with a $100,000 price prediction. We are in a very unique period of human history where the collective globe is rethinking what money is and Bitcoin is in the ring battling for complete domination. Is or will it be fit for purpose? As I have said many times before, if Bitcoin is fit for this purpose then this is the largest wealth transfer in the history of the world. CONCLUSION Well, this has been a brief analysis of where I think Bitcoin is at the end of November 2017. The seven network effects are taking root extremely fast and exponentially reinforcing each other. The technological dominance of Bitcoin is unrivaled. The world is rethinking what money is. Even CEOs of the largest banks and partners of the largest VC funds are honing in on Bitcoin's beacon. While no one has a crystal ball; when I look in mine I see Bitcoin's future being very bright. Currently, almost everyone who has bought Bitcoin and hodled is sitting on unrealized gains as measured in fiat currency. That is, after all, what uncharted territory with daily all-time highs do! But perhaps there is a larger lesson to be learned here. Riches are getting increasingly slippery because no one has a reliable defined tool to measure them with. Times like these require incredible amounts of humility and intelligence guided by macro instincts. Perhaps everyone should start keeping books in three numéraires: USD, gold and Bitcoin. Both gold and Bitcoin have never been worth nothing. But USD is a fiat currency and there are thousands of those in the fiat currency graveyard. How low can the world reserve currency go? After all, what is the risk-free asset? And, whatever it is, in The Great Credit Contraction you want it! What do you think? Disagree with some of my arguments or assertions? Please, eviscerate them on Twitter or in the comments!
Bakkt infrastructure will include a trading platform, a digital vault, a clearing house and a separate guarantee fund. The credit risk of the counterparty will be eliminated, the risk of recurrence of the collapse of Mt.Gox will disappear. No “drawn” trading volumes, only real deals. And the trade will be conducted without shoulders, for EUR and USD bitcoin, and not its surrogate. Unlike decisions on CBOE and CME, where settlement futures are traded, Bakkt futures will be delivered! The buyer will receive into his account not the difference in dollars, but real Bitcoin. The contract will be valid for one day, which will protect players from surges in volatility. And all this in a regulated environment! Trading rules, standards KYC and AML, compliance will be applied under the vigilant control of the CFTC Fantasy! With Bakkt come confidence and transparency. Spreads will narrow, trading volumes will increase. For Bitcoin, Bakkt’s quotes will become the main benchmark, while Cryptocompare and Coinmarketcap will be used to track the alto situation. Naturally there will be a question to ask: will crypto exchangers with their monstrous commissions and cryptobirds be needed after that? The latter are destined to go through the path of consolidation and restructuring of business models with a focus on the “second echelon” of cryptocurrencies. Bakkt also will be one of the 28 ICE exchange platforms available in traditional stock exchange terminals. The emergence of Bakkt will actually give birth to a new asset class. Bitcoin and other cryptocurrencies after it will be doomed to go the same way as energy carriers in due time. ICE owner Jeff Spreker in 25 years has built a $ 44 billion empire from virtually nothing, transferring stock exchange trading from a voice box to electronic format. And on this way he was waiting for success every time. The launch of Bakkt will be another milestone. Bakkt develops Spreker's wife, Kelly Loffler, who has been with ICE for 16 years. It all started with the purchase of a minority stake in Coinbase in 2015, which since last summer led to the creation of a “global platform and ecosystem for digital assets”. Recently, the Bakkt team has Adam White, who was at the origin of Coinbase and without whom it is hard to imagine 25 million customers and $ 8 billion of capitalization of the well-known cryptocurrency platform, as chief operating officer. Fortress Investment Group, Eagle Seven, Galaxy Digital, Horizons Ventures, Alan Howard, Pantera Capital, Protocol Ventures, Susquehanna International Group were invested in the development of Bakkt. The project advises the Boston Consulting Group. Technologically, everything will be built on the basis of cloud solutions from Microsoft. The next step will be the creation of special applications that will allow you to spend cryptocurrency. And this will help Starbucks, which is also present in this project.
Regulations Applied To Cryptocurrencies Around The World
Cryptocurrency Regulations Since the launch of Bitcoin in 2009, the economic revolution of cryptocurrencies has generated a stir in its demand, causing an increase in its popularity, therefore, increasing the transactions within the blockchain and the movements of crypto in the market. Consequently, many countries have had to implement laws and regulations to control crypto transactions within their jurisdiction, note that the blockchain are decentralized and do not respond to any public financial and legal entity, causing a lack of control over the transactions within the network. Telos Blockchain, having governance and a specific and defined arbitration system, is governed by laws and regulations that prevent many illicit actions from becoming effective, this collaborates with the cause of the countries that are implementing new regulations, becoming the ideal platform. As the demand for crypto increases, governments apply greater regulations at a global level, taking into account that cryptocurrencies are not backed by central banks, which is why many countries believe that there should be regulations that control this type of currency since it affects its local currency directly and indirectly; despite being an asset that can bring economic benefits to its users, it also lends itself to criminal actions through the network and the crypto. Any decision or economic announcement made in each country determines negatively or positively the behavior of the price of digital currencies. The regulators aim to prevent illicit actions in exchange houses, such as, for example, money laundering, terrorism financing, scams, payments to the dark web among others; According to the DEA, 10% of transactions with cryptocurrencies are used for illegal activities. During an interview with Lilita Infante of the United States Drug Enforcement Administration (DEA), published in Bloomberg, five years ago the percentage of criminal activity in blockchain transactions was 90%, at present, this number represents 10%, which has become transactions for price speculation and not for other purposes. In countries of the first world, governments have established regulations and laws that control the use of crypto assets. The regulations applied in China are not the same applied in the United States or Japan. Herein will be specified some regulations of countries where crypto have marked a trend.
Regulations In Japan
Asia, is one of the continents where more transactions of cryptocurrencies are made, not all countries that constitute the continent have been receptive, but this is not the case in Japan; where there are regulations in the commercial exchange of cryptocurrencies. The amendment that approved the use of cryptocurrencies in the country took effect as of 2017; under the Payment Services Act, only exchanges with representatives that reside in Japan and have offices in the country registered as part of the Japanese financial services agency may legally operate in the exchange of digital currencies. The National Tax Agency (Dec 2017), established that all income in cryptocurrency are classified as “miscellaneous income” and are added to the total amount of other income that a citizen has; the taxes are calculated from the total amount of the incomes and then they are taxed. Investors must pay taxes at rates that range from 15% to 55%. Japan under the Act on Prevention of Transfer of Criminal Proceeds, exchanges are required to verify the identities of customers who open accounts, keep records of transactions and notify the authorities when a suspicious transaction is recognized. Following the loss of 400 million dollars in NEM tokens in one of the most used exchanges in Japan, Coincheck, the government of Japan, according to the Library of Congress,
“The local Finance Bureau ordered Coincheck to submit a report on the same day, examined it, and issued an order of business improvement on January 29, 2018. The following day the FSA requested all cryptocurrency exchange businesses to review their system-risk management plans and report the results to the FSA. On March 2, 2018, the FSA conducted an on-site inspection of Coincheck. On March 8, 2018, the local Finance Bureaus issued business-improvement orders to seven exchange businesses, again including Coincheck. A group of cryptocurrency exchange businesses publicized their decision to form a new self-regulating body on March 2, 2018, that all registered exchange businesses will join. The body aims to obtain authorization from the FSA under the Payment Services Act.”
Regulations In China
In this country, both cryptocurrencies and exchange houses have been banned by the People’s Bank of China (PBOC), were completely eliminated in 2017, where 173 platforms were closed by 2018. Financial institutions cannot make any transactions with Bitcoin or another digital currency. In addition, they also banned ICOs and national currency exchanges. Additionally, as of January 2018, most of the crypto miners closed operations.
Unlike mainland China, there is a British ex-colony that in 1997 stopped being part of Britain and became part of the Chinese, but it was agreed that this region would be autonomous for half a century before Beijing takes full control over it. In other words, it is “one country, two systems”. This area called Hong Kong is governed by the same president of mainland China but does not comply with the same communist regulations. Unlike China, the cryptocurrencies are legal, currently, there is no legislation that regulates digital money, but they have an anti-crime organization which sanctions those who do not comply with requirements that stops cases of money laundering or fraud; Bitcoin is considered a virtual asset. Crypto Legal Status 2019
Regulations In The USA
Currently, cryptocurrencies are not considered as legal tender, although their exchange is; the regulations will depend on the state and the federal authorities since each one has different concepts of cryptocurrencies. The Financial Crimes Enforcement Network (FinCEN) considers that tokens are another value that replaces the local currency (Dollar), unlike the Internal Revenue Service (IRS) which establishes that cryptocurrencies are taxed as a property and not like a coin. In 2015, 802 people declared and paid taxes on the cryptocurrencies profits, which means that users are evading these taxes; The IRS is apparently using a unique software that helps them locate those users who are evading taxes. This theory is promoted by Laura Walter, a certified public accountant and cryptocurrency tax specialist, who published on July 8, 2018, a document that apparently has been presented to IRS agents of the Criminal Investigation division. The document indicates that the IRS intends to serve the subpoenas to request from large technology companies (Apple, Google, Paypal among others) information on users’ download history and to confirm whether they have any application in their devices related to any cryptocurrency. The United States is considered one of the countries with most transactions in LocalBitcoin, therefore, they have placed more regulations and laws when making this type of transactions. In 2018, the US Supreme Court debated the future of Bitcoin for the first time, and this and other cryptocurrencies are regulated under United States law. The treasury of the United States classified in 2013, that Bitcoin is a “convertible decentralized virtual currency”. The Commodity Futures Trading Commission, CFTC, classified bitcoin as a “good or asset” in September 2015. The US government has required all monetary service companies, such as, for example, exchanges, which carry out considerable transactions in the region, to meet several requirements: • Register in the FinCEN. • Design an anti-money laundering (AML) program. • Maintain record and make reports in case of suspicious activity (SAR). US FinCEN receives 1,500 SARs per month. • Make and deliver reports of digital currency transactions (CTR).
Regulations In Canada
Currently, cryptocurrencies are not considered as legal tender, although their exchange is, depending on the province. Since 2013, the Canada Revenue Agency has taxed the cryptocurrency transactions depending on the type of activity. Canada was one of the first countries to draw up cryptocurrency legislation, which designated exchanges as “money service businesses,” where they have to follow with anti-money laundering and know-your-client requirements among others.
Regulations In The European Union
Cryptocurrencies are legal, depending on the country the regulations will change. Exchange houses are currently not regulated at the regional level. In some cases, the exchanges have to register with the regulators of each country, where they grant these companies authorizations to operate legally within the jurisdiction of each country. In addition, each jurisdiction has different tax systems, which charge citizen’s taxes from the profits of the purchase and sale of cryptocurrency that ranges from 0% -50%.
Regulations In Australia
In Australia cryptocurrencies (treated as property) and exchanges are considered legal; In 2017 the Australian Senate declared the legality of cryptocurrencies and are subject of Capital Gains Tax. The same year, they began debating statutes for anti-money laundering to the country’s cryptocurrency exchanges; by the end of the year, cryptocurrency exchanges have to register with the country’s financial intelligence agency Austrac where they have to verify the user identity and other requirements. Currently, there are no regulations for the use of digital money as a payment method. Countries where cryptocurrency is banned or legal 2019
Consequently to the economic collapses that many developing countries have been through, there is a need for a stable economic structure that is not easily influenced by its environment. The blockchain has provided solutions to this need and many users from all over the world have had to resort to this economic model, as, for example, Third World countries, which suffer inflation, exchange controls, economic regulations by their governments, among other problems. Telos Blockchain has come to give an economical alternative to the user for the best management of their assets and their patrimony with a reliable and safe model, unlike other blockchains that have fallen into fraud, scams, money laundering among others, many countries have taken action on the matter and have placed regulations and laws that control possible security flaws in this model, such as unlawful acts.
The premise of cryptocurrency is simple, a new ICO launches, claiming to offer lucrative returns for investors. Investors can’t believe their luck and clamor to buy in. The business runs for some time on the back of the invested capital, but, sooner or later, disaster strikes and the company shuts down, often with no explanation. After a while, it becomes obvious that the company is gone for good, along with the invested funds. The poisoned chalice of crypto’s decentralized nature often means that investors are left in the dark when trying to recoup or trace their pilfered funds.
How to spot an exit scam
Many exit scams have tell-tale signs that investors should look out for. The financial content site Investopedia has a handy list of key characteristics. First, exit scams often have inconsistent or misleading information about the team behind the project. When scouting potential investment opportunities, investors should scour for information on key members of any ICO. It’s important to remember that online credibility can be faked by purchasing likes, profiles and followers on social media. Celebrity endorsements with verified accounts could also ring alarm bells for investors. A fake Twitter account purporting to be Elon Musk, with a supposedly verified twitter account, raised over $155,000 as part of a 2018 Bitcoin scam. Investors should verify the credentials of backers, team leaders and promoters of cryptocurrency projects. Although individuals may seem to be legitimate at first glance, brand new social mediaprofiles and few followers or connections should raise eyebrows. The most significant characteristic unifying exit scams in cryptocurrency is the promise of a huge return on investment (ROI) — chances are that it’s probably too good to be true. Investors should always look through even the smallest details of what they are required to invest and what the company purports to be able to give back to them. ICOs usually come with a white paper, setting out the design details of the project along with a business plan and other information. Investors should pursue all available information for ICOs, as any vagueness in the white papers should signal a big red flag. When investing in an ICO, it’s vital to get an understanding of the business model. Investopdia writes that anything powered by concept alone should be a warning to anyone tempted to buy in. Although cryptocurrency projects can and do launch off the back of technological advances, investors should be wary of projects looking to gather millions of dollars before taking a sober look at the project’s ability to return the investment from the published information. Heavy promotion of an upcoming ICO can also be a sign of an exit scam. Past scams have employed bloggers to promote via numerous forums. Ads both online and in print media could also be suspicious.
$2.9 billion PlusToken scam could be largest exit scam ever
A 2019 report shared with Cointelegraph by the cryptocurrency and blockchain forensics company Ciphertrace dubbed 2019 the year of the exit scam and highlighted the billions of dollars stolen in multiple scams this year alone. The report shines a light on what, if confirmed, could be the biggest crypto scam ever, with an estimated loss of around $2.9 billion after Chinese police uncovered an alleged Ponzi schemeinvolving the South Koreanwallet provider and exchange PlusToken. Although more is being uncovered about PlusToken, mystery still surrounds the key events. Ciphertrace reports that the platform has enshrouded several Chinese nationals, the government of Vanuatu, the Chinese police and the company’s co-founders — a South Korean man operating under the alias of “Kim Jung Un” and a Russian known only as “Leo.” The alleged PlusToken scam centers around an app with which the wallet provider claimed investors could invest in PlusToken (PLUS). According to the report, the firm claimed that the token, based on the Ethereumblockchain, was developed by a major technology company. PlusToken is also said to have falsely stated that it could deliver wallet holders an ROI of between 8% and 16% per month, with a minimum deposit of $500 in crypto assets. Ciphertrace also reported that no verifiable source of revenue existed other than the proceeds from new membership. Those were onboarded per the traditional method of a Ponzi scheme, which require a constant stream of new investment in order to support its semblance of growth. Investors were incentivized to recommend new users with an invitation, which was the only way to join. Although this was enough for some members to dismiss the legitimacy of the project outright, Leo, the company’s co-founder, published a press release that claimed he had met with Prince Charles, the future head of the English royal family, providing photos as proof. Ciphertrust reported that it had contacted the Prince Charles Foundation, which confirmed that Leo had indeed attended the event, but would not provide other information about the individual due to European Union General Data Protection Regulation, or GDPR. PlusToken’s fate was seemingly sealed on June 28, after members of the Chinese police touched down in Vanuatu, detained six people involved with the project and extradited them back to mainland China. Ciphertrace reported that the so-called “PlusToken Six” were either Vanuatu citizens or applying for citizenship at the time of their arrest. Soon after, PlusToken members found that they were unable to withdraw funds from their accounts. Customers were informed that withdrawals via the app were frozen due to “technical difficulties.” By June 20, the PlusToken app had ceased operations due to purported system maintenance. For investors, there seems to be no secure lead on the final resting place of the allegedly billions of dollars of stolen funds. The Chinese government has yet to comment. A July 12 post from PlusToken stated that the six Chinese individuals were simply service users and not actually involved with the running of the company itself, stating that users should ignore the rumors and not try to log in until they receive confirmation that the servers are back online.
On April 9, 2018, two ICOs — iFan and Pincoin — operating under the umbrella of company Modern Tech based in Vietnam, went silent after reports outed them as scams that had scalped 32,000 investors out of an alleged $660 million in tokens, according to Tuoi Tre News. Victims claim that the damages amount to roughly 15 trillion Vietnamese dong ($660 million) in token sales. Angered investors held a demonstration outside Modern Tech’s Ho Chi Minh City headquarters on April 8. One of the initial characteristics that could have alarmed investors was the fact that Pincoin offered service users bonuses for successfully bringing other people on board. Pincoin did initially pay out cash until January 2018, when the company switched to iFan tokens, TechCrunch reported. The owner of Modern Tech’s office building said that the company left its offices in March and that no one knew their current whereabouts. The firm left behind only an incomplete website that is now inactive. Modern Tech initially tried to pass itself off as a mere representative of both coins in Vietnam, prior to media reports confirming that seven of its Vietnamese executives were in fact behind the projects. TechCrunch reported that the ambiguous mission statement from the then-functional site is typical of the vague and jargon-filled copy used by exit scammers:
“The PIN Project is about building an online collaborative consumption platform for global community, base on principles of Sharing Economy, Blockchain Technology, and Crypto Currency”
Financial scam directory Behindmlm released a report in February 2018 that found its buy-in method was typical of an ROI Ponzi scheme. Pincoin’s website is currently down, though iFan’s is still online.
QuadrigaCX — regulators catch on
The death of 30-year old Gerald Cotten shook the crypto world — not only because Cotten was the co-founder and CEO of Canada’s largest cryptocurrency exchange, QuadrigaCX, but also because his control of the passwords and keys to accounts rendered all the assets on the exchange forever inaccessible after his death. Cotten took over $195 million of stolen cryptocurrency with him to the grave. Related:QuadrigaCX Users Lose $190M as Speculations Over Cotten’s Death Swirl Commenting on the May 9 Ernst & Young report, Ciphertrace said Cotten had played fast and loose with customer funds for many years in order to support a lavish lifestyle for both himself and his wife. Cotten allegedly exercised complete control over the exchange and used his position to perform “unsupported deposits” — i.e., fabricated transactions not represented by either fiat or cryptocurrency. Cotten also used significant volumes of customers’ cryptocurrency via transfers from the platform into other exchanges he controlled. As per the EY report, Cotten shifted significant amounts of fiat and cryptocurrency between alias accounts, although less than 1% of these transfers was supported by documentation. Ciphertrace notes that as the admin, Cotten was in a perfect position to hide his fraudulent activities. In a pattern that may now seem familiar, Cotten used customer funds to pay for QuadrigaCX operating costs after the company suffered liquidity issues due to his reported fraudulent use of user deposits. As QuadrigaCX began to struggle to stay afloat, EY reported that Cotten gambled customer funds in off-platform margin accounts to meet margin calls. The report also states that Cotten traded unsupported deposits for legitimate funds thereby generating artificial trading markets, abused his position to override Know Your Customer requirements and hoarded all passwords:
“The Monitor understands passwords were held by a single individual, Mr. Cotten and it appears that Quadriga failed to ensure adequate safeguard procedures were in place to transfer passwords and other critical operating data to other Quadriga representatives should a critical event materialize (such as the death of key management personnel).”
As of April 12, EY estimated that Quadriga held around $20.8 million in assets and around $160 million in liabilities. The debts and assets are spread over three subsidiary companies, 0984750 B.C. LTD. (the “Quadriga Estate”), Quadriga Fintech Solutions and Whiteside Capital Corporation. On July 31, the Supreme Court of Nova Scotia approved over $1.6 million in fees for parties seeking remuneration from the exchange, according to court documents.PDF) seen by Cointelegraph.
CFTC action launched after $147 million BTC scheme
On June 18, 2019, the United States Commodity Futures Trading Commission (CFTC) initiated a civil enforcement action against now-defunct Control-Finance Limited for a scheme involving $147 million worth in Bitcoin. It is alleged that Control-Finance Ltd. defrauded over 1,000 investors by laundering around 22,858 Bitcoin. In mid-September 2017, its website was abruptly taken offline, payments to clients were suspended and advertising content from social media accounts was deleted. The firm initially said that it would reimburse customers by late 2017. However, the company allegedly began transferring laundered Bitcoin by using the crypto wallet service CoinPayments. According to Ciphertrace’s Q2 2019 Anti-Money Laundering (AML) report, the CFTC complaint charges the company and its founder Benjamin Reynolds with:
“Exploiting public enthusiasm for crypto assets by fraudulently obtaining and misappropriating at least 22,858.22 Bitcoin from more than 1,000 customers through a classic high-yield investment (HYIP) Ponzi scheme called the Control-Finance Affiliate Program.”
Per the CFTC, the company claimed that investors who buy Bitcoin through the firm would be guaranteed daily profits thanks to their team of expert cryptocurrency traders. The complaint also stated that the firm falsely claimed market volatility would ensure funds invested through Control-Finance would result in profit. The CFTC also alleged that Control-Finance misleadingly promised that it could earn customers a 1.5% ROI daily and 45% monthly. Control-Finance is also reported to have sent partial amounts of new clients’ BTC deposits to other customers, which were disguised as profit from trading, a tactic typical of Ponzi schemes. The legal action seeking civil monetary penalties and permanent trading bans continues.
Co-owner of Bitmarket found shot dead after alleged exit scam
On July 8, the Poland-based exchange Bitmarket shut down, citing liquidity issues. According to Ciphertrace’s Q2 2019 AML report, the shutdown cost users around 2,300 Bitcoin, approximately $23 million. Users attempting to log on to the site were met with the following message:
“We regret to inform you that due to the loss of liquidity, since 08/07/2019, Bitmarket.pl/net was forced to cease its operations. We will inform you about further steps.”
Ciphertrace reports that Bitmarket had a history of partners pulling out. In 2015, the firm lost payment processors CashBill and BlueMedia after the companies' banks requested they end their working relationship with Bitmarket. PKO Bank Polski, Bitmarket’s own bank, also terminated its relationship with the firm only six months after Bank BPH had done so earlier in 2015. Bitmarket’s two founders, Marcin Aszkiełowicz and Tobiasz Niemiro, have contradicting accounts about the misplaced user funds. Aszkiełowicz claimed that the exchange had been hacked for 600 BTC in 2015, an incident from which the company was unable to recover. Niemiro, however, claimed that he was not responsible for activities on the exchange. Niemiro also purported to have been told that the company was purchased with a deficit of 600 BTC, which he allegedly repaid with his own money. Niemiro said he could not confirm that his partners had indeed used the money to purchase the 600 BTC. Two weeks after the interview, Niemiro was found dead in a forest near his home with a gunshot wound to the head, which the police deemed to be self-inflicted. The District Attorney’s Office stated that it is not looking into the involvement of third parties in Niemiro’s death, but are still actively investigating the misappropriation of funds.
A Chairman at World Economic Forumhttps://www.weforum.org/people/glenn-h-hutchins/https://archive.is/kubAYGlenn Hutchins is chairman of North Island and a co-founder of Silver Lake, the global leader in technology investing. He is a director of both AT&T and NASDAQ OMX; a director of the Federal Reserve Bank of New York; vice chairman of both the Brookings Institution and the Economic Club of New York; and a member of the Executive Committee of the New York Presbyterian Hospital. He is an owner and member of the Executive Committee of the Boston Celtics basketball team. Mr. Hutchins is a director of the Harvard Management Company, which is responsible for the Harvard University endowment, and co-chairman of the University’s capital campaign. He is also a board member of the Center for American Progress as well as a Fellow of the American Academy of Arts and Sciences. Previously, Mr. Hutchins served President Clinton in both the transition and the White House as a special advisor on economic and health-care policy. He was also previously chairman of the board of SunGard Data Systems, Inc. and Instinet, Inc. Mr. Hutchins and his wife, Debbie, founded the Hutchins Family Foundation which, among other projects, has created the Hutchins Center for African and African-American Research at Harvard University, which is chaired by Mr. Hutchins; the Hutchins Center on Fiscal and Monetary Policy at The Brookings Institution; and the Chronic Fatigue Initiative, which conducts basic research into the cause of chronic fatigue syndrome.
Advisory Board Larry Summers
Born in New Haven, Connecticut, Summers became a professor of economics at Harvard University in 1983. He left Harvard in 1991, working as the Chief Economist at the World Bank from 1991 to 1993. In 1993, Summers was appointed Undersecretary for International Affairs of the United States Department of the Treasury under the Clinton Administration. In 1995, he was promoted to Deputy Secretary of the Treasury under his long-time political mentor Robert Rubin. In 1999, he succeeded Rubin as Secretary of the Treasury. While working for the Clinton administration Summers played a leading role in the American response to the 1994 economic crisis in Mexico, the 1997 Asian financial crisis, and the Russian financial crisis. He was also influential in the American advised privatization of the economies of the post-Soviet states, and in the deregulation of the U.S financial system, including the repeal of the Glass-Steagall Act.
Following the end of Clinton's term, Summers served as the 27th President of Harvard University from 2001 to 2006. Summers resigned as Harvard's president in the wake of a no-confidence vote by Harvard faculty, which resulted in large part from Summers's conflict with Cornel West, financial conflict of interest questions regarding his relationship with Andrei Shleifer, and a 2005 speech in which he suggested that the under-representation of women in science and engineering could be due to a "different availability of aptitude at the high end," and less to patterns of discrimination and socialization.
After his departure from Harvard, Summers worked as a managing partner at the hedge fund D. E. Shaw & Co., and as a freelance speaker at other financial institutions, including Goldman Sachs, JPMorgan Chase, Citigroup, Merrill Lynch and Lehman Brothers. Summers rejoined public service during the Obama administration, serving as the Director of the White House United States National Economic Council for President Barack Obama from January 2009 until November 2010, where he emerged as a key economic decision-maker in the Obama administration's response to the Great Recession. After his departure from the NEC in December 2010, Summers has worked in the private sector and as a columnist in major newspapers. In mid-2013, his name was widely floated as the potential successor to Ben Bernanke as the Chairman of the Federal Reserve, though after pushback from the left, Obama eventually nominated Federal Reserve Vice-Chairwoman Janet Yellen for the position.
DCG of course is an investor in both Blockstream and BTCC. DCG's money comes from:
Bain Capital Group
New York Life
Novel TMT Ventures
Solon Mack Capital
The Whittemore Collection
HCM International Co
DCG also owns Coindesk. BTCC and Bitfury are the only two large mining pools who are outspoken in their support of Bitcoin Core. The Bitfury Group Leadership to Present at Clinton Global Initiative (https://archive.is/MWKee) Full Video (Begins at 32:00) “The Bitfury Group is proud to be the world’s leading full service Blockchain technology company, we are deeply honored to represent this innovation to an audience of extremely dedicated game-changers, and we look forward to highlighting our company’s groundbreaking ‘Blockchain for global good’ work at such an important event, said Smith. “From the White House to the Blockchain, I know this technology has the power to deliver inclusion and opportunity to millions, if not billions, of people around the world and I am so grateful to work for a company focused on such a principled vision.” Bitfury Lightning Implementation
ACINQ’s US Headquarters is in Vienna, Virginia, a small town of only 16,000. Why would a global financial firm choose to locate here? -- Feeder community into Washington, D.C. Has an orange line metro stop. -- Located in Fairfax County, VA. -- The US Federal Government is the #2 largest employer -- Booz Allen Hamilton (NSA front company) is #6 largest employer -- In fact, most of the top employers in Fairfax County are either US Federal Gov’t or companies that provide services to Federal Government -- The county is home to the headquarters of intelligence agencies such as the Central Intelligence Agency, National Geospatial-Intelligence Agency, and National Reconnaissance Office, as well as the National Counterterrorism Center and Office of the Director of National Intelligence.
Chairman: Avinash Vashistha
Former Chairman and CEO of Accenture in India
He has worked with numerous clients in Banking, Investment and Financial services - General Atlantic, Goldman Sachs, Warbug Pincus, JP Morgan Chase, Visa, Citi Ventures, Baird Capital, Norges Bank, UBS, AXA and has advised World Bank, IDB, ADB, USAID and other multi-lateral agencies over the last 20 years on country strategy and investments across Asia and Latin America.
From 1986-1993 he worked for Information Management Consultants (imc) Ltd as a Technical Consultant with various federal government agencies. McLean, Virginia
1993-2000 Technical Consultant for Freddie Mac, in McLean Virginia
From 2000-2007, President of InterPro Global in Maryland
From 2011-2012, Director of VibbleTV in Columbia, Maryland
From 2008-Present has been Executive Director at ACINQ and Managing Partner at Vine Management, both in Vienna, Virginia.
BitFury Enhances Its Advisory Board by Adding Former CFTC Chairman Dr. James Newsome and Renowned Global Thought Leader and President of the Institute for Liberty and Democracy Hernando de Soto (Businesswire) Bitfury Board of Directors Robert R Dykes
Former CFO at Juniper Networks from 2005-2007, which had an NSA backdoor added to router software.
Greg Maxwell spent “several years at Mozilla”, leaving in August 2014
The other board members include two Bitfury founders, and an investor. Bitfury Advisory Board James Newsome
Ex-chairman of CFTC
Dr. Newsome was nominated by President Clinton and confirmed by the Senate to be at first a Commissioner and later a Chairman of CFTC. As Chairman, Newsome guided the regulation of the nation’s futures markets. Additionally, Newsome led the CFTC’s regulatory implementation of the Commodity Futures Modernization Act of 2000 (CFMA). He also served as one of four members of the President’s Working Group for Financial Markets, along with the Secretary of the Treasury and the Chairmen of the Federal Reserve and the SEC. In 2004, Newsome assumed the role of President and Chief Executive Officer of the New York Mercantile Exchange (NYMEX) where he managed daily operations of the largest physical derivatives exchange in the world. Dr. Newsome is presently a founding partner of Delta Strategy Group, a full-service government affairs firm based in Washington, DC.
Hernando de Soto
Hernando de Soto heads the Institute for Liberty and Democracy, named by The Economist one of the two most important think tanks in the world. In the last 30 years, he and his colleagues at the ILD have been involved in designing and implementing legal reform programs to empower the poor in Africa, Asia, Latin America, the Middle East, and former Soviet nations by granting them access to the same property and business rights that the majority of people in developed countries have through the institutions and tools needed to exercise those rights and freedoms. Mr. de Soto also co-chaired with former US Secretary of State Madeleine Albright the Commission on Legal Empowerment of the Poor, and currently serves as honorary co-chair on various boards and organizations, including the World Justice Project. He is the author of “The Other Path: the Economic Answer to Terrorism”, and his seminal work “The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.”
Criticisms: -- In his 'Planet of Slums' Mike Davis argues that de Soto, who Davis calls 'the global guru of neo-liberal populism', is essentially promoting what the statist left in South America and India has always promoted—individual land titling. Davis argues that titling is the incorporation into the formal economy of cities, which benefits more wealthy squatters but is disastrous for poorer squatters, and especially tenants who simply cannot afford incorporation into the fully commodified formal economy. -- An article by Madeleine Bunting for The Guardian (UK) claimed that de Soto's suggestions would in some circumstances cause more harm than benefit, and referred to The Mystery of Capital as "an elaborate smokescreen" used to obscure the issue of the power of the globalized elite. She cited de Soto's employment history as evidence of his bias in favor of the powerful. https://www.theguardian.com/business/2000/sep/11/imf.commenthttp://www.slate.com/articles/news_and_politics/hey_wait_a_minute/2005/01/the_de_soto_delusion.html
Dr. Tomicah Tillemann is Director of the Bretton Woods II initiative. The initiative brings together a variety of long-term investors, with the goal of committing 1% of their assets to social impact investment and using investments as leverage to encourage global good governance. Tillemann served at the U.S. State Department in 2010 as the Senior Advisor on Civil Society and Emerging Democracies to Secretary Hillary Clinton and Secretary John Kerry. Tillemann came to the State Department as a speechwriter to Secretary Clinton in March 2009. Earlier, he worked for the Senate Foreign Relations Committee, where he was the principal policy advisor on Europe and Eurasia to Committee Chairmen, Senators Joe Biden and John Kerry. He also facilitated the work of the Senate's Subcommittee on European Affairs, then chaired by Senator Barack Obama. Tillemann received his B.A. magna cum laude from Yale University. He holds a Ph.D. with distinction from the School for Advanced International Studies at Johns Hopkins University (SAIS) where he also served as a graduate level instructor in American foreign policy.http://live.worldbank.org/node/8468https://archive.is/raDHA
Secretary Clinton appointed Tomicah Tillemann, Ph.D. as the State Department’s Senior Advisor for Civil Society and Emerging Democracies in October 2010. He continues his service under Secretary Kerry.
Mr. Tillemann and his team operate like venture capitalists, identifying ideas that can strengthen new democracies and civil society, and then bring together the talent, technology and resources needed to translate promising concepts into successful diplomacy. He and his team have developed over 20 major initiatives on behalf of the President and Secretary of State.
Mr. Tillemann came to the State Department as a speechwriter to Secretary Clinton in March 2009 and collaborated with her on over 200 speeches. Earlier, he worked for the Senate Foreign Relations Committee, where he was the principal policy advisor on Europe and Eurasia to Committee Chairmen, Senators Joe Biden and John Kerry. He also facilitated the work of the Senate's Subcommittee on European Affairs, then chaired by Senator Barack Obama. Mr. Tillemann’s other professional experience includes work with the White House Office of Media Affairs and five U.S. Senate and Congressional campaigns. He was a reporter with Reuters New Media and hosted a commercial radio program in Denver, Colorado.http://m.state.gov/md160354.htmhttps://www.newamerica.org/our-people/tomicah-tillemann/https://archive.is/u2yF0
Director of “Bretton Woods II” initiative at New America Foundation Bretton Woods was an international summit that led to the creation of the IMF and the IBRD, one of five members of The World Bank
Speaking to Clinton Global IntiativePrior to working at Edelman, my career has included serving as Deputy White House Press Secretary and Special Assistant to President Obama, Director of Public Affairs for the Office of the Director of National Intelligence, Director of Communications for the Senate Commerce, Science and Transportation Committee and its then Chairman Senator Rockefeller, Traveling Press Director for Secretary Hillary Clinton’s 2008 Presidential campaign, and Director of Communications for Secretary Madeleine K. Albright and her consulting firm, The Albright Group, LLC.https://medium.com/@jamieelizabethsmith/why-i-believe-in-the-blockchain-b19bf2014fab
Don Tapscott, co-author of the book “Blockchain Revolution,” hosted the meeting with his son and co-author Alex Tapscott at his family’s summer compound in Lake of Bays, Ontario. The group included some of blockchain’s biggest backers, including people with ties to IBM and JPMorgan. They considered ways to improve the governance and oversight of the technology behind the digital currency bitcoin as a way to fuel the industry’s growth. They included Jim Zemlin, executive director of the Linux Foundation; Brian Behlendorf, executive director of the Hyperledger Project, a blockchain supporter group that includes International Business Machines Corp., Airbus Group SE and JPMorgan Chase & Co.; and Ana Lopes, board member of the World Wide Web Foundation. Participants with blockchain industry ties include former deputy White House press secretary Jamie Smith, now chief global communications officer of BitFury Group Ltd., and Joseph Lubin, founder of startup Consensus Systems.
Was the founding director of the MIT Digital Currency Initiative -Left his 4 year post as White House Senior Advisor for Mobile and Data Innovation to go directly to the MIT DCI
Brian Forde has spent more than a decade at the nexus of technology, entrepreneurship, and public policy. He is currently the Director of Digital Currency at the MIT Media Lab where he leads efforts to mainstream digital currencies like Bitcoin through research, and incubation of high-impact applications of the emerging technology. Most recently he was the Senior Advisor for Mobile and Data Innovation at the White House where he spearheaded efforts to leverage emerging technologies to address the President’s most critical national priorities. Prior to his work at the White House, Brian founded one of the largest phone companies in Nicaragua after serving as a business and technology volunteer in the Peace Corps. In recognition of his work, Brian was named a Young Global Leader by the World Economic Forum and one of the ten most influential people in bitcoin and blockchain.https://www.linkedin.com/in/brianfordehttps://archive.is/WjEGU
Includes Accenture (See Avinash Vashistha), Allianz, Deloitte (Scaling Bitcoin platinum sponsor, Blockstream Partner), Citigroup, Bain & Company (parent of Bain Capital, DCG investor), Dalian Wanda Group (working on blockchain technology), Ernst & Young (see Paul Brody), HSBC (Li-Ka Shing, Blockstream investor, used to be Deputy Chairman of HSBC), IBM, KPMG International, Mastercard (DCG Investor), PwC (Blockstream partner, also sponsor of Scaling Bitcoin)
Future of Financial Services Report [PDF] The word “blockchain” is mentioned once in this document, on page 23 (http://i.imgur.com/1SxyneJ.png):We have identified three major challenge areas related to innovation in financial servicesthat will require multi-stakeholder collaboration to be addressed effectively. We are launching a project stream related to each area, with the goal of enabling tangible impact.... Decentralised systems, such as the blockchain protocol, threaten to disintermediate almost every process in financial services
Excerpt: BitFury - www.bitfury.com - The Bitfury Group develops and delivers software and hardware solutions for businesses, governments, organisations and individuals who want to securely move an asset across the Blockchain.
REGULATION OF BITCOIN: THE ROLE OF THE CFTC The remarkable growth and volatility of Bitcoin and other virtual currencies has raised the question of how these markets are regulated. The CFTC has emerged as "the federal overseer of digital currencies like bitcoin," according to Bloomberg.1 Other federal regulators, such as the SEC and bank regulators, supervise specific institutions and discrete ... In the case of Coinflip, Inc., d/b/a Derivabit et al. (2015), the defendants' webbased trading platform allowed traders to post (and accept) bids and offers on Bitcoin option contracts. Traders would deposit Bitcoin into an account on defendants' website, and use Bitcoin to pay premiums and settlement payments to the other party. The CFTC charged the defendants with operating a facility for ... CFTC Brings First Bitcoin Enforcement Action, Further Clarifying U.S. Regulatory Landscape for Virtual Currencies September 28, 2015 . On September 17, 2015, the Commodity Futures Trading Commissionsettled its first . enforcement action. involving an unregistered Bitcoin derivatives trading platform. Coinflip, Inc. operated an online trading platform called Derivabit, which connected buyers ... The CFTC also has taken notice of an innovative ledger system known as the “blockchain,” which verifies and records all bitcoin transactions. In speeches in late 2015, CFTC Chairman Timothy G. Massad and Commissioner J. Christopher Giancarlo each commented on the potential impact of blockchain technology on financial ecosystems. The ... The CFTC has confirmed that bitcoin and other digital currencies are commodities covered by the Commodity Exchange Act (CEA).
Stimulus, Regulation and Digital Assets and Currencies
WATCH LIVE: House members debate and vote on a $484 billion coronavirus relief package Washington Post 10,893 watching Live now Incomprehensible situation with the regulator may result in reputational losses for LedgerX. If the CFTC's (Commodity Futures Trading Commission’s) permission cannot be obtained soon, it may be ... The CFTC first found that Bitcoin and other virtual currencies are properly defined as commodities in 2015. As such, the CFTC has regulatory oversight over futures, options, and derivatives ... According to the Commodity Futures Trading Commission, bitcoin an... Skip navigation Sign in. Search. Loading... Close. This video is unavailable. Watch Queue Queue. Watch Queue Queue. Remove all ... New Regulation of Swap Transactions by US and Non US Banks Under Dodd-Frank Act - Duration: 1:23:54. Arnold & Porter Kaye Scholer LLP 2,373 views