The HODLcast: “QuadrigaCX with Amy Castor and David Gerard”

Sasha Hodder of The HODLcast interviewed me and David Gerard, author of “Attack of the 50-foot Blockchain,” about collapsed Canadian crypto exchange QuadrigaCX.

Sasha is an attorney with DLT Law Group, P.A., which focuses on supporting crypto-related businesses. David’s work has had a huge influence on me, so you can imagine how much fun I had doing a podcast with him.

QuadrigaCX is the story of how two sketchy characters—one, a convicted felon, and the other, a young man who seemingly had been running ponzi schemes since his teenage years—came together and launched a crypto exchange. A match made in heaven, right?

David and I talk about how this was even possible; the appalling, amateurish way the business was run; and the impact this could have on future crypto regulation.

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News: LEO getting pumped, Cryptopia scrambles to save its data, Poloniex says it’s stopped ignoring customers

This newsletter is reader supported. If you appreciate my work enough to buy me a beer or cup of coffee once a month, that’s all it costs to become a patron. I’m trying to pick up freelance gigs when I can, but one of the joys of writing for my own blog is I can write whatever I want, when I want. On to the news…

Bitfinex and LEO

Screen Shot 2019-05-29 at 5.43.17 PMUNIS SED LEO, the full name of Bitfinex’s shiny new utility token, is in its second week of trading. The price started at around $1, but it’s already climbed to a high of $1.52, according to CoinGecko. I’m sure the price increase is totally organic—not.

There are 1 billion LEO in circulation—660 million issued on Ethereum and 340 million issued on the EOS blockchain. 

Crypto Rank warns that 99.95% of LEO coins are owned by the top 100 holders. Also, Bitfinex still has not disclosed information about the investors. “We consider that the token can be manipulative,” Crypto Rank tweeted.

Given its $850 million shortfall, Bitfinex needs to pull in more money. It recently entered the initial exchange offering (IEO) business. IEOs are similar to initial coin offerings (ICOs), except that instead of handing you money directly to the token project, you give it to the exchange, which acts as a middleman and handles all of the due diligence.

Tethers

As the price of bitcoin goes up—at this moment, it is around $8,730—the number of tethers in circulation is going up, too. There are now more than $3 billion worth of tethers sloshing around in the crypto markets, pushing up the price of bitcoin.

Whale Alert says $25 million worth of tethers were taken out of the supply and put into the Tether Treasury. Kara Haas tells me, don’t worry, $150 million Ethereum-based tethers were just issued, and they more than make up for the difference.

Omni tethers, Ethereum tethers, Tron tethers. Tethers appear to be constantly coming and going, bouncing from one chain to another. It gets confusing. But maybe that is the point—to keep us confused. And to add to the jumble, tethers are now executing on EOS.

In the next couple of weeks, Tether is also planning to issue tethers on Blockstream’s federated sidechain Liquid. And later this year, the Lightning Network.

I updated my recent tether story to note that if you want to redeem your tethers via Tether, there is a minimum redemption of $100,000 worth—small detail. Also, I still haven’t found anyone who has actually redeemed their tethers.

Cryptopia’s data—held to ransom?

Cryptopia filed for liquidation on May 14. Liquidator Grant Thornton New Zealand is now scrambling to save the exchange’s data, held on servers hosted by PhoenixNAP in Arizona. The tech services wants $1.9 million to hand over the data.

Grant Thornton is worried Phoenix will erase the SQL database containing critical details of who owned what on the exchange. It filed for Chapter 15 and provisional relief in the Bankruptcy Court of the Southern District of New York. (Here is the motion.)

According to the motion, Cryptopia paid Phoenix for services through April. But when it offered to pay for May, Phoenix ended the service contract and “sought to extract” $1.9 million from the exchange. Grant Thornton says only $137,000 was due for the month of May. Phoenix also denied the liquidators access to the data.

On May 24, the court granted motion. (Here is the order.) Phoenix has to preserve the data for now, but Cryptopia has to pay $274,408 for May and June as security in the temporary restraining order. 

Meanwhile, Cryptopia liquidators’ first report is out. The New Zealand exchange owes 69 unsecured creditors $1.37 million (these are just the ones who have put in claims thus far) and secured creditors over $912,000, with an expected deficit of $1.63 million.

Turns out January 14, the day Cryptopia suffered its fatal hack was the exact same day Quadriga announced the death of its CEO Gerald Cotten, who, uh, had been dead since December 9. The two defunct exchanges had a few other things in common, which I outline in my first story for Decrypt.

Poloniex 

Living in Cambridge, I found it strange that nobody in the local blockchain community knew anyone who worked at Poloniex, based in Somerville, the next town over. I was told Polo staff kept a low profile for security reasons. But I also wonder if they were trying to avoid pissed off customers, whose inquiries they ignored for months.

When Circle acquired Polo in February 2018, it inherited 140,000 support tickets. Now, more than a year later, Circle says it’s all caught up. Polo’s customer support has been “completely transformed” and 95% of inquiries are now handled within 12 hours.

Coinbase

Yet another executive has left Coinbase, president and COO Asiff Hirji. This is the third C-level executive to leave the San Francisco crypto exchange this year.

Recently, Coinbase said it was offering a crypto debit card in the UK—a Visa with a direct link to your Coinbase wallet that lets you spend crypto anywhere Visa is accepted. Financial Time’s Izabella Kaminska thinks that could open a back door for dirty money.

Coinbase plans to add margin trading. Leveraged trading lets you supersize your trading power, because you are borrowing from the exchange, but it also supersizes your risk.

It is easy to understand why Coinbase would want to get a piece of the margin trading business. BitMEX has been reeling in the profits with its bitcoin derivative products. The company’s co-founder is now a billionaire who has so much money, he is giving it away.

Binance is also talking about putting margin trading on the menu.  

Elsewhere in cryptoland 

Kik, the messaging app that raised $100 million selling its kin token in 2017, thinks decades old securities laws need revamping. It wants to create a new Howey test.

The Canadian startup launched DefendCrypto.org, a crowdfunding effort to fight the SEC. It’s contributed $5 million in crypto, including its own kin token, toward the effort.

Ted Livingston, Kik’s CEO says there was no promise kin would go up in value, like a stock. But that is not what at all what he implied during a presale pitch.

Craig Wright, the self-proclaimed inventor of bitcoin, created a hoopla when he filed registrations for the bitcoin code and Satoshi white paper. Disagreements over the significance of the registration have spilled out into his Wikipedia page. Drive-by editors even tried to change Wright’s name to “Craig Steven Fart face.”

Taotao, a new crypto exchange is launching in Japan. It is fully licensed by the Financial Services Agency, the country’s financial watchdog, and it is 40% owned by Yahoo Japan.

As long as the price of bitcoin keeps going up, that is all that matters to bitcoiners. David Gerard delves into the origin of the phrase “Number go up.”

Geoff Goldberg, well-known for his battles against the relentless XRP armies, has been mass reported for calling out the bots that run rampant on twitter. No good deed goes unpunished, apparently. Twitter has effectively silenced him for seven days.

Finally, the Associated Press has a new entry on crypto—sorry, cryptocurrency.

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Related stories:
Social media startup Kik is kicking back—at the SEC
Turns out, you can make money on horse manure, and tethers are worth just that
“QuadrigaCX traders lost money on Cryptopia on the same day in January”—my first story for Decrypt

 

 

“QuadrigaCX traders lost money on Cryptopia on the same day in January”—my first story for Decrypt

Screen Shot 2019-05-28 at 6.56.36 PM.pngI just had my first story published in Decrypt, and you should read it!

Some background — I had been getting a few direct messages from QuadrigaCX traders who also lost money on Cryptopia, the NZ-based altcoin factory that recently went kaput. This led me into researching Cryptopia and learning the two exchanges shared a few commonalities.

Oddly, the death of Quadriga CEO Gerald Cotten was announced on January 14, the exact same day Cryptopia was hacked. This could be a wild coincidence, but still, it’s weird.

Both companies were run by amateurs, both had dollar-pegged tokens—Quadriga used Quad Bucks and Cryptopia came up with the idea for NZDT on a lark—and they both experienced crippling banking issues.

The Canadian Imperial Bank of Canada froze accounts belonging to Quadriga’s third-party payment processor Costodian in January 2018. And ASB Bank closed Cryptopia’s NZDT account just weeks later—another weird coincidence.

More details in the article!

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News: Kraken sets out to raise millions, Circle is cutting staff, Bitfinex scores another tiny victory in court

Crypto exchanges are struggling. Revenue growth is not what it was during the bubble of 2017, and regulators are cracking down. You can’t just list any old coin anymore without considering, “Is the SEC going to deem this a security?” And the cost of hiring lawyers, responding to subpoenas, and staying compliant is cutting into profits. So what are exchanges doing? They are laying off staff and/or trying to raise more money, while they hold out hope for the big institutional money that will come any day now.

Kraken and Bnk to the Future

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Recently, customers of Kraken got an interesting email offering a “rare, but limited opportunity.” Some folks thought the email was spam, but it was real.

Turns out, the San Francisco-based trading platform is partnering with Bnk to the Future as a way to raise funds by selling preferred shares of its stock. You can own a piece of Kraken for as little as $1,000. (In the US, you need to be an accredited investor, though.) 

The exchange hopes to rustle up $15.45 million. (Originally, it wanted to raise $10.2 million, but lifted the goal.) As of this writing, Kraken has raised $6.2 million from 942 investors. The crowdfund runs until June 20.

In December, Kraken tried to raise money at a $4 billion valuation, and it reportedly raised $100 million early this year, which it used to buy Crypto Facilities, a regulated London-based crypto derivatives exchange.  

In 2016, Bitfinex also used Bnk to the Future when it encouraged its customers to exchange their BFX tokens to shares in iFinex, the parent company of Bitfinex and Tether. BFX was the token that Bitfinex gave to its customers in compensation for funds they lost when the exchange was hacked. The exchange sold $57.39 million worth of iFinex shares in this manner, basically converting stolen funds to shares.

Bitfinex customers didn’t have much of an option. BFX tokens were dropping in value, and they wanted to get their money back.

Bitfinex/Tether and the NYAG law suit

Bitfinex joyously declared another small legal victory on May 22, when New York Supreme Court judge Joel M. Cohen granted a motion limiting the scope of the documents Bitfinex and Tether have to hand over to the New York Attorney General’s office.

The day prior, the companies had filed a motion to dismiss the case outright with three new court docs: proposed order to show cause, a memorandum in support of the motion to dismiss, and an affidavit by their general counsel Stuart Hoegner.

Lawyers for the companies argued the Bitfinex platform does not allow New Yorkers to trade (putting it outside of the NYAG’s jurisdiction), the Martin Act doesn’t apply to them (because tether is not a security or commodity, they said), and the document requests were too onerous. The NYAG has seven days to respond, and the judge scheduled a hearing for the motion to dismiss on June 29. 

According to Hoegner’s affidavit, which I read late one evening, you can’t actually redeem tethers 1:1 unless you bought them directly from Tether, which means if you got them on an exchange somewhere, too bad. You won’t be too surprised to learn then, that I can’t find a single person who claims to have either bought or redeemed tethers via Tether Ltd.

The Block got hold of a court transcript from the Bitfinex court hearing on May 16. “Tether actually did invest in instruments beyond cash and cash equivalents, including bitcoin,” a lawyer for Bitfinex told the court.

Wait, what? Bitcoin? Tether invested in bitcoin?

The entire purpose of tether is to be a stable asset that traders can use to escape market volatility. Yet, Tether is taking its reserves—money that it was supposed to keep an eye on, so that tethers always remained fully backed—and investing it in a highly volatile asset. What if bitcoin crashes? What then of the stablecoin? 

We learn something new about Tether everyday, it seems. According to CoinMarketCap, every 24 hours, the entire $3 billion supply of tethers changes hands 7.5 times, but not really, because most of that volume is fake.

The Block analyst Larry Cermak posted a graph of exchanges that trade tether, and some of the ones with the highest volume are obscure platforms nobody has heard of. “If I were to make an educated guess, at any given time, only a maximum of 15% of the total Tether volume is real,” he tweeted. In other words, it is all wash trading, i.e., trading bots simultaneously buying and selling tether to create the appearance of frenetic activity.

As far as I can tell, tether’s actual value is on par with horse manure—giving true meaning to the word “stablecoin”—just not as good for the roses. 

Circle and Poloniex

Circle, the Boston-based company that bought crypto trading platform Poloniex in February 2018, is laying off 30 people—10 percent of its workforce. The company blames the layoffs on an “increasingly restrictive regulatory climate.”

Last week, I mentioned that Poloniex geofenced nine altcoins, meaning people in the US will no longer be able to trade those coins on the exchange after May 29. Circle said  recent guidance from the SEC was a trigger for the move. I took another look and realized that one of the coins was Decred—a fork of bitcoin. Why Decred?

It’s possible the project’s premine and governance structure look a little to shareholdery, and Circle, which is backed by Goldman Sachs, is not in a position to risk listing any coins on Poloniex that might be construed as securities.

QuadrigaCX

I finally got around to writing up QuadrigaCX Trustee’s Preliminary Report. Ernst & Young basically says the money is all gone. Also, it adds that Quadriga’s financial affairs were a complete mess, and they’ll probably never sort everything out properly.

Remember the photo of 1,004 checks sitting on a stovetop? EY finally deposited those into a disbursement account on April 18. What a surprise for this trader to learn the money was freshly sucked out of his bank account two years later!

Also interesting, Black Banx (formerly WB21), the third-party payment processor allegedly holding $CA12 million in Quadriga funds is now issuing Visa cards without Visa’s consent. Antony Peyton, the finance journalist who had a thug show up on his doorstep last time he wrote about them, has been researching the company.

Cryptopia

New Zealand crypto exchange Cryptopia went belly up on May 14. Turns out, for the last nine months—since before the January hack that put it out of business—Adam Clark, the exchange’s former founder and programmer, has been building a new crypto exchange. According to his LinkedIn profile, he’s been working on Assetylene since September 2018. So, if you lost your money on Cryptopia, you can try again on Assetylene. I’m sure they’ve got their security issues sorted out by now.

Meanwhile, the funds that were stolen from Cryptopia are on the move. Whale Alert, who has been keeping on eye on the transfers, says funds from Cryptopia recently went to Huobi, where they were likely traded for other coins. Whale Alert also noted 500 ETH going to decentralized exchange EtherDelta.

Elsewhere in cryptoland

Facebook is getting ready to launch its GlobalCoin cryptocurrency payments system in 2020. They probably want to do something like PayPal combined with social media. David Gerard asks: “Why are on earth are they doing this as a cryptocurrency?” As he explains, nothing about putting this on a blockchain makes any sense whatsoever.

Bestmixer.io, one of the largest crypto mixers and tumblers, was shut down by Dutch authorities with the help of Europol and Luxembourg law enforcement. According to Europol’s press release, it was responsible for $200 million in money laundering.

Well, this is a shocker. The SEC has again delayed the VanEck bitcoin ETF proposal. Here is the order. The new deadline for the SEC to make a decision is August 19, and it can delay one more time for a final deadline of October 18, Jake Chervinsky tweeted. It’s been eight years, and the SEC has yet to approve any bitcoin ETFs in the US.  

Bitcoin is set to overtake the existing financial system—or maybe not. In a recent report, the European Central Bank says crypto poses no threat to financial stability in the euro zone. A “very low” number of merchants currently allow buying of goods and services with bitcoin, and there is no “tangible impact on the real economy.”

The IRS is planning to publish new tax guidance for crypto holders and traders. The last time it issued guidance was November 2014, back when it said crypto would be treated as property and you had to report earnings as capital gains.

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News: $250 million longs wiped out by bitcoin whale, Binance reopens withdrawals, Bitfinex set to trade LEO

Screen Shot 2019-05-18 at 5.17.10 PMThe price of bitcoin (BTC) is organically decided by traders—big ones, and only a few of them.

In the morning of May 17, the price of bitcoin did a nosedive, dropping from around $7,726 to $6,777 in about 20 minutes. The plunge was due to the actions of a single large trader (a “whale”) putting up 5,000 BTC (worth about $40 million) on crypto exchange Bitstamp.

The massive liquidation wiped out $250 million worth of long positions on BitMEX, a bitcoin derivatives exchange based in Hong Kong. (The BTC price it used bottomed at $6,469.15.) This, in turn, caused bitcoin’s price to plummet on other exchanges.

It’s hard not to view this as intentional price manipulation. 

BitMEX relies on two exchanges—Bitstamp and Coinbase Pro—equally weighted, for its Bitcoin-US dollar price index. Bitstamp and Coinbase both have low trading volumes, which makes them particularly vulnerable to price manipulations. It is like rolling a bowling ball down an alley and there are only two pins. You just have to aim for one.

Dovey Wan, partner at crypto asset investment fund Primitive Ventures, was the first to spot the dump on Bitstamp. She tweeted“As NO ONE will simply keep 5000 BTC on exchange, this is deliberately planned dump scheme, aka manipulation imo.” 

Despite the hit, the price of bitcoin magically recovered. As of this moment, it is trading at around $7,300. Bitstamp has launched an investigation into the large trade.

Delay, delay, delay

In the wake of such blatant price manipulation, it is tough to imagine that the SEC will ever approve a bitcoin exchange-traded fund (EFT).

On May 14, the US regulator again delayed a decision to approve the Bitwise ETF proposal. The deadline for the SEC’s ruling on the VanEck bitcoin ETF is May 21, but I’m betting that will get pushed out again, too.  

Bitfinex

The New York Supreme Court has ordered Bitfinex to stop accessing Tether’s reserves for 90 days, except for normal business activities. The judge modified the New York Attorney General’s original order to ensure it does not restrict Tether’s “ordinary business activities.” Bitfinex played up the event as a “Victory! Yay, we won!” sort of thing, but the NYAG’s investigation is ongoing, and the companies still have to hand over documents.  

Traders clearly don’t have much confidence in Bitfinex at the moment. Amidst the regulatory drama swirling around Bitfinex and Tether, they are moving a “scary” amount of bitcoin off the exchange. 

Meanwhile, Bitfinex is pinning its hopes on its new LEO token. Paolo Ardoino, the company’s CTO, tweeted that Bitfinex raised $1 billion worth of tethers—not actual dollars, mind you, but tethers—in a private sale of its new token LEO. Bitfinex has yet to disclose who actually bought the tokens, but I’m sure they are totally real people. 

Bitfinex announced that on Monday, May 20, it will begin trading LEO in pairs with BTC, USD, USDT, EOS, and ETH. It will be interesting to see if traders actually buy the token. US citizens are not allowed to trade LEO. 

Binance

After freezing deposits and withdrawals for a week following its hack, Binance opened up withdrawals again on May 15. Traders are now free to move their funds off the exchange. 

Binance is looking to create utility around its BNB token. The exchange burned all of its Ethereum-based BNB tokens and replaced them with BEP2 tokens—the native token of Binance Chain. The cold wallet address is here.

Cryptopia, Poloniex, Coinbase

New Zealand crypto exchange Cryptopia is undergoing a liquidation after it experienced two security breaches in January, where is lost 9.4% of all its assets. Its customers are understandably pissed and outraged.

After the breach, the exchange was closed from January until March 4, when it relaunched in a read-only format. Ten days later, traders woke up to a message on the exchange’s website that read, “Don’t Panic! We are currently in maintenance. Thank you for your patience, and we apologize for the inconvenience.” Cryptopia closed permanently on May 15. Grant Thornton NZ, the company handling the liquidation, expects the process will take months.

In the US, regulatory uncertainty continues to plague exchanges. Boston-based Poloniex, which Circle acquired last year, says it will disable US markets for nine tokens (ARDR, BCN, DCR, GAME, GAS, LSK, NXT, OMNI, and REP). “It is not possible to be certain whether US regulators will consider these assets to be securities,” the exchange says. 

Meanwhile, Coinbase is using the $300 million it raised in October to gobble up other companies. The San Francisco-based exchange is in talks to buy Hong Kong-based Xapo for $50 million. Xapo’s coveted product is a network of underground bitcoin cold storage vaults. The firm is rumored to have $5.5 billion worth of bitcoin tucked away in bunkers across five continents. 

Elsewhere in Cryptoland 

John McAfee has disappeared. “He was last seen leaving a prominent crypto person’s home via boat. He is separated from his wife at the moment. Sources are claiming that he is in federal custody,” says The Block founder Mike Dudas.

McAfee’s twitter account is now being operated by staff, who later denied he was in custody, posting pics of McAfee with his wife in their “new” backyard. 

Decrypt’s Ben Munster wrote a hysterical piece on Dudas, who has a habit of apologizing post tweet. “He tweets like Elmer Fudd shoots his shotgun; from the hip, and nearly always in the foot.” The story describes Dudas as a real person with human foibles.  

Bakkt says it’s moving forward with plans to launch a physically settled bitcoin futures product in July. The company does not have CFTC approval yet—instead, it plans to self-certify, after which time, the CFTC will have 10 days to yea or nay the offering.

Both CME and CBoe self-certified their bitcoin futures products as well. The difference is this: they offer cash equivalents to bitcoin upon a contract’s expiration. Bakkt wants to deliver actual bitcoin, which may give the CFTC pause.

The SEC has fined Alex Tapscott, co-author of the book “Blockchain Revolution,” and his investment firm NextBlock, $25,000 over securities violations. (Here is the order.) And the Ontario Securities Commission fined him $1 million.

In 2017, NextBlock raised $20 million to invest in blockchain and crypto companies. In raising the money, Tapscott falsely touted four blockchain bigwigs as advisors in slide decks. After being called out by then-Forbes writer Laura Shin, the company returned investors’ money. But the damage was done, and the SEC went after them anyway.

Tim Swanson pointed out that the the Stellar network went down for about two hours, and only those who run validator nodes noticed. Apparently, nobody actually cares about or uses the Stellar network.  

According to a report by blockchain analysis startup Chainalysis, 376 Individuals own one third of all ether (ETH). Based on a breakdown of the Ethereum initial coin offering, which I wrote for The Block earlier this year, this comes as no surprise.  

Robert-Jan den Haan, who has been researching Bitfinex and Tether since way back when, did a podcast interview with The Block on “What the heck is happening with Bitfinex.” If you are Bitfinex-obsessed like I am, it is worth listening to.   

Apparently, kicking back at regulators is super costly and something you may want to consider before you launch a token that doesn’t have an actual use case. SEC negotiations have cost Kik $5 million, as the media startup tries to defend its KIN token.

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The HODLcast: “A deep dive into Bitfinex with Amy Castor”

I just did an interview with Sasha Hodder of The HODLcast. Sasha is attorney with DLT Law Group, P.A., which focuses on supporting crypto-related businesses.

We talked about crypto exchange Bitfinex and its legal tangle with the New York Attorney General. We also touched on Tether, Crypto Capital, Reginald Fowler, Ravid Yosef, and all of that good stuff you keep hearing about in the news lately.

I spoke to her for a full hour, so she got to test me on all the court documents I’ve been rummaging through lately. She wanted to talk about the now-defunct QuadrigaCX, too, but I was out of breath, so we decided to save that topic for another time

Literally, 15 minutes after we spoke, she had the podcast up online. The only thing I forgot to mention is that I’m reader supported.

I’m basically available for podcasts — including video, with advanced warning — and generally say “yes” to media.

News: WB21 rebrands, Patryn is without a doubt Dhanani, and Quadriga creditors now have a committee

What do you do when bad press gets you down? Silly rabbit, you change your name. WB21, the firm that has been holding on to several millions of dollars in Quadriga funds is now Black Banx!

According to the firm’s press release (archive): “WB21 decided to rebrand its corporate image using the more expressive name ‘Black Banx’ to better describe the business activities and the companies [sic] rebel approach in the banking industry.”

(WB21 founder Michael Gastauer has since deleted a tweet about the event.)

Screen Shot 2019-04-12 at 8.25.10 PM

Here is the kicker. Black Banx is registered at The South Quay Building, 189 Marsh Wall, London, England—the same address as WB21. However, the address in the press release is 88 Queens Quay West, Toronto, Ontario.

Wait what? Black Banx has an office in Canada?

I looked up the address on Google. This is a humungous office building. It is also home to Royal Bank of Canada, which is, coincidentally, the bank where Quadriga’s court-appointed monitor Ernst & Young (EY) set up accounts to hold money on behalf of Quadriga creditors. Black Banx is likely using a virtual office or a coworking space in the building. If anyone in the area cares to take a look, let me know.

(Read my Quadriga timeline for a complete history of the Canadian crypto exchange.)

WB21 threatened me with legal action after I wrote about them. I responded by publicizing the emails and documents they sent me in a tweet. Bitcoin advocate Andreas Antonopoulos, who has 473,000 Twitter followers, found my tweet and retweeted it.

That led to few crypto news outlets, such as News BTC and CoinGeek, running stories on the incident, with some added dramatic flair. (The CoinGeek headline actually misses the point a bit and says I’m in a “tussle” with QuadrigaCX.)

Interestingly, I found an old story in Bitcoin Magazine from June 2016 when WB21 first started accepting bitcoin deposits—with the help of BitPay to convert bitcoin to fiat. After the news broke, many bitcoin investors saw WB21 as a way to cash out of their bitcoin.

Former WB21 user Adrian Bye told me, “I’m not in the US, and for me, and many others, getting crypto into fiat is quite complicated, so we have to look into alternative solutions.” He sent $40 worth of bitcoin to WB21 to “test out the system” and never saw that money again.

On the topic of “changing your name,” Bloomberg straight out announced that Quadriga cofounder Michael Patryn is convicted felon Omar Dhanani. Bloomberg tracked down official documents showing two name changes. According to the report, “Patryn changed his name from Omar Dhanani to Omar Patryn with the British Columbia government in March 2003. Five years later, he registered a name change to Michael Patryn in the same Canadian province.”

Combine this new information with the 2005 booking photo of Dhanani the Globe and Mail (archive) pulled up recently, and you have a pretty strong case that Patryn is Dhanani—but I’m sure he still denies it.

Quadriga’s creditors now have official representation. Miller Thomson and Cox & Palmer appointed a seven-person steering committee to help them represent the exchange’s 115,000 creditors. One of the members, Eric Bachour, also lost money in Mt. Gox, the Tokyo-based exchange that collapsed in 2014. He is probably suffering from a horrible case of deja vu right now.

Earlier, I wrote on how Quadriga’s representative Stewart McKelvey (aka “Applicants’ Counsel”) withdrew from the CCAA case. The details were murky based on a statement by the firm. New details have emerged in a letter Miller Thomson (aka “Representative Counsel”) sent to Quadriga creditors. From the letter:

“Representative Counsel sent two letters to Applicants’ Counsel expressing discomfort with the conflicts of interest presented by Stewart McKelvey’s representation of both the Applicants and Ms. Robertson. The Monitor expressed similar concerns. We advised Applicants’ Counsel that, in our view, this represented an irreconcilable conflict that needed to be addressed without delay.”

Basically, there was a “concern” of a potential conflict of interest, because Stewart McKelvey represented both Quadriga in its CCAA case and the estate of Jennifer Robertson, the widow of Quadriga’s dead CEO Gerald Cotten. But there was no evidence of a conflict of interest per se. At least that’s how I read it.

Quadriga creditors are waiting patiently for Ernst & Young to file its fourth monitor report. It has been more than three weeks now. The last report was filed on March 1.

Some Quadriga creditors are wondering how to report their crypto gains and losses in  their tax filings without their Quadriga trading histories. Reddit user “Cyphrus21” who claims to be a CPA, suggested they make a best guess and file an amendment later when the information becomes available. (If it ever becomes available.) He/she notes: “Lastly, Quadriga didn’t become insolvent / delisted until 2019, so you cannot declare your loss on that event until when you file your 2019 tax return in 2020!”

Other exchange-related news  

Last year, I wrote an in-depth article on Binance, the crypto exchange based in Malta, for The Block. I still have a hard time keeping up with CZ’s business schemes. (CZ is the CEO of the exchange.) Recently, Binance announced that it is changing the sale format of Binance Launchpad, its token launch platform, from a “first-come-first-served” to a lottery system based on your BNB holdings.

BNB is Binance’s own Ethereum-based ERC20 token. The exchange has been struggling to create an ecosystem around the coin, and this is really grabbing at straws.

ShapeShift is a non-custodial exchange that lets you swap out one coin for other. Founded in 2013, the exchange did not implement KYC identity checks until late 2018. ShapeShift was upset about a September 2018 WSJ report that claimed the exchange was being used to facilitate money laundering. To clean up its image, ShapeShift asked blockchain analytics firm CipherBlade to repeat the investigation.

I took a look at CipherBlade and found some, well, interesting stuff. Here’s my story: “Blockchain analytics firm CipherBlade steps in to launder ShapeShift’s image.” Shortly after my story went live, Ben Munster covered the topic for DeCrypt. A few days later, David Gerard brought even more CipherBlade details to light in his post.

U.S.-based crypto exchanges are handling 29 percent of bitcoin trading—much more than what was previously thought. That is because overseas exchanges have an abundance of fake volume, according to a report by Bitwise Asset Management, a firm working to create a crypto ETF. According to Bloomberg, this makes the US (home of Coinbase and Kraken) the world’s second-largest domicile for crypto exchanges by trading volume after Malta (home of Binance).

Also interesting

R.I.P. Bitmain’s massive IPO. The bitcoin mining giant filed to list its shares in Hong Kong in September. (I wrote about it for Bitcoin Magazine.) But it appears the fall in the price of bitcoin has taken too big of a toll on the company.

Billionaire venture capitalist Tim Draper, who has a history of defending fallen Theranos CEO Elizabeth Holmes, is in the Theranos documentary. He is wearing a screaming purple bitcoin tie.

A failed ICO is trying to flog itself  on eBay.

Fresh out of 12 years in prison, former Enron CEO Jeffrey Skilling is exploring a new energy project that runs on—you guessed it—a blockchain. Bloomberg’s Matt Levine writes this imaginary conversation:

“Skilling: We are building a platform to connect energy investors and projects.

Investor: Wait isn’t that kind of what you built at Enron?

Skilling: Yes, thanks for remembering!

Investor: Except it was a huge fraud and investors lost all their money and you went to prison for it?

Skilling: Yes but that’s why we’ll put this one on the blockchain.

Investor: Ooh, I love blockchains.

Skilling: The power of crypto is that you don’t have to trust me.

Investor: It’s true, that is how crypto works.

Skilling: Sure I went to prison for fraud, but this has the power of immutable code.

Investor: It’s so immutable!

Skilling: Can I have your money now.

Investor: All of it, here it is.”

(Thanks to Cas Piancey, who first noticed that WB21 rebranded.)

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