News: Bitcoin tops $24,000, Ledger’s gift to SIM swappers, Pornhub only accepts crypto now, FinCEN’s new rule

The price of bitcoin keeps hitting new all-time highs, recently topping $24,000, which means things are getting a little nutty. The coiners want bitcoin to shoot to the moon. And the no-coiners want Tether to get taken down and the nonsense to end, like it should have three years ago after the 2017 bubble.

I’ve now got hundreds of new Twitter followers, most of them bitcoiners repeating the same boilerplate phrases like “have fun staying poor,” “gold is a Ponzi too” (it’s not) and proclaiming me the U.S. dollar is going to collapse, which would be a shame as bitcoin is mainly traded in dollars.

Caught up in the whirlwind, Mike Novogratz, CEO of Galaxy Digital, has gotten a tattoo—a large moon and a rocket with the letter “B” on it. Fortunately, the “B” is relatively small, so he can easily get that part lasered or covered up if bitcoin crashes, which it will, because that is the fate of all Ponzi schemes.

Here is the news:

Ledger creates a target list for SIM swappers

In July 2020, hardware wallet provider Ledger was hacked, with the hackers gaining access to its customer database. The database has been circulating for five months now, and the hacker has just dumped it on RaidForums, a site dedicated to sharing hacked databases, for the whole world to access—at no charge.

“The first confirmed price I saw for this database was 5 BTC,” the hacker wrote. “Today you can get it for free.”  

The database contains the emails, physical addresses, and phone numbers of 272,000 Ledger buyers along with emails of 1 million additional users.

Essentially, Ledger, a company dedicated to security, has given hackers access to a massive target list for SIM swappers and phishing campaigns. Ledger is very, very sorry for the leak. 

Coinbase plans to go public

Coinbase, the most valuable U.S. crypto firm, has filed confidentially for an IPO with the SEC. When the crypto exchange last raised private funding in 2018, it was valued at $8 billion. It is probably worth plenty more now, with investors going mad over tech stocks

The San Francisco company has tapped Goldman Sachs to bring it to market, meaning that that the bank will lead the syndicate of banks underwriting the deal. (Cointelegraph)

Several VCs have invested hundreds of millions of dollars into Coinbase, and it makes sense that at some point they want to realize the returns on their investment, probably before this bubble blows.

According to Nicholas Weaver, a researcher at the International Computer Science Institute in Berkeley, the IPO “is entirely about a16z and the other VCs unloading their ownership-bags, not cryptocurrency bags, before the space implodes because Tether finally gets killed.”

FinCEN to impose new rules on exchanges

The Financial Crimes Enforcement Network has unveiled new rules aimed at closing anti-money laundering loopholes for regulated cryptocurrency transactions. The rules call for additional customer verification and more reporting.

According to the proposed rule, if a user makes a deposit or a withdrawal of over $3,000 involving a non-custodial wallet, exchanges have to record the name and physical location of the wallet owner. Crypto exchanges also have to report to the U.S. Department of Treasury any deposit or withdrawal over $10,000. 

The rule is devastating to regulated crypto exchanges. In a lengthy Twitter thread last month, when he first learned of the new rule coming down the pipes, Coinbase CEO Brian Armstrong publicly attacked the new regulation. He knows serious KYC requirements will kill a lot of his business.

Nouriel Roubini responded by bashing Armstrong as a contemporary Gordon Gekko—a character in the 1987 Oliver Stone movie “Wall Street”—putting his profits ahead of the need to enforce regulations to stop the financial activities of criminals, tax evaders, terrorists, drug dealers and human traffickers.

Coming soon: Mt. Gox bitcoins

Tokyo bitcoin exchange Mt. Gox went bankrupt in early 2014, and its former users are still waiting to get some portion of their funds back. Their long wait may soon be over. Recently, the Mt. Gox trustee submitted a draft plan for the rehabilitation of creditors. 

If the Tokyo District Court gives the plan a thumbs up, that means 140,000 bitcoin may soon flood the market. The price of BTC has gone up substantially since 2014, so no doubt claimants will want to sell as quickly as possible—and that could create a bear market, pushing down the price of BTC. (Coindesk)

Unless there’s enough real cash left in the system—which is unlikely, because if there was, we wouldn’t need 20 billion tethers—Tether will need to issue an additional 2.5 billion tethers to absorb those bitcoin. 

Tether surpasses $20 billion

Tether has now crossed $20 billion worth of tethers in circulation. Paolo Ardoino, Bitfinex and Tether CTO, bragged about it on social media. He tweeted: “#tether $USDt 20 BILLION!”

Patrick McKenzie, the software engineer who last year wrote this brilliant article explaining Tether, says all he wants for Christmas is for “Tether to unwind explosively.”

As Tether keeps issuing more and more tethers to pump bitcoin’s price, remember that the whole point in all this is to lure real dollars into the system. Look, the price keeps going up! You too can get rich! Buy bitcoin!

As David Gerard explained in a recent blog post, bitcoin price pumps are almost always immediately followed by a sell off. If you’re still not convince how the game works, CryptoQuant CEO Ki Young Ju provides proof.

He points out that when bitcoin hit $20,000, it was a coordinated pump fueled by stablecoins—127 different addresses depositing stablecoins to exchanges in one block of transactions on Ethereum minutes before the first price peak. “Price is all about consensus,” he said.

Porn Hub only accepts crypto now

Visa and Mastercard said they will stop processing payments on Pornhub following a report in the NYT about  illegal content on the site uploaded by unverified users. Mastercard has cut off ties completely, while Visa says it has cut off ties pending an investigation. (Decrypt)

According to Vice, Pornhub purged 70% of its content in an attempt to get the card providers back. How else will it stay in business? The site still accepts crypto—and cash via checks and wires—but apparently that’s not enough. There’s no way it can function without the credit card payments. More proof that bitcoin is a failed payments system.

Other news

The Dread Pirate Roberts is sorry, so please let him go. President Trump is weighing granting clemency to Ross Ulbright, the founder of the Silk Road. (Daily Beast)

“If Ulbricht’s supporters really cared about the war on drugs or libertarian ideals, they’d be demanding that the nearly half a million people currently in U.S. jails for drug offenses should be pardoned too.” (Vanity Fair)

A NY judge says Reggie Fowler’s defense team can withdraw from the case. Their client hasn’t paid them in a year. Fowler has 45 days to find a new lawyer who is also willing to risk not getting paid. (My blog)

Binance reportedly puts zero actual effort into keeping U.S. customers out. The info comes by way of a U.S. user who created a BFX account (no VPN), transferred bitcoins to BFX and sent some out from there. (Twitter)

If you want to cash out your USDT on Kraken, the exchange apparently only takes two types: Omni or ERC-20. (Twitter)

Eric Peters, CEO of One River Asset Management, has set up a new company to invest in crypto. His firm will bring its holdings of bitcoin and ether to about $1 billion as of early 2021, he said. (Bloomberg)

Michael Saylor wants to lure Elon Musk into bitcoin. (Decrypt)

News: BTC moons, Reggie Fowler stiffs lawyers, OKEx withdrawals still frozen, Binance gets piles of USDT

Bitcoin broke $16,000 on Thursday. That’s up from $10,000 in early September. And yet, with all the media outlets rabidly covering the latest “Bitcoin bull run,” the only one mentioning the billions and billions of dollars worth of tether (USDT) entering the market was Cointelegraph

In particular, none of the mainstream press has bothered to mention tether in their writings about BTC’s recent price rise. This is worrisome because retail folks — the ones most vulnerable to risky investments — have little understanding of tether and the risk it imposes on Bitcoin’s price. 

Instead, most media pointed to the election, PayPal’s recent embrace of crypto and huge BTC investments by MicroStrategy and Square as the reasons for BTC’s moon. Mainstream adoption! Institutional money! The truth is, crypto markets are easy to manipulate. And when BTC goes up in value like this, the main benefit is so early investors can cash out. 

In other words, BTC gets passed on to the next bright-eyed, bushy-tailed dupe who hopes the price will continue skyward. History has shown, however, these bubbles are generally followed by a crash, and a lot of people getting hurt, which is exactly what happened in 2018.

Trolly McTrollface (not his real name, obvs) points out in a tweet thread that Tether went into hyperdrive in March to stop BTC from crashing. BTC had dropped to $5,000, losing half its value from two months prior. In fact, March is when BTC entered its current bull run phase.

Remember, if the price of BTC falls too low, the network’s miners — who are responsible for Bitcoin’s security — can’t make a profit, and that puts the entire network in danger.

Trolly believes the current price pump is a coordinated effort between Tether — which has now issued a jaw-dropping $18 billion worth of dollar-pegged tethers — and the exchanges.

Let’s talk about some of those exchanges.

OKEx withdrawals still frozen

Withdrawals from OKEx, one of the biggest crypto exchanges, have been frozen ever since the news came out that founder “Star” Xu was hauled away for questioning by Shanghai authorities more than a month ago.

Xu’s interrogation appears to be part of a broader crackdown on money laundering in China, though OKEx denies any AML violations. 

OKEx is registered in Malta, but retains offices in Shanghai and Beijing, where it facilitates peer-to-peer—or “over-the-counter”—trades. The exchange acts as an escrow to reduce counter-party risk in fiat-to-crypto trades, so you don’t have to worry about someone disappearing with your cash before they hand over the BTC you just bought from them.

As Wolfie Zhao explains for the Block, these OTC trades are the only fiat on/off ramp for Chinese crypto traders—and have been ever since September 2017 when the country banned crypto trading on exchanges.

Effectively, the government made it so the exchanges could no longer get access to banking in the country.

P2P allows two people to transact directly, thus bypassing the Chinese ban, as long as the trades are small in scale. All Chinese crypto-to-fiat is OTC, while crypto-to-crypto trades are still done via a matching order book. (A Chinese citizen simply needs to use a VPN to access Binance, for instance.)

Currently, the OTC desk is the only trading desk that remains open at OKEx All of its exchange trading activity has been ground to a halt. The exchange claims Xu has access to the private keys needed to access its funds, and until he is free, all that crypto sits locked in a virtual vault.

As a result, according to blockchain analytics firm Glassnode, there are currently 200,000 bitcoin stuck on OKEx. The exchange insists all funds are safe, and says, essentially, that everything will be fine as soon as Xu returns. But its customers remain anxious. Did I mention OKEx is a tether exchange?

Huobi, another exchange in peril?

Like OKEx, Huobi is another exchange that moved its main offices out of China following the country’s 2017 crackdown on crypto exchanges.

Huobi, now based in Singapore, continues to facilitate fiat-to-bitcoin and fiat-to-tether trades in China behind an OTC front. (Dovey Wan does a nice job explaining how this works in her August 2019 story for Coindesk.)

Since earlier this month, rumors have circulated that Robin Zhu, Huobi’s chief operating officer, was also dragged in for questioning by Chinese authorities. Huobi denies the rumors.

Meanwhile, since Nov. 2—the day Zhu was said to have gone missing —$300 million worth of BTC has flowed from Huobi to Binance, according to a report in Coindesk. (I still don’t have a good explanation as to why Huobi is doing this. If anyone can fill in the gaps, please DM me on Twitter.)

What’s up with Binance?

If you follow Whale Alert on Twitter, like I do, it’s hard to ignore the enormous influx of tether going into Binance multiple times a day.

Here’s an example: On Friday, in four separate transactions, Tether sent Binance a total of $101 million worth of tethers. The day prior to that, Tether sent Binance $118 million in tethers, and the exchange also received $90 million worth of tethers from an unknown wallet. And on Wednesday, Tether sent Binance $104 million in tethers.

That’s over $400 million worth of dubiously backed tethers—in three days.

Like Huobi and OKEx, Binance also has roots in China. And it has an OTC desk to facilitate fiat-to-crypto trades. Is it a coincidence that the top tether exchanges originate from China? And that China controls two-thirds of Bitcoin’s hash rate?

Reggie Fowler’s lawyers wanna quit

Reggie Fowler, the Arizona businessman in the midst of the Crypto Capital scandal, is running low on cash. His lawyers have decided they don’t do pro bono work, so now they want to drop him as a client.

Last month, Fowler’s legal team asked the court to change his bond conditions to free up credit. But apparently, that isn’t working. Unfortunately, all this is happening just when there was a possibility of negotiating another plea deal. (Read my blog posts here and here.) 

Quadriga Trustee releases report #7

EY, the trustee handling the bankruptcy for failed Canadian crypto exchange QuadrigaCX, released its 7th Report of the Monitor on Nov. 5.

According to the report, EY has received 17,053 claims totaling somewhere between CA$224 million and CA$290 million—depending on what exchange rate EY ends up using to convert the USD and crypto claims to Canadian dollars for disbursement.

EY has CA$39 million ready to distribute to affected Quadriga users, who submitted claims. But none of that money is going anywhere until the Canadian Revenue Agency finishes its audit of the exchange. (Ready my blog post for more details.)

Gensler goes to Washington

Gary Gensler has been picked to lead President-elect Joe Biden’s financial reform transition team. As Foreign Policy notes, Gensler, who was the head of the CFTC during the Obama years, is an aggressive regulator.

He is also well familiar with the world of crypto. He taught a course on blockchain at MIT Sloan. He suspects Ripple is a noncompliant security, and he told me in an interview for Decrypt that the SAFT construct—a once-popular idea for launching an initial coin offering—will not spare a token from securities laws. (He also thinks 99% of all ICOs are securities.)

Libra Shrugged author David Gerard said in a tweet that Gensler was excellent in the Libra hearing last July. Gensler also “helped clean up the 2008 financial crisis, he knows literally all the possible nonsense,” said Gerard.

Clearly, this is good news for bitcoin.

Nov. 15 — Before I said that OKEx offered the only fiat-to-crypto on/off ramp in China. That is inaccurate. P2P OTC exchanges *in general* are the only fiat on/off ramps for crypto traders in China and have been since Sept. 2017.

Nov. 16 — Previously, this story stated that Quadriga’s trustee has CA$30 million available to distribute to claimants. It’s been updated to correctly reflect that EY has CA$39 million (US$30 million) to distribute.

News: COVID-19 shuts down crypto conferences, Libra activates plan B, investor sues bitcoin miner Canaan

Good news this week. I’ve started freelancing for Decrypt. I’m in their Slack channel, and it’s nice to feel part of a group again. That and a few freelance gigs mean I’m less freaked out about making ends meet after leaving my last gig. Although now, I’m worried about COVID-19 and its impact on crypto media and the world economy as a whole.

This newsletter is going to be a bit different. I’m going to focus on the bigger stuff—or things that are interesting to me while supplementing them with additional notes or thoughts I might have—and then list off a bunch of other news that has caught my eye.

Coronavirus, crypto conferences, and the hell to come

I wrote a blog post about how the new coronavirus is impacting crypto conferences. My story even got picked up in Charles Arthur’s Overspill newsletter. (He’s a former tech writer for The Guardian.) In a week’s time, things have only gotten worse, with more events canceling. The city of Austin has canceled SXSW, which had a blockchain track. MIT issued an official statement Thursday night that is was canceling any event larger than 150 people but somehow made an exception for the MIT Bitcoin Expo, March 7-8.

What’s shocking is that the school did this despite knowing the dangers—more than two dozen cases of COVID-19 in Massachusetts have been linked to a Biogen meeting in Boston with 175 attendees in late February. The news of this started coming out on Thursday, the very day MIT gave the green light for its expo. Even on Saturday, Boston Blockchain Week, scheduled for March 7-13, removed all events from its calendar.  

Digital Chambers has postponed its DC Blockchain Summit, originally scheduled for March 11-12. Bitcoin Magazine has postponed its Bitcoin 2020 event, March 27-28.

Coindesk has made it clear that it is absolutely not canceling its New York City-based Consensus conference until it is forced to do so. The event, scheduled for May 11-13, drew in 4,000 people last year and 8,500 the year before. Here’s the refund policy:

“If Consensus is cancelled due to guidance from health organizations and local/federal governments, attendees will receive a full refund on their ticket purchase within 60 days of CoinDesk making the announcement to cancel. Further, if an attendee is unable to attend because his or her home country is barred from traveling to the United States, we will also issue a full refund within 60 days.”

South Korea, China, US step up efforts to disinfect dirty fiat

The new coronavirus can live on paper money, says the WHO, so South Korea’s banks are taking banknotes they receive and putting them through a heating process to kill off any germs. China is doing something similar. And now the U.S. is taking any U.S. dollars that it gets from Asia, disinfecting them, and keeping them for 7-10 days before reintroducing them to the financial system. It is routine for banks to disinfect banknotes, but now they are stepping up the process. Bitcoin is a contactless form of payment, but unfortunately, you can’t buy toilet paper, rice, beans or baby formula with it. (Decrypt, Reuters)

Baseline protocol: coaxing the enterprise to use public Ethereum

The Baseline Protocol is a thrilling new enterprise blockchain initiative from ConsenSys, EY, Microsoft, and a handful of other projects looking to sell consulting hours.

In short, the initiative is an effort to get big companies to use the Ethereum public blockchain. Baseline is supposed to serve as a middleware with its secret sauce being privacy-preserving zero-knowledge proofs. ZKP is key because otherwise, why would companies want to put their private dealings on a widely shared blockchain?

But what actually goes on the blockchain? The answer: not a lot, and certainly not any actual documents. What goes on the blockchain is a hash of the file you share via some other means along with a timestamp, so you can check the authenticity of the document. ZKP serves to hide the transaction of tokens and business logic in smart contracts.

A German company called Unibright plans on playing “a major role” in developing Baseline. Interestingly, Unibright has its own token (UBT), which had a big pump recently. UBT couldn’t get listed on any major exchanges. Instead, it is traded mainly on the Estonia-registered Hotbit and decentralized exchange IDEX. (Decrypt, David Gerard)

Reggie Fowler pleaded not guilty to wire fraud

Arizona businessman Reginald Fowler flew from his home in Chandler, Ariz., to stand before a judge Thursday and plead not guilty to a new charge of wire fraud. He now faces five counts and plans to go to trial next year. Yes, that’s right. His trial date, originally scheduled for April 28, has been moved to Jan. 11, 2021, because his lawyers need more time to prepare for the case. Until then, he remains free on bond. (My blog.)

How did bitcoin mining maker Canaan get listed on Nasdaq?

That’s like, such a good question. Bitcoin mining machine maker Canaan Creative operates out of China. Last year, it became the first crypto company to be listed on the Nasdaq. Woot! But after an unexplained pump in February, the stock tanked. And then on Wednesday, Phillippe Lemieux, an investor in Canaan, filed a class-action lawsuit against the company, saying Canaan misled investors. Some of the most damning information in the suit comes from a blog post by Marcus Aurelius, or MAV, titled “Canaan Fodder.” Canaan had three prior unsuccessful attempts to list on Asian exchanges. MAV calls the Nasdaq listing a “dumping ground of last resort.” I’m sure CAN stockholders will be happy to hear that. (Decrypt)

UK’s FCA issues warning about Bitmex

U.K.’s financial watchdog, the Financial Conduct Authority, is warning Brits about Bitmex. Arthur Hayes’ bitcoin derivatives platform is promoting its services without authorization, the regulator said. Bitmex said it is trying to “assess” the situation.

The FCA issued a similar warning about Kraken, but that was soon taken down. Kraken CEO Jesse Powell said the regulator made a mistake and fixed it. “Seems like it might have been some scams pretending to be Kraken got reported,” he told Decrypt. (Decrypt)

Libra activates plan B

Plan B vs plan AFacebook’s Libra may issue multiple coins based on national currencies in addition to its original idea—a coin based on a basket of assets. If it does that, it’ll be just another PayPal, but on the Calibra wallet.

Bloomberg and The Information were the first to report on the news, and the financial press followed, all linking back to these stories. (The Information originally said the national coins would replace the original Libra token but has since issued a correction, stating that the national coins would run alongside the Libra token.)

This is not a new plan at all. David Marcus and Mark Zuckerberg talked about doing this back in October. In terms of technology, there’s no innovation here either. The big hurdles for Libra are proving to the world that it can comply with anti-money laundering laws. And so far, it hasn’t been able to do that. (Decrypt, David Gerard, Bloomberg, The Information)

Other stuff that caught my eye

“If they’re not outright scams, they’re normally cash grabs.” One former coiner describes his experience working for crypto projects. (Medium)

Looks like Massive Adtoption’s Jacob Kostechki has exited the crypto world and gone into real estate. He’s now tweeting under @_jake_i_am.

Haseeb Qureshi, a managing partner at crypto venture fund Dragonfly Capital, wrote a good article describing how flash loans work. Flash loans were behind two recent hacks—one for $350,000 and another for $600,000—of margin trading protocol bZx. (Medium)

More info coming out on who invested in Telegram’s $1.7 billion initial coin offering: A Russian oligarch, a former cabinet minister and the COO of Wirecard. (Coindesk)

In April 2018, The Reserve Bank of India banned banks from doing business with crypto companies. On March 4, India’s crypto community rejoiced as the country’s Supreme Court ruled that the RBI’s ban was unconstitutional. The RBI plans to fight the ruling. (Economic Times, Cointelegraph)

The hostile takeover of the Steem blockchain is comedy cold for nocoiners. (Twitter thread)

Stephen Palley offers his take on the Feb. 26 ruling in the Ripple lawsuit: His most ooph worthy comment: If the court’s reasoning is accepted, “purchasers of crypto on secondary markets can state securities claims against the issuer where they did not directly purchase the crypto.” (Twitter thread, court order)

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News: Ripple paid Moneygram $11M, weird stuff going on with e-Payments, fraudster tries to buy Perth Glory, another bitcoin ETF bites the dust

As you know, I left my most recent full-time gig, so I’m solo again. I’m going to keep on writing, but I need to figure out how to make ends meet. I’ll be writing more for my blog, possibly writing some e-books, and relying on support from patrons. If this newsletter is worth buying me a latte every four weeks, consider becoming a monthly supporter.

Now, on to the news. Since I didn’t write a newsletter last week, a few of these items stretch beyond the last seven days.

Filming for Quadriga documentary

Screen Shot 2020-02-26 at 5.27.45 PM
Filming at a coffee shop in Vancouver Monday.

If you’ve been following me on Twitter, you know I was in Vancouver all weekend filming for an upcoming Quadriga documentary for Canadian public broadcast station CBC. It was a whirlwind adventure, loads of fun, and I got to meet my idol and fellow nocoiner David Gerard for the first time. He is 6’4″, which helps explain why he is not easily intimidated by anyone. (My blog, David’s blog with more pics.)

On our second day of filming, the crew got shots of David and me at a coffee shop going through my Quadriga timeline in detail. Of course, the more we talked and went over things, the more unanswered questions we came up with.

Ripple has been paying Moneygram millions

Moneygram’s 8-K filing with the SEC must be a bit of an embarrassment for Ripple CEO Brad Garlinghouse. It reveals Ripple paid $11.3 million to Moneygram over the last two quarters. That’s in addition to the $50 million Ripple has already invested in the firm. (Cointelegraph, Coindesk.)

This is apparently the ugly truth to how Ripple works. The company appears to pay its partners to use its On-Demand Liquidity (formerly xRapid) blockchain platform and XRP tokens and then say nice things about how well things are going. (FT Alphaville)

Of course, none of this is news to @Tr0llyTr0llFace, who wrote about how Ripple pays its partners in his blog a year ago. “Basically, Ripple is paying its clients to use its products, and then pays them again to talk about how they’re using its products,” he said. 

Ripple class-action to move forward

In other Ripple news, a federal judge in Oakland, Calif., has granted in part and denied in part Ripple’s motion to dismiss a class-action lawsuit claiming the company violated U.S. securities laws. There’s a lot to unpack here, but overall it’s a win for the plaintiffs. In other words, the lawsuit will proceed even though it’s been trimmed back a bit. (Court order, CoinDesk, Bloomberg

Ripple had claimed in its November court filing that the suit could topple the $10 billion market for XRP. Well, yeah, one would think so, especially if XRP is deemed a security and gets shut down by the SEC. This class action may be laying the groundwork for that. 

Reggie Fowler gets hit with another charge

pexels-photo-2570139As if Reggie Flower did not have enough trouble on his hands. After forgoing a plea deal where three out of four charges against him would have been dropped, prosecutors have heaped on another charge — this one for wire fraud.

They allege that Fowler used ill-gotten gains from his shadow banking business, which he ran on behalf of Panamanian payment processor Crypto Capital, to fund a professional football league. The league isn’t named in the indictment, but a good guess says its the collapsed American Football League of which Fowler was a major investor. (My blog.)

The new charge should come as no surprise to those following the U.S. v. Fowler (1:19-cr-00254) case closely. In a court transcript filed in October 2019, Assistant U.S. Attorney Sebastian Swett told Judge Andrew Carter:

“We have told defense counsel that, notwithstanding the plea negotiations, we are still investigating this matter, and, should we not reach a resolution, we will likely supersede with additional charges.”

Fowler needs to go before the judge and enter his plea on the new charge before he can proceed to trial. Federal prosecutors are asking the judge to schedule arraignment for May 5, but it’s quite possible this is a typo and they meant March 5. (Court doc.)

Convicted fraudster won’t be buying Perth football team after all

LFE Founder Jim Aylward
LFE founder Jim Aylward on Twitter

The sale of Perth Glory Soccer Club to a London crypto entrepreneur fell through after it turned out that the man behind the company trying to buy Glory — businessman Jim Aylward — is convicted fraudster James Abbass Biniaz. (Imagine that, a person with a criminal past getting involved in crypto?)

Aylward had set up a group called London Football Exchange, a football stock exchange and fan marketplace powered by the LFE token. The grand scheme was for the company to buy soccer teams all over the world and integrate that business with the token.

Glory owner Tony Sage pulled out of the deal after traveling to London to go through a due diligence process with his lawyers and representatives of the London Football Exchange group. Sage had been promised $30 million by Aylward for 80% of the A-League club. (Sydney Morning Herald)

Here’s a recording of Aylward admitting the price of LFE is totally manipulated. “We control about 95% of the token holders,” he said.

Weird stuff happening with e-Payments

Something funny is going on with e-Payments, one of the biggest digital payments firms in the U.K. The London firm, which caters to the adult entertainment, affiliate marketing, and crypto industries, was ordered by the U.K.’s Financial Conduct Authority to suspend its activities as of Feb. 11 due to loose anti-money-laundering controls. That’s left ePayments’ customers unable to access their funds. Robert Courtneidge, one of its e-Payments’ directors stepped down the following week. Nobody knows why, but it looks like he was previously involved with the OneCoin scam. (FT Alphaville)

(BTW, on my flight back from Vancouver, I listened to the Missing Crypto Queen BBC podcast, which is all about OneCoin, and it’s fantastic. Definitely worth a listen.)

SEC shoots down another bitcoin ETF; Hester Pierce chimes in

In a filing posted Wednesday, the SEC set aflame another bitcoin ETF proposal. The regulator claims Wilshire Phoenix and NYSE Arca had not proven bitcoin is sufficiently resistant to fraud and market manipulation. (Their idea was to mix bitcoin and short-term treasuries to balance out bitcoin’s volatility, but the agency still wasn’t keen.) The SEC has rejected all bitcoin ETFs put before it to date, so there’s no new news here.

Predictably, though, SEC Commissioner Hester Pierce, aka “crypto mom,” filed her statement of dissent. She said the agency’s approach to bitcoin ETFs “evinces a stubborn stodginess in the face of innovation.” For some reason, Pierce seems to consistently confuse innovation with anarchy and giving bad actors free rein.

Speaking of which, she recently posted on Coindesk asking for suggestions to her ICO “safe harbor” plan. Attorney Preston Byrne responded, saying it would be hilarious if it weren’t so serious. He thinks the plan should be tossed in the bin.

Canada’s central bank venturing into e-currency

Canada’s central bank plans to lay the foundation for its own digital currency should the day arise where cash no longer rules. In a speech he gave in Montreal, Deputy Governor Tim Lane said there isn’t a compelling case to issue a central bank-backed digital currency right now, but the Bank of Canada is starting to formulate a plan in the event Canadian notes and coins go out of style. (Calgary Sun.)

Despite so many countries jumping into the game, central bank digital currencies are nothing new. They have been around since the 1990s, only nobody cared about them until Facebook’s Libra popped into the scene. Bank of Finland’s Alexi Grym recently did a podcast, where he talks about how the country launched its own Avanti project (a form of CBDC) in 1993. The idea sounded great in theory, but in practice, consumers didn’t like being charged to load the cards, especially since ATM withdrawals were free.

Drug dealer loses all his bitcoin

The problem with keeping track of the keys to your bitcoin is that it’s just too easy to lose them, as this U.K. drug dealer demonstrates. He jotted down the keys to his illicit $60 million BTC on a piece of paper. But then when he went to jail, his landlord gathered up all his belongings and took them to the dump. (Guardian.) This isn’t the first time millions of dollars worth of bitcoin have ended up in a trash heap.

FCoin insolvency bears hallmarks of funny business

Screen Shot 2020-02-26 at 9.39.31 PMFCoin, a crypto exchange based in Singapore, announced its insolvency on Feb. 17 after making the surprise discovery it was short 7,000 to 13,000 bitcoin—worth roughly $70 million to $130 million. The exchange blamed the shortage on a cacophony of errors following the launch of a controversial incentive program called “trans-fee mining.” There has been a lot of speculation that this was an outright scam. Now a new report by Anchain.ai shows BTC leaving the exchange’s cold wallets in droves right before FCoin shuttered and its founder Zhang Jian happily moved on to start a new business.

Quadriga was using Crypto Capital

The law firm representing QadrigaCX’s creditors believes the failed Canadian crypto exchange was funneling money through Crypto Capital. Financial documents that two former Quadriga users posted on Telegram show that to be true. (My blog)

Next question: Was Crypto Capital holding any Quadriga funds at the time the exchange went under? That’s going to be hard to track down given the exchange had no books.

Buffett still thinks crypto is a joke

Tron CEO Justin Sun paid $4.6 million to spend three hours with Warren Buffett and turn him into a crypto fan. He even gave the multi-billionaire some bitcoin. Turns out Buffett, promptly handed those BTC over to charity. He doesn’t want anything to do with bitcoin and still thinks crypto has zero value. “What you hope is someone else comes along and pays you more money for it, but then that person’s got the problem,” he told CNBC.

Steven Segal pays the price of being a shitcoin shill

Steven Segal thought he would bring in a little extra dough by shilling a shitcoin, but the effort backfired. The Hollywood actor has agreed to pay $314,000 to the SEC for failing to disclose payments he received for touting an ICO conducted by Bitcoiin2Gen (spelled with two “i”s) in 2018. He’ll pay a $157,000 disgorgement, plus a $157,000 fine on top.

The agency claims that Seagal failed to disclose he was promised $250,000 in cash and $750,000 worth of B2G tokens in exchange for his promotions. He even put out a cringe-worthy press release in 2018 titled “Zen Master Steven Seagal has become the brand ambassador for Bitcoiin2gen.” (SEC press release, Variety, CNBC)

Can someone check IOTA for a pulse?

How long does a blockchain need to be shut down for before it’s considered dead? How is it even possible to shut down something that is decentralized? Oh, wait, maybe it’s not.

IOTA has been offline for 14 days and counting ever since the IOTA Foundation turned off its coordinator node, which puts the final seal of approval on any IOTA currency transactions, to stop an attacker from slurping up funds from its wallet service.

The project has put together a tedious three-part series explaining the theft of its Trinity wallet, its seed migration plan and all the lessons it’s learned from the mishap. It’s all a bit mind-numbing, and you’ll feel a little dead after you read it, too.