Binance: Italy, Lithuania, Hong Kong, all issue warnings; Brazil director quits

Ever since Germany’s BaFin and the UK’s FCA issued warnings against Binance, the dominoes have continued to topple. Global regulators are fed up with the world’s biggest crypto exchange.

This last week, three more jurisdictions issued warnings about Binance’s tokenized stocks, joining several others in voicing their concerns about the exchange.

In a press release on Thursday, Italy’s market watchdog Consob warned investors that Binance and its subsidiaries “are not authorized to provide investment services and activities in Italy.” The notice specifically points to Binance’s “stock token.” 

Lithuania’s central bank issued a warning on Friday about Binance UAB, a Binance affiliate, providing “unlicensed investment services.”

“Companies that are registered in Lithuania as virtual currency exchange operators are not supervised as financial service providers. They also have no right to provide any financial services, including investment services,” the Bank of Lithuania said.

Also on Friday, Hong Kong’s Securities and Futures Commission announced that Binance is not licensed to trade stock tokens in the territory. 

In a statement, Thomas Atkinson, the SFC’s executive director of enforcement, had stern words for the exchange: “The SFC does not tolerate any violations of the securities laws and will not hesitate to take enforcement action against unlicensed platform operators where appropriate.”

Binance responded to the mounting pressure by announcing on its website that it would cease offering stock tokens. Effective immediately, you can no longer buy stock tokens on Binance, and the exchange will stop supporting them on October 14.

As for the unlucky ones who are still holding Binance stock tokens, you apparently have 90 days to try and offload them onto someone else.

The exchange also deleted mentions of stock tokens on its website. If you click on a link to Introduction to Stock Tokens” on the site, you get a “404 error.” You can still visit the page here, however.

A short-lived bad idea

Binance introduced its tokenized stocks idea on April 12, starting with Tesla, followed by Coinbase, and later MicroStrategy, Microsoft and Apple. (Links are to archives on Wayback machine.)

“Unlike traditional stocks, users can purchase fractional shares of the listed companies with stock tokens. For instance, for a Tesla share that trades at over $700 per share, stock tokens enable investors to buy a piece of the underlying share (e.g., 0.01) instead of the entire unit,” Binance explained on its website.

Prices were settled in BUSD — a stablecoin Binance created in partnership with Paxos, a NY-based company. Binance claims its stock tokens are fully backed by shares held by CM-Equity AG, a regulated asset management firm in Germany.

The exchange also said Friday that users in the EEA and Switzerland will be able to transition their stock token balances to CM-Equity AG once the brokerage creates a special portal for that purpose, sometime in September or early October. However, the transition will require additional KYC.

Binance, whose modus operandi has always been to ignore the laws and do whatever, launched its stock token service two days before US crypto exchange Coinbase went public on the Nasdaq and bitcoin reached an all-time high of nearly $65,000. The price of bitcoin is now less than half of that.

In April, Germany’s financial regulator BaFin warned that Binance risked being fined for offering its securities-tracking tokens without publishing an investor prospectus. Binance went back and forth with BaFin on the issue, trying to persuade them to take the notice down, according to the FT, but to no avail. The warning stayed up.

In June, the UK followed with its own consumer warning, and then one by one, a host of other global regulators issued their own cautions about Binance, and banks began cutting off services to the exchange — essentially a form of slow strangulation.  

Binance clearly wasn’t thinking when it introduced those stock tokens. The move appears to have been driven by the hubris of its CEO CZ, who is now realizing that actions have repercussions. Or maybe not, since his recent tweets and a blog post celebrating Binance’s fourth birthday seem to reflect an ongoing detachment from reality.

“Together, we can increase the freedom of money for people around the world, in safe and compliant ways,” he wrote. By freedom, I assume he means, freedom to operate outside the law, or freedom to freeze withdrawals on his exchanges — a frequent user complaint, according to Gizmodo.

FTX and Bittrex

Binance isn’t the only crypto exchange to offer stock tokens. Sam Bankman-Fried’s FTX exchange also offers tokenized stocks (archive) — a service that it added in June. I suspect that a lot of Binance’s business will flow over to FTX, and we’ll soon see similar regulatory crackdowns on FTX. 

Like Binance, FTX has a US version of its exchange and a main site.

FTX is registered in Antigua and Barbuda with headquarters in Hong Kong. It offers stock tokens for Tesla, GameStock, Beyond Meat, PayPal, Twitter, Google, Amazon, and a host of others. 

Bittrex Global — another exchange that has a regulated US-based arm — also offers an impressive array of stock tokens. The Liechtenstein-based firm added the service in December 2020, according to a press release at the time, noting that “these tokenized stocks are available even in countries where accessing US stocks through traditional financial instruments is not possible.” 

FTX and Bittrex also claim their stock tokens are backed by actual stocks held by CM-Equity AG.

Binance Brazil director resigns

Banks are not the only ones distancing themselves from Binance these days.

Amidst the recent drama, Ricardo Da Ros, Binance’s director of Brazil announced his departure on LinkedIn. He had only been with the company for six months.  

“There was a misalignment of expectations about my role and I made the decision according to my personal values,” he said.

Other employees have also exited stage left in recent months. Wei Zhou, the chief finance officer at Binance, quit abruptly in June, and Catherine Coley, the CEO of Binance.US stepped down in May — though nobody has heard from her since.

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Binance: Fiat off-ramps keep closing, reports of frozen funds, what happened to Catherine Coley?

Last thing I remember,
I was running for the door.
I had to find the passage back
To the place I was before.
Relax,” said the night man.
“We are programmed to receive.
You can check out any time you like,
But you can never leave.”

~ Eagles

Binance customers are becoming trapped inside of Binance — or at least their funds are — as the fiat exits to the world’s largest crypto exchange close around them. You can almost hear the echoes of doors slamming, one by one, down a long empty corridor leading to nowhere. 

In the latest bit of unfolding drama, Binance told its customers today that it had disabled withdrawals in British Pounds after its key payment partner, Clear Junction, ended its business relationship with the exchange.

Clear Junction provides access to Faster Payments through a UK lender called Clear Bank. Faster Payments is a major UK payments network that offers near real-time transfers between the country’s banks — the thing the US Federal Reserve hopes to get with FedNow.

In a statement on its website on Monday, Clear Junction said:

“Clear Junction can confirm that it will no longer be facilitating payments related to Binance. The decision has been made following the Financial Conduct Authority’s recent announcement that Binance is not permitted to undertake any regulated activity in the UK. 

We have decided to suspend both GBP and EUR payments and will no longer be facilitating deposits or withdrawals in favor of or on behalf of the crypto trading platform. Clear Junction acts in full compliance with FCA regulations and guidance in regards to handling payments of Binance.” 

The Financial Conduct Authority, or FCA, ruled on June 26 that Binance cannot conduct any “regulated activity” in the UK. Binance downplayed the ruling at the time, telling everyone the FCA notice related to Binance Markets Ltd and had “no direct impact on the services provided on Binance.com.”

Binance waited a day after learning it was cut off by Clear Junction before emailing its customers and telling them that the suspension of payments was temporary. 

“We are working to resume this service as soon as we can,” Binance said. It reassured customers they can still buy crypto with British Pounds via credit and debit cards on the platform.   

This is the second time in recent weeks that Binance customers have been frozen out of Faster Payments. They were also frozen out at the end of June. A few days later, the service was restored — presumably when Binance started putting payments through Clear Junction.

I am guessing that Clear Bank’s banking partners warned them that Binance was too risky and that if they wanted to maintain their banking relationships, they’d better drop them as a customer asap, so they did. 

Binance talks like all of these issues are temporary snafus that it’s going to fix in due time. In fact, the exchange’s struggle to secure banking in many parts of the world is likely to intensify. 

Despite numerous claims in the past about taking its legal obligations seriously, Binance has been loosey-goosey with its anti-money laundering and know-your-customer rules, opening up loopholes for dirty money to flow through the exchange. Now that the word is out, no bank is going to want to touch them. 

Other developments

I wrote about Binance’s global pariah status earlier this month. Since I published that story, UK high-street banks have moved to ban Binance, all following the FCA ban.

On July 5, Barclays said it is blocking its customers from using their debit and credit cards to make payments to Binance “to help keep your money safe.” Barclays customers can still withdraw funds from the exchange, however. (Since Clear Junction cut Binance off, credit cards remain the only means for UK customers to get fiat off the exchange at this point.)

Two days later, Binance told its users that it will temporarily disable deposits via Single Euro Payments Area (SEPA) bank transfers — the most used wire method in the EU. Binance blamed the move on “events beyond our control” and indicated users could still make withdrawals via SEPA.

On July 8, Santander, another high-street bank, told its customers it was also stopping payments to Binance.

“In recent months we have seen a large increase in UK customers becoming the victims of cryptocurrency fraud. Keeping our customers safe is a top priority, so we have decided to prevent payments to Binance following the FCA’s warning to consumers,” Santander UK’s support page tweeted.

As I detailed in my earlier story, regulators around the world have been putting out warnings about Binance. Poland doesn’t regulate crypto markets, but the Polish Financial Supervisory Authority also issued a caution about the exchange. Its notice included links to all the other regulatory responses.

Amidst the firestorm, Binance has been whistling Dixie. On July 6, the exchange sent a letter to its customers, saying “compliance is a journey” and drawing odd parallels between developments in crypto and the introduction of the automobile. 

“When the car was first invented, there weren’t any traffic laws, traffic lights or even safety belts,” said Binance. “Laws and guidelines were developed along the way as the cars were running on the road.” 

Frozen funds, lawsuits, and other red flags

There’s a lot of unhappy people on r/BinanceUS right now complaining their withdrawals are frozen or suspended — and they can’t seem to get a response from customer support either.

Binance.US is a subsidiary of Binance Holdings Ltd. Unlike its parent company, Binance.US, does not allow highly leveraged crypto-derivatives trading, which is regulated in the US.

A quick look at the subreddit’s weekly support thread reveals even more troubling posts about lost access to funds. 

This mirrors Gizmodo’s recent findings. The media outlet submitted a Freedom of Information Act request with the Federal Trade Commission asking for any customer issues filed with the FTC about Binance. The agency located 760 complaints filed since June of 2020 — presumably mainly from Binance.US customers.  

In an article titled “32 Angry Complaints to the FTC About Binance,” Gizmodo uncovered some startling patterns. “The first, and arguably most alarming pattern, appears to be people who put large amounts of money into Binance but say they can’t get their money out.”

Also, Binance is known for having “maintenance issues” during periods of heavy market volatility. As a result, margin traders, unable to exit their positions, are left to watch in horror while the exchange seizes their margin collateral and liquidates their holdings.  

Hundreds of traders around the world are now working with a lawyer in France to recoup their losses. In a recent front-page piece, the Wall Street Journal said it suspected that the collective complaints may be the reason why Binance has received continuous warnings from many countries.

If you still have funds on Binance, I would urge you to get them off the exchange now — while you still can. When hoards of people start complaining about lost and frozen funds, it’s usually a sign of liquidity problems.  

We saw a similar pattern leading up to February 2014 when Tokyo Bitcoin exchange Mt Gox bit the dust. And also just before Canadian crypto exchange QuadrigaCX went belly up in early 2019. In both instances, users of those defunct exchanges are still waiting to recoup a portion of their lost funds. Bankruptcy cases take a long, long time, and you are lucky to get back pennies on the dollar. 

Finally, where is Catherine Coley?

In another bizarre development, folks on Twitter are wondering what happened to Catherine Coley, the previous CEO of Binance.US. She stepped down in May when Brian Brooks, the former Acting Comptroller of the Currency, took over. Nobody has heard from her since. Where did she disappear off to?  

Coley’s last tweet was on April 19. And both her LinkedIn Profile and Twitter account indicate she is still the CEO of Binance.US. 

She hasn’t been in any interviews or podcasts. She doesn’t respond to DMs, and there are no reports of anyone being able to contact her. 

A Forbes article from last year says that Binance.US may have been set up as a smokescreen — the “Tai Chi entity” — to divert US regulators from looking too closely at Binance, the parent company. 

Binance.US maintains that it is a separate entity. However, Forbes 40 under 40 reported that Coley was “chosen” by CZ, the CEO of Binance, which suggests that Binance is more involved with Binance.US than it claims. 

Has CZ told her to stop talking? What does she know? Catherine, if you are reading this, send us a message!

(Updated July 13 to clarify that Barclays still allows customers to withdraw funds via credit card and to note that Binance.US is the Tai Chi entity.)

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News: Tether printer on hold, China’s crypto crackdown, the world hates Binance, El Salvador’s Chivo wallet

In case you missed my tweet, I ended up sick at the end of June. I was chatting with a friend over Zoom when he noticed that I was tilting over in my chair. Was I drunk? No. Should he call an ambulance? I’m fine.

I ended up in the ER the next day on IV fluids and hooked to monitors. Turns out I had Anaplasmosis from a tick bite. Doxycycline did the trick, and I was on my feet again within 48 hours. 

Apparently, this is the price you pay for walking blissfully unaware through grassy fields and woodsy trails. 

I mentioned earlier I was writing a book on NFTs. While I did a lot of research on the subject, I’m putting the book on hold for now. My concern is, who would read it? NFTs seem to have been a fad, slipping out of fashion. 

If you are interested in the topic, check out my recent notes on NFTs and money laundering. I also wrote for Business Insider on how Metakovan was pumping Beeple NFTs months before he bought Beeple’s $69.3 million NFT at Christie’s. 

I think we can all admit that the art behind almost every NFT is absolute garbage, which the author of this blog post does a fine job of pointing out. 

China’s crackdown on crypto

The People’s Bank of China has hated crypto since 2017, when it initially kicked the crypto exchanges out. 

In recent months, the country has gone after crypto with a renewed vengeance, banning FIs from providing services to crypto firms and forcing bitcoin miners in the country to take their hardware offline. 

Up until recently, most of the world’s bitcoin mining (~ 65% to 75%) took place in China. The country’s crackdown on mining caused more than 50% of the bitcoin hashrate to drop since May.

The hashrate dropped faster than bitcoin’s difficulty algorithm could keep up. Every 2,016 blocks, the difficulty adjusts to account for how many miners are on the network. 

On July 3, bitcoin experienced a record 27.94% drop in mining difficulty, according to BTC.com, meaning now, bitcoin miners will have an easier time finding blocks. (CNBC)

Beijing even told companies they are no longer allowed to provide venues, commercial displays, or even ads for crypto-related businesses. On Tuesday, the PBoC said it had ordered the shutdown of Beijing Qudao Cultural Development, a company that makes software for crypto exchanges. (Reuters)

Why does China loathe crypto? Some people say the PBoC is trying to make way for China’s CBDC, but I doubt that has anything to do with it. The most likely reason is the country wants to stem capital outflows. According to a Chainalysis report last August, $50 billion in crypto assets moved from China to other regions in a 12-month period. 

Why has Tether stopped printing?

Tether is currently at 62.7 billion tethers, and it’s been stuck there for more than a month. Tether had several big prints at the end of May and now, crickets all through June and into July. The printer has totally stopped. 

Nobody is really clear on why Tether has put its printing presses on hold, but the timing seems to correlate with China’s crackdown on crypto.  

We have three theories for why Tether stopped printing

Theory #1 — Less demand

The China crackdown has created a reduced demand for tethers. When bitcoin’s hash rate dropped precipitously, so did the number of newly minted BTC per day — at one point it was down to 350 new BTC per day, as opposed to the 900 BTC per day the network should be producing.

Binance and OKex have mining pools, so bitcoin miners can mint bitcoin directly to their own exchange accounts. Since there is no way to cash out directly, miners convert BTC to tethers (USDT). And then convert USDT to RMB on unregulated over-the-counter platforms, such as Huobi and CoinCola.

With the exodus of miners from China, there was less demand for tethers. 

Theory #2 — Chinese junk debt

Another theory floating around is that Tether may have been getting Chinese junk debt to issue tethers, and now that is no longer possible due to the risks. 

Tether’s latest composition report showed that 50% of the assets backing USDT were unspecified commercial paper. In the US commercial paper market, that would place Tether among the likes of fund managers like Vanguard and BlackRock, which seems unlikely. (FT)

So maybe it’s holding Chinese paper?

“If Tether is holding Chinese commercial paper, the issuer can default on those debts with impunity. What is Tether going to do? Sue in Chinese courts?,” Tether whistleblower Bitfinexed said in a tweet.

He revealed in a DM that the info comes from a “reliable source.”

Theory #3 — USDC is picking up the slack

While the tether printer stopped, the USDC printer appears to have picked up speed, issuing 10 million USDC since May 8. 

As of July 5, there are 25.5 billion USDC stablecoins in circulation, so maybe USDC is stepping into Tether’s shoes?

In other news, Tether is working hard to shine up its tarnished image. The company is hiring a Reputation Manager, to “advocate for the company in social media spaces, engaging in dialogues and answering questions where appropriate.” 

If you want to fight the FUD spread by salty nocoiners like myself, this job could be for you. (Teether, archive)

Binance vs the world

The UK, Singapore, Japan, Germany, Canada and now the Cayman Islands are all moving against Binance, the world’s largest crypto exchange. I wrote a blog post detailing Binance’s pariah status. 

The bad news keeps getting worse. Following the FCA banning Binance in the UK on June 26, Barclays says it is blocking customers from using their debit and credit cards to make payments to Binance. (They will let you take money out, but they won’t let you put money in.)

Binance “talks a big game on anti-money laundering and know-your-customer” rules, but was “resistant to throwing human resources at compliance issues,” an executive at a payments company that helped connect Binance to the broader financial market before cutting ties with the group, told the (FT)

And worse still — on Tuesday, Binance told its customers that it will temporarily disable deposits via SEPA bank transfers. Binance said the move was due to “events beyond our control.” (FT)

Binance founder CZ says it’s all FUD.

Binance’s organizational structure

Binance has a lot secrets. The company refuses to say where its headquarters is located. And it’s tight-lipped about its organizational structure, too. 

On May 1, Brian Brooks, former Coinbase chief legal officer and former acting head of the Comptroller of the Currency, took over as CEO of Binance.US, replacing Catherine Coley. (WSJ)

In a Coindesk interview in April, he said he reports to the board of directors, yet he wouldn’t name who was on the board. 

Coindesk: “Brian, what is the reporting structure with Binance US. Who do you report to?”

Brooks: “I have a board of directors, which I will be a member of, and I will report to that board.” 

Coindesk: “Who else is on the board?”

Brooks: “The board is obviously the founder of the company and another person. It’s a private company, so we don’t necessarily go into the governance structure…”

Later when Coindesk asks him where Binance.com is located, Brooks dances around that question as well. He did say, however, that Binance keeps its US customer data separate from Binance.com. 

Binance.US also just brought onboard Manuel Alvarez, a former commissioner at the California Department of Financial Protection and Innovation, as its new chief administrative officer. (Coindesk)

FATF releases 12-month review 

The Financial Action Task Force, a Paris-based global anti-money laundering watchdog, published its second 12-month review of its revised standards for virtual assets and virtual asset service providers, or VASPs

VASPs include crypto exchanges, bitcoin ATM operators, wallet custodians, and hedge funds. 

When the FATF published its guidance in 2019, it recommended full AML data collection by VASPs — and Rule 16, also known as the “travel rule.” 

The travel rule requires VASPs to disclose certain customer data and include that data with a funds transfer, so that the info “travels” down the funds transfer chain.  

Of FATF’s 128 reporting jurisdictions, 58 have implemented the revised FATF standards. The other 70 have not. And the majority of jurisdictions have yet to implement the travel rule.

“These gaps in implementation mean that there is not yet a global regime to prevent the misuse of virtual assets and VASPs for money laundering or terrorist financing,” the FATF said. 

The FAFT plans to publish its revised guidance by November 2021 with a focus on accelerating the implementation of the travel rule as a priority. (Forkfast)

Kaseya ransomware  

The REvil ransomware operation is behind a massive attack centering on Kaseya, a company that develops software for managed service providers. MSPs provide outsourced IT services to small and medium-sized businesses that can’t afford their own IT department. 

Between 800 and 1,500 businesses have been compromised by the global ransomware attack, including schools in New Zealand and supermarkets in Sweden. 

The REvil gang has offered to decrypt all victims for $70 million in Monero (XMR), a cryptocurrency that is harder to track than bitcoin. The immediate ransom demand is $45,000 worth of XMR, rising to $90,000 after a week.

Nicholas Weaver, a researcher at the International Computer Science Institute in Berkeley, wrote a story for Lawfare breaking down the Kaseya ransomware attack. 

He also wrote an earlier story for Lawfare titled “The Ransomware Problem Is a Bitcoin Problem,” where he explains why getting rid of crypto is a great idea. “The ransomware gangs can’t use normal banking. Even the most blatantly corrupt bank would consider processing ransomware payments as an existential risk.”

El Salvador, bitcoin and Bitcoin Beach

Who is the San Diego surfer who brought bitcoin to El Zonte? A white evangelist named Michael Peterson. I wrote about him and his Bitcoin Beach project at length in a recent blog post. 

Peterson read my story. He says it’s full of “glaring inaccuracies” and “plagiarized pieces of other bad reporting.” When asked to substantiate his defamatory accusations, he never replied back. 

Does he use these same bully tactics to get people in El Zonte to use bitcoin? 

David Gerard wrote up a detailed blog post explaining the latest developments on bitcoin and El Salvador. 

Here are some notes, if you want to catch up quick:

  • Nayib Bukele, El Salvador’s president, has announced a government wallet — the Chivo wallet — that will be available for download in September. (Youtube)
  • The Chivo (slang for “cool”) wallet will hold both USD and bitcoin balances. 
  • Salvadorans who sign up for the mobile app will get $30 in bitcoin, but they have to spend it. They can’t sell their BTC for cash — which makes you wonder if Bukele is simply planning to issue new dollars under the guise of bitcoin. (I also recommend you read Gerard’s piece in Foreign Policy on this topic)
  • The technical details of the Chivo wallet are totally unclear. Is Jack Mallers, the CEO of Zap and the remittance app Strike, going to develop the wallet? We don’t know.  
  • Originally, Mallers said Strike was using tether for remittances. (My blog post.) Now, he says Strike is no longer using tethers, and the folks in El Salvador receiving remittances on his app will receive actual dollars. (What Bitcoin Did)
  • How will this happen? Mallers said in his What Bitcoin Did interview that his company has local banking relationships in ES, but we don’t know what banks, where. 
  • Here is a direct quote from the transcript of the interview: “So, I was like, ‘Well, fuck, I don’t know then how I’m going to pull this off!’ So, what I did is, we built Tether into Strike, which was the equivalent of the Chase bank account in America, and it at least gave us some MBP basic functionality, where I can go and just observe and listen and see how people used it and see if it was helpful. But now, we’re already integrating with the top five banks in the country.”
  • Mallers tends to be long on plans and short on details. When the media reaches out to him with questions — like Decrypt did when they learned Zap is not licensed to operate in most US states — he generally just ignores them. 
  • Despite what Mallers keeps claiming, sending remittances via Western Union from the US  to El Salvador isn’t really that costly, to begin with. Steve Hanke, Nicholas Hanlon, and Mihir Chakravarthi point this out in their paper: “Bukele’s bitcoin blunder.”
  • Jack Maller’s company Zap (the parent company of Strike) got $14.9 million in fresh funding in March from “Venture Series – unknown,” on top of a $3.5 million seed round a year prior. Nobody seems to know who is behind the funding. (Crunchbase)
  • Athena, the company that Bukele ordered 1,000 new bitcoin ATMs from, installed a new bitcoin ATM machine — the country’s third installed machine! — in La Gran Vía shopping center. They had a ribbon-cutting ceremony and everything.
  • Unfortunately, the machine was located in front of an upscale department store owned by the Simán family, Bukele’s arch enemy. Worried that the ATM would draw foot traffic to his rival’s business, Bukele had the machine relocated next to the toilets, where it sits unplugged. (Twitter) 
  • The US State Department named 14 El Salvadorans, many associated with the Bukele regime, as corrupt or undemocratic actors. (US State report)

Robinhood’s planned listing

Robinhood had plans to go public in June, but the SEC has some questions about its cryptocurrency business, according to Bloomberg.

The company also agreed to pay FINRA $70 million to settle allegations that the brokerage caused customers “widespread and significant” harm on multiple different fronts over the past few years.

Specifically, FINRA’s investigation found that millions of customers received false or misleading information from Robinhood on a variety of issues, including how much money customers had in their accounts, whether they could place trades on margin and more.

In its SEC S-1 filing, which dropped on July 1,  Robinhood notes that a “substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected.”

Robinhood currently supports seven different cryptos. When you trade crypto on Robinhood, you don’t ever hold the keys to your own crypto. Robinhood itself buys the actual crypto and maintains custody, so you can’t move your coins onto or off the platform. You’re stuck in there.

Bitcoin mining turns NY lake into a hot tub

The Greenidge Generation Bitcoin mining plant, owned by private equity firm Atlas Holdings, sits on the shores of beautiful Seneca Lake in New York. 

The tagline on its website reads, “Green Power for Generations to Come.”  

The firm uses lake water to cool its 8,000 computers used to mine bitcoin within the gas-fired plant. Greenidge’s current permit allows it to take in 139 million gallons of water and discharge 135 million gallons daily, at temperatures as high as 108 degrees Fahrenheit in the summer and 86 degrees in winter.  

Locals want the mining facility gone. They have been staging protests. They claim the plant is polluting the air and heating the lake, thanks to its use of fossil fuels.

“The lake is so warm you feel like you’re in a hot tub,” said one nearby resident. (NBC) (Arstechnica)

RSA Conference’s blockchain moment

Over the weekend, the RSA Conference gave infosec and computer science Twitter a bit of a shock when it suggested replacing the entire internet with — a blockchain. 

The tweet quickly disappeared, but not before being archived. The blockchain is immutable! I wrote about the event in a blog post.

(Updated on July 8 to note that Brian Brooks replaced Catherine Coley as CEO of Binance.US.)

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Binance: A crypto exchange running out of places to hide

Binance, the world’s largest dark crypto slush fund, is struggling to find corners of the world that will tolerate its lax anti-money laundering policies and flagrant disregard for securities laws. 

On Thursday, the Cayman Islands Monetary Authority issued a statement that Binance, the Binance Group and Binance Holdings Limited are not registered, licensed, regulated, or otherwise authorized to operate a crypto exchange in the Cayman Islands.

“Following recent press reports that have referred to Binance, the Binance Group and Binance Holdings Limited as being a crypto-currency company operating an exchange based in the Cayman Islands, the Authority reiterates that Binance, the Binance Group or Binance Holdings Limited are not subject to any regulatory oversight by the Authority,” the statement said.

This is clearly CIMA reacting to everyone else blaming Binance on the Caymans, where it’s been incorporated since 2018. 

On Friday, Thailand’s Security and Exchange Commission filed a criminal complaint against the crypto exchange for operating a digital asset business without a license within its borders. 

Last week, Binance opted to close up shop In Ontario rather than meet the fate of other cryptocurrency exchanges that have had actions filed against them for allegedly failing to comply with Ontario securities laws.

Singapore’s central bank, the Monetary Authority of Singapore, said Thursday that it would look into Binance Asia Services Pte., the local unit of Binance Holdings, Bloomberg reported. 

The Binance subsidiary applied for a license to operate in Singapore. While it awaits a review of its license application, Binance Asia Services has a grace period that allows it to continue to operate in the city-state. 

“We are aware of the actions taken by other regulatory authorities against Binance and will follow up as appropriate,” the MAS said in a statement.

On June 26, the UK’s Financial Conduct Authority issued a consumer warning that Binance’s UK entity, Binance Markets Limited, was prohibited from doing business in the country. 

“Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA,” the regulator said.

It continued: “No other entity in the Binance Group holds any form of UK authorisation, registration or licence to conduct regulated activity in the UK.” 

Following the UK’s financial watchdog crackdown, Binance customers were temporarily frozen out of Faster Payments, a major UK interbank payments platform. Withdrawals were reinstated a few days later.

Only a few days before, Japan’s Financial Services Agency issued a warning that Binance was operating in the country without a license. (As I explain below, this is the second time the FSA has issued such a warning.)

Last summer, Malaysia’s Securities Commission also added Binance to its list of unauthorised entities, indicating Binance was operating without a license in the Malaysian market.

A history of bouncing around

Binance offers a wide range of services, from crypto spot and derivatives trading to tokenized versions of corporate stocks. It also runs a major crypto exchange and has its own cryptocurrency, Binance Coin (BNB), currently the fifth largest crypto by market cap, according to Coinmarketcap. 

The company was founded in Hong Kong in the summer of 2017 by Changpeng Zhao, more commonly known as “CZ.” 

China banned bitcoin exchanges a few months later, and ever since, Binance has been bouncing about in search of a more tolerant jurisdiction to host its offices and servers.  

Its first stop after Hong Kong was Japan, but Japan was quick to put up the “You’re not welcome here” sign. The country’s Financial Services Agency sent Binance its first warning in March 2018. 

“The exchange has irked the FSA by failing to verify the identification of Japanese investors at the time accounts are opened. The Japanese officials suspect Binance does not have effective measures to prevent money laundering; the exchange handles a number of virtual currencies that are traded anonymously,” Nikkei wrote. 

Binance responded by moving its corporate registration to the Cayman Islands and opening a branch office in Malta, the FT reported in March 2018.

In February 2020, however, Maltese authorities announced Binance was not licensed to do business in the island country. 

“Following a report in a section of the media referring to Binance as a ‘Malta-based cryptocurrency’ company, the Malta Financial Services Authority (MFSA) reiterates that Binance is not authorised by the MFSA to operate in the crypto currency sphere and is therefore not subject to regulatory oversight by the MFSA.”

The ‘decentralized’ excuse

CZ lives in Singapore but has continually refused to say where his company is headquartered, insisting over and over again that Binance is decentralized. This is absolute nonsense, of course. The company is run by real people and its software runs on real servers. The problem is, CZ, whose net worth Forbes estimated to be $2 billion in 2018, doesn’t want to abide by real laws. 

As a result, his company faces a slew of other problems. 

Binance is currently under investigation by the US Department of Justice and the Internal Revenue Service, Bloomberg reported in May. It’s also being probed by the Commodity Futures Trading Commission over whether it allowed US residents to place wagers on the exchange, according to another Bloomberg report. 

Also in May, Germany’s financial regulator BaFin warned that Binance risked being fined for offering its securities-tracking tokens without publishing an investor prospectus. Binance offers “stock tokens” representing MicroStrategy, Microsoft, Apple, Tesla, and Coinbase Global.  

Binance has for five years done whatever it pleases, all the while using the excuse of “decentralization” to ignore laws and regulations. Regulators are finally putting their collective foot down. Enough is enough.

Image: Changpeng Zhao, YouTube

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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: Former Wex CEO arrested, CFTC probes BitMEX, Facebook’s Libra grilled in Washington

Since I’m now the editor of an ATM website, let’s start with bitcoin ATM news. LibertyX is adding 90 machines to its bitcoin ATM network. It now has over 1,000 machines.

Actually, these are not new machines. They are traditional cash ATMs that are bitcoin enabled. A software upgrade on the machines allows users to buy bitcoin with a debit card. The ATMs continue to dispense cash as well. 

According to CoinATM Radar, there are now 5,200 bitcoin ATM machines on this earth. Who the heck is using them? At least one operator, frustrated by a lack of business, has moved his Bitcoin ATM into his mother’s garage. 

In the exchange world —

Criminal in handcuffsDmitri Vasilev, the ex CEO of defunct crypto trading platform Wex, was arrested in Italy. Wex was a rebrand of BTC-e, an exchange that was shut down in 2017 for being a hub of criminal activity. BTC-e was also linked to the stolen bitcoin from Mt. Gox.  

Economist Nouriel Roubini — aka “Dr. Doom” — has stepped up his attack on crypto derivatives exchange BitMEX. In a scathing column in Project Syndicate, Roubini claims sources told him the exchange is being used daily for “money laundering on a massive scale by terrorists and other criminals from Russia, Iran, and elsewhere.” 

Days after Roubini’s column came out, Bloomberg reported that the CFTC was investigating whether BitMEX allowed Americans to trade on the platform. In fact, we know that crypto analyst Tone Vays, a New York resident, was trading on the platform until November 2018 when his account was terminated.

Regulators are cracking down on crypto exchanges. As The Block’s Larry Cermak points out, the situation is getting “quite serious.”

Elsewhere, Bitpoint, the Tokyo-based crypto exchange that was recently hacked, says it will fully refund victims in crypto, not cash. Roughly 50,000 users were impacted when $28 million worth of crypto vanished off the exchange. Two-thirds of the stolen funds belonged to customers of the exchange. 

U.S. crypto exchange Coinbase has killed off its loss-making crypto investment packages. After shutting down its crypto index fund due to a lack of interest, it closed its much ridiculed “Coinbase Bundle.” The product launched eight months ago with the aim of making it easy to purchase a market-weighted basket of cryptocurrencies. 

Malta-based Binance found itself $775,000 richer when it stumbled across nearly 10 million Stellar lumens (XLM). Turns out, the exchange had been accidentally staking (receiving dividends) on its customers lumens for almost a year. It’s planning to give the tokens away in an airdrop and will also add staking support for customers.  

Tether, the stablecoin issued by Bitfinex/Tether, is now running on Algorand, a new blockchain protocol. It’s also running on Omni, Ethereum, Tron and EOS. Presumably, running on a plethora of networks makes tether that much harder to shut down. It’s sort of like whack-a-mole. Try to take it off one network, and tether reappears on another. 

There are now officially more than $4 billion worth of tether sloshing around in the crypto markets. That number almost doubled when Tether inadvertently issued $5 billion unbacked tethers when it was helping Boston-based crypto exchange Poloniex transfer tethers from Omni to Tron. Oops.

Also interesting —

David Gerard is working on a book about the world’s worst initial coin offerings. He recently uncovered another cringe-worthy project. “Synthestech was an ICO to fund research into transmutation of elements, using cold fusion — turning copper into platinum. Literally, an ICO for alchemy. Turning your gold into their gold.” 

Facebook’s Libra had a busy week.

U.S. Secretary of Treasury Steven Mnuchin gave a press briefing on crypto at the White House. (Here’s the transcript.) He is concerned about the speculative nature of bitcoin. He’s also seriously worried Libra will be used for money laundering. He said the project has a long, long way to go, before he feels comfortable with it. 

Unlike bitcoin, which goes wildly up and down in price, Libra would have a stable value, because it would be pegged to a basket of major currencies, like the dollar, euro, and yen. Although, nobody is quite sure how that will work and what currencies it will be pegged to. Tether has a stable value, too, of course.

After his talk, Mnuchin flew off to Paris, where he met with finance ministers from six other powerful countries at the G7 summit. Everyone there agreed they need to push for the highest standards of regulation on Libra. 

Meanwhile, David Marcus, the head of the Libra project, got a grilling in Congress over privacy and trust issues. (You can watch the Senate hearing here and the House Financial Services Committee hearing here.) Nobody believes Facebook will keep its word on anything.

All of this is happening, of course, just after the social media giant got a $5 billion slap on the wrist for privacy violations following the Cambridge Analytica scandal.

The dumb tweet of the week award goes to Anthony Pompliano, co-founder of a digital asset fund Morgan Creek Digital, who says dollars aren’t moved digitally, they are moved electronically. For some reason, he has 250,000 followers on Twitter. The historic tweet even made it in FT Alphaville.

Apple co-founder Steve Wozniak has joined an energy-focused blockchain startup in Malta. The Mediterranean island nation is gung-ho about blockchain. It is also a haven for money laundering and the place where a female journalist who tried to expose government corruption was blown up in 2017. 

U.S authorities have charged former Silk Road narcotics vendor Hugh Brian Haney with money laundering. The darknet market was shut down in 2013. Special agents used blockchain analytics to track down Haney and seize $19 million worth of bitcoin. 

This clever young man has made a business out of helping crypto exchanges inflate their volume. 

ConsenSys founder Joseph Lubin is being sued by a former employee for $13 million. The employer is alleging fraud, breach of contract and unpaid profits.

Former bitcoin core developer Peter Todd is being sued for allegedly touching people inappropriately.

And finally, bitcoin ransomware Ryuk is steadily making its way into China.  

 

 

News: NYAG calls Bitfinex out, Bitfunder founder off to jail, Roubini pissed at Bitmex

A few people asked me where I’ve been lately. I’ve been working! I recently started a full time job. I’m the editor of a website about ATM machines. I recently wrote Spanish authorities: bitcoin ATMs expose hole in AML laws” and Bitcoin ATMs: Why Vancouver doesn’t want them.” (By the way, if you are curious how criminals use bitcoin ATMs to clean money, this moneylaunder.com article does a nice job of explaining the process.) 

I also write a newsletter on money. You should sign up for it

On to the news — 

Much ado about exchanges

Crypto exchange Bitfinex is doing a lot more business in New York than it’s led us all to believe. The NYAG’s recent court filings — a Memorandum of Law and an affirmation from assistant Attorney General Brian Whitehurst, along with 28 pieces of evidence — reveal a full picture of the company’s dealings in the state.  

Why does it matter? Because his means NYAG has jurisdiction to push ahead with its investigation into Bitfinex and Tether’s ongoing shenanigans. Decrypt’s Ben Munster also points out that Bitfinex “loaned tethers to a New York trading firm.” There’s an open question as to whether the funds were ever paid back.  

Also, Bennet Tomlin had a good thread on the NYAG’s filing.

By the way, there are now nearly $3.9 billion tether sloshing around in the markets, pushing up the price of bitcoin, which briefly crested $13,000 on July 10. 

I nearly missed this bit of news from a few weeks ago: Ireland-based cryptocurrency exchange Bitsane went poof!, leaving its 246,000 users high and dry. Users began having issues withdrawing crypto from the exchange in May. And on June 17, the exchange’s website along with its twitter and facebook accounts vanished.  

Bitmarket, the second largest Polish crypto exchange, has shut down citing a loss of liquidity. Approximately 1,300 bitcoin are stuck on the exchange, and users are rightfully pissed off. They have formed a Facebook group and are planning a class-action lawsuit. The exchange was acting goofy before the shutdown. Reddit user u/OdoBanks says users were asked to change passwords and provide additional KYC for withdrawals.

Founder of bitcoin stock exchange Bitfunder will be spending 14 months behind bars for lying to the SEC about a hack that cost clients 6,000 BTC. Instead of telling his customers the truth in 2013, operator Jon Montroll misappropriated funds to hide the losses.  

Cryptocurrency exchange hacks don’t happen too often — only once every few weeks. Japan’s Bitpoint is the latest to make headlines. The exchange’s hot wallets were hacked to the tune of $32 million worth of crypto, most of which were customer funds. On Monday, the exchange found another $2.3 million missing on exchanges “that use the trading system provided by Bitpoint Japan,” according to Japan Today

(Update, July 15, 11:30 a.m. EST — previously, I indicated Bitpoint located $2.3 of the missing funds, but actually the exchange found more money missing.)

Speaking of Japan, the country’s top regulator says 110 crypto exchanges are waiting for licenses right now. Under Japanese law, crypto exchanges need to register with the Financial Services Agency to operate in the country. As of now, there are only 19 licensed exchanges in Japan. The FSA has been slow to license after the Coincheck hack

Binance burned 808,888 of its native BNB tokens — about $24 million worth. This is the eighth burn of BNB coins, which are totally not a security. The price of the remaining BNB goes up every time there is a burn. Keep in mind, until any crypto is converted to fiat, its value is completely theoretical. 

Screen Shot 2019-07-14 at 11.26.10 PMBitMEX, the Hong Kong-based bitcoin derivatives exchange, has finally released the tapes (round 1 and 2) from its “Tangle In Taipei,” a July 3 debate between Bitmex CEO Arthur Hayes and NYU professor Nouriel Roubini. The two have been going at it online.

A man is suing Gemini — the NY exchange operated by the Winklevoss twins — after $240,000 was stolen from his money market account and wired to Gemini, where it was used to to purchase crypto on the exchange.  

Due to heightened oversight on online crypto exchanges, users are increasingly asked to fork over their IDs and addresses. The shift is giving peer-to-peer exchanges, which typically don’t impose such KYC checks, a boost, according to Bloomberg

Other interesting stuff

Founders of the Tezos crypto platform object to sharing emails between them regarding the Tezos “fundraiser” because they are married. Steven Palley has the full story

New York City’s Monroe College was hit with a ransomware attack that shutdown the college’s computer systems. The attackers want the college to fork over $2 million worth of bitcoin to free up the computers.  

President Trump blasted bitcoin on Twitter. He is no fan of Facebook’s Libra either. There’s only room in this country for one currency, and that’s the almighty dollar.

The Federal Trade Commission has fined Facebook a gobsmacking $5 billion for privacy violations. It’s the biggest fine in FTC’s history. Surprise, surprise, Facebook’s stock went up on the news. 

An angry mob burned down the home of a man behind bitcoin ponzi scheme in South Africa after he admitted all the money was gone. 

Finally, police in China cracked down on a cartel of illicit bitcoin miners who stole nearly $3 million worth of electricity. A local power company tipped off authorities after they noticed a peculiar surge in power use.  

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.

# # #

News: Money laundering in real time, Binance has you covered, maybe, and Bitfinex ready to IEO with LEO

A lot is going on in cryptoland right now—most of it involves investigations, a New York Attorney General (NYAG) lawsuit and missing funds, but I don’t want to sound negative.

The destiny of all crypto exchanges is to be hacked, apparently. Last year, thieves stole $950 million worth of cryptocurrency from exchanges. So, in many ways, it’s not surprising to hear that Binance, the largest crypto exchange by volume, got hacked a second time.

Binance, all funds SAFU

Thieves looted more than 7,000 BTC from Binance in a single transaction. The hackers, however, are not free yet! They still need to move that $41 million worth of BTC into fiat,  a feat that typically requires layering funds into smaller and smaller amounts (generally using a script of some sort), moving it through coin mixers, and then funneling it through various exchanges until they can exit into cash. 

Thanks to blockchain, we can watch this money laundering happen real time. The first transaction out of Binance consisted of of 44 outputs. The hackers have since consolidated the bitcoin into seven addresses of mostly amounts. Now we wait.

After the hack, Binance suspended all deposits and withdrawals for seven days. Traders on the platform can’t dump their bitcoin—or their tether. If bitcoin were to crash, they would be trapped. Fortunately, bitcoin is not crashing—it’s pumping. As I write, bitcoin is now at $6,800, having shot up $1,000 within a week.

According to one expert, the boost is partially due to “a rare alignment of celestial bodies forged in an ancient supernova”—thus, number go up. Makes total sense to me.

Binance says it has an insurance policy—its SAFU fund—to cover losses on the exchange. Nobody knows for certain what is in that fund, because there has never been an outside audit, but Binance’s CEO CZ says they have enough bitcoin to cover the losses. Phew!

In a recent blog post, CZ also said the exchange is revamping its security measures, including its 2FA, API and withdrawal validation processes. Also, withdrawals and deposits should resume “early next week.”

Bitfinex’s legal woes

If you need to get up to speed with the Bitfinex and Tether saga, I covered the NYAG lawsuit in my previous newsletter. Robert-Jan den Haan also wrote a complete timeline of Bitfinex’s history with its third-party payment processor Crypto Capital.

We have podcasts, too. I discuss the Bitfinex drama with Sasha Hodder on HodlCast, and Robert talks about it with Laura Shin on her Unconfirmed podcast.

In response to the NYAG’s court order, Bitfinex submitted a motion to vacate. The NYAG filed an opposition, and Bitfinex responded. At a hearing on May 6, New York Supreme Court judge Joel M. Cohen called the preliminary injunction “amorphous and endless.” The prelim will stand, but he is giving both parties a week to sort it out.

Bitcoin was selling at a 6% premium on Bitfinex—a sign that traders are willing to pay more to get rid of their tether and get their funds off the exchange. The price of bitcoin on the exchange was so off-kilter that CoinMarketCap, a website that aggregates bitcoin pricing from top exchanges, stopped pulling from Bitfinex.

The Bitfinex premium disappeared when Binance halted withdrawals on its platform, Larry Cermak doubts it has anything to do with Binance though. He thinks it’s because Bitfinex started processing cash withdrawals again.

Twitter user “Bitfinex’ed,” disagrees. When bitcoins and tethers are stuck on Binance,  that effectively reduces the supply and makes it that much easier to pump the market, he told me. He think prices will crash when Binance reopens withdrawals.

“I am lion, hear me roar”

Screen Shot 2019-05-10 at 9.39.37 PMBitfinex has a $851 million shortfall due to issues with Crypto Capital. How is it going to fix that? Here is an idea: Why not just print more money?

The exchange’s latest plan is a token sale, or exchange traded offering (ETO), on its own platform. It will be selling a new token LEO—as in lion.

Earlier this week, iFinex, the parent company of Bitfinex, released a white paper outlining the business proposition behind the token offering. Each LEO is worth 1 USDT, which is worth $1 USD. This is not the first time Bitfinex has issued a new token to pull itself out of a financial mess. (It created a BFX token after it was hacked in 2016.)

Bitfinex shareholder Dong Zhao told CoinDesk that iFinex has received hard and soft commitments of $1 billion for the token sale. Perfect. That should definitely eleviate all of Bitfinex’s money problems.

QuadrigaCX

Ernst & Young, the trustee for failed Canadian crypto exchange QuadrigaCX, released a preliminary report describing the company’s assets and liabilities. In a nut, Quadriga has US$21 million in assets, but owes creditors US$160 million.

Elsewhere

Recently, Negocie Coins, a crypto exchange that you probably have never heard of, rose to number three on CoinMarketCap’s top exchange’s list sorted by volume. How is this even possible? Clay Collins, founder of market data company Nomics, made a video, explaining how crypto exchanges use ticker stuffing and volume spamming to game the system.

FinCEN has released a new “interpretive  guidance” for money services businesses using cryptocurrency. If you are not sure if you are a money transmitter, David Gerard breaks it down for you. Sasha Hodder also covers the new guidance in Bitcoin Magazine. And there were several tweet storms—here, here, and here.

The FinCEN document has far reaching implications, such as, it appears Lightning Network (LN) operators qualify as money transmitters. Emin Gün Sirer says he is not surprised “given how similar LN is to hawala networks, and given the role hawala networks played in financing terrorism pre-9/11.”

The US banking committee is concerned about Facebook’s attempt at a cryptocurrency—Facebook coin—and how the social media giant is treating people’s’ financial information. It’s published an open letter with questions for Facebook.

Redditor u/BioBiro, who needed to acquire bitcoin for a totally legal purchase, complains about the rigamarole he had to go through. Among other things, “Now there’s two pictures of me and my driving license on their server for the rest of time, I guess.”

Consensus, CoinDesk’s big money maker conference, kicks off in New York next week. Last year it had 8,500 attendees, pulling in ~$17 million in ticket sales—and that’s before sponsorships. Arthur Hayes, CEO of bitcoin derivative exchange BitMEX, was one of several who rolled up to New York Hilton Midtown in a lambo.

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Binance hacked to the tune of $41 million, but no worries, funds are SAFU

Screen Shot 2019-05-07 at 10.22.41 PMBinance, the world’s largest crypto exchange by volume, and the world’s largest tether exchange, has been hacked.

The hackers drained the exchange’s hot wallets, taking 7,000 bitcoin, worth approximately $41 million, in a single transaction. The hack only amounted to 2% of the exchange’s total holdings. Everything else was in its offline cold wallets.

“All of our other wallets are secure and unharmed,” Binance CEO Changpeng Zhao (aka “CZ”) wrote in a blog post on Wednesday morning, May 8, Asia time. 

The stolen funds are visible in this transactionHours before the announcement, the exchange said it was undergoing maintenance.

CZ explained the hackers were able to obtain a large number of user API keys, two-factor authentication (2FA) codes, and “potentially other info.” 

To pull off the heist, hackers used a variety of techniques, including phishing, viruses and other attacks. “We are still concluding all possible methods used,” CZ said. “There may also be additional affected accounts that have not been identified yet.” 

In the meantime, Binance has suspended all customer deposits and withdrawals, but trades will continue. “Please also understand that the hackers may still control certain user accounts and may use those to influence prices,” CZ noted.

He explained that the the hackers had the patience to wait, and execute well-orchestrated actions through “multiple seemingly independent accounts at the most opportune time.”

The exchange will use its Secure Asset Fund for Users (SAFU) to cover the losses. In mid-2018, after an earlier hack, Binance began to allocate 10% of all trading fees received into the fund, as a way to insure against extreme losses. 

After being up for 29 hours, an exhausted CZ did a 37-minute Periscope stream to answer questions about the hack. “It’s one of those days,” he said. “Yeah, it’s been rough.”

What happened?

At this point, few details of the incident are public—and speculation is rampant. 

It appears the hackers were able to drain the exchange’s hot wallets without a manual authorization. Typically, large outbound transfers (often over 100 BTC) need to be manually vetted. For instance, crypto exchange Liquid, based in Tokyo, keeps 100% of its funds in cold storage and manually processes all withdrawals. It is a slower process for getting funds off an exchange, but more secure.

Cornell University professor and blockchain researcher Emin Gün Sirer thinks the Binance hackers knew the per-account limits, and used multiple compromised accounts to withdraw the entire hot wallet. “This shows how difficult it is to build secure services with our current coin infrastructure,” he told me. 

Gün was amazed at Binance’s decision to keep trading even though it doesn’t know the full extent of the hack or how many accounts were affected.

As he explained, “They know some 2FA has been compromised, but they don’t know which customer accounts are compromised—yet they enable trading.” In other words, someone could carry out risky trades in the next week, and if the trades lose money, they could say that their 2FA was compromised and the trades were unauthorized. 

“Continuing to trade in an unknown scenario opens them up to unlimited legal risk,” he tweeted“This is ballsy beyond belief.”

Freezing withdrawals

Binance is freezing withdrawals for a week—that means 188,000 Bitcoin are stuck on the platform—a move that could create an artificially restricted supply.

You can’t withdraw bitcoin off the exchange, but Binance itself—and insiders—can. This could allow a privileged few to take advantage of price differentials on other exchanges.  

“If you want to sell a lot of bitcoins onto the market, and capture as much liquidity as possible, you want to be the only one selling,” Twitter user Bitfinex’ed told me. “You don’t want other people selling to the same orders you want to sell to. Binance freezing withdrawals means those people are stuck there and can’t sell for real money.”

Previous hack

This isn’t the first time Binance has been hacked. It experienced another sophisticated hack in July 2018, where oddly enough, 7,000 BTC—the same amount of bitcoin as this recent hack—was also withdrawn and resulted in an “emergency maintenance.”

The earlier attack went something like this:

Syscoin (SYS)—a minor altcoin with a low volume and small order book — was hit by a hack caused by a bug in its wallet. The attackers then sent the ill-gotten SYS coins to Binance, where they created a torrent of buy orders via the Binance API. This pushed the price of SYS as high as 96 BTC, at one point. The hackers then withdrew the bitcoin, prompting Binance to cease trading and to reset all of its APIs.

The incident is what prompted Binance to create its SAFU insurance fund, which at the time, contained only Binance’s own BNB on-exchange token. Those who suffered a loss as a result of the hack, were compensated in BNB. It is not clear, however, if that will be the case this time. CZ says he has enough bitcoin to cover the loss. 

It is entirely possible the same hackers who pulled off this earlier hack were also the ones behind the recent hack. If so, who were they?

North Korea 

Screen Shot 2019-05-08 at 7.06.25 AMAnother source I spoke to—who did not want his identity revealed—said the recent hack has all the hallmarks of a sophisticated, multi-pronged attack that might be more the work of nation-state elements rather than your typical “lone hacker.”

He speculated that it was possible this was the work of APT 38, a covert cybercrime cell that specializes in financial institutions, and more recently, cryptocurrencies, to prop up North Korea’s economy. 

The group, according to cybersecurity firm FireEye, doesn’t operate by a quick smash-and-grab strategy typical of day-to-day cybercriminals, but with the patience and precision of a nation-state threat actor that has the time and tools to sit and wait for the perfect moment to launch an attack.

“APT 38 operators put significant effort into understanding their environments and ensuring successful deployment of tools against targeted systems,” FireEye experts wrote in a report. “The group has demonstrated a desire to maintain access to a victim environment for as long as necessary to understand the network layout, necessary permissions, and system technologies to achieve its goals.”

The Binance investigation is ongoing. I’ll update this post as more information surfaces

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News: Craig Wright suing more people, exchanges respond by delisting BSV, and Arwen launches

I am trying to make my news posts shorter with an effort to focus mainly on cryptocurrency exchanges, unless something else comes up that is just fun to write about. If you enjoy my stories, tips are always welcome via Patreon.

At a hearing on April 18, Quadriga’s court-appointed monitor continued its battle with the exchange’s third-party payment processors to get them to hand over transaction records and funds. The court also extended Quadriga’s creditor protection until June 28.

Screen Shot 2019-04-19 at 9.53.58 AM
Dorian Nakamoto, one of those who turned out not to be Craig Wright.

Craig Wright, who claims to be Satoshi, is suing people who are accusing him of not being Satoshi. (Wright has yet to prove he actually is.) As mentioned in my last newsletter, it all started when Wright sued twitter user Hodlonaut. Wright has now followed with libel suits against Bitcoin podcast host Peter McCormack, Ethereum co-founder Vitalik Buterin and crypto blog Chepicap. (CoinGeek, a publication financed by Calvin Ayre, Wright’s billionaire backer, has a full story.)

Naturally, the Bitcoin community is up in arms. In response, Binance—an exchange that has been traditionally unselective in the coins it lists—has delisted BSV (stands for Bitcoin Satoshi’s Vision), the coin that resulted from the bitcoin fork spearheaded by Wright and Ayre. The move was followed by several other exchanges delisting BSV, including Kraken, ShapeShift and Bittylicious. Blockchain.info removed support for BSV from its wallet.

Kraken’s BSV delisting was in response to a poll it put up on Twitter. This quote from Kraken founder Jesse Powell is priceless. He says:

“In this case, it is a unique case for us, we haven’t delisted any other coins because the founders, people who are promoting it turned out to be total assholes.”

Angela Walch, a law professor at St. Mary’s University School of Law, compared the #DelistBSV movement to Visa and PayPal not processing Wikileaks transactions and expressed surprise the crypto world was cheering it.

Meanwhile Gemini’s Tyler Winklevoss says Gemini never listed BSV in the first place, and Chandler Guo, a Chinese miner who has made a fortune on ICOs and Bitcoin forks, announced that he would do the opposite and list BSV.

Crypto exchanges just aren’t pulling in the gazillions they used to. Binance generated about $78 million in profit last quarter, up 66 percent quarter-over-quarter. But that still falls short of full year 2018, when the exchange made $446 million in profits. Coinbase brought in revenue of $520 million in 2018, down 44 percent year-over-year.

Hacks, inside jobs and irreversible goof-ups are pushing some crypto exchanges to the brink. Coinnest, once South Korea’s third-largest exchanges, is closing. Users have until April 30 to get their funds off the exchange. Coinnest lost $5.3 million in a botched airdrop in January, though it blames its closure on low trading volume.

Elsewhere, on April 10, Bittrex’s application for a BitLicense (required to do business in New York State) was rejected—in part, because Bittrex customers were using fake names, like “Give me my money,” “Elvis Presley” and “Donald Duck” to trade.

Bittrex says the NY Department of Financial Services (DFS) “sent four people who didn’t know anything about blockchain.” DFS responded again, saying the exchange “continues to misstate the facts” and “presents a misleading picture about the denial.”

Binance is about to begin the process of moving its BNB (currently an ERC20 token) off the Ethereum network and onto Binance Chain, its custom blockchain. Interestingly, The Block’s Larry Cermak notes that Binance has quietly changed its white paper to remove a clause about the exchange using 20 percent of its profits to buy back BNB.

Arwen, a self-custody solution that uses on-blockchain escrows and off-blockchain atomic swaps to allow traders to maintain control of their keys while they trade, launched on Singapore’s KuCoin earlier this week. KuCoin raised $20 million in VC funding last year, and it is the first exchange to partner with Arwen, created by a company of the same name based in Boston.

Finally, Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, is reportedly eyeing a New York license for its crypto exchange Bakkt. The launch date for Bakkt has been delayed for months due to skepticism from the CFTC. The regulator appears most concerned over how tokens will be stored.

 

 

News: 51-foot yacht for sale, Bitfinex enables margin trading with Tether, Craig Wright threatens legal action

Spring is in the air! What are your summer plans? If you are considering buying a boat—or maybe even an “almost new” 51-foot Jeanneau with “very, very few hours” for half a million USD—now would be the time!

Screen Shot 2019-04-13 at 7.26.10 PM

The yacht belonged to Quadriga’s now-deceased CEO Gerald Cotten. Here is a video of him putting Canada’s plastic money into a microwave. Here he is tossing Winnie the Pooh into a bonfire. And this is him playing with Pokémon cards.

The latest on QuadrigaCX

I wrote about how Michael Patryn and Cotten appear to have been working together at Midas Gold, a Liberty Reserve exchanger, prior to founding Quadriga. David Z. Morris at Breakermag covered the topic as well. (He credited me, so I’m real pleased about that.)

At a court hearing on April 8, Quadriga was given the go-ahead to shift into bankruptcy. The move will save costs and give Ernst & Young (EY) more power as a trustee. 

“The trustee can also sell QuadrigaCX’s assets and start lawsuits to recover property or damages,” Evan Thomas of Osler, Hoskin & Harcourt told Bitcoin Magazine. “The trustee will collect whatever it can recover for eventual distribution to creditors.”

An “Asset Preservation Order” for Jennifer Robertson, Cotten’s widow, was filed on April 11. Law firm Stewart McKelvey is setting up three separate trusts to “collect and preserve” any surplus funds from estate assets, personal assets and corporate assets. Depreciable assets, such as Cotten’s yacht, will be sold.

Per the order, Robertson will continue to receive her drawings from her business Robertson Nova Property Management “in accordance with current levels, for the purposes of satisfying ordinary living expenses.” She will also have access to cash from the “personal assets” account to maintain her properties and to cover legal expenses.

Robertson has 10 days from the court order to provide EY with a list of all her assets—including cash on hand.

A cap on pay for Miller Thomson LLP and Cox & Palmer has been raised from CA$250,000 to CA$400,000. The team will continue to represent Quadriga’s creditors in the bankruptcy.

Quadriga’s third-party payment processors now have 10 business days (as opposed to five previously) from when they receive this court order to deliver the following to EY:

  • VoPay—CA$116,262.17.
  • Alto Bureau de Change—assets and property.
  • 1009926 BC—all records and transaction-related information.
  • POSConnect—access to Quadriga’s online account to George Kinsman, who is a partner at EY.
  • WB21 (now Black Banx)—all records and account statements related to its Quadriga dealings.

The next hearing to discuss issues remaining from the Companies’ Creditor Arrangement Act, including those tied to third-party payments processors, is scheduled for April 18.

Other crypto exchanges

Popular US-based crypto exchange Coinbase suspended trading of BTC-USD pairs for two hours on April 11 due to a “technical issue” with its order book. BTC-USD is a critical trading pair due to its volume and its impact on bitcoin price measures.

It appears that somebody dumped a load of BTC into the exchange’s buy orders causing liquidity to dry up. Coinbase doesn’t want that to happen, so likely that is why it wiped the books, cancelling any outstanding buy or sell orders.

Coinbase Pro, Coinbase’s professional exchange, is continuing to expand its altcoin reach. The exchange is listing three more altcoins: EOS (EOS), Augur (REP), and Maker (MKR). Coinbase first committed to listing MKR in December, but according to The Block’s Larry Cermak, due to low volume, Coinbase decided to hold off listing MKR.

Crypto credit cards are back in vogue. Coinbase has launched a Visa debit card. The “Coinbase Card” will allow customers in the U.K. and EU to spend their crypto “as effortlessly as the money in their bank.” The exchange says it will “instantly” convert crypto to fiat when customers complete a transaction using the debit card. PaySafe, a U.K. payment processor, is the issuer of the card. In the past, these crypto Visa cards have been known to suddenly lose access to the Visa network, so fingers crossed.  

Another executive is leaving Coinbase. The firm’s institutional head Dan Romero has announced he is leaving after five years. This is the third executive to depart Coinbase in six months. Director of institutional sales Christine Sandler left last month, and ex-vice president and general manager Adam White quit in October.

Switzerland-based crypto exchange Bitfinex has lifted its $10,000 minimum equity requirement to start trading. This will undoubtedly bring more cash into the exchange. “We simply could not ignore the increasing level of requests for access to trade on Bitfinex from a wider cohort than our traditional customer base,” CEO Jean-Louis van der Velde said in a blog post (archive).

Meanwhile, Bitfinex customers are complaining (here and here) that they are unable to get cash out of the exchange. Now some are saying they are having trouble getting their crypto out of Bitfinex as well. 

Reddit user “dovawiin” says, “Ive been trying repeated attempts for 2 weeks to withdraw funs and it always says processing. Ive submitted multiple tickets with delayed answers. Ive cancelled and attempted again a few time after waiting 48Hours with no results. Im currently trying again and nothing for over 24 hrs. This is ridiculous.”

Bitfinex also enabled margin trading on Tether. Margin pairs include BTC/USDT and ETH/USDT. Tether has already admitted to operating a fractional reserve, so this is basically adding more leverage to what’s already been leveraged. I’m sure it’s fine though—nothing to worry about here.  

Johnathan Silverman, a former employee of Kraken, is suing the crypto platform for allegedly failing to pay him for work he did. Kraken says it got out of New York in 2015. Silverman says the exchange still maintained an over-the-counter trading desk in the state, which requires licensing for crypto businesses. Kraken told Bloomberg, Silverman “is both lying and in breach of his confidentiality agreement.”

Finally, Malta-based Binance, one of the largest crypto exchanges by volume, is partnering with blockchain analytics firm CipherTrace to boost its AML procedures.

Other interesting stuff

All hell broke lose on Twitter Friday when news got out that Craig Wright is making legal threats against Twitter user “Hodlonaut,” who has been publicly calling Wright a “fraudster” and a “fake Satoshi.” Wright has never been able to prove that he is Satoshi.  

In a letter shared with Bitcoin Magazine, SCA ONTIER LLP, writing on behalf of Wright, demands that Hodlonaut retract his statements and apologize, or else Wright will sue him for libel. The letter even includes this bizarre prescribed apology:

“I was wrong to allege Craig Wright fraudulently claimed to be Satoshi. I accept he is Satoshi. I am sorry Dr. Wright. I will not repeat this libel.”

Hodlonaut deleted his Twitter account upon receiving the news. And the crypto community formed a giant backlash against Wright. Preston Byrne is assisting Hodlonaut pro-bono, Peter McCormack is selling T-shirts that say, “Craig Wright is a Fraud,” and Changpeng Zhao, the CEO of crypto exchange Binance threatened to delist Bitcoin SV—the token spearheaded by Wright and billionaire backer Calvin Ayre.

Ayre is also demanding apologies related to some photos of him circulating on Twitter with extremely young-looking women. Coin Rivet writes, “We have agreed to pay Mr Ayre substantial damages for libel. We have also agreed to join in a statement to the English High Court in settlement of Mr Ayre’s complaint.”

China’s National Development and Reform Commission (NDRC) released guidance that includes shutting down Bitcoin mining. “The risk to Bitcoin in the longer term is other governments taking their cue from China—and taking proof of work more seriously as a problem that needs to be dealt with,” writes David Gerard.

Another Bitcoin mining company has gone belly upBcause llc filed for Chapter 11 in Illinois. (Steven Palley uploaded the docs on Scribd.) The company is based in Chicago, but its mining rigs are in Virginia Beach. In January 2018, Virginia Beach Development Authority gave the firm a $500,000 grant to build the $65 million facility. Bcause promised to create 100 full-time jobs, with average salaries of $60,000 a year. 

But by January, the price of Bitcoin was already on its way down—so much for all those jobs. At least the neighbors won’t have to suffer the noise anymore.

Last summer, Virginia Beach resident Tommy Byrns, told Wavy News:

“The issue is the noise, the relentless noise … it’s kind of created an atmosphere where we can’t talk to each other in the backyard. You have to go in the house to talk … this was pushed through without any warning into anybody … and now look what we have.” 

Crypto, the movie, is out. Gerard wrote a full review for DeCrypt on his new battery-powered AlphaSmart Neo 2 keyboard—a 1990s flashback that keeps him from shit posting on Twitter. The film was mediocre—but it stars KURT RUSSELL.

 

 

News: EY goes after Quadriga’s payment processors, more exchange hacks, the SEC tells us what we already know

I had to take my website offline for a few hours Tuesday, so if you were searching for one of my stories and got a weird message, my apologies. I asked WordPress to downgrade my site from a business plan to a premium plan, and when they did, a bunch of my content disappeared, so I had to put Humpty-Dumpty back together again.

Big thanks to my now 18 patrons, who are making it easier for me to focus on writing about crypto. If you like my work, please consider supporting me on Patreon, so I can keep doing what I am doing.  

Now onto the news, starting with Quadriga, the defunct Canadian crypto exchange that I won’t shut up about. (Read my timeline to get up to speed.)

Ernst & Young (EY), the court-appointed monitor charged with tracking down Quadriga’s lost funds, released its fourth monitor report, which reveals more money going out then coming in. The closing cash balance for March was CA$23,268,411. Incoming cash for the month was CA$4,232, and total disbursements was CA$1,463,860—most of which was paid to professionals. A full half of that (CA$721,579) went to EY and its legal team.

EY is trying to chase down money held by Quadriga’s payment processors. It has drafted a “Third Party Payment Processor Order” for the court to approve on Monday. If that goes through as is, several payment processors, including WB21, will have five business days to handover funds and/or Quadriga documents and transaction data. If they don’t comply, they will be in contempt of court. A shift from CCAA to bankruptcy proceedings will also give EY more power to go after funds as a trustee

Christine Duhaime, a financial crimes lawyer who worked for Quadriga for six months in 2015 to early 2016, wrote “From Law to Lawlessness: Bits of the Untold QuadrigaCX” for CoinDesk, where she talks about how Quadriga went off the rails following its failed efforts to become a public company.

In the article, Duhaime—who in February called for a government bailout of Quadriga’s creditors (archive)—openly admits to having lost CA$100,000 in funds on the exchange. She claims her involvement with the exchange stopped in early 2016. “I’m glad we were let go by QuadrigaCX for being one of the ‘law and order’ folks,” she said.  

I have been corrected on detail here:

She does not mention this in her article, but in 2015, she also owned 20,000 shares of Quadriga stock. It is possible she has since sold the holdings.

Preston Byrne, an attorney at Byrne & Storm, PC, tweeted, “No offense to @ahcastor but this claim that @cduhaime may have owned shares in Quadriga looks to be incorrect. She’s listed as the principal contact for an SPV, and the SPV is the named purchaser. A retraction is in order.”

SPV stands for special purpose vehicle, typically used by firms to isolate them from financial risk. I’ve reworded the paragraph as follows:

This 2015 British Columbia Report of Exempt Distribution, a document of Quadriga Financial Solutions’ ownership, lists Duhaime as the contact for 1207649 B.C. Ltd, which owns—or owned—20,000 shares of Quadriga. I was unable to find the corporate files for 1207649 B.C. The address in the report matches that of Duhaime’s office.  

Update (April 9): I found the corporate files. The actual company name appears to be 1027649 B.C. Ltd.—with the numbers “2” and “0” transposed. The company was founded on February 16, 2015 and dissolved on August 1, 2017. The sole director is “Anne Ellis,” and the registered office is Duhaime Law.

According to court documents, Cotten and Quadriga co-founder Michael Patryn had been seeking to buy back shareholdings after Quadriga’s public listing failed, so it is possible one of them may have bought back those shares as well. I reached out to Duhaime for comment a few times, but she has not responded. 

Duhaime may have left Quadriga behind, but she continued to have business dealings with Patryn, who we now know is convicted felon Omar Dhanani

She and Patryn co-founded Fintech Ventures Group, which calls itself “an investment bank focused on digital currency, blockchain, and AI-focused technology.” According to a January 2016 archive of the company’s site, Duhaime was Fintech Venture’s “Digital Finance Maven & Co-Founder.” (Interestingly, former Quadriga director Anthony Milewski worked there, too, as the company’s “Investment Relations Extraordinaire.”) 

Duhaime and Patryn were also both advisors at Canadian crypto exchange Taurus Crypto Services, according to this June 2016 archive. (Milewski shows up here again, this time as an advisor.) The exchange was founded in 2014 and shut down in January 2017, when the business shifted to over-the-counter trades.  

Like Duhaime, Patryn also claims his involvement with Quadriga ended in early 2016. Although the Globe and Mail said that in October 2018, “it received an e-mail pitch from an ‘executive concierge’ company called the Windsor Group offering up Mr. Patryn for interviews to discuss virtual currencies and describing him as a Quadriga director.” Patryn told the Globe he did not know what the Windsor Group was, nor had he authorized anyone to pitch him as a Quadriga director, as he never served on the board.

Patryn had a personal website michaelpatryn.com, but it got taken down. Here is a 2011 archive and here is a 2014 archive. From 2016 on, the archives point to his LinkedIn profile, where he now goes by “Michael P.” having dropped all but the first initial of his last name. According to his LinkedIn, he has been an advisor for numerous cryptocurrency platforms going back to November 1999. I guess that means his work at Shadowcrew in 2004 and the 18 months he spent in jail for conspiracy to commit credit and bank card fraud and ID document fraud qualifies as advisory services.

Patryn appears to enjoy the limelight. Several reporters told me they had no trouble reaching him. At one point, Patryn even went into the “Quadriga Uncovered” Telegram group—basically, the lion’s den, where hundreds of pissed off Quadriga creditors sat waiting on their haunches —where I am told he calmly deflected accusations.

Meanwhile, I’ve been practicing my authoritative stare and baritone.

Other exchanges

Elsewhere in cryptoland, there have been a number of exchanges hacks. Singapore-based exchange DragonEx was hacked on March 24 for an undisclosed amount of crypto.

Blockchain data firm Elementus suspects that Coinbene, another Singapore exchange, was also hacked. On March 25, Elementus noted that $105 million worth of crypto was on the move out of the exchange. Coinbene totally denies it’s been hacked, claiming that delays in deposits and withdrawals are due to maintenance issues. 

A third exchange, Bithumb was hacked on March 30. The South Korean crypto exchange lost 3.07 million EOS and 20.2 million XRP, worth around $19 million. Bithumb thinks it was an insider job.

Helsinki-based LocalBitcoins, a once go-to for anonymous bitcoin transactions, has added know-your-customer (KYC) identity checks to comply with new laws in Finland. The change goes into effect in November. Per the company’s announcement, this is actually good news for bitcoin, because it will create a “legal status for crypto assets, which should improve significantly Bitcoin’s standing as a viable and legit financial network.”  

A study by reg-tech startup Coinfirm found that 69 percent of crypto exchanges don’t have “complete and transparent” KYC procedures. And only 26 percent of exchanges had a “high” level of anti-money-laundering procedures.

With crypto markets in the dumps, exchanges are looking for new ways to attract volume. To that end, San Francisco-based Coinbase is launching a staking service to lure in institutional investors. The service, which starts with Tezos (XTZ), will pay investors to park their money in XTZ. The coins are kept in offline cold wallets. The catch is that the interest will be paid XTZ, and of course, crypto is highly volatile. 

The price of XTZ went up 70 percent on the news.

Cryptocurrency exchange Binance is launching a new fiat-to-crypto exchange in Singapore later this month. (It’s been launching these crypto onramps all over the word.)

Binance also says it’s planning to launch its decentralized exchange (DEX) later this month. The DEX is built on a public blockchain, Binance Chain. Basically, Binance is looking to create an economy for binance coin (BNB), which is totally not a security.

Other interesting news bits 

Screen Shot 2019-04-05 at 11.03.29 AMThe the U.S. Securities and Exchange Commission issued a “Framework for ‘Investment Contract’ Analysis of Digital Assets.” There is not a lot new to see here. A footnote in the document makes clear this is “not a rule, regulation, or statement of the Commission,” just some thoughts from the SEC’s staff about how they interpret existing securities laws. 

Stephen Palley, partner at law firm Anderson Kill, appeared on Bloomberg sporting a beard to explain the framework—definitely worth five minutes of your time to listen to.

Justin Sun, the founder of blockchain project Tron, bungled a Tesla promotional giveaway. After a widespread cry of foul play, he decided to make it up to everyone by giving away—two Teslas. This wasn’t the first time a Tron promotion raised eyebrows.

Nocoiner David Gerard wrote a Foreign Policy piece on “How Neo-Nazis Bet Big on Bitcoin (and Lost)” that was translated for Newsweek Japan.

The ever outspoken Jackson Palmer did a good interview with Epicenter Blockchain Podcast on the history of Dogecoin and the state of cryptocurrency in 2019.

Nicholas Weaver, who gave the “Burn it with Fire” talk at Enigma, spoke to Breaker about why cryptocurrencies don’t really work as currencies.

Finally, Dream Market, the last standing marketplace from the once infamous “big four” sites that dominated dark web trading in the mid-2010s, announced plans to shut down.