Crypto collapse: Signature Bank blows up, US crypto frantically looks for banking

By Amy Castor and David Gerard

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“In five years a number of banks will not be around because of blockchain technology.”
~ Joseph DiPaolo, CEO, Signature Bank, 2018

All my banks gone

Crypto gets its wish — freedom from the corrupt and filthy fiat currency system! Silvergate and Signature, the two main crypto banks in the US, are gone.

After Silicon Valley Bank collapsed on Friday, March 10, US regulators worried about Signature’s concentration of large deposits that exceeded the FDIC insurance limit. Signature’s customers noticed too. They pulled billions of dollars in deposits from Signature later that same day.

(Morning Brew has a good video explaining the process.) [Twitter, video]

New York regulators shut down Signature on Sunday, March 12. Shareholders are wiped out — but all depositors, even those with deposits above the FDIC $250,000 threshold, will be made whole. [Federal Reserve; NYDFS; FDIC]

The New York Department of Financial Services took control of Signature Bank pursuant to Section 606 of the New York Banking Law. Frances Coppola suspects the NYDFS acted under clauses (b), (c), and (d): the bank was conducting its business in an unauthorized or unsafe manner, it was in an unsound or unsafe condition to transact its business, and it could not with safety and expediency continue business. [FindLaw; Twitter]

Signature had 40 branches, total assets of $110.36 billion, and total deposits of $88.59 billion as of the end of 2022 — making this the third-largest bank collapse in US history.

Leading up to the announcement, President Biden met on Sunday afternoon with Treasury Secretary Janet Yellen, Federal Reserve Vice Chair Lael Brainard, and White House economist Jared Bernstein. Biden directed them to act, and the measures were announced just after 6 pm. [FT]

The closure came as a surprise even to the bank’s management — who only found out just before the public announcement. They were all fired. [Bloomberg]

USDC can buy that for a dollar

After a weekend pause, Coinbase began allowing USDC redemptions again on Monday, and USDC has recovered its dollar peg. [Twitter]

Circle says no USDC reserves were held at Signature — but the company was dependent on Signature’s real-time payment rail, Signet. This left Circle scrambling at the last moment to set up new banking. Now Circle will be relying on BNY Mellon and a new partner: Cross River Bank. [Twitter, archive; Twitter, archive]

Cross River, based in Fort Lee, NJ, is another “crypto first” bank. We’re sure this will work out great. [Techcrunch, 2022]

Both Silvergate and Signature ran inter-exchange settlement systems specifically for crypto exchanges — SEN at Silvergate and Signet at Signature. These allowed exchanges to move money between each other at any time of day or night.

One guy told CoinDesk that Signet was still up and running in some capacity on Monday. Though Circle tried it and couldn’t use it. [CoinDesk]

Coinbase had about $240 million in corporate cash in Signature, but it expects to recover the funds fully. [Twitter, archive]

Paxos said it held $250 million of its stablecoin backing reserves at Silvergate, and that it “holds private deposit insurance well in excess of our cash balance and FDIC per-account limits.”[Twitter]

Freed from the lead weight of the legacy bankster system

With the closure of Silvergate and now Signature, crypto has been effectively shut out of the US banking system.

Exchanges, stablecoin issuers, and crypto hedge funds are all frantically hunting around for new banking — even looking outside the US. [Bloomberg]

Crypto companies are eyeing up other banks and payment processors, including Mercury, Brex, MVB, Western Alliance, Synapse, and Customers Bank — the last of which presently holds some of the reserves for the USDC and Paxos stablecoins. Or maybe JPMorgan Chase will take their calls. [The Block]

What happens next

These FDIC interventions are a warning cannonball shot to every other bank in the US. Straighten up your books and don’t specialize in bad customer bases — or the FDIC will swoop in, shoot you through the head, and sell your organs.

Crypto is one such customer base. Crypto customers were already strongly correlated with money laundering and crime — and now crypto correlates with hot money that flows in and out by billions a day. That’s a hazardous kind of customer for any bank to specialize in.

This is terrible news for crypto. Losing your banking rails is the worst thing that can happen to a crypto firm. Unless the crypto industry can find reliable US dollar payment rails that regulators will put up with, crypto in the US is dead as a financial product.

A few small banks will step in to pick up where Silvergate and Signature left off. But we greatly doubt the US is going to let these banks replace Silvergate and Signature.

Good thing crypto is uncensorable and unstoppable and doesn’t need banking.

More good news for bitcoin

It isn’t just a liquidity problem — Coinbase has removed all Binance USD trading pairs. The only place you can turn BUSD into dollars is now Paxos itself, BUSD’s issuer. This requires you to pass KYC and AML to US standards. Quite a lot of Binance traders can’t do that — so they’re buying BTC on Binance and moving that off instead. This makes number go up, so it’s definitely good news for bitcoin. [CoinDesk]

Paysafe, Binance’s UK payments processor, has cut them off, effective May 22 this year. “We have concluded that the UK regulatory environment in relation to crypto is too challenging to offer this service at this time and so this is a prudent decision on our part taken in an abundance of caution.” Ya don’t say. [Bloomberg]

HMRC in the UK has required Coinbase to provide information on all users who received a payout of more than £5,000 in the 2021 tax year. HMRC required the same of Coinbase in 2020. If you made money on Coinbase in the UK in the bubble, you may want to double-check if you need to correct your 2021–2022 tax return. These statist jackboots aren’t going to pay for themselves. [circumstances.run; Twitter, 2020]

The US Department of Justice is probing the collapse of Terra-Luna. [WSJ]

Kyle Davies from Three Arrows Capital has a very particular understanding of 3AC’s part in the crypto collapse. “If you think about, why are people angry? It has nothing to do with me actually. They’re angry that the market went down. In terms of us, we have no regulatory action anywhere, no lawsuits at all. There’s just nothing, so I know they’re clearly not mad at anything. They’re mad because the supercycle didn’t happen maybe, I don’t know. Something like that,” Davies said from his new desk in a non-extradition country. [CoinDesk]

Posted on March 14, 2023March 14, 2023 by Amy Castor 0

Crypto collapse: New Sam Bankman-Fried charges, New York targets CoinEx, Coinbase losses, Voyager, Celsius

By Amy Castor and David Gerard

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“Sam Bankman-Fried walks into the courtroom. his pants split with a sound like thunder and guns and cocaine spill out all over the floor. he spins around and punches a security officer hard in the face sending him flying. he turns, sits down calmly on his chair and says, to thunderous applause from the fans gathered to hear his famous catchphrase, ‘OK your honour, here’s what I think happened’”
— Hammerite

Mycrimes.txt (2) (FINAL) (USE THIS ONE).docx.pdf

The criminal indictment against Sam Bankman-Fried has been updated, with a superseding indictment on February 23. [Superseding indictment, PDF]

The new charges are clearly informed by the cooperation of Sam’s former co-conspirators — and by his crime confession tours in the press and on Twitter.

The Federal Election Commission is now listed as a victim of Sam’s fraud, with allegations that SBF tried to buy influence over crypto regulation in Washington.

The indictment details all the tricks that Sam (allegedly) pulled to influence both Democrats and Republicans, in concert with other FTX executives — and how he tried to conceal his influence.

Other new allegations include bank fraud. The act of misleading a bank in the course of business is a crime all by itself — such as when you accept money in the name of one entity (Alameda) for another entity (FTX), or when you set up a shell corporation (North Dimension) and lie to your bank (Silvergate) about what that shell does.

Sam also used Alameda to fill a $45 million hole in FTX US. He gave Alameda a $65 billion credit line, which allowed it unlimited access to customer funds on FTX. Customer and company funds were thoroughly commingled.

The indictment doesn’t specify the cause of the hole in FTX US, but Sam has repeatedly claimed that FTX US was solvent.

Sam ultimately controlled both FTX and Alameda, even after claiming to have stepped away from Alameda.

The indictment also lists billions of dollars worth of assets that have been forfeited, including multiple SBF accounts at Binance.

FTX and its subsidiaries was never a legitimate business. It was Sam’s piggy bank.

New York goes after CoinEx

The New York Attorney General’s office is suing the CoinEx crypto exchange. The NYAG alleges that CoinEx sold securities and/or commodities, did not register with the CFTC or SEC, and misrepresented itself as registered. [Press release; Complaint, PDF; Affidavit of OAG Detective Brian Metz, PDF]

CoinEx, which is based in Hong Kong, has responded by barring all US citizens. You have until April 24 to get your cryptos off the exchange. [Twitter]

New York alleges that CoinEx offered to New York customers various cryptos that are securities — AMP, LUNA, RLY, and LBC — while the exchange was not registered to deal in securities.

AMP is the token of Flexa, who want to use it to sell burritos. LBC is the token of video site LBRY, which the SEC recently had a slam-dunk win against in court, finding that it was absolutely the security it clearly was. Luna is the twin coin of TerraUSD, which crashed all of crypto last May.

New York says these tokens are all securities under New York’s Waldstein test: “any form of instrument used for the purpose of financing and promoting enterprises, and which is designed for investment, is a security.” They say the tokens are also securities under the federal Howey test — as LBC was recently shown to be.

It happens to be a violation of New York commercial law to call yourself an “exchange” if you offer trading in securities or commodities and you’re not registered with the CFTC or SEC.

CoinEx also failed to respond in any way to a previous NYAG subpoena — and, per General Business Law §353(1), failure to comply with a subpoena is prima facie proof that the subpoenaed entity “is or has been engaged in fraudulent practice.”

New York wants CoinEx to block New York from its website, pay restitution, disgorgement, and costs, “and provide New York investors with the option to rescind their transactions.”

New York is bringing a “special proceeding” — it wants the court to rule on its filing. “A special proceeding goes right to the merits. The Court is required to make a summary determination upon all the pleadings, papers, and admissions to the extent that no triable issues of fact are raised.”

Why did New York go after CoinEx in particular? This complaint is detailed, but it also looks like a template. We suspect this may be the first of many such complaints against crypto platforms. CoinEx ignoring the subpoena probably annoyed New York a lot too.

The SEC previously called out each of the tokens on CoinEx that the NYAG names as securities:

In a July 2022 insider trading complaint against Coinbase, the SEC said AMP and RLY were securities. [Complaint, pdf]
In Feb 2023, the SEC said LUNA was a security [Complaint, pdf]
In November 2022, the SEC won in court against LBRY on whether its LBC token was an unregistered security offering. [SEC]

Binance US has delisted AMP. But Coinbase still lists AMP and RLY. Gary Gensler has been saying for a while that he thinks nearly all crypto tokens are securities and that Coinbase should register with the SEC.

Coinbase posts another loss

Coinbase’s Q4 earnings report is out, as part of its 10-K annual report for the year ending December 31, 2022. Trading volumes are down even further, and they’re still losing money. [10-K]

As a public company, Coinbase has to put on a happy face for investors — but they’ve been bleeding money for a year now. Net loss for 2022 was $2.625 billion, per GAAP. The COIN stock price has gone down 70% in the past 12 months.

Coinbase would prefer you to look at non-GAAP “adjusted EBITDA,” which comes out to a loss of only $371.4 million. Their “adjusted EBITDA” excludes stock-based compensation expenses in particular. Yes, we’re sure your numbers look better if you exclude the bit where you have to pay your employees.

Coinbase makes its money from (1) BTC and ETH trading, and (2) their share of the interest on the USDC reserve. Also, the majority of their volume comes from a few large customers. So Coinbase would extremely much like to diversify.

CFO Alesia Haas said in the investor earnings call: “Our fourth quarter net revenue increased 5% quarter-over-quarter to $605 million. This was driven by strong growth in our subscription and services revenue.” She means that Q4 revenue was only up because of interest on USDC. [Coinbase, PDF]

Coinbase wants to list every token going — even as many of the hottest tokens are blitheringly obviously securities under the Howey test. Coinbase has spent the past several years helping their very good venture capital friends such as a16z dump their bags on retail.

Coinbase goes on at length about the amazing ambiguity in what constitutes a security under US law. Who can even know what might be deemed a security tomorrow? It is a mystery.

Sure, the Howey test is simple and broad, and sure the SEC has won every case it’s ever brought where it claimed a given crypto was a security. But do you feel lucky?

The 10-K even includes a list of tokens Coinbase trades that the SEC has already said are securities! Coinbase questions whether these tokens are really securities, and confidently asserts that “Despite the SEC being the principal federal securities law regulator in the United States, whether or not an asset is a security under federal securities laws is ultimately determined by a federal court.”

This is true. But it’s also true that the SEC has won every single time. And the consent orders in these cases — because almost nobody was stupid enough to take their case to trial — note that the tokens in question were always offerings of securities. It wasn’t a court finding that made the token a security.

But Coinbase is desperate to diversify and makes it clear that they really want to risk their backsides on this business line of maybe-securities that don’t even make them a lot of money.

The SEC shut down Coinbase’s Earn staking product in 2022 before it could be launched. Haas explained in the analyst call why Coinbase thinks its staking product isn’t a security: “we are passing on rewards directly from the protocol. We are not establishing an APY, we are not establishing the reward rate. That is established at the protocol level. And then we are passing that through and collecting a fixed commission on that amount.” We guess we’ll see if the SEC concurs. [Coinbase, PDF]

Coinbase literally lists Satoshi Nakamoto as a risk factor for its business:

“the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed Bitcoin, or the transfer of Satoshi’s Bitcoins”

The FTX fallout continues

FTX Japan K.K. users are getting back 100% of their cryptos. Users in other jurisdictions are likely to get cents on the dollar, if that. This is because the US crypto lobby viciously fought any sensible regulation for years — but Japan locked crypto down hard after Mt. Gox exploded in 2014. Taste the freedom! [Bloomberg]

Galois Capital, a real-money hedge fund that thought they’d get into some crypto, shuts its doors after losing $40 million, half its assets, in the collapse of FTX. Whoops! [Twitter, FT, archive]

The Bank for International Settlements — the central bank for central banks — reports that the fall of FTX didn’t have much impact on the rest of the financial world: [BIS bulletin, PDF, Coindesk]

“Nevertheless, despite crypto’s large user base and the substantial losses to many investors, the market turmoil in 2022 had little discernible impact on broader financial conditions outside the crypto universe, underlining the largely self-referential nature of crypto as an asset class.”

Regulatory clarity

Caitlin Long’s Custodia Bank was refused an account at the Kansas Fed. Custodia appealed the decision. The Federal Reserve Board has looked at Custodia’s appeal and told them to go away. [Federal Reserve]

We’ve mentioned previously that the Canadian Securities Administrators (CSA) is introducing new rules for crypto exchange registration in the wake of the collapse of FTX. The new regulations, which will apply in all provinces, have been released:

Customer cryptos will need to be segregated into an address per customer.
Exchanges cannot pledge or rehypothecate customer cryptos. Margin trading is forbidden.
Proprietary tokens — in-house supermarket loyalty card points, in the manner of FTT or BNB — require prior written consent and can’t be counted as an asset in your accounts.
No stablecoin dealing without prior written consent.

These apply to any exchange with Canadian customers, including non-Canadian exchanges. [Press release; OSC, PDF]

The Financial Action Task Force, the multi-country advisory group set up to combat money laundering, is not happy that its rules on crypto traceability, such as the travel rule, have not been implemented sufficiently widely. At the FATF Plenary on February 22-24, “delegates further agreed on an action plan to drive timely global implementation of FATF standards relating to virtual assets.” [FATF]

The International Monetary Fund has put out a paper, “Elements of Effective Policies for Crypto Assets,” with guidelines that any country that ever might want to hit up the IMF for a loan would be well advised to follow — “amid the failure of various exchanges and other actors within the crypto ecosystem, as well as the collapse of certain crypto assets. Doing nothing is untenable as crypto assets may continue to evolve despite the current downturn.” [Press release; paper, PDF]

Hong Kong’s Securities and Futures Commission is consulting on licensing requirements for crypto exchanges to be allowed to sell to retail customers. Hong Kong wants safe custody of customer cryptos — they’re not demanding third-party custodians, an arms-length subsidiary will be sufficient — KYC, cybersecurity, accounting and auditing, risk management, AML, and prevention of market misconduct. So, the very basic requirements of being a financial institution. Responses should be in by March 31. [SFC; SFC, PDF]

In the US, the SEC got a lot of stick for not going after crypto harder in the bubble. Then it came out that the Blockchain Eight group of representatives had written to Gary Gensler telling him to back off. Now the legislature has demanded action, and Gensler is delivering. Here’s how the Blockchain Eight got the opposite of what they wanted. [The American Prospect]

“Gensler also made clear that he has been grappling with the same question as many of the rest of us: What, exactly, is the point of crypto?” [Intelligencer]

John Naughton on the latest UK Treasury crypto consultation paper. “The second lesson is that permissionless blockchains can never be allowed within the financial services sector.” [Guardian]

Voyager Digital

97% of Voyager creditors have voted for Binance to buy Voyager Digital! We think it’s unlikely that regulators will let the deal go through, and Binance US doesn’t have the money to cover all those liabilities to Voyager customers — but hey, who knows? [CoinDesk]

FTX in Chapter 11 is suing Voyager Digital in Chapter 11 for the return of a loan that Alameda paid back to Voyager just before it went into bankruptcy protection. FTX, Voyager and both companies’ Unsecured Creditors’ Committees have come to a settlement! An ad-hoc group of Voyager creditors objects to the deal. [Doc 1048, PDF; Doc 1084, PDF]

The Voyager UCC has subpoenaed the ex-top brass of FTX for depositions — Caroline Ellison, Gary Wang, Sam Bankman-Fried, Sam Trabucco, and Daniel Friedberg. The notices to the court don’t detail what the UCC wants to ask — just that they are asking. Voyager’s link to FTX is the huge pile of FTT that the company counted as part of its assets. [e.g., Doc 1018, PDF]

SBF’s lawyers have already moved that the subpoena was deficient because it was handed to Sam’s mom Barbara Fried and not into Sam’s own hands personally. [Doc, PDF]

Celsius Network and your pension

Caisse de Dépôt et Placement du Québec (CDPQ) was the pension fund that invested USD$150 million into equity in Celsius Network. Executive vice-president and CTO Alexandre Synnett, who was the executive involved in the Celsius investment, “left the organization on his own volition about two weeks ago,” said CEO Charles Emond in the 2022 earnings call. CDPQ will not be touching crypto going forward. [BetaKit; The Logic, paywalled]

Other good news for bitcoin

Bitcoin miners are diversifying because mining is sucking as a business. Riot Blockchain has changed its name to Riot Platforms. [Coindesk]

Crypto firm Phoenix Community Capital and its founder Luke Sullivan, with links to various UK parliamentary groups, appears to have vanished. Some of the firm’s assets and its name appear to have been sold to a new company run by an individual called “Dan,” who has told investors it has no obligation towards them. [Guardian]

Data Finnovation, who took out BUSD, now looks into weird bridging on Tether. [Medium]

Image: Coinbase CEO Brian Armstrong is being patted down with a makeup sponge as a big green screen looms behind him. Fortune

Posted on February 26, 2023 by Amy Castor 0

Crypto.com’s bad weekend — crypto exchanges are shaky

By Amy Castor and David Gerard

Send us money! Our work is funded by our Patreons — here’s Amy’s, and here’s David’s. Your monthly contributions help greatly!
Our patrons can also get a couple of “Bitcoin: It Can’t Be That Stupid” stickers just by messaging one of us and asking.
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“i have a lot more respect for the binance guy, having seen a competitor stumble and taken the opportunity to very publicly shank them five or six times while they’re on the ground, under the guise of trying to help”
— infernal machines, SomethingAwful

We’re exhausted keeping up with all the good news for bitcoin.

Crypto.com didn’t have the greatest weekend. As we write this, withdrawals are clogged, but some are reported to be coming through okay.

The test an exchange faces is: can it stand a run on the bank?

The test bitcoin as a whole faces is: how will the price hold when lots of people are dumping for cash?

Number go down

After the bitcoin price had been floating at around $20,000 for several months, FTX crashed. On the day Binance reneged on its offer to buy FTX’s remains, BTC dropped below $16,000. It’s a bit above that now.

The actual dollars have gone home, and the wider crypto casino is having to pretend harder and harder that the alleged mark-to-market value of illiquid trash means anything.

Real dollars continue to disappear from crypto. Retail trading at Coinbase was down 43% in the third quarter of 2022, compared to Q2.

Reddit /r/buttcoin has a new header image

A slight case of the runs

Crypto.com is not having a great time.

The crypto markets are jittery. After the dramatic collapse of FTX, crypto holders are left shell-shocked and traumatized. They don’t trust any centralized exchange now at all.

It doesn’t take much to set the markets off.

Despite claiming to have near-zero exposure to the fallout of FTX, over the last year, Crypto.com sent multiple very large stablecoin transfers to FTX, totaling approximately $1 billion. [Reddit, Australian Financial Review]

On November 12, crypto Twitter caught wind of the fact that Singapore-based Crypto.com and China-based Gate.io were passing funds back and forth to post stronger-looking proof of reserve statements, suggesting they didn’t have the funds they purported to have.

Crypto.com CEO Kris Marszalek waved it off as just a whoopsie, saying they accidentally sent $400 million of their ETH to Gate.io on October 21, instead of their cold wallets, but that Gate.io had sent the money back. Everything was fine. [Twitter, archive; WSJ]

The crypto market wasn’t buying it. Instead, the news set off an FTX-style bank run, as panicked users raced to get their funds off Crypto.com. Within hours, more than 89,000 transactions pulled customer funds out of Crypto.com wallets. You could watch it in real time on Etherscan. [Chainsaw, Twitter]

Picture old-timey cartoons of guys in a stock exchange, hats popping off their heads and cigars falling out of their mouths in shock, shouting, “SELL! SELL! SELL!” Crypto.com was like that but in basements around the world.

By Monday, the run had made mainstream international news — Sky, AFP, and Reuters, as well as financial outlets such as Bloomberg. [SkyNews]

Crypto.com should have collapsed right then, but it didn’t. Binance bailed Crypto.com out with infusions of ETH and USDC from their “recovery fund.” Cryptocurrency just reinvented the idea of a central bank as a lender of last resort. [Twitter; Twitter; Twitter]

Of course, given what he had just done to FTX, is it really a smart idea to let CZ know you have liquidity problems?

The following day, Marszalek did an Ask-Me-Anything to reassure everyone that the funds were safe. “At no point were the funds at risk of being sent somewhere they could not be retrieved,” he said. “It had nothing to do with any of the craziness from FTX.” [YouTube]

Binance also held an AMA to tell everyone that everything is fine. [Twitter; Verge]

The life and times of Kris Marszalek

Kris Marszalek co-founded Crypto.com in 2016. It was initially called Monaco but bought the “crypto.com” domain from cryptographer Matt Blaze in 2018.

Based in Singapore, the firm has spent huge money on ad campaigns, including a $700 million deal to put its name on LA’s sports arena (formerly Staples Center) and a “Fortune Favors the Brave” Super Bowl commercial featuring Matt Damon. [GQ]

The company makes money by charging fees for trades on its smartphone app. It promises Ponzi-like yields — up to 14.5% annually, paid out in stablecoins.

To access the higher stake yield, you have to buy Cronos (CRO), the platform’s native trader token, whose price floats freely. CRO tanked over the weekend over concerns about Crypto.com’s reserves. [BeinCrypto]

Marszalek, 42, is a Polish-born serial entrepreneur who lives in Hong Kong. He dropped out of college and started his career selling computer equipment. He doesn’t appear to have any trading experience at all prior to Crypto.com.

You’ll be delighted to hear that Marszalek has the sort of background you want in a crypto CEO. Specifically, running a voucher sales company that collapsed in 2016 and stiffed everyone.

Founded in 2010 in Singapore, Ensogo offered Groupon-style “daily deals” and so forth. After going through multiple name changes and acquisitions, Ensogo was listed as a standalone company on the Australian Securities Exchange. It pivoted to an “open marketplace platform” in late 2015. [ASX, PDF]

By April 2016, Ensogo had closed its Malaysian office and had stopped paying merchants. The company’s first-quarter report to the ASX showed an AUD$5 million deficit, despite firing half its staff in the first quarter of 2016. It had already lost AUD$67 million in 2015. Ensogo finally stopped operations in June — leaving merchants and consumers in the lurch. One Hong Kong merchant lost HK$20,000. [Tech in Asia; Tech in Asia; Tech in Asia]

Other exchanges

In the third quarter of 2022, US exchange Coinbase suffered “another tough quarter.” Institutional trading was down 22% and retail volume was down 43%, compared to the previous quarter. Net revenue in Q3 was $576 million, down from $803 million in Q2, and $1.2 billion the year before. The company lost $545 million in Q3, compared to a net profit of $406 million in the same period last year. [FT, archive; Shareholder letter, PDF]

In Hong Kong, AAX has suspended withdrawals. The crypto exchange had just blogged that it had no exposure to FTX and that user funds were never exposed to counterparty risk. [AAX; AAX; Coindesk]

What’s a user to do?

The FTX collapse has taken out a variety of firms across crypto, including other exchanges and crypto hedge funds. Many projects used FTX like it was a bank. So many projects are now wrecked because they treated FTX like it was a safe place to store their cryptos.

Expect more trouble and possible bankruptcies to come. People keep treating crypto exchanges as banks. They are not banks.

The hard part is: what do you do instead?

Loud and weird crypto nerds, particularly bitcoin maxis, are saying “not your keys not your coins” again a lot.

Back in the real world, approximately 100% of crypto users are in it for the money. And that’s only achievable with the coins on an exchange, where they can actively buy and trade them.

More importantly, almost all crypto users have flat zero technical knowledge. They have no idea how any of it works. They trusted the newspaper headlines. They just about get “number go up.” They won’t be self-custodying en masse.

DeFi traders will tell you that self-custodying is the only way to do anything, but they also get rekt a whole lot.

We concur that users should treat centralized exchanges as risky places to store cryptos. The trouble is, what else to do with them? If you don’t want to do the sensible thing — i.e., dump your coins and get the heck out of crypto — you’re going to have to learn way more about how the technology works than you ever wanted to.

It’s going to suck because — despite the user-friendly Super Bowl ads — crypto is not a product. It’s a pile of wires on a lab bench. Get out your soldering iron, you’re gonna be your own bank.

Posted on November 15, 2022November 16, 2022 by Amy Castor 3

Crypto collapse: Coinbase’s billion-dollar bloodbath, Hodlnaut goes down, Celsius, Voyager, 3AC

It’s time for another episode of “all the money’s gone.” David and I are taking turns posting. This one is on his blog. [David Gerard]

In this episode, we cover:

Coinbase’s disastrous Q2 financials.
Hodlnaut’s brave attempt to stay afloat before going under.
More legal wrangling in the Celsius and Voyager bankruptcies.
Tether — a secured or unsecured Celsius creditor?
Other innocent victims of the CeFi fallout.

If you like our work, please do sign up for our Patreons — here’s Amy’s and here’s David’s.

Posted on August 11, 2022 by Amy Castor 0

Scam Economy podcast: Crypto Jenga: Celsius and the Latest Crypto Crash

Earlier this week, David Gerard and I did a podcast together for Matt Binder’s Scam Economy. It just went up this evening. [Youtube; Apple Podcast; Google Podcast, Spotify]

The interview is based on a popular story that David and I recently co-wrote: “The Latecomer’s Guide to Crypto Crashing,” which has now been translated into German and French, and soon, possibly Italian.

It’s as if the entire crypto space has been held together by a giant lynchpin, someone pulled out the lynchpin, and now everything is tumbling to the ground.

UST crashed, Celsius followed, and more recently, Three Arrows Capital has failed to meet lender margin calls. Small crypto funds are next to fall, as David spelled in his recent story on yield farm platform Finblox.

The network effects that brought bitcoin to its heights from 2020 to 2021 are now working in reverse.

Posted on June 16, 2022June 17, 2022 by Amy Castor 0

The Latecomer’s Guide to Crypto Crashing — a quick map of where we are and what’s ahead

By Amy Castor and David Gerard
German translation by Marcel Waldvogel
French translation by Didier J. MARY
Spanish translation by Gladys
Italian translation by Gian-Maria Daffré

Since November 2021, when Bitcoin hit its all-time high of $69,000, the original cryptocurrency has lost 70 percent of its face value. And when Bitcoin falters, it takes everything else in crypto down with it.

The entire crypto space has been a Jenga stack of interconnected time bombs for months now, getting ever more interdependent as the companies find new ways to prop each other up.

Which company blew out first was more a question of minor detail than the fact that a blow-out was obviously going to happen. The other blocks in the Jenga stack will have a hard time not following suit.

Here’s a quick handy guide to the crypto crash — the systemic risks in play as of June 2022. When Bitcoin slips below $20,000, we’ll officially call that the end of the 2021 bubble.

Recent disasters

TerraUSD collapse — Since stablecoins — substitutes for dollars — are unregulated, we don’t know what’s backing them. In the case of TerraUSD (UST), which was supposed to represent $18 billion … nothing was backing it. UST crashed, and it brought down a cascade of other stuff. [David Gerard; Foreign Policy; Chainalysis Report]

Celsius crumbles — Celsius was the largest crypto lender in the space, promising ridiculously high yields from implausible sources. It was only a matter of time before this Ponzi collapsed. We wrote up the inevitable implosion of Celsius yesterday. [David Gerard]

Exchange layoffs — Coinbase, Gemini, Crypto.com, and BlockFi have all announced staff layoffs. Crypto exchanges make money from trades. In a bear market, fewer people are trading, so profits go downhill. Coinbase in particular had been living high on the hog, as if there would never be a tomorrow. Reality is a tough pill. [Bloomberg; Gemini; The Verge]

Stock prices down — Coinbase $COIN, now trading at $50 a share, has lost 80% of its value since the firm went public in June 2021. The company was overhyped and overvalued.

US crypto mining stocks are all down — Bitfarms ($BITF), Hut 8 Mining ($HUT), Bit Digital ($BTBT), Canaan ($CAN), and Riot Blockchain ($RIOT). Miners have been borrowing cash as fast as possible and are finding the loans hard to pay back because Bitcoin has gone down.

UnTethering

Crypto trading needs a dollar substitute — hence the rise of UST, even as its claims of algorithmic backing literally didn’t make sense. What are the other options?

Tether — We’ve been watching Tether, the most popular and widely used stablecoin, closely since 2017. Problems at Tether could bring down the entire crypto market house of cards.

Tether went into 2020 with an issuance of 4 billion USDT, and now there are 72 billion USDT sloshing around in the crypto markets. As of May 11, Tether claimed its reserve held $83 billion, but this has dropped by several billion alleged “dollars” in the past month. There’s no evidence that $10.5 billion in actual dollars was sent anywhere, or even “$10.5 billion” of cryptos.

Tether is deeply entwined with the entire crypto casino. Tether invests in many other crypto ventures — the company was a Celsius investor, for example. Tether also helped Sam Bankman-Fried’s FTX exchange launch, and FTX is a major tether customer.

Tether’s big problem is the acerbic glare of regulators and possible legal action from the Department of Justice. We keep expecting Tether will face the same fate as Liberty Reserve did. But we were saying that in 2017. Nate Anderson of Hindenburg Research said he fully expects Tether execs to end the year in handcuffs.

Other stablecoins — Jeremy Allaire and Circle’s USDC (54 billion) claims to be backed by some actual dollars and US treasuries, and just a bit of mystery meat. Paxos’ USDP (1 billion) claims cash and treasuries. Paxos and Binance’s BUSD (18 billion) claims cash, treasuries, and money market funds.

None of these reserves have ever been audited — the companies publish snapshot attestations, but nobody looks into the provenance of the reserve. The holding companies try very hard to imply that the reserves have been audited in depth. Circle claims that Circle being audited counts as an audit of the USDC reserve. Of course, it doesn’t.

All of these stablecoins have a history of redemptions, which helps boost market confidence and gives the impression that these things are as good as dollars. They are not.

Runs on the reserves could still cause issues — and regulators are leaning toward full bank-like regulation.

Sentiment

There’s no fundamental reason for any crypto to trade at any particular price. Investor sentiment is everything. When the market’s spooked, new problems enter the picture, such as:

Loss of market confidence — Sentiment was visibly shaken by the Terra crash, and there’s no reason for it to return. It would take something remarkable to give the market fresh confidence that everything is going to work out just fine.

Regulation — The US Treasury and the Federal Reserve were keenly aware of the spectacular collapse of UST. Rumour has it that they’ve been calling around US banks, telling them to inspect anything touching crypto extra-closely. What keeps regulators awake at night is the fear of another 2008 financial crisis, and they’re absolutely not going to tolerate the crypto bozos causing such an event.

GBTC — Not enough has been said about Grayscale’s Bitcoin Trust, and how it has contributed to the rise and now the fall in the price of bitcoin. GBTC holds roughly 3.4 percent of the world’s bitcoin.

All through 2020 and into 2021, shares in GBTC traded at a premium to bitcoin on secondary markets. This facilitated an arbitrage that drew billions of dollars worth of bitcoin into the trust. GBTC is now trading below NAV, and that arbitrage is gone. What pushed bitcoin up in price is now working in reverse.

Grayscale wants to convert GBTC into a bitcoin ETF. GBTC holders and all of crypto, really, are holding out hope for the SEC to approve a bitcoin ETF, which would bring desperately needed fresh cash into the crypto space. But the chances of this happening are slim to none.

The bitcoins are stuck in GBTC unless the fund is dissolved. Grayscale wouldn’t like to do this — but they might end up being pressured into it. [Amy Castor]

Whales breaking ranks — Monday’s price collapse looks very like one crypto whale decided to get out while there was any chance of getting some of the ever-dwindling actual dollars out from the cryptosystem. Expect the knives to be out. Who’s jumping next?

Crypto hedge funds and DeFi

Celsius operated as if it was a crypto hedge fund that was heavily into DeFi. The company had insinuated itself into everything — so its collapse caused major waves in crypto. What other companies are time bombs?

Three Arrows Capital — There’s some weird stuff happening at 3AC from blockchain evidence, and the company’s principals have stopped communicating on social media. 3AC is quite a large crypto holder, but it’s not clear how systemically intertwined they are with the rest of crypto. Perhaps they’ll be back tomorrow and it’ll all be fine. [Update: things aren’t looking good. 3AC fails to meet lender margin calls.] [Defiant; Coindesk; FT]

BlockFi — Another crypto lender promising hilariously high returns.

Nexo — And another. Nexo offered to buy out Celsius’ loan book. But Nexo offers Ponzi-like interest rates with FOMO marketing as well, and no transparency as to how their interest rates are supposed to work out.

Swissborg — This crypto “wealth management company” has assets under management in the hundreds of millions of dollars (or “dollars”), according to Dirty Bubble Media. [Twitter thread]

Large holdings ready for release

Crypto holders have no chill whatsoever. When they need to dump their holding, they dump.

MicroStrategy — Michael Saylor’s software company has bet the farm on Bitcoin — and that bet is coming due. “Bitcoin needs to cut in half for around $21,000 before we’d have a margin call,” Phong Le, MicroStrategy’s president, said in early May. MicroStrategy’s Bitcoin stash is now worth $2.9 billion, translating to an unrealized loss of more than $1 billion. [Bloomberg]

Silvergate Bank — MicroStrategy has a $205 million loan with Silvergate Bank, collateralized with Bitcoin. Silvergate is the banker to the US crypto industry — nobody else will touch crypto. Silvergate is heavily invested in propping up the game of musical chairs. If Silvergate ever has to pull the plug, almost all of US crypto is screwed. [David Gerard]

Bitcoin miners — Electricity costs more, and Bitcoin is worth less. As the price of Bitcoin drops, miners find it harder to pay business expenses. Miners have been holding on to their coins because the market is too thin to sell the coins, and borrowing from their fellow crypto bros to pay the bills since July 2021. But some miners started selling in February 2022, and more are following. [Wired]

Mt. Gox — at some point, likely in 2022, the 140,000 bitcoins that remained in the Mt. Gox crypto exchange when it failed in 2014 are going to be distributed to creditors. Those bitcoins are going to hit the market immediately, bringing down the price of bitcoin even further.

Feature image by James Meickle, with apologies to XKCD and Karl Marx.

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Posted on June 14, 2022August 31, 2022 by Amy Castor 2

Coinbase freezes hiring, rescinds job offers: ‘Coinbase ghosted me’

Coinbase is losing money. Its stock is in the toilet. Now, the largest crypto exchange in the US says it’s extending its hiring freeze and rescinding job offers.

L.J. Brock, Coinbase’s chief people officer, shared the grim news in a blog post on Thursday. It’s been only two weeks since the San Francisco firm initially announced plans to pause hiring. Yesterday’s blog post signals just how dire things have become:

“In response to the current market conditions and ongoing business prioritization efforts, we will extend our hiring pause for both new and backfill roles for the foreseeable future and rescind a number of accepted offers.”

The announcement comes on the same day Gemini said it would be trimming 10% of its staff. In a blog post, co-founders Cameron and Tyler Winklevoss attributed the layoffs to “turbulent market conditions that are likely to persist for some time.”

Coincidently, a CFTC lawsuit also dropped on Thursday claiming Gemini misled regulators to gain approval for a bitcoin futures product it was pursuing in 2017.

Coinbase is struggling to turn a profit. Last month, it posted a $430 million loss for Q1 2022 after missing analysts’ predictions on both profit and revenue for the quarter. The exchange said it was bleeding users.

The company’s stock price (Nasdaq: COIN) is down more than 70% since the beginning of the year and is currently trading at $74 per share. It’s hard to imagine that COIN was as high as $343 in November 2021.

The tumble in Coinbase’s stock price coincides with the crypto markets. Bitcoin has barely been able to keep its head above $30,000, after losing 60% of its value since its November record. The stock market is also suffering. The tech-heavy Nasdaq composite is down 22% since January.

‘Coinbase ghosted me’

Leading up to 2022, Coinbase planned to triple its workforce. The firm hired 1,200 people in the first quarter and had 3,730 employees at the end of last year, according to its latest earnings report. Now, it’s not even calling some people back after extending job offers.

I spoke with one person, whose name I won’t reveal, who said Coinbase offered him a job as a security engineer in January. The man, who is in his 30s and has a decade of experience at FAANG companies, told me he had a verbal offer from Coinbase after an interview panel. But then he was ghosted and never heard from them again.

“I honestly was only interested in getting a competitive offer to better my negotiation at other places I was interviewing,” he told me in a private message. “So grateful Coinbase ghosted me.”

Otherwise, had he gotten the offer in writing, he might have seriously considered taking the job, even as a no-coiner. The comp in the verbal offer was tempting.

Coinbase offered him a $280,000 base salary plus a 15% bonus and $600,000 annual equity, for total compensation of $920,000, he said.

“We don’t do a four-year program where you vest 25% each year. We don’t have a cliff either, so you start vesting immediately on a quarterly basis,” Coinbase told him.

The company has performance multipliers and suggested that potentially, he could make $1.5 million annually.

Coinbase has a 2% 401(k) matching program. As an employee, he would get one month off per year along with unlimited paid time off. That’s in addition to four companywide weeks off.

In January, Coinbase proudly announced that the entire company would shut down for one week at the end of each quarter so employees could “recharge.”

Oh, and there’s a $500 monthly wellness stipend, in case you want to join a gym or take yoga.

After the interview, the would-be employee got an email from the recruiter saying that things went great and they wanted to extend an offer. The recruiter asked if comp would be okay before they put the contract together.

And then, nothing.

It was just as well, he told me. “Because the equity would have cut in half, and the company will look far worse after the coming collapse.”

Other would-be employees aren’t so relieved. On Blind, an anonymous app for the workforce, someone wrote: “I was supposed to start jun 6th. My offer has been rescinded. This feels like a nightmare that I can’t wait to wake up from.”

“Dodged a bullet,” a Coinbase employee replied.

Why rescinding job offers is bad

Rescinding job offers at the last minute is a nasty thing to do to people, especially if they’ve already submitted notice at their current job, told their landlord they are moving, or put their home up for sale.

It can also blacken the offering company’s reputation. Word gets out, and you’ll have a much harder time convincing people to work for you in the future. It also makes Coinbase’s financial health look worse like they’ve somehow managed to run out of cash running a casino.

Meanwhile, Coinbase execs aren’t doing too bad for themselves. In 2020, including stock options and bonuses, CEO Brian Armstrong made $59 million, Chief Product Officer Surojit Chatterjee made $16 million, and Chief Legal Officer Paul Grewal made $18 million, according to SEC filings.

Hacker News is outraged. Coinbase did in any hope of hiring competent non-hodlers.

Here’s what Blotto_Otter on Something Awful wrote:

“When I read stuff like this, all I can think about is when I started in public accounting right in the middle of the 2007/2008 crash, and out of all the unpleasant stuff most accounting firms did during that time — layoffs, hiring freezes, salary freezes and cuts, benefit cuts — the one thing they did not do was revoke job offers from people who had already accepted offers. They did everything but that because they understood that that is the one thing that will make your name mud when it comes to recruiting new hires in the future.”

Also, Coinbase could potentially get sued for reneging on job offers, if it extended a no-caveat offer and the would-be employee can prove they suffered losses. National Law Review wrote about this in 2019.

In its blog post, Coinbase said it was extending its severance policy to individuals it offered jobs and would notify them by email. Blind posted a copy of the rescind email, along with another email Coinbase sent to new hires two weeks ago telling them it would not rescind job offers. What’s next? Layoffs?

It’s just a shame Coinbase doesn’t put its job offers on the blockchain.

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Posted on June 3, 2022June 3, 2022 by Amy Castor 1

News: Yuga Labs goes APE, Meebits insider trading, ConsenSys raises another $450M to focus on Web3 buzzword

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I’ve been focusing on NFTs lately. I can’t cover every bit of funny business in this space, but if you see something, DM me on Twitter, or contact me here.

BAYC: Money for nothing

Yuga Labs finally launched its Apecoin — oops, sorry, not Yuga, but the Apecoin DAO launched APE. On March 17, the same day the coin launched, it was listed on all the major crypto exchanges in the U.S., including Coinbase, Kraken, and Gemini. (My blog post)

Apecoin has a fixed supply of 1 billion. So far, about 130 million Apecoins have entered circulation, according to CoinGecko. Today, Apecoin is up to $11, and 40% of the volume is on Binance trading against two stablecoins with dubious backing — USDT (35%) and BUSD (5%).

Soon after Apecoin launched, Bored Ape Yacht Club NFT holders took to Twitter, proclaiming how rich they had become overnight. Each bored ape holder got ~10,094 APE tokens, valued anywhere between $80,000 to $200,000.

It’s the same Ponzi promotion story we have heard since bitcoin launched in 2009 — buy this token and you will get rich for free. Everyone who holds Apecoin now wants you to buy APE, so the value goes up, and they can cash out. That value right now is being artificially pumped by tethers.

90,000 USD airdrop !!!! Thankyou @BoredApeYC

I bought my ape at 0.50, i dont not come as a big whale, i got lucky, being present in the web3 space everyday for more than one year is all i did !!!
— Rahim Mahtab (@Rahim_mahtab) March 17, 2022

Hundreds of millions of dollars worth of Apecoin also went to Yuga Labs founders, Yuga Labs itself, contributors to the project, and to the newly formed Ape DAO. Just like that, everyone is rich.

What about Andreessen Horowitz (a16z)? How many Apecoins were they allotted? We may never be privy to the details.

“A spokesperson for Yuga said Andreessen received coins in exchange for assisting with ‘overall DAO governance design’……Yuga and Andreessen both declined to comment on the potential financing.” (FT)

Apecoin serves as a governance token, giving holders voting rights in the newly formed Ape DAO. Big holders, like Yuga Labs and a16z, have a greater say in the future of BAYC. This is the problem with the Ape DAO — it’s centralized decision-making. (Bloomberg)

Someone figured out a clever way to make $1.1 million by “borrowing” another person’s bored apes just long enough to claim Apecoin. (The block; Web3 is going just great)

Benji Bananas, the play-to-earn game that Yuga Labs is using via Animoca Brands to give Apecoin some utility so the SEC doesn’t sue its issuers, was bad and exploitative from the get-go. (Twitter)

The Block got a hold of Yuga Labs’ pitch deck. According to the deck, Yuga Labs hopes to make $455 million in 2022 through virtual land sales. It’s aiming to build a gaming metaverse called MetaRPG, compatible with a host of NFTs, powered by Apecoin. (The Block; Pitch Deck)

Yes, that’s right. Yuga’s next project is selling make-believe land. You can buy the land with APE.

Bored Ape Yacht Club NFTs along with Apecoin are inherently worthless. The BAYC project doesn’t offer a service; it doesn’t manufacture a product. Its business model is based on filling a balloon with hot air and getting high-profile celebs to shill its product on prime-time TV.

Sure, holding a bored ape NFT will gain you entrance into a warehouse party — but they don’t even work properly for that. NFTs literally, don’t work for anything they are intended to do.

Insiders acquire Meebits

On March 11, Yuga Labs announced it acquired the IP for CryptoPunks and Meebits collections from Larva Labs. It’s giving the NFT holders the IP, so they can create derivative products, like hoodies, T-shirts, and other merch. (Press release; Techcrunch)

Yuga also got 423 Punks and 1,711 Meebits in the deal. The terms were undisclosed, so we don’t know how much they paid Larva Labs.

The floor price of Meebits doubled after the announcement, climbing to 6.134 ETH ($15,800).

Insiders took the opportunity to buy Meebits in advance and make some easy money.

Lesley Silverman, the head of digital assets at United Talent Agency, formally representing Larva Labs, is one of those people. She bought two Meebits in the days prior to the announcement. (Twitter)

All told, 14 Ethereum addresses, with no previous history of mainstream NFT collection purchases, quietly acquired 159 Meebits between March 5 and March 11. The top address purchased 24 Meebits at once on March 5. (Bloomberg)

Insider trading in the securities business is illegal and comes with harsh consequences, but NFTs are not regulated, so people get away with this stuff, literally, all of the time.

Are we not going to talk about the huge amount of meebits insider trading that just happened?
— DappPunk (@dapppunk) March 12, 2022

Smile for the camera

Yuga Labs and its partner Animoca Brands want bored ape holders to submit a government-issued ID and have their photos taken to confirm their real identities, so they can register for a mystery project. Bored ape holders are pissed off, some thinking they were going to be turned over to the IRS. (Cointelegraph)

The issue I have with the BAYC announcement regarding KYC is the lack of transparency as to _what_ its for. Asking a demographic rooted in anonymity to blindly KYC with an entity they don't use themselves seems like a big ask
— bender (@0xBender) March 10, 2022

The irony is that this all happened only a month after Yuga Lab’s founders made a big to-do about Buzzfeed revealing their true identities. They responded by directing an onslaught of anger and harassment from the crypto community toward Buzzfeed reporter Katie Notopoulos.

Coinbase class-action

Apecoin resembles a security, like a stock or bond, but that didn’t stop Coinbase from listing it asap.

SEC Chair Gary Gensler has already stated that Coinbase lists dozens of tokens that may be securities. According to securities laws, exchanges that list securities must register with the SEC as a securities exchange or a broker-dealer. Coinbase has not registered as either.

A recent class-action against Coinbase alleges that 79 tokens the exchange lists meet the definition of securities, but plaintiffs were not warned of the risks. The claim, filed by three Coinbase users, asks for monetary relief and an injunction enjoining Coinbase from offering the tokens without having to register with the SEC. (Complaint; Cointelegraph)

I think you should leave

Time magazine wrote a lengthy profile on Ethereum founder Vitalik Buterin, calling him the “prince of crypto.” Buterin is concerned about what Ethereum has morphed into.

“Buterin worries about the dangers to overeager investors, the soaring transaction fees, and the shameless displays of wealth that have come to dominate public perception of crypto.” (Time)

It’s funny Buterin should have these feelings.

Ethereum was literally designed for all of these things. It fueled the ICO bubble of 2017. Most ICO tokens live on the Ethereum blockchain, just as most NFT tokens today are bought and sold on Ethereum. And Ethereum’s proof-of-work consumes the energy of a small country.

Buterin is the guy in the hotdog suit in a sketch from the comedy series “I think you should leave.”

In the sketch, a hot-dog-shaped car has crashed through the window of a menswear shop. Everyone is looking around to see who is responsible. Suddenly a man in a hot-dog costume appears out of nowhere and says, “Yeah, whoever did this, just confess. We promise we won’t be mad!”

Never forget, Vitalik created Ethereum because World of Warcraft nerfed his favorite warlock.

The Prince of Crypto Politely Asks that People Not Use His Machine To Do The Thing It Was Built To Do https://t.co/STTXfiASFz
— Dan Olson (@FoldableHuman) March 19, 2022

VCs shovel more millions into ConsenSys

Joe Lubin’s ConsenSys got another $450 million round of funding with a $7 billion valuation. This comes just four months after its Series C that raised $200 million and valued it at $3 billion.

The company has more than doubled in value, thanks to the venture capitalists.

Lubin is one of the cofounders of Ethereum who struck it rich in Ethereum’s early crowdfunding sale.

ConsenSys invested in ICO projects throughout 2017 — mostly hilariously bad ideas like Civil. When none of these projects had any hope of making it, and some like Airfox and Paragon, had to pay hefty fees to the SEC for securities violations, ConsenSys went through a “strategic transformation.” It cut staff and converted its failing portfolio business into a separate company called ConsenSys Mesh, effectively pushing the ugly mess off into the corner.

Nowadays, Lubin is busy hyping software like Infrura and Metamask to build Web3.

Stephen Dhiel explains why Web3 is “bullshit.”

The latest round will “accelerate the global adoption” of Infura and ConsenSys’s efforts to “drive NFT adoption for artists, content creators, brands, intellectual property owners, game publishers, and sports leagues.” (ConsenSys blog; Decrypt)

Anyone who thinks NFTs are going to crash soon has little understanding of how much money VCs are shoveling into this space. This money will keep the space propped up long enough for investors and insiders to cash out, just like they did with ICO tokens.

Elsewhere in cryptoland

Vice did a story on nocoiners — bitcoin skeptics, as we call ourselves. It has some good content, but also a misleading flaw: it makes it seem that nocoiners are insignificant because the “nocoiner industry” moves a tiny amount of money compared to the crypto industry. (Vice)

NYT reporter Kevin Roose wrote a lengthy story explaining crypto to the masses. Don’t be fooled. This is a piece of crypto boosterism, where Roose continually tries to convince the reader that he is a “crypto moderate.” The story is especially pernicious because of its “reasonable” tone. (New York Times)

this is absolutely insane garbage, i am happy to say as a skeptic who was there in 1997 and 2007.

more accurate to say that "journalists" pumping FUD for the big digital players prevented skeptics from being taken seriously–and here we have a case in point https://t.co/eLG0w3C9Ld
— David "🌷🗿🌷" Golumbia (@dgolumbia) March 21, 2022

Vice reporter Edward Ongweso went to the first SXSW post-covid, only to find out it was overtaken by crypto-mania and NFT nonsense, like 3D anthropomorphic rabbits plastered everywhere, “which I gathered were somehow related to crypto though it wasn’t clear how.” (Vice)

Mark Zuckerberg says that in the coming months you’ll be able to mint NFTs within Instagram. “I would hope that, you know, the clothing that your avatar is wearing in the metaverse, you know, can be basically minted as an NFT and you can take it between your different places,” he said. (Engadget)

There is no actual metaverse. Zuckerberg is lying. Metaverse is a meaningless marketing term used by companies in an effort to separate people from their money.

“Zuckerberg created this conversation to distract from his problems and made fertile ground for truly evil people to profit,” Ed Zitron wrote in a blog post last month.

Jorge Stolfi, a computer science professor in Brazil, says Web3 is nothing more than a new way to frame cypherpunk’s utopia: “The cypherpunks are a bunch of ‘socially challenged’ nerds who dream of building a society on the internet that is totally beyond the reach of governments. That the cops cannot monitor, regulate, or control.” (Reddit: here and here)

The CFTC is looking into Binance to see if the exchange permitted U.S. residents to buy and sell derivatives traded on its platform. (Bloomberg)

Also, Binance has stopped serving residents of Ontario, this time for real. (Binance Letter of Undertaking and Acknowledgment; OSC press release)

Münecat just came out with a brilliant video (100 minutes) explaining Web 3.0. Picture this: The year is 2063, and the global currency is Moosecoin. (Youtube)

Wikipedia editor and software engineer Molly White did a podcast with “Scam Economy” talking about her “Web3 is going just great” project. (Youtube)

If you haven’t read it yet, this Verge article on Tron CEO Justin Sun is an amazing piece of reporting. Sun has a huge tolerance for risk. The story also explains what happened with Poloniex, the crypto exchange that Circle bought in early 2018 for $400 million and spun out for a $156 million loss. (Verge)

Me in the news

I recently wrote a story on BAYC for Artnet News, and one on Ethereum’s move to POS for MIT Tech Review. I did a podcast for Artist’s Well and made some minor updates to my “Bitcoin Widow” review.

Posted on March 21, 2022March 22, 2022 by Amy Castor 1

News: Tether surpasses 50B, Coinbase lists USDT, reported $2B crypto scam in Turkey

Bitcoin is sitting at around $54,000, and Tether has hit a new milestone: 50 billion tethers in circulation, something it’s quite proud of. “Will we reach $100B before 2022?”

🎉 Tether has just surpassed $50B market cap!
🚀Tether’s market cap is growing fast, with a monthly increase of $10B. Will we reach $100B before 2022?

Stay up to date on our official Telegram channel ⬇️https://t.co/137b5oOauU pic.twitter.com/VMV4C52U5t
— Tether (@Tether_to) April 26, 2021

So far, in April, Tether has issued 9 billion tethers—and the month isn’t even over yet. Tether has been minting 2 billion tethers at a time—the largest single batches we’ve seen to date.

💵 💵 💵 💵 💵 💵 💵 💵 💵 💵 2,000,000,000 #USDT (2,000,000,000 USD) minted at Tether Treasuryhttps://t.co/N2xd9lys2Q
— Whale Alert (@whale_alert) April 19, 2021

Per the NY AG settlement agreement, Tether is supposed to provide a breakdown of its reserves in May. And they are already whining about how unfair and unjust this is.

Stuart Hoegner, Tether’s general counsel, complained on Twitter: “The second-biggest stablecoin issuer [USDC] doesn’t give a breakdown of their reserves, either. Observers should ask why our detractors are pushing one rule for them and another for us.”

Oh, I don’t know, Maybe because USDC wasn’t caught hiding the fact it lost access to $850 million?

(USDC—a stablecoin bootstrapped by Coinbase and Circle—has issued 13.5 billion USDC to date, not quite the level of Tether, but it’s working its way up there.)

Coinbase debuts on Wall Street, then lists USDT

Coinbase, the largest crypto exchange in the U.S., debuted on Wall Street on April 14. Trading opened at $381 a share—a 52% increase over a $250 reference price set by Nasdaq. COIN swung as high as $429 that first day. (Though, now it is at $291.)

It was the moment Coinbase execs and its VC backers had all been waiting for. They didn’t waste any time dumping their shares on retailers, according to data from Capital Market Laboratories.

Insiders sold off $4.6 billion in COIN on the first day of trading, and Coinbase CEO Brian Armstrong sold shares worth $292 million. (SEC filing) (Cointelegraph)

Less than two weeks later, Coinbase—being the respected operation that it is—dropped the bomb that it is listing tether on Coinbase Pro.

Ecstatic bitcoiners claim the move legitimizes Tether. Actually, the move delegitimizes Coinbase.

Listing tether makes Coinbase look shady, like they’ll do anything to boost profits and keep share prices up so insiders can continue their sell-off. (My blog post)

Tether is a wildcat bank, operating with no oversight. It has been largely responsible for boosting the price of bitcoin because it allows unregulated crypto exchanges to thrive and funnels them a steady stream of dubiously backed tethers.

How, HOW do the laser noodles have the audacity to complain about “fiat money printing”? Totally baffles me. They can’t seriously believe that anyone has just put $200m into the crypto economy.
— Charles Arthur (@charlesarthur) April 26, 2021

Thanks to Tether, Coinbase had a hugely profitable Q1. And thanks to Tether, Brian Armstrong is a wealthy man indeed.

Was it a coincidence that BTC tapped a new all-time high of $63,275 the day before Coinbase went public? Or was that simply irrational exuberance?

When Tether gets taken down, liquidity will evaporate and crypto markets will crash. Those who get hurt will be naive retailers, who didn’t understand the system was rigged from the get-go.

Bernie—gone but not forgotten

Bernie Madoff died in jail on the same day that Coinbase went public. He ran the biggest Ponzi scheme in history, and it went on for 25 years. Paper losses totaled $64.8 billion. Madoff took billions from investors and simply stole the money instead of investing.

Why didn’t the SEC catch Madoff sooner? Why didn’t they step in and do something to protect investors? They were tipped off eight years before, and yet they failed to act.

Here we are watching a similar drama unfold with Tether. All the red flags are waving. And no regulator or authority has stepped in to take strong action.

You know what would be nice, if financial regulators actually did their job rather than having the tech industry regulate itself internally.

I guess I can blame the federal government for effectively being run by a clown mafia for the last four years. 😒
— Stephen Diehl (@smdiehl) April 18, 2021

If you are wondering how fraudsters live with themselves—they rationalize and minimize.

David Sheehan, a trustee who worked to recover money stolen from investors, met with Madoff a dozen times. He told WSJ: “[Madoff] didn’t think he was harming anybody. He actually thought his scheme would work, that it just got out of hand and he couldn’t control it.”

$2 billion crypto scam in Turkey?

When Thodex, one of the largest crypto exchanges in Turkey, suspended trading on April 18 for five days of “maintenance,” users began to complain they couldn’t access their funds.

Now a manhunt is underway for the exchange’s 27-year-old founder, Faruk Fatih Özer, who has reportedly fled to the capital of Albania with $2 billion in investors’ money.

Turk authorities have detained 62 people and issued detention warrants for 16 more.

Meanwhile, Özer is claiming that Thodex is the target of a “smear campaign.” He says he was on a jaunt to meet with foreign investors, nothing more.

We’ve seen this film before. It’s called “Crypto exchange operates as a Ponzi scheme.” Last time, the protagonist was Gerald Cotten, the founder of Canada’s QuadrigaCX. And instead of going to meet with “foreign investors,” he went to India and died under suspicious circumstances.

Now another Turkish crypto exchange—Vebitcoin—has shut down amid accusations of fraud. Turkish authorities have blocked its bank accounts and detained four people. (Reuters)

These stories come at a rotten time for crypto users in Turkey. Starting April 30, the country’s central bank will ban the use of crypto for payments and prevent payment providers from providing fiat onramps to crypto exchanges. (CBRT press release)

Bitcoin promotes green energy!

Bitcoin mining is destroying the planet. Lately, the world’s most popular cryptocurrency is getting a lot of bad press on its massive carbon footprint—like this article in the New Yorker.

Yet, despite hard evidence to the contrary, people with big bets on bitcoin will stare you right in the face and tell you it ain’t so. Bitcoin is green!

Jack Dorsey’s Square and Cathie Wood’s ARK Invest published a delusional white paper titled “Bitcoin is Key to an Abundant Clean Energy Future.” They want you to believe bitcoin mining encourages the use of wind farms, solar energy, and other such nonsense. (Bloomberg)

ARK has investments in Square and Coinbase shares. And Square invested $50 million in bitcoin last year. Square’s Cash App also lets users buy and sell bitcoin. Dorsey is a bitcoin bro at heart.

Companies who care about the planet, don’t invest in bitcoin.

FT Alphaville countered Dorsey and Wood’s claims in a post titled: “The destructive green fantasy of the bitcoin fanatics.”

Bitcoin skeptic Kyle Gibson responded with a satirical “Bitcoin Is Green Energy” commercial, where we learn that “solar panels can’t work without bitcoin,” and “this baby penguin’s first word was ‘bitcoin’.”

Bitcoin Is Green Energy

An original commercial with real facts about how crypto mining is saving the world pic.twitter.com/Zcbm2V7YqI
— Kyle S. Gibson (@KyleSGibson) April 22, 2021

Other newsworthy stuff

On April 22, the negative premium of GBTC reached -18.92%, a record low. It’s since rebounded to -10%, according to Ycharts, but the arbitrage opp for big investors is a distant memory.

No doubt many funds who entered the “risk-free” trade are feeling the squeeze. Despite that, Grayscale has added $283 million in assets to GBTC. (The Block)

Tougher AML laws in South Korea are forcing crypto exchanges to shutter. Turns out, several were using shell bank accounts. “…they are having difficulties to get real-name accounts from local banks.” Sounds like the Bitfinex/Tether model. (Korean Herald)

The NFT bubble is bursting. Trading volume on OpenSea is down 22% in the past month. CryptoPunks volume is down 26%, NBA Top Shot is down 61%. (Decrypt)

Edward Snowden can’t make money on books and speeches anymore, so he sold an NFT for $5.4 million. He is donating the funds to the Freedom of the Press Foundation. (He sits on the nonprofit’s board of directors.) (Coindesk)

Artists and celebrities continue to pile into NFTs, because it’s the thing to do. Eminem partnered with Gemini’s Nifty Gateway to launch his first series of NFTs. (Decrypt)

A hacker-artist figured out how to make “crypto-verified” fakes of most art-connected NFTs. It’s called “sleepminting” and he used Beeple’s “Everydays” as a test case. (Artnet)

Quote from “Black Swan” author Nassim Taleb: “If you want a hedge against inflation, buy a piece of land, grow—I don’t know—olives on it. You’ll have olive oil if the price collapses. With bitcoin, there’s no connection.” (Decrypt)

The SEC is officially reviewing a bitcoin ETF application from Kryptoin Investment Advisors. It’s one of three bitcoin exchange-traded fund proposals now under review—WisdomTree and VanEck are the other two. (SEC filing notice) (Decrypt)

The overlap between the bitcoin bros and Musk fanboys is strong. Nicholas Weaver wrote up a Twitter thread on why Musk sucks—i.e., his environmental credentials are bullshit; “Go to mars because we are going to destroy the earth” is lunacy; His cars are crap, etc.

The IRS knows you’re out there. It’s launched “Operation Hidden Treasure” to find taxpayers with unreported income from bitcoin transactions. (Accounting Today)

Stablecoins are reminiscent of the dollar substitutes that triggered the 2008 crisis. Déjà vu? (New Money Review)

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Posted on April 26, 2021April 26, 2021 by Amy Castor 2

Coinbase lists tether, the world’s dodgiest stablecoin

Coinbase, the largest crypto exchange in the U.S., just announced it is listing tether (USDT), the world’s dodgiest stablecoin.

Tethers, for the uninitiated, are a stand-in for real dollars, used mainly on offshore crypto exchanges that can’t get proper banking. Now tethers can be found on Coinbase, a banked exchange—overseen by the SEC.

The timing of this is incredible, only a week after Coinbase debuted on Wall Street.

Nobody knows for sure what is backing the nearly 50 billion tethers sloshing around in the bitcoin markets—maybe cash, maybe third-party loans, maybe hot air. But the price of Coinbase shares (COIN) is slipping, and so is the price of bitcoin. Desperate times call for desperate measures, so what can Coinbase do?

Why not list tether? That way, Tether (the company that issues tethers) looks legit, and more people can pile into bitcoin without worry. When BTC goes up, demand for $COIN follows. Problem solved!

Starting immediately, you can now send your dubiously backed tethers to Coinbase Pro—Coinbase’s online platform for professional traders. (Coinbase has a separate platform for casual traders called simply “Coinbase,” but tether is limited to Coinbase Pro for now.)

You will be allowed to trade tethers in every jurisdiction that Coinbase supports except for New York state, which Tether was recently hoisted out of by the NY attorney general.

Coinbase only supports ERC-20 USDT, a reference to the nearly 24 billion tethers that live on the Ethereum blockchain. (Another 26 billion are on Tron, with a smattering on Omni, Algorand, EOS, Liquid, SLP, and Solana.)

Trading begins on April 26 at 6 p.m. Pacific Time—if liquidity conditions are met, meaning if someone is on-hand and willing to sell their bitcoin or ether to you for tethers, as opposed to real money. [Update: Coinbase has delayed USDT trading twice, first to April 27, now to May 3.]

Coinbase Pro will list the following trading pairs:

BTC/USDT
ETH/USDT
USDT/EUR
USDT/GBP
USDT/USD
USDT/USDC

At the moment, you can only transfer USDT onto Coinbase Pro; you cannot move tethers off the exchange—although there is some expectation that could change once trading is established.

How does that make sense? A roach motel? Who would sell for Tether if they can't transfer it out?
— Nicholas Weaver (@ncweaver) April 22, 2021

What does this mean?

This is a terrible, dumb, bad move for Coinbase.

The exchange clearly wants to rake in as much business as possible before the regulators step in and throttle its trading. (Regulatory ambiguity is written into the company’s S1 risk factors.) And right now, business is slipping.

Coinbase started selling its shares on Nasdaq on April 14. Its stock has since taken a dip, going from $381 at opening (and as high as $429 in the first few minutes of trading) to $293 when markets closed on April 22.

At the same time, BTC has also taken a hit. Just ahead of Coinbase’s direct listing, BTC reached an all-time high of $63,700. Now it’s below $50,000.

Tether has been trying to lift up the price of BTC with larger and larger issuances of tethers—prints of 2 billion at a time, bigger than anything we’ve seen before—but nothing seems to be working.

At some point, it won’t matter how much USDT Tether prints. It won’t be enough to make up for all the real money that is exiting the bitcoin ecosystem on a daily basis. (The real money that investors put into the system, goes to pay the bitcoin miners who are selling 900 newly minted BTC per day for cash.)

Legitimizing Tether?

Bitcoiners are ecstatic over Coinbase’s listing of USDT. They say the move legitimizes Tether.

This is absolute madness. How do you legitimize a company that has been full of shenanigans since day one? The reverse is true: Tether is delegitimizing Coinbase.

if you think that a publicly traded company doing X means that X is good that is very sweet of you.
— Palley (@stephendpalley) April 22, 2021

Here is the irony: Coinbase—an exchange that has a BitLicense (issued by the New York Department of Financial Services) to operate in the state of New York—is listing a token sanctioned by the New York attorney general.

The NYAG began investigating Tether for fraud in late 2018, claiming that Tether and its sister company Bitfinex, a crypto exchange, lied to customers in saying that tethers were fully backed, when in fact, they were not.

“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” the NYAG said.

The companies settled with the NYAG in February. Under the terms of the settlement, starting in May, Tether has to publish the categories of assets backing tethers. It also has to specify the percentages of each category, and spell out whether a category constitutes a loan or receivable.

This is a level of transparency that Tether has never lived up to before, and it could spell disaster for the BVI-registered company, if it’s revealed that Tether is simply printing money out of thin air.

If the Department of Justice decides to shut down Tether like it did Liberty Reserve in May 2013—which is what several nocoiner luminaries predicted will happen this year—what does that say about Coinbase listing this coin?

Three other U.S. crypto exchanges—Kraken, Binance.US, and Bittrex*—also list tether, but Coinbase’s public listing means the SEC is watching a lot more closely. Coinbase CEO Brian Armstrong is well aware of this.

“We’re going to increasingly be having scrutiny about what we’re doing,” he told CNBC.

Based on that reasoning alone, Coinbase’s listing of tether seems shortsighted at best, but maybe that’s the plan? If COIN crashes, Armstrong—along with Coinbase backers like Andreessen Horowitz, Union Square, and Ribbit Capital—will have made their riches, while retailers will be stuck holding the bag.

(*Updated to include Bittrex as another US exchange that lists USDT.)

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Posted on April 23, 2021April 27, 2021 by Amy Castor 0

News: Coinbase Q1 earnings, Signal integrates MobileCoin, GBTC premium in the toilet, Reggie Fowler’s new lawyer

Bitcoin rose above $60,000 again. It only took 6 billion tethers to make that happen since the last time it hit $60,000 in March—less than a month ago. We now have 44.5 billion tethers in circulation.

Coinbase set to debut on Nasdaq

Everything looks rosy for Coinbase’s debut on Nasdaq on April 14. The company is worth $91.5 billion, securities filings show. It reached that valuation even before releasing Q1 results of $1.8 billion—9x that of a year ago. (WSJ)

All that glitters is not gold, however. If Coinbase’s regulatory status were to change (and regulatory ambiguity is clocked in the company’s S1 risk factors), the company could be forced to drop many of its hugely profitable activities or be forced to operate at a much higher capital cost. (FT)

Signal, a good thing going bad

Signal is one of the best apps we’ve got for secure communication. But that could all change, as the encrypted app moves into payments with the integration of MobileCoin.

Techies are upset because they associate cryptocurrency with frauds and scams. They don’t want to see Signal become a sketchy money transmitter business.

A beta version of Signal Payments is now available to UK customers. It’s not available in the U.S., probably because MOB looks like an unregistered security. MobileCoin says it hasn’t worked out all the regulatory stuff yet.

Turns out, Signal’s creator Moxie Marlinspike has deep ties to MobileCoin. I wrote about the money flows, and David Gerard followed with a story explaining the tech. (My blog) (David Gerard)

In a blog post titled “Et tu, Signal?,” Stephen Diehl reminds us that we’ve seen this film a few times before.

Telegram tried the same thing in an ICO that imploded when the SEC shut them down. Facebook tried and failed to monetize WhatsApp. And when encryption app Keybase did an airdrop of Stellar lumens, crypto spammers invaded the app, ruining the user experience.

“This association weakens the entire core value proposition of the Signal app for no reason other than making a few insiders richer,” he said.

So all this time @signalapp was basically just a lead up to launch a giant crypto pyramid scheme.

This feels really gross.
— Stephen Diehl (@smdiehl) April 7, 2021

Grayscale wants to convert GBTC into an ETF

GBTC once enjoyed a healthy premium but is now trading at 9.72% below NAV. Virtually nobody is buying GBTC on secondary markets.

Can shareholders redeem their GBTC for bitcoin? No, they cannot. Once bitcoin gets locked up in the trust, it is in there for good. (GBTC has ~649,130 BTC locked up to date, roughly 3% of all BTC.)

In March, Grayscale announced it was going to shore up the discount to GBTC’s NAV with a $250 million buyback. Now, it plans to convert GBTC into an ETF. The conversion would mean GBTC shareholders no longer have to pay a hefty 2% annual management fee.

For some reason, Grayscale is confident the SEC will approve an ETF, even though the regulator had rejected every single Bitcoin ETF proposal put before it to date. I’m not sure why Grayscale is any different. (Coindesk) (GBTC announcement)

Currently, the SEC is reviewing two active bitcoin ETF applications: the VanEck bitcoin ETF and WisdomTree’s bitcoin ETF.

Fowler has a new lawyer

Reggie Fowler has finally found himself a new lawyer after his previous defense team withdrew from the case because he failed to pay them. His new lawyer is Ed Sapone of Sapone & Petrillo in New York.

Fowler is the Arizona businessman tied to hundreds of millions of dollars in missing Tether/Bitfinex money. He was indicted in April 2019, along with Israeli woman Ravid Yosef, who is still at large.

Judge Andrew Carter has yet to set a new trial date. He is giving Sapone three months to get up to speed on the case first. And he warned Sapone: “You are going into this with your eyes wide open.” Meaning if Fowler doesn’t pay him, Sapone will not be allowed to withdraw from the case.

Other newsworthy items

Christie’s is grabbing the NFT bull by the horns. The prestigious auction house is selling NFTs of nine rare CryptoPunks by Larva Labs alongside work by Andy Warhol and Jean-Michel Basquiat in a marquee auction.

The single lot—estimated to fetch between $7 million to $9 million—will be sold at Christie’s 21st Century Evening Sale on May 13 in New York. (Artnet) (Christie’s)

9 rare CryptoPunks from @LarvaLabs own collection to star in our 21st Century Evening Sale this May in NY.

All mint numbers under 1k and yes there is a rare Alien! Punks 2, 532, 58, 30, 635, 602, 768, 603, 757 #CryptoPunks

More at: https://t.co/o41OzqP1UB pic.twitter.com/N0blESQdR1
— Christie's (@ChristiesInc) April 8, 2021

Former BitMEX CEO Arthur Hayes has surrendered to authorities. He flew to Honolulu to appear before a judge on April 6. Pursuant to an earlier agreement, he was released on a $10 million bond, secured by $1.5 million in cash, pending future proceedings in New York.

Six months ago federal prosecutors in New York accused Hayes and his BitMEX co-founders of violating anti-money laundering rules. Hayes is a US resident. Previously, he was living in Hong Kong, but he has been living in Singapore with his Singaporean wife since January 2020. (Bloomberg) (Lawyers’ proposal) (Bail conditions)

The New York Excelsior Pass is a COVID-19 vaccine passport system. It proudly proclaims its use of secure technologies, like blockchain and encryption but it’s doing the wrong thing and badly. (David Gerard)

If you are tracking central bank digital currencies, John Kiff updated his CBDC “explorers” table with new developments out of Russia, Sweden and Trinidad & Tobago. (John Kiff)

Who needs a bitcoin ETF anyway? MicroStrategy just purchased another 253 BTC for $15 million in cash at an average price of $59,339. Saylor’s firm now holds 91,579 bitcoins acquired for $2.2 billion at an average price of $24,311 per bitcoin. (Press release)

#Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy. – @michael_saylor #everydays pic.twitter.com/NX2pcDqsT9
— beeple (@beeple) April 11, 2021

HSBC will no longer allow customers to buy Microstrategy stock due to its newly changed policy on virtual currencies. (Tweet)

The rising tide of bitcoin is good for everyone. Following in the footsteps of Coinbase, Kraken is considering going public in 2022, after record trading volumes in the first quarter (CNBC)

BitClout, the decentralized social network that tokenizes Twitter accounts, uploads your keys to their server on every API request. Any employee with access to that server can steal all the money on the platform at any time. Like I said earlier, this project appears to be one bad idea piled on top of another. (Tweet)

Phillips, another London auction house, smaller and slightly younger than Christie’s, is getting into NFTs with the sale of an artwork called REPLICATOR.

The NFT market has been a bust for Mike Winkelmann in so many ways. Now he is coming out with a book on Amazon.

Sleep with Kate. Drive with Kate. Walk with Kate. Model Kate Moss is featuring her own series of NFTs on Foundation. Proceeds go to charity. (Vogue)

Super Bowl champion Tom Brady is launching his own NFT platform called Autograph. (CNBC)

This tweet of a nothing sandwich from the Fyre Festival will be sold as an NFT. The original tweeter will use the money to help pay for a kidney transplant. The sale on OpenSeas ends on April 24. If any NFT deserves your money, this one does. (Verge) (GoFundMe)

Feature image: Beeple everyday posted on Twitter

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Posted on April 11, 2021April 12, 2021 by Amy Castor 0

News: Coinbase set to go public, Tether releases meaningless attestation, are NFT sales slipping?

Happy Easter! NFTs of this disturbing Easter bunny series are available on OpenSea. I was looking for more NFT bunnies but couldn’t find too many. Maybe I wasn’t looking hard enough.

In any case, Bitcoin is now at $58,000 and Tether has more than 42 billion tethers in circulation. Here’s the news:

Coinbase set to go public

Coinbase, the largest crypto exchange in the U.S., will start selling shares on Nasdaq on April 14. The company will trade under the ticker symbol “COIN” and offer 114.9 million shares as part of its direct listing. Share price will be determined by orders coming into the stock exchange.

Currently valued at $100 billion, Coinbase is going public during the biggest Bitcoin bubble yet. The event will make Coinbase CEO Brian Armstrong—who owns 39.6 million of the company’s shares—a very wealthy man indeed. And the VCs backing the company will realize huge profits, as they all dump their shares on retailers.

On April 6, the exchange is expected to reveal its first quarter financial results and full year outlook. (CNBC) (Coinbase statement)

Tether’s meaningless attestation

In its latest PR move, Tether published an attestation verifying that it had $35 billion in assets backing a similar amount of tether for a blink in time on Feb. 28. The attestation was produced by accounting firm Moore Cayman, based in the Cayman Islands.

Bitcoiners are head over heels about this, but the report is meaningless. The document explicitly states that this does not mean tethers were fully backed at any other time—or are now. And the report doesn’t fit what the NYAG required Tether to publish by mid-May, because it doesn’t break out each category of backing asset by percentage. What’s backing tethers could be mainly bitcoin and toxic assets, for all we know. (David Gerard)

Days after Tether produced the attestation, it printed 1.2 billion tethers—one of its largest issuances ever. What’s a few billion more when bitcoiners think you are legit?

Is it a coincidence that just after Tether comes out with an attestation, it issues the single largest USDT print ever? https://t.co/nYTX1vRT9h
— Amy Castor (@ahcastor) April 1, 2021

The wonderful world of NFTs

Are NFT sales slipping? Average prices for NFTs have fallen almost 70% from a peak in February to about $1,400, according to Nonfungilble.com, which tracks NFT marketplaces.

The NFT bubble hit its all-time high around the time Metakovan bought Beeple’s “Everydays—The first 5000 days” for $63.9 million on Christie’s. (Bloomberg)

Cointelegraph also reports that the NFT market is experiencing a silent crash. While we can always see what the price of bitcoin is up to, tracking the movements of illiquid markets is trickier. When it comes to NFTs, buyers simply evaporate and sellers fail to move their wares.

What is causing the drop in prices? “I suspect it is because the secondary sales have evaporated, so the dream of ‘greater sucker’ has gone away in about the same timeframe as the Crypto Kitties NFT bubble,” Nicholas Weaver said.

I suspect it is because the secondary sales have evaporated, so the dream of “greater sucker” has gone away in about the same timeframe as the Crypto Kitties NFT bubble…
— Nicholas Weaver (@ncweaver) April 4, 2021

Meanwhile, Shares of Funko, a toymaker in Washington, are rising after the company acquired a majority stake in TokenWave, a developer of TokenHead, a mobile app for showing NFT holdings. Funko plans to launch its own NFT offerings this summer. (CNBC)

Other companies are jumping into the space. NFT platform Recur announced a $5 million seed round led by the DeFi Alliance, Delphi Digital, Ethereum co-founder Joe Lubin, and Gemini, among others. (Cointelegraph)

Justin Sun, the CEO of Tron, is now buying serious high art. He bought a Picasso for $20 million at Christie’s in London on March 23, where he also picked up an Andy Warhol for $2 million.

Sun, if you recall, was the second highest bidder for the Beeple “Everydays—the first 5,000 days” piece, driving up the price for Metakovan. Apparently, the Christie’s team in Asia reached out to Sun after the NFT sale to talk him into buying real physical art with all his spare change. (ArtNews)

How does OpenSea, an online market for NFTs, deal with copyright violations? They pocket the buyer’s money and tell them they should have done their own research. Buyer beware! (Vice)

John Cleese’s auction for an NFT of a speedily drawn Brooklyn Bridge ended on April fools’ day. The proud owner is now JeffBezosForeskin who paid $35,000 in ETH for it on Mintable.

SNL is selling an NFT to their NFT skit an OpenSea. The top bidder gets two tickets to a live taping of the show. This gimmick just does more to promote NFTs, imho. (Decrypt)

Other newsy bits

A DOJ investigation into Representative Matt Gaetz and Joel Greenberg—the former tax collector in Seminole County, Florida—is focused on the pair recruiting women for sex. Greenberg is a bitcoiner. At one time, he wanted to start his own blockchain company, but was accused of dipping into public funds to do so. (The Daily Beast)

Greenberg has made a lot of headlines in recent years.

Hi America.

You're probably here b/c of the Matt Gaetz story – and the connections to Central Florida's Joel Greenberg.

Well, the @orlandosentinel has written a lot about Mr. Greenberg thru the years.

Below is just a sampling of headlines

For us, it was basic beat coverage… pic.twitter.com/oqGrViEP6k
— Scott Maxwell (@Scott_Maxwell) March 30, 2021

Terror-linked groups in Syria’s war-torn Idlib are changing their crypto tactics to avoid detection by Western law enforcement. (Wired)

Me, quoted in the news

After I wrote my story revealing the mystery Beeple art buyer, I got a lot of calls from the media asking me for comments about NFTs.

I am featured in Voice of America: “Cryptocurrency Fuels Digital Art-Buying Frenzy”

Ben Munster quoted me in an article for The Art Newspaper: “NFT art bubble? 2017 crypto bust could spell out the future of current boom”

Kenny Schachter quoted me in an opinion piece for Artnet: “Professor Kenny Schachter Is Here to Teach You More About NFTs (and Put the Crypto Critics in Detention).” David Gerard is quoted in the same story. Kenny refers to us as “curmudgeons.”

I was also interviewed by the Verge: “NFT mania is here, and so are the scammers.”

(Updated April 4 to add info about Recur.)

Feature image: Scary bunny on OpenSea

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Posted on April 4, 2021April 4, 2021 by Amy Castor 0

News: NY gives Tether the boot, Tether leaks, Coinbase financials, MoneyGram dumps Ripple

February is coming to an end. I’m waiting to get vaccinated, so I can travel without worry again. Maybe I’ll go to some crypto conferences later this year? I still have fond memories of Coindesk’s Consensus in May 2018—when you could hear the rumble of lambos coming through midtown Manhattan—and sitting in a coatroom with scant Wifi and a broken water cooler. (It was a big coatroom, but a coatroom nonetheless, and that’s where non-Coindesk journalists were put.)

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So, what’s new? Tether now has close to 35 billion tethers in circulation—the last print was on Feb. 21 and nothing since. Also, the price of bitcoin is $46,300. That’s down 18% from last week. I’m not sure we will ever see bitcoin reach $57,000 again. The nonsense could ebb and flow for a while, but I do think the end is nigh for Tether.

NY shuns Bitfinex/Tether

Last week I said likely nothing earthmoving would happen in the NY attorney general’s probe of Bitfinex and Tether this month, other than maybe a status update, according to what Bitfinex said in its January letter to the court. I was wrong.

In an unexpected turn of events, Tether and Bitfinex reached a settlement with the NY AG.

According to the terms of the settlement, the sister companies agreed to a penalty of $18.5 million—without admitting guilt. They are also banned from doing business in New York, and they have agreed to an impossible level of transparency.

Perfect. Exactly what's owed the NYAG https://t.co/cyrR2BMp5R
— Amy Castor (@ahcastor) February 25, 2021

I wrote two stories on this—an overall story covering the details of the agreement and deeper observations. You should read both and also the settlement agreement, which is very readable.

The bitcoiners are jumping for joy over the settlement because they interpret this to mean that Tether is liberated and we’re back to business as usual. This could not be further from the truth.

The tether fud is finally over, all they had to do was pay an 18.5 million dollar fine, no wrong doing admitted. Send everything to the moon now! #crypto https://t.co/6REYTuiL5S
— Lark Davis (@TheCryptoLark) February 23, 2021

The NY AG has given Tether enough rope to hang itself—with Tether agreeing to publish quarterly updates on what’s backing tethers. I mean, how crazy is this: Bitfinex and Tether are also supposed to reveal who their payment processors are. These payment processors are called shadow banks for a reason.

But the real punishment is not the fine imposed on Tether. The real punishment is that Tether and Bitfinex are banned from doing business in New York—the beating heart of finance and banking in the U.S.

They are prohibited from serving any person or entity in the state—defined as “any person known or believed to reside in or regularly conduct trading activity from New York,” and any business “that is incorporated in, has its headquarters in, regularly conducts trading activity in, or is directed or controlled from, New York.”

when you read a consent agreement you should understand that sometimes the findings and undertakings are more significant than the money penalty (or p.r. posturing).

that is all.
— Palley (@stephendpalley) February 23, 2021

If the CFTC and the DoJ follow up—and you can bet they will—then Tether could soon be banned from the entire U.S.—a penalty much more significant than an $18.5 million fine.

In the meantime, the Tether printer has mysteriously paused. The settlement agreement was signed on Feb. 18, and the last Tether print was on Feb. 21 for 800 million USDT.

Why has Tether stopped printing? It may be that providing the transparency reports is proving more onerous than they expected. If they pop out another billion tethers, they have to show what is behind those—cash, a loan, crypto, or whatnot.

But this is a problem. Tethers are the main source of liquidity on unbanked exchanges where the price of BTC is largely determined. If Tether stops printing tethers—or otherwise ceases to function—the price of bitcoin could take a serious dive.

Tether Leaks

Recently, a Twitter profile called @deltecleaks emerged and posted what looked like evidence of a database dump from Deltec, the Bahamian bank that Bitfinex and Tether have been using since 2018. That Twitter account was quickly suspended.

Then @LeaksTether appeared and posted several presumably leaked emails—conversations between Deltec and Tether execs.

These leaks are unverified. I am not completely convinced they are real, but I am also not convinced they are fake either.

Some of the alleged emails look interesting. Trolly wrote up a thread on one—in an email (archive) from Tether to Deltec, dated May 28, 2020, Tether asks for help in “presenting their reserves in the best possible light.” Their reserves, according to the email, are crypto and stakes in other crypto companies. Trolly calls this email a “crucial piece of the puzzle.”

The latest Tether leak is an email from Tether to Deltec, dated May 3, 2020, asking for help in "presenting their reserves in the best possible light". Their reserves being stakes in other crypto companies, and things in that area. This is a crucial piece of the puzzle. 1/n
— Trolly McTrollface 🌷🥀💩 (@Tr0llyTr0llFace) February 27, 2021

Around the same time that the email was sent, crypto exchange Binance—one of Tether’s biggest customers—switched from BTC to USDT as collateral for leveraged trading. In return, Trolly believes Tether got a stake in Binance.

This could explain why USDT’s 1:1 peg never falters. Tether is in cahoots with the exchanges, who are in charge of maintaining the peg, Trolly believes.

In another allegedly leaked email, Tether talked about allowing the exchanges to “ignore the peg and move the price upwards.” If this is real, it means Tether is getting ever desperate to find ways to make money out of thin air.

Tether to the moon! 🚀🚀🚀 https://t.co/kJbSuXkBYM
— Amy Castor (@ahcastor) February 28, 2021

Oddly, Deltec has removed the bios from their About Us page. (This is silly, because we have the archive.) And Tether has released its official word on the leaks, calling the leaks “bogus” and implying it is an extortion attempt.

Tether adds that “those seeking to harm Tether are getting increasingly desperate.” This is typical of Tether and Bitfinex. They blame “Tether FUDers” for all their problems—as opposed to being upfront and honest about their dealings.

David Gerard wrote a blog post, going into detail on the alleged leaks.

Attacks to #tether are really attacks to #bitcoin
Attacking #tether is just easier for them, but the main goal is to discredit #bitcoin and all #crypto .
Good luck donkeys. pic.twitter.com/eSch1ryUfK
— Paolo Ardoino (@paoloardoino) February 28, 2021

Coinbase releases financials

Coinbase is going public via a direct listing on Nasdaq under the symbol COIN. The San Francisco-based company published its S-1 filing on Thursday, after confidentially submitting the filing to the SEC in December.

The filing lays out Coinbase’s finances, including a profitable 2020 driven by a huge surge in the price of bitcoin. Coinbase brought in $1.2 billion in revenue in FY2020 for a profit of $322 million—the first time it has turned an annual profit.

In 2019, Coinbase incurred a net loss of $30 million.

Brian Armstrong, Coinbase CEO, also did well last year, taking home $60 million in salary, stock options and “all other compensation.” He also received $1.78 million to cover “costs related to personal security measures.”

There is no doubt that the skyrocketing price of bitcoin—boosted by 17 billion tethers issued in 2020 alone—helped Coinbase’s profits. But there are many unknowns ahead.

If the price of BTC continues to drop, if Tether gets taken out by the DoJ, or if the SEC cracks down on some of the coins Coinbase lists—many of which appear like they may not pass the Howey test—Coinbase profits could take a hit.

No doubt, Coinbase is timing its listing carefully. The exchange has received more than $500 million in funding, with backers including Andreessen Horowitz, Y Combinator and Greylock Partners. And the VCs will want to dump their Coinbase shares on retail suckers before the bitcoin market collapses.

MoneyGram dumps Ripple

MoneyGram was supposed to have been a big success story for Ripple. Now, it’s just another sign of Ripple’s failures.

Ripple agreed to invest up to $50 million in the money transfers business. In return, MoneyGram was shilling Ripple by saying it would use the startup’s XRP currency and platform in its back office for moving funds across borders.

MoneyGram was essential because it gave XRP a supposed use case, so Ripple execs could argue their business was legit and not simply a way for them to line their own personal pockets with $600 million.

Last year, MoneyGram received $38 million from Ripple, representing about 15% of its adjusted earnings. But after the SEC announced it was suing Ripple, charging that XRP was an unlawful securities offering, MoneyGram stepped back, saying it faced logistical challenges in using the platform—as well as legal risks.

Now MoneyGram is putting its Ripple partnership on hold. That means MoneyGram, which saw declining revenues from 2015 to 2018, is losing a key income stream. (WSJ, MoneyGram PR)

Other newsy bits

After stiffing his previous defense team, Reginald Fowler still appears to have no defense team. He was given until Feb. 25 to line up a new law firm, but so far, no attorney has filed a notice of appearance with the court. (Court filing)

A rumor is afoot that the SEC is investigating Elon Musk for his dogecoin tweets that helped pump the market. Musk says a probe would be “awesome.” More lulz for Musk. (Teslarati)

I hope they do! It would be awesome 🤣🤣
— Elon Musk (@elonmusk) February 25, 2021

Fedwire, the system that allows banks to send money back and forth, went down for several hours on Wednesday. Bitcoiners thought this was marvelous, because bitcoin is decentralized, see? How quickly they forget bitcoin is valued in USD. (CNBC)

Grayscale’s GBTC premium went negative for the first time in years. (It was close to 40% at one point in December.) When the premium is down, the arbitrage opportunity for institutions in buying bitcoin dries up—and that means less real money flowing into the system. (Hedge funder Harris Kupperman wrote a blog post last year explaining how the arb works.) (Decrypt)

FT poked fun of Anthony Pompliano, cofounder of Morgan Creek. Pomp is forever shilling bitcoin but his tweets have been inconsistent. At one time he called Tether “the biggest racket ever.” Now he has changed his tune. Apparently, he’ll say whatever to make “number go up.” (FT)

Treasury Secretary Janet Yellen is warning people about bitcoin. She doesn’t think it’s used widely as a payment system. “To the extent it is used, I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.” (CNBC)

Jack Dorsey’s Square purchased another 3,318 bitcoins for $170 million. This adds to Square’s October purchase of 4,709 bitcoins. The company has already lost $10 million on its latest investment. (Coindesk, Square press release)

The Securities and Exchange Board of India tells company owners: before you IPO, sell your crypto. (Economic Times India)

Kraken is reportedly in talks to raise new capital. (Coindesk)

Posted on February 28, 2021February 28, 2021 by Amy Castor 0

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

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

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

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

Here is the news:

Ledger creates a target list for SIM swappers

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

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

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

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

ALERT: Threat actor just dumped @Ledger's database which have been circling around for the past few months.

The database contains information such as Emails, Physical Addresses, Phone numbers and more information on 272,000 Ledger buyers and Emails of 1,000,000 additional users. pic.twitter.com/Sv9cQwhuNy
— Alon Gal (Under the Breach) (@UnderTheBreach) December 20, 2020

Coinbase plans to go public

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

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

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

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

Note this is entirely about a16z and the other VCs unloading their ownership-bags, not cryptocurrency bags, before the space implodes because Tether finally gets killed.
— Nicholas Weaver (@ncweaver) December 17, 2020

FinCEN to impose new rules on exchanges

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

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

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

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

.@brian_armstrong : you are a self serving modern version of greed-is-good Gordon Gekko putting your profits ahead of the need of any civilized country to enforce AML/KYC/TFC regs to stop financial activities of criminals, tax evaders, terrorists, drug dealers, human traffickers! https://t.co/xKYxSgy3Nw
— Nouriel Roubini (@Nouriel) December 6, 2020

Coming soon: Mt. Gox bitcoins

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

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

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

Tether surpasses $20 billion

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

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

All I want for Christmas is for Tether to unwind explosively. https://t.co/DGF9ruN59v
— Patrick McKenzie (@patio11) December 15, 2020

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

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

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

Lots of people deposited stablecoins to exchanges 7 mins before breaking $20k.

Price is all about consensus. I guess the sentiment turned around to buy $BTC at that time.

This indicator is helpful to see buying power.

Set Alert 👉 https://t.co/xjY9mvaa15 pic.twitter.com/gV4J1N4R9g
— Ki Young Ju 주기영 (@ki_young_ju) December 16, 2020

Porn Hub only accepts crypto now

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

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

Other news

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

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

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

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

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

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

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

Posted on December 21, 2020December 21, 2020 by Amy Castor 0

News: Michael Saylor buys bitcoin with abandon, Tether reaches $20B, MassMutual jumps on BTC bandwagon

The price of bitcoin is headed back over $19,000 again. What will it take to push it past $20,000—more tethers? More institutional buying? Or maybe, more crypto journalists proclaiming (without evidence) that tethers are fully backed? Here’s the news:

MicroStrategy wants more, more, more

Michael Saylor, the new crazy god of bitcoin institutional buying, continues his bitcoin buying spree. He seems really, really confident the price of BTC will go up.

Saylor’s publicly traded company MicroStrategy currently owns 40,824 bitcoins—because no sense using all that excess cash for buying back a ton of stock or paying a big dividend. Better off to gamble it on crypto.

Now the firm is actually going into debt to buy bitcoin. After completing a $650 million bond offering, MicroStrategy plans to plow all the proceeds into buying more bitcoin. (Microstrategy PR, Cointelegraph)

Citibank isn’t impressed. Analyst Tyler Radke downgraded MicroStrategy (MSTR) from neutral to sell, calling the recent rally—MSTR went up after its first few BTC buying announcements—”overextended” and a possibly “deal-breaker” for software investors. (The Block)

Tether: Ain’t no stopping us now

Tether is now at $20 billion worth of tether—that’s assets, but circulating supply is soon to follow—and there is no evidence whatsoever to conclude that there is $20 billion in real cash behind all those tethers. Why? Because the company has never had a formal audit.

Still, last month, The Block’s Larry Cermak defended tethers as being “either fully backed or very, very close,” telling folks “everything is in order now.” He based that on conversations he claimed to have had with “third-parties” who told him they had successfully redeemed several hundred million in tethers.

Cermak is not the only one to buy the Tether line of B.S.

In December 2018, after looking at Tether bank statements, Bloomberg’s Matt Leising also reported that Tether appeared to be fully backed. He was wrong.

Unbeknownst to him at the time, in the previous two months, the DOJ froze five NY bank accounts belonging to Reginald Fowler, who ran a shadow banking service for Tether/Bitfinex’s Panamanian payment processor. And in November, the NYAG, having serious concerns about Tether’s finances, issued subpoenas to Bitfinex and Tether asking for details on their banking. Finally, in April 2019, Tether admitted it was only 74% backed. And that’s before it went off and printed another 17.5 billion tethers. So what’s backing all those?

In a recent blog post, David Gerard explains why Tether is “too big to fail.” Essentially, it’s keeping the entire BTC market afloat. If Tether were to get the Liberty Reserve treatment, the price of bitcoin is unlikely to ever recover.

Thus, “the purpose of the crypto industry, and all its little service sub-industries, is to generate a narrative—so as to maintain and enhance the flow of actual dollars from suckers, and keep the party going,” he said.

NYAG: Tether documents forthcoming

Meanwhile, there’s been a new document filing in the NYAG Tether probe.

In a letter to the NY supreme court, NYAG says Bitfinex/Tether are cooperating on document production and the parties expect to finalize things “in the coming weeks.” These documents, of course, consist of everything NYAG asked for in its original November 2018 subpoena—information that will shed light on the Tether and Bitfinex’s shadowy dealings since 2015.

A part of me wants to get excited about this news, but another part says, wait a minute. In the past when Tether’s operators said they were going to hand documents over, they simply handed over material that was already public information. They also have a long history of shenanigans, so let’s just wait and see.

How to turn USDT into cash

Jorge Stolfi, a computer scientist from Brazil, shared on Reddit a “mainstream theory” on what could be happening behind-the-scenes at Tether—specifically, how Tether’s operators could convert USDT into cash for their own personal use. Remember, this is totally unproven. It is just a theory. (The “triad,” by the way, refers to Tether CSO Phil Potter, CEO and man of mystery J.L. van der Velde, and CFO Giancarlo Devasini. They are the same operators behind sister company Bitfinex.)

He writes:

The owners of Tether Inc (which I will call “the Triad”) print billions of USDT without any backing.
The Triad deposits those USDT into Bitfinex (which they own too).
The Triad uses those USDT to buy BTC and other cryptos from other Bitfinex clients, attracted by the better price.
The Triad withdraws the BTC to their private wallets.
The Triad moves all or some of those BTC to other exchanges that handle real currencies, such as USD, EUR, JPY, etc.
The Triad sells those BTC for real money.
The Triad withdraws the real money into their personal bank accounts.

This is a theory. This is not proven. But the point is, when you have no checks and balances in place along with massive loopholes in oversight, anything can happen. We saw this already with QuadrigaCX—the Canadian crypto exchange that went bankrupt after the founder disappeared (aka “died in India”), taking along with him hundreds of millions of dollars in customer funds.

Coinbase loses half critical security team

After NYT reporter Nathaniel Popper reported about discriminatory complaints at Coinbase, new information came out. Among those who recently resigned to protest the exchange’s new internal policies, were four of the seven people on Coinbase’s critical security team—aka the “key management team.”

New detail on how the turmoil at Coinbase has hit the company's efforts to secure its Bitcoins.

Among the people who resigned this fall – to protest new internal policies – were 4 of the 7 people on the most critical security team, the "key management team," sources told me.
— Nathaniel Popper (@nathanielpopper) December 7, 2020

The key management team is responsible for securing the cryptographic keys to Coinbase’s cold wallets, where the majority of the company’s crypto is held—somewhere in the neighborhood of $30 billion.

“No job is more fundamental to the company’s success,” Popper said.

Coinbase’s security chief shot back, saying Coinbase’s security team is managed by several teams with redundancy built in. Of course, he wants us to believe everything is fine, but not everyone is convinced.

LOL what "most of the key management team for Coinbase's cold wallets quit" is absolutely not a "nothingburger"
— Tony “Abolish (Pol)ICE” Arcieri 🦀 (@bascule) December 7, 2020

MassMutual invests in BTC

Bitcoin has a new institutional investor: MassMutual. The Springfield-Mass insurance firm purchased $100 million worth of BTC for its general investment account, which totals $235 billion. (WSJ)

MassMutual purchased the bitcoin through NYDIG, a New York-based fund management company, which has $2.3 billion worth of crypto under management. MassMutual also acquired a $5 million minority equity stake in NYDIG.

The $100 million cash injection into bitcoin sounds like a lot, but it’s small potatoes. That money will cover the network’s operators—the bitcoin miners—for only six days. Remember, bitcoin miners are selling their 900 newly minted bitcoin per day for $17 million, at current BTC prices. Investors will never see that money again. Bitcoin doesn’t make any real profits on its own—just investor money going in one end, out the other.

Other news

Former Ethereum developer Virgil Griffith moves to dismiss his indictment—again. Attorney Brian Klein argues speech is a protected by the constitution. (Reply memo in support of motion to dismiss.)

Law firm Hogan Lovells is requesting to withdraw their representation of Reggie Fowler in a class-action against Bitfinex and Tether in which Fowler is also named. (Motion to withdraw)

Bryce Weiner has written a nice overview of how Tether works in relation to the crypto industry.

Crypto-friendly CFTC chair Heath Tarbert plans to resign early next year. His term was set to expire in 2024. (The Block)

Bitcoin’s right-libertarian anarcho-capitalism fits right in with far-right extremism. Crypto analyst Tone Vays brags on Twitter about spending a night with the Proud Boys.

If you like my work, please consider supporting my writing by subscribing to my Patreon account for as little as $5 a month. Thank you!

Posted on December 14, 2020January 13, 2021 by Amy Castor 0

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 —

Dmitri 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.”

This is getting quite serious. Let's summarize:

– Both BitMEX and Bitfinex are now investigated for servicing U.S. customers

– Bittrex and Poloniex started to geo-block tokens from the U.S.

– Binance pulled crypto-to-crypto trading out of the U.S. completely

— Larry Cermak (@lawmaster) July 19, 2019

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.

What we learned from today's senate hearing and grilling of Mr. Marcus:
+ A bunch of Senators hate FB
+ A couple of them think the tech could be cool
+ Senators attuned to in weeds issues (Warner a good example)
+ Marcus is a skilled operator
+ There will be more hearings

— Palley (@stephendpalley) July 16, 2019

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.

They aren’t moved digitally. They are moved electronically. That is why it takes so long for you to settle dollar transactions between banks for example. Small, but very important difference.

— Pomp 🌪 (@APompliano) July 13, 2019

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.

Posted on July 21, 2019July 22, 2019 by Amy Castor 0

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

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

Bitfinex and LEO

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

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

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

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

Tethers

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

Utter rubbish. It has skyrocketed for one reason only, and that is market manipulation by Bitfinex/Binance/Tether to recoup the $850m lost by Bitfinex and evade the NYAG's injunction. https://t.co/bHTgAWNx0O

— (((Frances Coppola))) (@Frances_Coppola) May 31, 2019

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

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

. @Tether_to is launching on a new chain today. Any guess?
I believe that cross-chain support is a key element for the success of a stable-coin.

— Paolo Ardoino (@paoloardoino) May 31, 2019

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

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

Cryptopia’s data—held to ransom?

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

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

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

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

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

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

Poloniex

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

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

Coinbase

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

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

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

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

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

Elsewhere in cryptoland

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

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

The notion that "crypto" as a generic category should have its own special treatment under U.S. securities laws is a special kind of ridiculous.

— Palley (@stephendpalley) May 28, 2019

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

before you go donate to Kik / Kin's new self-serving "DefendCrypto" lobbying effort, do a little googling to find out how they talk out of both sides of one's mouth.

— Tim Swanson (@ofnumbers) May 28, 2019

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

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

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

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

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

AP Style tip: Bitcoin is a digital currency. As a concept, Bitcoin is capitalized. The currency unit, bitcoin, is lowercase.

— AP Stylebook (@APStylebook) February 25, 2014

# # #

Posted on May 31, 2019June 6, 2019 by Amy Castor 2

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.

The books are wiped. You can also pump up the price by $900 with just… 70 Bitcoins.

The entire liquidity of Coinbase basically completely vanished. That's why they froze trading. Incredible. pic.twitter.com/AxsrhxhtzB

— Bitfinex’ed (@Bitfinexed) April 11, 2019

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.

That's why Binance flees from every single jurisdiction, because they want to comply.

— Bitfinex’ed (@Bitfinexed) April 11, 2019

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.

Craig Wright is not Satoshi.

Anymore of this sh!t, we delist! https://t.co/hrnt3fDACq

— CZ Binance (@cz_binance) April 12, 2019

i opened up twitter for the first time in a couple days and everyone has cat astronaut avatars and i’m just so very tired

— Buttcoin (@ButtCoin) April 14, 2019

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 up. Bcause 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.

Posted on April 13, 2019January 27, 2020 by Amy Castor 0

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.

In order to enhance the user experience, CoinBene upgraded the platform wallet on March 26, 2019.
During maintenance, it will affect related operations such as deposit and withdraw, trading will not be affected.

— CoinBene Global (@CoinBene) March 26, 2019

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.

The news about Coinbase Custody supporting staking of Tezos is all over Twitter even though Coinbase hasn't even officially announced it yet. Meanwhile, the price of Tezos is up more than 70% in the last 10 days pic.twitter.com/YeYQafrfYu

— Larry Cermak (@lawmaster) March 29, 2019

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 AM The 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.

Here is my marmot-y convo about today's SEC hi-jinx and what it all means man, with @TheStalwart and frens.https://t.co/6RGXoyXjvm

— Palley (@stephendpalley) April 3, 2019

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.

Posted on April 5, 2019January 27, 2020 by Amy Castor 1

News: I’m speaking in Vancouver, Kraken’s obsession with Quadriga, and Patryn may have been trading on BitMEX

Hello new readers! If you enjoy my crypto meanderings and paywall-free Quadriga resources, please subscribe to my Patreon account. I’m an independent writer, and I need your support. You can subscribe for as little as $2 a month.

I will be giving a presentation on Quadriga at MPWR Crypto Mining Summit in Vancouver, B.C. on March 12 at 4:15 p.m. local time. If you lost money on Quadriga, you can get into the event for free. Simply send an email to community@biresearch.ca.

I’m obviously insane to have driven to the Quadriga hearing in Halifax on March 5, given the weather conditions. I went with fellow crypto-skeptic Kyle Gibson. We spun off the road twice. It was horrifying. Apparently, my car was burning oil the entire way.

On the upside, seeing the hearing live at the Nova Scotia Supreme Court was really cool. Also, while in Halifax, I interviewed with Sheona McDonald, who is working on a Quadriga documentary. I hope to see her again in Vancouver, where she is based.

As far as the hearing goes, the big news is that Quadriga was granted a 45-day stay and the judge gave a thumbs up to the appointment of Peter Wedlake, a senior vice president and partner with Grant Thornton, as a chief restructuring officer (CRO) for the firm.

I was struck by the number of paid professionals sitting before the judge—somewhere between eight and nine, and a few others in the back of the room. What is the hourly rate for a lawyer? And some of them had to fly in, too.

And now, one more mouth to feed: the CRO. According to court documents, Quadriga needs a CRO for “ongoing direction” related to its affairs during its Companies’ Creditor Arrangement Act (CCAA) and in the event of an “anticipated sales process.”

This talk of selling Quadriga is a recurring theme, so watch for it to come up again. The biggest value in the sell would likely be Quadriga’s user base. A similar effort is being made to revive Mt. Gox, the Tokyo-based crypto exchange that went bust in 2014.

The law firms for Quadriga’s affected users have so far heard from 800 creditors—not a lot, when you consider there are 115,000 affected users. But keep in mind there is no formal claims process at the moment.

in the courtroom at the Quadriga case, a reporter who came in late and sat behind us told us during intermission, "I know a few dozen people who lost mone on #QuadrigaCX; around $200, you know…nothing to go to great lengths over getting back…"

— Kyle S Gibson (@KyleSGibson) March 8, 2019

How will customer claims be evaluated? Court-appointed monitor Ernst and Young (EY) is working to gain access to the exchange’s platform data in AWS, where all the customer trades are located. (EY had to get a court order at the hearing to do so.) It will be interesting to see what the monitor finds when it cracks that egg—maybe nothing. Other trails have already been wiped clean. Quadriga has no books and six identified bitcoin cold wallets were found empty, except for an inadvertent transfer reported earlier.

I recently wrote about WB21, the shady third-party payment processor that is holding $12 million CAD ($9 million USD) in Quadriga funds, according to court documents submitted in January. After I published the story, WB21, threatened me with legal action. I responded by posting the documents they sent. Since then, I’ve been getting anonymous threats via social media and email, telling me to stop talking about Quadriga.

1/4 – WB21 sent me an email accusing me of defamation and threatening me with legal action if I did not immediately make changes to my WB21 article.
My original article: https://t.co/7DFAT1Xird
WB21 full letter: https://t.co/Mr1KVKOR0V
WB21 amended doc: https://t.co/ejVOUFpnvK pic.twitter.com/h1e9VQaY6E

— Amy Castor (@ahcastor) March 6, 2019

Kyle Torpey wrote how bitcoin users in Canada are being targeted with audits by the Canada Revenue Agency (CDA). It is possible this could deter some affected Quadriga users from registering their claims, particularly if they are worried about anyone finding out about their crypto investments.

Bitcoin users in Canada are being targeted with audits by the Canada Revenue Agency (federal tax agency). Attached are some images of the questionnaire being sent out to individuals in relation to the audits.

Full story here: https://t.co/dzRXsdh3TH pic.twitter.com/HFNVo2op29

— Kyle Torpey (@kyletorpey) March 7, 2019

Elsewhere in the news, Kraken is offering a reward for any info leading to the finding of Quadriga’s lost coins. The US-based crypto exchange writes:

“It is up to our sole discretion which tips warrant a reward, if any. The total of all rewards will not exceed $100,000 USD. Kraken may end this reward program at any point in time. All leads collected by Kraken will be provided to the FBI, RCMP or other law enforcement authorities, who have an active interest in this case.”

Screen Shot 2019-03-10 at 4.11.20 PM.png Kraken’s CEO Jesse Powell has done two podcasts talking about Quadriga. Why is he so interested? If you recall, Kraken acquired Canadian crypto exchange Cavirtex in January 2016, so it has some Canadian customers. A few people I spoke with speculated that Kraken may have an interest in acquiring Quadriga’s user base. Otherwise, $100,000 USD seems like a lot of money to throw around for an exchange that let go of 57 people in September.

In a bear market where dozens of employees were laid off recently, isn't it a bit odd that Kraken are throwing around a $100k reward for this Quadriga thing? That's a big expense… what's the ROI for them? https://t.co/wGUgt0kT5j

— Jackson Palmer (@ummjackson) March 7, 2019

After this post went live, Powell sent me a few comments via email. He assured me the only purpose of Kraken’s reward was to help locate more assets for the Quadriga creditors and uncover any potential foul play. I reminded him that EY is already doing its own investigation into the lost funds. As of yet, Quadriga is not a criminal case.

As for acquiring the Quadriga platform and its user base, Powell thinks the platform is worthless and the user base probably significantly overlaps with Kraken’s already. “We would be open to acquiring the client list, but it wouldn’t be for much,” he said.

He also pointed out that “a lot of money” is relative and unrelated to his firm’s earlier layoffs. “Kraken increased its profitability in September,” he said. “Would you think $100,000 USD was a lot for Amazon, who let go a few hundred people last February?”

Lest there be any lingering doubt, Globe and Mail posted convincing evidence linking Quadriga cofounder Michael Patryn to convicted felon Omar Dhanani. The two appear to be one and the same. I think we can lay that one to rest now.

Meanwhile, The Block wrote about Patryn allegedly trading large positions on BitMEX, an unregulated exchange that lets you bet on whether the price of bitcoin will go up or down. You place all your bets in bitcoin, and you can leverage up to 100x. It’s a great way to risk losing all of your money. (I wrote about BitMEX for The Block last year.) There’s been speculation as to whether Patryn was gambling with Quadriga’s customer funds.

Can anyone confirm this? https://t.co/zOWPshhG6R

"Michael Patryn turned out to be MikeXBT a known frequent poster on /r/bitcoinmarkets often bragging about and showing proof of his big market moving trades on Bitmex…likely with QuadrigaCX customers' money" CC @ahcastor

— sudogene (@sudogene) March 7, 2019

Earlier, Coinbase also brought up the possibility that Quadriga was operating a fractional reserve after the exchange suffered multimillion dollar losses in June 2017 due to a smart contract bug.

Wanted to share a summary of what we believe happened to QuadrigaCX. We did our own internal research, including some blockchain analytics, to see if we could help. Important to note that this is just our best guess. Take it as *pure speculation*, nothing more.

— Brian Armstrong (@brian_armstrong) February 21, 2019

Bottom line: anything is possible. Nobody knew what was going on inside Quadriga — and they still don’t. The exchange had no official oversight and as of early-2016, only one person was in charge of that platform and all the money it held, and that was Gerald Cotten, the exchange’s now deceased CEO.

More information will come out as EY continues with its work. I can only imagine the private conversations occurring between the accountants (and lawyers) as more details in the CCAA process emerge. Welcome to crypto!

Read “How the hell did we get here: a timeline of Quadriga events” for the full story.

Posted on March 10, 2019March 11, 2019 by Amy Castor 1

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