Tag: Elon Musk

News: Tether—now 3% backed, Binance under investigation, Bitfinex shareholder charged, fickle Elon Musk

I’ve been inconsistent with my newsletters lately because I’m struggling to write this dang NFT book. It is slow going, and I keep falling down these rabbit holes. I feel like if I don’t hurry, the entire crypto market will collapse and NFTs will become a distant memory. Nevertheless, next week, I’ll begin publishing drafts of chapters on Patreon. You can subscribe here. 

Tether has so far issued 58.5 billion tethers—8 billion in the first two weeks of the month. You will notice that it keeps printing tethers at a faster and faster rate. That’s to make up for all the real money that isn’t in the system. When will Tether blow up? When regulators and law enforcement step in or it crumbles in on itself. Remember, Madoff’s Ponzi fell apart on its own.

Currently, the price of bitcoin is $45,000, down after Elon dissed it (more below) and Jack Dorsey’s Square said it is no longer buying bitcoin after suffering $20 million in losses on its $220 million investment in the last quarter.

Tether’s muddy pies

You asked for transparency, and Tether finally delivered in the form of two, uh, pie charts. I wrote about it here. David Gerard covered it here. And there’s also a story in the FT. 

There’s been endless chatter on Twitter about “commercial paper,” because apparently, it accounts for half of all the assets backing tethers. What’s CP?

In the case of Tether, it’s likely another way to disguise IOUs—i.e., handing out free tethers to their buds at Binance, FTX, and elsewhere. The real story here is that less than 3% of Tether’s reserves now consist of cash. What is the NYAG going to do about it? A FOIL request sent to the prosecutor recently yielded this response.

Folks are asking why Tether hasn’t collapsed yet, given that everyone knows it’s a farce and they are just printing money out of thin air. The answer is because Tether has no obligation to redeem tethers, to begin with—that’s written into its terms of service. The reckoning will come when people try to cash out of bitcoin, and it dawns on them there is no real money in the system to support withdrawals, because the markets were based on funny money.

Binance under investigation

Binance, the world’s biggest crypto exchange, is under investigation by the DoJ, the IRS, and the CFTC, according to Bloomberg. Binance is unregulated, registered in the Caymans, and likes moving around a lot.

“Wherever I sit is going to be the Binance office. Wherever I need somebody, is going to be the Binance office,” CZ, the company’s founder, told a podcaster last year.

The investigations come right after a report by Chainalysis that traced $2.8 billion worth of illicit bitcoin on exchange and trading platforms. Of that, $756 million went through Binance.

They also follow Germany’s financial regulator BaFin warning that Binance may have violated securities rules when it issued tokenized shares of Tesla, MicroStrategy, and Coinbase Global.

IRS agents are concerned traders are evading taxes. The CFTC is looking into whether Binance allowed US citizens to illegally trade derivatives on the platform. And the DoJ has reportedly assigned the investigation to its bank integrity unit, which handles particularly complex cases. (Arstechnica)

If you are a US citizen, and you want to trade on Binance, all you need is a VPN to disguise your whereabouts. And once you rack up a substantial winning, you can move your earnings to Coinbase for cashing out. (That’s one of the reasons this story upset so many bitcoiners earlier this year.)

Gensler: crypto exchanges need more regulation

During a public hearing on May 6, newly appointed SEC Chair Gary Gensler said he wants Congress to write new regulations for crypto exchanges to better protect investors.

“Right now these exchanges do not have a regulatory framework at the SEC or at our sister agency, the Commodity Futures Trading Commission,” he said. “Right now there’s not a market regulator around these crypto exchanges and thus there’s really no protection around fraud or manipulation.” (Coindesk)

Bitfinex shareholder formally charged

Zhao Dong has reportedly pled guilty to the Chinese equivalent of money laundering. He is looking at three years behind bars.

In addition to being a Tether/Bitfinex shareholder, Zhao is the ousted founder of RenrenBit, a popular OTC desk in China. (People in China rely on OTC desks as a way to buy and sell tether and bitcoin with yuan, after the country banned centralized cryptocurrency exchanges in 2017.)

Zhao was the guy pushing the LEO token in 2019. He also helped create Tether’s yuan-pegged stablecoin in 2019.

Last year, RenrenBit denied reports that its leader had been arrested and detained.

China has been cracking down on illegal gambling in the country, which is where Zhao ran aground. He was connected to a company called Tian Tian—a platform for exchanging crypto into fiat currency. He also ran an app called “Everyday Up,” which settled crypto for overseas gambling sites. 

It was through Tian Tian and Everyday Up that Zhao allegedly washed 3.1 billion RMB ($480 million) for online casinos. (Protos)

Elon Karen Musk, your new manager

Elon Musk hinted on Twitter Sunday night in a reply to @CryptoWhale that Tesla had either dumped or was about to dump its bitcoin. His off-cuff remarks sent BTC sliding 9% to under $43,000, before recovering to ~$45,000. 

Prices stabilized later in the evening when Musk clarified: “Tesla has not sold any bitcoin.” (That’s not entirely accurate. Tesla sold 10% of its $1.5 billion BTC holdings in Q1, shortly after buying them.)

All this came days after Musk announced that Tesla reversed its policy on accepting bitcoin for payment, citing environmental concerns. (NYT)

Naturally, bitcoiners are irate—their general response to anyone who tries to leave the cult. They’ve been lashing out at Musk, which is probably not a great idea. (FT)

He’s not the alone one they’re lashing out at. After Musk replied to his tweet, @CryptoWhale was besieged by angry bitcoiners, sending him death threats and spreading rumors that he is a scammer.

Meanwhile, Musk has shifted his alliances to dogecoin.

Dogecoin has been pumping ever since Musk started tweeting about it in December. At the beginning of the year, it started off at a penny. Now it’s around 50 cents. At one point, it was up over 70 cents. Thanks to Musk, this degenerate gambler invested his entire life savings and is now a dogecoin millionaire, on paper.

Musk’s insatiable need for attention led him to SNL, where he hosted the show on May 8. Dogecoin investors were waiting for him to pump their favorite coin. DOGE dropped 30% during the show. Later, it went back up again. (FT) 

Turns out, Musk, who refers to himself as “dogefather,” has been working with dogecoin developers since 2019, all the while tweeting about DOGE to pump up the price. He says he wants to create a cheaper, greener alternative to bitcoin. Sure you do, Elon. (Decrypt)

Jackson Palmer, who created dogecoin in 2013 along with Billy Markus, but left in 2015, returned to Twitter briefly to call Musk a “self-absorbed grifter,” before he deleted his tweet and vanished again.

Other dogecoin news

Rumor has it Ryan Kennedy, the convicted rapist who ruined dogecoin in 2014 and drove the founders out, is out of jail on parole and apparently getting back into crypto. Watch out for this guy. David Gerard wrote about him here.

@idleoctoput did some sleuthing on the mysterious “DH5” dogecoin address, which hold 30% of all DOGE. He also thinks it’s controlled by Robinhood Crypto—not Elon, as some folks were thinking. This backs up Redditor AndreiFromAlbera’s findings as well. (Twitter thread)

Colonial Pipeline hit by ransomware attack

Russia-based cybercrime group DarkSide attacked the Colonial Pipeline, leading to a six-day shutdown that ended May 12. Colonial, which supplies fuel to the East Coast of the US, paid the hackers 75 bitcoin, worth $5 million.

Blockchain analytics firm Elliptic tracked down the DarkSide wallet and says the funds arrived on May 8. The same wallet has received $17 million in BTC since March, so they’ve clearly been running a profitable business. (Elliptic)

A day after President Biden said the US would go after the group, unknown actors took control of the ransomware gang’s servers and ransom payment funds, which the DarkSide gang was supposed to divvy up between itself and affiliates. DarkSide also said they were releasing decryption tools for all of the companies that have been ransomed but which haven’t yet paid. (Brian Krebs)

Bitcoin is the lifeblood of ransomware, and this is the sort of event to spur regulators into taking action against crypto exchanges, especially those that enable hackers to cash out of their crypto. The US government knows it can’t have hackers going after critical infrastructure. 

Stephen Deihl wrote a post about the oncoming ransomware storm—what will happen if regulators don’t take strong action. “Cryptocurrency exchanges are the channel by which all the illicit funds in this epidemic flow. And it is the one channel that the US government has complete power to rein in and regulate. The free flow of money from US banks to cryptocurrency exchanges is the root cause of this pandemic and needs to halt.” (Stephen Diehl)

Other newsworthy stuff

Between January and April, $156 million was stolen from DeFi-related hacks—more than was stolen from DeFi protocols in all of 2020. And that doesn’t include an additional $83.4 million stolen via “DeFi-related fraud,” mainly the infamous “rug pull,” which involves token holders making off with investors’ money. (Decrypt)

Brian Armstrong, the CEO of Coinbase, went to Washington, D.C., to lobby. He posted a lengthy Twitter thread on the entire event along with “fun photos.” He says he hopes to get more “regulatory clarity” for crypto in the US. After the Colonial Pipeline ransomware incident, I’m sure we’ll be seeing plenty more “regulatory clarity” (Decrypt)

In addition to his ransomware post, Stephen Deihl also wrote up a thread explaining the Tether scandal. “Every Tether is backed by a giant pile of IOUs to strangers. And that’s worth exactly what you think it is.” (Twitter)

Caitlin Long is warning of a doomsday for bitcoin heralded by fraudulent Tethers. She claims she has long suspected it is coming. Then why bring it up now? The laws she spearheaded for Wyoming helped Tether exchanges like Kraken. If the doomsday is on its way, it is using the roads that Long built. (Her lengthy tweet thread)

The DoJ have a wallet holding 69,000 BTC, originating from the Silk Road. Nicolas Weaver suggests they dump it on the market at 1% per day, mess up the price of bitcoin, and reveal the Ponzi scheme for what it is. (Tweet)

Christie’s sold a lot of nine CryptoPunk NFTs for $17 million—we still don’t know who the buyer is, and whether they paid in crypto, which I’m sure they did. (I wrote to Christie’s but no response.) (Coindesk)

I visited the CryptoPunks Discord group recently and asked them why there were more male CryptoPunks than female CryptoPunks, only to get attacked. No misogyny in that group.

Me, in the news

I wrote a story about CryptPunks for Artnet titled “12 Questions the Art Market Should Have About CryptoPunks, the NFT Avatars Set to Sell for Millions at Christie’s, Answered by an Actual Expert.” (Artnet, paywalled)

“Dead Man’s Switch,” a documentary on QuadrigaCX, will soon be available to watch for free in Canada. (CBC)

“Exit Scam,” is an 8-part podcast series on QuadrigaCX by Aaron Lammer and Lane Brown. Episode 1 is now available.

“Death in Cryptoland” is a CBC podcast on QuadrigaCX debuting on March 25. (CBC press release)

Update: Ryan Kennedy is a convicted rapist—not a convicted scammer. I updated this post to make the correction. Also, the DOJ control a wallet with 69,000 BTC, not 69 BTC, as I wrote earlier. (Had to add some more zeros.)

If you enjoy my work, please support my writing by becoming a patron.

Posted on by Amy Castor 2

News: Tether prints $1B at a time, Tesla buys bitcoin, Roubini calls Saylor a cokehead, scammers hijack QuadrigaCX website

We are midway through February. Tether has surpassed $32 billion in tethers and appears to be quite proud of the fact. BTC is scratching $49,000 and ETH is over $1,800. There is so much craziness now in the crypto markets with shitcoins pumping galore, and big companies getting in on the bitcoin Ponzi.

In the meantime, I am concerned crypto is going retail again. Friends are calling and asking about bitcoin. One of my friend’s offspring was talking up dogecoin on Facebook. And I am overhearing conversations about crypto in grocery stores and parking lots—flashbacks of 2017, but this is worse. Retailers are going to get hurt all over again.

Another reminder, I have a Patreon account. If you want to support my writing, please consider subscribing. I’m currently making $572 a month on Patreon, which is fantastic because I can now buy decent bottles of wine. But at some point, I would love to bring that up closer to $2,000 or find a way to make a living doing this.

Tether: We’re done with the baby prints

On Thursday and again on Saturday, Tether issued $1 billion in tethers. These are the biggest single prints of USDT ever—and there were two in a row. Previously, the biggest prints were $600 million, which was rare. Normally, bigger prints were $400 million, and if Tether needed more, it would simply issue several in a row. But that’s clearly not enough to feed the monster now. 

By monster, I mean this snowball is getting so big, Tether is struggling to manage it. Seventy percent of bitcoin is traded against tethers, and as real money keeps getting siphoned out of the system, Tether needs to create more and more fake dollars to fill the ever-widening chasm. Tethers are counterfeit. They are not real dollars, but they are treated as such on offshore exchanges.

You can’t have a system built entirely on fake money. Eventually, it will collapse under its own weight. We saw this with QuadrigaCX. As soon as enough people tried to cash out, the exchange’s founder Gerald Cotten flew to India and pulled off what appears to have been one of the most bizarre exit scams in history—unless you believe he is really dead.* I’m still getting calls from reporters and filmmakers wondering what the hell happened.

Tether CTO Paolo Ardoino says the $1 billion prints were for replenishments and chain swaps—wherein a customer sends in tethers and gets them reissued on a different blockchain. If it were a chain swap, you would see a corresponding burn. But we aren’t seeing any burns, meaning those tokens went almost immediately into circulation.

Luca Land tracked the first 1 billion print and found that the entire amount—previously, I said “majority,” but Luca says all of it—went to Bitfinex, Huobi, RenrenBit, Binance, and FTX.** The largest recipient was FTX, followed by Binance. Those of us who follow @whale_alert are accustom to seeing tethers flying off to “unknown wallets.” Luca thinks those unknown wallets serve as intermediate wallets to throw us off the trail.

The Block published a story on Thursday, right after Tether’s first monster print, with lots of quotes from Ardoino, who explains that big companies are buying USDT from over-the-counter desks and high-frequency trading firms. This explains the demand for all these tethers, he claims.

“When clients of these firms want to buy bitcoin, they send USD, and then these firms convert USD to USDT to bitcoin. This method is faster and most convenient,” he told The Block. 

Why would someone go to the trouble of converting cash to USDT to buy BTC when they could simply buy BTC directly with cash on a regulated exchange? That makes no sense—unless it involves money laundering and capital flight. Tether does have a big market in Asia, Ardoino said.

Another explanation is that Tether is printing USDT out of thin air, using those to buy bitcoin with alias accounts on unregulated exchanges and cashing out via banked exchanges and OTC trading desks. Or else, they buy BTC and hold onto it as a way to make the markets more illiquid and easier to manipulate. (If they sold all the bitcoin they were buying with tethers, they would crash the markets, so until a new influx of cash comes into the system, they have to hold onto it.)

Coindesk interviewed Nouriel Roubini on CoindeskTV. Of course, he gave it to them straight, calling Tether a criminal enterprise and Michael Saylor a cokehead. The three reporters broke out into giggles. The questions they asked were naive, for instance, how is Tether printing tethers different from what is going on in Washington with all their dollar printing? Roubini made important points and predicts Tether will be dead within the year—read the transcript on my blog.

NY AG Tether investigation update

Tether has agreed to hand over a slew of documents to the NY attorney general showing how they issue tethers, what’s behind tethers, and so on. The original deadline was Jan. 15, but they needed another 30 days and the NY AG was okay with that. We are looking for another court filing to drop at some point after Feb. 15.

Don’t expect miracles anytime soon, though. The NY AG will still need time to take a position on what she has received. I’m sure her office is working with the Department of Justice in their investigation—and passing all the material along to them.

Someone was asking me on Reddit, what can the NY AG actually do to Tether? Answer: She has sweeping investigatory and prosecutorial powers, and she can issue a cease and desist. But ultimately, the U.S. Department of Justice and Homeland Security will be instrumental in taking Bitfinex/Tether down.

To put things in perspective, Tether has been in operation for six years. It took seven years and the coordinated effort of law enforcement in 17 countries to bring down Liberty Reserve. (ABC News)

Tesla buys BTC with clean car credits

The big news of the week was Tesla purchased $1.5 billion of bitcoin, as revealed in its 10-K filing. Here you have a company dedicated to clean energy buying one of the filthiest assets in the world. The bitcoin network requires the energy of a small country like Argentina, Norway or the Netherlands. Musk doesn’t give a hoot about the planet. (My blog)

Just to be clear, $1.5 billion is peanuts. It will support the bitcoin miners for about a month. Of course, on the news of Tesla buying bitcoin, the price of BTC shot up from 39,400 to 48,000 in less than 24 hours. The higher the price of BTC, the faster real money exits the system when the miners sell their 900 newly minted BTC per day.

Michael Burry, the investor from “The Big Short,” said in a series of deleted tweets (apparently, he routinely deletes tweets) that Musk bought BTC to distract from Chinese regulators looking into quality complaints with Tesla vehicles. Burry is shorting Tesla and has called on the electric-vehicle company to issue more stock at its ridiculous price. (Business Insider)

But wait! It’s green energy!

Most of the world doesn’t realize that bitcoin uses a country’s worth of electricity. They think it’s mainly used for ransomware and by criminals to buy drugs and such, so when they learn about bitcoin’s horrendous CO2 production, they become alarmed.

As a result, bitcoiners are desperately scrambling to declare that bitcoin consumes renewable green energy. Most of what they are spouting is blithering nonsense with no facts to support their claims. They are also trying to say that bitcoin consumes less energy than the rest of the financial system, which is simply dumb, as Frances Coppola points out.

Other interesting newsy bits

Gerald Cotten may be dead and buried—or more likely, sipping cocktails on a beach somewhere—but QuadrigaCX sprung to life again! However, it turns out scammers set up an imitation Quadriga website to lure in potential victims. EY, the trustee for the failed exchange, sent out a warning notice. The website has since been taken down. (EasyDNS)

India is set to ban cryptocurrency investments completely. Investors will be given a transition period of three-to-six months after the new law goes into force to liquidate their investments. (Bloomberg Quint)

Crypto Capital money mule Reginald Fowler has three more weeks to find new counsel after he stiffed his previous attorneys. (My blog)

Dogecoin has been pumping thanks to r/wallstreetbets and Musk and others tweeting about it for the lulz. David Gerard wrote a wonderful piece on dogecoin explaining its unique history. (Foreign Policy, paywalled)

Apparently, Elon Musk was tweeting about DOGE for the lulz back in April 2019. (Financial Times)

Dogecoin creator Billy Markus said on Reddit that he sold all his dogecoin in 2015 after he got laid off. He wanted dogecoin to be a force of good, and he is disappointed to see the nonsense “pump and dumping, rampant greed, scamming, bad faith actors.”

The Sydney Morning Herald did a feature on Australian-born-and-raised Greg Dwyer, one of the founders of Bitmex, who was indicted last year for violating anti-money laundering laws, but is still at large. “As recently as July, social media posts suggested Dwyer was in Bermuda, and enjoying all it had to offer.”

Miami Mayor Francis Suarez (R) wants municipal workers to get paid in bitcoin. Aside from the legal and tax ramifications and all the difficulties in setting this up, I’m sure employees will be so happy to wake up and find their paycheck lost 30% of its value whilst they were sleeping. No, this is a terrible idea. (The NY Post)

BNY Mellon, the world’s largest custody bank, said it will hold, transfer and issue bitcoin and other crypto on behalf of its asset-management clients. The bank will begin offering these services later this year. Because they are a state-chartered bank, they can do this in NY without a BitLicense. (WSJ, Coindesk)

Mastercard is planning to support crypto natively on its network. However, it’s only going to support cryptocurrencies that meet certain requirements—including stability, privacy and compliance with anti-money laundering laws. The problem is that no cryptocurrencies meet Mastercard’s criteria. (Arstechnica, Mastercard announcement)

BitPay’s bitcoin cards can be added to Apple Wallet, giving crypto holders a new way to spend via Apple Pay. BitPay converts your bitcoin to cash, so it’s no different than selling your BTC first, and merchants won’t know the difference. (Business Insider)

This Valentines Day, consider giving that special someone a CryptoFlower! It will only set you back 4 ETH ($7,200). Each flower is genetically unique and immutable. And they don’t need water or sunlight because they live on the Ethereum blockchain. (FT)

Last but not least, the CBC QuadrigaCX documentary is coming soon! It was nearly a year ago that David Gerard and I met in Vancouver for the filming. It was also one of the last times I enjoyed a meal inside a restaurant sitting next to people.

*Update, Feb. 14—Someone on Reddit was giving me a hard time, arguing that I can’t say Cotten pulled off an exit scam unless I explain that he might actually be dead. I won’t believe he is dead until someone exhumes the body and proves it’s him. See my Quadriga timeline for details.

**Update, Feb. 15—The unidentified tether customer in Luca Land’s diagram turns out to be FTX.

Posted on by Amy Castor 3

Tesla spent $1.5B in clean car credits on bitcoin, the filthiest asset imaginable

Tesla bought $1.5 billion worth of bitcoin, the company said in a regulatory filing on Monday, effectively putting nearly all of the money it earned on clean car credits towards the world’s filthiest asset.

Where to begin? Let’s start with the firm’s SEC filing. As of January 2021, the Silicon Valley-based company updated its investment policy to allow it more flexibility in diversifying its returns on cash. Those changes allow Tesla to buy bitcoin and other cryptocurrencies, which it immediately did.

“Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.”

The filing does not say how Tesla bought the bitcoin or how they are custodying it. It also does not tell us how many bitcoin it purchased or for what average price. We only know Tesla bought bitcoin sometime between Jan. 1 and early February, when the price was between $30,000 to $41,000. 

Tesla says its customers will be able to buy its vehicles with bitcoin. However, “liquidate upon receipt” means that if you purchase a Tesla with bitcoins, the company is likely to sell those bitcoins for cash immediately, something that is usually done by sending the funds through a payment processor first.

This is what most large merchants do when they say they are accepting bitcoin. They convert it to cash, so they don’t have to deal with bitcoin’s wild volatility. So if you buy a Tesla with bitcoin in the future, it will likely be the same as selling your bitcoin for fiat and then handing the cash over to Tesla.

Clean car credits for bitcoin

Tesla earns tradable credits under various regulations related to zero-emission vehicles, greenhouse gas, fuel economy, renewable energy, and clean fuel. It then turns around and sells those credits to other automakers when they can’t comply with auto emissions and fuel economy standards.

In 2020, Tesla reported making $1.58 billion in selling these tradable credits it received. And here is the important bit: without those tradeable credits, the company would not have been profitable. Tesla would have lost money. So what does it do with that money? It turns around and buys bitcoin.

Bitcoin is an environmental disaster. The bitcoin network currently burns around 116.87 terawatt-hours (TWh) per year, according to the University of Cambridge’s Centre for Alternative Finance. To give you an idea of how devastating that is to our climate, that is as much energy as a small country or seven nuclear power plants.

Keep in mind, bitcoin’s energy consumption increases right alongside the price of bitcoin. As bitcoin goes up in price, more people want to mine the virtual currency for profit, leading to greater energy consumption as they pile more money into power-hungry ASIC rigs.

Bitcoin is not only filthy for its energy waste but also because it is the currency of choice in underground economies. Ransomware would probably not exist if it were not for bitcoin.

And bitcoin fits the very definition of a Ponzi scheme. It has no intrinsic value—any money new investors put into the system immediately goes out via bitcoin miners selling their 900 newly minted bitcoin per day. Tesla’s massive influx of cash will fund the bitcoin miners for about a month and a half, at most.

Elon Musk shilling crypto

Two years ago, Musk and Tesla paid a combined $40 million penalty to the SEC after Musk’s cryptic tweets about taking Tesla private led to stock fluctuations. The regulator charged him with securities fraud. As part of the settlement, Musk agreed to step down as chairman of the company, although he continued to hold the title of CEO.

Apparently, Musk has learned nothing from that experience. Last month, presumably around the time Tesla was buying up hoards of bitcoin unbeknownst to the general public, Musk caused the price of bitcoin to go up 20% when he changed his Twitter bio to include the word “bitcoin.”

Soon after changing the bio, Musk said in a tweet: “In retrospect, it was inevitable.” In retrospect, that tweet looks like an early hint that Tesla was funneling money into the digital asset.

Will Musk get into trouble for his bitcoin tweets?

It is unlikely, Columbia University Law Professor John Coffee, Jr., told the Wall Street Journal, especially given that a federal judge rebuked the SEC when it sought to hold Musk in contempt in 2019. “I don’t think the commission would dare push it that far,” he said.

The latest Tesla news caused bitcoin to spike 18% this morning, sending the price to over $44,000, and setting a new all-time high.

Updates Feb. 8: Bitcoin topped $44,000 on Monday, even higher than the $43,000 I mentioned earlier. I added that in the SEC settlement Musk agreed to step down as chairman of Tesla. And I added the Coffee quote from WSJ.

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

Posted on by Amy Castor 0

News: Bitfinex pays off Tether loan, Tether mints $1.8B in a week, Nigerian central bank cuts off BTC services, Elon Musk tweets send DOGE soaring

It’s Feb. 7, a year since the pandemic entered the US, and bored people with lots of stimulus money are gambling it all on crypto casinos and stocks. And to get things extra frothy, Tether spit out more than $1.8 billion in tethers last week—enough to push its market cap over $28 billion.

Amazing how things have evolved. It was big news in December 2017 when Tether reached its first $1 billion in tethers. Now the BVI-registered company is issuing that kind of money every few days. Why? Because they can. So far, nobody has stopped them. Also, because they have to. If they were to stop now, the price of bitcoin would collapse, exposing Tether for what it is—a massive fraud, the likes of which nobody has seen since Madoff. 

The price of bitcoin is now over $40,000, up from $32,800 a week ago. So if you bought bitcoin last week, you made money without ever having to get up off the living room couch. Just remember that you have to actually cash out via a banked exchange like Coinbase to realize those gains.

Bitfinex says it’s paid off Tether ‘loan’

Bitfinex announced on Friday that it’s paid off the remaining $550 million balance of its loan to sister company Tether in one fell swoop—in fiat currency and with interest.

Where did the money come from? Bitfinex won’t tell us. (The announcement was only three sentences long.) They just want us to believe—based on their word alone—that the entire matter is behind them. So I guess the New York attorney general can drop its probe?

That loan was at the center of the NY AG’s investigation into Bitfinex. After losing access to $850 million via its payment processor Crypto Capital, Bitfinex gave itself access to $900 million of Tether’s reserves—without telling its customers. And that’s after years of Tether saying that tethers were backed 1:1 with real dollars.

Nobody knows for sure how much of Tether’s money Bitfinex helped itself to. Bitfinex indicated—here and here—that it had previously paid off $200 million, leaving us to assume that the total loan amount was $750 million. But Bitfinex isn’t being upfront about how much it borrowed. And thus far, we have no audits, loan documents, or other evidence to prove the repayment was anything more than a story-book fantasy.

The fact of the matter is that Bitfinex was insolvent in 2018. Rather than crash and burn, it helped itself to Tether’s customer’s money to cover up for its massive losses. Are we to believe now that those losses magically disappeared? Just as we are to believe that tethers are now fully backed?

Let’s face it, Bitfinex probably started going down the tubes as early as August 2016 after it was hacked to the tune of $72 million worth of BTC and then lost its banking. The company’s operators have been playing a game of cat and mouse ever since. (See my Tether timeline for more details on past shenanigans.)

Mainstream media gets wise to Tether

Tether is getting more coverage in mainstream media. In his WSJ story, “What’s behind the bitcoin bubble,” columnist Andy Kessler covers all the Tether basics, including the NY AG probe and even the “Bit Short” article by Crypto Anonymous. (That story really is getting around, isn’t it?)

Word is getting out. Reporters are asking questions about Tether, and they are starting to document the funny business. Probably as a way to get up to speed on the topic before the shit really hits the fan—a day we all know is coming, wherein Tether gets exposed for what it really is.

In contrast, crypto media is trying desperately to fight the “Tether FUD.” Earlier, we had a reporter from The Block going on a podcast to try and convince us those billions of tethers are all backed with real cash. And I’m seeing nonsensical stories like this one in Bitcoin Magazine on “debunking the Bit Short.” Here’s one in another crypto rag about how the loan repayment will put an end to Tether FUD.

Bitcoiners and many crypto outlets—that are directly funded by the crypto industry—believe that Tether needs to be protected at all costs. How do you defend a company that won’t tell you what tethers are backed by? That refuses to submit to an audit? That is being investigated for fraud by one of the most powerful attorneys in the nation? You can’t, but they do.

I should mention that Jeremy Allaire has also come forward as a Tether apologist. Allaire is the CEO of Circle, which is part of the Centre Consortium, a collaboration with Coinbase that manages the USDC stablecoin.

USDC is growing rapidly. There are now $6.5 billion worth of USDC in circulation. The regulated stablecoin gets monthly attestations—but no full audit. Grant Thornton’s attestations say reserves are in cash and “other approved investments.” We don’t know what those investments are or who approved them. And it’s December attestation is over two weeks late, compared to earlier months. I’m sure it’s nothing to worry about though.

Nigerian banks cut off crypto services

The Central Bank of Nigeria (CBN) ordered banks on Friday to close the accounts of anyone involved in crypto services and to stop facilitating payments for crypto exchanges.

Bitcoin’s popularity in Nigeria was driven largely by a Russian Ponzi scheme called MMM. This connection, along with a few fraud causes, made African governments and regulators leery of crypto. The CBN warned banks in January 2017 that bitcoin and other cryptos were used primarily for money laundering and funding of terrorist activities. And then in February 2018, CBN warned Nigerian citizens they would not be able to get legal help if the crypto markets collapsed.

The CBN’s recent move impacts fiat on- and off-ramps, but peer-to-peer platforms like OTC desks remain unaffected. As a result, Binance temporarily suspended deposits in Nigeria naira. (Binance letter, Coindesk)

Musk tweets about DOGE, number go up

Dogecoin—a coin that was designed as a joke—made the WSJ after billionaire Tesla chief Elon Musk kept tweeting about it, causing the price to go parabolic.

Musk is doing this for the lulz. Watching people scramble to buy an asset after he tweets about it is his idea of amusement. Imagine, if you will, a rich guy throwing dollar bills onto the street and watching poor, wretched fools dive for it. This is Musk’s sense of humor.

The SEC has warned him that he can’t tweet things about Tesla for the lulz, so he is now applying the same douchebaggery to something he isn’t interested in simply because he can.

Kiss frontman Gene Simmons (the guy with the tongue) also announced he was stocking up on DOGE because he thinks it will increase in value. Why not? If Musk keeps tweeting about it, certainly number will go up.

Other newsworthy stuff

Trolly wrote a blog post about how the “Bitcoin economy” is just an illegal casino run by the mob. Leverage is the lifeblood of crypto, he says. And regulated exchanges like Coinbase are feeding the monster.

David Gerard wrote a blog post spelling out how Tether works for those who are still getting up to speed.

Yearn DeFi was exploited in the usual manner—smart contracts and not-so-smart people. A hacker made off with $2.8 million after draining $11 million from one of Yearn’s deposit pools. For the uninitiated, Yearn.Finance is a “yield aggregator” where users deposit funds in pools, which are then deployed to other DeFi protocols to generate yields for those depositors. DeFi—or decentralized finance—is based on smart contracts—bits of “unstoppable” code that run on a blockchain. (Cointelegraph)

German prosecutors have confiscated more than $60 million worth of bitcoin from a fraudster. But they can’t access the funds because Mr. Fraudster won’t give them the keys. How do you confiscate bitcoin if you have no access to it? (Reuters)

Miller Value Funds, run by veteran hedge fund manager Bill Miller, may invest up to $337 million in GBTC through its flagship fund, the Miller Opportunity Trust. GBTC’s premium to NAV is currently 6.5% — not the great arb opportunity it once was, so I’m wondering how much they will actually invest. (Decrypt)

Antonije Stojilkovic, a Serbian man, along with his coconspirators allegedly defrauded crypto investors out of more than $70 million. He has been extradited to the US. (DoJ press release)

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News: Tether surpasses $26B, Elon Musk pumps BTC, Gregory Pepin’s magic trick

It’s been three years since the last bitcoin bubble. And as I write this newsletter, I can’t help but feel this is getting so tiring. Where are the regulators? Why did they not step in long ago to put an end to so much nonsense in the crypto space? Things just seem to keep getting crazier.

Tether has now surpassed 26 billion tethers—after minting 1.3 billion last week alone. How does an outfit get away with creating $1.3 billion worth of a stablecoin without being subjected to an audit? Without a cease and desist? It’s been more than two years since the NY attorney general started investigating them.

Bitcoin slipped below $30,000 on Wednesday, but then climbed to $37,800 on Friday after Elon Musk added #bitcoin to his Twitter bio, apparently just for the lulz. The move sparked $387 million worth of short liquidations on Binance, Bitfinex, BitMEX, ByBit, Deribit, FTX, HuobiDM and OKEx.

Today Bitcoin is back down to $32,800.

In general, it’s been a week of madness in the markets. Reddit group WallStreetBets has been pushing up lousy stocks like GME and AMC to squeeze the shorts and wreak havoc on certain hedge funds. And to take the joke even further, they even pushed up the price of dogecoin 800% in a 24-hour period. Unsurprisingly, the DOGE pump was fueled mainly by tethers.

Still sore about that Bit Short story?

Are tethers backed? Nobody will give you a straight answer and certainly not Stuart Hoegner, Tether’s general counsel, who spends all day retweeting tweets and trying to convince folks that tethers are worth real money.

He is apparently still upset about the anonymous “Bit Short” article, which I mentioned in my previous newsletter. He keeps saying it’s all FUD, and now claims it’s not only hurting Tether, but all of bitcoin. Of course, the reason the story is gaining popularity is because it is largely true.

“But beyond its false claims about @Tether_to, this post really amounts to an attack on the entire cryptocurrency ecosystem. Bitcoin has a market cap of above US$600B, and the growing number of major institutions investing in bitcoin is a tribute,” he said in a Twitter thread.

Hoegner keeps complaining. (Also, we already know market cap is nonsense when it comes to bitcoin and the reason institutions have been jumping in is mainly because they see an attractive arb opportunity via GBTC.) But the one thing Tether won’t do is come clean and audit its reserves, which would put the whole matter to bed once and for all. Do those reserves consist of cash that Tether got from real clients? Or is Tether simply buying bitcoin with tethers and selling them for USD on OTC desks and banked exchanges?

Instead of giving out real answers, Stuart and Paolo and their friends at Deltec keep trying to obfuscate, distort, and push the blame on “disbelievers” and “salty nocoiners.”

Gregory Pepin’s disappearing act

Tether is a perpetual PR disaster machine. After delivering a disastrous interview with Laura Shin, where he tries to convince listeners Tether is legitimate, but comes off sounding like a used car salesperson, Gregory Pepin, the deputy chief executive officer at Deltec (where Tether does its off-shore banking), suddenly disappeared from Deltec’s website. But after Twitter noticed and started making jokes, he suddenly reappeared again.

Clearly, Deltec was monitoring Twitter and thought, well, maybe removing Pepin from the website wasn’t such a good idea after all? So they put him back. But his brief disappearance brought up questions: Were Pepin’s colleagues upset with him? Did he even consult with his colleagues before he went on the podcast? Surely they would have worked out a plan for what he would say and all come to an agreement on it. Did he forget to follow the plan? 

For the last time, Tether is NOT regulated

Tether keeps telling everyone that it’s regulated. Well, it’s not. No government agency is overseeing Tether and making sure they behave properly, which is why Tether and its sister company Bitfinex have been for years doing whatever they want. They make up the rules of the game as they go along, and put forth whatever nonsense narrative they feel like, simply because they can.

JP Kroning wrote a piece in Coindesk, where he points out that Tether is not regulated. Tether has made numerous claims that it is regulated because it is registered with FinCEN. But “registered” and “regulated” are two different things. “Tether isn’t regulated by FinCEN,” Kroning writes. A registration is not a seal of regulatory approval, and it shouldn’t be advertised as such. “Yet, this is what Deltec and Tether executives seem to be doing on Twitter and in podcasts.”

Ripple responds to SEC; the XRP pump

As I wrote in a recent post, Ripple responded to SEC charges that XRP is a security. They are using the same lame defense that Kik used to try and convince the SEC that kin wasn’t a security. It’s a strategy that is likely to fail miserably, and Ripple will most likely end up settling. It’s just a matter of when.

In the meantime, a group on Telegram called Buy and Hold XRP pumped the price of XRP to its highest number since December. The group’s membership hit Telegram’s 200,000 limit within hours, forcing everyone to head over to a new channel with a similar title. The granddaddy pump is scheduled to start on Feb. 1 at 8:30 EST. (Update: The organized pump turned out to be a miserable failure.)

Is XRP a security? All cryptocurrencies are investment contracts because they pass the Howey test. You can’t buy anything with XRP, BTC, ETH, or any of them. There is virtually no merchant adoption for crypto. For most people, a cryptocurrency is an investment of money in a common enterprise with an expectation of profit to be derived from the efforts of others. But the SEC has accepted the claim of bitcoin fanatics and cultists that Bitcoin is not a security, therefore, putting BTC outside of its jurisdiction.  

Coinbase going public via direct listing

Coinbase says it plans to go public via a direct listing. The U.S. crypto exchange confidentially filed its registration with the SEC in December. Now we know for sure they are not going the traditional IPO route.

In an IPO, a block of new shares are created and sold to institutional investors at a set price. The advantage of an IPO is it gives companies a way to both go public and bring in fresh capital at the same time. If a company doesn’t need fast cash, it can go with a direct listing, in which only existing shares are sold.

Direct listings have become popular of late because it gives companies a way to go public without the bank’s help. Palantir, Asana, Slack, and Spotify all went public without a traditional IPO. (Coinbase blog, Techcrunch)

The big question: What will Coinbase stock be worth once Tether is shut down and the price of BTC collapses?

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Posted on by Amy Castor 0