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.

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)

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)

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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Signal adopts MobileCoin, a crypto project linked to its own creator Moxie Marlinspike

Many technologists today were disappointed to learn that Signal, an encrypted messaging service, is adopting MobileCoin (MOB), a new cryptocurrency that went live in December, for payments. 

Signal is hugely popular in the tech world. I use it, and many of the people I correspond with use it as a safe and secure way of communicating. And many prefer it over WhatsApp and Telegram.

Now, the non-profit wants to take the next step into becoming a payments service—so you can send money, and nobody will know who you are sending it to, or why. Here’s the blog post announcing the beta build.

Andy Greenberg wrote up a story in Wired covering the main points of the announcement yesterday. The idea is to have a cryptocurrency designed to work efficiently on mobile devices while protecting users’ privacy—and anonymity. For now, Signal’s payment feature will be available only to users in the UK, and only on iOS and Android—not the desktop. 

What is worth underscoring is that Moxie Marlinspike, the creator of Signal and CEO of the nonprofit that runs it, was a paid advisor to MobileCoin. In fact, he was the original CTO of the company, according to an early MobileCoin white paper.

Insider trading?

The price of MOB surged from $7 to $68 in the last week, according to Coinmarketcap—possibly because word of the announcement had leaked—before taking a dump overnight, dropping to $39. (MOB trades mainly on FTX, an Antigua and Barbuda-based cryptocurrency exchange.)

The price movements look a little like insider trading—just a little.

Interestingly, Signal kept their server code closed-source for a year to hide the integration. It only just recently re-open-sourced it, so who could have possibly known this big announcement was forthcoming?

Marlinspike told Wired he does not hold any MOB, which is hard to believe, given he was involved with the coin’s early development. (It is common practice in crypto for advisers and developers to get paid with the crypto of the projects they are involved in.) But who knows? Maybe he can’t hold any coins right now for regulatory reasons.

Most technologists, except for a vocal few, don’t like cryptocurrency, and for good reason. The space is rife with fraud and scams. So you can start to understand why they are unhappy.

“Signal users are overwhelmingly tech savvy consumers and we’re not idiots, Stephen Diehl, a UK-based software engineer, wrote in a blog post. “Do they think we don’t see through the thinly veiled pump and dump scheme that’s proposed? It’s an old scam with a new face.”

“Signal isn’t integrating just any random shitcoin, it is integrating Moxie Marlinspike’s random shitcoin. Gee, what a coinkidink. I wonder how much he’s unloaded on suckers already as a result of this pump & dump?,” said Nicholas Weaver, a researcher at the International Computer Science Institute in Berkeley.

Funding

One item the Wired article failed to mention: In April 2018, MobileCoin took $30 million in BTC and ETH from Binance Labs, the blockchain incubator of Binance—another popular offshore crypto exchange.

(Both FTX and Binance are huge Tether customers, by the way.)

The money is flowing in from elsewhere, too.

Last month, the project got an additional $11.35 million from venture capitalists Future Ventures and General Catalyst.

MobileCoin is a pre-mined coin. It has a total fixed supply of 250 million MOB. The project sold 35.7 million coins to private investors for $0.80 per coin in order to raise $30 million, according to its 2017 white paper. 

So who is holding the rest of the coins?

Joshua Goldbard, the project’s founder, recently said on Hacker News that half the coins have now been sold, leaving MobileCoin in control of at least half the supply.

“MobileCoin has made over 50% of the coins available for purchase. We are currently figuring out how to give away coins while remaining regulatory compliant,” he said.

A centralized payment system

If Signal is trying to create a private payments system, is MobileCoin even the best choice? There are serious questions about how secure and decentralized it is. 

Mobile is based on the Stellar code, originally derived from Ripple. Stellar is centralized, and has some major security issues. The platform is unproven, even if it’s still resilient.

MobileCoin took the Stellar codebase and added some stuff, including using Intel SGX—a chip that acts as a digital vault for securing users’ sensitive information. That means that users have to put 100% of their trust in Intel chips rather than software-based cryptography.

Also, MobileCoin is running on centralized powerhouse Azure, a cloud computing service created by Microsoft.

Further, if you look at MobileCoin’s “Trusted Nodes,” you’ll see that three entities are handling all of the consensus—and “MobileCoin Worldwide” is one of them. It’s hardly decentralized.

Signal’s non-profit status?

Signal Foundation was founded in April 2018 by Marlinspike and Brian Acton. It is registered as an independent 501(c)(3) nonprofit, meaning it has been approved by the IRS as a tax-exempt, charitable organization.

The firm’s non-profit status is now being called into question, after it became clear it will be getting handouts from MobileCoin.

Goldbard flat-out admitted on Hacker News: “I started MobileCoin to fund Signal. That’s it.” 

Many Signal users are concerned that this represents a conflict of interest. Here you have a non-profit (in this case Signal Foundation) directly integrating MobileCoin in their app as a quid pro quo.

MobileCoin Radio

Just to add another slice of weirdness: MobileCoin has a MobileCoin Radio because “creation” needs privacy. I have no idea how this fits in with anything Signal or MobileCoin is doing. I’m not sure MobileCoin does either.

Here is how they explain it:

“MobileCoin Radio is a place for artists to share their creations with the world, in hopes that our shared struggle with the human condition inspires a heightened exploration of our cultural landscape and of ourselves.”

In any case, Signal is probably going to lose some fans as a result of its foray into crypto. And why use MobileCoin in the first place when there are a host of battle-tested privacy coins to choose from? It makes no sense.

Security expert Bruce Schneier thinks it’s an incredibly bad idea that “muddies the morality of the product, and invites all sorts of government investigative and regulatory meddling: by the IRS, the SEC, FinCEN, and probably the FBI.” He thinks the two apps—crypto and secure communications—should remain separate. In his mind, this is going to ruin Signal for everyone.

And let’s not forget the disaster that ensued when Facebook tried to create Libra (now Diem). Regulators shot that idea down pretty quickly. Why does Signal think it will fare any better?

(Update April 7: An earlier version of this story incorrectly stated that the Wired article failed to mention that Marlinspike was a paid advisor to MobileCoin. Actually, it does mention that he is.)

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