Spending the previous three and a half months indoors, locked away from others, and sat at homebound desks have had differing effects on everyone. Some have had a period of intense productivity, some have fallen into bad habits, and some have spent an inordinate amount of time on social media. The Winklevoss twins, famous for playing a role in the founding of Facebook, are of the latter sort.
Cameron and Tyler, aged 38, are two entrepreneurs with a particular focus on cryptocurrencies. Having experimented with social media in its early days with Mark Zuckerberg at Harvard, the pair later sued the Facebook CEO in 2008, the same year they rowed for the USA in the Beijing Olympics. From here the twins went into venture capital; led a seed-funding round for BitInstant, a Bitcoin payment processor; claimed to have accumulated 1% of all Bitcoin by 2013 between them; and launched Gemini, their own cryptocurrency exchange, in 2014. Since then, as Bitcoin’s value has surged and fluctuated, the pair have become figureheads for the cryptocurrency, having been proponents of the decentralized currency from the days when it was worth less than $10, to its highest valuation in 2017 at just below $20,000, to its current price of just over $9,000.
And with quarantine providing all the time in the world to ponder the future of Bitcoin, the twins have been posting daily on Twitter about the crypto, relating it to any and all topics that proved popular. Cancel culture? There’s a tweet for that. George Orwell’s magnum opus, 1984? There’s a tweet for that. Vaccinations and their alleged comparability with cryptocurrency? There’s a tweet for that.
Beyond comparing and relating Bitcoin to everything that comes up in the news cycle, the twins brought up an idea a number of times on social media over quarantine: that the pandemic has set the stage for a decentralized world.
While it is clear that this has happened to a point already, given the global move toward working from home, Cameron believes it will go further, mentioning in a tweet that the pandemic will be “an inflection point for Bitcoin and the Metaverse.” Choosing not to expand on this lofty statement, the specifics of Cameron’s claim can’t be known for sure, but the idea behind the Metaverse, a collectivized virtual space based off the setting of a 1992 sci-fi novel which is capable of replacing the functions and opportunities granted by the real world, is one well suited to Bitcoin, or, at least the idealized vision of what Bitcoin could become.
As well as this prophesizing of a virtual utopia, the brothers displayed an intense distrust and paranoia of government, currencies that are regulated by centralized banks, and the role of big tech. With tweets criticizing the Federal Reserve’s decision to inject $1.5 trillion into the economy, YouTube’s ongoing debate over whether the First Amendment applies to a private business, and warnings against the threat of a government willing to grab more power during a pandemic, the billionaires’ tweets appeared at times to reach Elon Musk’s recent anti-government messages via Twitter.
With the twins having noted their disappointment in the US government earlier in the year at a conference in January, that time regarding the government’s slow adoption of cryptocurrencies, it is not so much of a surprise to see these further critiques, especially with them largely taking aim at the government’s employment of federally printed money, or “toilet paper,” as they call it.
All this being said, the twins appeared to be just like everyone else during quarantine: left with not much to do with a stable internet connection and a charged phone. And so conspiracies and cryptocurrencies aside, the brothers also made time for the irreverent and the relatable, posting about the possibility of a Groundhog Day-style scenario during quarantine as well as the importance of “sunsets, the stars, and true friends” in a tweet that wouldn’t be amiss in a Disney film.
Ultimately though, the sooth-saying and future-gazing done by the Winklevii in quarantine will take years, if not decades, to come about, if it ever does. One thing is certain though, the twins won’t stop talking about it until then.
Did You Own Bitcoin Before The 2018 Crash? This Bitter Group of Crypto Plaintiffs Think You May Be Entitled to $1.4 Trillion in DamagesOctober 8, 2019
A group of plaintiffs whose Bitcoins suffered the great crypto crash of 2018, have a rough idea of how much damage was caused ($1.4 trillion) and who exactly was damaged, everyone.
The alleged culprit is Tether, a little understood company that’s supposed to issue fully-backed digital US dollars to make trading in the crypto marketplace easier. Instead, as alluded to in a deBanked May/June issue magazine story, Tether may be the ultimate illicit scheme. The company is under investigation by the New York Attorney General, Department of Justice, and CFTC, but still reigns supreme when it comes to buying and selling Bitcoins.
The plaintiffs, David Leibowitz, Benjamin Leibowitz, Jason Leibowitz, Aaron Leibowitz, and Pinchas Goldshtein, outline in their 95-page lawsuit filed on Monday that Tether is part fraud, part pump-and-dump, and part-money laundering.
Tether’s digital assets were used to buy up billions of dollars worth of other cryptocurrencies, they say, inflating demand and prices.
“As the cryptocurrency market reached a fever pitch, Tether’s mass issuance of USDT (Its digital asset) created the largest bubble in human history. When it burst, over $450 billion of value disappeared in less than a month. The fallout continues to affect the cryptocurrency market, including by causing prices to be lower than they would have been but for the manipulation.”
Plaintiffs define the class as “all persons or entities that held or transacted in cryptocurrencies, including but not limited to USDT, ether, bitcoin, and bitcoin derivatives, in the United States or its territories at any time from October 6, 2014, through the present.”
Tether had apparently been expecting such a lawsuit. Over the weekend it published a statement on its website saying:
“We want to make clear our position that any claims based on these insinuations are meritless, reckless and a shameless attempt at a money grab. Accordingly, Tether will vigorously defend itself in any such action.
These baseless accusations are an attempt to undermine the growth and success of the entire digital token community, of which Tether is a key part. It is an attack on the work and dedication of not just Tether’s stakeholders, but thousands of our colleagues, too.“
This week, two House Representatives presented Federal Reserve Chairman Jerome Powell with a letter calling for the Fed to seriously consider the creation of a digital currency.
Beginning their letter with, “As you are aware, the nature of money is changing,” French Hill (R-AR) and Bill Foster (D-IL) run through a brief history of money as we know it before relaying their central worry, “that the primacy of the U.S. Dollar [sic] could be in long-term jeopardy from wide adoption of digital fiat currencies.”
Such concern is bolstered by the knowledge that over 40 other countries are investigating the use of digital currencies, with Sweden, Uruguay, and China’s programs each being name dropped by Hill and Foster; as well as by comments by the President of the European Central Bank, Christine Lagarde, who noted that in the absence of digital currencies backed by central banks, private firms will be left to dominate the space, effectively bypassing banks, and ceding control of monetary policy as well as power to combat illegal financial activities such as money laundering.
Before signing off, the authors warn of the troubles that Libra, Facebook’s unlaunched cryptocurrency could release into the world of finance if the tech giant is allowed to run free of regulation; and they finish by asking Powell to consider a number of questions relating to the establishment of a US dollar digital currency.
Not found among these questions is the conundrum of whether a sovereign digital currency would be referred to as legal tender despite it being intangible.
Hill and Foster aren’t the first to raise this issue, in fact former Chairwoman of the Federal Deposit Insurance Corporation Sheila Bair wrote in Yahoo Finance last year urging the Fed to shift its focus. Naming the potential digital currency ‘FedCoin,’ Bair explains the benefits of such a creation, saying that during recessions the Fed could reduce the interest rate on FedCoin in order to encourage spending, while during boom years interest rates could be increased to avoid overheating of the economy. As well as this, Bair proposes that in the case of a downward economic spiral, the Fed could issue time-limited coins that will expire if not spent on consumption.
Although it isn’t all sunshine and economic prosperity in Bair’s assessment, as she also notes that FedCoin has the potential to be a massive disruption to credit availability, with its implementation meaning that the over $10 million which is currently deposited by customers in American banks could vanish overnight if every American moved their savings to FedCoin. Regardless, Bair concludes her article with the warning that “If it does not stay ahead of this technology, not only could banking be disrupted – but the Fed itself could also be at risk.”
Bair’s comments are matched by former Bank of England Governor, Mark Carney, who, at the Economic Policy Symposium in August, discussed how a digital currency backed by a coalition of central banks, or as he termed it, a synthetic hegemonic currency (SHC), could allow for economies to move away from the US dollar as the global hedge currency and, thus, remove themselves from the currency’s domineering influence.
Interestingly, Hill and Foster’s letter comes the same week as news of a sovereign digital currency in Venezuela. President Nicolás Maduro confirmed that his government has plans to develop payment methods based off Bitcoin and that the country would begin stockpiling cryptocurrencies for its international reserves. These developments will accompany Petro, the cryptocurrency issued by the Venezuelan government that is backed by the country’s oil and mineral reserves.
As noted by Decrypt, despite his history of supporting Bitcoin, Juan Guaidó, Venezuela’s other President whose claim to the position has been recognized by Donald Trump, has described his rival’s move toward a digital currency as a show of “desperation.” In true crypto form, Guaidó also lambasted Petro in 2017 for not being a real cryptocurrency as its value is determined by oil.
With the initial promise of cryptocurrency as the herald of a more egalitarian currency free of borders and regulators having been largely undelivered in the developed world, as such currencies are instead used for speculating and turning profits, Maduro is framing his decision to double-down on digital currencies as a return to the original vision.
“Donald Trump and his sanctions are blocking Venezuela from carrying out transactions in any of the world’s banks,” said the president this week. “There’s other formulas to pay, and it’s what we’re using, because our payment system works perfectly in China and Russia … Venezuela is working with the world of cryptocurrencies as a free national and international payments system … The finance minister and Venezuela’s central bank have new instruments which we will activate very soon so that everyone can do banking transactions, as well as national and international payments through the central bank’s accounts.”
Whether or not Maduro’s plan will actually fulfill the original hopes for Bitcoin and cryptocurrencies is unsure, what is certain however is that more and more world leaders and policy makers are beginning to consider digital currencies as an issue to be reckoned with, rather than something to hodl at arm’s length.
Bitcoin’s price might not be all that right now, but Coinbase, a US-based digital currency wallet, wants to pay its customers a reward for holding on to its stablecoin. Unlike Tether, a popular stablecoin that was purportedly fully backed by US dollars but then revealed it wasn’t, Coinbase’s stablecoin is fully backed by dollars on deposit in a bank.
The advantage of a stablecoin, in theory, is the stability and safety of the US dollar combined with the fluidity of cryptocurrency. Coinbase’s stablecoin is called USDC and as of Wednesday, the company will begin paying holders of the coin an annualized reward of 1.25% APY. That’s a little bit less than a high yield savings account. It’s interest but it’s technically not. Unlike a bank, Coinbase won’t be using your funds to facilitate loans to generate income so that it can pay out interest to depositors. Instead, the company claims, “You simply earn while storing your crypto safely on Coinbase.”
Coinbase disclaims the offer by reminding users that their funds are not FDIC insured and that the digital wallet is not a deposit account or savings account.
$176 million of USDC exchanged hands in the last 24 hours as of this post being written.
The crypto faithful, users whose optimism in cryptocurrency has been unwavering, have quietly been looking for an alternative stablecoin to Tether. Tether has been locked in a battle with the New York Attorney General and recently revealed in court documents that its stablecoin was not as well backed as the company had claimed.
UnTethered: How The Entire Crypto Bull Run of 2017 May Have Been a Mirage (And Why Its Resurgence May Be Too)June 24, 2019
In 2017, college bros gathered at a bar in downtown Manhattan. As a journalist from deBanked approaches, a 5’10” young 20-something with long shaggy brown hair is vaping outside on the sidewalk while staring intently at his phone. I stop. He pauses and eyes me up and down. “You here for the crypto meetup bro?” he asks. My age, about 15 years his senior, apparently gives the impression that I’m here as an investor. “There’s a few dudes in there that are gonna change the game,” he says. “We’re talking 10,000x.”
“Sweet,” I reply as I step inside. I locate the others that have gathered here to talk all things cryptocurrency and dive in, but quickly find that I speak a different dialect. Bitcoin, the coin I grew up with, is the uncool parent in an era where Ethereum and ICOs (Initial Coin Offerings) are all the rage. Dozens of tokens and coins are “mooning” (soaring to the moon) in value and everybody that’s in the know, which this group believes themselves to be, is going to be filthy rich.
Here, as with other meetups I had been to, required no understanding of the technology. Who you knew and how rich you got off your crypto investments shaped your standing and identity in the community. If you weren’t achieving at least 100x (A price increase multiple of 100) on an ICO investment, well then, what were you even doing bro?
The across-the-board surge in value at the time was validation to crypto communities like this one. Nobody dared question how the rise in value kicked off or why it was happening 8 long years after the birth of Bitcoin (Bitcoin was created in 2009). All that mattered is that it was happening now and they were fortunate to be a part of it. They weren’t being reckless about it, or at least that’s what they told me. Every time these investment pros wanted to take money off the table and book a winning trade, they’d convert their crypto to dollars.
If only it were that simple.
I would soon learn that when they sold a crypto, like Ripple’s digital asset known as XRP, for example, into dollars, they weren’t actually receiving any cash. Instead they were trading the Ripple asset for another digital asset called USDT. The value of XRP fluctuated all the time, but 1 USDT was always worth $1.
In theory, you could cash out into real money, but withdrawals could take weeks to be processed and those funds would be of no use if another crypto investment opportunity came along. Digital USDT, therefore, solved both problems, stability and liquidity in the crypto markets.
Thousands of crypto trades happen every minute. On Binance, a crypto exchange I log on to for my story, shows traders buying and selling cryptos with others in the market in real time and USDT is one of the biggest movers.
I am tempted to convert the fractions of Bitcoins in my possession to the digital equivalent of a dollar, USDT, but I can’t bring myself to do it. Instead I’m nagged by a strange letter, the T after USD. It stands for Tether and it’s not backed by the United States government, but on Binance and on crypto exchanges across the world, it is a glue that holds the market together. It’s the stable coin, the closest thing that exists to a real dollar in a virtual universe.
What the hell is Tether, I wonder?
My research brings me to an unpopular opinion being pushed on twitter by an anonymous user (@bitfinexed) whose following is growing every day. USDT, the person tweets daily, is all a fraud.
8,000 miles from the bar in New York City, a crypto exchange in Hong Kong named Bitfinex has become flush with a new batch of USDT, $100 million worth. Nobody moved them there. Rather Bitfinex’s affiliate company, Tether, has created them out of thin air. All of this newly minted USDT is soon used to purchase Bitcoin and other cryptos in huge chunks, sending prices soaring. Traders cheer the demand and everyone it seems is getting rich.
The market tolerates this sudden introduction of USDT because Tether claims that all USDT is backed by actual dollars held in reserve in a bank account. So $100 million in newly minted USDT is supposed to mean that a wealthy investor has deposited $100 million in real money into Tether’s bank account in exchange for $100 million USDT to trade with on Bitfinex. That keeps the value pegged at 1:1. Once an investor has access to their USDT on Bitfinex, it is used to buy up other cryptos.
That someone would exchange $100 million in real money for USDT is astounding. It demonstrates to the market that the uber wealthy see the value of crypto. Rumors abound that the investor is Goldman Sachs or a Saudi Prince or an international drug lord. Nobody knows and nobody has time to question it because tomorrow the same thing happens all over again, another $100 million in USDT appears and a buying frenzy of Bitcoin, Ripple, and Ethereum ensues, sending the entire crypto market in a frenzy.
By December of 2017, $1 billion worth of USDT exists. That’s $1 billion of buying power dumped into what was a relatively sleepy niche marketplace. Since market capitalization is not proportionally correlated with what’s actually invested, a billion dollars in buy orders can be enough to potentially drive the crypto market capitalization up by hundreds of billions of dollars in return. And that’s what happens.
Tether’s influence is apparent. Bitcoin, for example, was worth $1,000 at the beginning of 2017 and reached $19,000 by mid-December. Ethereum went from $8 to $1,400 in less than 13 months. Ripple went from 6/10ths of a cent to over $3.00.
At its peak, the market cap of the entire cryptocurrency market was nearly $1 trillion, a stunning valuation that finally caused the investing public to second guess itself and burst the bubble.
And just like that, the market crashed.
But not all at once. On the way down, newly issued USDT continued to flood the market. When they were used to buy other cryptos, prices would suddenly spike and the market would experience brief rebounds. To traders, this anonymous investor was either a white knight trying to save the market or a madman who continued to dump his billion dollar fortune into rapidly declining digital assets at his own peril.
Any short term recovery lost steam, however, and the bulletproof can’t-lose attitude of crypto culture was breached. The same college students touting their previous prowess took to social media to bemoan the irrationality of a sudden bear market and the loss of their fortunes. The meetups that became a staple of 2017 suddenly dried up. Twenty-somethings on Telegram complained that the events might even cause them to find a job. The horror, they half joked.
By April 2019, $2.6 billion worth of USDT existed on exchanges around the world, all brought into existence by Bitfinex’s affiliate, Tether. That meant that somewhere $2.6 billion was supposedly sitting in a bank account as a reserve to guarantee the value. Without it, the dramatic rise or fall of the crypto markets would probably never have been possible.
Tether’s influence and size was enough to attract the interest of American regulators. In December 2017, at the height of the bubble, the US Commodity Futures Trading Commission sent subpoenas to both Bitfinex and Tether. And in November 2018, right after Bitfinex’s Chief Strategy Officer suddenly resigned, Bloomberg News reported that the US Department of Justice was investigating whether Tether had been used to prop up Bitcoin or manipulate the market. Tether’s loyal fans chalked it all up to FUD (Fear Uncertainty and Doubt) and spun the investigations as proof that governments felt threatened by the future new world order.
But that was until April 25, 2019, when the New York State Attorney General bolstered the worst fears that a handful of critics had been screaming for years, that Tether may not be all it’s cracked up to be.
Bitfinex and its affiliate’s long struggle with finding a stable banking relationship had led the company to split its holdings. A significant share was on deposit at a small Bahamian bank while over $1 billion had been sent to a Panamanian payment processor (without a contract) named Crypto Capital for safekeeping, the AG alleges. Those funds were comprised not only of Bitfinex’s client deposits but were also co-mingled with reserves held to back USDT. The arrangement was such that if Bitfinex customers ever began requesting fiat currency withdrawals beyond what they had on hand, Crypto Capital was supposed to send payment on Bitfinex’s behalf to satisfy the request.
As the crypto bear market continued into mid-2018, Bitfinex went calling on Crypto Capital to pay its customers that wanted to be paid out in cold hard cash. Crypto Capital, much to their surprise, refused, putting Bitfinex in the precarious position of not being able to pay customers. As the public began to turn on Bitfinex, Bitfinex executives pleaded desperately with Crypto Capital.
By the Fall of that year, Bitfinex finally learned what the holdup at Crypto Capital was. The money was gone. According to Crypto Capital, $851 million had been seized by governmental authorities in Portugal, Poland, and The United States. Bitfinex says the supposed seizure is all a ruse and that they have been swindled out of the money.
In any case, rather than advise the public of the lost funds, Bitfinex allegedly contemplated borrowing the remaining funds it had on hand in reserve to back USDT to pay out Bitfinex customers and sustain its operations. The arrangement may have been Bitfinex’s only hope to cover its $851 million loss and survive, Tether be damned.
The New York Attorney General was not impressed with Bitfinex’s plan to raid its USDT reserves and successfully persuaded a New York Supreme Court judge to order an injunction preventing Tether from extending a $900 million line of credit to Bitfinex.
But Bitfinex had other plans in the works.
Suspiciously, on April 24th, one day before the New York Attorney General filed its action, $300 million worth of new USDT was created, loaded up on Bitfinex, and used to buy up massive chunks of crypto. No one can be sure that anyone truly deposited $300 million in real money with Tether to make this possible. Regardless, there appeared to be an immediate impact. Bitcoin, Ethereum, and Ripple all rose in value by more than 50%. Several news outlets ran headlines that said “Bitcoin is Back.”
As the situation continued to unfold, Tether revealed that it did not actually hold $1 in currency for every $1 in USDT it created. Proceeds of Tether sales, they admit, are used to fund operations, make investments, and buy assets. The USDT foundation was unraveling in real time.
On April 30th, a little known Arizona Businessman named Reginald Fowler, who once held a small stake in the Minnesota Vikings, was indicted along with an Israeli woman named Ravid Yosef for bank fraud and for running an unlicensed money transmitting operation tied to virtual currency trading. The US Attorney for the Southern District of New York states that “Reginald Fowler and Ravid Yosef allegedly ran a shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges.” The duo, the US Attorney continues, used the financial system for criminal purposes through lies and deceit.
Fowler’s business is believed to be tied to Crypto Capital, the same company that owes $851 million to Bitfinex. During his arrest, investigators found roughly $14,000 in counterfeit $100 bills in his office and learned that $60 million of client funds had been diverted from his business to his personal bank accounts.
Bitfinex, meanwhile, does not plan to go down quietly. On May 17th, they announced they had raised $1 billion from anonymous investors in just 7 days to recapitalize the company back to sustainable health by selling a new crypto called UNUS SED LEO tokens. Bitfinex called the demand for these tokens “overwhelming” and that the sale represented a “new milestone for Bitfinex and the greater Blockchain community.”
On social media, nobody believes them. The unusual token name and spelling led to them being branded “Unused” Leo tokens. Dozens of users called for their arrest, but most just called their token sale a scam. The jig, in the hearts and minds of the crypto faithful, is up.
Tether’s value on exchanges, meanwhile, goes the opposite way. The value of USDT jumps to $1.01, making it worth more than 1 US Dollar. Traders, in a sense, have no choice but to keep up the lie, because a collapse of USDT might mean a collapse of the entire crypto market.
So as the market’s framework falls apart and may never have been real to begin with, the market itself rallies.
The correlation between USDT and the entire crypto market dawned on executives of Bitfinex in October 2018. When Crypto Capital refused to give back the $851 million, a senior Bitfinex executive wrote, “Please understand all this could be extremely dangerous for everybody, the entire crypto community. [Bitcoin] could tank to below $1,000 if we don’t act quickly.”
Back in New York City, the May 2019 surge in crypto prices, still less than half of the all-time highs, jolts awake a dormant online chat group that used to organize crypto meetups. One user calls attention to a particular gathering scheduled to take place on May 6th. It emphasizes discussion on blockchain instead of trading.
The response from those still following, however, is tepid. One of the group’s original chief proponents calls crypto a “f***ing scam.” Another user ponders if free alcohol is incentive enough to sit through “fools” talking about “blockchain revolution bullshit.”
A joke about losing money prompts another to claim they were never in it for the money in the first place. “I’m in it for the tech bro,” he says.
Yet another, who admits he has been holding onto to his near-worthless crypto through the whole bear market, hopes that the rally this time will finally last.
“To the moon!”
Since this article was first written, more than $900 million worth of fresh USDT has been created and dumped into the crypto market. The value of the cryptocurrency market has soared with it.
Bitcoin: $5,350 on May 1 to $10,696 on June 23.
Ethereum: $162 on May 1 to $309 on June 23.
XRP (Ripple): $0.31 on May 1 to $0.47 on June 23.
However, the correlation between the creation of USDT and the value of Bitcoin remains extremely suspicious.
Philip Potter was a young banker that was moving up in the world. At 25-years-old, the Yale graduate made over six figures, worked for Morgan Stanley, and looked the part. He wore a $3,500 Rolex Watch, an $800 custom-made suit, and $200 shoes, all while carrying an $800 cellular telephone. It was 1997, a year he’d never forget thanks to an interview he gave with the New York Times which channeled his persona into the ostentatious face of New York City’s affluent class of childless bachelors. Potter was fired after his employer, famous Wall Street CEO John Mack (aka Mack the Knife), read the Times’ article about him. Reportedly, Mack delivered the message of his disapproval to Potter personally.
Two decades later in November 2017, The New York Times would run another story, one that publicized that a British-Virgin-Islands-registered Hong-Kong-based company had seen billions of dollars of virtual currency pumped through its digital exchange platform. Near the center of the controversy was the same Philip Potter, this time as Chief Strategy Officer for Bitfinex and a related digital asset company named Tether. 8 months later, Potter would resign amid questions into Bitfinex over millions in hacked client funds, allegations of Bitcoin price manipulation, American regulator subpoenas, and the mysterious identity of the company’s CEO.
In the short-lived trillion dollar market cap era of cryptocurrency, Bitfinex provided a truly unique product that would be adopted by rival exchanges the world over, a stable digital asset worth exactly $1. It was like USD but labeled USDT, the T standing for Tether. Traders on exchanges could buy it or sell it just like the dollar and be certain its value would not swing wildly like other digital assets such as Bitcoin.
The market accepted USDT being pegged to $1 because the company claimed that for every 1 digital Tether dollar, there was one real US dollar in a bank account guaranteeing its value. In essence, an investor would send real money to Tether and Tether would create (out of thin air) an equivalent amount of digital USDT on the affiliated Bitfinex exchange for that investor to trade with.
Supposedly, investors loved this. Tether has created more than $2.5 billion in USDT in just a few short years and those digital funds have been used by whomever these anonymous investors are to buy Bitcoin, Ethereum, Ripple and more. That kind of buying power, billions of dollars, is said to have played a huge role in the cryptocurrency bull run of 2017. The way market caps are calculated, a billion dollars in buy orders could theoretically boost a market cap by hundreds of billions of dollars in return.
The exact impact of Tether in 2017 is not yet fully known but Bitcoin’s recent surge is coincidentally timed with a sudden flood of USDT (more than $300 million worth) being created on Bitfinex and injected into the crypto markets to buy up Bitcoin.
But what kind of wealthy investor is sending $300 million in real money to an unregulated, unaudited, offshore cryptocurrency exchange, just to get a digital asset called USDT which they’ll then exchange for cryptos like Bitcoin? And who would do that if they knew the exchange was under scrutiny by American regulators?
The scary thought sending a chill through the crypto universe right now is that the money claimed to be on deposit in a bank somewhere to back the value of Tether might not exist. That would mean that billions of dollars in USDT buy orders, a confidence signaling, price boosting activity on exchanges, should not be measured as if USDT represents real dollars.
Both Bitfinex and Tether find themselves embroiled in a battle with a law enforcement authority a world away, the Attorney General of New York State. Through an action that was filed on April 25, 2019 by the AG in the New York Supreme Court, damning information has been revealed about the operations of the two companies, including that they were recently swindled out of $851 million by a company in Panama they trusted to hold their money. That’s in addition to the $70 million they lost by means of hacking in 2016.
With nearly a billion dollars “lost,” the public rightfully has questions, including was Tether even really backed 1:1 by real US dollars in a special reserve fund somewhere regardless of all the lost money?
According to Tether’s attorneys, no, there’s no reserve fund, never has been. Funds deposited with Tether by investors are co-mingled with Tether’s operating capital and Tether has done whatever it wanted with it, including using it for payroll, buying assets, and even investing in Bitcoin. In fact, Tether’s attorneys confirm, Tether operates “like a fractional reserve concept” like a bank and it’s possible there could be a complete risk of loss to investors.
These revelations run counter to how Tether is valued and understood in the cryptocurrency markets. One USDT is collectively agreed to represent $1 because one actual real dollar was said to be sitting in a bank account to guarantee it. As that’s been disproven, one has to ponder the broken logic Tether has created by taking an investor’s dollar and using it to buy Bitcoin and that investor being given USDT and using it to also buy Bitcoin.
This all means that every real dollar can theoretically buy Bitcoin twice. Yikes.
That Tether also has the sole ability to create USDT as if they were the US Mint (hint: like the recent creation of $300 million worth) without any way of the public verifying that they’ve received any corresponding real dollars at all should be cause for great concern. Those funds (possibly backed by nothing) are being used to buy up cryptocurrencies like Bitcoin and unsurprisingly the price is surging.
Right now the market is pretending the controversy doesn’t exist. But it does.
Bitcoin Buyer Beware.
Today, Signature Bank unveiled a proprietary digital payments platform for its commercial clients, according to a statement released by the bank. The platform, called Signet, is designed to allow Signature Bank’s commercial clients to make real-time payments in U.S. dollars, every hour of the year.
“The ability to transmit funds between approved, fully vetted commercial clients of the bank at all times is very valuable, especially in light of the increasing speed and frequency at which they conduct their business,” said Joseph J. DePaolo, President and Chief Executive Officer at Signature Bank. “Signature Bank has made a commitment to invest in its technology infrastructure, and the Signet Platform is indicative of this investment,”
This commitment by a bank to embrace technology is consistent with other banks of late. Chase and PNC have partnered with OnDeck’s ODX to streamline their online lending processes and other banks have partnered with fintechs recently as well.
“The partnership between trueDigital and Signature Bank will quickly prove to be extremely beneficial and revolutionary for clients globally as they will now be afforded the opportunity to make instantaneous USD payments to one another in real-time at no cost per transaction,” said Sunil Hirani, Founder of trueDigital.
The new Signet platform uses blockchain technology and can be used to make payments across a wide variety of industries, initially focusing on power, shipping, real estate, auto and digital assets where costs, delays, operational risks and counter-party risks are significant, according to a trueDigital statement.
The platform is not designed for a very small company as transactions made on the Signet platform require a minimum account balance of $250,000. Also, the companies exchanging money must both have an account at Signature Bank.
The New York State Department of Financial Services has approved the Signet platform and deposits held on the platform are eligible for FDIC insurance, up to the legal insurable amounts defined by the FDIC.
Signature Bank is a New York-based full-service commercial bank with 30 private client offices throughout the New York metropolitan area. This year, the bank opened a full-service private client banking office in San Francisco. Signature Bank’s specialty finance subsidiary, Signature Financial, LLC, provides equipment finance and leasing. trueDigital is a New York-based fintech company that provides solutions to financial markets by utilizing blockchain-based technologies.
Bitcoin fell about five percent yesterday to below $7,000 after Business Insider published a story saying that Goldman Sachs is dropping its plan to open a trading desk dedicated to cryptocurrencies. The Business Insider story made this claim anonymously, citing people familiar with matter.
Update: Goldman Sachs CFO Martin Chavez discounted the Business Insider report on Thursday, calling it “fake news” at the TechCrunch Disrupt Conference in San Francisco.
“I never thought I would hear myself use this term but I really have to describe that news as fake news,” Chavez said on stage at the conference.
Chavez said Goldman is working on a type of derivative for bitcoin because “clients want it,” according to CNBC.
“The next stage of the exploration is what we call non-deliverable forwards, these are over the counter derivatives, they’re settled in U.S. dollars and the reference price is the bitcoin-U.S. dollar price established by a set of exchanges,” Chavez said.
The value of Bitcoin has continued to drop today, losing $1,000 in a 24 hour period. It is now at $6,409.30, according to CoinDesk.
A May 2018 story in Fortune indicated that Goldman Sachs had plans to open a Bitcoin-trading business in June of this year. That was postponed and it now seems that these plans have been shelved indefinitely. The sources in the Business Insider story said that Goldman Sachs sees the regulatory environment as ambiguous regarding cryptocurrencies.
In a tweet from the bank’s CEO Lloyd Blankfein last October, he wrote, “still thinking about bitcoin.” And he later said, according to CNBC, “No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.” It seems that there is still no conclusion.
When asked if the assertions in the Business Insider story are true – that plans for a cryptocurrency desk have been scrapped – Goldman Sachs representative Michael DuVally responded with the following comment: “In response to client interest in various digital products, we are exploring how best to serve them in the space. At this point, we have not reached a conclusion on the scope of our digital asset offering.”
Square’s small business funding arm, Square Capital, made over 50,000 business loans for a total of $339 million in Q1, according to the company’s latest earnings report. That figure is a 35% increase year-over-year and puts them on pace to break last year’s $1.177B total. OnDeck, by comparison, who is arguably their top rival, made $2.11B in business loans last year.
“[..] they just don’t have another way to get access to that sort of capital. And when they get it, they invest in their business,” Square CFO Sarah Friar, said of their merchants during the earnings call. “They’re buying inventory, they’re hiring new employees, they may be taking any lease hold and opening that second location. And when they do that, their business grows and hence our business grows. So, we still think we have a unique product that no one else can really follow us into.”
Square also earned $34 million in revenue from bitcoin, thanks to the Cash App they launched in January that allows users to buy and sell bitcoin. Bitcoin was mentioned an eye-opening 37 times in their quarterly shareholder letter, while their loan program is only referenced 7 times.
Overall, the company brought in $669 million in revenue and recorded a $24 million loss. They also entered into an agreement to buy Weebly, a company that helps people build professional websites and online stores.
“Weebly will expand Square’s customer base globally and add a new recurring revenue stream. Weebly has millions of customers and more than 625,000 paid subscribers,” the company wrote.
“Under this new policy, the advertisement of Initial Coin Offerings (ICOs) and token sales will be prohibited globally,” a Twitter spokesperson told CNBC.
As with Facebook and Google, the rationale behind the ban is to protect users from fraud related to cryptocurrencies.
“We are committed to ensuring the safety of the Twitter community. As such, we have added [this] new policy for Twitter Ads relating to cryptocurrency,” the spokesperson said.
Ironically though, Twitter CEO Jack Dorsey has praised Bitcoin and said as recently as last Wednesday, to The Times UK:
“The world ultimately will have a single currency. The Internet will have a single currency. I personally believe that it will be Bitcoin, probably over ten years, but it could go faster.”
Google and Facebook also have complex relationships with cryptocurrencies.
According to Cointelegraph, even though Google banned cryptocurrency ads, it owns a handful of companies that rely heavily on the use of cryptocurrencies, like Storj, which runs on the company’s native SJCX cryptocurrency, or Veem, which uses Bitcoin for its payments.
Meanwhile, in a post from January 4 of this year, Facebook founder Mark Zuckerberg wrote of cryptocurrencies as a promising counter balance to an increasing centralization of power among technology behemoths:
“There are important counter-trends to [centralization] — like encryption and cryptocurrency — that take power from centralized systems and put it back into people’s hands. But they come with the risk of being harder to control. I’m interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.”
Facebook announced yesterday that it had banned all ads promoting Bitcoin or anything related to cryptocurrencies.
The new item on the Prohibited Content list for Facebook ads reads: “Ads must not promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings, or cryptocurrency.”
In light of the fact that Bitcoin rose in value by about 1600% in 2017, cryptocurrency has received enormous mainstream interest in recent months.
At a memorial last week for the former owner of The Strand bookstore in Manhattan, actor Fran Lebowitz finished her remarks by saying “And can someone tell me what Bitcoin is?” Lucky for her, the well-known economist, Paul Krugman, happened to be speaking next and answered the question.
Right as momentum is building for cryptocurrencies, Facebook’s action warns the public that digital currencies are still shady.
Aside from the inherent mystery of cryptocurrency – that users are not identifiable – recent revelations have revealed that a cryptocurrency called Tether may be artificially sustaining Bitcoin. If this is true, it could have a devastating effect on the value of the most traded cryptocurrency.
In an explanation of Facebook’s new policy, the social media giant’s product management director, Rob Leathern, wrote: “This policy is part of an ongoing effort to improve the integrity and security of our ads, and to make it harder for scammers to profit from a presence on Facebook.”
Leathern wrote that the new policy is “intentionally broad” so that Facebook can better identify deceptive practices.
Is Facebook doing the right thing?
James Altucher, an investor and finance writer who has invested in cryptocurrencies since 2013 and sells “Crypto Trader,” an educational package for $2,000, thinks so.
“Ninety-nine percent of cryptocurrencies are total scams,” Altucher has written on his blog.
“I think this is a very good move for Facebook,” he told Recode.net.
Facebook and Snapchat might be the last things that employees are being distracted by these days. Instead it’s Coinbase and Blockfolio, two cryptocurrency apps, that are quickly stealing the attention of young finance professionals. And the interest in Bitcoin, Ethereum and alt coins is causing some in the industry to wonder if the phenomenon can somehow be connected to online lending and merchant cash advance.
A meetup hosted by partners of Central Diligence Group (CDG) on Tuesday night in NYC, for example, was geared towards cryptocurrency enthusiasts. CDG is a merchant cash advance and business lending consulting firm. Those that attended, talked candidly about Ripple, Bitcoin, Ethereum, and the hot topic of Initial Coin Offerings (ICOs). And it did seem all connected. Companies successfully raised more than $3 billion through ICOs in 2017, for example, some of them online lending companies.
ETHLend and SALT, blockchain-based p2p lenders, each raised $16.2 million and $48.5 million respectively through ICOs. What’s more, their crypto market caps currently stand at $325 million and $754 million respectively. The latter is nearly twice as valuable as online lender OnDeck. The founder of Ripple, meanwhile, briefly became one of the richest men in the entire world.
Whether these valuations are overdone is besides the point. A smart phone is all that’s required to get in on the action and trade thousands of cryptocurrencies online, many of which move up and down by astronomical percentages over the course of a day. Becoming a millionaire overnight by hitting on the right one is a dream sought after by many. And young people, especially millennials, are become unconsciously comfortable transacting in non-government-backed currencies through technology that completely shuts out banks.
And that may be the shift in all of this to pay attention to. It isn’t that a local restaurant is going to collateralize their Bitcoin to get a loan and outcompete an MCA company, but that a portion of the monetary system eventually starts to sidestep banks.
Trying to collect on that judgment? Good luck tracing the money in cryptos.
Need to freeze funds? You can’t freeze someone’s Bitcoins if they’ve got them stored on their own hardware.
Evaluating a business’s bank statements? The transactions can only be verified on a blockchain.
You might not believe me, but it’s incredibly likely that you’ve encountered a client that has defaulted on an MCA or loan whose stash of money has been obscured in cryptos all the while their bank statements appear to show insolvency.
It’s also likely that you’ve encountered a client that has used the proceeds of their MCA or loan to buy a crypto. Maybe not the whole amount, but with some of it. One study, for example, revealed that 18% of people have purchased Bitcoin using credit. Bloomberg reported that the phrase “buy bitcoin with credit card,” just recently spiked to an all-time high.
People are even taking out mortgages to buy Bitcoin, according to CNBC.
If you think cryptocurrency is an industry completely independent of your business, consider that the market cap of cryptocurrencies is currently valued at more than $700 billion. That’s nearly twice the market cap of Goldman Sachs and JPMorgan, COMBINED. The #3 cryptocurrency by market cap, Ripple, is being pitched almost entirely to traditional financial institutions.
Bet all you want on the prediction that this bubble will burst. Maybe it will. But the underlying technology, transacting without banks in non-government backed currencies that may be difficult to trace and recover, is a genie that’s not returning to its bottle anytime soon.
In the meantime, now might be a good time to poll your employees or colleagues about their knowledge or use of cryptocurrency. You may be surprised by what you find, especially among the younger crowd.
Disclaimer: I currently hold a material amount of Ether, the currency of the Ethereum blockchain.
This past Fall, an industry colleague congratulated me on my newfound wealth. “What newfound wealth?” I reply. “What are you talking about?”
“Aren’t you a bitcoin millionaire now?” he says, smiling brightly, with a look in my direction that suggests he can see through my deceptively coy demeanor. “You were talking about it for years. You were right about it!”
“Oh, yeah… Bitcoin,” I say back while looking at the ground, embarrassed by what I am about to tell him. “I spent nearly all my Bitcoins well before the price jump,” I reveal.
He didn’t believe me, but it didn’t matter. I had no regrets up until that moment when I decided to look back and see how much my Bitcoins would’ve been worth had I just held on to them. Doing the math ultimately turned out to be a bad idea.
That’s the rise in value I missed out on by spending the Bitcoins I had been acquiring in 2014-2016. It’s not a million dollars, but it’s enough to sit back and think, what if. [Editor’s note. The market value of those Bitcoins since the time this issue went to print reached about a million dollars after all. DAMN.]
But why spend or sell them if I was a supposed true believer? I never cared much for speculating. I liked and still like Bitcoin because it’s a payment methodology that exists outside the purview and control of banks and government. It is the ultimate way to de-bank. And hey, that’s what all the fuss of this publication is about.
I started reporting on Bitcoin here in deBanked as early as 2014, mainly to an audience that didn’t know what they were and didn’t care to know. I couldn’t blame you all. Talk of digital currency, mining, and block sizes doesn’t exactly go hand-in-hand with things like online lending, merchant cash advance, and brokering deals.
A handful of diehard Bitcoin fans at the time told me they were happy to see Bitcoin legitimized through our coverage. Others told me it was complete garbage, a ponzi scheme even, that didn’t deserve any attention whatsoever.
In those days, I took a tour through the whole ecosystem by mining Bitcoin, buying it, selling it, paying people with it, and accepting payment with it. I read books about it, attended seminars on it, and watched documentaries about it. I even experimented with turning my computer into a node in the Bitcoin network to keep the ecosystem itself running smooth. I repeatedly heard critics argue that it was all a scam and I walked away every time remaining unconvinced.
Bitcoin allows users to carry their money across borders without hassle and to retain possession of their funds even if a bank or government agency wants to seize it. Perhaps these benefits appeal to criminals, but surely they also do to law-abiding citizens.
I didn’t like the volatility of it so much back when I was acquiring them. It wasn’t a very good store of value and it still isn’t. The fact that a Bitcoin I acquired for $300 is now worth $10,000 [market value at the time it went to print] is amusing but also terribly unnerving. What good is Bitcoin to legitimately use as money if the value can swing massively in an hour? And what to do if I bought 1 Bitcoin now at $10,000 and it retreated back to $300?
In a way, I may have been more excited to have held all those Bitcoins for another year without them experiencing any increase in value, rather than to have accidentally profited handsomely thanks to speculators who do not care about the underlying utility of Bitcoin.
Maybe I’m an idealist. Or maybe I’m just rationalizing why I shouldn’t cry myself to sleep over having missed out on 500k in profit. I personally believe Bitcoin will be at its most valuable when its price is stable. If we can get to that point and the world economy becomes more accepting of it as a form of payment, well then I’d be very interested in holding on to Bitcoin indeed.
I wondered, of course, if the me of three years ago would’ve agreed with my philosophy now. A blog post I wrote in November 2014 answers that question.
Below are some of the points I made then:
“Bitcoin is more than a currency. It’s not the Euro, the Yen, or the Peso. It’s a detachment from governments and banking. It’s self-control. Without the private key, your bitcoins can’t be seized.”
“I’m not necessarily speculating though. I spent almost half my bitcoins shopping on Overstock on Black Friday.”
“A 5% swing might be acceptable for an investment but it’s quite ugly for a currency.”
“Your money is not really yours. You have rights to it, but only to an extent. It can be garnished, frozen or confiscated. That’s the price of liquidity and relative stability. If you can afford to color outside the lines, where you can remove [bankers] and their control, why not experiment? There’s something pure about [Bitcoin], liberating. And when you add in the fact that it’s governed by math, it’s more than that, it’s beautiful.”
“There are indeed those holding [Bitcoin] and not spending. Rampant speculation is both a cause of volatility and an argument for its long term unsustainability. Speculators are hoping the digital currency will appreciate and make them filthy rich. If that day never comes, a big sell off will cause its value to drop.”
And so it was in 2014, I was interested in the utility of Bitcoin while concerned about the volatility of it. The value has since shot up to the moon, largely due to speculation. Along the way my views caused me to miss out on becoming a Bitcoin millionaire.
And I couldn’t care less. Wake me up when the price stabilizes.
Editor’s Note: Between the time this story was sent off to print and now (when it’s being published online), the market value of those Bitcoins had increased from $500,000 to nearly $1 million. Incredibly, I legitimately would’ve been a Bitcoin millionaire.
Editor’s Note 2: It’s been a long time since I have played around with being a Bitcoin node. More recently, I have become a node on Ethereum, a blockchain for decentralized applications that also serves as the backbone platform for things like Initial Coin Offerings.
Ok, so this is a shameless affiliate marketing offer. If you buy $100 worth of Bitcoin from Coinbase using this link, you’ll not only get an extra $10 worth of Bitcoin free, but I’ll get $10 worth of free Bitcoins as well.
While it’s awesome that a single Bitcoin is worth $10,000 these days, I personally fell in love with the utility of the currency 3 years ago. I mined it, bought it, sold it, became a node on the network, donated it, spent it, accepted it as payment, went to meetups dedicated to it, and read books on it. The ironic part about it all is that few, if any, people cared about my coverage of it. Now that’s it up nearly 900% YTD, readers have been asking about it.
Before you get get caught up in the hype aspect, maybe take a minute to read through some of my very old blog posts about Bitcoin and decide for yourself if the currency makes sense.
- 12/3/14 – My Satoshi Monday – My trip to the Bitcoin Center
- 12/8/14 – How to Use Bitcoin – I bought a computer monitor on Overstock with Bitcoin
- 12/18/14 – Confessions of a Bitcoin Miner – My tale of mining Bitcoins
- 3/10/15 – deBanked Inks Deal With Lenders Marketing in Bitcoin – deBanked priced an advertising deal in Bitcoins
- 4/20/15 – Rand Paul Speaks at Bitcoin Event – A forward thinking Senator latched on to Bitcoin years ago
Now that Bitcoin Cash has forked off of Bitcoin, Coinbase is no longer taking a hard line stance against the alt currency. In a new email they sent to account holders, they cite security of the network, customer demand, trading volumes, and regulatory considerations as the reasons they have decided to support Bitcoin Cash by January 1, 2018. Not mentioned are the rumored threats of class action lawsuits for withholding Bitcoin Cash from their account holders.
On Twitter, Columbia University Professor Tim Wu had likened Coinbase’s original refusal to turn over Bitcoin Cash to account holders to a hijacked stock split. “Imagine a stock split where the broker declined to issue the new stock to its owners,” he wrote on July 31st. He also wrote that Coinbase was “courting serious, maybe ruinous legal trouble if it doesn’t give the users the full value of the Bitcoin fork.”
There is little doubt that Coinbase would’ve been exposed to lawsuits because they have access to Bitcoin Cash through their users’ Bitcoin deposits but were keeping the Bitcoin Cash for themselves. And Bitcoin Cash is not exactly valueless. As of the time I’m writing this, 1 Bitcoin is equal to $3,226, according to Coinmarketcap.com. 1 Bitcoin Cash is equal to $204. Bitcoin is hovering around its all-time high while Bitcoin Cash is already the 4th most valuable alt coin.
A letter from Coinbase on their change of heart is below:
Dear Coinbase customer,
We wanted to give our customers an update on the recent Bitcoin hard fork. You can read more about what a digital currency fork is here:
Forks enable innovation and improvements to digital currency and we believe that we will see an increasing number of forks in the future. We expect this to be a vibrant and innovative community.
When a digital currency forks, it creates a new digital asset. Adding new digital assets to Coinbase must be approached with caution. Not every asset is immediately safe to add to Coinbase from a technical stability, security, or compliance point of view.
Our top priority is the safety of customer funds and we spend extensive time designing, building, testing and auditing our systems to ensure that the digital asset we support remains safe and secure. We may not always be first in adding an asset, but if we do, you can be sure that we’ve invested significant time and care into supporting it securely. We believe this is the best approach for us to maintain customer trust.
In the case of bitcoin cash, we made clear to our customers that we did not feel we could safely support it on the day it was launched. For customers who wanted immediate access to their bitcoin cash, we advised them to withdraw their bitcoin from the Coinbase platform. However, there are several points we want to make clear for our customers:
Both bitcoin and bitcoin cash remain safely stored on Coinbase.
Customers with balances of bitcoin at the time of the fork now have an equal quantity of bitcoin cash stored by Coinbase.
We operate by the general principle that our customers should benefit to the greatest extent possible from hard forks or other unexpected events.
Over the last several days, we’ve examined all of the relevant issues and have decided to work on adding support for bitcoin cash for Coinbase customers. We made this decision based on factors such as the security of the network, customer demand, trading volumes, and regulatory considerations.
We are planning to have support for bitcoin cash by January 1, 2018, assuming no additional risks emerge during that time.
Once supported, customers will be able to withdraw bitcoin cash. We’ll make a determination at a later date about adding trading support. In the meantime, customer bitcoin cash will remain safely stored on Coinbase.
On August 1st, Bitcoin will fork into two different currencies. That’s because a significant group of developers and miners believe that the Bitcoin protocol needs an upgrade in order to scale. Not everyone agrees so the chain is splitting in two. Since a split chain will share the same history, anyone who owns Bitcoin on one chain will automatically own the same amount of Bitcoin on the other chain. To avoid confusion, Bitcoins on the new chain will be called Bitcoin Cash.
You can think of this fork as a stock split except that Bitcoin & the new Bitcoin Cash will have a different value and future. An original Bitcoin at present has a value of about $2,700 per coin. Bitcoin Cash will likely be worth less.
If you store your Bitcoins on an exchange, you could actually miss out on getting your Bitcoin Cash. Coinbase, for example, an exchange based in San Francisco, said that its users will not be able to access Bitcoin Cash. In a letter they sent out to customers last week, they advised customers withdraw funds before the fork if they hope to benefit from Bitcoin Cash.
Dear Coinbase Customer,
We wanted to provide an update on proposed changes to the Bitcoin network and what that means for bitcoin stored on Coinbase. You can read more about what a digital currency fork is https://blog.coinbase.com/what-is-a-bitcoin-fork-cba07fe73ef1.
Our first priority is the safety of customer funds. In the event of a fork, customer fiat currency (USD, EUR and GBP) and digital currencies (bitcoin, ether and litecoin) are safe.
On August 1st, 2017 there is a proposal to make changes to the bitcoin software. This proposal, known as Bitcoin Cash, is likely to create a fork in the Bitcoin network. This means that after August 1st, 2017 there are likely to be two versions of the Bitcoin blockchain and two separate digital currencies.
In the event of two separate blockchains after August 1, 2017 we will only support one version. We have no plans to support the Bitcoin Cash fork. We have made this decision because it is hard to predict how long the alternative version of bitcoin will survive and if Bitcoin Cash will have future market value.
This means if there are two separate digital currencies – bitcoin (BTC) and bitcoin cash (BCC) – customers with Bitcoin stored on Coinbase will only have access to the current version of bitcoin we support (BTC). Customers will not have access to, or be able to withdraw, bitcoin cash (BCC).
Customers who wish to access both bitcoin (BTC) and bitcoin cash (BCC) need to withdraw bitcoin stored on Coinbase before 11.59 pm PT July 31, 2017. If you do not wish to access bitcoin cash (BCC) then no action is required.
We plan to temporarily suspend bitcoin buy / sells, deposits and withdrawals on August 1, 2017 as the fork is likely to cause disruption to the bitcoin network. This means your funds will be safe but you will be unable to access your bitcoin (BTC) for a short period of time.
If you are one of the few people in the alternative finance community who has still never owned, bought, or sold something with Bitcoin, Coinbase is a good place to start. They are fully licensed in New York State. Sign up here.
deBanked has accepted Bitcoin as a form of payment since 2014.
The value of a Bitcoin is up 63% year-to-date, according to the deBanked Tracker, while the S&P 500 is only up 10%.
Investors, merchants and miners all watched as bitcoin’s price ran up knocking on the door of the $2,800 level. The digital currency has climbed nearly 50 percent in the past week and by triple digits in 2017, evoking emotions ranging from euphoria to fear that a bubble is among us.
And while the price has pulled back some, underscoring the volatility that’s attached to the digital currency, bitcoin continues to attract the spotlight.
“The sense I’m getting generally is excitement, the sky’s the limit kind of feeling. I think there’s also some nervousness. Personally, this looks like a bubble. Whenever you see something go up this quickly, the fear is that what goes up must come down,” said Joshua Rosenblatt, an attorney at Frost Brown Todd.
The stratospheric rise in the bitcoin price has been attributed to several factors, not the least of which includes increased demand from a wider audience.
“I think people are starting to realize that these digital assets like bitcoin are good for several different purposes, they’re versatile. There’s a whole industry built on top of them and to gain access to the industry you need to have access to cryptocurrencies like bitcoin,” said Rosenblatt, who also personally invests in cryptocurrency.
Meanwhile DoubleLine Capital chief executive Jeffrey Gundlach hints toward a flight to safety in Asia as the catalyst for the spike in bitcoin. He recently tweeted:
“Bitcoin up 100% in under 2 months. Shanghai down almost 10% same timeframe, compared to most global stocks up. Probably not a coincidence!” – Jeffrey Gundlach on Twitter.
Indeed Rosenblatt agrees that in markets where access to capital or movement of capital is difficult, cryptocurrencies are a great alternative.
“A lot of people who missed the 2013 bitcoin bubble want in on this one. Also there is a lot of institutional money moving in for the first time. Interest in cryptocurrencies as an alternative to government issued currencies is [advancing] especially in Asia, South America and Africa, places where banking is hard or government intervention is high. Bitcoin at its core is excellent for the unbanked,” Rosenblatt told deBanked.
Rosenblatt’s clients are comprised of startups with products in the cryptocurrency space and funds that invest in this segment. He and the firm’s 15-person cryptocurrency team are devoting an increasing amount of time to clients in this space. “It’s most of what I do at this point,” he said.
Meanwhile, Frost Brown Todd, the firm at which Rosenblatt is employed, is similarly lifting its profile in the cryptocurrency space, evidenced by the firm’s recent launch of a smart-contract app for software escrow agreements.
“We believe smart contracts are going to change the way the law is practiced and we want to be on the bleeding edge of that. In our part of America there are not a lot of people focusing on it. We’re in a unique spot,” said Rosenblatt of the Midwestern-based law firm.
The question on everybody’s minds is the same – where does bitcoin go from here? The expectations appear different depending on who you ask.
Kevin O’Leary, O’Shares ETF chairman, recently told CNBC he wished the SEC had approved a bitcoin ETF so he could take a short position in the fund.
And while Rosenblatt acknowledges signs of a bubble forming, he’s not going anywhere. “I’m still very excited about what the space has to offer over the medium and long term. The way I look at it, I’m in it for the long run,” he said, he said, adding that he is hopeful in the next year there will be companies starting to mature into revenue generating businesses with scale.
BitLendingClub (not to be confused with Lending Club) has shut down their bitcoin-based p2p lending platform, citing regulatory pressure. A message posted on their website says, “over the last year or so, the regulatory pressures has been increasing to the point that it is no longer feasible to maintain the operation of the platform. We are regretfully announcing that we will have to begin terminating the services effective immediately.”
BitLendingClub received a $200,000 seed investment from European VC fund LAUNCHub just two years ago. The company changed its name to LoanBase in September 2015 but then changed it back only a few months ago.
This was no small experiment either. Kiril Gantchev, BitLendingClub’s CEO, claims on his LinkedIn profile that the company made more than 10,000 loans worth more than $8 million dollars, originating from 90 countries. The company’s website claims an average APR of 192% and a default rate of nearly 12%.
In March however, the company stopped lending to people in several countries including Iran, Ireland and Nigeria due to elevated fraudulent activity.
It’s unclear what “regulatory pressures” caused them to shut down but the company appears to have been operating from San Francisco despite originally incorporating in Bulgaria. A search for a California lending license connected to them yielded no results. After the US, the country with the 2nd most borrowers on the platform was Venezuela followed by Brazil, the UK and India.
“Investors should understand the risks involved when making bitcoin loans,” their website warned. “The main risks are default and failure to collect.” they added.
As the trillion dollar alternative lending market expands, it is bringing into its fold newfangled and unproven investing practices like bitcoin lending. While bitcoin lending upstarts like LoanBase, BTCJam, Bitbond woo investors with attractive returns and push its cause for a diversified portfolio, researcher Brett Scott who studies economic systems is less convinced that bitcoin as an alternative currency will save the day. In his paper for the United Nations, Scott argues that it will still be a while until it brings about actual change in terms of financial inclusion and development.
deBanked spoke to Scott about bitcoin lending and its deficiencies as a loan product. Here are the excerpts from the email interview.
On Bitcoin lending
Bitcoin lending could be very positive in principle but in practice, though, the concept still has many problems. Firstly, Bitcoin is not anchored into any national economy. A currency like the Pound is legal tender in a particular geographical area and is widely accepted by everyone within that geographical area. Indeed, if a person in Britain wants to take part in the economy they pretty much have to use the Pound, and if they don’t they will face exclusion. Bitcoin is not like this. It might be accepted but it is not required to be accepted, and a person who doesn’t accept it doesn’t face exclusion from the economy. Thus, while I can buy certain types of goods with Bitcoin – like Pizza at the Pembury Tavern in London – it is not guaranteed to command goods and services anywhere.
On Bitcoin for business needs
This is a problem if you’re borrowing Bitcoin to start a business. If you’re borrowing money, you ideally want the money to be useful for buying a wide range of goods and services that will then enable you to start the business, and you then use your business to earn money with which to pay the loan back. If I get a Bitcoin loan, I’m probably going to struggle to use it to buy all the things I need to start a business – can I buy a computer, for example, or a scooter for delivering goods?
On unstable purchasing power
Also, Bitcoin is unstable in its purchasing power. If you are borrowing money, you want to have some degree of certainty as to what amount of goods and services that money will be able to purchase. I don’t want to get the loan thinking it will be enough to cover three months of business operations, and then discover than it can only cover two months of operations.
On Bitcoin and currency conversion
While businesses might borrow in Bitcoin, it will normally be earning income in a normal national currency. This poses a currency conversion risk in which your assets produce income that is in a different currency to the one required to pay off your liabilities. One response to this is just to accept the risk that the value of the currency your income is in doesn’t depreciate relative to Bitcoin. This basically means that you’re doing currency trading in addition to trying to focus on your core business though. Your business success really should be based on how well you run your operations, rather than how lucky you are about changes in currency values.
Big corporations that operate in multiple countries using multiple currencies deal with this by entering into currency derivative contracts with big investment banks, in which they hedge their currency risk, but right now there is not a well-developed market in Bitcoin currency derivatives. This doesn’t mean such a market won’t develop, but it will take some time still.
One alternative to this is to structure the Bitcoin loan in such a way that it is tied or pegged to a national currency, such that the amount of Bitcoin you have to pay back adjusts depending on how the value of Bitcoin changes. You’re going to have to convince the person that is giving the loan that this is a good arrangement though.
On pegging bitcoin to another currency
Both the lender and the borrower might think of the Bitcoin system as more of payments system instead of a currency in itself. Thus, someone in Britain might want to lend £10 000 to someone in India, so they take £10 000 and use it to buy Bitcoin on a Bitcoin exchange, then they send that Bitcoin to the person in India, who immediately sells it on an exchange for 945000 Rupees.
Furthermore, the person who is lending prices the loan in Pounds rather than Bitcoin. What has essentially happened here is that the loan is really in Pounds but the Bitcoin system was used as a way to transfer it into Rupees, rather than using the normal bank payments system to do that. Then, when the person wants to send interest payments back, they use Rupees to buy Bitcoin and send the Bitcoin to the UK person, who immediately uses it to buy Pounds. It’s possible that this – somewhat elaborate – process might end up being cheaper than using the normal international payments system, but you’d need to investigate that further.
It’s like Bitcoin but with more anonymity. It’s also known as Zcash
Touted as an alternative to BitCoin, Zcash is another decentralized and open source cryptocurrency and its major sell is encrypted anonymity and privacy.
The currency was first proposed in an academic paper in 2014 by researchers from Johns Hopkins University, Massachusetts Institute of Technology, UC Berkeley, Tel Aviv University and Technion and is now in alpha-testing phase, to be officially launched in July.
The currency uses technology called ‘zero-knowledge proofs’ in cryptography which allows one party to authenticate a transaction or validate a statement by another party without giving away any information about themselves, reports Fast Company.
It aims to take the philosophy of bitcoin and extend it to become more anonymous. “Zerocash extends the protocol and software underlying Bitcoin by adding new, privacy-preserving payments,” the company blog noted.
Operationally, the currency runs on an open source system. The total money supply is capped at 21 million, similar to BitCoin but when it comes to redistribution, 10 percent of the total amount will go to the founders, investors, employees and advisors where the agreed to give 1% of the total number to the non-profit Zcash Foundation to maintain and develop protocols and software.
Its investors include Pantera Capital, Digital Currency Group and Fenbushi Capital among BitCoin and cryptocurrency investors and angel investors like Naval Ravikant of AngelList and Bitcoin angel investor Roger Ver.