The emerging powerhouse in the fintech industry isn’t a lending or payments company, it’s a cryptocurrency exchange. One can express as much skepticism as they want about Coinbase, but the company, which goes public on the Nasdaq next week, generated nearly $800 million in profit in Q1 of 2021 alone.
Coinbase has 56 million verified users and holds $223 billion in assets, equal to about 11.3% of the entire crypto market.
The company says it is “building the cryptoeconomy, a more fair, accessible, efficient, and transparent financial system enabled by crypto.”
The company launched in 2012. Its last private market valuation was at about $90 billion.
Coinbase filed an S-1 Thursday morning, a significant step in gaining a listing on the Nasdaq. It’s like Christmas morning for the crypto-obsessed financial media, tearing into the document like wrapping paper on a new bike to pry into the private crypto-selling firm’s operations.
For starters, Coinbase was profitable in 2020, as it should be with ATH bitcoin prices. The company posted a net income of $322 million on net revenue of $1.14 billion. There was no listing price for shares, though according to Axios, private pre IPO shares to investors went as high as $373/share.
Coinbase said it had 43 million verified users, 2.8 million of which transact monthly. There are $90.3 billion in assets on the platform and $193 billion in volume traded last year. The majority of revenue comes from Bitcoin and Ethereum trading. In an age of sudden fintech SPAC IPOs, Coinbase is launching a stand-alone public offering.
The buzz on social media is over the first completely remote company listing. Coinbase stated, “In May 2020, we became a remote-first company. Accordingly, we do not maintain a headquarters.” Though someone pointed out on Twitter, Coinbase, Inc still files taxes through a San Franciscan address.
The pandemic might not be the only reason Coinbase went remote. US-based coin Ripple was recently sued by the SEC for violations of securities laws. Accordingly, in the “risk factors” section, along with a warning about the natural volatility of cryptocurrency prices, Coinbase describes the similarly ever-changing nature of crypto regulation.
“We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition,” Coinbase said.
Another strange thing to see in an S-1 was that the form was sent to the unknown identity of Satoshi Nakamoto, the person or group that created the currency itself. Coinbase somehow sent the S-1 to the founding Bitcoin block address at:
One of the risk factors Coinbase listed was the unforeseen result if Nakamoto was ever identified: “The identification of Satoshi Nakamoto, the pseudonymous person or persons who developed Bitcoin, or the transfer of Satoshi’s Bitcoins.”
Satoshi has never been truly identified beyond the initial launch of Bitcoin. Satoshi’s original block address has been sent 68 bitcoins since inception or more than $3.2 million at today’s valuation. Some other curiosities include the definitions page:
A whole new group of traders is colluding to beat the market. No, not Redditors or fiber-optic wielding Wall Street “quants.” Today, in both a simpler and way more complex way money can be made using bots to outbid trades on cryptocurrency markets.
According to research by Flashbots, in the past 30 days alone, $106.5 million of Ethereum (ETH) has been extracted “permissionlessly” from trades on the ETH blockchain. The problem has gotten progressively worse throughout 2020, where Flashbots researcher Alex Obadia started their search.
“After scraping the Ethereum blockchain starting from the first block of 2020, we’ve classified more than 1.3M MEV transactions,” Obadia wrote. “And found a total of at least $314M worth of Extracted MEV since Jan 1st, 2020.”
It’s called Miner Extracted Value (MEV) and Flashbots scoured millions of ETH transactions to find when it happened. Flashbots was created because of the vulnerabilities of decentralized crypto markets, like MEV exploits.
It’s stated that a simple version of how this extraction can be done is by a miner piggy-backing off existing trades, the bot can find a trade waiting to be completed in the blockchain memory pool, and “memsnipe,” creating an identical trade but raising the transaction price to complete it.
The flaw was first documented in a 2019 Cornell economics and crypto research paper.
“Blockchains, and specifically smart contracts, have promised to create fair and transparent trading ecosystems. Unfortunately, we show that this promise has not been met,” Cornell researchers found. “Like high-frequency traders on Wall Street, these bots exploit front-running in DEXes, paying high transaction fees and optimizing network latency to front-run, i.e., anticipate and exploit, ordinary users’ DEX trades.”
Flashbots updated the findings to claim that miners were rarely the culprits and that the term should be amended to Maximum Extracted Value.
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.“
President Trump revealed his stance on cryptocurrencies over twitter on Thursday, and he’s no advocate.
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”
I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….
— Donald J. Trump (@realDonaldTrump) July 12, 2019
….Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National…
— Donald J. Trump (@realDonaldTrump) July 12, 2019
…and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!
— Donald J. Trump (@realDonaldTrump) July 12, 2019
Bitcoin is back over $12,500 but a growing chorus within the crypto faithful are pointing to a potential catastrophic event that could change the crypto markets forever.
It’s the potential implosion of Tether, a company spotlighted in a recent deBanked magazine story for its uncanny ability to create digital dollars out of thin air, and a new forceful response from the New York Attorney General’s Office over Tether’s attempt to weasel its way out of being investigated.
Specifically, Tether has raised several challenges to the OAG’s and New York Supreme Court’s jurisdiction, most recently through a motion to dismiss a formal investigation. The OAG, who believes the tactics are only being used to stall, wrote in papers submitted on Monday that “the delays must stop, and Respondents must produce the information they were originally directed to produce.”
The AG calls out Tether on its claims that its digital dollars (USDT) are fully backed 1:1 by real US dollars on deposit in a bank account, when in fact they are not. Additionally, they believe Tether is attempting to circumvent a court ordered injunction and is further bending securities laws in part by purportedly selling $1 billion of a new digital token to anonymous investors to cover losses that are already under investigation.
“This is an ongoing law enforcement investigation. The OAG is entitled to pursue it, without further impediment or delay,” they state in court papers, stressing yet again that Tether should no longer be allowed to delay the process.
Tether meanwhile, reportedly created another $100 million of USDT the same day the papers were filed. Should those funds be used to buy Bitcoin, Bitcoin’s value might continue to surge… in the short run.
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.
George Popescu is stepping down from Lampix, the augmented reality lamp company he founded, according to an announcement. Lampix raised $14.2 million through its sale of PIX tokens in a 2017 Initial Coin Offering (ICO). PIX sold at a price of 12 cents each but the value has since plummeted by more than 95%.
Popescu will be replaced by Salvatore Buccellato, who has been the Chief Revenue Officer since the summer of 2018.
“As outgoing CEO I am really proud to have taken Lampix from an idea/prototype to the successful manufacturing of the Lampix commercial development kits,” Popescu said in a published statement. “I strongly believe that it is good practice for companies to regularly have new CEOs who bring new ideas, new resources and a fresh outside vision to the company. During and after the full transition I will of course remain involved with the company as needed.”
Lampix was profiled in deBanked’s November/December magazine issue as a poster child for the murky world of crypto fundraising. At the time, Popescu was involved in several other ICOs in addition to Lampix. Among them was Restart Energy (which raised $30 million), Opiria, First Blood, AirFox (which later settled charges with the SEC for selling unregistered “securities”), and DropDeck Technologies, whose user funds were lost due to a software bug that also affected numerous other companies. Popescu was also advisory board chairman to Gatecoin, a Hong Kong-based crypto exchange which closed on March 20, 2019 following a 2016 hack.