The crypto thread

[warpus]

^^ Curious about the "fraudulent" bit. Got a citation?

IMO the type of demand doesn't matter, in economic terms. If demand is there, it's there. But yeah, interest rates going up, means less retail investors investing, etc.

 

[Kyriakos]

I suppose now is not a good time to invest in crypto?
That's too bad, I should find something to do with the 50K surplus I have.

(it's in monopoly money)

 

[Birdjaguar]

Crypto Industry Sees Surge in Lawsuits

BY JAMES FANELLI

Lawsuits over cryptocurrency losses are mounting across the country, as investing in digital tokens and coins has become mainstream and the money at stake has increased significantly.

Even before the recent plunge in crypto prices, the industry already was seeing an uptick in lawsuits, which have come in several forms. Many of the cases have been fueled by investors who allege some digital coins were hyped and sold under false pretenses. Some proposed class-action suits allege pump-and-dump schemes involving celebrity promoters. Others allege that some digital tokens are unregistered securities or that cryptocurrency issuers were deceitful in their marketing. Collectively, the lawsuits speak to both the troubles and successes of a maturing industry. “We’re seeing all of the normal kinds of litigation that you would see in more traditional companies,” said Jason Gottlieb, a partner at Morrison Cohen LLP who tracks crypto-currency litigation. Mr. Gottlieb said the industry also was attracting an influx of plaintiff and defense lawyers who realize the crypto market is no longer “some obscure backwater for a small gaggle of techno-libertarian nerds. It’s a real business.”

Among recent lawsuits is a case filed in a California federal court over losses in the stable-coin GYEN. The suit accuses GMO-Z.com Trust Co., the issuer of GYEN, and crypto exchange Coinbase Global Inc. of advertising the stablecoin as being pegged to the yen, thereby providing a safer investment than more volatile cryptocurrencies. But when GYEN began trading on Coin-base in November, it immediately became untethered from the yen, leading the coin to spike in value and then drop 80% in one day, the lawsuit alleges. A similar peg break occurred in May 2021 when GYEN became available on a separate exchange, according to the lawsuit.

Kenneth Donovan, 27 years old and a plaintiff who began investing in cryptocurrency in 2019, said he bought $335,000 worth of GYEN last year after reading its white paper and learning the New York Department of Financial Services had authorized GMO-Z.com to issue stablecoins in the state. In a matter of hours, he said, his investment plummeted to $3,000, wiping out nearly his entire life savings. Some GYEN investors were risk-averse individuals who saw the cryptocurrency’s purported stability as a way to safely enter the crypto market, said Elizabeth Kramer, a partner at Erickson Kramer Osborne LLP, which filed the suit—its first crypto class-action complaint.

GMO-Z.com didn’t respond to a request for comment.

A spokeswoman for Coin-base declined to comment on the litigation. Coinbase said in a blog post in January that the break in parity between GYEN and the yen in November was the result of market conditions specific to GYEN. Coinbase didn’t cause the break, the company said in the post. John Jasnoch, a partner at Scott + Scott, said his firm has “gotten bullish on crypto” and is handling six cryptocurrency cases, with more in the pipeline. His portfolio includes three proposed class-action suits filed this year over investment losses in SafeMoon, a blockchain-based digital token that charges investors a 10% fee when they sell the asset. SafeMoon founders said the levy—half of which is redistributed to current investors—discourages sales of the token and encourages long-term holding.

Ken and Natasha Donovan are among the plaintiffs in a lawsuit. CINDY SCHULTZ FOR THE WALL STREET JOURNAL

The plaintiffs allege that SafeMoon was a pump-and-dump scheme in which it used celebrities such as boxer Jake Paul, musician Nick Carter and rapper Lil Yachty to promote the tokens on social media. SafeMoon founders encouraged purchases of the token while selling off their own holdings as the trading volume remained inflated, the plaintiffs allege.

Lawyers for SafeMoon, Mr. Paul and Lil Yachty didn’t respond to requests for comment. In a court filing in one of the suits, a lawyer for Mr. Carter denied that his client acted as a promoter for SafeMoon and asked a judge to dismiss the complaint.

 

[stinkubus]

^^ Curious about the "fraudulent" bit. Got a citation?

IMO the type of demand doesn't matter, in economic terms. If demand is there, it's there. But yeah, interest rates going up, means less retail investors investing, etc.

The demand is fraudulent in the sense that most trades are transfers between wallets controlled by the same individual.

https://www.nasdaq.com/articles/how-and-why-crypto-exchanges-fake-trading-volumes-2021-08-24

It ought to be obvious why this is bad.

 

[warpus]

Interesting! If you remove that "fake demand" though, are you saying there wouldn't be any left? That doesn't seem right.

 

[El_Machinae]

Interesting! If you remove that "fake demand" though, are you saying there wouldn't be any left? That doesn't seem right.

That's hard to predict, but that fake demand caused 'real' demand. So who knows how much real demand would have collapsed without the fraud?

I don't think people should think of it as 'losing money in crypto'. Think of it more as 'gave your money to someone richer than you, or a scammer'.

 

[stinkubus]

Interesting! If you remove that "fake demand" though, are you saying there wouldn't be any left? That doesn't seem right.

No, I'm not saying there wouldn't be any left. From the article I posted volume on the exchanges would drop by 85-90%. More financially savvy, but small-time, participants in these markets would understand the price movements based on low volume aren't as stable as those with high volume. Increasing the volume in this fashion definitely makes the coins look like better investments than what they really are.

It also allows holders of large quantities to manipulate the ask price upward. These people are then at liberty to sell at the top of the market, which they manufactured themselves, and then wait for the inevitable dips to buy again.

Since ownership of cryptocurrencies is highly concentrated this is very easy for the big players to do. The following is a link to a paper by the National Bureau of Economic Research on that topic.

https://www.nber.org/papers/w29396

They only give out 3 free articles per calendar year, so if you want to read it you'll have to visit the website and download the PDF.

 

[warpus]

No, I'm not saying there wouldn't be any left. From the article I posted volume on the exchanges would drop by 85-90%. More financially savvy, but small-time, participants in these markets would understand the price movements based on low volume aren't as stable as those with high volume. Increasing the volume in this fashion definitely makes the coins look like better investments than what they really are.

It also allows holders of large quantities to manipulate the ask price upward. These people are then at liberty to sell at the top of the market, which they manufactured themselves, and then wait for the inevitable dips to buy again.

Since ownership of cryptocurrencies is highly concentrated this is very easy for the big players to do. The following is a link to a paper by the National Bureau of Economic Research on that topic.

https://www.nber.org/papers/w29396

They only give out 3 free articles per calendar year, so if you want to read it you'll have to visit the website and download the PDF.

Ah yeah, I have long suspected that a lot of these so called whales influence the market by selling large holdings at strategic points at the top.. perhaps even coordinating that with each other to some degree.. or simply using similar analytic tools that allow them to "predict" when the top might be..

This then leads to greenhorn retail investors selling at a loss due to panic. The whales then wait until the market bottoms out, and buy in again, increasing their holdings. During the next rally/bull market a bunch of new greenhorn retail investors jump in due to FOMO, and the whales wait.. and repeat the process again, and get richer over time... but also end up influencing the value of Bitcoin and as a result all the altcoins.

Let me know if my summary of what's happening differs from what's outlined in the article.

I initially responded to your post, because I thought you were saying that these whales account for all of the value of Bitcoin, and that without them it wouldn't have any. And that confused me.

 

[stinkubus]

You are mostly correct. The paper estimates that only 10% of volume on exchanges are actual trades. The remaining 90% is users transferring coins across multiple addresses which they control. The only rationale the paper provides for such a high % of the volume being people transferring coins to themselves is an attempt by the holders of these coins to obfuscate who actually owns them which is problematic enough on its own.

The paper does not posit that this is being done in the name of manipulating the price, however. That inference is mine, but it really ought to be common sense especially with the entry of institutional investors into the marketplace, as I do not believe they would do this otherwise.

They also delve into some other issues like the existence of multiple exchanges (the lack of a centralized market where everyone has perfect knowledge of current bid-ask prices is a big difference between these coins and traditional securities like stocks). The fact that these exchanges reside in countries all over the world also complicates matters for investors because you may not be able to cash out on the exchange offering the best price if it's hosted in a country where you cannot repatriate the currency. For example, anyone cashed out Bitcoins on a Russian exchange just before they invaded Ukraine and didn't convert their Rubles in time probably got screwed. The segmentation of the market in this fashion makes quoting a single price for the value of a given coin disingenuous, because any given coin could be fetching thousands of different prices depending upon where you go to sell it and arbitragers cannot force the prices to equalize.

One very surprising finding was their estimate that only 3% of world wide exchange volume could be attributed to fraud (starting from the premise that the coins and markets themselves are not a fraud, of course) or the purchase of illegal goods and services. This was far lower than I expected, and also much lower than results of previous research, but I'm getting the impression (as a non-expert in the mathematics they used to construct their model) that this is likely to be more accurate than previous attempts.

 

[Samson]

Crypto Industry Sees Surge in Lawsuits

BY JAMES FANELLI

James Fanelli does not know what he is talking about:

GYEN stablecoin was a safer investment than more volatile cryptocurrencies.

No it was not, unless storring dollars in your mattress is a "safe investment". If it had worked, it would have stayed at the same value as the Yen, so they could have just bought that and stuffed it in their mattress.

Some GYEN investors were risk-averse individuals

No one putting money into crypto is a "risk-averse individual".

boxer Jake Paul

Jake Paul is no more a boxer than I am a writer.

The demand is fraudulent in the sense that most trades are transfers between wallets controlled by the same individual.

https://www.nasdaq.com/articles/how-and-why-crypto-exchanges-fake-trading-volumes-2021-08-24

It ought to be obvious why this is bad.

It is not obvious to me. Comparing it to stocks, the prohibition on self trading principally means that one can more accurately assess the worth of an instrument from looking at what other people do. This alters the balance of power towards the speculator and away from the "holder", and towards those who look at the markets and away from those who actually understand the business and can value the instruments in real terms. I do not see that either is an inherent positive, and I would have thought they are a negative.

No, I'm not saying there wouldn't be any left. From the article I posted volume on the exchanges would drop by 85-90%. More financially savvy, but small-time, participants in these markets would understand the price movements based on low volume aren't as stable as those with high volume. Increasing the volume in this fashion definitely makes the coins look like better investments than what they really are.

Not as long as everyone knows what is happening. What it really does is is increase the size of the confidence intervals, ie. making people less certain about the accuracy of their estimate of the true value. As any estimate on the true value of any crypto thing is so speculative ATM I just do not get that the people who have most bitcoin bouncing them around their wallets is an obvious negative.

They also delve into some other issues like the existence of multiple exchanges (the lack of a centralized market where everyone has perfect knowledge of current bid-ask prices is a big difference between these coins and traditional securities like stocks). The fact that these exchanges reside in countries all over the world also complicates matters for investors because you may not be able to cash out on the exchange offering the best price if it's hosted in a country where you cannot repatriate the currency. For example, anyone cashed out Bitcoins on a Russian exchange just before they invaded Ukraine and didn't convert their Rubles in time probably got screwed. The segmentation of the market in this fashion makes quoting a single price for the value of a given coin disingenuous, because any given coin could be fetching thousands of different prices depending upon where you go to sell it and arbitragers cannot force the prices to equalize.

I am not aware of an exchange that does not publish their rates publicly. The sensible exchanges are decentralised and do not "reside in countries all over the world". Anyone who leaves anything of value in an exchange should expect to lose their stuff. I would probably rather an exchange in Russia at the moment that one in a small Caribbean tax haven, at least Putin has enough money that he is unlikely to be bought by binance.

 

[Samson]

FTC reports $329 million lost to crypto scams in Q1 2022

They are not at all clear how they define "investment scams", this is how they describe it and it sounds like any crypto "opportunity" to me:

Of the reported crypto fraud losses that began on social media, most are investment scams. Indeed, since 2021, $575 million of all crypto fraud losses reported to the FTC were about bogus investment opportunities, far more than any other fraud type. The stories people share about these scams describe a perfect storm: false promises of easy money paired with people’s limited crypto understanding and experience. Investment scammers claim they can quickly and easily get huge returns for investors. But those crypto “investments” go straight to a scammer’s wallet. People report that investment websites and apps let them track the growth of their crypto, but it’s all fake. Some people report making a small “test” withdrawal – just enough to convince them it’s safe to go all in. When they really try to cash out, they’re told to send more crypto for (fake) fees, and they don’t get any of their money back.
​

 

[Samson]

Bad day for Binance, the world’s largest cryptocurrency exchange:

SEC reportedly reviewing whether Binance's BNB token broke securities laws

US regulators are investigating whether Binance Holdings Ltd. broke securities rules by selling digital tokens just as the crypto exchange was getting off the ground five years ago, according to people familiar with the matter.

The Securities and Exchange Commission’s review pries into the firm’s origins and those of its BNB token, which is now the world’s fifth-biggest. Investigators are examining if the 2017 initial coin offering amounted to the sale of a security that should have been registered with the agency, said the people who were granted anonymity to discuss the confidential probe.

Scrutiny of BNB’s beginnings may be a troubling development for Binance as it faces multiple investigations in Washington. The SEC has brought dozens of enforcement actions over ICOs, which involve issuing virtual coins to raise money. BNB has been a feature of Binance’s expansive crypto empire​

Reuters reports that Binance facilitated $2.35 billion in illicit transfers from 2017–2021

During this period, Binance processed transactions totalling at least $2.35 billion stemming from hacks, investment frauds and illegal drug sales, Reuters calculated from an examination of court records, statements by law enforcement and blockchain data, compiled for the news agency by two blockchain analysis firms. Two industry experts reviewed the calculation and agreed with the estimate.

Separately, crypto researcher Chainalysis, hired by U.S. government agencies to track illegal flows, concluded in a 2020 report that Binance received criminal funds totalling $770 million in 2019 alone, more than any other crypto exchange. Binance CEO Changpeng Zhao accused Chainalysis on Twitter of “bad business etiquette.”
​

 

[Samson]

A try at crypto regulation driven by the big exchanges

Senators Lummis (R-WY) and Gillibrand (D-NY) introduced the "Responsible Financial Innovation Act", the first major proposal for cryptocurrency regulation in the US. A press release from Lummis included statements of support from Kraken, Coinbase, FTX, crypto lobbyists, and various other major players in the cryptocurrency industry—unsurprising support for a bill that is incredibly friendly to the sector. Notably, the bill broadly avoids classifying cryptocurrencies as securities, which would be regulated by the SEC and provide some consumer protections. Instead, the Senators create a foggy definition for sufficiently "decentralized" cryptocurrencies that would treat them as commodities and place them under the purview of the CFTC—the much smaller and less aggressive regulator that has been the preference of most in the cryptocurrency industry.

Senator Lummis has long been a strong supporter of Bitcoin and crypto more generally, sporting a "laser eyes" profile picture on Twitter and speaking at Bitcoin Miami, where she was introduced as a "champion of Bitcoin".
​

I do not really get it. It specifies that:

Digital assets which are not fully decentralized, and which benefit from entrepreneurial and managerial efforts that determine the value of the assets, but do not represent securities because they are not debt or equity or do not create rights to profits, liquidation preferences or other financial interests in a business entity (“ancillary assets”), will be required to furnish disclosures with the SEC twice a year.
​

So I guess that is company specific things like BNB? It seems the big question is when you use thing like that to leverage short or long selling does that become a security? It seems it should, but the line in the real world is pretty blurry and it kind of depends on the details of the contract. Would a flash loan count?

Also this bit:

Lummis-Gillibrand requires all issuers of payment stablecoins to: (1) maintain high-quality liquid assets valued at 100% of the face value of all outstanding payment stablecoins; (2) provide public disclosures on the assets backing the stablecoin and their value; and (3) have the ability to redeem all outstanding payment stablecoin at par in legal tender. Establishes a detailed, optional process for depository institutions (banks/credit unions) to issue a payment stablecoin.
​

Does that criminalise algorithmic stablecoins?

 

[Samson]

NFT market crashing?

Source What happened May 1st I do not know.

 

[Birdjaguar]

May 1 was a Sunday!

 

[Samson]

A Sunday that people spent twice as much on NFTs as the next highest day, and on really expensive ones, as the market is crashing! Well, it makes no sense to me but none of it does so that is no surprise.

 

[Birdjaguar]

I could not find any story about what happened.

 

[amadeus]

Are we expecting rational behavior in a market that has no utility, no reason to exist, and does not exist?

 

[Naskra]

May 1 was a Sunday!

Sunday to you. The owl of Minerva flies with the opening bell in Shanghai.

 

[stinkubus]

A Sunday that people spent twice as much on NFTs as the next highest day, and on really expensive ones, as the market is crashing! Well, it makes no sense to me but none of it does so that is no surprise.

Probably money laundering.