Author: Dale Warburton

Dale is a former attorney turned passionate Bitcoiner with an interest in investments, macro, geopolitics, innovation, tech, nature, wildlife, MMA and Bitcoin (of course).

Categories
CBDCs China Crypto News

China Rolls Out CBDCs for Public Transport

China’s central bank digital currency, the e-CNY, is now being piloted in several cities for use in public transport and schooling.

Expanding the Eyes of the State

China has officially begun rolling out the next round of its CBDC program, most evidently in the city of Guangzhou, where it is now possible to pay for public transport with central bank-issued digital yuan.

In order to do so, passengers are required to download an app, deposit funds and scan a QR code in the bus terminal to make payment. A similar program has reportedly been launched in the city of Ningbo, becoming the ninth municipality in China to do so.

The communist government has rapidly expanded the e-CNY’s application this year, most notably in the form of government-sponsored airdrops designed to stimulate after prolonged lockdowns.

Since launching its CBDC program, one online retailer noted it had seen around 900 million CNY (US$131.6 million) in transactions since accepting e-CNY. In total, approximately 830 billion ($US121.4 billion) worth of e-CNY transactions were recorded in the first five months of 2022 alone.

CBDCs, Not as Advertised

As whistleblower Edward Snowden correctly points out, CBDCs, while marketed as digital currencies, are in fact much more sinister. Properly understood, CBDCs are best conceived as programmable money capable of forming the base layer of a social credit score.

In a dystopic world where all money is essentially a smart contract, government gets to decide what it wants you to do, and then uses sticks and carrots to optimise compliance with its agenda. It’s no surprise, then, that authoritarian regimes such as the Chinese Communist Party have been so quick to embrace them:

Categories
Australia Bitcoin Crypto News Regulation

Aussie Government Prioritises ‘Token Mapping’ for New Regulatory Framework

The Australian government has released a statement indicating that it will begin a review as to how digital assets should be managed. This starts with a process it has termed “token mapping”:

Crypto Reform Under Way

In the statement, Treasurer Jim Chalmers highlighted that the review was designed to ensure that Australia kept in line with global best practices:

Australians are experiencing a digital revolution across all sectors of the economy, but regulation is struggling to keep pace and adapt with the crypto asset sector.

Jim Chalmers, Australian federal Treasurer

In doing so, the first item on the agenda was a so-called “token mapping” exercise aimed to establish how different digital assets and related services ought to be regulated. Apparently, this is the first of its kind, making Australia “leaders in this work”.

What Is Token Mapping?

The process of token mapping is said to entail uncovering the characteristics of all digital asset tokens, including the different types, their underlying protocols, and any other relevant technological features.

Chalmers added: “As it stands, the crypto sector is largely unregulated, and we need to do some work to get the balance right so we can embrace new and innovative technologies while safeguarding consumers.”

Noting the increased proliferation of crypto investments to the extent that related promotions are “plastered all over big sporting events”, Chalmers stressed that “we need to make sure customers engaging with crypto are adequately informed and protected”.

Prior to the token mapping exercise, government is expected to release a consultation paper with industry regarding a proposed regulatory framework.

Given the widespread belief among mainstream pundits that most cryptos amount to unregistered securities (including NFTs), the so-called token mapping exercise may yield at least one positive outcome – that it simply isn’t feasible to have different sets of rules for the traditional and crypto sectors (particularly with regards to fundraising and disclosures).

If government does the work, you’d expect it to find that Bitcoin is best reviewed as a commodity, whereas all the other cryptocurrencies are more accurately seen as companies. Most Bitcoiners aren’t, however, holding their breath:

Categories
Bitcoin Crypto News

Hodlonaut Receives $1 Million in BTC to Defend Faketoshi Lawsuit

The self-proclaimed inventor of Bitcoin, commonly known as “Faketoshi” among Bitcoiners, is back at it again. This time, Craig Wright is suing a pseudonomyous Bitcoin website editor for defamation.

‘We Are All Hodlonaut’

True to form, the Bitcoin community has rallied in support of “Hodlonaut”, raising over US$1 million (52 BTC) to support what is expected to be a costly lawsuit.

With the trial set to commence on September 12 in Oslo, Hodlonaut reached out to the community for support, highlighting that in addition to defending the defamation claims he would also be seeking an order preventing Wright from additional claims in the future:

Hodlonaut call to arms. Source: Twitter

The Bitcoin community heard the call to action and wave of support followed, with one particularly deep-pocketed Bitcoiner donating 47 BTC:

Aside from financial contributions, the community offered its support with the hashtag #WeAreAllHodlonaut. Michael “Gigachad” Saylor, the unofficial corporate king of Bitcoin, tweeted the hashtag on the same day as the massive 47 bitcoin donation was received. Coincidence?

Defending Bitcoin

It’s difficult to remember a time when Craig Wright wasn’t embroiled in some or other legal proceedings. Most recently, he won a case against a popular British podcaster for defamation, however ended up with the paltry sum of £1 for deliberating manufacturing evidence.

Wright has routinely threatened media personalities and Bitcoin Core developers with lawsuits, which has ultimately led to the creation of a fundraising page called defendingbtc. Thus far, over 50 bitcoin has been donated and, given the community’s support behind Hodlonaut, that figure is likely to only go up.

Despite having numerous opportunities to conclusively prove that he is Satoshi, Wright has failed in each case. Is Hodlonaut the person to once and for all and finally put to rest Wright’s persistent baseless claims? Time will tell.

Categories
Crypto News Stablecoins Tether

Tether FUD Finally Over Amid Recent Partnership With Top 5 Accounting Firm?

An independent review from global accounting giant BDO has reported that the stablecoin issuer’s total assets exceed its consolidated liabilities. Will the FUD finally go away or stick around independent of evidence?

Top Five Accounting Firm Gives Stamp of Approval

Tether has made available its latest quarterly assurance opinion completed by BDO, a top five-ranked global independent public accounting firm. The attestation reaffirms the accuracy of the firm’s reserves report, which breaks down the assets held by the group as of June 30, 2022.

As of that date, BDO confirmed a more than 58 percent decrease in Tether’s commercial paper holdings over the prior quarter, from US$20 billion to US$8.5 billion. During the same period, the company increased its holdings of cash and bank deposits by 32 percent.

The attestation revealed a continued reduction in commercial paper investments and is said to demonstrate that “the group’s consolidated assets consistently exceed its consolidated liabilities, despite market capitulation in Q2 2022, which led to cascading failures across the industry”.

Further, the note suggests that “emerging from this black swan event [market capitulation, kicked off by Luna], Tether demonstrated its resiliency and continued commitment to transparency, dependability and commitment to removing commercial papers from reserves”.

Management noted that as of June 30, total assets exceeded total liabilities, and highlighted a figure of US$66.2 billion in relation to digital tokens issued.

Paolo Ardoino, Tether CTO, said:

We are fully committed to maintaining our role as the leading stablecoin in the market. Our commitment to transparency and the community is a longstanding pillar in the underlying ethos of the company and aligns with our responsibility as a market leader. We have once again demonstrated that commitment by aligning with BDO, one of the world’s top accounting firms.

Paolo Ardoino, CTO, Tether

‘Tether Truthers’ Silenced

So-called “Tether Truthers” have long asserted that Tether is a fraud and that its collapse would result in the entire crypto market unravelling. To date, that has proven to be a belief lacking in credence, even more so after this latest attestation.

This news would have been poorly viewed by at least one hedge fund, which accumulated a massive short position betting on its its decline. It seems no matter the evidence provided, Tether FUD is one of those persistent issues that are hard to dispose of, once and for all.

Categories
Australia Coinbase Crypto News

Sydney Uni Finds Insider Trading Occurs in 10-25% of Crypto Listings

A group of Australian researchers at the University of Technology in Sydney have released a report claiming that between 10 and 25 percent of Coinbase listings since 2018 involve insider trading.

‘Systemic’ Insider Trading

The report alleges that insider trading is “systemic” in the crypto sector, suggesting that up to 25 percent of Coinbase listings in the past four years have involved insider trading, to a lesser or greater extent.

Professor Ester Felez Vinas, Professor Talis Putnins, and PhD candidate Luke Johnson analysed crypto listings between September 2018 and May 2022, and claim that this resulted in some US$1.5 million in profits. Perhaps more telling is the fact that identified cases have yet to be prosecuted.

As a result, the researchers argue that due to the growing perception of insider trading, it may have the result of scaring away potential investors and “impede adoption of cryptographically secured ways of representing securities and other financial instruments”.

In reaching their findings, the team examined 146 Coinbase listings and tracked their prices 300 to 100 hours before each new listing went live on the exchange to look for abnormal trading patterns of said assets on KYC-free decentralised exchanges.

From visual inspection, we note that there is an evident run-up pattern prior to the listing announcement starting at -250 hours.

Report findings

The report adds that “the run-up continues until the listing announcement event, where we see a jump in price because of new information entering the market and traders reacting to the news”. It concludes by saying that the “run-up pattern we observe is consistent with the run-ups in prosecuted cases of insider trading in stock markets”.

Irresistible Temptations

The report comes as little surprise as evidence mounts that insider trading is increasingly becoming a feature within crypto exchanges, particularly those that are less selective with their listings.

We saw it last year in the NFT space, as one senior executive at OpenSea was found to be front-running listings, and more recently a Coinbase employee was charged for doing the same.

Whether in traditional or crypto markets, human nature remains the same. When people have access to asymmetrical information capable of yielding profits, the temptation to take advantage is often too great to resist.

Categories
Crypto News Regulation

US Regulator Sues ‘Dragonchain’ Over $16.5 Million ICO

The US Securities and Exchange Commission (SEC) has filed a complaint against Dragonchain, a blockchain venture that allegedly failed to register US$16.5 million in digital asset sales over a period of five years:

Unregistered Securities Here, There and Everywhere

The term “securities” refers to tradeable financial assets, and under US securities law a company may not offer or sell securities to the public unless the offering has been registered with the SEC. Registered offerings are subject to a plethora of laws and regulations that purport to protect investors.

Full disclosure is one of the core elements required within a public listing, designed to help investors make informed choices, and this is typical not just in the US but across virtually all capital markets.

Some of the required information to be disclosed includes the history of the company and its founders, shareholding structure, financial statements, executive compensation, risk factors (both current and future), management’s explanation of operations, and any other material facts relevant to the offering.

Michael Saylor, as well as current SEC chairman Gary Gensler, are of the opinion that the vast majority of tokens constitute unregistered securities, and the regulator’s actions are beginning to gain steam. Already this year we’ve witnessed a veritable feast of lawsuits and probes relating to unregistered securities, most notably against Coinbase.

Dragonchain Flies Too Close to the Sun

The complaint alleges that chief executive John Roets violated securities laws by raising millions of dollars from the sale of Dragon (DRGN) tokens in an initial coin offering (ICO) in 2017. The firm then diverted the proceeds into marketing and development:

Dragonchain undertook its distribution of DRGNs without registering its offers and sales of DRGNs with the SEC as required by the federal securities laws, and no exemption from this requirement applied.

SEC complaint

“Through this offering, the defendants allegedly raised approximately $14 million from approximately 5,000 investors worldwide, including in the United States,” the SEC wrote. The SEC argues that DRGN was marketed to crypto investors by touting the token’s investment value, pricing, and “listing” on trading platforms.

Despite marketing itself as a hybrid blockchain for “solving business problems at an enterprise scale”, Dragonchain has to date demonstrated little to any real-world value.

Interestingly, this isn’t the firm’s first encounter with authorities. In 2021, a court filing by the State of Washington also called DRGN tokens a security, arguing the firm was “not currently registered to sell its securities in the state of Washington and has not previously been so registered”.

Dragonchain was subsequently fined US$50,000 and issued with a cease and desist order. The SEC is now looking to follow suit by seeking a permanent injunction, the return of what it believes are wrongfully obtained profits, and civil penalties.

Dragonchain appears to have embraced regulatory arbitrage to circumvent laws designed for investor protection. Bitcoiners such as Saylor would likely argue it is but one, and there are around 20,000 remaining:

Categories
Crypto News Markets Superannuation

Pension Funds Remain Interested in Crypto Despite Market Downturn

Despite this year’s bear market of “historic proportions”, pension funds across North America remain bullish on the crypto sector, according to The Wall Street Journal (WSJ).

Pension Funds at a Crossroad

According to the report, the interest is reflected in asset management firm VanEck, which notes that many pension funds have reached a crossroads in 2022, wondering whether to double down on crypto or otherwise throw in the towel.

Last year, one Houston-based firefighter pension fund put US$25 million into bitcoin and ethereum. While its investment is underwater, leadership understood at the time that “volatility and large swings are expected”.

Other pension funds are viewing the bear market as a potential opportunity for further investment at a substantial discount. While many funds don’t necessarily have conviction in the underlying crypto assets, some are willing to chase yields by engaging in yield farming.

Most notably, this has been adopted by a Virginia-based pension fund that told the WSJ approximately 4.5 percent of its US$6.6 billion in assets under management was being utilised for this purpose:

“Virginia county police pension fund getting into crypto yield farming is one of the most 2022 headlines ever.” – @alexgourevitch

Not All Funds Got the Memo

Of course, not all pension funds have adopted this “forward-thinking” approach. Representing the views of most pension funds, one US$300 billion fund for teachers in California recently pronounced it was avoiding crypto altogether, due to its inherent volatility.

Recently it emerged that a Canadian pension fund had invested in Celsius, a crypto “bank” that has since declared bankruptcy. For those paying attention, it was self-evident that the yields were unsustainable, and more importantly the risk far outweighed any potential benefits. Unfortunately, this wasn’t sufficiently clear for many:

Institutions continue to lump Bitcoin and crypto in the same sentence. Until they take the time to understand the difference, malinvestment is likely to persist for the foreseeable future.

Categories
Australia Bitcoin

Aussie Bitcoiners Gather the Tribe in Proof-of-Work Bush Bash

What started as an ad-hoc post-lockdown gathering of Australian Bitcoiners in Woop Woop, the Bitcoin Bush Bash has inadvertently become a triannual grassroots pilgrimage attracting plebs from across the country, most recently to the coastal town of Yeppoon, Queensland.

Bottoms-Up Event in True Bitcoin Spirit

Back in October 2020, there were growing signs that state borders would be opening soon. This sparked an idea among a couple of Bitcoiners on opposite ends of the country to meet in the middle to catch up and discuss all things Bitcoin over a few cold beers.

One of the organisers put word out to the Bitcoin community, saying:

Hit up @hodloncomrades or @BTCSchellingPt if you wanna come and join us.

@hodloncomrades via Twitter

The plan was to meet at the small, charming country town of Murrurundi in New South Wales, some 320km north of Sydney and over 900km from Brisbane.

Whether intentional or not, the “proof-of-work” required to attend had a self-selecting effect, attracting only impassioned Bitcoiners with conviction from across the country, doubling the amount expected, and substantially more than the average local Bitcoin meetup.

That weekend in Murrurundi, which since has been unofficially declared the Bitcoin capital of Australia, was filled with questions, answers and discussions and demonstrations aplenty – a formula that has since been applied to subsequent iterations of the event.

The Bush Bash is truly an event for and by the plebs. Attendees praise the lack of corporate sponsorship, as well as the opportunity to connect, educate and create long-lasting bonds with like-minded individuals. With support from the Bitcoin Moon Fund and others, it is unlike almost all conferences since it is free, does not require registration to attend, is open-source, and most notably embodies an unspoken egalitarian spirit of humility and sharing of knowledge.

I spent the weekend matching names with Twitter handles, eating steak and left feeling energised and super grateful to be a part of this phenomenal community.

Anon Yeppoon 2022 attendee

Finally, aside from the electric sense of optimism that flows from a Bush Bash, one of the encouraging by-products is the impact on local communities and businesses in each of Bush Bash locations, namely Murrurundi, Beechworth and Yeppoon.

Yeppoon 2022

The most recent Bush Bash took place at the Strand Hotel in Yeppoon, attracting Bitcoiners from far and wide, including one from Perth in Western Australia who travelled an incredible 4,500km. Proof-of-work indeed.

The Strand Hotel played host to Bitcoin Bush Bash 2022 in Yeppoon.

The topics were diverse and varied, from the technical to the philosophical. Among those issues discussed were:

  • The Lightning Network – what Lightning is, the different types of nodes and some key lessons learnt by a node operator along the way;
  • Looking Glass Education – how an Aussie Bitcoiner teamed up with a couple of macro heavyweights to launch the world’s go-to source for Bitcoin and macro education for beginners;
  • Citadels – Bitcoin citadels, their purpose, and strategies employed in their defence;
  • Bitcoin News – the launch of Australia’s first Bitcoin-only news and education website;
  • Bitcoin mining – energy 101, how Bitcoin is the buyer of first and last resort, and what its environment impact is;
  • Bitcoin mining and the grid – energy demand, mining components and home mining operations; and
  • FediMint – an open-source custody protocol enabling groups of individuals to create federated Chaumian Mints on Bitcoin.

In between sessions, there was a tremendous energy among attendees and an overarching sense of shared values and understanding. If Australian Bitcoiners are in search of their tribe, the Bush Bash is most certainly where they would find it.

Categories
Australia CBDCs Crypto News

Australian Central Bank Goes Public With CBDC Trial

Last year, the Reserve Bank of Australia (RBA) pronounced that it “saw no strong case” for a retail central bank digital currency (CBDC). In a curious about-turn, the RBA has now announced it is “exploring use cases”.

A few alarms bells have been raised, to say the least:

CBDCs in a Nutshell

A CBDC is best understood as a digital form of fiat currency issued and regulated by a central bank (rather than retail banks, as is the case today). They can be classified as either retail or wholesale.

Retail CBDCs are issued directly to people and companies. By contrast, wholesale CBDCs are issued to financial institutions such as banks. The former are said to be useful as a mechanism to deliver “helicopter money” or universal basic income, whereas the latter are suitable for interbank transfers.

Risks and Benefits

Over 100 governments are at some stage of experimenting or implementing CBDCs, and cite their numerous benefits to include:

  • technological efficiency – money transfers and payments can be made in real time, directly from the payer to the payee;
  • reduced risk for merchants as settlement is instant;
  • financial inclusion – in that any legal resident or citizen can be provided with a free or low-cost basic bank account;
  • preventing illicit activity by tracking each unit of CBDC since all transactions are traceable;
  • improved tax collection – taxes can simply be deducted at source;
  • combating crime – the blockchain is transparent, making it easy to track criminal activities; and
  • improved safety – as carrying physical cash constitutes a risk.

However, enormous privacy and surveillance concerns have been raised from the outset, with critics describing CBDCs as “programmable money” capable of being switched on and off at the whim of centralised authorities. It is considered to be the seed of a social credit score, as once you are able to control the money, you become capable of controlling the citizenry through behavioural economics, as is the case in China:

What Is the RBA Up To?

According to the announcement, the research project is a collaboration between the RBA and the Digital Finance Cooperative Research Centre (DFCRC) to focus on the uses for, and potential economic benefits of, a CBDC:

The project, which is expected to take about a year to complete, will involve the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment for a period of time and is intended to involve a pilot CBDC that is a real claim on the Reserve Bank.

RBA announcement

The announcement adds: “Interested industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide innovative and value-added payment and settlement services to households and businesses.”

RBA deputy governor Michelle Bullock described the project as “an important step” on the path to a potential Australian CBDC, saying on ABC Radio’s The World Today program it was effectively “an experiment”.

CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits.

Andreas Furche, chief executive, DFCRC

The RBA indicated that part of the motivation for the experiment was that it didn’t want to be left behind. A report is expected in around a year’s time and according to Bullock, an Australian CBDC is not necessarily a certainty.

RBA ‘Jawboning’ on Stablecoins v CBDCs

This all comes as just three weeks ago, RBA chief Philip Lowe indicated that private stablecoins were “probably better than CBDCs“. Then again, the RBA also forecast inflation to be 1.5 percent this year, which has since risen to 6.1 percent, a 21-year high. Macro policy commentators would describe this as “jawboning”, and would suggest watching what the RBA does, and not what it says.

Categories
Celsius Crypto Exchange Crypto News

Singapore-Based Exchange ‘Hodlnaut’ Halts Withdrawals Citing Market Conditions

This year has thus far offered one compelling case after another on the importance of “not your keys, not your coins”. The latest episode in the crypto lending meltdown is Singapore-based firm Hodlnaut, which yesterday announced it was halting withdrawals:

Crypto Lending Market Uncertainty Continues

According to the announcement, the firm has frozen withdrawals, deposits and token swaps due to “difficult market conditions”. When asked about whether it was exposed to the collapse of Celsius and Three Arrows Capital, it referred to an earlier Twitter thread claiming it wasn’t:

While the company indicated it would provide users with an update by August 19, the official announcement offered little in the way of details as to how the liquidation crunch arose, saying only that its focus was on “stabilising our [its] liquidity and preserving assets”. It isn’t clear at this stage how much is at risk, although Hodlnaut claims to have US$500 million of assets under management.

Some Users Saved by Twitter Detective

Even though the rallying cry of 2022 has been to remove all coins from exchanges into self-custody, many have continued to rely on third parties for custodial services. Of course, it goes without saying that not all custodians are created equally, and that users need to do their due diligence to weigh up the relative risks and benefits of leaving coins on exchanges.

One Twitter user who became famous for calling out the Terra ecosystem implosion specifically called out Hodlnaut for its “CeFi degeneracy” in June:

The Twitter thread provides a revealing take on the mechanics of the inherent risks of earning yield on one’s crypto, and unfortunately for the majority of users they are unlikely to have either come across or heeded FatMan’s timely warning. Fortunately for others, they managed to withdraw their investments in time:

Since the announcement, the company’s co-founder has gone offline, with many users viewing this as the ultimate clear signal that they should probably manage their expectations in terms of receiving any of their funds back: