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CFTC Uncovers Ponzi Scheme in My Big Coin Pay Cryptocurrency

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U.S. regulators have stepped up their surveillance of crypto fraud by filing formal complaints against My Big Coin Pay, a digital currency that funneled millions of dollars to the operators in an apparent Ponzi scheme.

Formal Complaints Filed

The Commodity Futures Trading Commission (CFTC) has lodged complaints against Randall Crater and Mark Gillespie, who allegedly used funds generated from the My Big Coin Pay ICO to purchase real estate, jewelry and vacations. Regulators said a total of $6 million was “misappropriated” and used to buy indulgences. In an attempt to cover up the Ponzi scheme, the cryptocurrency’s operators tried to issue additional tokens.

The U.S. commodities regulator filed the case on Jan. 16, citing misappropriation charges that include “transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods.”

According to the CFTC filing, the operators of the cryptocurrency made several misleading claims to lure unsuspecting investors. This included false claims that the cryptocurrency was actively traded on the major exchanges, and that it had daily price quotes. The scam coin’s operators also said they were supported by major companies like MasterCard. None of these assertions were true.

Regulators described My Big Coin Pay’s results as “illusionary,” and said the setup took money from investors fraudulently.

Regulators Step Up Oversight Efforts

The CFTC is one of two main U.S. regulatory bodies tackling the growing and often mischievous world of cryptocurrency. The Securities and Exchange Commission (SEC) is also scrutinizing token sales for possible violation of federal securities laws. Several funds have shelved plans for bitcoin ETFs on grounds that the SEC would not approve the application.

As one might expect, the CFTC is handling several cases of fraud involving cryptocurrency. Just last week, it filed fraud charges against three other crypto operators, according to Engadget, a technology news portal.

The commodities regulator is also facing criticism for allowing the CME and CBOE exchanges to launch bitcoin futures. Opponents of the move, which include the Futures Industry Association (FIA), say bitcoin futures may introduce unwanted complications to the clearing process.

Meanwhile, fraudsters have permeated every corner of the ICO market in hope of stealing a slice of an ever expanding pie. Coin offerings are generating record inflows at the moment, with startups easily raising tens of millions of dollars on the back of a whitepaper and PR campaign. Although the market is scrutinizing ICO projects much more closely, huge appetite remains. Some companies are said to be rushing their crowdsale while the regulatory climate is still favorable.

On the other side of the token raise, hackers are stealing hundreds of millions of dollars from ICOs, according to new research by big-five consulting firm Ernst & Young.  The researchers concluded that nearly $400 million in ICO funds raised last year were stolen through phishing and other common tactics.

The report indicated that “flawed token valuations, unclear regulations, heightened hacker attention and congested networks” were the biggest catalysts behind the widespread security breaches. Clearly, this is one corner of the financial market regulators will need to monitor much more closely.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

 

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4.6 stars on average, based on 552 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Cryptocurrencies

2018 Crypto Exchange Trading Revenue Poised to Double to $4 Billion: Bernstein

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For the most part, the cryptocurrency markets have been operating on all cylinders year-to-date with the exception of one very important metric — price. And now that the bitcoin price appears to have found its footing, today’s slip to $6,410 notwithstanding, that component of the market appears to be cooperating, too. Wall Street research firm Bernstein is acknowledging the industry’s impact, predicting that cryptocurrency exchange revenue may grow more than twofold versus year-ago levels to some $4 billion.

The Bernstein report, as cited in Bloomberg, is entitled: “Crypto Trading — The Next Big Thing Is Here?” The title alone reflects a more open-minded if not sanguine take on the cryptocurrency market, more specifically speculative trading. Last year, leading crypto exchanges generated $1.8 billion in transaction fees, which according to the Sanford analysts is 8% of what Wall Street exchanges made. Based on this metric of transaction fees, cryptocurrency trading was second only to global cash equities.

Courtesy: Bloomberg

The outlook may seem shocking, considering that the bitcoin price is down more than 60% from last year’s peak. But leading cryptocurrency exchange by trading volume Binance, which boasts millions of users, tipped its hand to balance sheet strength. The exchange’s CEO CZ recently provided an outlook, saying the company was on track to deliver record profits this year of as much as $1 billion, as CCN previously reported.  On the low end of its range, Binance is looking at $500 million.

Advantage Goes to Coinbase

Meanwhile, Bernstein analysts are quick to point out that Wall Street banks have largely been on the sidelines of crypto, Goldman Sachs and JPMorgan’s crypto trading and blockchain investments notwithstanding. As a result, the could find themselves in an unusual competitive position where crypto exchanges like Coinbase dominate market share. Coinbase already boasts some “50% of the transaction revenue pool,” according to Bloomberg, and fears of fraud coupled with a murky regulatory climate hold the big banks at bay.

“As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms,” according to Bernstein analysts, who then pointed to examples across custody, portfolio management and making markets, for instance.

Indeed, the persistent downturn in the cryptocurrency market, particularly in the bitcoin price, has had observers wondering how crypto exchanges could offset the damage. After all, they generate revenue based on trading volume.

Exchanges like Coinbase have been adding coins, most recently Ethereum Classic (ETC) but they’ve got several more altcoins waiting in the wings that they’re looking to support. While Coinbase officials have stated that these new altcoin additions are in response to trader demand, it’s also a way for them to continue to collect trading revenues while the bitcoin price has been stalled. Binance, meanwhile, whose trading volume hovers at approximately $1.4 billion in the last 24 hours, supports hundreds of altcoins.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 39 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.




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CoinShares Bitcoin ETN Adds USD, Markets Rally

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Given the positive trend in the cryptocurrency market today, you might think that a bitcoin ETF somehow slipped through the cracks. While that isn’t the case just yet, you wouldn’t be too far off. CoinShares, a digital asset management firm domiciled in the Channel Island of Jersey, has announced a bitcoin exchange-traded note (ETN) product that Americans can now get their hands on more easily.

CoinShares chief Ryan Radloff is quoted in Bloomberg as saying: “Everyone that’s investing in dollars can now get exposure to these products, whereas before they were only available in euros or Swedish krona. Given the current climate on the regulatory front in the U.S., this is a big win for Bitcoin.”

As Fundstrat’s Tom Lee pointed out, the ETN, which is dubbed Bitcoin Tracker One (CXBTF), is “quoted in USD” despite the fact that it’s a Swedish-based product.  Traders went so far as to suggest that this new product was the catalyst for today’s “green candles,” and if retweets are endorsements, then Fundstrat’s Lee agrees.

Source: CoinMarketCap

The CoinShares ETN is not a new product and has been trading on Nasdaq Stockholm for several years. But now that it’s also based on U.S. dollars, the brokerage community can access it and offer it to U.S.-based clients. Lee likened it to Grayscale’s bitcoin investment trust (GBTC) and noted that it “trades at NAV, so returns are virtually identical to bitcoin.” Indeed, as CoinShares’ bitcoin ETN has shed more than half its value this year alongside the decline in the bitcoin price. Lee provided the following snapshot into Bitcoin Tracker One:

Bitcoin Rivalry

Meanwhile, if you ask CoinShares’ Radloff, the Grayscale product is flawed because of a premium attached to the bitcoin price. Radloff told Bloomberg that CoinShares’ products have managed to avoid the premiums while still providing liquidity.

Wall Street, however, may not be so keen to adopt the product. An investor tweeted that when he attempted to purchase Bitcoin Tracker One in his Merrill Lynch IRA, the product was blocked. This individual was willing to redirect his assets to another firm just to gain access to the ETN and tweeted: “Can someone point me to a new IRA provider that will let me trade this? I’ll move my funds over today.”

Just yesterday, former PayPal CEO Bill Harris said on CNBC that the bitcoin price was headed to zero. But with developments like this bitcoin-esque product making its way into the market, he may have to eat his words.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 39 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.




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Coinbase Chief Brian Armstrong on Bitcoin Bubbles and Corrections

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It’s not often that you have two blockchain pioneers like Coinbase CEO Brian Armstrong and Ethereum Co-Founder Joseph Lubin address the market in the same week. But in recent days, the stars aligned, with Armstrong and Lubin both meeting with Bloomberg for separate interviews.

While each of them has their own take on the state of the market, they appear to agree on overarching themes that have gripped cryptocurrency investors of late surrounding digital currency prices and the bubble theory.

Coinbase’s Armstrong didn’t shy away from questions on bitcoin’s price, which has taken investors on a roller coaster ride since its December 2017 peak of more than $19,000 and recent dip below $6,000. Today, a corrective rally is in place in which the bitcoin price is up more than 6% on CoinMarketCap to $6,455. Armstrong suggested that it’s part of the evolution of the emerging technology.

“This technology is going through a series of bubbles and corrections. We’ve actually been through about four or five of them now where bitcoin made this big run-up in price and there was … irrational exuberance and it corrected back 60-70%. and each time it does that it’s at a new plateau,” said Armstrong.

Joseph Lubin, who in addition to co-founding Ethereum is at the helm of ConsenSys, seems to agree, adding in a discussion with Bloomberg that “each of these bubbles has the advantage to bring attention to our ecosystem.”

Coinbase and Crypto

Coinbase, which launched about six years ago, holds anywhere between $10 billion and $20 billion of clients’ cryptocurrency assets on a given day. In 2017, Coinbase transacted approximately $150 billion in cryptocurrency volume. Armstrong likened the bitcoin bubbles to the growth of Coinbase, which is the most popular U.S.-based cryptocurrency exchange.

For instance, as the bitcoin price has traversed this series of bubbles and corrections, Coinbase’s growth has performed in a similar trajectory, with the number of daily new users rising on the heels of major market corrections.

Armstrong is in the camp of comparing cryptocurrencies to the internet of 2001, pointing to “a lot of good companies that got started in the trough as well,” such as Facebook, for instance. While the expectations for the cryptocurrency prices may be “all over the map,” he said that “the real world adoption and usage is pretty steadily increasing.”

While adoption and usage may be on the rise, don’t expect to walk into your local Starbucks and pay with bitcoin any time soon, at least not in the U.S. The reason, Armstrong suggests, is that payments aren’t a major “pain point” in the U.S. unlike some developing economies. As much as 90% of cryptocurrency usage surrounds investments, leaving a mere 10% for “real world usage.”

Armstrong, who more than once likened Coinbase to the New York Stock Exchange, also addressed topics like regulation and ICOs, saying of the latter that the exchange “is not trying to list everything under the sun.”

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 39 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.




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