Tether & Bitfinex Focus of Manipulation Research & Swarm "Equity Tokens" Annoy Major Cryptocompanies
A bumpy market overnight saw the global cryptocurrency market cap recover by $1 billion to $280 billion, Bitcoin down by $10 to $6526 and Ethereum gained $9 to $487.
News emerged yesterday of possible market manipulation having occurred toward the end of 2017 when the price of Bitcoin spiked to record highs according to a research paper released by the University of Texas. Claims made in the paper suggest that Tether (USDT) was being used by the cryptocurrency exchange Bitfinex to support Bitcoin and multiple other altcoin prices. The purpose behind Tether essentially is to act as a “stable coin” to reduce volatility and effectively be “pegged” to the US Dollar 1:1. However, Tether has been mired in controversy on more than one occasion; in January Tether parted company with their auditors resulting in the company balance sheets not undergoing any audit at all fueling many long-held suspicions as to whether the cash book matched the volume of USDT available. Prior to the audit fiasco, Tether announced some $30 million worth of USDT had been stolen (which they subsequently dealt with by making the tokens in question irredeemable) leading to suspicion being cast on the company. In December both Bitfinex and Tether were subpoenaed revealing an overlap in management teams, lending further weight to the current manipulation theory.
Ripple (XRP) making several appearances in the news today – AMEX apparently inadvertently confirmed their use of Ripple for their blockchain application in a (now removed) job posting. Meanwhile, Western Union have claimed they are yet to see any financial upside after testing Ripple’s xRapid product for the past six months. Western Union CEO Himet Ersek said “We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests. The practical matter is it’s still too expensive”. It turns out that Western Union has only performed 10 transactions in their trial so far – hardly worth even calling that a trial given the volume of transactions the company processes daily – a fact pointed out by Ripple senior VP of Product Asheesh Birla. Birla went further to state “if Western Union were to expand the pilot to all of its payments, the firm would cut down on at least 50% of costs per transaction. Moreover, Western Union’s foreign exchange costs have also “been on average better than what they normally see,” Ripple’s own chief cryptographer made an odd claim that “Banks are unlikely to use distributed ledgers to process cross-border payments for now because of scalability and privacy issues” in an interview with Reuters. Given the recent announcement by the Mitsubishi UFJ Financial Group on their testing of their platform at 1 million TPS (transactions per second) it would appear Ripple have their work cut out for them – both on their own business and explaining clearly to clients how their products need to be applied in order to see the benefits.
Swarm announced the launch of what it calls “equity tokens” that (in theory) represent equity holdings in private companies in the fintech sector such as Coinbase, Robinhood, Ripple and Didi according to a post on their site. For those not familiar with the concept, in laymen terms Swarm claim to be acquiring/have acquired equity in private companies that have issued private or restricted shares to staff or venture capital backers (as opposed to the traditional open market). Swarm then "tokenise" the equity into "equity tokens" and offer them to investors as a way to invest into private firms indirectly. Whilst this might initially sound like a good idea, it is not without significant issues to say the least, both legally and financially. All too often privately issued equity will have extensive lock up period clauses attached (director shares for example can be subject to a 4 year lock up), and in addition jurisdiction can also be a problem – reg s stock cannot be owned sold to US citizens. Further still, if any of the private companies take the step to become listed on a traditional stock exchange no end of problems start to appear pending any stock splits, reversals, swaps or restructuring – let alone the possibility of a hostile acquisition being theoretically achievable. According to Coindesk both Ripple and Coinbase are not amused at all with Coinbase stating "As a private company, Coinbase does not allow trading of stock on secondary markets for a variety of reasons, including the fact that there is not full and equal information available to the market. We will take appropriate action if we find people have sold Coinbase shares in violation of our agreements not to do so," Suffice to say the terms “barge” and “pole” spring sharply to mind with offerings such as these – an investment into an investment that’s not designed to be an investment, yet when/if it were to become an investment product it only exists in the void between the traditional stockmarkets and the cryptomarkets – I’ll pass on that one thanks.
Created: Thursday, June 14, 2018
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