Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Wednesday, April 16, 2014
Bitcoin Updates April 16 , 2014 -- SecondMarket Officially Launches Institutional Bitcoin Exchange ...... Price of Bitcoin Tops $500 as China Fears Subside , PBOC Deadline Day: Business as Usual for BTC China ....... Mt. Gox Files for Liquidation Defunct Bitcoin Exchange Gives Up On Plan to Rebuild , potential buyer gives CNBC interview..... Neo & Bee CEO Brewster tries to prove innocence in public letter
The company had previously confirmed it would launch a US-regulated exchange by summer. That effort is still ongoing, and will be separate from the SecondMarket brand acccording to Barry Silbert:
“This is not the digital exchange effort, which will be launched separate from SecondMarket under a different name,” he said.
SecondMarket, a registered broker-dealer that has experience offering unique asset classes and alternative investments, is targeting investors interested in trading a minimum of 25 BTC per trade for its market making service.
Notably, however, that level of bitcoin trading is in a market that has seen bitcoin exchanges struggle to fill orders, according to investors familiar with institution-level BTC trading.
SecondMarket, as a result, is targeting investors who seek to move large amounts of bitcoin, a market that only a few companies are currently able to provide.
For example, companies such as itBit, Vaurum and most recently CoinMKT have intentions of reaching the financial world with bitcoin investment platforms.
SecondMarket made an announcement that it would get into the bitcoin exchange business earlier this year, and this is a new landing page to attract accredited investors through its website.
According to information posted on the SecondMarket site, aspiring exchange customers must first complete a compliance application and speak with one of the exchange’s representatives before trading.
Bitcoin Investment Trust
SecondMarket also offers a product called the Bitcoin Investment Trust, which founder Barry Silbert says already holds 100,000 bitcoins. Silbert has long been bullish on the long-term prospects of bitcoin, and his connections to the financial world give SecondMarket a degree of credibility in the digital currency industry.
In recent weeks, a number of China-based exchanges began reporting that their banking providers had received notice that the PBOC would be more tightly enforcing guidance meant to better separate the country’s state-backed financial system from the nascent bitcoin industry.
Major China-based exchanges such as Huobi and OKCoin, however, were exploring any and all possibilities should the PBOC take some action against their services, even openly suggesting that they were making preparations to move operations overseas if necessary.
However, it should be noted that the PBOC has yet to confirm or deny any additional actions against exchanges, meaning it is unknown exactly what the future may hold for the country’s bitcoin businesses.
The rumored deadline for China’s banks to cut off bitcoin exchanges from deposits has arrived, with no official word from the authorities that such a policy even exists. Chinese exchange BTC China claims it has no intention of changing the way it does business.
The story has contributed to turbulence in the bitcoin markets since it first began circulating as a rumor last month. Bitcoin saw its value fall beneath $400 briefly for the first time since November 2013. This is despite the People’s Bank of China (PBOC) itselfinsisting it had no intention to ban digital currencies.
Some exchanges have received formal and verbal notices from their banking partners, and there have been reports Chinese companies are looking to move some of their operations offshore.
Bobby Lee, CEO of BTC China, says his exchange has not heard of any changes, either from the central bank or any of the many banks with which it does business.
Business at BTC China will proceed as usual after this week, with customers replenishing their accounts via bank deposits or the ‘voucher’ system the exchange introduced in response to the first banking scare in December last year.
BTC China’s banking partners have reported seeing rumors of a new policy in the media, he said, but that was all.
“Our situation hasn’t changed. We’ve been talking to banks, the ones we have personal relationships with, and so far we’ve not received any notice to close our business with them.”
Lee said that all customer funds remained on hand and, even if one of BTC China’s banks decided to end its relationship with the company, it would simply move the funds to another account.
Rumors vs reality
There are three important points to remember in this series of events: firstly, despite some stating otherwise, China has not ‘banned bitcoin‘.
Secondly, any leaked opinions so far referred to funding bitcoin exchange accounts through bank deposits. Bank accounts were never in danger of being frozen, and the ability to withdraw funds from exchanges to bank accounts was not in question. Chinese exchanges also work with multiple banks at a time, with the ability to transfer funds between them.
Thirdly, and most significantly, all reports from China concerning banks and bitcoin exchanges so far are unofficial. To date there has been no ruling or policy statement by the People’s Bank of China on the matter, and any actions taken by Chinese banks were precautionary only.
“We’re still fully holding all customer assets, I want to emphasize that,” Lee continued.
“There’s nothing missing, there’s no misappropriation or frozen funds. All our funds are liquid and fully accessible. We don’t invest any of our funds in special ‘wealth management products’, or anything like that. Everything is liquid funds.”
The current Chinese attitude might be called a ‘tacit policy’, in which the government makes no official statements but makes its intentions known via subtle leaks to the media and asides to contacts in the banking industry. Authorities may well disapprove of bitcoin and discuss it with their associates, without the need for any proclamation.
Bitcoin operates in similar environments in other large economies, including the US, where regulatory authorities seem at times permissive towards digital currency innovation and at others less tolerant, depending on the department in question.
Under the status quo, bitcoin service businesses must register as ‘money transmitters’ in 48 states while the IRS rules bitcoin is property, not money, for taxation purposes.
BTC China’s voucher system, which it pioneered and other Chinese exchanges have used as well, is similar to buying a gift card or prepaid card for iTunes, Google Play or Amazon.
The main difference is the cards can also be used to withdraw funds, and then re-sold for cash to other users to fund accounts. BTC China sells the vouchers directly to resellers, who also sell them online.
Quigley’s fellow investors include John Betts, a former Morgan Stanley and Goldman Sachs executive, and venture capitalist Brock Pierce. The proposal offered to purchase Mt. Gox for just 1 BTC, and first surfaced on 10th April.
“You have to understand, of course, that Mt. Gox is much more that just the assets that it has. The company still has a very important role in the continuation of bitcoin.”
As part of the plan put forth by Quigley and his fellow investors, Betts would serve as the new Mt. Gox CEO.
Mt. Gox’s precarious state
In the interview, Quigley acknowledged that Mt. Gox had losses that amounted “to the tune of several hundred million dollars”. However, he said he believes that the reason why the exchange was plagued by so many problems can be attributed to its own lax practices.
“The company didn’t start as a bitcoin exchange. The measures that we would all put in place when bitcoin is worth $1,000, those weren’t thought important when bitcoin was trading at a penny or 10 cents.”
Quigley said that the 1 BTC payment for the failed exchange is simply a token, stating:
“I want to put the one bitcoin term in context. That is a symbolic amount. It’s akin to what we do in the US when we buy a business that has a negative net worth.”
Investments in bitcoin
The amount of VC investment in bitcoin has made Quigley take an interest in reviving Mt. Gox.
In the past month alone, bitcoin companies such as Circle and Kraken have received millions of dollars to ramp up their respective operations. “Silicon Valley is investing a lot of money in a lot of bitcoin businesses,” Quigley said.
He also added:
“I would say there really is a great future for bitcoin. My belief is that we have a tremendous opportunity, at least certainly in the next year.”
Quigley went on to compare the amount of investment in the bitcoin industry to the early days of the Internet, a popular comparison that has been widely invoked by bitcoin supporters.
Further, Quigley stated that he believes that the legal proceedings going on in Japan will allow his group of investors to bring Mt. Gox back to life. “I want to point out that Mt Gox is not in a traditional bankruptcy liquidation process. It’s in a civil rehabilitation process,” he said.
His course of action to reboot Mt Gox was simple:
“Our plan, of course, is to take the exchange, fix the security issues and rehabilitate it.”
To learn more about Quigley’s bid for Mt. Gox, watch the full CNBC interview below.
Mt. Gox's website, on Feb 26, posted a statement showing that the company had gone offline. Bloomberg News
Defunct bitcoin exchange Mt. Gox has given up its plan to rebuild under bankruptcy protection and has asked a Tokyo court to allow it to be liquidated, people familiar with the situation said.
These people cited as reasons the complexity of the procedure—including the difficulty of holding meetings with creditors spread around the world—as well as the lack of realistic rehabilitation plans for the Tokyo-based exchange.
Mt. Gox, at one point the world's busiest bitcoin exchange, collapsed in February and said as it filed for bankruptcy protection in Tokyo on Feb. 28 that it had lost 850,000 bitcoin worth around half a billion dollars. Since then, about 200,000 bitcoin have been recovered and are part of the exchange's assets.
For creditors in bankruptcy cases, a switch to liquidation usually means they will recoup less of their investment. But one person close to Mt. Gox said there was still hope a buyer for the exchange could be found, an outcome that could mean creditors receive part of any future earnings.
If the request is approved by the court, a trustee will be appointed, who will take over management of the company's assets from its chief executive officer, Mark Karpelès.
Mt. Gox lawyers weren't reachable for a comment, while a Tokyo District Court spokeswoman said she couldn't comment on an individual case.
The Tokyo filing to liquidate comes after the company's lawyers on Monday told a U.S. federal judge that Mr. Karpelès wouldn't appear in a U.S. court on Thursday to answer questions about the exchange's U.S. bankruptcy case.
Mt. Gox has blamed the loss of the bitcoin on a bug in the bitcoin software which left it open to hacking. It had also filed for Chapter 15 bankruptcy protection in Texas to stop customers who sued it in Illinois from targeting its U.S. bank accounts.
In documents filed at a U.S. Bankruptcy Court in Dallas on Monday, Mr. Karpelès's lawyers said he recently received a subpoena to appear on Friday before the U.S. Department of Treasury's Financial Crimes Enforcement Network, an anti-money-laundering division. The division is closely watching virtual currencies like bitcoin and issued guidance on them about a year ago.
Mr. Karpelès's lawyers said the subpoena from Treasury officials "did not specify topics for discussion," but said, "until such time as counsel is retained and has an opportunity to 'get up to speed' and advise Mr. Karpelès [on the Treasury subpoena], he is not willing to travel to the U.S."
A Treasury spokesman declined to comment.
Last year, special agents from the Department of Homeland Security seized more than $5.1 million from accounts belonging to Mt. Gox under a federal money laundering statute. In response, Mt. Gox took out a money-transfer business license in the U.S. in July.
Mr. Karpelès hasn't been charged with a crime, but one person close to the matter said Mt. Gox lawyers had feared Mr. Karpeles would be detained if he went to the U.S. either in connection with fraud allegations in Mt. Gox's collapse or an investigation over the exchange's possible links to online market place Silk Road, currently under federal investigation over money-laundering allegations.
A DHS report in November said Mt. Gox "was moving approximately $60 million a month into a number of Internet-based hidden black markets operating on the Tor network, including Silk Road."
People close to Mt. Gox said the exchange had tried to identify and kick out potential Silk Road users among its customers.
There are signs the Department of Homeland Security's interest in Mt. Gox continues. The DHS is still holding the seized funds, Mr. Karpelès said in a deposition to the Texas court on March 10.
An email exchange seen by The Wall Street Journal indicated that an investigator from the Department of Homeland Security was looking for ways to contact a former Mt. Gox employee in Japan in March. A U.S. Department of Homeland Security spokeswoman said on Monday there are no ongoing discussions between the department and Mt. Gox.
Neo & Bee CEO Danny Brewster came forward on Reddit about the Neo & Bee case. He explains the fraud claims and thinks the police may be trying to set him up.
Neo & Bee, another Bitcoin story making headlines. As if Mt. Gox was not enough… The Cypriot police are hunting CEO Danny Brewster, suspecting him of fraud. Meanwhile, Brewster is still in the United Kingdom, trying to get his business on the rails again. Because previous events showed that a long silence never did any good to a business in trouble, Brewster popped up on Reddit today. He explains his version of current events.
Much against everyone’s advice
Although he received advice not to go public with his thoughts, he thought it was necessary to post something. That is something we can all agree with. Too many people are involved with Neo & Bee and remaining silent hurts the whole Bitcoin community. Brewster starts off with the fraud charges, stating he is baffled by them.
“I sold several people bitcoins for cash, most of which had them sent directly to their own wallets or exchange accounts prior to Neo and Bee becoming open to the public. There were four people, however, that requested me to hold them until they provided me with an address to send them to. Two people that bought on November 20th, 2013, One Person that bought from me twice once on the 2nd December 2013 and the 20th December 2013 and one person who bought from me on the 24th December 2013. There was a fifth person I was holding Bitcoin for, however, following a change in their personal circumstances I bought the bitcoins back from them.
Sorry to disappoint those that believe the tales that I simply took them…. The keys are still stored on paper. The total sales to these four people amount to 75.29270138 BTC that were purchased for a combined total of €35213.57, so I have no idea where the values reported in the media have been derived from.”
My parents taught me a story always has two sides. Hearing Danny Brewster’s version confirms that lesson. Nobody knows which side is telling the truth here, but Brewster decided to come out in the open with this. I can imagine his lawyers told him not to do so and still, he did. Anyway you look at it; that deserves some credit.
“I have not received one single request from the individuals who bought the bitcoins from me to send the coins to an address they provided. With one exception a request was made but that was received from the individual that introduced one of the buyers to me, they requested for me to transfer the coins to his Bitstamp account. I didn’t send the coins to his address as he was not the person that I had the agreement with. One of these people went directly to the police following rumors that I had fled the country.”
Fraud or set-up?
The police went public with this whole case, saying they are investigating fraud and want to arrest Danny Brewster. Brewster never made a secret of his whereabouts so they must be aware of the fact that he is in the United Kingdom. Brewster claims he has contacted the police forces several times regarding this. He wants to clear things up but, according to the CEO, the Cypriot police never answers any of his attempts to contact them. He points that out rather bluntly in his post.
“Here is a message to the Criminal Investigation Department of the Cypriot Police:
ANSWER YOUR PHONE or CHECK YOUR EMAILS!!!!
I have been trying for days to contact them to resolve this situation. The whole thing could be cleared up in a matter of days, because as of right now their case is based on rumors of me fleeing Cyprus, which is complete garbage. I still have a house full of my own belongings, assets, family, friends and most importantly my daughter in Cyprus.”
Brewster goes on about providing his contact information to the police and any third parties involved. He even says he contacted the reporter from Cyprus Mail who initially made the first newspaper headline about Neo & Bee. Strange, as a journalist myself, I would assume be thrilled receiving a direct e-mail from Danny Brewster himself. Publishing the police’s words is one thing. Going public with an interview of the bad guy himself, that’s where the real story lies. The journalist, however, never responded to Brewster’s e-mails. If that is true, Brewster’s ideas about him being set-up might not be so far-fetched.
“I have provided my contact information via email to the police and to third parties such as the reporter from the Cyprus Mail and one of the people who bought bitcoins from me. If they do not contact me to arrange a solution, then I assume my greatest fears are true that they are doing nothing more than trying to set me up on charges to discredit both myself and Bitcoin as a whole, whilst creating more fear about challenging the status-quo.”
The whole world knows that the Greek police force is not always as ‘honest’ as a police force ought to be. The Neo & Bee case is a strange one, and it is hard to believe every word Danny Brewster has to say on this. His employees still came out with their wages left unpaid. The Cyprus office is abandoned, and the details of Neo & Bee’s problems are still covered in shades. Some people were wondering why Brewster was still in the United Kingdom.
“There are three reasons for me not returning to Cyprus immediately following the issuance of a warrant and those are;
I have a family funeral to attend.
The whole situation can be resolved without me doing so.
The manner in which the investigations are being carried out are concerning; the police have not made an attempt to contact me despite numerous personal requests for them to do so.”
Neo & Bee?
“To clear a few things up surrounding Neo & Bee. Yes, there are creditors to the business, and I have not run with any coins, we had made payments in excess of €1.4m with many of the coins being converted to Euros before the run up in price; the largest amount converted at once was the day Silkroad was busted. I had to take a decision on that given day to convert them or risk them becoming pretty worthless and the business not getting off the ground. The outstanding funds from BitFunder/WeExchange are valued at this moment around €500,000. The coins of my own I have on MtGox would have covered all creditors with a claim against the business in full. Had I wanted to run off with coins, it would have been better to do so before spending all of them and the remainder of my own coins on the business.”
Not much news to be gathered here. It seems more like proof that Brewster had better options if he wanted to steal money. I think we can all agree he did not want to steal any funds for his own; there would have been other things to do besides running to the United Kingdom if that were the case.
Brewster finishes his post with a question to the Cypriot police:
“If I buy some building supplies and agree to provide a delivery address at a later date, but never do provide an address. Has the seller committed fraud if he still holds the supplies for me?”
Legit question, indeed. The story still does not fit… Whether Brewster is lying or the Cypriot police are trying to frame him for something he is not guilty of, the fact of the matter is that this still hurts Bitcoin. How can the cryptocurrency be taken seriously when stuff like this happens on a regular basis. Many people had faith in Neo & Bee’s future. The way it looks now, it seems their faith was misplaced. I sincerely hope Brewster can work things out, so no one loses too much money over this. As said in previous posts, CCN will keep track of this story.