Bitcoin Futures Are a Great Way to Not Own Bitcoin

“It’s certainly not a scam,” cryptocurrency startup Centra’s general counsel said last month about its $30 million initial coin offering, which is not a sentence you’d ideally want your general counsel to have to say to the press. (He said it after Centra’s co-founders left the company due to a New York Times …

Bitcoin futures.

Do you remember, like, two weeks ago, when people were talking about how the launch of bitcoin futures at Cboe Global Markets Inc. and CME Group Inc. would allow for efficient short-selling of bitcoin and finally deflate the bubble? Smart hedge-fund money was lining up to bet against bitcoin, the thinking went, but had no convenient way to do it on the actual bitcoin exchanges. The only people trading bitcoin were the true believers, so of course it kept going up, but once it was opened up to normal financial players that would end. “The futures reduce the frictions of going short more than they do of going long, so it’s probably net bearish,” said Craig Pirrong

Well since then bitcoin is up more than 50 percent; it reached a record of $19,511 early Monday, hours after CME launched its futures contract. “Bitcoin Climbs as Futures Debut Fails to Incite Attack by Shorts,” is the Bloomberg headline about Sunday’s start of trading on CME. On the other hand, bitcoin was actually down a bit on the first full day of CME trading yesterday, and fell further overnight; “Bitcoin Futures Prices Fall in CME Debut” is the Wall Street Journal headline about Monday’s trading. It is of course still very early days for the futures, and it’s still possible that the shorts will come in and drive the price down. I guess it’s even possible bitcoin bulls and bears will both flock to the futures market and trade with each other to find an efficient and stable price that reflects bitcoin’s fundamental value, whatever that is.

One part of the story here is that the futures seem to be mostly useful in reducing the frictions of going long:

“One of the biggest issues when it comes to investing institutionally in digital assets is banks and larger institutions can’t hold an unregulated instrument in their balance sheet, and a futures contract is something they can hold,” said Gabor Gurbacs, director of digital-asset strategy at VanEck Associates Corp. With futures, “you don’t hold the physical bitcoin, which solves custody issues and counterparty risks with these less-regulated exchanges.”

The introduction of futures didn’t lead to a wave of hedge-fund money shorting bitcoin. It led to retail and institutional money going long bitcoin. We talked last week about the spread between Cboe’s bitcoin futures price and the actual price of bitcoin, which was wider than $1,000 for a while. The spread has tightened considerably — as of 8:15 a.m. today, the CME futures traded at $18,585, Cboe futures at $18,670, and spot bitcoin at about $18,245, for a spread of about 2 percent — but it still exists. Why would you pay more for a synthetic bitcoin in a month than you would for an actual bitcoin today? The answer, presumably, is that the synthetic bitcoin is more valuable to you: You want bitcoin exposure, but you’d prefer to get it through a standardized contract on a regulated exchange that settles in dollars. 

Here is Jayanth Varma on bitcoin futures and arbitrage:

When cash markets are not functioning well, cash and carry arbitrage (and its reverse) futures markets may make the underlying asset accessible to more people. It is possible that A is bullish on bitcoin, but does not wish to go through the hassles of creating a wallet and storing it safely. At the same time, B might be comfortable with bitcoin wallets, but might be unwilling to take bitcoin price risk. Then B can buy bitcoin spot and sell cash settled bitcoin futures to A; the result is that A obtains exposure to bitcoin without creating a bitcoin wallet, while B obtains a risk free investment (a synthetic T-bill). Similarly, suppose C wishes to bet against bitcoin, but does not have the ability to short it; while D has no views on bitcoin, but has sufficient access to the cash market to be able to short bitcoin. Then D can take a risk free position by shorting bitcoin in the cash market and buying bitcoin futures from C who obtains a previously unavailable short position.

Since the introduction of futures, the price of bitcoin has gone up, suggesting that there were more As — people who wanted to be long bitcoin synthetically — than Cs — people who wanted to be short synthetically — though again it is still early. Crudely speaking, the arbitrage spread suggests that there are also more As than Bs: There are a lot of people who want to be long bitcoin without owning bitcoin, but not so many people who want to own bitcoin without being long bitcoin. (Which makes sense! If you bought a bitcoin and sold a futures contract when Cboe launched its futures last week, you could have locked in a risk-free arbitrage profit of something like $1,200. But if you had just bought a bitcoin, you’d be up about $3,000 by now.) The costs of trading actual bitcoins on bitcoin exchanges — in terms of blockchain transaction costs, exchange withdrawal limits, etc. — are significant enough that people who want bitcoin exposure are willing to pay about 2 percent to avoid them.

You could imagine the spread going the other way, though. If everyone really was clamoring to short bitcoin, and if the futures offered a more convenient way to do it than the bitcoin exchanges, then you’d expect the short sellers to pay a premium to short via futures. Instead of selling a bitcoin at $18,000 today, they’d be willing to sell a synthetic bitcoin for $17,500, paying the spread to an arbitrageur who was willing to do the actual shorting for them. But the fact that the spread is mostly positive, and that bitcoin’s price has been mostly going up, suggests that the demand has mostly been for synthetic long positions, not short.

Tales from the bubble.

Here is the story of Longfin Corp., a fin-tech-ish company that was listed on Nasdaq on Wednesday and then announced on Friday that it was acquiring Ziddu.com, “a blockchain-empowered global micro-lending solutions provider,” causing its stock to go up by more than 1,200 percent and giving it a market capitalization of some $6.2 billion as of yesterday’s close. LongFin’s offering circular is a fun read — it describes its founder and chief executive officer, who also happens to be the controlling shareholder of Ziddu.com, as “a financial wizard” and “a true believer in disruptive technologies” who “believes that every piece of information is worth millions” — but even better is the press release describing the Ziddu acquisition:

Ziddu Coin is a smart contract that enables SME’s, processors, manufacturers, importers and exporters using cryptocurrencies across continents. Ziddu Coins are loosely pegged to Ethereum and Bitcoin. The importers/exporters convert offered Ziddu coins into Ethereum or Bitcoin and use the proceeds for their working capital needs. At the end of the contract, importers/exporters will realize their proceeds and pay back their funds through cryptocurrencies only. Depending upon the risk profile of the counterparty, the interest will vary from 12% to 48%.

Yes but … in cryptocurrencies? If you had borrowed 100 bitcoins to finance your working capital needs a year ago, you’d have financed about $79,000 worth of working capital. If you had to pay back 112 bitcoins today, that would come to a bit over $2 million, a dollar interest rate of over 2,400 percent. (If you’d borrowed ether you’d be paying over 12,000 percent.) Unless your working capital was bitcoin, you will not be able to pay back that loan. The lesson here is: Probably don’t borrow an asset caught in a massive speculative frenzy to fund your working capital needs.

Look, you and I are sophisticated, and we get that “bitcoin’s price increase is deflationary and makes it a bad currency” is not a good argument against bitcoin, because “bitcoin is a bad currency” is not a good argument against bitcoin. (People keep making it though.) Bitcoin’s value proposition — much like that of gold — is that it is an uncorrelated store of value, not that it is useful for buying a sandwich. But at the same time you have to watch out for business models that are based on the casual assumption that bitcoin works just like a currency. “Cryptocurrency-financed warehouse lending” has the word “cryptocurrency” in it, so it’s worth billions of dollars, but I’m not sure it works as a business model.

Elsewhere, here is the story of block.one, which “has raised about $700 million and counting” by selling EOS tokens that it says “do not have any rights, uses, purpose, attributes, functionalities or features.” Block.one is using the money to build “a new blockchain architecture designed to enable vertical and horizontal scaling of decentralized applications,” as its white paper explains, and the white paper also includes a disclaimer in bold capitals:

PLEASE NOTE: CRYPTOGRAPHIC TOKENS REFERRED TO IN THIS WHITE PAPER REFER TO CRYPTOGRAPHIC TOKENS ON A LAUNCHED BLOCKCHAIN THAT ADOPTS THE EOS.IO SOFTWARE. THEY DO NOT REFER TO THE ERC-20 COMPATIBLE TOKENS BEING DISTRIBUTED ON THE ETHEREUM BLOCKCHAIN IN CONNECTION WITH THE EOS TOKEN DISTRIBUTION.

That is: You can (eventually) use the EOS operating system to launch blockchain applications, and those blockchain applications can use tokens, but they won’t use the EOS tokens, which — again — “do not have any rights, uses, purpose, attributes, functionalities or features.” No one believes it though:

Matthew Roszak, one of block.one’s early investors, said EOS holders shouldn’t worry too much about the warnings the company has given about the tokens. “I don’t think it’s fair reading into that language too tightly,” he said. Given the “regulatory environment is as clear as mud,” he said block.one needed to write something to provide the broadest protection possible.

It is hard to believe that anyone commits securities fraud anymore. Right now you can design an electronic token, say in big bold letters that the token is utterly useless, and raise $700 million selling it to people who “don’t think it’s fair reading into that language too tightly.” Why bother to scam anyone?

Still elsewhere, the Commodity Futures Trading Commission, in a footnote, quoted me saying “Just because you mumble the word ‘blockchain’ doesn’t make otherwise illegal things legal,” which I hope is now an official CFTC position. And here is Tyler Cowen on bitcoin volatility and Siegel’s paradox: “Volatility is a feature of Bitcoin, not a bug, and that is in part for reasons that have nothing to do with speculation or bubbliness, but rather follow from the contours of the utility function.” And: “No, a Guy Didn’t Scam $1 Million by Selling Chuck E. Cheese Tokens as Bitcoins.”

And in ICOs.

“It’s certainly not a scam,” cryptocurrency startup Centra’s general counsel said last month about its $30 million initial coin offering, which is not a sentence you’d ideally want your general counsel to have to say to the press. (He said it after Centra’s co-founders left the company due to a New York Times profile describing their run-ins with the law and pointing to possibly inaccurate statements about their ICO, which was touted by Floyd Mayweather and DJ Khaled and which, again, raised $30 million.)

Some Centra investors have their doubts, and a plaintiffs’ law firm has brought a class action complaint against Centra demanding the investors’ money back. The complaint is fun — Centra had a “Blog/Media Bounty” program to “Reward Experienced Writers who write quality Reviews, Articles About the Centra Project and the ICO crowdsale” — but not that fun, because the plaintiffs’ lawyers don’t actually need to prove that Centra was a scam. Their job is much easier: All they need to do is prove that the tokens Centra sold in its initial coin offering were securities. If they were securities, they were sold illegally: They were offered publicly without being registered with the Securities and Exchange Commission, or being exempt from registration. And one remedy for the illegal sale of securities is that the buyers can demand their money back — whether or not Centra is legitimate, whether or not it is actually using the money to build a cryptocurrency debit card, whether or not it made any misleading statements in the ICO.

Were Centra’s tokens securities? Well, yes, obviously. We talked last week about the Securities and Exchange Commission’s enforcement action against Munchee, an initial coin offering vaguely similar to Centra’s in that it featured “utility tokens” to be used in a blockchain ecosystem that did not yet exist, sold on promises of speculative returns. The SEC brusquely and correctly dismissed the notion that such “utility tokens” were not securities, and I suspect any court will agree. Also, while Centra occasionally remembered to call its tokens “utility-based tokens” and “not securities, shares or investments,” it often forgot. From the complaint:

On October 27, 2017, The New York Times published an article discussing the Centra ICO and its use of celebrity endorsements. For this article, the reporters reached out to Defendant Sharma to discuss his and Defendant Trapani’s perjury indictments on October 5, 2017 stemming from Defendant Trapani’s testimony that Defendant Sharma had only one alcoholic beverage the night he was arrested for driving while under the influence. In response to questions on this topic, Defendant Sharma stated, “I’m obviously not comfortable with that situation,” and added “[b]ut it’s not that I did something so intensely crazy that investors need to worry.” (emphasis added). Thus, Defendant Sharma clearly viewed persons who purchased Centra Tokens in the Centra ICO as “investors.”

Oops! These guys seem to have had no background in cryptocurrency, which hurt them. If they had raised money from “donors” by selling tokens with no “rights, uses, purpose, attributes, functionalities or features,” they’d be fine. But they were used to raising money from investors, so they called the people who bought their tokens “investors.” It’s a rookie crypto mistake, and one that might cost them all the money they raised.

Voting.

Nelson Peltz of Trian Fund Management waged a proxy fight to get himself on the board of Procter & Gamble Co. that ended at P&G’s annual meeting in October, when Peltz lost out to management nominee Ernesto Zedillo by about 6.2 million votes. Or did he? In November, an independent recount of the votes found that Peltz had beaten Zedillo by 42,780 votes, or about 0.0016 percent of the shares outstanding. Or did he? On Friday the final official count of the votes came in, finding that Zedillo actually won by 498,312 votes, or about 0.019 percent of the shares outstanding. It is a little disappointing that Zedillo’s margin in the third count, though less than his margin in the first count, was bigger than Peltz’s margin in the second. I was hoping that not only would the victor alternate with each count, but also that the margin would get narrower and narrower, until eventually we’d find out that the two sides were exactly tied except for a single ballot for a single share written in a special ink that says “Peltz” under fluorescent light and “Zedillo” under natural light. I was hoping that P&G would count the votes again and again forever.

It will not, though: Everyone is exhausted, so P&G will just add Peltz to its board. This makes sense. The election is for all practical purposes a tie; the difference in votes appears to be well within the margin for measurement error. I think in that scenario a tie has to go to the activist: If 49.98 percent of your shareholders think something is going wrong, you might as well do something to appease them. 

Jim Simons.

D.T. Max wrote a profile of Renaissance Technologies founder Jim Simons and his computational-science project, the Flatiron Institute, and this is maybe the thesis of the piece:

Simons smokes constantly, even in enclosed conference rooms. He pointed out that, whatever the potential fine for doing so is, he can pay it.

The question is: Do we live in a society, or do we just have a list of prices and you decide which ones to pay? Do we all try to get along together and share the world, giving due consideration to each other’s needs, or do rich people just get to do whatever they want? Much of the article is devoted to the cool things that the Flatiron Institute is doing, but much of it is devoted to people fretting that there might be a downside to rich individuals determining the direction of basic science and using their money to crowd out traditional universities. Meanwhile Simons sits back and smokes and tosses pennies into the no-smoking jar.

There is also some useful information on Simons’s investing strategy:

He told me that, although he has little to do with Renaissance’s day-to-day activities, he occasionally offers ideas. He said, “I gave them one three months ago”—a suggestion for simplifying the historical data behind one of the firm’s trading algorithms. Beyond saying that it didn’t work, he wouldn’t discuss the details—Renaissance’s methods are proprietary and secret—but he did share with me the key to his investing success: he “never overrode the model.” Once he settled on what should happen, he held tight until it did.

It’s like my thesis about Bridgewater Associates: The computer does the investing, and the whole management problem of the hedge fund is about preventing the humans from interfering with the computer.

People are worried that people aren’t worried enough.

“Low volatility will extract a price from investors,” it says here, and it looks like this worry will roll right into 2018. 

People are worried about unicorns.

Science fiction writer Ted Chiang diagnoses Silicon Valley’s worries about a malevolent all-powerful artificial intelligence as being really disguised worries about capitalism:

I used to find it odd that these hypothetical AIs were supposed to be smart enough to solve problems that no human could, yet they were incapable of doing something most every adult has done: taking a step back and asking whether their current course of action is really a good idea. Then I realized that we are already surrounded by machines that demonstrate a complete lack of insight, we just call them corporations. Corporations don’t operate autonomously, of course, and the humans in charge of them are presumably capable of insight, but capitalism doesn’t reward them for using it. On the contrary, capitalism actively erodes this capacity in people by demanding that they replace their own judgment of what “good” means with “whatever the market decides.”

Elsewhere in tech worries, Erin Griffith writes: “In 2008, it was Wall Street bankers. In 2017, tech workers are the world’s villain.” And: “Are Early Stage Investors Biased Against Women?”

Programming note.

Money Stuff was off unexpectedly yesterday because I was sick. The upside is that I can now say that I have literally had fever dreams about bitcoin, though I cannot really recommend that to anyone.

Things happen.

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YrGrid blames Bitcoin problems on vendor

YrGrid denies allegations that it is refusing redemptions in order to profit from the recent spike in Bitcoin prices. Instead, the problem is caused by their Bitcoin wallet service provider, said the grid, which is a Hong Kong-based commercial gambling-oriented grid with a Bitcoin-based virtual currency.

YrGrid’s Welcome Center region is a recreation of the gambling district in Macau.

YrGrid denies allegations that it is refusing redemptions in order to profit from the recent spike in Bitcoin prices.

Instead, the problem is caused by their Bitcoin wallet service provider, said the grid, which is a Hong Kong-based commercial gambling-oriented grid with a Bitcoin-based virtual currency.

Residents and users have been unable to redeem their uBTC virtual currency with transactions marked simply as “pending.” In addition, Podex, a third-party virtual currency exchange, has shut down operations on the grid.

The problem is that the YrGrid kept some of its Bitcoin funds at BTC-e.com, a Bitcoin exchange that was fined $110 million and shut down by authorities last July on charges of money laundering. Its alleged mastermind, a Russian hacker accused of using the exchange to launder billions of dollars, has been arrested in Greece and is currently in the process of being extradited to the U.S. to stand trial.

“We have some funds deposited at BTC-e.com,” YrGrid grid owner Zhijie Wang told Hypergrid Business. “Since their website was down, we can’t cover all Bitcoin deposit. We try to recover ourselves before we have solution with them.”

Sharkclub Gaming, acasino on YrGrid.

The grid has been unable to cover residents’ losses out of pocket, Wang said. “The Bitcoin price has been rising too much last year, so it’s more difficult to get enough funds from investors to cover that.”

However, those users who have bought in-world currency recently are unaffected by the problem and will be able to redeem their currency.

In addition, other residents may see some progress in the next couple of months, Wang added. “We expect to get some refunds from the service provider and we will get more funds invested by shareholders.”

The price of a single Bitcoin was just under $800 this time last year. On Sunday, it was worth more than $19,000 and might rise even further as two traditional exchanges — the Chicago Board Options Exchange and the Chicago Mercantile Exchange — are launching Bitcoin-related futures contracts.

Meanwhile, the grid itself might be caught up in the anti-money laundering investigation.

“We received investigation requirements for some special account regarding money laundering,” Wang said. “Since many accounts connect together and it also very difficult to identify uBTC resource, so many accounts’ cash-out keeps pending. However, it won’t effect those accounts which have deposit records.”

The company may implement customer identification procedures in future to solve the issue.

Podex is off the grid

YrGrid residents also complained that Podex machines have been shut down on the grid. Podex is a third-party virtual currency exchange that has been offering currency purchases and sales for more than two dozen grids. It recently celebrated its tenth year in business.

The exchange has suspended repurchases of YrGrid’s uBTC currency and turned off its machines due to the problems.

Jacek Shuftan

“Let me start with the statement that my cooperation with YrGrid owners was always nice and I could not complain about it in the past,” Podex CEO Jacek Shuftan told Hypergrid Business. “But indeed, something strange has happened recently — there is no contact with them and withdrawals from the grid to personal Bitcoin wallets are pending. Because of this fact I decided to suspend withdrawals from YrGrid as well and locked Podex cashouts machines. I simply can not buy coins from users if I can not withdraw them.”

Unhappy grid residents and Podex users have been posting on social media, and have contacted Hypergrid Business directly.

“At first I noticed Podex exchange’s ATM’s were locked, then I asked Podex what was going on and they said that YrGrid’s support was not responding back to them,” one resident told Hypergrid Business. There was no response from the grid’s support team and online ticket service, and no word from the grid on social media or other channels, the resident said.

Why Bitcoin?

Currently, no other major OpenSim grids uses a Bitcoin-based virtual currency.

Even before the latest spike in prices, Bitcoins were too unwieldy for low-value in-world transactions. Plus, the price volatility has always made it difficult for merchants to set prices in Bitcoin. Ongoing problems with fraud, theft, and money laundering have also made the use of Bitcoin as a base currency very problematic.

Some grids to, however, accept Bitcoin as a payment mechanism, as an alternative to, say, PayPal or credit card payments. The way this works is that grids use a third-party payment processor such as Coinbase, BitPay or Stripe to accept the payments. The payments are typically converted to US dollars or Euros at the time of payment. Meanwhile, the grid’s own in-world currency is a traditional virtual currency that is not pegged to Bitcoin prices.

Residents have accused the grid of taking advantage of their deposits in order to profit from the current increase in Bitcoin prices.

“It’s even higher now and you guys are not cashing out anyone’s money anymore,” YrGrid resident KiKi Miranda posted on YrGrid’s Facebook page. “Looks like you’re taking advantage of the high Bitcoin rate and are just stealing all our coins. There are no notices or anything. No responses to tickets. Nothing. Just keeping our money.”

The grid denies the allegation.

“People saying we get advantage of Bitcoin price rising is nonsense,” said Wang. “Actually we work much harder to recover their balance.”

YRGrid, known as a Bitcoin-based gambling grid, brands itself as a Bitcoin economy in OpenSim and uses Bitcoin as their in-world currency meaning users and residents can spend and buy land or services with Bitcoin in the virtual world without having to exchange to Gloebits or Podex or other in-world currencies.

The grid’s weak response to the Bitcoin problems has created a lot of frustration for residents.

pic.twitter.com/XYB00qA4K8

— YrGrid (@YrGrid) November 19, 2017

For example, on November 19, the grid simply posted a graphic on Twitter that said “YrGrid users be like cash outs gonna be coming any day now!!!” — and nothing since. The grid has responded by saying that the twitter account was taken away by their previous employee and they have been wanting to request the employee to give it back “nicely” without success. The employee has been using the account to attack the grid according to Wang.

“We didn’t announce that officially because we still want to ask the employee nicely to get back the account,” he said. “However it seems not work, we will announce that in facebook account for that. So can you certify this point?”

Users have also been experiencing frustration as the grid fails to respond or responds rudely to their posts and comments on social media. The grid has also not been getting responses via email and website support tickets.

One resident told Hypergrid Business they tried reaching the grid by responding to the Tweet several times, and then was told by the grid that they should try again in three months and “not to worry about it.”

YrGrid posted other unpleasant messages on social media, then deleted them.

“He [the YrGrid owner] said things like the money is his now, and to maybe to try back in three months plus said ‘but keep depositing money’ then laughed, and that Bitcoin wasn’t really money and not to worry about it, and that I gave the money to him, etcetera,” the resident told Hypergrid Business.

In a Twitter response on December 14, YrGrid said, “bitcoins isn’t money you lost nothing.”

Coinvest (COIN) Allows You to Build Your Own Crypto Mutual Fund

When an order is placed, COIN is placed into a smart contract and the user wallet is updated with desired crypto coin balances. When a sell order is placed, the ending balances are noted and an equal amount of COIN are distributed to the user wallet. Reserves which back COIN value are stored as …

Coinvest (COIN) We are big supporters of the third generation crypto companies that are leading the charge on the blockchain economy. Coins like IOTA, Ripple, Stellar, and Power Ledger are growing exponentially as they move toward full launch of new products to revolutionize old billion dollar industries. Coinvest is launching a token sale to create the TD Ameritrade of crypto coin exchanges.

Current exchanges like Binance or Bitfiniex allow users to buy, sell, and trade individual coins on centralized exchanges in exchange for a percentage of the total exchange. This can become quite costly with the increasing price of coins and size of transactions. Coinbase allows free trades on its platform but is limited currently to only Litecoin, Ethereum and Bitcoin leaving options for trading limited.

Coinvest (COIN) is looking to start the first flat rate trading platform based on the ethereum blockchain allowing individual traders to set up and purchase any coin on the platform for a fixed price of $4.95. Beyond just individual coins, Coinvest will also allow users to set up a mutual fund of sorts basing a portfolio on a mix of coins set up by the buyer. If you want a group of coins like Ripple, Litecoin, Stellar, Cardano, and Populous with 20% of each and set it to autobalance daily, Coinvest has a platform for that. The platform will utilize Ethereum based smart contracts to build a decentralized crypto market.

The Platform

The platform is set up like a portfolio showing current balances of each coin held and allows the account holder to make various trades such as buy, sell, short and eventually use margin trades. They will have pre-built index funds and user generated options to build the fund you want.

There are options to set up triggers for automatic trades also. As the crypto market never closes it is possible a coin you are interested may increase or decrease in price to force a buy/sell. To prevent the need to babysit the portfolio you can simply set triggers to initiate trades.

COIN Token and Token Sale

Despite being headquartered in the US, the token sale is only limited participation to US residents. Once listed on private exchanges COIN will be open to anyone interested in using the Coinvest platform. As no fiat is planned to be accepted, COIN is required for Coinvest use. It is central to the application.

When an order is placed, COIN is placed into a smart contract and the user wallet is updated with desired crypto coin balances. When a sell order is placed, the ending balances are noted and an equal amount of COIN are distributed to the user wallet. Reserves which back COIN value are stored as crypto currency with 25% of revenue used to re-invest in the reserves.

The Token sale launches January 14th and runs through early 2018. The team plans to hit the trading markets at a value of $0.70 per COIN with the price of COIN driven by market demand. To stabilize the COIN in the future, revenue is planned to partially be used to re-purchase COIN if needed. No announcement exchanges yet from the dev team.

The Team

The dev team is solid and mixed technical and even some political connections. The third US Chief Information Officer Tony Scott and the founder of Mashable Pete Cashmore serve as advisors. Damon Nam, founder and CEO, worked for Microsoft in various technical positions over 16 years. The Chief Technical Officer, Byron Levels, has worked for many fortune 500 companies including Microsoft, AT&T and American Airlines over 23 years. Dexaran Derat is an Ethereum blockchain expert and serves as the blockchain engineer on the Coinvest team. The team has posted a video to better understand the project for interested users and investors.

We’ve published a video to help you understand Coinvest in 60 seconds:https://t.co/CXX7qsczLx

Let us know your thoughts and please help us spread the word!

— Coinvest (@CoinvestHQ) December 7, 2017

Coinvest and New SEC Blockchain compliance Rules

The SEC can be difficult to manage for small companies. Coinvest has chosen to file legally with the SEC to register and comply with applicable SEC blockchain rules. Th cost associated with filing is also re-assuring that the Coinvest team is investing funds and understands the risk they are taking. Investors can be confident that SEC compliance is in place and should give legal protection to purchasers. From the team on the SEC filing announcement, “Unlike many other companies in this space, Coinvest is working to ensure that our business is compliant will all local and foreign jurisdictions and laws which might deem various activities illegal if these steps aren’t taken. Our priority is to ensure the safety and security of our users, investors, and overall business. We hope that our actions validate our seriousness and goal to protect everyone within the Coinvest ecosystem.”

Conclusion

Coinvest has the right team and a strong market concept for success. They are following applicable rules and regulations to help instill confidence to investors. The token sale and crowd sale is coming with a launch of the public platform which could launch Coinvest to a household name like Coinbase. Take a look at the Whitepaper which is well put together and includes an in depth look at all the features to come to the platform. The future promises a Debit card, trading rewards and even earning trading fees if other people purchase your portfolio. The BitCoinTalk thread is growing with active dev participation. Big things could be ahead for coinvest. Check out the token sale here.

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Bitcoin And Taxes: If Not HODLing, Consider Donating

A mantra among cryptocurrency investors is “HODL.” The phrase originated in a December 2013 post on the Bitcoin Forum message board by an admittedly less-than-sober investor attempting to announce his plans to “hold” on to his Bitcoin in the wake of a 25% drop in market price. At the time of his …

A mantra among cryptocurrency investors is “HODL.” The phrase originated in a December 2013 post on the Bitcoin Forum message board by an admittedly less-than-sober investor attempting to announce his plans to “hold” on to his Bitcoin in the wake of a 25% drop in market price. At the time of his misspelled posting the price of per bitcoin was around $400. It now hovers at $18,000 per coin, representing a 4,500% return since the HODL posting.

Since its originating post, “HODL” has been given the backronym “Hold On For Dear Life” and has come to embody a philosophy among crypto enthusiasts of holding onto bitcoin or other volatile cryptocurrencies through crashes in order to hopefully reap exponential long term rewards. Given that the price of bitcoin and other cryptocurrencies (especially Ethereum and, more recently, Litecoin) have increased so precipitously so quickly, even the most ardent HODLers would be hard pressed not to consider liquidating at least a portion of their crypto portfolio in order to lock in their gains. Doing so, however, will necessarily trigger capital gains tax.

(Dan Kitwood/Getty Images)

The IRS treats cryptocurrencies as personal property, not currency. Therefore, buying and selling cryptocurrencies is the same as buying and selling gold or stock. So, the traditional rules apply: (1) is it a business asset; or (2) a passive investment? If it’s not a business asset, then: (1) what did you buy it for; (2) how much did you sell it for; and (3) how long did you own it? Let’s assume for this article you’re not using your cryptocurrency for business purposes and you’ve bought cryptocurrency on a lark at a very low price. And now you’re potentially facing a large gain if you sell those coins.

Given the taxes crypto investors may be subject to (currently, 39.6% for short term holdings, 20% for long term holdings, plus the 3.8% NIIT), and the IRS’s recent efforts to enforce tax payments on cryptocurrency gains, perhaps crypto-traders can look to traditional methods of tax planning for inspiration for solutions.

Donating cryptocurrency to your favorite public charity (and not to a private foundation) can help you save taxes on the coins you do sell. The charity gets a large donation, and you get a larger deduction, if you donate the coins to a charity instead of selling the coins and donating cash. Let’s say you sell coins that result in $1,000,000 of gain. Your approximate tax on that gain will be about $238,000 leaving you only $762,000 to donate to the charity. Instead, when you gift the coins to charity, you get a charitable deduction of $1,000,000 and the charity gets $1,000,000 tax-free when it sells the coins since it’s not subject to income tax. Since you’re charitable deduction for gifts of appreciated property is limited to 30% of your adjusted gross income (AGI), you should have sold coins resulting in at least $3,333,333 of gain in order to use the full deduction amount this year. If your deduction amount exceeds 30% of your AGI, the remaining amount will be carried over and deductible in future years. Be sure to donate coins you’ve held for at least a year, though, because if you donate coins held short-term, your deduction is limited to your very low cost basis.

Generally, most charities have a process to be followed and forms to complete to receive your donation, so don’t wait until December 31 to make the donation. Give yourself a couple of weeks to make sure everything gets done correctly. Also, keep an eye on Washington as Congress considers legislation to change the tax laws. Our Constitution mandates there be 536 people who always want to change tax laws to benefit themselves or their friends, or their contributors. Because of this constant urge to tinker with the tax code, tax lawyers are always busy, especially at this time of year. So far, the charitable deduction seems safe. Both the House and Senate versions preserve the charitable deduction, increasing the deduction limit to 60% of AGI for cash donations, but there is still a lot of sausage to be made as they go to conference, and the charitable deduction could be a bargaining chip that ends up on the chopping block. Some of the top non-profit organizations that have started to increase their donor base through Bitcoin donations include: Fidelity Charitable, American Red Cross, Save the Children, Greenpeace, and United Way Worldwide.

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United States: Crackdown: SEC’s New Cyber Unit Targets Blockchain And ICO Abuses

The Cyber Unit’s first enforcement action, meant to protect retail investors, was against an allegedly fraudulent and unregistered initial coin offering. The Cyber Unit followed that action by accepting an offer of settlement from another ICO promoter due to the promoter’s failure to register the ICO.

The Situation: The U.S. Securities and Exchange Commission has launched a special unit to bring enforcement actions against several forms of cyber misconduct.

The Result: The Cyber Unit has already brought enforcement actions against two promoters of initial coin offerings.

Looking Ahead: These actions signal that the U.S. federal government will be increasingly active in policing ICOs and securities law violations involving blockchain technology. Enforcement actions are expected to continue.

A newly created “Cyber Unit” at the U.S. Securities and Exchange Commission has brought its first two enforcement actions against promoters of two initial coin offerings (“ICO”). This activity comes a little more than two months after the SEC’s Division of Enforcement brought its first-ever action in this emerging area, a case we reported on earlier this year.

In the first of the two recent actions, the Cyber Unit alleged that the promoters of the PlexCoin ICO offered an unregistered security in violation of the federal securities laws and also engaged in a fraudulent scheme to steal money from retail investors who had been promised extraordinary and illusory financial returns. In the seconda case that did not involve allegations of fraudthe promoter of the Munchee ICO agreed to settle charges that it had offered an unregistered security in violation of the federal securities laws.

Together, these two enforcement actions, following the creation of the Cyber Unit less than three months ago, signal that the federal government will be increasingly active in policing ICOs and securities law violations involving blockchain technology.

Initial Coin Offerings

Initial coin offerings are being used by companies for various purposes, including to raise funds for new projects by issuing new virtual currencies. In a typical ICO, buyers are given “tokens” or “coins” that are related to a specific company or project, in exchange for consideration in the form of either fiat currency or cryptocurrency. There are many different ICO structures and designs. For example, some tokens can be exchanged for products or services that the offering company provides currently or will provide in the future. Other tokens carry the right to receive value (by way of legal tender or cryptocurrencies) following the completion of an investment cycle.

While many ICOs may be legitimate opportunities for some buyers and experienced investors, ICOs (as with other consumer products and investments) carry with them a potential for fraud, as the value of the “tokens” being offered can depend on the company actually creating the products, services, or value that it promises. In addition, as SEC Chairman Jay Clayton recently stated, some ICOs are structured in such a way that they represent offerings of securities, which must be registered with the SEC (or offered under a recognized exemption) and must be accompanied by important disclosures.

Securities and Exchange Commission Cyber Unit

This September, the SEC created a “Cyber Unit” to target a range of cyber misconduct, including hacking for nonpublic information, disrupting trading platforms, spreading false information through social media, and abuse of blockchain technology and ICOs. The Cyber Unit wasted no time in addressing the latter issue, in December bringing two enforcement actions related to ICOs in less than a two-week span.

Enforcement Action Related to the PlexCoin ICO

On December 1, 2017, the Cyber Unit filed its first enforcement actionagainst the promoters of an ICO for a proposed currency called “PlexCoin,” which was advertised as “the next decentralized worldwide cryptocurrency.” PlexCorps, the company behind the ICO, suggested that some investors might make more than a 1,000 percent return on their investment in under a month. In reality, according the SEC, the company behind the ICO was not actually developing a new currency but rather simply accepting investments via PayPal and other platforms, and using that money for extravagant personal purposes. And in fact, PlexCorps’s leader, whom the company had taken steps to keep anonymous, was a recidivist securities law violator named Dominic Lacroix. In its complaint, the SEC demanded, among other things, that PlexCorps’s assets be frozen and that Mr. Lacroix be prevented from acting as an officer or director of any public company.

As part of the alleged scam, more than 80 million “PlexCoin Tokens” were distributed on the Ethereum blockchain (a distributed ledger technology that can be used for organizing ICOs, among many other things). These tokens weren’t the actual currency that the alleged scammers promised but could, in theory, be redeemed for the currency in the future. If these PlexCoin Tokens were distributed according to the pricing scheme advertised in the ICO, it would have generated $15 million for the ICO promoters.

In addition to alleging fraud, the SEC also claimed that the ICO for the PlexCoin Tokens was an illegal offering of securities because no registration statement was filed or in effect during the offer and sale process, and there was no applicable exemption. The SEC charged that the PlexCoin Token promoters generally solicited buyers through statements posted on the internet and offered the tokens to the general public, in violation of the securities laws.

Enforcement Action Related to the Munchee ICO

On December 11, 2017, following a brief investigation by the Cyber Unit, the SEC accepted an offer of settlement from Munchee Inc., a California start-up business that created an iPhone application for users to review restaurants and post photos of meals, in regard to Munchee’s offering of so-called MUN tokens. Under the settlement, Munchee agreed to cease and desist from violating Sections 5(a) and 5(c) of the Securities Act, which prohibit the offering and sale of securities in interstate commerce unless done pursuant to an effective registration statement or a recognized exemption.

According to the SEC’s findings, which Munchee did not admit or deny, the MUN tokens were part of an overall ecosystem in which Munchee would pay users for food reviews with the tokens and sell advertisements to restaurants in exchange for the tokens. Eventually, Munchee said, the MUN tokens could even be used to buy food. The SEC concluded that the MUN tokens were investment contracts under SEC v. W.J. Howey Co., 328 U.S. 293 (1946) and its progeny for various reasons. The MUN tokens did not have immediate functionality because no one could use them to buy goods or services at the time of the offering. Rather, people discussing the tokens online commented on their future utility, and Munchee itself said that it would use the ICO proceeds to further develop the Munchee iPhone application and the token ecosystem. Significantly, the SEC that even if the MUN tokens had practical use at the time of the offering, it would not preclude them from being a security. Also, Munchee promoted the tokens by touting how they could appreciate in value over time as a result of more people joining the ecosystem and discussed the potential for trading the tokens on the secondary market. Yet another indicator that the MUN tokens were securities, according to the SEC’s findings, was that Munchee focused its promotional efforts on people interested in investing in Bitcoin and other digital assets, rather than on restaurant owners or current users of the Munchee application.

Munchee started the ICO on October 31, 2017, but shut it down the next day, when it was contacted by the SEC. In total, Munchee raised about 200 Ether (equal to roughly $60,000 at the time of the offering). Munchee did not issue the MUN token to purchasers and instead unilaterally terminated the contracts for sale and returned the money to the buyers. The SEC did not impose a civil penalty, due to Munchee’s prompt remedial action and cooperation with the SEC.

Looking Forward

These actions, and the creation of the Commission’s Cyber Unit, reinforce the federal government’s recent efforts to police investments being offered via distributed ledger technology and to crack down on allegedly fraudulent and unregistered ICOs. We expect enforcement actions focused on alleged fraudulent activity involving blockchain technology and unregistered offerings of tokens to continue.

Three Key Takeaways

  1. The Securities and Exchange Commission has established a new Cyber Unit to target a range of cyber misconduct, including hacking for nonpublic information, spreading false information through social media, and abuse of investment opportunities conducted via blockchain technology such as ICOs.
  2. The Cyber Unit’s first enforcement action, meant to protect retail investors, was against an allegedly fraudulent and unregistered initial coin offering. The Cyber Unit followed that action by accepting an offer of settlement from another ICO promoter due to the promoter’s failure to register the ICO. More enforcement activity by the SEC on ICOs is likely.
  3. Tokens that do not have immediate functionality from the start very likely will be considered securities by the SEC and may be targeted by the SEC if they are not registered under the federal securities laws or exempt from registration. Even those that have practical use from the outset may still be deemed a security by the SEC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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