Category: Blockchain

Melania’s New NFT Collection is Waking Up the NFT Marketplace

Posted on by phoffman@channelchek.com
“Proclaim Liberty” from Melania Trump’s new NFT releases ($50.00)

NFT Investments Benefit from Increased Activity

Do you remember Beeple? He’s the graphic artist who kicked off the non-fungible token (NFT) frenzy. More important than starting an NFT gold rush, the $69.3 million his piece auctioned for alerted many investors and businesspeople to other uses of tokens and blockchain technology beyond cryptocurrency. While the frenzy has simmered, the blockchain-reliant art form is still finding its place. Melania Trump, who owns an NFT company, released a freedom-themed collection in time for America’s birthday. The Ethereum based tokens will be watched closely, compared in price to previous releases, and may help rejuvenate some lost enthusiasm for NFT art.

Background

Non-fungible tokens are unique digital assets stored on a blockchain. Beyond art, NFTs can represent medical records, shipping records, music, videos, and can be adapted to most transactions that benefit from proof of something occurring. In art, the technology allows creators to monetize their digital creations and provide collectors with a method to own and invest in unique digital assets.

As with most art, value is subjective. As with any investment that is new, wild swings can be expected as a market value will be determined by the few initially involved. And these will include those that are extremely bullish and bid up prices, those that know that new thinly traded markets can be elevated by hype, and those that serve as the opposite of hype, they are openly negative on anything new or different. NFTs are no different – for example, nothing has yet openly sold for as much as Beeple’s piece.

Melania’s Place in the NFT Market

In December 2021, Melania Trump, less than one year out of the White House as First Lady, began her own NFT art provider. The themes have been beauty and patriotism and have been popular among collectors. However, since then, the prices of pieces sold and then resold have fluctuated widely in a market that has lost the world’s attention, and is far from maturity.

The Current NFT Release

Some say Melania Knavs, born in communist Slovenia, has gotten to live “the American Dream,” and can appreciate it more than most. Others say Melania Trump understands how capitalism works and is using it to make a buck off of her famous name. As it relates to NFTs, investors should probably focus most on the truth that Melania has brought attention back to this market and investors in NFTs themselves, or the blockchain technology that supports it, benefit. After all, anytime there is an increase of buyers and sellers in a marketplace, liquidity rises, and prices become more rational.

One week before USA Independence Day on July 4, the former first lady announced she is selling “The 1776 Collection,” a tranche of three thousand digital tokens priced at $50 each. Investors are asked to use their digital wallets or more traditional methods, including a credit card, to purchase digital creations.

Image: On December 16, 2021, @MELANIATRUMP tweeted this announcement.

Previous releases included the “Trump Digital Trading Cards” collection, which featured cartoonish images of the former president in unlikely scenarios, like standing on the moon. Her first edition of her collection generated more than 14,200 ETH ($26.3 million) in trading activity so far in 2023. The second edition has generated about $2.7 million over the same period.

NFT Investor’s Dream

The presence of high profile people are good for the maturation of the NFT market, and Melania Trump’s name certainly has been attached to NFT art. At the release of her third and latest collection, her June 29 announcement proclaimed it gives “collectors the ability to celebrate our nation’s independence while acknowledging America’s Founding Fathers’ vision of life, liberty, and the pursuit of happiness.” The announcement explained that “Each collectible represents an aspect of Americana and was deliberately designed to acknowledge the foundations of American ideals.”

Paul Hoffman

Managing Editor, Channelchek

Bitcoin Versus Bitcoin Cash

Posted on by phoffman@channelchek.com

Is Bitcoin Cash More Functional as a Currency than Bitcoin?

What cryptocurrency is performing better this year than Bitcoin?  

The other Bitcoin, that’s what.

Recent headlines related to BlackRock’s application for a Bitcoin ETF, followed by Citadel, Schwab, and Fidelity’s plans to create a joint crypto exchange, further legitimized the digital asset class at a time when it seemed under fire from the SEC. The combined news of such big players caused an epic rally in BTC. But it also put BCH (the lesser-known Bitcoin “step-child”) on the radar of crypto investors. Bitcoin Cash (BCH) experienced price gains far greater than BTC.

About Bitcoin Cash

Bitcoin Cash sprang to life in 2017 as the Bitcoin blockchain developers were torn between two directions. The divide was resolved with a split in order to address the disagreement. At issue was the scalability and transaction capacity of Bitcoin “classic”. There were two different schools of thought, the big blockers and the small blockers, each with different solutions. The big blockers felt strongly that larger blocks of transactions were best, in August 2017, a separate ledger for Bitcoin Cash was created, it has its own development team and uses big block design.

The split is often referred to as the Bitcoin Cash fork, it resulted in two separate blockchains, Bitcoin (BTC) and Bitcoin Cash (BCH). The larger block size of BCH allows for more transactions per second.

Recent plans to include Bitcoin Cash on a new platform, owned by big Wall Street firms has ushered in a shift in market perception of the “step-child” cryptocurrency. Despite its being born out of dispute, Bitcoin Cash’s recent performance suggests that it is gaining traction in the eyes of investors.

The ticker symbol is “BCH”. However, some exchanges use the ticker symbol “BCH.X” to distinguish between Bitcoin Cash and other cryptocurrencies with the BCH ticker symbol, similar to “BTC” and “BTC.X” for Bitcoin.

Source: Koyfin

Performance Drivers of BCH

Bitcoin Cash is up 138% so far in 2023, with much of that gain coming since the BlackRock SEC filing for a spot ETF, and the Citadel/Schwab/Fidelity exchange announcement. The exchange, called EDX Markets, backed by financial giants, is not registered with the SEC but carries significant weight due to its powerful partners. The platform lists only four cryptocurrencies: Bitcoin, Ether, Litecoin, and Bitcoin Cash.

This exclusive list has been interpreted by the market as a vote of confidence or an ordaining of sorts of those digital assets that will endure. This confidence has become even more important as the SEC has intensified its scrutiny of other blockchain projects.

BlackRock‘s application to the SEC isn’t the only one. It apparently has set off a wave of Bitcoin spot ETF applications. Bitcoin ETFs will allow greater participation in the asset class. Thus the sudden bullish sentiment across cryptocurrencies

Key Differences

Block size: Bitcoin Cash has a block size of 32 MB, while Bitcoin’s block size is 1 MB. This means that Bitcoin Cash can process more transactions per second than Bitcoin.

Development team: Bitcoin Cash is developed by a different team than Bitcoin. The Bitcoin Cash team is focused on increasing the scalability of the blockchain and making it more user-friendly.

Roadmap: Bitcoin Cash has a different roadmap than Bitcoin. The Bitcoin Cash roadmap includes plans to implement features such as Schnorr signatures and Segregated Witness.

Overall, Bitcoin Cash is a different cryptocurrency than Bitcoin. It has a larger block size, a different development team, and a different roadmap. Whether or not Bitcoin Cash is a better investment than Bitcoin is a matter of opinion and what it is to be used for.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bloomberg.com/news/articles/2023-06-26/bitcoin-offshoot-has-more-than-doubled-over-the-last-week

https://bitcoincash.org/

Bitcoin Becoming a More Entrenched Asset, But What Kind?

Posted on by phoffman@channelchek.com

Almost No One Uses Bitcoin as Currency, New Data Proves. It’s Actually More Like Gambling

In recent weeks the asset status of Bitcoin has gained additional legitimacy as an asset but has done little to bolster any claim that it is a medium of exchange for goods and services. Does this matter? A Senior Lecturer on Economics and Society shares his thoughts on the present and future of Bitcoin and how that compares with its promise. – Paul Hoffman, Managing Editor, Channelchek

Bitcoin boosters like to claim Bitcoin, and other cryptocurrencies, are becoming mainstream. There’s a good reason to want people to believe this.

The only way the average punter will profit from crypto is to sell it for more than they bought it. So it’s important to talk up the prospects to build a “fear of missing out”.

There are loose claims that a large proportion of the population – generally in the range of 10% to 20% – now hold crypto. Sometimes these numbers are based on counting crypto wallets, or on surveying wealthy people.

But the hard data on Bitcoin use shows it is rarely bought for the purpose it ostensibly exists: to buy things.

Little Use for Payments

The whole point of Bitcoin, as its creator “Satoshi Nakamoto” stated in the opening sentence of the 2008 white paper outlining the concept, was that:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

The latest data demolishing this idea comes from Australia’s central bank.

Every three years the Reserve Bank of Australia surveys a representative sample of 1,000 adults about how they pay for things. As the following graph shows, cryptocurrency is making almost no impression as a payments instrument, being used by no more than 2% of adults.

Payment Methods Being Used by Australians

Reserve Bank calculations of Australians’ awareness vs use of different payment methods, based on Ipsos data.

By contrast more recent innovations, such as “buy now, pay later” services and PayID, are being used by around a third of consumers.

These findings confirm 2022 data from the US Federal Reserve, showing just 2% of the adult US population made a payment using a cryptocurrrency, and Sweden’s Riksbank, showing less than 1% of Swedes made payments using crypto.

The Problem of Price Volatility

One reason for this, and why prices for goods and services are virtually never expressed in crypto, is that most fluctuate wildly in value. A shop or cafe with price labels or a blackboard list of their prices set in Bitcoin could be having to change them every hour.

The following graph from the Bank of International Settlements shows changes in the exchange rate of ten major cryptocurrencies against the US dollar, compared with the Euro and Japan’s Yen, over the past five years. Such volatility negates cryptocurrency’s value as a currency.

Cryptocurrency’s Volatile Ways

90-day rolling standard deviation of daily returns for major cryptocurrencies compared with the Euro and Yen. The Crypto Multiplier, BIS Working Papers, No. 1104, CC BY

There have been attempts to solve this problem with so-called “stablecoins”. These promise to maintain steady value (usually against the US dollar).

But the spectacular collapse of one of these ventures, Terra, once one of the largest cryptocurrencies, showed the vulnerability of their mechanisms. Even a company with the enormous resources of Facebook owner Meta has given up on its stablecoin venture, Libra/Diem.

This helps explain the failed experiments with making Bitcoin legal tender in the two countries that have tried it: El Salvador and the Central African Republic. The Central African Republic has already revoked Bitcoin’s status. In El Salvador only a fifth of firms accept Bitcoin, despite the law saying they must, and only 5% of sales are paid in it.

Storing Value, Hedging Against Inflation

If Bitcoin’s isn’t used for payments, what use does it have?

The major attraction – one endorsed by mainstream financial publications – is as a store of value, particularly in times of inflation, because Bitcoin has a hard cap on the number of coins that will ever be “mined”.

As Forbes writers argued a few weeks ago:

In terms of quantity, there are only 21 million Bitcoins released as specified by the ASCII computer file. Therefore, because of an increase in demand, the value will rise which might keep up with the market and prevent inflation in the long run.

The only problem with this argument is recent history. Over the course of 2022 the purchasing power of major currencies (US, the euro and the pound) dropped by about 7-10%. The purchasing power of a Bitcoin dropped by about 65%.

Speculation or Gambling?

Bitcoin’s price has always been volatile, and always will be. If its price were to stabilize somehow, those holding it as a speculative punt would soon sell it, which would drive down the price.

But most people buying Bitcoin essentially as a speculative token, hoping its price will go up, are likely to be disappointed. A BIS study has found the majority of Bitcoin buyers globally between August 2015 and December 2022 have made losses.

The “market value” of all cryptocurrencies peaked at US$3 trillion in November 2021. It is now about US$1 trillion.

Bitcoins’s highest price in 2021 was about US$60,000; in 2022 US$40,000 and so far in 2023 only US$30,000. Google searches show that public interest in Bitcoin also peaked in 2021. In the US, the proportion of adults with internet access holding cryptocurrencies fell from 11% in 2021 to 8% in 2022.

UK government research published in 2022 found that 52% of British crypto holders owned it as a “fun investment”, which sounds like a euphemism for gambling. Another 8% explicitly said it was for gambling.

The UK parliament’s Treasury Committee, a group of MPs who examine economics and financial issues, has strongly recommended regulating cryptocurrency as form of gambling rather than as a financial product. They argue that continuing to treat “unbacked crypto assets as a financial service will create a ‘halo’ effect that leads consumers to believe that this activity is safer than it is, or protected when it is not”.

Whatever the merits of this proposal, the UK committtee’s underlying point is solid. Buying crypto does have more in common with gambling than investing. Proceed at your own risk, and and don’t “invest” what you can’t afford to lose.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra.

The Other BlackRock, Citadel, Bitcoin Story

Posted on by phoffman@channelchek.com

Taking Advantage of Bitcoin’s Momentum

With BlackRock filing for a Bitcoin-related ETF this month, and then Citadel, Charles Schwab, and Fidelity backing a cryptocurrency exchange, there is again talk of Bitcoin (BTC) more than retracing its previous all-time high. BlackRock’s proposed product is designed, as are other crypto ETFs, to trade like a stock. This helps satisfy those that want ease of trading, exposure of their qualified retirement money, and all investments on one statement. A consolidated statement is also a benefit of Citadel, Schwab, and Fidelity’s exchange plans.

This adds fuel to the momentum Bitcoin has relative to other assets.

Another reason for increased expectations for Bitcoin’s performance is, next year Bitcoin’s is scheduled to halve, sometimes called its “halving event.” This halving happens every four years as Bitcoin rewards to miners are cut in half (miner’s payout will be reduced to 3.125 BTC). The event is viewed as positive for Bitcoin’s price. This is because halving helps in reducing supply. Historically, halving has brought higher Bitcoin values.

Exposure to Bitcoin price movements are, for some investors, already in their traditional brokerage accounts, and when desired, has found its way into IRA’s and other tax-advantaged retirement accounts. This is accomplished using the strong correlation between Bitcoin mining stocks, and the trend and momentum of Bitcoins measured against US Dollar value (BTCUSD) .

Over the past month as Bitcoin rose more than double that of the S&P 500 as a percentage, many Bitcoin mining stocks crushed the crypto’s performance. Both Bitcoin and Bitcoin miners historically move in the same direction, but the magnitude varies.

Currently, many mining stocks are experiencing a much greater magnitude.

Source: Koyfin

To demonstrate how mining stocks provide stock portfolios the overall direction of Bitcoin, but differ in terms of degree, the chart above plots four Bitcoin mining companies against the BTCUSD. The overall direction is visually correlated to $Dollar/Bitcoin percentage moves. However, there are huge variations in that performance. The top performer represented above is Bit Digital, Inc. (BTBT). The New York-headquartered, large-scale mining business, with operations across the U.S. and Canada also acts as a validator of Ethereum. This is common stock and avoids the contortions and management fees of gaining exposure through an ETF, and of course, can be obtained through an investors traditional stockbroker. While Bit Digital rose 72.22% during the last 30 days, Bitcoin rose near 10%.

The weakest Bitcoin mining company pictured here is Riot. Riot has deployed one of the mining industry’s largest fleets of self-mining hardware. While the period represented above is only the past 30 days, Bitcoin strength is still represented in this laggard.

Take Away

The new possibility that BlackRock gets approval for a Bitcoin ETF and that a consortium of brokerage firms create a crypto exchange, is expected to lead to a growth in demand for cryptocurrency. Investors may be able to capture directional performance of Bitcoin using the stocks of Bitcoin miners, and have these assets listed on their current brokerage holding reports, and even house them in qualified tax-advantaged accounts.

The launch of a Bitcoin ETF could certainly help increase exposure to the token and drive up demand because it makes it easier for consumers to purchase, and crypto exchanges have also come under regulatory scrutiny as of late. If an investor is looking to accomplish this, they may wish to evaluate whether they can meet their needs using Bitcoin mining stocks.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.forbes.com/advisor/in/investing/cryptocurrency/bitcoin-prediction/#:~:text=This%20year%20Bitcoin%20has%20rallied,crossed%20%2469%2C000%2C%20in%20November%202021.

https://www.reuters.com/business/finance/blackrock-close-filing-bitcoin-etf-coindesk-2023-06-15/

An Investor List of the Industries that Can be Improved With Blockchain Technology

Posted on by phoffman@channelchek.com

Blockchain Beyond Cryptocurrency: The Potential of Distributed Ledger Technology

Does blockchain have a future beyond crypto? Since its beginning as the underlying technology for Bitcoin (BTC) and later other cryptocurrencies, blockchain has been the necessary, behind-the-scenes, engine that allow these fintech currencies to function. Dogecoin (DOGE), Ethereum (ETH), and even the 18 G20 countries developing a central bank digital currency (CBDC) need blockchain to exist.  

But what non-finance industries are being impacted or will be disrupted by blockchain? It is not with exaggeration to say blockchain has the power to revolutionize various industries and redefine everyday transactions, manage data, and establish trust. Long-term investing requires knowledge of current trends and where the future may take them. Below we explore many of the possibilities of blockchain aside from cryptocurrency and delve into its promising future.

What is Blockchain?

At its core, blockchain is a decentralized (no single control) and immutable (unable to be changed) ledger that records activity across multiple computers. This distributed character replaces the need for institutional intermediaries to ensure transparency, security, and efficiency. A person or an entity can function, even across borders directly, without the need for a middleman. Verification of activity is recorded and remains a part of a blockchain ledger.

Uses beyond cryptocurrency, or the speculative investment that crypto and non-fungible tokens (NFT) have become, include health care, finance, voting, real estate titles, and smart communities.

Health Care

The HIPAA Privacy Rule sets national standards to protect individuals’ medical records and other identifiable health information. It applies to health plans, healthcare clearinghouses, and healthcare providers that conduct certain medical transactions electronically. The purpose is to keep data ownership from improperly being passed and to maintain privacy in the industry. Current centralized systems are not able to meet the many needs of patients, health service providers, insurance companies, and governmental agencies. Blockchain technology enables a decentralized system for access control of medical records where all stakeholders’ interests are protected.

Blockchain systems not only allow healthcare service providers to securely share patients’ medical records but patients may also track who has accessed their records and determine who is authorized to do so. If blockchain-driven, all transactions can become transparent to the patient.

And blockchain-powered interoperability can enable the seamless sharing of medical data between healthcare organizations, improving patient care, research, and drug development.

Supply Chain Management

Complex global supply chains involve numerous stakeholders, some sending, others receiving, and others verifying the source of food or products. Verifying the authenticity and improving traceability of products can be a challenging task. Blockchain’s ability to create an immutable record of every transaction and movement along the supply chain enables transparency and accountability. A company will be able to securely track the origin, manufacturing process, and movement of goods. Consumers can be equipped with verified information, among other benefits, this will increase trust and reduce the risk of receiving counterfeit products.

Storing information regarding movement on a blockchain improves integrity, accountability and traceability. For example, IBM’s Food Trust uses a blockchain system to track food items from the field to retailers. The participants in the food supply chain record transactions in the shared blockchain, which simplifies keeping track.

Entertainment Products

As technology has allowed greater reproduction and distribution, including music and art, blockchain may provide creators with more control over their work. The whole entertainment industry may undergo a significant transformation with blockchain technology. Artists can tokenize their efforts, creating a digital certificate of ownership that can be bought, sold, and shared on blockchain platforms. This will enable artists to have tight control over their intellectual property, receive fair compensation, and even establish a direct connection with their followers. Beyond ownership infringement, blockchain can facilitate transparent royalty distribution, this could ensure that artists receive their rightful earnings without an intermediary and the cost that comes with anyone getting in the middle of a transaction.

The Energy Sector

Blockchain is likely to play a transformative role in all forms of energy. As renewable energy sources continue their trend, blockchain can enable peer-to-peer energy trading. Individuals and organizations will be able to directly exchange surplus energy with those expecting an energy deficit. This could create a decentralized energy market.

Smart contracts executed on the blockchain can automatically verify and settle transactions, ensuring transparency. This democratization of energy, if broadly implemented, could accelerate the adoption of sustainable practices, provide energy where needed, and reduce waste.

Governments

While the government is often the intermediary that the blockchain makes less needed or unneeded, recognizing the potential of blockchain to enhance transparency and efficiency in public services may become its greatest use. Land registries, taxation, voting systems, and identity certainty can all be improved through blockchain’s tracking and tamper-resistant design. Immutable records of land ownership can reduce disputes and increase trust in property transactions. Digital identities stored on a blockchain can streamline processes such as passport verification and border control, making them more secure and efficient. Blockchain-based voting systems have the potential to eliminate voter fraud, ensuring fair and transparent elections.

Potential

Much of what is described above has either barely been implemented or has not been put to use. This is a period in any technological advancement when most long-term investors would like to be involved. Efficiencies and improved products are poised to help the industries mentioned, and pure blockchain companies, large and small, can benefit from developing uses for their technology.

Despite its potential, blockchain technology still faces challenges. Scalability, energy consumption, and regulatory frameworks require further development and refinement. However, ongoing research and collaborations among businesses, academia, industry, and policymakers are actively finding avenues around these concerns, driving the maturation of blockchain technology.

Take Away

Blockchain is still in its infancy, and industries are just becoming aware of its power to help them. As the paradigm shifts, it could become a technology businesses could not imagine doing without. Blockchain’s decentralized, transparent, and secure nature makes it a powerful tool for revolutionizing healthcare, supply chain management, entertainment, governing, and energy sectors. As the technology evolves, we can expect innovative use and widespread adoption of blockchain that serves to elevate trust, efficiency, and transparency. And maybe the now-developed cryptocurrencies will survive within these changes.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.investopedia.com/tech/forget-bitcoin-blockchain-future/

https://www.hhs.gov/hipaa/for-professionals/privacy/index.html

https://www.ibm.com/products/supply-chain-intelligence-suite/food-trust

https://www.investopedia.com/10-biggest-blockchain-companies-5213784

SEC Charges Against Binance and Binance’s Sharp Response

Posted on by phoffman@channelchek.com

Gary Gensler’s SEC  Files 13 Charges Against Changpeng Zhao and His Company Binance

In a pair of press releases, one from the Securities and Exchange Commission, and the other from Binance, the world’s largest cryptocurrency exchange, there were charges, allegations and answers fired back and forth. The SEC named the founder and CEO of Binance, Changpeng Zhao as a defendant in the suit. Binance quickly shot back how disappointed Binance is that 13 complaints were filed against the company.

Allegations

The SEC press release indicates that they are suing Binance and founder Changpeng Zhao for misusing customers’ funds and for diverting funds to a trading entity that Zhao controlled called Sigma Chain. It further charges Sigma Chain for engaging in fraudulent trading that made Binance’s volume appear larger than it actually was.

Among the charges, Binance is also supposed to have concealed that it commingled billions of dollars in customer assets, sending them to a third-party, Merit Peak, which was owned by Zhao.  

The SEC filed the case in federal court in the District of Columbia. Binance engaged in “blatant disregard of the federal securities laws and the investor and market protections these laws provide,” the regulator wrote in its court complaint.

Source: SEC.Gov

Binance Response

Binance said in a written statement that it intends to defend its platform and denied allegations that user assets on the Binance.US platform were ever at risk. “All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary,” the company said. Binance.US also said it would defend itself against the litigation.

Source: PRNewswire

Binance alleges that because of their size, they are a target for the US regulator. The company expressed concerns through a press release that despite cooperating with the SEC, that a reasonable amount of time was not given on the most recent 26 different requests, and that they may have been intentionally burdensome. Binance said that despite its willingness to do whatever was necessary to address the US regulator’s concerns and take whatever reasonable steps they could, the SEC would not share any evidence it might have regarding its purported concerns, and the SEC rejected attempts at engagement, instead going straight to court. “It is now clear to us that the SEC’s goal here was never to protect investors, as the SEC has claimed—if that were indeed the case, the SEC would have thoughtfully engaged with us on the facts and in our efforts to demonstrate the safety and security of the Binance,” according to a company statement.

Channelchek will continue to follow and report on major news impacting this case and others of interest to the investment world. Various sources indicate that there does not appear to be any type of a run by customers from Binance, there are some reports that it is business as usual. Register here to receive our daily emails.

Paul Hoffman

Managing Editor, Channelchek

What You Should Know About the Canton Network Blockchain Announcement

Posted on by phoffman@channelchek.com

The “Who’s Who” of Tech and Finance Join Forces in Blockchain Collaboration

A new partnership between financial giants, tech behemoths, media monsters, and leaders in digitization just announced plans to launch what they call Canton. What is Canton? In a press release dated May 9, The Canton Network says it is “the industry’s first privacy-enabled interoperable blockchain network designed for institutional assets and built to responsibly unlock the potential of synchronized financial markets.” What does that mean? We’ll take it one piece at a time below.

The announcement describes the Canton Network as building toward being an interoperable blockchain with privacy features designed for the institutional asset management industry. It aims to allow “previously siloed” financial assets to be able to synchronize, making it possible to interconnect diverse financial markets.

The list of partners is a “Who’s Who” list of companies that are considered among the best in their individual specialties.

Canton Participants include, in alphabetical order:

3Homes, ASX, BNP Paribas, Broadridge, Capgemini, Cboe Global Markets, Cumberland, Deloitte, Deutsche Börse Group, Digital Asset, The Digital Dollar Project, DRW, Eleox, EquiLend, FinClear, Gambyl, Goldman Sachs, IntellectEU, Liberty City Ventures, Microsoft, Moody’s, Paxos, Right Pedal LendOS, S&P Global, SBI Digital Asset Holdings, Umbrage, Versana, VERT Capital, Xpansiv, and Zinnia.

The announcement proclaims that The Canton Network will provide “a decentralized infrastructure that connects independent applications built with Daml, Digital Asset’s smart-contract language.” The result will be “a ‘network of networks’, allowing previously siloed systems in financial markets to interoperate with the appropriate governance, privacy, permissioning and controls required for highly regulated industries.”

 The Canton Network intends to enable financial institutions to experience a safer and reconciliation-free environment where assets, data, and cash can synchronize freely across applications. The end product will be opportunities for financial institutions to offer new innovative products to their clients while enhancing their efficiency and risk management.

An example provided by Canton is asset registers and cash payment systems which are distinct and siloed systems in today’s markets. With the new Canton Network, a digital bond and a digital payment can be composed across two separate applications into a single transaction, guaranteeing simultaneous exchange without operational risk. Similarly, a digital asset could be used in a collateralized financial transaction via connection to a repo or leveraged loan application.

Bloomberg calls the new venture “a collaborative effort that could be crucial to ledger technology in the finance market.” In addition, the group is striving to integrate “disparate institution applications,” which could have a positive impact on the entire industry.

The press release expalained that until Canton, smart contract blockchain networks have not achieved meaningful adoption among financial institutions and other enterprises because of three significant shortfalls:

  • The lack of privacy and control over data: other chains have shortcomings around privacy that prevent the use of the technology by multiple regulated participants on the same network. There are currently no other blockchains that can offer data protection or control at any layer of its network.
  • Other blockchains have had to accept trade-offs between control and interoperability: other chains require operators to forfeit their full control of applications by using a shared pool of validators to gain interoperability.
  • The inability to scale: with applications competing for global network resources and the inherent capacity limitations caused by how public blockchains operate, achieving the scale and performance financial institutions need remains challenging.

The Canton Network expects to remove these obstacles by balancing the decentralization of a network with the privacy and controls needed to operate within a sound regulatory environment.

The network expects to raise the bar on safety and soundness in blockchain financial interactions by enabling network users to safeguard permissions, exposure, and interactions across Canton, to comply with security, regulatory and legal requirements.

The network can connect innovative blockchain solutions in market today, such as Deutsche Börse Group’s D7 post-trade platform and Goldman Sachs’ GS DAP™, while retaining privacy and permissioning. As more Daml-built applications go into production this year and beyond, the number of connections on the Canton Network are expected to grow exponentially. For example, one application’s monthly notional traded exceeds the most active crypto token volumes.

Canton Network participants will begin testing interoperability capabilities across a range of applications and use cases in July.

The network will bring together blockchain applications built with Daml, the smart-contract language devised by Digital Asset. The team-up is the result of years of blockchain research and development by the tech and finance industry’s giants that are involved.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.businesswire.com/news/home/20230509005497/en/New-Global-Blockchain-Network-of-Networks-for-Financial-Market-Participants-and-Institutional-Assets

https://www.bloomberg.com/press-releases/2023-05-09/new-global-blockchain-network-of-networks-for-financial-market-participants-and-institutional-assets

What Americans Really Think of Cryptocurrency

Posted on by phoffman@channelchek.com
Image Credit: Duncan Rawlinson (Flickr)

Does the News Chatter Surrounding Cryptocurrencies Match the Interest in the Asset Class?

Over the 14 years since bitcoin sprung to life, expectations have ranged from overwhelming enthusiasm over its possibilities to fear of the risks inherent in an, as yet, not integrated payment method. A recent 50% run up in bitcoin has refired up the believers, but the most heard about crypto is still valued at less than half of its high point. Issues beyond volatility that cause some to disregard cryptocurrencies as a payment method are regulatory threats, the environmental cost of mining, and failed exchanges. During the week March 13-19, Pew Research Center conducted a survey measuring usage, confidence, and investment success. The survey is important for those paying attention to crypto as it cuts through our personal opinions and offers less biased statistics.

Survey Says…

Most Americans, 88% have heard of cryptocurrency. Almost 40% of those that are aware of crypto told surveyors they are not at all confident in the reliability and safety of crypto, with an additional 36% not very confident. Of the results for those that responded that they are extremely confident the result is 4%, and 2% as very confident.   Of those that have heard of it, 18% say they are somewhat confident.

Digital technology is shown to be less embraced with age. Although the current concern for crypto is high, some age groups have a greater concern than others. This is reflected in that those 50 and older who know about cryptocurrency and are more inclined to say 85% they are not confident in its reliability and safety. Compare this to those adults 49 and younger, where the figure drops to 66%.   

Does sex play a role in skepticism toward cryptocurrencies? 80% of women say they are not confident in it, compared with 71% of men out of the 88% that have heard of crypto.

Does experience lead to acceptance, or acceptance lead to experience? For those that invested in one or more digital currencies, 20% say they are extremely or very confident that it is safe and reliable. For those that have no experience investing in it, the slice drops to 2%. It is worth understanding that of the group that has had experience with crypto, 43% still  responded that they are not very or not at all confident in it.

Cryptocurrency Usage in the U.S.

Younger males are more likely to use cryptocurrency compared with men 50 and older and women overall. The number of men 18-29 that have used crypto is more than double that of woman of the same age, 41% of men ages 18 to 29 compared with 16% of women in the same age range.

Adults with upper incomes that have used crypto totaled 22%, with middle incomes slightly less at 19%. Lower incomes that have ever invested in, traded or used cryptocurrency compared at 13%.  

Few that have invested in or transacted using cryptocurrency used it for the first time within the past year. Pew Research asked when they first used cryptocurrency, 74% of those who have ever invested in, traded, or used cryptocurrency say they did for the first time one to five years ago. Only 16% say they first did this within the past year, and 10% more than five years ago.

For college graduates, 25% and those with some college experience, 20% showed they were more likely than those with just a high school education or less, 10% to answer that their cryptocurrency investments hurt their personal finances.

Results of Investment

Of those that have invested in crypto, 15% say their investments have done better than expected, 32% say they have done about the same as expected and 7% are unsure. 19% of cryptocurrency users say the investments have hurt their personal finances at least a little.

Most users, 45% indicated their investments performed worse than expected.

Measuring the impact the speculation had on users’ personal finances, three-in-five users (60%) say that they have neither helped nor hurt. Roughly equal shares say that these investments have helped (20%) or hurt (19%) their finances. Just 7% say cryptocurrency has helped their finances a lot and 3% say it has hurt a lot. ­

Take Away

There seems to be far more noise reporting cryptocurrencies than activity or actual usage. This could mean a number of things. One could read into this that the asset’s potential when the fear lifts are high and the potential includes a large percentage of those that are now keeping away. The argument suggests that the ongoing dramatic headlines are warranted since once the potential is realized, there could be much greater movement than we have already seen. Bitcoin had once gone from pennies to $68,000 $USD. Another reason for so much news coverage for an asset class that is favored is it is still novel, so we are all evaluating the asset class as investors; since we’re showing interest or intrigue, news services will report on it to gain audience. If we turn our attention elsewhere, that is then what we will hear more about.

It is truly a speculative asset class with little history. While some are betting everything on crypto, far more are currently just spectators on the sidelines. The hype and attention it is currently receiving may not match actual investor interest.

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.pewresearch.org/wp-content/uploads/2023/04/sr_2023.4.10_crypto_topline.pdf

Twitter is Now Seated with eTORO, Which is a Breakthrough Expansion for Both

Posted on by phoffman@channelchek.com
Image Credit: Web Summit (Flickr)

Elon Musk Announces New Financial Functionality on Twitter

Starting today, Twitter will provide tweeters the ability to buy and sell stocks and crypto on its platform via eTORO. Twitter owner, Elon Musk has been indicating he intends to turn the popular micro-blogging platform into a “super app.” Today’s move shows substantial headway in allowing financial transactions to be conducted on the social media platform. Other company goals since Musk’s purchase of the company include ride hailing, and attracting video influencers that may be disenchanted with YouTube restrictions on speech.  

What Will the Twitter eTORO Partnership Provide?

Founded in 2007, eTORO has become one of the largest social investment networks and trading platforms. According to its website, it is “built on social collaboration and investor education: a community where users can connect, share, and learn.”

Twitter will partner with the platform to allow users (known as tweeters and Twitterers) to trade stocks and cryptocurrencies as part of a deal with the social investing company.

This partnership will provide access to view charts and trade stocks, cryptocurrencies, and other investment assets from eToro via its mobile platform. Together this significantly expands real-time trading data available to users who already have access on Twitter to real-time data, however this arrangement adds all the bells and whistles a modern trading app can provide.

Twitter will be expanding its use of cashtags as well. Twitter added pricing data for $Cashtags (company ticker preceded by “$”) in December 2022. Since January, there have been more than 420 million searches using Cashtags – the number of searches averages 4.7 million a day.

eToro CEO Yoni Assia told CNBC the deal will help better connect the two brands, adding that in recent years its users have increasingly turned to Twitter to “educate themselves about the markets.”

Assia said there is a great deal of “very high quality” content available in real-time and that the partnership with Twitter will help eToro expand to reach new audiences tapping this as a source of information.

Update on Elon

After Musk’s purchase of Twitter, many advertisers stepped back and watched to see how far the company would go to allow less moderated interaction. On Wednesday (April 12) Musk said that “almost all” advertisers had returned to the app. However, Stellantis and Volkswagen, two large competitors with Musk run Tesla, said they do not yet plan to resume advertising.

Musk told a Morgan Stanley conference last month he wants Twitter to become “the biggest financial institution in the world.” This begs those that follow Musk to ask, “Why stop there, why not include Mars?”

What Else

Be sure to follow Channelchek on Twitter (@channelchek) to stay up to date on market insights, news, videos, and of course, top-tier investment analyst research on small and microcap opportunities.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.etoro.com/en-us/about/

https://www.cnbc.com/2023/04/13/twitter-to-let-users-access-stocks-crypto-via-etoro-in-finance-push.html?__source=iosappshare%7Ccom.apple.UIKit.activity.PostToTwitter

https://www.forbes.com/sites/roberthart/2023/04/13/twitter-will-let-users-buy-stocks-and-crypto-as-elon-musk-pushes-for-everything-app/?sh=332662a26882

https://www.bloomberg.com/news/live-blog/2023-03-07/elon-musk-speaks-at-morgan-stanley-conference

About the Bitcoin to $1 Million by Summer 2023 Wager

Posted on by phoffman@channelchek.com
Image Credit: Fortune Brainstorm TECH (Flickr)

Are Balaji Srinivasan and Cathie Wood Right About the Future Value of Bitcoin?

The former Chief Technology Officer (CTO) of Coinbase, is either extremely bullish on Bitcoin, or has other reasons for his tweet that had set off a huge price jump in the cryptocurrency. Balaji Srinivasan is a very influential investor, especially in the tech space. He confirmed last Friday, belief in a bet he made in March that within 90 days, bitcoin would reach $1 million in value per token. At stake in the bet is $2 million. For crypto investors trying to understand the strong conviction going into the wager, they may first need to understand the person behind the tweet.

Who is Balaji Srinivasan

The Indian-born, U.S. raised, tech entrepreneur, investor, and academic has a Ph.D. in Electrical Engineering and an MS in Chemical Engineering from the Massachusetts Institute of Technology (MIT). Srinivasan co-founded a number of startups, including Earn.com which is blockchain payments platform, and the genomics company Counsyl. He has worked as a General Partner at a prominent Silicon Valley venture capital firm, and as the Chief Technology Officer at the crypto exchange, Coinbase. 

Srinivasan has a large following as a commentator on the subject of technology and its social and political implications. Popular topics of his numerous articles and talks include the future of technology, the rise of decentralized systems, and the potential impact of emerging technologies on society. The tech guru has lectured at Stanford University and has served as an advisor to the FDA and the World Economic Forum.

Twitter: @balajis

What is Behind this Forecast?

In an ARK Invest podcast last Friday (April 6), Srinivasan explained bitcoin has good momentum and that he still believes it will reach $ 1 million within a three-month time horizon. He cited the concerns over the regional banking crisis that he believes will destabilize the dollar and cause the Fed to dump more dollars into the system. Fear and inflation in the coming months is the driver. Cathie Wood agreed with the direction and potential for bitcoin to hit $1 million, but her reasons were a bit different. She believes fear will be one driver, but reiterated her call for deflation. “We are very positive about Bitcoin as well. But your forecast was in the context of hyperinflation associated with fiat currencies. Our optimism is more of a function of fears of deflation and counter-party risk. Both of those should accrue to Bitcoin’s benefit,” Wood explained in her company’s podcast.

The bet and the likelihood that bitcoin-will-hit-$1-million-by-summer prediction seems on the surface to be highly improbable. It would take immense capital flows into the cryptocurrency and there is doubt the exchanges would be able to handle the migration of assets. Also, the question of what would prompt the run from traditional currency to cause a skyrocketing bitcoin, has still not been satisfactorily defined.

The one-hour and 17-minute podcast available at the link below under “Sources” is nonetheless thought provoking. These are two well-regarded tech analysts, standing behind something that sounds outlandish.

Another possible explanation for his outward conviction is that this isn’t a risky bet for Balaji. He’s presumed to own a considerable amount of bitcoin. The tick up on news of his bet (bitcoin is up near 25% since his tweet) could more than offset a $2 million loss on the wager. The timing of the value increase in BTC makes it appear that any loss could be self-funded by the attention it may have given the cryptocurrency.

Take Away

Bitcoin is higher than it had been when tech guru Balaji Srinivasan placed his public wager. However, at $28,500 it would still have to rise by $971,500. over the next few months. Supporting the idea that bitcoin is going up substantially, are two tech and disruption gurus whose thoughts are worth considering alongside your own observations.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://ark-invest.com/podcasts/

https://www.coindesk.com/consensus-magazine/2023/04/01/balaji-srinivasans-1m-bitcoin-bet-could-be-right-but-i-hope-hes-wrong/

 Will the Binance Legal Action Crown the CFTC as the Crypto-Police

Posted on by phoffman@channelchek.com
Image Credit: CoinDesk (Flickr)

What Binance’s US Lawsuit Says About the Future for Cryptocurrency Regulation

The world’s largest cryptocurrency exchange, Binance, has been hit with a lawsuit by US regulator the Commodity Futures Trading Commission (CFTC). This is not the first time a cryptocurrency exchange has been charged by a regulator. But this particular case involves a regulator that does not directly oversee cryptocurrencies. This indicates how regulators – particularly those in the US – hope to clamp down on the cryptocurrency industry.

The CFTC’s lawsuit alleges that Binance violated US derivatives laws by offering its derivative trading services to US customers without registering with the right market regulators. It says Binance has prioritised commercial success over regulatory compliance.

The CFTC has also levied charges against Binance’s founder and CEO, Changpeng Zhao (known as CZ) and former chief compliance officer Samuel Lim. They are charged with taking steps to violate US laws, including directing US-based “VIP customers” to open Binance accounts under the name of shell companies. The regulator has pointed to chat messages as evidence of CZ and Sim’s knowledge of various criminal groups using the exchange.

People visit Binance nearly 15 million times a week to trade on the over 300 cryptocurrencies it offers in more than 1,600 different markets. CZ is an outspoken advocate for cryptocurrencies and regularly tweets about the industry and his company. He even tweeted a link to his initial response to the recent CFTC charges, which he called “unexpected and disappointing”. Promising full responses in due time, he said:

Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.

Last year CZ’s tweets arguably contributed to the collapse of FTX, one of his company’s main rivals. Binance saw its market share grow following FTX’s collapse.

So, this charge – against not only a crypto giant but also the company of an outspoken industry advocate – has created further upheaval in a market that has already suffered multiple crises in the last year. Investors withdrew a reported US$1.6 billion (£1.3 billion) from Binance within days of the CFTC’s announcement of its charges. These outflows could continue if US regulators tighten their squeeze on crypto companies further, causing major players like Binance to shift focus to other jurisdictions.

Creeping Oversight

The CFTC aims to “protect the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets”. Previous actions by this regulator in 2021 against Tether and Bitfinex resulted in major fines and a loss of credibility for the crypto industry.

But a statement published at the time by one of the CFTC’s five commissioners, Dawn Stump, pointed out that the CFTC doesn’t actually have responsibility for regulating cryptocurrencies. She warned that these fines might “cause confusion about the CFTC’s role in this area”. She said the action was based on defining stablecoins (a type of cryptocurrency) as a commodity, but: “we should seek to ensure the public understands that we do not regulate stablecoins and we do not have daily insight into the businesses of those who issue such”.

These latest charges against Binance focus on its activities in derivatives – financial contracts that are linked to the value of an asset such as oil or, in this case, cryptocurrencies. This is a market the CFTC does regulate.

Another US financial regulator, the Securities and Exchange Commission (SEC), has also been ramping up its crypto oversight activities. As well as focusing on the Initial Coin Offering market, it saw a 50% increase in enforcement actions against digital asset companies last year compared to 2021.

Crypto Market Changes

So, Binance is up against two powerful US financial regulators. Some experts have warned that “significant regulatory action could prompt Binance to increasingly shift its business operations beyond the United States”. Certainly, the fact that Binance held a 92% share of the crypto market at the end of 2022 means it facilitates many transactions and offers a lot of liquidity to traders around the world, including in the US.

A trader’s capacity to find competitive prices when buying and selling, as well as sources of liquidity (or other people to trade with) would be affected by the loss of or pull back of one of the world’s top ten crypto exchanges. This would be bad news for retail and institutional investors who could be confronted with a smaller and potentially more expensive market as a result.

And even if the complaints and investigations by the CFTC and SEC take a while to conclude, as is likely, the US legislature may step in before that. A report published by the Financial Times days after the CFTC announcement alleges that Binance has hidden links to China for many years. A statement issued by the the exchange to the FT said this is not “an accurate picture of Binance’s operations” and that the paper’s sources were “citing ancient history (in crypto terms)”.

But recent actions against Chinese tech company Huawei and social media platform Tiktok indicate political leaders are keen to crack down on Chinese companies’ access to US technology systems and customer data. So any similar concerns could lead US politicians to start acting in this area as well.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Andrew Urquhart, Professor of Finance & Financial Technology, ICMA Centre, Henley Business School, University of Reading and Hossein Jahanshahloo, Assistant Professor in Finance, Cardiff University.

Are Bank Regulators Illegally Punishing Crypto Users?

Posted on by phoffman@channelchek.com
Source: Coindesk (Flickr)

Washington DC Law Firm that Won Operation Choke Hold Suit, Gives Congress Advice

Are private digital assets, under unlawful attack by regulators? Sounds conspiratorial, but a D.C. law firm that successfully sued the FDIC, Federal Reserve, and Office of the Controller of the Currency (OCC), says they are doing just that. The firm Cooper & Kirk, won a large lawsuit dubbed against the agencies for their part in, “Operation Choke Point.”  That was a decade ago, the law firm now claims they have uncovered a coordinated campaign by bank regulators to drive crypto out of the U.S. financial system.

The new “Operation Choke Point 2.0,” according to the firms website, “have published informal guidance documents that single out cryptocurrency and cryptocurrency customers as a risk to the banking system.” According to an informational paper published by the D.C. firm, “businesses in the cryptocurrency marketplace are losing their bank accounts, or their access to the ACH network, suddenly, and with no explanation from their bankers, the paper continued, “the owners and employees of cryptocurrency firms are even having their personal accounts closed without explanation.”

As an example of could be viewed as overstepping their charters, the firm pointed out that, “over the past two weeks, federal regulators have shut down a solvent bank that was known to be serving the crypto industry and, although it is required to resolve banks through the “least cost resolution” to the Deposit Insurance Fund, the FDIC chose to shutter rather than sell the part of the bank that serves digital asset customers, costing the Fund billions of dollars.” The overall theme of the 37 page paper is that the targeting of certain businesses is going on to force them out of existence.

Source: White Paper on Operation Choke Point 2.0, Cooper & Kirk LLC

What are Regulators Accused Of

Specifically the regulators are being accused of:

  • Depriving businesses of their constitutional right to due process. This is a fifth amendment right that says that an entity tagging another with a derogatory label that causes injury (like lose bank accounts) The firm accuses that this is what the regulators have done by “labeling crypto a threat to the financial system.”
  • Violating both the non-delegation and anticommandeering doctrine by, “depriving Americans of Key Structural constitutional protections against the arbitrary exercise of government power.”
  • Refusing to perform their non-discretionary duties “when doing so will benefit the cryptocurrency industry.”
  • Evading rules that require periods of notice and comment of the rulemaking requirements of the administrative procedure act. It claims circumventing this is, “undemocratic.”
  • Acting in an arbitrary and capricious fashion by avoiding explaining underlying rules for their decisions. “It is difficult to imagine a more arbitrary and capricious agency action that simultaneously placing a solvent bank into receivership solely because it provided financial services to the cypto industry, while permitting insolvent institutions not tied to the crypto industry to continue operations.”

What is the Law Firms Stated Intent

Cooper and Kirk urge the U.S. Congress to perform its role and hold the agencies accountable. The firm urges the Congress to ask for all communications records related to these matters from the regulators.

The firm also would like for them to explain the basis for their conclusion that safety and soundness of the banking system requires the banking system be insulated from crypto. They would also like for it to be made clear to the agencies that the comment period of the Administrative procedure act is mandatory. It wanst an investigation into why Signature Bank was closed.

The last stated hope is fro Congress to investigate whether bank regulators are working to squelch innovation from the private sector in order to clear out competition for the benefit of existing regulated banks and a new federal crypto asset.

Take Away

Just like the first Operation Choke Point was targeting specific players, the new version does the same. The law firms stops short of any threats in their open paper, but it makes clear that the firm has solid experience achieving compliance if these maters.

https://www.cooperkirk.com/wp-content/uploads/2023/03/Operation-Choke-Point-2.0.pdf

Block Inc. Versus Hindenberg Research, Who’s Correct?

Posted on by phoffman@channelchek.com
Image Credit: Hindenberg Research (YouTube)

The Details of the Hindenberg Research Report Include Serious Allegations

A legal face-off may be brewing as Block (SQ), the other company co-founded by Jack Dorsey, calls on the SEC for what Block calls an “inaccurate report.” The report Block (formerly Square) is referring to was released by Hindenberg Research on March 23. The research contends that Dorsey’s fintech company showed, “willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.”

What is each side claiming, and what is the responsibility in releasing a report that may take Hindenberg into a fight with a company with a $44 billion market cap?

Who’s Involved?

Block is a financial technology company specializing in mobile payments founded in 2009 by Jack Dorsey and Jim McKelvey. The company’s flagship product is a small, square-shaped credit card reader that plugs into a smartphone or tablet and allows businesses to accept credit and debit card payments. Block has added other financial products and services, including point-of-sale software, payroll processing, and business loans.

Hindenburg Research provides investors with investigative research and analysis for the purpose of helping them identify potential risks or fraudulent practices in publicly traded companies. They are described as a short-selling, research-based firm. The Research is often considered within the context of its short-position investment strategy.

Image: Block’s flagship product – Nat’l Museum of American History Smithsonian Institution (Flickr)

What is Hindenberg’s Claim?

The research firm with a reputation of looking below the surface for trouble at firms, says Block is not what it claims to be. According to the Hindenberg report, the Dorsey-founded firm claims to have developed a frictionless and magical financial technology. The mission of this technology, the report quotes Block as saying is to empower the “unbanked” and the “underbanked.”

Hindenberg says that over two years of investigation that involved dozens of interviews with former employees that Block has systematically taken advantage of the demographics it claims to be helping. This refers to the stated mission of helping the underbanked. Instead, the research firm says this stands in conflict with, “the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, and dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.”

The two years of investigation also indicated that  Block severely overstated its user counts and has understated its customer acquisition costs. This information, the report says, is based on former employees’ estimation that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

They claim a key metric that investors use to value the company are unclear. That is, how many individuals are on the Cash App. The report accuses the company reporting of misleading “transacting active” metrics filled with fake and duplicate accounts. Hindenberg says, “Block can and should clarify to investors an estimate on how many unique people actually use Cash App.”

Hindenberg said the app is used for illegal activity and points to all the rap songs written about engaging in illegal activity, activity made possible with the help of the app. The research company even made a compilation video to demonstrate this point (link to video under “Sources” below).

A line in one of the songs is, “I paid them hitters through Cash App.” Heritage contests that Block paid to promote the video for the song called “Cash App” which described paying contract killers through the app. The song’s artist was later arrested for attempted murder.

According to the Hindenberg report, Block’s Cash App was also cited “by far” as the top app used in reported U.S. sex trafficking, according to a leading non-profit organization. Multiple Department of Justice complaints outline how Cash App has been used to facilitate sex trafficking, including sex trafficking of minors.

Beyond alleged facilitation of payment for crimes, the platform, former employees contend,  is overrun with scam accounts and fake users. Examples of obvious distortions of user numbers is that “Jack Dorsey” has multiple fake accounts, including some that appear aimed at scamming Cash App users.  “Elon Musk” and “Donald Trump” who have dozens of accounts in their names. Hindenberg contends they tested this flaw, “we ordered a Cash Card under our obviously fake Donald Trump account, checking to see if Cash App’s compliance would take issue—the card promptly arrived in the mail,” they gave as an example.

Block’s Response

Not to be dissed, management at Block called out the threatening press release. “We intend to work with the SEC and explore legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business today.”

The Dorsey founded firm suggested that the research firm wrote the report for dubious reasons and that it may be part of an orchestrated reverse pump and dump, “Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price. We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors.”

The company than comforted stakeholders saying, “we are a highly regulated public company with regular disclosures, and are confident in our products, reporting, compliance programs, and controls. We will not be distracted by typical short seller tactics.”

There’s Smoke, is There Fire?

Are the initial disparaging claims against Block’s business accurate? Is there merit to what Block says of Hindenberg Research? As Block may be seeking a legal remedy, it is unlikely that either party will be very vocal from here.

For investors, it’s logical that both parties cannot be right at the same time. One of the parties is overstating truth. If Block is indeed working with the SEC, this truth should eventually surface.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://youtu.be/StjWk3Mj-M4?t=8

https://hindenburgresearch.com/

https://investors.block.xyz/news/news-details/2023/Blocks-Response-to-Inaccurate-Short-Seller-Report/default.aspx