2018 August 13 - Volume.2 Issue.32

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2018 August 13 - Volume.2 Issue.32

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Exit Scams Near $100Mn, ICO Tokens Continue Descent

An exit scam coming from China has cost investors $60Mn, but the theft still only accounts for a small percentage of the total amount raised through ICOs. What may have investors more worried are projects that are slowly siphoning money away with no products in sight. Meanwhile, token prices are falling sharply across board.


In the past week, the largest exit scam yet has reportedly been pulled by Shenzhen Puyin Blockchain Group in China. The company ran three ICOs - ACChain, Puyin Coin and BioLifeChain with the total amount raised of up to $60Mn. The scams are being investigated by State Market Regulatory Administration (SMRA) in China. Another one was discovered last week when NVO supposedly exit scammed after raising 3000 BTC ($8Mn at the time) to build a decentralized exchange and wallet.

Since Diar initially visited the topic, there was also an exit scam of Block Broker, an ICO to fund a platform to “completely eliminate ICO fraud by creating a 100% safe investment environment”(Diar, 23 April). Block Broker was rated on ICO review services such as TrackICO with five stars. The house of cards collapsed after it was discovered that the CEO’s profile picture was of an unaffiliated photographer. Block Broker ran away with more than $3Mn raised.

The total amount of successful exit scam ICOs is now nearing $100 Mn. Unsurprisingly, the blatant exit scams continue to plague the largely unregulated ICO sector where the founders have no contractual obligation to deliver a product. After raising millions of dollars with no string attached, the founders’ incentives to actually build a valuable company are very limited. Even if the founders were to build a valuable venture, it’s unclear at best whether the price of the utility token would reflect the success of the company.

With proper due diligence, the most blatant exit scams are not hard to pick out. Most promise unrealistic returns and run for a limited time to capitalize on the fear of missing out.

ICO Exit Scams

wdt_ID Name Date Amount
1 ACChain, Puyin, BioLifeChain August, 2018 $60,000,000
2 NVO August, 2018 $8,000,000
3 Cryptokami June, 2018 $12,000,000
4 BlockBroker June, 2018 $3,000,000
5 Miroskii March, 2018 $833,000
6 LoopX February, 2018 $4,500,000
7 Benebit January, 2018 $2,700,000
8 Prodeum January, 2018 $3,400
9 Elektra Coin November, 2017 $2,500,000
10 Confido November, 2017 $375,000


The majority also uses fake profile pictures and plagiarizes most of the writings on the website and in the whitepaper. In May, The Wall Street Journal found that roughly 19% of the reviewed ICOs showed red flags such as plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.

What’s much harder to recognize are projects that are slowly burning through the raised capital with no product to show for it. Less than a handful of projects have gone live and the ones that have gone live have seen very limited use. In the grand scheme of things, blatant exit scams are only a small percentage of the total amount raised through the ICOs. Most invested capital is tied in the largest projects. Diar crunched the numbers for top 10 ICOs whose tokens have been trading for at least 6 months and found that their price fell by 93% on average from their all time highs erasing $22.3bn from the market cap.


Top Public Initial Coin Offerings

wdt_ID Name Raised (Mn) ICO price % (from ICO) Highest price Current price % (from high)
1 Sirin Labs $158 $0.47 -81% $3.77 $0.09 -97.60%
2 Bancor $153 $3.92 -54% $10.66 $1.79 -83.20%
3 QASH $106 $0.24 -31% $2.49 $0.17 -93.30%
4 Status $108 $0.04 23% $0.68 $0.05 -93.20%
5 Envion $100 $0.70 -87% $1.22 $0.09 -92.60%
6 TenX $80 $0.64 -5% $6.21 $0.61 -90.20%
7 Bankex $71 $1.48 -92% $2.85 $0.13 -95.60%
8 TRON $70 $0.0019 1160% $0.30 $0.02 -92.00%
9 Nebulas $60 $2.00 -14% $16.53 $1.72 -89.60%
10 MobileGo $53 $0.76 -80% $9.85 $0.15 -98.40%


Top Public Initial Coin Offerings

wdt_ID Name Raised (Mn) ICO price % (from ICO) Highest price Current price % (from high)
1 Sirin Labs $158 $0.47 -81% $3.77 $0.09 -97.60%
2 Bancor $153 $3.92 -54% $10.66 $1.79 -83.20%
3 QASH $106 $0.24 -31% $2.49 $0.17 -93.30%
4 Status $108 $0.04 23% $0.68 $0.05 -93.20%
5 Envion $100 $0.70 -87% $1.22 $0.09 -92.60%
6 TenX $80 $0.64 -5% $6.21 $0.61 -90.20%
7 Bankex $71 $1.48 -92% $2.85 $0.13 -95.60%
8 TRON $70 $0.0019 1160% $0.30 $0.02 -92.00%
9 Nebulas $60 $2.00 -14% $16.53 $1.72 -89.60%
10 MobileGo $53 $0.76 -80% $9.85 $0.15 -98.40%


Mega-Mining Operations Look to Float as Bitmain Leads Charge

Led by Bitmain who is expected to file in September to raise up to $18bn, cryptocurrency mining companies are filing for IPOs left and right. Canaan and Ebang, second and third largest bitcoin mining hardware producers, have both filed to be listed on the Hong Kong Stock Exchange. Cloud mining companies are eying London.


Argo Blockchain, a cloud mining company with reportedly no revenues, became the first cryptocurrency company to be listed on the London Stock Exchange. Argo’s stated goal is to democratize the mining landscape by charging a small monthly fee for hashrate in an eco-friendly facility located in Quebec. Argo currently supports mining of four GPU-mined cryptocurrencies - Ethereum, Ethereum Classic, Zcash and Bitcoin Gold.

Jonathan Bixby, co-founder of Argo said “It is incredibly expensive to buy, up front, the hardware you need at $5,000 a machine. We want to be the Amazon Web Services of crypto.” While the entry cost for GPU mining could be high, the up front costs for mining with ASIC chips is much higher and yet Argo doesn't support ASIC mining. Argo Blockchain’s total valuation is around $60Mn.

Another eco-friendly cloud mining company HydroMiner is planning to conduct an IPO in 2019 on the Alternative Investment Market, which is a part of the London Stock Exchange. HydroMiner reportedly already runs profitable mining farms powered by hydropower in the Austrian Alps. The firm is planning to conduct a tokenized security offering in Q3, once approved by the Austrian Financial Market Authority. According to HydroMiner, the tokenized security can be converted into a share at the IPO in 2019.

Cloud mining is a low margin business with a bad reputation. HashFlare, one of the largest cloud mining services, abruptly disabled SHA-256 mining hardware and terminated all related mining contracts in late July. The company said that for more than a month, the payouts were lower than the maintenance fees, resulting in zero accruals to the balance. Going right to the source, the most profitable business is the production of mining hardware itself with the profit ratios hovering around 40% (see table).

Bitmain, the largest bitcoin mining hardware producer, is gearing to conduct an IPO this year on the Hong Kong Stock Exchange and hopes to raise $18bn at a market potential capitalization of $40bn-$50bn. The company completed a $1bn Pre-IPO in July.

Cryptocurrency Mining IPOs

wdt_ID Company Industry Status Stock Exchange Valuation
1 Bitmain Mining HW Production Filing in September HKEX $40Bn
2 Canaan Mining HW Production Filed (May 2018) HKEX $3Bn
3 Ebang Mining HW Production Filed (June 2018) HKEX $1Bn
4 Argo Blockchain Cloud Mining Service Listed LSE $6Mn
5 HydroMiner Cloud Mining Service Hasn't filed yet LSE -


Mining 'Big 3' Profitability

wdt_ID Company Revenues ($Mn) Profit ($Mn) Profit Margin Ratio
1 Bitmain $2,500 $1,100 44.0%
2 Canaan $205 $57 27.8%
3 Ebang $146 $61 41.8%


Bitmain Cryptocurrency Holdings

wdt_ID Coin Dec-16 Dec-17 Mar-18
1 Bitcoin Cash 0 841,866 1,021,306 21%
2 Bitcoin 71,560 36,877 22,082 -40%
3 Litecoin 554,821 925,084 930,932 0.60%
4 Dash 0 312,066 312,424 0.10%
5 Ethereum 0 747 1,097 47%


Canaan, the second largest mining hardware producer with approximately 15% of the market share, filed for an IPO on the Hong Kong Stock Exchange in May. Ebang, the third largest with approximately 15%, has filed for an IPO on the same exchange in June.


Turkish Bitcoin Exchanges Find Volume as Lira Devalues

As the relations between the United States and Turkey keep deteriorating, the Turkish lira slumped to a record low. In just two days, the lira dropped as much as 20% against the U.S. dollar (see chart 1). President Donald Trump doubled down on Friday as he authorized a doubling of steel and aluminum tariffs bringing them to 20% and 50% respectively. Recep Tayyip Erdogan, the president of Turkey, urged people to sell their foreign currencies to support the lira in order to “fight a war of independence and the future”.

It’s not immediately clear whether Mr Erdogan’s call was effective. What is clear is that the trading volume on Turkey’s four largest cryptocurrency exchanges soared on Friday suggesting a high correlation with the dropping value of lira. The volume grew by 112% on average on BTCTurk, Paribu, Koinim, Koineks (see table). BTCTurk, the country’s largest exchange, has recorded the most sizeable growth of 166%. Unsurprisingly, the most purchased cryptocurrency, by a wide margin, was Bitcoin followed by Tether and XRP (see table).

The volumes have since stabilized and returned to their previous values (see graphs). While Bitcoin wasn’t a good investment this year losing 23% against Turkish lira, long term Bitcoin has outperformed Turkish lira handsomely. Holding bitcoin for one year instead of Turkish lira yielded a 223% return and holding for three years yielded a 5029% return.

The volumes still remain small in the absolute sense, however, only reaching $26Mn at its peak. But were fleeing to cryptocurrencies become a larger issue, Turkey could take the Chinese route and impose strict rules related to cryptocurrencies to ensure they are not used to facilitate capital flight.

Exchange Volume Soars on Sanctions News

wdt_ID Exchange Minimum Maximum Growth
1 BTCTurk $5,250,402 $13,953,914 166%
2 Paribu $3,961,373 $8,383,242 112%
3 Koinim $234,200 $561,782 140%
4 Koineks $2,928,459 $3,315,776 13%
5 Total $12,374,433 $26,214,714 112%


Bitcoin / Turkish Lira: Not Exactly an Inflation Hedge in 2018?


Source: Diar, CoinMarketCap

BTCTurk Volumes

Paribu Volumes

Koinim Volumes

Koineks Volumes


Bitcoin Miners Look to AsicBoost Advantage as Resources Grows

The use of overt AsicBoost, which potentially reduces mining costs by up to 20%, is growing. In early August, the number of blocks mined with overt AsicBoost approached 5%. Slush Pool has consistently been finding the most blocks mined with AsicBoost.


AsicBoost, a mining optimization method that reduces the gate count on ASIC chips, which in turn improves the metrics of energy consumption and system cost has seen an uptick in adoption. By utilizing the method, the total cost per Bitcoin mined is reduced by approximately 10-20%. 

There are two types of AsicBoost - overt and covert. The overt methodology modifies version field in the block header, which makes it very easily detectable. Covert methodology, on the other hand, keeps the same block header but changes the Merkle root hash, which makes it difficult to detect and could give someone an undetected mining advantage. There were accusations that Bitmain was mining Bitcoin by utilizing covert AsicBoost but there was no conclusive evidence. The implementation of Segwit made the use of covert AsicBoost less efficient and likely diminished the advantage altogether.

Since early March, AsicBoost has been available for licensing under the Blockchain Defensive Patent License (BDPL), a defensive patent initiative. Under BDPL, the AsicBoost patent, which is pending, is available to any company that joins BDPL and shares all patents with all the participants. Halong Mining joined the BDPL and was the first hardware producer to announce support for overt AsicBoost in its DragonMint Bitcoin miners. Bitmain, the largest mining hardware manufacturer, doesn’t have access to the AsicBoost patent since it hasn’t joined BDPL.

Slush Pool, the oldest mining pool that currently controls about 10% of Bitcoin’s hashrate, was the first pool to announce support for overt AsicBoost. Since then, overt AsicBoost has also been supported by F2Pool, CKPool, BitClub and BitFury. At its peak in early August, roughly 4.7% of blocks were mined with overt AsicBoost (see chart).

Overt AsicBoost Adoption Growth


Overt AsicBoost Blocks


Source: asicboost.dance


 


Facebook’s Blockchain Exits Coinbase Board
David Marcus, former Head of Messenger and CEO of PayPal who now heads Facebook’s blockchain initiative, has stepped down from Coinbase’s Board of Directors. Facebook clarified the move was to avoid the appearance of a conflict of interest. Few details have come to light on its own plans.
US Congressman Crypto Disclosures
Bob Goodlatte, Chair of the House Judiciary Committee, became the first member of Congress to disclose cryptocurrency holdings. An annual financial disclosure filed in May shows that the congressman held between $17,000 and $80,000 in bitcoin, bitcoin cash, and ethereum.
Opera Integrates Ethereum Wallet into Browser
Opera, a web browser with about 3% of market share, will become the first mainstream browser to offer a built-in ethereum wallet in its desktop version. Opera already boasts the same functionality in a beta version of its mobile browser, which launched in July.
Maersk, IBM Sign 94 firms to Blockchain Platform
Maersk, the largest container shipping company, and IBM formed a JV in January to provide more efficient, transparent and secure methods for conducting global trade using blockchain technology. The new platform dubbed TradeLens already signed up 94 firms.

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