Former Washington senator faces arrest over $4.3M ICO scam

A former U.S. state senator is subject to an arrest warrant issued by a court in Texas, over his alleged involvement in an initial coin offering (ICO) scam.

Ex-state Sen. Dave Schmidt was previously under investigation by the Securities and Exchange Commission (SEC) concerning a $4.3 million ICO scam, which saw unsuspecting investors from the U.S. and elsewhere embroiled in the scheme.

The former Washington senator is said to have profited from the scheme, which raised investment for the issue of Meta 1 coins—tokens allegedly backed by either $1 billion in fine art or $2 billion in gold reserves. However, after raising millions through the ICO, it emerged that the tokens did not exist.

A bench warrant was issued for Schmidt's arrest, along with accomplice Robert Dunlap after the pair failed to appear in court. Their appearance had been scheduled by video link due to the ongoing coronavirus pandemic, with both failing to appear at the agreed time.

A third defendant has been given a further opportunity to appear in court by video link, before likely facing a similar fate.

The arrest warrant follows moves from the SEC to freeze all bank accounts associated with the ICO last month, after serious concerns about its management emerged. The regulator brought forward fraud charges against the promoters of the scheme, including Schmidt, which ultimately led to the issuing of the arrest warrant.

In particular, the SEC flagged concerns about Meta 1 being an unregistered security, and one which did not qualify for any of the existing regulatory exemptions. The regulator is now seeking permanent injunctions, financial penalties and disgorgement of any gains arising from the token issue.

Describing a fine as "neither…especially burdensome nor particularly effective" against the defendants, the judge presiding over the hearing opted instead to move straight to arrest.

"If incarcerated, Dunlap and Schmidt will be unable to continue Meta 1's operations, create marketing videos, or email their putative investors."

The case sees Schmidt become the latest high profile individual to be embroiled in an ICO scam, with a number of celebrities including Steven Seagal and Floyd Mayweather previously implicated in suspicious ICOs.

Russia not letting up in bid to bring Alexander Vinnik home

Russia has requested the home detention of Alexander Vinnik amid concerns over COVID-19, in its latest attempt to secure the extradition of the alleged money launderer.

Vinnik is currently in the custody of authorities in France, after being implicated in a $4 billion BTC money laundering scandal. The former BTC-e founder has been the subject of an intense legal struggle in recent months, with several states, including his native Russia, asserting their own rights to prosecute.

However, while Vinnik is wanted by authorities in France and the U.S. on money laundering charges, Russia has been attempting to secure his extradition on less serious charges. This is widely believed to be a legal tactic by Russia to extradite Vinnik, and to ensure he faces less serious charges in his home country.

The latest extradition request, reported by Russian media, highlights concerns for Vinnik's safety amid the COVID-19 outbreak.

Speaking to RT, former Russian agent Maria Butina said Vinnik has existing health conditions which make his ongoing detention in France risky: "Vinnik's health situation is indeed very complicated, and the coronavirus infection could pose him a risk of fatal outcome. I hope that the French authorities will be guided by their own stance of humanism and choose to save the life of a person who is at severe risk by giving Vinnik the opportunity to await the trial under house arrest."

The request asks France to hand over Vinnik to Russian authorities, promising to detain him on behalf of French authorities under house arrest. According to the proposal, Vinnik will be detained by Russian authorities in a state-provided apartment, to allow him to avoid exposure to the potentially deadly coronavirus.

So far, requests for extradition have been ignored by French authorities, who remain determined to prosecute Vinnik on the outstanding money laundering charges.

Since his arrest in Greece in 2017, Vinnik has been in detention for some 30 months, as various states grapple to secure his extradition.

With the new Russian proposals on the table, it looks like his future remains uncertain.

Web domain operated by KuCoin locked by order of Singapore court

Since the end of last month, the principle web domain for digital currency exchange KuCoin, kucoin.com, has been out of commission. It was forced to be taken offline by the High Court of Singapore, which had ordered an injunction against the company on March 24. That measure was an attempt to keep the company from moving any funds or assets as KuCoin faces major legal issues and a corporate shakeup that have rocked its foundation.

The domain, which had been registered through GoDaddy, will remain locked until the courts can determine whether or not it is safe to turn the key. GoDaddy confirmed in an email to Telegraph.com on March 30 that it was adhering to the court order and will have to wait to see what the next step is before making any changes.

There are several issues plaguing the company that have regulators and investors worried. The company claimed to have received $20 million in Series A funding in November 2018, with companies such as IDG Capital, Neo Global Capital and Matrix Partners participating. However, an NGC source said that it never gave financial support to the company, only logistical assistance.

Just ahead of that funding round, KuCoin appeared not to have existed, at least in a physical location. A journalist attempted to visit the company's offices, which were supposedly, according to the journalist, in Hong Kong, and discovered that they were empty. However, the exchange has continued to operate as if everything were normal. In response to that report, KuCoin asserted, "In fact, KuCoin's public address in Hong Kong is merely a mailing address of one of KuCoin's many subsidiary companies. KuCoin Headquarters is in Singapore. KuCoin has always been a global firm, with over 300 employees and four major offices in China, the Philippines, Singapore, and Thailand."

Last month, the company became embroiled in several lawsuits, including two class-action suits in the U.S., and is accused of "false and misleading statements to account holders." KuCoin has also announced a major corporate restructuring that some say is an attempt to mask its ownership and possibly under which regulatory jurisdiction it falls. That came after the directors of KuCoin's parent company, PhoenixFin Pte Limited out of Singapore, suddenly resigned last October as the exchange began a lawsuit in that country.

Halting a web domain is a big deal and KuCoin certainly has given itself enough reasons for the court to act. However, the order doesn't seem to be tied to any of the aforementioned controversy. Instead, it stems from lawsuit against the company by a cybersecurity provider, but no more details have been offered.

Despite all the troubles, KuCoin still seems to be attracting customers. It reported only yesterday that it is launching an over-the-counter trading desk for enterprises, but those entities shouldn't go in blindly. With all the issues taking place, sending money to the company right now might be the smartest play. 

Bitcoin Garners New Users as Governments Flood World With Fiat

Governments around the world are careening toward a period of dramatic spending.

The U.S. Federal Reserve announced another $2.3 trillion in lending programs on Thursday to stabilize America's coronavirus-stricken economy. The Bank of England announced it would likely extend billions of pounds to directly finance the government's crisis response.

All this inspires inflation concerns around the globe, which appear to be driving demand for bitcoin (BTC) in some corners.

"The non-stop quantitative easing process will finally impact the mid-term and long-term market," said Danny Deng, a leading member of both the China Blockchain Application Center and the National Internet Finance Association of China. "Bitcoin is designed for this kind of situation. So I'm optimistic about bitcoin's future."

China is also expected to announce a stimulus package of its own. Deng said he expects the People's Bank of China to use a digital currency to distribute a stimulus package, which he sees as a complementary catalyst to the bitcoin mining industry.

While central banks continue printing money, there will only ever be 21 million bitcoin. The halving of bitcoin miners' block rewards is scheduled for May in what some are calling an act of quantitative tightening.

Broadly speaking, dozens of nations are reevaluating which currencies and industries they depend on. Bitcoin fits into this broader spectrum as some nations with strong central governments, like China, shore up hard assets and digital infrastructure. Meanwhile, there has been a surge in retail crypto investors from nations with unstable currencies, such as Argentina and Russia.

"We see that interest in cryptocurrencies has grown significantly in Russia … due to the economic situation in the country," said Gleb Kostarev, Binance's head of operations in Russia. "The ruble has tumbled a lot in 2020. In addition, authorities are introducing a new tax on income from bank deposits from next year, which encourages people to withdraw funds from banks."

Bitcoin is hardly the most important asset in the broader economic turndown. However, recent bitcoin trends highlight the local impact of global developments. In places where distrust of banks historically runs high, many households now consider bitcoin among the assets they trust more than the local fiat currency.

Speculator's market
Some critics may see decline in bitcoin's wild volatility during the start of the coronavirus economic crisis, including what crypto traders called Black Thursday.

But the institutional sell-off and subsequent trading rush stimulated more diverse distribution, usage and liquidity options, all while making crypto companies a hefty profit.

Marius Reitz, general manager at the African crypto exchange Luno, said there was a 25 percent increase in new signups during Q1 2020 compared to Q4 2019. This includes "thousands" of new users from Nigeria, South Africa, Zambia and Uganda. He added there was a 100 percent increase in trading across the continent.

"People saw an opportunity to recover some of their earlier [traditional market] losses in bitcoin," Reitz said. "It's very much still a speculator's market."

According to the asset manager and research firm Bitwise, nearly all exchanges experienced an increase in volume during March. North American exchanges including Coinbase, Kraken and Gemini saw the most growth in trading volumes. Kraken's bitcoin strategist, Pierre Rochard, said the exchange saw a 300 percent increase in new users getting verified in March, compared to the previous month.

"These are new users who didn't have any crypto beforehand," Rochard said.

Fiat-denominated prices aren't the only way to measure bitcoin's performance. The number of active bitcoin wallet addresses is now comparable to metrics during the sky-high prices of September 2017, according to Coin Metrics, which estimated roughly 770,915 active accounts on March 30, 2020 compared to 718,184 on Sept. 29, 2017.

Although the price of bitcoin briefly dropped 40 percent, down from $9,160 in early March, it recovered to roughly $7,300 as of press time. As such, Luno's Reitz said bitcoin suffered less of an impact, and recovered faster, than many other asset classes.

Institutions that sold off in early March quickly bought back in, according to Diogo Monica, co-founder of crypto custody firm Anchorage. Plus, BitGo CEO Mike Belshe said his custody startup saw such high demand for bullish loans in March that he will double the size of the team handling crypto loans. Exchanges and custodians are actually making more profit during the recession.

Read more: Retail Investors Are Buying the Bitcoin Institutions Are Selling, Traders Say

When the market crashed, speculative crypto trading and demand for custody options soared. Ledger CEO Pascal Gauthier said hardware wallet sales saw "double-digit growth" in Q1 2020 compared to the same time last year, with sales still accelerating.

"We are increasing our hardware [wallet] production as a result," Gauthier added.

As speculative traders rush in, Latin Americans increasingly turn to bitcoin for savings and loans.

Latin America
"The main usage is to save. … People are seeking safety," said Ripio CEO Sebastian Serrano, whose Latin American company offers both crypto loans and an exchange. "Argentina was on the brink of default and that happened on Sunday."

Argentina isn't the only country to default, either. Lebanon, Ecuador and Venezuela are also on the brink. Bitcoiners in Lebanon often focus on savings because they, like Latin Americans, share a distrust in banks.

Cryptobuyer CEO Jorge Luis Farias said orders for crypto point-of-sale (POS) devices doubled in March, mostly in Venezuela. He's also shipping three new bitcoin ATMs to Chile, where the local currency hit a historic low in March.

Subsequently, by the first week of April, Chilean activity on LocalBitcoins reached an all-time high of $371,063.

"More people are looking for options to receive payments," Farias said on April 7. "We received 100 new [POS device] requests only last week."

Bitcoin Beach
@Bitcoinbeach
My daughter buying veggies from the latest business in our community in #ElSalvador accepting Bitcoin.  300 families received BTC stipends last week and BTC is keeping families fed and businesses going in this time of crisis @b4_humanity @bitcoinmom @crypto_birb

"I think the economic situation has to do with it, in Argentina and Mexico. Mexico had a run-up in exchange-rate disparity," Bartolomeo said. "We expect to see a lot of demand from Latin America to save in options that aren't their local currency."

If the rate of bitcoin savings and reliable loans remain steady throughout the broader economic crisis, that may arguably be a more bullish signal than fiat-denominated price increases.

Asian alliance
Meanwhile, several Asian nations are reacting to the recession by increasing their economic interdependence.

The Shanghai Cooperation Organization with China, Russia, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan agreed in March to work with local currencies, instead of U.S. dollars, when conducting bilateral trade and issuing bonds. Deng said the Chinese government aims to make its currency regional tender, "then a global currency" like dollars.

"China's national digital currency will accelerate this process," he added.

The crypto industry could provide the infrastructure for this distribution. Kazakhstani entrepreneur Tilektes Adambekov said in April he is still working to launch a regional crypto exchange that will eventually include "fiat trading and security tokens," although these aren't plans specifically focused on China's digital currency.

"This region will accommodate global initiatives under the 'Belt and Road' global development strategy," Adambekov said during a meeting with Chinese business associates in January.

As for bitcoin itself, traders from the above-mentioned markets sometimes liquidate their crypto by investing in real estate, especially now that oil and bond markets are highly volatile.

Middle East
Gold, oil and real estate investments appear to increase, along with bitcoin transactions, when stocks and bonds dip.

Arms & McGregor International Realty CEO Makram Hani said his company is working to close a Dubai property purchase, worth $140 million, using multiple cryptocurrencies from a single Asian buyer.

Out of the hundreds of prospective customers who expressed interest in potentially buying real estate with cryptocurrency, Hani said the most popular property locations are Dubai, London and Berlin. It appears bitcoiners in nations with increased surveillance may be seeking a liquidity hedge with traditional assets, while others in the Middle East are willing to accept large amounts of cryptocurrency.

"We have seen a significant growth in real estate transactions that have been paid for, in one way or another, with funds originating as bitcoin or other currencies," Hani said.

Rain co-founder Yehia Badawy, who also serves bitcoiners in Dubai via his Bahrain-based exchange, said trading volumes increased 200 percent from January to March 2020, with 34 percent more new user signups driven by "high-volume retail."

"People are still trying to figure out how permanent the [economic] changes will be," Badawy said.

Due to the oil market slump, Bahrain, Saudi Arabia and Qatar have struggled to retain investor confidence in their debts. The oil market collapse could have more dire impacts on weaker states like Lebanon and Iraq, which were already saddled with crippling foreign debts before the pandemic hit.

Mikhail Kholodov, an oil market expert at MOL-Russ LLC, described the global market these days as "all speculation" and "hot money in a casino-like arrangement" that won't regain balance "anytime soon."
When spooked investors diversify, some now rank bitcoin alongside tangible investments like gold or real estate.

At least in the short term, Gabor Gurbacs, director of digital asset strategies at investment firm VanEck, wrote, "bitcoin correlation to gold has increased significantly" during the coronavirus pandemic.

New York Power Plant Sells 30% of Its Bitcoin Mining Hashrate to Institutional Buyers

Greenidge Generation, an upstate New York power plant that's using proprietary facilities to mine bitcoin (BTC), has sold up to 30 percent of its computing power to institutional buyers.

The firm said in an announcement on Friday that the deal, brokered by BitOoda Digital, proceeded the sale of 106,000 terahashes per second (TH/s) of bitcoin mining power to undisclosed buyers consisting of hedge funds and family offices.

The sale was enabled through the execution of BitOoda's hash contracts, which allow institutional buyers to get exposure to bitcoin mining without having to go through the process of purchasing and setting up equipment.

At the Bitcoin network's current mining competition level, 1 TH/s of computing power would be able to produce about 0.00001709 BTC in a day. As such, the deal would give the buyers a daily yield of about 1.8 BTC – worth around $13,000 – in addition to having the corresponding hardware pledged as collaterals.

That said, with the Bitcoin network's halving event approaching in about 30 days, the total newly minted BTC in 24 hours will be reduced from right now around 1800 units to 900 after mid-May.

Greenidge said in the announcement it benefits from locking in profits and receiving an upfront source of capital to continue expanding its operations. The firm declined to disclose the amount earned in the deal. But major bitcoin miner manufacturers have been recently advertising around $23 per TH/s for several of their newest machines.

"Providing the same kind of time-tested hedging capabilities seen in traditional commodity markets, such product brings the benefits of clean and energy-efficient bitcoin mining from Greenidge to institutional investors throughout the United States," Greenidge CFO Tim Rainey said in the announcement.

In early March, it was reported that Greenidge was producing on average 5.5 BTC a day by utilizing 14 megawatts of its total 106 megawatts capacity.

The Bitcoin network's total hashrate back then was around 118 million TH/s on average, which means the firm possessed roughly 357,000 TH/s of computing power at the time. It has plugged in additional equipment over the past several weeks.

Manufacturers Mark Down Bitcoin Miners as Price Drop, Halving Change Calculus

Last month's crash in cryptocurrency prices has prompted manufacturers to sell inventories at a discount, in some cases as steep as 20 percent, over the past few weeks. Both the newest models and slightly older machines have been marked down.

Complicating the matter is the imminent bitcoin halving in May that will reduce the network's mining reward by half, causing most miners to be less profitable if bitcoin's price doesn't increase significantly by then.

For instance, DJ Miner, an overseas distributor for Shenzhen, China-based MicroBT, was advertising about $2,500 per unit of the manufacturer's flagship WhatsMiner M30S early last month. After bitcoin's March 12 crash – the worst sell-off in seven years – the price is now cut by 20 percent to $2,000 per unit.

The WhatsMiner M20S, a less advanced but popular model that boosted MicroBT's market share against major rival Bitmain in 2019, is also seeing a 20 percent price cut from $1,679 to now $1,340, DJ Miner's website shows. Pangolinminers, another distributor for MicroBT shows similar pricing rollbacks on its website.

Similarly, while Bitmain is advertising $1,567 for its AntMiner S17+ with a computing power of 67 terahashes per second, various resellers are posting quotes on WeChat seen by CoinDesk at around $1,300 per unit.

The Beijing-based mining giant has previously announced the pricing for its latest flagship AntMiner S19 Pro at about $2,900 per unit but the shipment won't take place until May and so far is only available for investors inside China.

See also: How Bitcoin's Price Slump Is Changing the Geography of Mining

Efficient market
It is important to note that most specialized bitcoin computers, known as ASICs, had already been dropping in price since the fourth quarter of last year, as the manufacturers adjusted their strategies in line with bitcoin's price swing.

These machines are priced assuming it would take the buyer on average 15 months to make back their equipment investment. Holding the payback period relatively constant, manufacturers would adjust the prices of their equipment according to bitcoin's market price and the level of competition on the network – the two factors that determine how much revenue a miner can generate in a day.

Miner pricing data compiled by research startup TokenInsight shows that, for example, the Whatsminer M20S and the AntMiner S17 Pro were priced at around $2,400 and $3,000, respectively, in mid-October 2019. The price for both had dropped to around $1,500 as of March 10.

"ASIC miners have experienced a relatively large market devaluation since Q4 2019. However, the miner market has found some level of price floor during Q1 2020 despite the recent crypto market downturn," said TokenInsight analyst Johnson Xu. "Some experienced miners are currently looking to purchase some secondhand ASICs at a significant discount … based on their carefully structured model."

Blockware Solutions, a reseller of bitcoin ASIC miners in North America that also operates mining facilities, said in a recent research report that the market crash in March, together with the coming halving, has led to a significant decrease of bitcoin's mining computing power – which in the long run, could be an encouraging sign for the market's efficiency.

"If Bitcoin remains at lower price levels for 2-4 months, post-halving, many miners operating at a loss will be forced to shut off," Blockware said. "After all the miners that are operating at a loss shut off, the miners that survive experience significant margin relief. We will witness a network in short-term chaos, but difficulty adjustments will reinstate stability once the inefficient miners shut off."

Bad news for Telegram as the courts respond to request over injunction

Telegram can't seem to catch a break, and the social communications company embroiled in a lawsuit with the U.S. Securities and Exchange Commission (SEC) might need to rethink its defense tactics. The SEC has continuously asserted that Telegram is offering illegal securities through the sale of its Gram digital currency, while the company counters that the tokens are not a form of security. Judge P. Kevin Castel, who is presiding over the case, has already determined that the SEC is most likely correct, and ordered Telegram to halt its token sales. Telegram wasn't ready to give in, though, and wanted the judge to determine that sales to investors outside the U.S. could proceed, since the SEC doesn't have jurisdiction over those individuals. That attempt has now fallen flat.

The SEC scoffed at the suggestion made by Telegram, and Castel agrees. The company is now forbidden, with complete clarity, from offering any Gram tokens to anyone – inside the U.S. or out. The judge explained that the ruling centers on the purchase agreements themselves, not who may or may not be a purchaser of the tokens. He added that the scheme includes, by Telegram's admission, subsequent sales on a secondary public market, which would, by default, require the company to obtain permission to hold a securities offering.

Telegram had hoped it could win court support by proposing the introduction of safeguards that would keep U.S. retail investors out of the picture, as well as prevent them from using the digital currency wallet associated with the Telegram Open Network (TON), the blockchain Gram sales were going to support.

However, the court determined that Telegram only now is trying to introduce the changes, not two years ago when the sales process was first implemented, and that the safeguards contradict TON's assertion of anonymity to investors who buy and sale the tokens. As a result, the court was forced to conclude that "any restriction as to whom a foreign Initial Purchaser could resell Grams would be of doubtful real-world enforceability. As to the TON Wallet, Telegram maintains that the TON Wallet is distinct from the TON Blockchain and is a useful but non-essential feature."

Telegram now finds itself in an incredibly tenuous situation. The TON blockchain has been moving forward while it fought the SEC, and was being developed with investor funds. However, these investors could now begin to request refunds, an idea that has already been floated, that would see Telegram lose 72% of the money collected. At this point, Telegram may have to concede defeat and salvage whatever is left to continue with its blockchain efforts.