It is no secret that the cryptocurrency industry is very sensitive to the opinion of what is commonly referred to as ‘the community’. But as cases emerge of businesses ignoring customers until they prove that they are popular, one wonders if the public can really be an effective watchdog.
2,000 shares, problem solved
This week, Finance Magnates published a report about one user’s decision to find partners for a class action lawsuit against enigmatic cryptocurrency exchange HitBTC, because it was ignoring his requests to withdraw money.
Specifically, the exchange was requesting that he verify his identity before it could execute his request to transfer money, but not acknowledging the information when sent.
He advertised his problem on Reddit, and the post seemed to act as a lightning rod for legions of dissatisfied customers. He claims that it was shared more than 2,000 times.
And then came an update: “Miraculously, my case was responded to within minutes. The previously sent evidences are now applicable. After a few more fast (within minutes) email exchanges, my account got unlocked.”
This is a common trend in the cryptocurrency world; social media doing the job that financial watchdogs are supposed to do.
This is not the first time that this particular exchange activated its customer service only after significant attention was brought upon it. Nor is this company the only one exhibiting such behaviour.
In another recent example, South Korean cryptocurrency exchange Bithumb delisted a new coin purely because of public pressure.
The coin was called Popchain Cash, and it was problematic for three reasons: one, its code was copied from that of other cryptocurrencies, two, most of the two billion tokens were held by only two wallets, and three, its development team also happened to be executives of Bithumb. In the end, the exchange discontinued the coin.
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What is interesting is if you scan articles on this subject, you will find phrases like ‘Bithumb criticized’, ‘investors outraged’, ‘Bithumb faces severe criticism’, ‘some raised suspicion’. What you don’t find is the language that turns up after an internet search of cases of more traditional financial misbehaviour – ‘faces charges’, ‘fined’, ‘convicted’, ‘investigated’.
So why did the exchange react in this way when it was in no danger of punitive measures? It can be concluded that the business was reacting to social pressure, which did the job of a financial regulator, at least to some extent.
The effect of public talk on the price of cryptocurrencies has been written about ad nauseum. There is some evidence that a good word from a celebrity can make a price jump, and vice versa. There is also evidence that it is in fact the silent majority of social media users that control prices. Either way, the fact that public opinion is significant as regards price is not disputed.
It was recently reported that Bitcoin.com, the news portal owned by Bitcoin Cash-evangelist Roger Ver, was sending messages to every user who had left a bad review of the website on review site Trustpilot.com. The message asked them to share evidence that they actually used the service, or delete their comments. Finance Magnates reached out to Bitcoin.com for a statement, and was told that it doesn’t “want potentially helpful feedback to be obscured by illegitimate reviews.”
While this could be considered paranoid behaviour, it does illustrate the extremes to which such a reliance on public opinion can bring you.
Is relying on celebrities and online mobs an effective way of regulating the market?
In December 2017 allegations (from users) of insider trading flew when Coinbase began listing Bitcoin Cash on its exchange. This is because the price of BCH behaved suspiciously on that exchange only, indicating that Coinbase employees had utilised their prior knowledge of the move to profit.
Coinbase reacted to criticism by briefly suspending BCH trades and assuring the public that insider trading was expressly forbidden at the company and that perpetrators would be found and be subject to legal action. However, seven months later, the company only revealed the results of its internal investigation after being asked to by Forbes. Surprisingly, it had concluded that no action had to be taken.
In another example, a South Korean government employee made 700,000 won profit because he sold all of his cryptocurrency in advance of a new law coming into action that limited the market. The Korean employee was investigated, but because no laws were in place, no punitive action was taken.
To a libertarian, the examples given above might seem a good example of the free market governing itself. However, most people don’t have thousands of friends on their Twitter accounts; how can they pressure a company into respecting them? And can the fickle public be trusted to remember a company’s bad behaviour long enough to put it out of business?