Giving It All Away
I know Bitcoin has lost a lot of value recently, but South Korean crypto exchange Bithumb surely overreacted by handing out more than $40 billion worth of the cryptocurrency to its customers.
The problem arose when the exchange decided to offer a reward of 2,000 Korean won as part of a marketing campaign. At current exchange rates, that is worth about $1.37 – such a small amount that you wonder why anyone would bother claiming it.
But somewhere along the line, the Korean won prize was replaced by an equivalent amount of Bitcoin, which, even in these difficult market conditions, is worth rather more than a dollar and change. The upshot was that around $44 billion of cryptocurrency found its way into the hands of almost 700, no doubt bemused, customers.
Fortunately for Bithumb, retrieving the misplaced cryptocurrency was rather easier than tracking down customers who have been given free money from an ATM or motorists who grab handfuls of bills when a cash delivery truck breaks open on the highway.
Within 24 hours, the exchange said it had recovered 99.7% of the Bitcoin. The accounts of those customers affected by the error were restricted within about half an hour of the incident, so few had the opportunity to ‘take the money and run’.
In a statement, it said: “We want to make it clear that this matter has nothing to do with external hacking or security breaches and there is no problem with system security or customer asset management.”
However, this embarrassing episode once again raises the serious issue of cryptocurrency platform integrity, particularly as Bithumb’s CEO stated that it would “take this accident as a lesson and prioritise ‘customer trust and peace of mind’ rather than external growth”, and improve verification systems and introduce AI to detect abnormal transactions.
The exchange has had issues with security in the past, including hacks in 2018 and 2019 that resulted in the theft of more than $50 million worth of cryptocurrency.
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If It Sounds Too Good to Be True, It’s Too Good to Be True
If (like me) you simply do not understand why anyone would choose a brand of washing powder or a coffee machine based on the endorsement of a former footballer, you will probably agree that making financial decisions based on the recommendation of a reality TV ‘star’ is akin to spending all your money on magic beans.
Now, that might have been a winning strategy for Jack Spriggins and his mother, but in real life, you have to wonder why so many people appear determined to prove the adage that a fool and his – or her – money are soon parted.
It is bad enough that genuine financial experts have to spend so much of their time distancing themselves from elaborate scams that attach their names and (fake) comments to various investment products.
Couple this with so-called celebrities hawking get-rich-quick schemes, and you can see why regulators are so keen to crack down on dodgy financial products promoted by people with absolutely no qualifications or background in investing.
In the UK last year, the FCA undertook 74 enforcement actions against financial influencers.
One of the main issues with videos promoting investments on platforms such as TikTok is that they do not encourage investors to do their own research.
Read more: Finfluencers Telling You What to Trade? UAE Says Not Without a Licence
Thus far, regulators have largely focused on educating high-profile individuals as to what they cannot do in terms of offering any kind of financial advice, rather than pursuing legal action. However, it has no such qualms when it comes to firms that illegally promote their services in the US, as can be seen in its decision to begin legal proceedings against HTX.
The FCA stated yesterday that it has previously warned about HTX’s illegal promotion of crypto services to UK consumers, but that it has continued to publish financial promotions in breach of these rules on its website and on social media platforms, including TikTok, X, Facebook, Instagram and YouTube.
Will Attitudes Change on the Turn of a Coin(base)?
There is a line in the classic British sitcom Yes Minister in which a civil servant explains how, if you want to hide the true nature of something, you call it the opposite of what it is. The example he used was any country with ‘Democratic Republic’ in its title.
It seems like the same could be said of the Clarity Act. Designed to reduce regulatory ambiguity by defining the boundaries between the SEC and the CFTC, with a focus on classifying many digital assets as digital commodities, its future is now far from clear following the withdrawal of support from a crypto leader.
Coinbase apparently feels that it could become a victim of its own success in terms of the role it and other industry members have played in getting crypto advocates elected to the Senate and the House of Representatives.
The sticking point is stablecoin revenue. Having a sympathetic administration played a key role in getting the Genius Act passed, but it has had unforeseen repercussions – specifically prompting the banking sector to engage in the political debate regarding the subsequent legislation (the Clarity Act) and urge lawmakers to address what it perceives as an ambiguity that enables companies to provide yield on their stablecoins.
The argument is that offering yield on stablecoins could lead to a large withdrawal of funds from traditional deposits and, therefore, undermine the overall financial system.
Prompted by concerns in the banking industry, a cross-party coalition of senators has proposed measures to restrict these yields.
The problem for Coinbase is that there does not appear to be much support for its stance from other exchanges, which generate less revenue from stablecoins and favour letting the bill proceed through the legislative process and addressing issues further down the line.
With Patrick Witt, Executive Director of the President's Council of Advisors for Digital Assets, suggesting that time is of the essence, Coinbase could find itself the last firm standing when the music stops.
