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  • Daniel Kuhn

Coinbase Blocked, Bitmain Denied and a Potential Poolin Exit Scam (wipe out BTC, ETH, USDT)

Blockchain Bites: Arca is acting as an activist investor in its dealings with Gnosis while Venezuelan officials appear to have blocked access to Coinbase.

Bitmain's appeal to recoup $30 million in alleged lost revenues from Poolin has been denied, Digital Currency Group has acquired a retail-focused exchange and Venezuelan officials appear to have blocked access to Coinbase.

Bitmain bust A court in China has denied an appeal by bitcoin mining giant Bitmain seeking $30 million in damages from the three co-founders of Poolin, one of the world’s largest cryptocurrency mining pools, CoinDesk’s Wolfie Zhou reports. The mining giant Bitmain claims Poolin’s founding executive broke non-compete agreements in starting its BTC mining operations, leading to millions in lost revenue. While the Beijing No. 1 Intermediate People’s Court found Bitmain failed to provide sufficient evidence that its business losses equalled more than fines already imposed, it did agree to increase fines for Poolin’s co-founders. Bitmain originally sought $4.3 million in restitution when filing the suit in April 2019. Meanwhile, rival mining firm Canaan said it will repurchase up to $10 million in stock, followed by a prolonged period of underperformance.

Acquisition Blockchain investment firm Digital Currency Group (DCG) has acquired Luno, a retail-focused cryptocurrency exchange with over 5 million customers spanning over 40 countries. Luno will continue to operate as an independent, wholly owned subsidiary of DCG, the companies said. The financial terms of the acquisition were not disclosed in an announcement Wednesday, CoinDesk’s Ian Allison reports. The deal marks another shift in strategy for DCG (which also wholly owns CoinDesk) as it makes a full acquisition of a solidly retail-focused business. “We have invested in many retail businesses all over the world – including nearly two dozen exchanges,” said Mark Murphy, DCG’s chief operating officer. “But this is the first subsidiary that is a wallet and an exchange, which of course have large numbers of retail investors.” Exit scam? Two blockchain security firms have warned the creators of a DeFi contract on the EOS network – Emerald Mine (EMD) – may have stolen investors’ funds in an exit scam, CoinDesk’s Wolfie Zhou reports. China-based auditing firm SlowMist and security startup PeckShield announced the liquidity mining project has begun moving users’ tokens totalling $2.5 million worth of USDT, EOS and other cryptos that were supposedly locked in a smart contract to an address and exchange platforms. The protocol’s contract lacked a multi-signature (multisig) feature. One exchange, Changenow, said it halted the sale of EOS it believes came from the alleged scam, and urged victims to contact their local police for assistance.

Exchange denied Venezuelan officials have blocked access to Coinbase and fiat remittance platform MercaDolar, according to digital rights advocacy group Venezuela Inteligente. The advocacy group said the move, discovered late Tuesday evening, has no clear outcome or objective but that internet service providers (ISPs) have been part of the move to block access, CoinDesk’s Sebastian Sinclair reports. "Crypto exchanges have been blocked in the past," said director of Venezuela Inteligente Andres E. Azpurua in reference to ISPs blocking via a DNS block. "Until recently all of them were lifted." Chain resilience? Despite three “51% attacks” in a month, Ethereum Classic’s price has demonstrated strong resilience. Though down a bit for the past month, its persistence may indicate that security is not a top priority for investors rushing to join a bull run in the crypto market, CoinDesk’s Muyao Shen reports. ETC is no stranger to attacks, having suffered one in early 2019, sign traders could be less concerned about long-lasting security vulnerabilities than a quick profit. Or, as a forked crypto where a large number of addresses have been inactive, some ETC holders may not see the value of selling or even claiming their ETC. James Wo, the founder of ETC Labs, told CoinDesk his team has expanded the network’s core development team and partnered with Chainlink, Swarm and Bloq over the past year to improve security.

Quick bites

Crypto gets active Is activist investing becoming normalized in crypto? In the latest push and pull between token holders, investors and projects, hedge fund manager Arca is attempting to overhaul one of the earliest DeFi protocols Gnosis. After backing the prediction market’s 2017 $12.5 million ICO, Arca is claiming the Gnosis platform has failed to live up to its promises and deviated from its original mission. The Block originally reported this story. Now Arca is asking Gnosis to return value to investors and token holders. Over the summer, the hedge fund discreetly asked Gnosis to make a tender offer for all circulating GNO tokens, giving investors the opportunity to cash out and offer a stock split opportunity for those who stick around. In a blog post published Tuesday, Arca Chief Investment Officer Jeff Dorman reiterated Arca's prior suggestions that the project institute revenue-generating and cost-cutting initiatives. The project, he said, should aim to become “free cash flow positive,” rather than reliant on treasury assets contributed by GNO token holders. The quasi-buyback program would provide an out for investors while also leaving the project enough runway. (Gnosis has $55 million worth of ETH and $10 million of cash as reserves.) Dorman wrote that Arca often works with management teams throughout the lifecycle of an investment to achieve the goals of the community, which he described as a typically productive and mutually beneficial process. This was not the case with Gnosis, however. Gnosis, which instituted one of the first decentralized exchanges, is one among many prediction markets struggling to gain a foothold.

Stepping back, the situation points to a rare example of activist investing strategies in crypto. A practice common to traditional markets, activist investing sees large investors buy large shares in companies and acquire board seats to suggest operational changes and agitate for management, in an effort to increase value for shareholders. Activist investing, popularized by the “corporate raiders” of the 1980s, ballooned from a $12 billion industry in 2003 to having $112 billion assets under management by 2014. DigixDAO, an early initial coin offering (ICO) which faced a situation where its treasury was more than its market cap, faced similar activist investor behavior when it offered a question to the community - dissolve the treasury or continue making grants? Correlations Bitcoin is now more closely tied to safe haven gold than ever, possibly bringing the cryptocurrency greater resilience to risk aversion in the traditional markets, CoinDesk’s Omkar Godbole reports. The 60-day correlation between the two assets is hovering at record highs, beginning this correlation in July, when the U.S. dollar began a sell-off. While others refute the “store of value” narrative due to bitcoin’s closer correlation with traditional risky assets, the cryptocurrency has defended its $10,000 support for the fifth straight day on Monday, despite losses on Wall Street.

Banks Are Toast but Crypto Has Lost Its Soul FP columnist and author of “The Case for People’s Quantitative Easing” Frances Coppola thinks banks are too lugubrious to survive, but crypto has also lost its way. “But in becoming a high-risk, high-yield playground for dollar investors, the cryptocurrency world sold its soul. The early adopters of Bitcoin believed it would replace the financial system that had crashed and burned so badly,” she writes. Bitcoin, Mescaline and Parallel Worlds Leah Callon-Butler, a CoinDesk columnist and director of Emphasis, explores the phenomenon of how people get curious, then interested then obsessed with the world of cryptocurrencies – comparing it to the “down the rabbit hole” experiences of psychedelics or philosophy. “The concept of money might be the greatest illusory trick of all time. Over history, all sorts of things from paper notes to gold bars, seashells to giant rocks, and indeed, lines of code, have superseded relative obscurity to be worshipped as money. A mythical system of value is only “real” because we believe it is,” she writes.

Why Bitcoin Investors Aren’t Worried About This Price Pullback Critiques of the correlation between bitcoin and equities miss the fact that bitcoin adoption within traditional markets has been driven by a fiat collapse concern, Nathaniel Whittemore writes to introduce the latest episode of The Breakdown.

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