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Chinese Company Lost $23 Million Allegedly Mining Cryptocurrency in Secret

A subsidiary of Chinese firm Huatie has been sold off at 10 percent of its initial value following losses from suspected secret cryptocurrency mining activities amounting to about $23 million.


90 Percent Value Plunged Probably Due to 2018 Bear Market

According to Chinese crypto media outlet 8BTC, Huatie HengAn, a subsidiary of Huatie has been sold for $2 million. Reports indicate that the company’s value plunged by about 90 percent from an initial valuation of $25 million, all in the space of one year.

Huatie HengAn originally a construction company reportedly purchased 36,500 units of hardware listed as “servers” from Canaan and Ebang in 2018.

Given that both companies don’t sell servers but instead sell crypto mining hardware, the suspicion is that Huatie HengAn pivoted from construction to cryptocurrency mining.

Back in December 2018, Huatie’s end-of-year financial report showed losses of about $14 million for its subsidiary firm. By February 2018, the total net loss had risen to $23 million.

With the total loss just $2 million off from its initial $25 million investment into the business, it appears the parent company decided to count its losses and sell the business.

If Huatie HengAn was indeed engaging in cryptocurrency mining, it would be the latest in a growing list of businesses affected by the 2018 bear market.

During the year-long bear period, the entire cryptocurrency market fell by an average of more than 80 percent across the board.

2018 – A Dreadful Year for Mining Companies

For the first half of 2018, it appeared as though mining companies were immune to the hemorrhaging prices in the cryptocurrency market. However, by Q3 2018 reports of difficult financial situations began to emerge.

Cloud mining services like Hashflare were the first to shut down citing lack of profitability. Then reports began to emerge of massive losses for mining giant Bitmain – a situation further worsened by a bet on Bitcoin Cash that ultimately backfired.

The fallout from the suspected losses has seen the company downsize its workforce, firing entire departments. Bitmain has also appointed a new CEO.

Ebang, Bitmain, and Canaan abandoned plans for massive initial public offerings (IPO). GMO also incurred losses of $12 million forcing the company to shut down its mining hardware enterprise.

Even companies like Nvidia that sold hardware for miners weren’t left out as the company is reportedly trying to offload unsold inventory as demand shrunk in 2018.

Do you think Huatie HengAn was secretly mining cryptocurrencies under the guise of could computing? Let us know your thoughts in the comments below.


Images via 8BTC and Twitter (@btcinchina), Shutterstock

The Rundown

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Official Chinese Currency Renminbi to Become Cryptocurrency, Expert Says

Donald Tapscott, executive chairman of the Blockchain Research Institute, has said that Chinese renminbi will become a crypto.

Donald Tapscott, executive chairman of the Blockchain Research Institute,  stated that the official Chinese currency, the renminbi (RMB), will become a cryptocurrency, in an interview with Bloomberg on April 17.

In the interview, Tapscott revealed that he had recently been at a meeting with the vice-chairman of the Communist Party in China, who recalled that President Xi Jinping thinks that blockchain is one of the most important technologies for the future of the country.

Speaking about the government’s ban on cryptocurrency exchanges, Tapscott outlined that China is considering to ban cryptocurrency mining as well, and added:

“It’s not really necessary to do that [to ban exchanges and mining] because in 20 years we are not going to be using bitcoin in China. Chinese people will use the RMB, only the RMB will become a cryptocurrency. The central bank of China will turn it into a digital currency.”

When asked if decentralized exchanges can operate in China —  which has previously banned initial coin offerings (ICOs) — Tapscott said that they could, although the government has a serious stance towards curtailing digital currencies.

Tapscott suggested that decentralized exchanges will eventually dominate centralized ones thanks to their purported ability to transparency and identify “bad behavior.” All assets, including traditional ones like securities, will purportedly be on decentralized exchanges, said Tapscott.

Chinese authorities have long been discussing possible ban of cryptocurrency mining. The National Development and Reform Commission (NDRC) has reportedly included crypto mining as part of its draft for a revised list of industrial activities the agency intends to shut down because they “lacked safe production conditions, seriously wasted resources, polluted the environment,” among other issues.

However the country remains a major player in the bitcoin market, with most of the largest bitcoin mining pools controlled by local organizations. By mid-2018, crypto mining operator Bitmain reportedly operated as many as 11 mining farms in China, and hence would be largely affected by the NDRC’s reported plans.

As for blockchain, China is reportedly leading the world in the number of blockchain projects currently underway in the country. There are 263 blockchain-related projects in China, accounting for 25% of the global total.

Last month, a multi-year project called the “Implementation Plan for the Promotion of Transportation Infrastructure Development” was unveiled in Jiangsu Province. Per the plan, blockchain will be one of the technologies local authorities use in overhauling local transport infrastructure.

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Hodler’s Digest, April 8–14: Top Stories, Price Movements, Quotes and FUD of the Week

Bloomberg calls Bitcoin a bubble yet again, and Facebook is seemingly looking for $1 billion from VC firms for its stablecoin.

Top Stories This Week

NYT Reporter: Facebook Seeking $1 Billion in Venture Capital for Crypto Project

According to a tweet by New York Times (NYT) tech reporter Nathaniel Popper, Facebook is reportedly looking to various venture capital firms to develop its digital token that has been previously reported on. Popper, citing unnamed sources familiar with the matter, said that Facebook is seeking $1 billion to develop its cryptocurrency project, which itself has not been publicly confirmed by the company. The Times reporter also noted that the project involves a stablecoin that would be pegged to a basket of foreign currencies held in bank accounts.

Chinese Traders Pay Extra for Bitcoin Through OTC Desks Amid Crypto Market Surge

Local Chinese social media sources said that Bitcoin’s (BTC) price surge last week has led Chinese traders to pay a premium in order to trade the cryptocurrency. According to an analysis of price spreads from cryptocurrency exchanges Huobi and OKEx, cnLedger highlighted how Chinese traders are paying more in order to acquire Bitcoin. Since China formally banned crypto trading in the country in 2017, investors have had to resort to creative methods in order to deal in Bitcoin. In the analysis, cnLedger notes that a principal way to avoid the ban is to buy stablecoins such as Tether (USDT) via over-the-counter (OTC) services and convert them into other cryptocurrencies

Top Stories This Week

Top-Subscribed YouTuber PewDiePie Partners With Blockchain

PewDiePie, the personality behind the most subscribed channel on YouTube, announced this week that he will start streaming on blockchain video platform DLive as of April 14. Dlive is a blockchain-powered broadcasting app with a rewards system for content creators and will become the exclusive platform for livestreaming the famous Swedish YouTuber, Felix Kjellberg — aka PewDiePie. The platform currently has 3 million monthly users and 35,000 active streamers, while PewDiePie on YouTube has over 93 million subscribers and 21 billion video views, as of April 2019. PewDiePie’s move to Dlive comes as the Swede faced backlash over his alleged ties to white supremacism, as his channel was mentioned by the Christchurch gunman prior to his attack on two New Zealand mosques.

Bitcoin at Most Overbought Level Since Record Bull Run: Bloomberg Analyst

Bloomberg Intelligence analyst Mike McGlone claimed this week that Bitcoin is at its most overbought level since its record highs in December 2017, citing BTC’s GTI Global Strength Indicator. Bloomberg writes that similar buy patterns in the past have resulted in multi-week downturns, citing McGlone as referring to Bitcoin as a bubble. McGlone states that the recent market growth came about due to a long-term price compression and low volatility, causing the price to be “released from the cage.” Bloomberg also cites David Tawil, president of crypto hedge fund ProChain Capital, who reportedly expects the market to continue its downward trend.

Top Stories This Week

Coinbase Crypto Exchange Debuts Visa Card for U.K. Customers

Major United States cryptocurrency exchange Coinbase has launched Coinbase Card, which will enable its United Kingdom-based customers to pay both in-store and online with cryptocurrency. The card itself is a Visa debit card that is powered by users’ Coinbase account crypto balances, allowing purchases to be made globally by instantly converting customers’ crypto funds into fiat. The Coinbase Card has also been released for iOS and Android, linking Coinbase accounts with the app and allowing users to select which wallet will fund their card, as well as allowing access for receipts, transaction summaries and spending categories. The card is issued by authorized and regulated electronic money institution Paysafe Financial Services Limited.

Winners and Losers

The crypto markets are holding slightly down by the end of the week, with Bitcoin around $5,099, Ethereum at $165 and XRP about $0.33. Total market cap is around $172 billion.

The top three altcoin gainers of the week are BunnyCoin, WomenCoin and Block-Chain.com. The top three altcoin losers of the week are dietbitcoin, Cryptrust and ContractNet.

Winners and Losers

For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

Most Memorable Quotations

“This is a stark contrast to the development you see with things like EOS or with Ethereum with Casper, where they kind of adopt this lone samurai viewpoint.”

Charles Hoskinson, the co-founder of Ethereum (ETH) and IOHK, the company behind Cardano (ADA), speaking on the idea of development with open protocols

“I have learned about how blockchain is having a huge impact on supply chain management, and how an app in Britain can help the public report modern slavery at car washes.”

Princess Eugenie, the granddaughter of Queen Elizabeth, who founded the Anti-Slavery Collective in Britain in 2017

Most Memorable Quotations

“Blockchain is like a spreadsheet on steroids that can automate certain tasks, build greater transparency, speed and reliability, and provide a single source of transactional information.”

David R. Jarczyk, innovation principal and tax leader for blockchain at KPMG

“Now it’s a question of duration and I suspect when you have such a massive bubble, you’ll always have an overhang of people who need to sell.”

Mike McGlone, Bloomberg Intelligence analyst

FUD of the Week

Singapore Police Secure First Convictions Against OneCoin MLM Scheme Agents

Authorities in Singapore have charged two men for promoting crypto multi-level marketing (MLM) scheme OneCoin in what is touted as the first case of its kind for the city-state. The two unnamed men reportedly engaged in activities that incorporated a subsidiary in order to promote OneCoin, in addition to signing up new members and accepting investments in return for education courses and OneCoin tokens. Singapore’s central bank had previously added OneCoin to its Investor Alert List, and various governments around the world have also issued warnings against the MLM scam, advising consumers not to interact or invest in OneCoin. While one founder was recently arrested in the U.S., the other remains at large following the indictment.

Canadian Crypto Exchange QuadrigaCX Officially Declared Bankrupt

QuadrigaCX, the embattled Canadian crypto exchange, has officially been declared bankrupt. The exchange’s bankruptcy was reportedly approved by the Nova Scotia Supreme Court following the court monitor’s earlier recommendation to do so. At the time, Ernst & Young’s legal team had put forward the argument that the restructuring process should instead be shifted to bankruptcy proceedings, meaning that the monitor will now have enhanced investigative powers. QuadrigaCX had previously filed for creditor protection when it apparently lost access to its cold wallet funds following the unexpected death of its founder in December 2018.

Electrum Faces Another Fake Wallet Attack, Users Reported to Lose Millions of Dollars

Bitcoin wallet service Electrum faced another Denial-of-Service (DoS) attack on its servers this week. According to media outlets, this most recent attack has resulted in the loss of millions of dollars (the exact sum unconfirmed) with a single user allegedly losing about $140,000. The attack works by referring users to fake versions of Electrum software by employing a malicious botnet of more than 140,000 machines. The company has recommended that its users upgrade their software versions older than 3.3 and not download software from any source besides the official site. Last December, Electrum faced a similar attack that led to a loss of about $937,000 worth of Bitcoin.

Best Cointelegraph Feature

Will China Ban Crypto Mining?

After this week’s relatively unexpected publication by a Chinese government agency about a possible ban on crypto mining, Cointelegraph takes a look into how serious the idea is, and who and what will be affected in what is unarguably the largest crypto mining sector in the world.

Facebook, Twitter and Telegram: A New Crypto Paradigm or a Glorified Voucher Program?

As more unconfirmed news surrounding Facebook’s secretive crypto project surfaced this week, Cointelegraph analyzes what it would mean for one of the biggest, and possibly most untrusted, institutions in the world to issue their own cryptocurrency.

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Asia Pacific Conservative Union Launches Blockchain Ecosystem to Fight Authoritarianism

A blockchain platform meant to fight authoritarianism has been launched by the Asia Pacific Conservative Union.

Two executives from the Asia Pacific Conservative Union (APCU) have launched the Liberty Ecosystem, a blockchain-based network designed to fight authoritarianism, a press release shared with Cointelegraph reveals on March 2.

The co-founders of the project are APCU chairman, Jikido “Jay” Aeba, and CEO and co-founder of the organization, Yasu Kikuta. The press release describes the initiative as a “decentralized federation of local advocacy and economic development organizations seeking to combat the rise of authoritarianism in the Asia-Pacific region and around the world.”

Per the announcement, regimes like China invest in foreign infrastructure projects in a bid to assert control over the political sovereignty of other countries. Such use of economic power to exert political control has reportedly started to result in the exportation of the authoritarian government model to other countries such as Sri Lanka, Indonesia and Japan.

The press release explains that the blockchain-powered project involves the use of so-called “Liberty Tokens” to create a shared community and financial infrastructure meant to empower local organizations fighting authoritarianism. The intiiave has also partnered with token economy ecosystem Wowoo.

As Cointelegraph reported in November last year, while Thailand has been under the control of a military dictatorship since May 2014 — with internet censorship and a dismantled senate — the country has shown it’s welcoming blockchain and crypto innovation on both the public and private scale.

It has been long suggested that human rights activism is one of Bitcoin’s greatest use cases. Still, United States whistleblower Edward Snowden voiced concerns over Bitcoin’s long-term prospects in an interview in March last year, saying the cryptocurrency’s public blockchain made it susceptible to abuse.

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A Crypto Project That Raised $20 Million Is Caught Faking Its Founding Team

A cryptocurrency project that appears to have raised at least $20 million through a referral-based marketing scheme has been advertising false information about its team members, a CoinDesk investigation has found.

Launched on Dec. 2, BHB claims to offer an ethereum-based solution for peer-to-peer lending, but by Jan. 18, local media reports were already accusing the project of operating an illegal pyramid scheme. Now, CoinDesk is able to reveal inconsistencies in the information provided about its founding team that further suggest something may be amiss at the China-based project.

In particular, CoinDesk has found that images said to represent two BHB team members have been lifted from unaffiliated university professors, who are now publicly denying any association with the project.

According to web materials, alleged team members include a financial engineer named Bobby White, a blockchain expert named David Chen and a product designer named Gregory Moss. The respective images of each individual were featured on BHB’s website, bgepay.com. (The project appears to have taken down the website.)

However, the image of Bobby White used in BHB’s marketing materials is identical to that of an economics professor at China’s Tsinghua University named Alexander White. Meanwhile, the image of Gregory Moss is the same as one used by a philosophy professor at The Chinese University of Hong Kong, who is also named Gregory Moss.

In responses to CoinDesk inquiries, both professors denied any association with the scheme and both stated they had no prior knowledge of the BHB project.  

White said:

“Any use of my photo for such purposes, including attached to the name ‘Bobby White,’ is fraudulent.”

Professor Moss, too, said he is very “troubled” by the incident, claiming he never gave BHB permission to use his image or likeness in connection with marketing its products.

CoinDesk was not able to independently verify the image associated with a third alleged team member named David Chen.

Besides false information about its team members, the project listed invalid contact details on its website, including a disconnected phone number and a supposed headquarters at a New York City address that does not exist (“22/121 Apple Street”).

An unusual model

Adding to concerns is the mechanism for how BHB tokens are issued and promoted at a single exchange, XBTC.CX, whose business appears tied to the BHB project.

Investors are not able to mine or receive BHB tokens through programmatic means. They can only buy these tokens using the U.S. dollar-pegged cryptocurrency known as tether or USDT on XBTC or Chinese yuan through XBTC’s over-the-counter WeChat groups.

XBTC.CX, the only exchange that lists BHB tokens, began its offering on Dec. 2, explaining at the time that users who held at least 700 BHB for 24 hours were eligible to get a dividend issued in USDT that would equal 7 percent of their BHB holdings’ market value. On Dec. 5, the exchange announced it would reduce that reward rate to 1.3 percent.

(Some of XBTC’s web pages related to BHB block IP addresses in the U.S. and U.K.)

Further, the same announcement on Dec. 2 said BHB holders could get additional USDT if they recruited other users to the exchange and had them hold BHB in an account.

In this case, XBTC.CX said anyone who could sign up a user that held a balance of at least 700 BHB would be eligible to receive an additional 1.5 percent of the new account’s BHB value in the form of USDT. The offer suggested these USDT payments would then occur daily.  

If the same user managed to sign up yet another account to the exchange, then they could receive an additional 1 percent of the second account’s BHB holdings every day.

Although users do not have to pay a membership fee to their referrers, the project appears to rely on raising capital from new participants so that promised dividends and commissions for existing accounts can be continuously paid out.

This element of the scheme is notable, as it has attracted comparisons to multi-level marketing (MLM) and pyramid schemes, the latter of which is illegal in China.

Dozens of users on Chinese social media Weibo have been posting threads and raising doubts on the legality of the project, alleging it’s just a disguised pyramid scheme because it’s using latecomers’ money to pay for what early participants were promised.

China’s central government enacted a regulation in 2005 strictly prohibiting what it calls Chuanxiao, or “pyramid selling,” in the country. Based on an English translation provided by the law school at Peking University, the regulation defines pyramid selling as follows:

“An organizer or operator seeks for unlawful interests by recruiting persons to participate in pyramid selling, asking the recruiters to persuade others to participate in pyramid selling so as to form a multi-level relationship, and calculating and paying the remuneration (including material awards and other economic interests) to an upper-level promoter on the basis of the sales performance of the promoters below.”

Links to MoCapital

But while the veracity of the advertised team may be in question, WeChat groups have linked both BHB and XBTC.CX to at least one real person – Renbing Li, the 24-year-old founder of the Hangzhou-based venture firm MoCapital.

In a WeChat response to CoinDesk, Li denied allegations BHB is a pyramid scheme and said it’s rather a project to “liberalize communities.” He did not respond to further questions.

The XBTC exchange did not reply to CoinDesk’s email request for comment.

According to photos and video clips from a BHB project gala held on Jan. 25, obtained by BHB users and reviewed by CoinDesk, Li appeared onstage at the Azure Qiantang luxury hotel in Hangzhou where he referred to himself as the founder of BHB.

The gala featured lucky draws meant to reward winners with Rolls-Royce and Bentley luxury cars, as well as 3 million yuan (about $450,000) in cash. Only XBTC.CX users with more than 10,000 BHB and who signed up more than 10 other users to the exchange – each holding more than 700 BHB – were eligible to attend.

And Li’s association with XBTC.CX and BHB is traceable in other ways not tied to the event.

The MoCapital domain is registered by a firm called Moha Technology based in the city of Jinan in China’s Shandong province. According to China’s business registration database, Renbing Li owns Moha Technology. 

The Jan. 25 event at the Hangzhou hotel was also registered under the name of Moha Technology, according to a customer representative of the hotel.

Further investigation shows that Moha has a fully-owned subsidiary in China called Bihang Blockchain based in Hangzhou, which invested in XBTC, according to a verified job post by Bihang on a third-party recruiting agency. 

$20 million raised

However, while some are raising the alarm about the project, others have been cashing in – data from XBTC shows $21 million in BHB is now changing hands daily for USDT.

Following the initial listing, XBTC had been publishing daily updates on dividend payouts, touting how many users had received a dividend each day. On Jan 24, the exchange claimed a total of 25,732 users on the platform received dividends.

With a minimum reward threshold of 700 BHB, the project’s exchange-based referral program would have attracted those 25,000 investors to purchase at least 18 million of the tokens. 

And data from XBTC showed the initial listing price for BHB was about $1.10 on Dec. 2, which later doubled within just a month. Even assuming all the investors bought in during early December, that would put the proceeds at around $20 million.

However, signs suggest that enthusiasm may be slowing.

On Jan. 27, two days after the gala, a major sell-off took place on the exchange, which resulted in BHB dropping from $1.70 to as low as $0.60 within an hour. It then further plunged to $0.20 in the next two days. 

Following that, XBTC said on Jan 28 and Jan 29 that the number of users who received payouts dropped to 19,873 and 17,358, respectively.

To prevent a run on the proverbial bank, the exchange abruptly announced on Jan. 31 it would suspend paying out dividends and freeze all BHB withdrawals during the Chinese new year in early February, and would only reopen withdrawal gradually afterward. 

That note apparently calmed investors, as afterward the price of BHB rose to $2 within just two days. But the exchange has made no updates on the status ever since, regarding further dividends or withdrawal.

Further, while trading for BHB against USDT is still enabled on XBTC, users in BHB’s WeChat groups have been complaining that since early February the project has also frozen BHB investors’ withdrawal requests for USDT.

The project has made no announcements on the issue. Representatives of the project told investors in the WeChat groups that it’s working to resolve the matter by March 6, but did not give further details.

Renbing Li addresses the BHB gala on Jan. 25, image via BHB Wechat group.