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Ripple or not to Ripple? ‘Definitely not’ says a research report

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Ripple XRP

The following Q&A is not an endorsement; claims made in the Q&A are not independently verified.

We at CryptoTapas endured a lot of heckle and resistance when we published an article on Ripple titled “Why we do not support nor invest in Ripple.”

In that article, we went through the Emotional, Practical, and Crypto-technical reasons why we do not support Ripple. We also included a few outlandish possibilities of why Ripple might win.

While our opinions were clearly laid out – it did not stop the Ripple community from mocking our stance.

Looks like more and more people who actually do know something about this space are now coming out and speaking their minds before another Mt. Gox incident ruins the crypto space.

Demelza Hays, 30 under 30 Forbes Europe awardee and the writer of Crypto Research Report has released a report, warning investors about Ripple crypto.

The report starts with an outline of the players behind Ripple and Ripple labs, including the connection with Jed McCaleb of Mt. Gox to Ripple and how the company is simply liquidating the XRP coins it controls each month to generate revenue in 100s of millions of dollars out of thin air.

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The report talks about how Ripple is one of the most centralized crypto projects ever created. In fact, the report discloses that a mere 100 active accounts hold 97% of Ripple coins. You are talking about billions of dollars’ worth of Ripple sitting in under 100 active accounts; that is probably more centralized than traditional bank accounts of any company, in our view.

The contents of this report are quite revealing, and we asked Demelza to help us with a few questions of our own. She graciously agreed. Below are the responses from Demelza to our questions.

CryptoTapas: Tell us a bit about yourself; what efforts placed you in the 30 under 30 Europe?

Demelza:
I worked for the US Department of State in Punjab for two years, then I moved to France where I did my Master’s in Economics at the Toulouse School of Economics, and then I started my Ph.D. in Business Economics at the University of Liechtenstein. My doctoral supervisor, Professor Dr. Andrei Kirilenko, is currently at Cambridge University, and he is the former Chief Economist of one of the regulatory agencies in the US called the Commodities Futures Trading Commission. I have been publishing papers and researching cryptocurrencies since 2013.

Demelza Hays

Demelza is the editor of the Crypto Research Report, which is a quarterly report available for free in German and English. She is also a fund manager of a regulated cryptocurrency fund for professional investors at Incrementum AG in Liechtenstein.


I started my first crypto business in 2014, where I was buying and selling cryptocurrencies in France. Unfortunately, my partner in the business had a knife pulled on him, and we had 40 of our Bitcoin stolen in Rotterdam in the Netherlands when we were doing a cash trade with someone we met from Localbitcoins.com when they still had the local cash feature on their website, which they recently got rid of because of Know-Your-Customer and Anti-Money Laundering compliance.

It was a tough loss of 40 Bitcoin as that was all of my savings. Unfortunately, I still haven’t fully recovered my Bitcoin stash. I learned my lesson regarding cash trades in a hard way. After that in 2015, I decided to go ahead and make a Bitcoin ATM business because that’s the same as me buying and selling crypto to people in-person except I don’t need to be in-person – there is a machine instead.

Out of the blue, I just sent an email to the regulators in Liechtenstein, and I asked them if I could meet with them to discuss my business idea. I met with them in February of 2015, and my partner and I were the first people to present Bitcoin and crypto to them in-person. They accepted our proposal for a Bitcoin ATM, and we got to work on founding a business.

We named the business “Blockchain Büro” because Büro means office in German. It’s still in operation today, but we do not have any Bitcoin ATMs anymore. We do mostly government consulting and advising banks. We built a distributed ledger points system for green carpooling for the Amt für Umwelt in Liechtenstein, which translates to Bureau of Environment two years ago to name an example. My partner in business, Philipp Büchel, runs the Büro and he is from Liechtenstein, and he helps people who are interested in doing crypto business in Liechtenstein get started with the right contacts.

On the other hand, the University of Liechtenstein asked me to develop a class on the topic of cryptocurrencies in 2016, which I began teaching in 2017, and I have been teaching it every year since. I also teach other courses at the University, like corporate finance and principles of finance.

In 2017, I joined Incrementum AG, which is a licensed wealth management firm that has 6 funds and $100 million in assets under management. I’m actually in the process of becoming a shareholder this quarter. We are launching a regulated cryptocurrency fund for professional investors this year, August 16th. The fund invests in physical gold and cryptocurrencies because we do not think the current monetary system is sustainable. People will increasingly turn to hard assets over the next couple of decades. When they do, they will choose between Gold and Digital Gold. If the price of gold becomes too high, then people will buy gold substitutes like Bitcoin. On the other hand, if Bitcoin’s price becomes too high, then people will buy Bitcoin substitutes like gold. Our fund arbitrages between these two asset classes.

CryptoTapas: What methodology and effort goes into your research pieces?

Demelza:
We use two main methods: logical deduction and empiricism. We study the fundamentals in order to understand what coins to invest in, and then we use data in order to understand at what time to make the positions and at what time to close the positions.

CryptoTapas: You quoted Bloomberg quotation in the report that states that XRP could be considered a security; What particular attributes could support XRP as security rather than utility token?

Demelza:
My doctoral supervisor’s boss, Gary Gensler, is the former chairman of the CFTC, and he is the one that said XRP is a security. The reason XRP is a security is because of the Howey Test used by the Securities Exchange Commission in the US. One criterion of the Howey Test is that a third party is responsible for generating profits on the investment. In XRP’s case, the third party is Ripple Labs Inc. because they are the only group driving the adoption of XRP. This is the main reason why Ripple Labs Inc. is now claiming that they did not make XRP. On the other hand, Commissioner Hinman of the SEC said Bitcoin is not a security because no third party is responsible for making Bitcoin’s price go up. 

CryptoTapas UPDATE: While we were in the process of getting information from Demelza, there has been a new development with Ripple/XRP. An updated complaint was lodged in United States District Court, Northern District of California, Oakland Division, referring to the SEC guidance on what constitutes a security. 

This aligns and strengthens the comments provided above.

The complaint also alludes to California’s advertising laws, claiming that the investors were ‘misled.’ In our opinion, nothing will come out of these appeals, probably a hefty fine to get things wrapped up while the company moves on to print another $300 Million in a month. 

CryptoTapas: Even after 16 court cases, Ripple continues to hold its top position in the crypto space. Do you think this has to do with their almost unlimited cash supply and buying power they hold in the media?

Demelza:
Yes, it also has to do with their market makers. They are willing to lend XRP to market makers at zero cost, which allows market makers to add millions in revenue to their bottom line. To manage XRP’s volatility, professional market makers ensure that sell walls in XRP order books on cryptocurrency exchanges are reduced when good news are released and buy walls in the order books are built-up when bad news are released. This makes XRP less volatile than other cryptocurrencies that do not have professional market makers.

CryptoTapas: The true spirit behind Blockchain and Bitcoin is to change the existing banking and financial system. When the blockchain vision comes to fruition, banks and financial institutions power could be undermined. In such a scenario, do you think Ripple will have any relevance?

Demelza:

No.

XRP will not have any relevance.

I am 100% convinced that Ripple team is selling security tokens to retail investors.

XRP (Ripple, Inc.), Libra (Facebook, Inc.), Apple Pay, Google Pay, and JP Morgan Coin are competing for the same goal: They want to become a global currency.

First, XRP does not have access to Facebook’s network of 1.7 billion users. Second, Facebook’s Libra is intended to have a stable purchasing power, which is absolutely required in order to gain adoption as a medium of exchange and unit of account. Libra will be backed by reserve assets, such as fiat currency and government bonds, and should, therefore, be able to maintain low volatility. In contrast, XRP is backed by nothing.

The price of XRP is based purely on speculation.

The main point is that if XRP were able to back their currency with financial assets and stabilize the purchasing power of the currency, then that would mean XRP coins should have no price appreciation. In fact, only the equity shares of Ripple Labs would profit from XRP’s adoption as a global reserve currency. But Ripple Labs is a privately held company. After fully understanding what XRP is, one realizes that XRP’s investment pitch does not make sense at all.

CryptoTapas: Do you think Ripple uses the vast supply of cash at its disposal to manipulate mainstream media?

Demelza:
One cannot be sure who pays at the end of the day, but someone with financial interest has paid for thousands of fake Twitter accounts to be made in order to shill XRP on retail investors. If you read the article, you can read about how easy it is to see that the accounts are fake computer bots that just retweet XRP hype. For example, Twitter suspended and banned many accounts for being fake bots after the bots posted on Demelza’s post, including accounts such as @ceramika74, @de7erv, @XRPBOSS77, and @YassinMobarak.

Ripple Labs, Inc. definitely paid a lot of developers with XRP; in fact, up to 50,000 XRP per developer in order to test RippleNet. Some developers received multiple payments over time. David Schwartz and Joel Katz even disclose on Twitter that they pay people to attend events.

Twitter ripple news

CryptoTapas: What in your view could be one reason why Ripple might succeed?

Demelza:
Every country has a central bank, and central banks are 100-year pump and dump schemes. Central Banks play the same game as Ripple Labs Inc. just on a longer time horizon and with fancier buildings. Dollars, pounds, euros, rupees, XRP; they’re all fiat scams in varying proportions. If Ripple is smart by getting enough important people on their payroll, then XRP could definitely succeed.

CryptoTapas: What happens if SEC does declare that XRP is in fact a security?

Demelza:
They will fine Ripple Labs, Inc. with securities fraud and make them pay a fine, which will be very small compared to how much the team has made by merely printing XRP. The team can walk out with billions but be forced to stop selling XRP to retail clients at that point. It’s actually a great “exit” plan because they can blame the regulators for making the project fail.

Thank you for your insights, Demelza.

It is not just Demelza or us that hold the opinion of Ripple becoming obsolete (unless they change their service offering completely), here is what Julian Villaverde, a senior crypto analyst at Weiss Ratings, has to say about Ripple in explaining how Government-issued digital currency could severely undermine Ripple’s success as a company to Cointelegraph:

“The reality is the traditional financial system is based on trust and reputation. But for most institutional participants, Ripple — as any other newcomer — lacks in both. If the Federal Reserve upgrades its systems to mimic some of the utility of RippleNet, this would severely undermine Ripple’s future chance of success. Our view with Ripple has long been that they need to pivot away from catering strictly to financial institutions and focus more on providing financial products and services directly to the public.”

Another piece of the puzzle is that since XRP (and Ripple Labs) are not decentralized, they could face the existential issue if (and when) a legal proceeding takes place against them.

What holds in XRP and Ripple’s future is something we just have to wait and watch.

______________________________________________________________________________

Original Image Source: “Ripple coin with smoke on white background” by wuestenigel is licensed under CC BY 2.0  Creative Commons
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About the author

RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.

RK Reddy is an ardent fan of Blockchain and Cryptocurrencies. You can see the excitement about this new blockchain technology in every article on Cryptotapas.com. Sometimes this excitement leads to an overly optimistic view. Guilty as charged. RK Reddy says what may seem like an ‘overly optimistic expectation’ today may become an everyday norm in 5-10 years; look at the history of cars or airplanes, Blockchain and Cryptocurrencies belong to a similar frame of reference.”  Of course, that is just his opinion.

Crypto News

Crypto News Today #53

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A rather slow week in the crypto space.  

Bitcoin on track to $100,000 by 2025

A Bloomberg report titled “Bitcoin Trend, Adding Zeroes” predicts that $100,000 by 2025 is on track.  “Bitcoin could continue doing what it has for most of its nascent existence, appreciating in price on the back of increasing adoption, but at a slower pace as we see it. The first-born crypto has had a tendency to add zeros to its price from around $10 in 2011. It took about four years to go from $1,000 to $10,000 in 2017, so doubling that time frame for maturation could get the price toward $100,000 in about five more years. Or the new technology could fail, but our demand indicators are positive. With the exception of stable coins, the rest of the crypto market is subject to excess supply and competition,” report read.

Another company joins the $100 Million Bitcoin club

Stone Ridge created a subsidiary called New York Digital Investment Group (NYDIG) to act as the custodian of its own customers bitcoin.  The move was prompted by the growing demand from customers who were willingly investing 1% to 5% of their portfolio in Bitcoin.  Forbes reported that “Stone Ridge Holdings Group revealed NYDIG is acting as custodian of 10,000 of the parent company’s bitcoin, valued at $115 million at today’s price.” “The two largest funds currently managed by NYDIG are the $190 million Institutional Bitcoin Fund LP, disclosed in regulatory documents in June and the $140 million Bitcoin Yield Enhancement Fund LP disclosed in May,” the article revealed.

Coinbase lost 5% of its workforce, got over 1000 requests from FBI

coinbase best exchangeAbout 5% of the workforce left Coinbase due to its ‘no politics at work’ stance. At the same time, it has allegedly received more than 1000 requests from agencies, mainly FBI, regarding crypto transactions. While these news are unrelated – Reddit and other social media channels are flaring up with anarchists rhetoric calling crypto users to move away from the capitalists Coinbase. We are indifferent on the matter.

Thank you for reading and sharing this article. We appreciate you.

We have been tracking the most important news in blockchain and crypto space since 2017. You can check out all the chronicled news here.  

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Top 5 Cryptocurrencies 2020

 

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

 

 

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Crypto News

Crypto News Today #52

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On ramps are being built to pave the world’s businesses to the blockchain. Latest in this trajectory is EY, one of the world’s big 4 accounting firms, who has built a solution to onboard businesses onto blockchain.

EY launches Ethereum Solution ONP

OpsChain Network Procurement (ONP) which is expected to help convert the procurement contracts into digital smart contracts and automate volume discounts/rebates has been launched by Ernst & Young (EY) on Ethereum Blockchain. EY is one of the Big 4 accounting firms in the world that has been eyeing to be at the forefront of blockchain technology and this ONP is a great addition to its forte. “EY OpsChain Network Procurement supports network-level business processes by moving those business processes outside of any single ERP system and into a shared blockchain-based smart contract. It builds upon EY experience with other procurement activities, such as software royalty calculations, where shifting to blockchain-based contracts has compressed cycle times by more than 90% and cut costs by 40%,” according to the press release.

KuCoin hack hauls $130 Million, creates a stir re: decentralization

KuCoin got hacked during the week for 100s of millions of dollars.  However, according to the KuCoin CEO Johnny Lyu substantial part of those stolen funds have been recovered. Over $200 Million in stolen funds have been recovered. While many crypto maximalists were furious at the fact that KuCoin and the projects supporting KuCoin were able to freeze the funds in the suspected accounts, some argued that the key tenet of blockchain and cryptocurrencies is the ability to be not shut down by an external force. Say what may – this recovery of funds has been welcomed by those who use KuCoin. In a clear twist of the plot, KuCoin was able to turn these things around and instill confidence in the exchange. The latest in this hack thriller is that KuCoin claims to have located the hackers and are now working with the authorities to take the legal action.

The man who called banking system a scam buys his first Bitcoin

The UK politician whose speech against the banking scam has been referred to by crypto communities, Godfrey Bloom,  has tweeted that he made his first purchase of Bitcoin. 

 

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We have been tracking the most important news in blockchain and crypto space since 2017. You can check out all the chronicled news here.  

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Top 5 Cryptocurrencies 2020

 

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We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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Crypto News

Crypto News Today #51

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This week people are reminded why Blockchain and cryptocurrencies are needed.  An expose by Buzzfeed reviewed the FinCEN files to show that major financial institutions have been assisting and facilitating illicit affairs to earn their fees.

$2 Trillion scandal shows why we need blockchain now

Standard Chartered, HSBC, Bank of America and many of the world’s biggest financial institutions have been secretly mining money in the form of fees for the world’s most dangerous individuals and entities.  “A huge trove of secret government documents reveals for the first time how the giants of Western banking move trillions of dollars in suspicious transactions, enriching themselves and their shareholders while facilitating the work of terrorists, kleptocrats, and drug kingpins,” reports Buzzfeed which ran an expose on the whole matter.  This reminds us one more time that the number one choice of criminals is not bitcoin or cryptocurrency which remain quite traceable.  Criminals use cash and also major bank accounts in broad daylight for their illicit affairs.

OCC issues clarification for banks regarding stablecoins

Office of Comptroller of the Currency issued clarification about banks holding cryptocurrencies, specifically, stablecoins.  Essentially, OCC gave greenlight for banks to hold stablecoins as long as they have 1:1 reserve.  “A bank providing services in support of a stablecoin project must comply with all applicable laws and regulations and ensure that it has instituted appropriate controls and conducted sufficient due diligence commensurate with the risks associated with maintaining a relationship with a stablecoin issuer. The due diligence process should facilitate an understanding of the risks of cryptocurrency and include a review for compliance with applicable laws and regulations, including those related to the Bank Secrecy Act (BSA) and anti-money laundering,” OCC letter clarified.

Cryptos are part of Visa’s future strategy

Digital assets and blockchain technology are going to be important parts of Visa’s future,” was the conclusion of an exclusive Forbes interview with Terry Angelos, SVP global head of fintech at Visa and Cuy Sheffield, senior director, head of crypto at Visa. “We are seeing significant interest in demand from crypto companies that want to work with Visa and connect their clients to our network of 60-plus million merchants,” Terry mentioned during the interview. Visa expects to be part of broader cryptocurrency adoption and also work closely with the world’s major banks in the CBDC adoption.

EU announces plan to regulate cryptocurrencies

European Commission is working on introducing a framework to regulate cryptocurrencies.  It could potentially take a year or more for these regulations to come out.  Investor protection and enabling innovation will be cornerstones of these proposed plans.  The new plan will mean that crypto-asset companies authorized by one of the 27 EU countries will be able to provide its services across all the other member states, according to the CNBC.

Gemini is expanding into United Kingdom

Winklevoss brothers brainchild, Gemini, is expanding into the UK as it received the electronic money license from the Financial Conduct Authority (FCA).  This move will allow residents of the UK to buy bitcoin using a debit card on the Gemini platform.  According to the article in Bloomberg, Gemini is looking to expand into Singapore next.  

Fun Fact: Norway, Blackrock and Vanguard hold Bitcoin, indirectly

The Norwegian Government Pension Fund, which owns 1.5% of MicroStrategy, effectively owns roughly 577 bitcoins. Blackrock and Vanguard also own shares in Microstrategy which in turn makes them indirect holders of Bitcoin. Source: Forbes.

Thank you for reading and sharing this article. We appreciate you.

We have been tracking the most important news in blockchain and crypto space since 2017. You can check out all the chronicled news here.  

Consider subscribing to our newsletters to receive these news updates in ONE neat email per week along with other freebies that we give away once-in-a-while.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

 

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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