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

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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 #42

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Crypto News this week.

Bitcoin seems to be having a great week this week with it crossing $10,000 and retracing to $9800.

Beyond the price action, a major development happened this week in the crypto space.

OCC clears US banks to offer Crypto custody services in the US

bank crypto custodyProbably one of the biggest bullish news in the US around cryptocurrencies came from The Office of the Comptroller of the Currency (OCC),  which clarified that Banks must provide the custody services to its customers including digital assets.  In a press release, OCC confirmed that: “From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” said Acting Comptroller of the Currency Brian P. Brooks. “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”   This move ensures that banks are able to provide custodial services to its customers for cryptocurrencies like bitcoin. This stamp of approval could open up a vast majority of investors ‘dipping in’ to crypto.

MasterCard expands Cryptocurrency program

Mastercard cryptoMastercard announced “the expansion of its cryptocurrency program, making it simpler and faster for partners to bring secure, compliant payment cards to market. Supercharging the partnership experience, cryptocurrency and crypto card partners are invited to join Mastercard’s Accelerate program for emerging brands and fintechs, giving them access to everything they need to grow quickly.”  Wirex recently received Mastercard’s principal membership to offer crypto services to the consumers on MasterCard platform.

Visa reveals its outlook on Crypto payment

Visa partners Bitcoin ZapVisa has revealed its outlook on crypto payments on its network.  In a somewhat positive spin on the digital currency move, Visa has praised the advantages of crypto payments, “We believe that digital currencies have the potential to extend the value of digital payments to a greater number of people and places. As such, we want to help shape and support the role they play in the future of money. We look forward to sharing more with you on this work in the months that follow.”  Visa did point out that there is a lot to do on the legal and policy framework side of things and that Visa has been “Visa has been engaging with policy makers and global organizations to help shape the dialogue and understanding of digital currencies; this includes our work with the World Economic Forum and our collaboration on a set of policy recommendations for central banks exploring the concept of Central Bank Digital Currency (CBDC).”

DC Financial Services Law: Bitcoin deemed ‘money’ 

When Larry Dean Harmon tried to argue that ‘he cannot be tried for money laundering’ because Bitcoin is not money.  Well, the federal court tossed his argument out of the window declaring that “Money “commonly means a medium of exchange, method of payment, or store of value,” Chief Judge Beryl A. Howell wrote for the U.S. District Court for the District of Columbia. “Bitcoin is these things.”  While Bitcoin is considered as ‘property’ under the IRS tax laws, this federal court ruling brings to light that Bitcoin is money for in the court of law.  This variation in the eyes of federal law and tax law will potentially continue to exist in the foreseeable future.

ESPN goes Crypto with eSports on Blockchain

Espn crypto paymentsESPN has unveiled its ‘pre-launch’ online gaming on Blockchain enabled for crypto payments.  This platform is expected to facilitate micro transactions. “As per a research done by 3EA Limited, a global strategic management consulting group, e-sports and online gaming is a $140 billion global industry driven predominantly by digital micro-transaction economies, which we believe will benefit immensely from the integrity and resilience of the Blockchain technology,” said Mr. Chris Parker, one of the Directors of ESPN Global.” The ability of Blockchain to facilitate ‘micro transactions’ without the need for central financial institutions could revolutionise the space.   

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

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Crypto News Today #41

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Crypto news that matters.

Welcome to yet another exciting, exhilarating and equally crazy week in crypto.

While the world seems to have come to terms on how to live in spite of COVID as the numbers keep spiking, blockchain and crypto are not losing any steam.

A lot of exciting developments continue to propel this space forward.

Let’s get on with this week’s news.

Massive Twitter hack targets Bitcoin newbies

We keep telling people that there are no free giveaways, especially in the crypto space, unless it is an airdrop.  A colossal coordinated Twitter attack hacked accounts of Elon Musk, Jeff Bezos, Apple, Obama and more.  A message about ‘free bitcoin giveaways’ was promptly posted by the hackers to con the gullible users.  Luckily, and we say that with a sigh of relief, the entire debacle cost around 13 BTCs.  It could have been worse in our mind but glad that it ended with minimum damage.  Twitter issued a statement: “We detected what we believe to be a coordinated social engineering attack by people who successfully targeted some of our employees with access to internal systems and tools.”  It is unclear whether or not Twitter will bear the loss for investors from this debacle.

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We detected what we believe to be a coordinated social engineering attack by people who successfully targeted some of our employees with access to internal systems and tools.

Kingdom Trust Appoints Fidelity Digital Assets To Power Bitcoin Custody For Choice Retirement Accounts

Kingdom Trust bitcoinProbably the biggest news this week is Kingdom Trust’s appointment of Fidelity Digital Assets to provide Bitcoin custodial services to the retirement accounts.  Kingdom Trust wants to bring the Fidelity brand confidence to its Bitcoin offering so that the investors feel comfortable and confident about their bitcoin holdings. “For anyone who was considering bitcoin as part of their retirement portfolio, but was waiting for the infrastructure to mature and for familiar names to enter the space, that day is today,” says Ryan Radloff, CEO of Kingdom Trust, in the Press Release.

TATA Consultancy Services launches Quartz to support Cryptocurrency Trading

TCS Quartz BlockchainTata Consultancy Services’ (TCS) new crypto services solution to allow Banks and Investment Firms to invest in crypto services. The announcement on the Bombay Stock Exchange revealed that TCS has launched Quartz, a solution in the crypto space, “the solution is designed to support multiple cryptocurrencies and stable coins, digital currencies linked to fiat currencies, trading venues and public blockchain networks, thus offering choice and flexibility to customers when deciding their trading and investment strategies. Importantly, it can help banks and investment firms offer their customers the ability to transfer payments in the form of ‘digital cash’, and benefit from lower transaction costs and quicker access to liquidity.” 

PayPal hints Crypto initiatives

In a letter sent as a response to the European Commission’s public consultation on building EU Framework for markets in Crypto-assets, PayPal revealed that while it has exited the Libra association it continues to “continue to focus on advancing our existing mission and business priorities to democratize access to financial services.” People are interpreting this statement to mean that PayPal is innovating in the crypto-assets space.  At the minimum, based on the response in the letter, it seems plausible that PayPal may be building on ramps to facilitate any EU guidelines to accommodate Crypto-assets on PayPal. 

Cosco Shipping and Alibaba join hands in blockchain initiative

Cosco Shipping BlockchainCosco Shipping Group, the Chinese state-run shipping company, is the latest to join the growing momentum in digitization through the use of blockchain technology. China Ocean Shipping Group signed a strategic cooperation agreement with China’s e-commerce company Alibaba and its affiliate Ant Group, to jointly promote the development of blockchain technology for shipping logistics,” read the news.  The collaboration will explore the opportunities to utilize blockchain to support the smart shipping and smart ports efforts. 

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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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 Today #40

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How does mainstream adoption take place?

One day at a time.  In this week’s news case – one IPO at a time.

Coinbase’s intention to go IPO and Arca’s launch of the first ever SEC registered fund to offer digital shares are all hinting towards a tectonic shift in the blockchain and crypto space.

Coinbase to go IPO

coinbase best exchangeCoinbase is making headlines yet again. Reuters reported in an exclusive that Coinbase is preparing to go public either by end of this year or early next year. While the 2018 valuation has put the company at $8 Billion, we have to wait to see how much the company’s valuation will be for the IPO.  The company has not yet filed the paperwork with the SEC.  However, “Coinbase said it had hired Facebook Inc FB.N deputy general counsel Paul Grewal as its chief legal officer.”  This has further cemented the rumor that the company is serious about its IPO plans.

Binance acquires Swipe

binance logoBinance is on a global dominance of crypto space.  It has been making strategic investments to accomplish this mission.  Binance has announced that the acquisition of Swipe has completed.  The announcement disclosed that “The two companies will work together to further mainstream adoption of cryptocurrencies by bridging the gap between fiat and digital assets, notably payments and purchases in cryptocurrency through traditional financial systems.”  Bringing the solutions that make the transition from crypto to fiat and vice-versa is one of the easiest ways to bring crypto to the masses.  This partnership of Binance and Swipe is the step in the right direction.

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Arca to become first SEC registered fund to offer digital shares

ArCoins will be issued on Ethereum Blockchain which will provide the interest to the investors on quarterly basis.  The company will issue 100 million ArCoins at a face value of $1.  Jerald David, president of Arca Capital Management, stated that ““Shareholders can directly transfer ArCoin using blockchain technology; other features of blockchain are being used for fund operations, such as freezing and replacing tokens for investors that have lost their public keys, and using smart contracts on the blockchain to enforce transferability of ArCoin to only whitelisted ETH addresses,” as reported by Forbes.

Lithuania issues world’s first digital collector coin on Blockchain

World’s first blockchain based digital collector coins will be created by the Bank of Lithuania.  The press release states that “The Bank of Lithuania is planning to release 24,000 collector tokens created using the blockchain technology. Each token will feature one of the 20 signatories and collectors will have a chance to collect the entire set. The tokens will be divided into 6 categories by the signatories’ areas of activity, with 4,000 tokens allotted to each of them. When purchasing the digital coin, buyers will get 6 randomly selected digital tokens and only upon collecting a token from each of the 6 categories they will be able to redeem a physical silver coin. The tokens will be available for purchase and storage on the Bank of Lithuania e-shop.”

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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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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