Barry Silbert and the Cost of Bitcoin’s Malfeasance Culture
The Bitcoin ETF didn’t pass this month and it hurt us and many others who were long Bitcoin and have been long time hodlers. The SEC ruling was a stern rebuke of Bitcoin’s backroom dealing, unsavoury culture. This article exists to list how bad Bitcoin compliance, fiduciary, and ethical culture has gotten, and why we need to police ourselves better lest we risk having harsh regulation foisted on us by the FSA or the SEC or other financial regulatory bodies. If we don’t do better and now, we will all lose money in the long run and some of us will go to jail or be sanctioned. This article is one of many as part of our mobilisation. Bitcoin may be wrapped around the axle, but we have to start somewhere.
The only pure Bitcoin security in the U.S. today is Barry Silbert’s Bitcoin Investment Trust. It is operated by Grayscale, which is owned by Digital Currency Group. It exists from a loophole. Barry Silbert is listed as the Fund Manager. He owns and manages all the above companies. It is no surprise that the SEC would rule as unfavourably as it did on the the Gemini Bitcoin ETF given that the only U.S. pure BTC security is managed by a former Wall Street investment banker who flouts compliance, internal controls, ethics, fiduciary responsibilities and securities regulations openly and whose business is designed to take advantage of naive U.S. retail investors.
First we will sample the meat of the SEC’s unfavourable ruling on the Bitcoin ETF.
After careful consideration…the Commission does not believe that the proposed rule change is consistent with Section 6(b)(5) of the Exchange Act — which requires that the rules of a national securities exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest because the Commission believes that the significant markets for bitcoin are unregulated and that, therefore, the Exchange has not entered into, and would currently be unable to…address concerns about the potential for fraudulent or manipulative acts and practices in the market…Accordingly, the Commission disapproves the proposed rule change.
…Most daily trading volume is conducted on poorly capitalized, unregulated exchanges…
…Several fundamental flaws make bitcoin a dangerous asset class to force into an exchange traded structure, including shallow trade volume, extreme hoarding, low liquidity, hyper price volatility, a global web of unregulated bucket-shop exchanges, high bankruptcy risk,and oversized exposure to trading in countries where there is no regulatory oversight…[Lack] of regulation and consumer protection also increase the chance and incentives for market price manipulation.
…Completely unregulated actors might be able to exercise undue influence…
…In this unregulated environment, price manipulation and front-running of large buy or sell orders can happen and well-connected customers can gain preferential treatment in order execution…
Then we will consider the reasons the SEC listed as we follow a timeline of Barry Silbert’s public activity with respect to a small, easily manipulated digital asset known as ETC or Ethereum Classic, which…
he bought for himself,
then for his family,
then publicly promoted loudly and constantly over and over and over,
and had his family do the same,
then bought for his clients,
then publications he owns ran articles designs to pump his owned assets,
then he tried to manipulate the price of a competing asset and seemingly also make money by shorting it,
then he used his position as a manger of a BTC security and as an access person of a panoply of Bitcoin investment businesses and Bitcoin publications and as an owner of Bitcoin exchanges to apparently trade with insider information about what happened in these businesses,
then later tried to himself create a Bitcoin ETF and an ETC ETF,
and talked about both in advance to manipulate the price of those assets that he owns,
while also allegedly violating a trademark claim and using deceptive marketing, and updating insiders on message boards about their launch.
Consider that all in light of both what the SEC cited above and the additional fact that that before any of these misbehaviours and high jinks the SEC had already found that Barry Silbert’s Bitcoin Investment Trust “broke rules that were designed to prevent manipulation of a security before an offering.” The lessons not learned will end us all.
With that let us commence a brief history of Barry Silbert making money for himself and his family by “pumping” ETC, flouting investing ethics, fiduciary responsibility and market manipulation laws and thumbing his nose at the SEC and all of us.
The asset in question, ETC (Ethereum Classic), is listed on Poloniex 2016–7–24.
Barry would later claim to have bought ETC at $0.50, which suggests he bought it before Poloniex listed. This would suggest that Barry at least knew about the listing in advance and profited accordingly. Anyone with foreknowledge of ETC’s listing on Poloniex, including many people on Twitter and in Barry Silbert’s circle, reaped a windfall when it was listed. They also were able to short Ethereum in advance, and then doubly benefit, when the borrowed Ethereum was given ETC for free (because they had “borrowed” that Ethereum for shorting purposes) and the price of Ethereum went down in the mayhem. This type of insider access and front-running is a pattern.
Shortly thereafter, Coindesk, which Barry Silbert owns as a subsidiary of the Digital Currency Group, publishes a one-sided Everybody Buy ETC article with no disclosure about the connection Barry Silbert has to Coindesk and to ETC and the conflict of interest such an article represents.
But what gives ethereum classic value? And could it become a viable alternative to ethereum long term? Based on a series of interviews with participants in the space, and posts across multiple social media outlets, the value propositions for ethereum classic break down into three categories.
Shortly thereafter that, Coindesk runs an article about Barry Silbert’s controlled trading operating, Genesis, where in Genesis “CEO Michael Moro said he is confident that demand could begin to rise for the nascent digital currency.” No disclosure accompanied the article about the connection Barry Silbert has to Coindesk and the connection between the article, Genesis Trading and Barry Silbert’s ETC investment or the conflict of interest such an article represents. There would be many such articles featured on Coindesk over the coming months. It would prompt this response from Joey Krug. It never stopped.
Barry Silbert’s family members start promoting ETC.
Barry Silbert owns an exchange called Kraken. Kraken added ETC after Barry had bought a substantial position, boosting his asset’s value. He retweeted this announcement.
Barry would not abide by his own terms as the market didn’t pick ETC. ETC today trades at 5,0% of Ethereum’s value.
This was a Powerpoint PPT put together for marketing ETC to unsophisticated investors.
They call this foreshadowing in theatre.
Trafficking in rumours and buying for himself.
Barry Silbert signals to short Ethereum and talks out loud about how to manipulate the price by putting short selling pressure on the margined Ethereum order book.
He promotes his ETH short (and ETC long) in the ETC slack by indicating that ETC’s main competitor, Ethereum, is “dead” and as if he has access information:
“ETH is dead (from an investor perspective)…you will never see institutional money move into Ethereum…which will result in losing all value in time”
Using his access to inside information about Bitcoin exchanges while managing a U.S. Bitcoin security and flouting the law in front of the SEC.
He would also retweet his own publication’s headline pumping ETC.
Barry Silbert gives investment advice in public as an SEC regulated Fund Manager, telling someone to buy an asset he owns, and which he plans to manage a fund of.
Barry in 2017 has retweeted the announcement of Grayscale filing with the SEC for a Bitcoin ETF and an ETC ETF, and later the The Ethereum (ETC) Investment Trust first tweet.
The latter seems to obviously violate trademark law and to be intentionally deceptive as the name doesn’t even include “Classic”. How easily could an uninformed U.S. retail investor mistakenly buy such a security? Who benefits from such confusion?
“It looks more like a classic case of investment fraud (pun intended). Fraudsters always had a way of naming companies similar to an existing one, with the purpose of fooling investors. By sidelining the “Classic” / ETC parts (e.g. the Twitter name is just EthereumTrust, and the full name doesn’t include “Classic” just the short “(ETC)” as if it’s Ethereum’s ticker), this is heading in that direction. Very misleading.”
Barry has been quiet on Twitter recently, but his brother would tweet this, seemingly with foreknowledge of some market moving information.
But Barry hasn’t been quiet behind closed doors. Barry had ETC twitterers retweet this conversation from the ETC slack about the imminent launch of his ETC security, The Ethereum (ETC) Investment Trust. What other information does this fund manager share to insiders and family members? Is the launch of The Ethereum (ETC) Investment Trust something that would move markets? Who else has gotten access information about its release? The price of ETC has increased 20% since Alan Silbert made his comment. It increased 70% since two days before Alan Silbert made his comment.
In total Digital Currency Group and Barry Silbert own (and self-admittedly have access to the order books of) companies that trade Bitcoin and ETC (according to Barry Silbert, 19 of them, including Genesis Global Trading, Kraken, Shapeshift, Bitoasis, Bitflyer, Coinbase, Bitso, Coinsetter, Crypto Facilities, Korbit, Surbtc, Unocoin), companies that publish about Bitcoin and ETC (Coindesk), and companies that manage U.S. investors’ money in Bitcoin and ETC (Digital Currency Group itself, Grayscale).
The above history demonstrates how Barry does business. The 3 companies that are direct subsidiaries of Digital Currency Group, Coindesk, Genesis Global Trading, and Grayscale, seem to be the ones that Barry uses the most to support his personal trading.
This was just one nine month period for a man supposed to be a leader of the Bitcoin investing community. This type of activity has earned Barry the euphemism of “The Shillbert.” There are many venture capitalism professionals in Bitcoin that do not operate like Barry Silbert and Digital Currency Group. “The Shillbert” is an exception but a glaring one.
The coup de grace…..Barry Silbert is allegedly the point person in trying to organize a back room deal to bring together the opposing sides of Bitcoin.
“It is certainly my hope that each of you see somebody below that you know and trust to advocate for — and hopefully agree on — a path forward that is best for our industry,” Silbert wrote in the mailing list message.”
It is fitting. What is “the path forward that is best for our industry?”
One where we do not accept insider trading and back room deals and all the improprieties we have taken for granted and which the SEC just called out in public. These improprieties, the lack of ethical and regulatory compliance and the snake-oil shilling-ness , are the improprieties which Barry Silbert represents.
When is enough enough?
Thanks to everyone in Bitcoin who lead ethically, to all the developers for keeping us alive despite ourselves, to the The Bitcoin Group for being a moral compass, to @Beautyon_ and to @fluffypony for never backing down, to Wladimir for the thankless burden and to @johnblocke and Muddy Waters Research for giving us a template. Also thanks to the SEC for delaying approval of Barry Silbert’s Bitcoin ETF after receiving concerning letters.
The authors. We, Charles Chancellor-Mackay, have a collective 100 years of Bitcoin investing experience. We have grown ill from the rot at the core of Bitcoin and its investing community. The Bitcoin ETF ruling was the last straw. The SEC spoke, we have listened, we have mobilised and we will investigate Bitcoin leaders and exchanges and their interactions with miners and investors and the law. We comprise a group who have been primary witnesses to the information and events shared above. We started as a small idea in the large Bitcoin channels and groups on the weekend after the ETF didn’t pass. We have expanded as we have commenced our investigations into different colourful Bitcoin scandals. There are many like-minded persons in many different communities. Today we are seeking evidence in regards to the uninvestigated Bitfinex exchange hack, the recent Pascalcoin listing on Poloniex, the recent market manipulations of BitcoinDark, BitcoinPlus and Bytecoin, and any instances of exchanges or Bitcoin leaders manipulating markets or taking advantage of customers and retail investors. If you have such information, especially logs of chats or conversations, and you would like to share it, contact @ firstname.lastname@example.org or https://www.reddit.com/user/CharleschanceMkay/ or https://twitter.com/charlescmkay. We will never share any contributor’s name in what we publish. How else can you help? Share this article where appropriate.
Collectively we have invested in Bitcoin, ETC and digital assets by the dozens. We advise no one to invest in Bitcoin, ETC or any digital asset without doing years of research. These are risky and dangerous assets. Specifically ETC and all Ethereum based technologies are dangerous. Here are research pieces that demonstrate why ETC and the Ethereum technology won’t work and why investments in ETC are dangerous and why manipulating a digital asset like this will hurt people. In this fact, the best Bitcoin engineers agree. Tuur Demester Why I’m Short Ethereum (and Long Bitcoin), Bitcoin Core developer Greg Maxwell wrecks the Ethereum technology, Paul Sztorc Ether to Zero &Paul Sztorc on Youtube, Peter Todd why multiple implementations will lead to disaster,David Gerard on Ethereum Smart Contracts, Chris Derose says Ethereum is a scam and Ethereum cannot work, Bitcoin can and will do everything that Ethereum can do but more safely, Gideon Greenspan, Why your Ethereum Project Will Fail.