Cryptobontix, $DIG and the Arbitrade Platform
Tokenizing Precious Metal Investing and Trading
Today I would like to present to you a research about a pretty unique and promising project that my friend and fellow Dojo contributor Xavi and I recently spent some sleepless nights over. We had a lot of fun doing our detective work on the rather elusive Cryptobontix currencies and are happy to share what we managed to “dig up” (sorry, I couldn’t help it).
White paper: obtainable by subscribing on the Cryptobontix and Arbitrade websites
Working Product: Cryptobontix have a working product that has been in the making for several years and launched as Unity Ingot in Summer 2017. They rebranded, relocated to Canada, expanded on the original idea and formed a new legal entity. The exchange and market platform Arbitrade will be most likely holding an ICO in May.
Roadmap: The Cryptobontix roadmap in the whitepaper from November 2017 is outdated by now and a new whitepaper is expected.
- Market Cap: ~$140.000.000 (Most of tokens are held on Livecoin right now though
- Circulating Supply: Estimated 1.200.000.000 DIG (only ~200.000.000 estimated in actual circulation from the former UNY-holders, the rest brought in circulation from the livecoin smart contract. We came to this estimate by monitoring the wallets.)
- Total Supply: 3.000.000.000 DIG
- Today’s price: $0.14
- ERC20?: Yes
- Exchanges: Only on Livecoin
- “When Cryptobontix set out to create these four cryptocurrencies we wanted to reintroduce a bullion standard in this new form of currency and investments. Cryptocurrencies work as an investment similar as securities and as a currency with liquidity. Most cryptocurrencies have little to no true value besides the technology behind them. We wanted to be the first, hardasset based cryptocurrency with a significant value backing each issued cryptotoken. […] Cryptobontix Inc. looks to partner with major mining companies for their proven reserves in the form of a note to establish a base evaluation against each token. It converts the notes against the reserves with its partnering mining companies by participating in cryptocurrency mining”¹
About a month ago we looked into something that was pretty much flying under the radar at the time and it still largely is: Unity Ingot, a project that was launched in May 2017, was recently (Q3 2017) re-founded under the name Cryptobontix. Unity Ingot bought mining rigs from their ICO earnings and used the crypto mining proceeds to buy physical gold and silver. As Cryptobontix, they held a token swap on February 21, re-branding $UNY to Dignity ($DIG) as a gold backed token and launching three similar tokens for silver, platinum and palladium ($NAM, $ORE and $HON). The value of $UNY skyrocketed with the news from around $0.003 to a high of above $0.12 (There was virtually no volume when it was below one cent though, most people bought in at $0.02). The converted $DIG tokens are trading for around $0.14 on only one exchange right now.
Now at first glance that does not sound like something you would want to get into. Some people are still so far up on the $UNY they bought, it’s silly. The market cap of this coin is hard to really calculate with a high total supply and only estimates on the circulation. With the launch of the three complementary tokens, this company is trying to raise a huge amount of money and they are being very secretive about their operations, making this kind of a black box. On top of that, there is a long list of tokens that try to jump on to the “gold backed”-cryptos train right now.² We have done some research and detective work and found reasons to believe that $DIG could nonetheless be a winner this year and beyond:
First we’ll explain Cryptobontix’ business model and how they are related to Arbitrade, a very ambitious new exchange that will hold their ICO in April. Cryptobontix are setting up miners that will mine BTC, Eth, Dash and Monero. Cryptobontix will use 50% of the earnings from their mining operation to buy physical bullion, 20% to buy more crypto mining rigs to ensure exponential growth, 15% to buy back tokens from the market and 15% to cover the cost of their company and mining rigs. This will happen on a weekly basis. They claim to have acquired major mining consultants to find partners to house and operate the mining rigs: Coin miner LLC will provide Cryptobontix and Arbitrade with 65.000 new and used mining units over the next 24 months. In Watford, Ontario, they have signed a 15-year lease to build Canada’s largest mining facility, a 100.000 sqare foot industrial compound that is going to consume 95MW of power.
Now to the inner workings of their business model and token use-case: Starting November 2018, they will buy back tokens from the exchanges and burn them with 15% of their weekly mining proceeds as stated above. This will happen on a daily basis. Starting November 2019, every year until November 2034 token holders will be able to redeem their tokens for physical gold bullion. 1/15th of the token float becomes available each November on a first come first serve basis. This will happen annually every November.
Each $DIG token is pegged to the worth of 0.02445 grams of gold. At the time of the whitepaper, that was exactly $1.00. At the moment it is slightly more. So the $DIG tokens act as a security in a 15-year convertible mortgage with the partnering bullion suppliers. Similar arrangements are made for the other tokens that will be pegged against silver, palladium and platinum. So recapping, once every year, 1/15th of the tokens can be redeemed for gold valued at around $1.00. Given the geopolitical state of the world, we could see a much higher gold price than that in the near future. This is the first hint at why $0.14 could still be an incredible price for $DIG, if this whole model checks out.
Cryptobontix does not own all that gold yet. They are speculating that the mining profits will cover the costs of acquiring the needed annual amount of bullion that will be redeemed by their shareholders. The potential buying pressure from the weekly token burn could push DIG’s price above it’s backed worth in gold. On top of that, the intrinsic value of a cryptocurrency that is hard backed by a physical asset is of high interest to a market that is desperate for stable coin alternatives to Tether. The gold value acts as a form of integrated “stop loss” in this scenario.
From their whitepaper: “Cryptobontix expects that most token holders will hold off on the token redemption until the final year of call. This can be looked at in two ways, 1. Cryptobontix’s buy back and burn program commences the month of November 2018, and continues until no more tokens can be purchased back from token holders. This action drives the price of the token higher while the existing supply depletes, and the bullion reserves stay the same, creating a higher demand which can drive up value. This will make the buy back a more valuable proposition for token holders than acquiring the bullion through the redemption program. 2. The bullion is better stored with Cryptobontix, and token holders will want to wait until the end to see which option is the more valuable opportunity to use their tokens towards.”³
The whitepaper goes into great detail about the global economy, the crypto markets and the intricacies of trading and investing in precious metals. It clearly reads as if it was written by gold bulls well versed in finance matters that are enthusiastic about crypto. The whitepaper makes a very solid impression with questions like customer support, sustainability of the business model and marketing strategies covered.
Next up on this tour de force is a quick overview of the Arbitrade trading platform. Arbitrade recently acquired Cryptobontix so it functions as the parent company now. This is clearly the side of the project that has its roots in crypto. It is obvious though that the teams behind the companies are closely related and in many cases work on both sides of this equation. Both whitepapers share some paragraphs on overall market analysis and the homepages, which are both still relatively bare bone, use the same template. We will probably do a part II of this research dedicated to Arbitrade alone but after reading the whitepaper we can tell that they are planning to offer a competitive set of services in the emerging exchange market, catering to crypto newcomers and institutional clients alike:
A crypto retailers market featuring a prepaid-debit card (“Arbicard”) that can be used at a retail or ATM level, exclusive (first to market) crypto gift cards, KYC services and a marketplace (“Arbitstore”), as well as the “Arbitrade Exchange” with arbitrage brokerage, margin trading/lending, the support of 10 Fiat currencies/300 crypto currencies and trading desk features (similar to Xtrade, Qash, but they are going for a decentralized exchange model). The main point that interests us here is the connection to the Cryptobontix token family: “To further protect market participants, and to mange volatility, Arbitrade will be working with various gold mining companies to build a wrapped insurance package to be backed by legitimate gold bullion.”⁴ Arbitrade is going to offer interest on deposits that they will (again) provide through crypto mining. Arbitrade is planning to be publicly traded in both the U.S. And Canada.
From what we were able to gather, there are some big players and possibly institutional money behind Cryptobontix and their partnering company, Arbitrade. The Cryptobontix whitepaper is lacking a team section but Arbitrade can help us out in this regard.
- Leonard Schutzman was announced as the CEO of Arbitrade a few weeks ago.⁵ He has been with the company for quite some time already though. Specialising in global finance, acquisitions/mergers and tax strategies we have a finance veteran here that served as an Operating Executive at Evercore Capital Partners, a global investment company with an annual revenue of $1.4 billion that advised on gigantic mergers and acquisitions (Tesla buying SolarCity for example). He is also the founder of the Leonard Schutzman Center for Entrepreneurship at Queens College, NY.⁶
- There are a few more board members with very respectable backgrounds in finance :
- Recently, they announced Mohammad A. Markatia as a new member on their board of directors. He founded and operated PaySafe America and is the CEO of 24seven Technologies. Markatia brings “over 30 years experience in retail, distribution and information technology and a proven track record of conceiving, developing and implementing customized Point of sale systems for ISOs, indirect retail channels, corporate c-stores, telecom providers, mobile operators and money remittance companies.”⁷
- Although a lot has happened over the last weeks for Cryptobontix and Arbitrade, they are claiming to hold most of the news and information back at the moment. We are expecting revised white papers (the ones currently out there are from November 2017 and can only be aquired by registering to the respective sites), full info on the team, advisors and partnerships and revised roadmaps. From what is out there, we could gather the following:
- Cryptobontix have a partnership with Coin Miner LLC. They plan to acquire 65.000 mining rigs that will be put to use to mine BTC, Eth, Dash and Monero (one source mentions the recent delivery of 50 DragonMint 16T miners from Halong Mining⁸). A newsletter from March is projecting a time frame of 24 months to acquire the total amount of mining rigs that will be put to work on the family of precious metal tokens. From the newsletter about Coin Miner LLC and other crypto mining companies that they are looking to partner with: “Coin Miner brings over five years’ experience in industrial sized mining operations, infrastructure, and design. Coin Miner has offices in Cleveland Ohio, New York City, Miami and Shenzhen China. They have a global presence to be able to source equipment from manufacturers and suppliers easier than all other companies that the Arbitrade management negotiated with. Coin Miner has commenced sourcing the 65,000 units to fulfill the large contract Arbitrade is seeking to be completed in the next 24 months. Two more similar agreements are being negotiated at this time with the two leading manufacturers of mining equipment. Currently, the company is launching its first 1.800+ mining rigs which should earn a minimum of $150,000 even at these low coin prices [Cryptobontix referencing the bear market prices in March here].” The 1.800 mining rigs mentioned here are from Coin Miner, Bitmain, Halong and Canada Computers among others.
- They have partnered with Cryptotopic Inc. to build the mining facility discussed above in Ontario, Canada.
- One of the major things we are anticipating is their partnership announcements with precious metals mining corporations. Cryptobontix and Arbitrade are located in Canada (part of the involved former companies relocated from Switzerland) and our researches showed that the top 10 of the world’s leading gold mining corporations is stacked with companies from Canada with Barrick Gold leading the pack.⁹ Cryptobontix explains how their deal is very attractive for the consortium of mining companies they are approaching: “Cryptobontix quickly realized that mass quantities of bullion are in scarce availability. The only way to secure the mass volume needed to fulfill the requirements is by acquiring proven bullion reserves from reputable companies who are recognized for their high operating standards. The mining companies with high proven reserves pledge their bullion (still in the ground) to each token on a convertible mortgage basis. This provides all the bullion required immediately against each token. Moreover, the bullion is being stored in the safest place the company could hold it until required: In the ground. Cryptobontix then acquires the bullion from the mining companies at fair market value for each coupon token redemption period. This makes sense for the mining operations in that they have a designated buyer, paying for the bullion at a negotiated price, which can translate to more stable returns for the mining company investors.”¹⁰
- Arbitrade recently partnered with Next Group Holdings (NXGH) to bring forth one of the products they are planning to feature with their exchange: The world’s first prepaid gift card with cryptocurrency capabilities. Those cards (available from $25 to $1.000) are going to be available at 30.000 SDI Next convenience stores in the United States: “This is a monumental first for this industry,” said Adiv Baruch, Next Group Holdings Chief Strategy Officer, and a renowned global technology strategist. “While the cryptocurrency market continues to grow at an unprecedented rate, up until now trading in that marketplace has eluded the majority of consumers, most especially those who are not tapped into traditional banking. This introduction of a prepaid card that carries all the benefits of our Mio card — plus a secure gateway to the cryptocurrency market — will change the way millions of people manage their finances, from everyday purchases, to transferring assets, to investment in their futures.” Schutzman added to this that the pre-paid gift card system will “allow unbanked/underbanked people — more than 100 million in the U.S. alone — to purchase, move assets freely and securely, and to participate in the world’s fastest-growing currency market.”¹¹ — There are some possible red flags surrounding Next Group holdings that we are keeping an eye on regarding the stability of their company.¹²
- NXGH brings another impressive player by the name of Adiv Baruch into this game. As Chief Strategy Officer of NXGH, the engineer propelled the companies venture into the crypto market. Baruch was a Chairman of the public committee of the Hi-Tech and Telecom Division at the Israel Export and International Cooperation Institue (IEICI). He founded the global IT service firm Ness Technology. Later he was President of the cyber technology company Nyotron and a director of the Bank of Jerusalem. He served as Chairman at the Make-A-Wish Foundation (a huge global charity) and was involved with several other companies traded on U.S, Tel Aviv and Hong Kong exchanges.¹³
- At the end of February, Arbitrade and Cryptobontix announced that they have retained Holman Fenwick Willan (HFW), a global law firm specialized in shipping, insurance, commodities and energy to secure and negotiate their deals with mining companies to acquire the gold and other precious metals needed for their business model.¹⁴
- In their whitepaper, Cryptobontix claim that they would provide a full insurance against “theft on a mass scale, code failure from the Ethereum network, or government decree against the ownership and usage of cryptocurrencies on a global level”.¹⁵ To ensure this they say they are clients of Aon & Lloyds and Lloyds of London. This sounds very ambitious and almost not feasible to us. That suspicion is further nurtured by a vague statement like: “Cryptobontix will seek the best policy for the most secure plan against the tokens until their expiry.”
- Cryptobontix will aquire physical bullion which is much preferable over ETFs or futures. They are issuing a convertible mortgage redeemable towards physical bullion, so we are not dealing with a security: “The token holder is the owner of the convertible mortgage against the physical bullion with our partnering suppliers.”¹⁶
- The volume on $UNY leading up to the token swap was virtually non-existent. The volume picked up with the news and price and that was presumably UNY bag holders unloading and Cryptobontix starting to sell tokens to buy more mining rigs. A lot of the people that got in now don’t seem ready to dump. They and — again presumably Cryptobontix — are not selling at these prices but waiting for the tokens to get closer to their gold value.
- There are no holding, storage or minting fees compared to physical metals. This could introduce interesting synergies between the crypto and gold market (demand of gold going up, crypto becoming more accessible to traditional investors)
- The daily coinburn buy back of the market will add a considerable and constant buying pressure for the Cryptobontix tokens.
- This could spark serious synergy effects, increasing gold demand and giving crypto people an easy way to diversify their holdings. A lot of crypto investors are interested in building up a position in gold but aren’t familiar with the traditional markets.
- “Essentially, the gold acts as a built in stop-loss for the tokens. The minimum price of the token will always be equal to the current value of the gold that is backing it. As the popularity of the cryptocurrency increases so does its value, making it even more valuable than the gold. In the event the cryptocurrency loses popularity, the price of the tokens will not drop below that of the gold.”¹⁷ We don’t agree with this fully. What this statement does not factor in is the opportunity cost of holding the coins for a year or two in order to redeem the gold bullion. What is most likely to happen is that the tokens (maybe after an initial spike due to attention and shilling) could trade below their gold worth but get a considerable fomo run every time November comes around. The coinburn and the speculative aspect of the gold investment could let the price go higher than the gold worth too over a longer period of time.
- “It did not take long before one requirement became glaringly apparent, and that is for a cryptocurrency to truly have value it needs to be backed by a hard asset. Once we determined that only hardbacked currencies would have the strength and longevity to endure, we developed a series of currencies that was assetbacked, insured, and created a way to build growth behind the tokens. In doing so, we created a true bullionbacked entity with an actual amount of bullion behind each token to create a guaranteed intrinsic value. We coupled that with a cryptocurrency mining operation that profitably mines other blockchain based cryptocurrencies. The result is an impervious series of tokens that withstand the sharp highs and lows seen by other cryptocurrencies.”¹⁸ — As clever as Cryptobontix overall strategy is, here is where they show a major flaw: They don’t hold the necessary amount of precious metals from the start but rely on their mining operation to generate enough returns in order to constantly buy more gold, silver, palladium and platinum off the market. Them stating that crypto currencies have no intrinsic value and need the backing of hard assets (the typical gold bull critique of crypto) would mean that their whole plan is build on shaky ground, even on the basis of their own market analysis. → Cryptobontix did however in a sense plan for that in their business model: They calculated a 30% weekly negative buffer for drops in market values, lost mining days, faulty equipment and mining difficulty increases. Another section where the whitepaper makes sense. Other than that, we personally are very optimistic about crypto going forward and are consequently optimistic about the success chances of the mining operation.
- The counterparty risk in dealing with one company storing the investors value over several years is significant. Their claims to perfect insurance are yet to be validated, although the insurance company they claim to be working with is a big deal.
- The business model we are looking at here seems very complex and confusing on first glance. If we understood everything correctly though, this scheme is pure genius. Cryptobontix have found a way to create a pegged token and introduce mechanisms to ensure that it is backed by gold in the ground and that they will have the necessary funds to deliver the gold incrementally over the course of 15 years. By buying back tokens at market price and burning them, they are introducing their own profit margin (apart from keeping all the assets they acquired) in speculating that most of the time they will buy and burn the tokens for less than what the redeemable gold will be worth at the end of the 15 year life cycle of the tokens.
- One of the key points is if this mining operation and the profit margins they predict are realistic and feasible. Will they have enough to buy the required gold in November 2019 and going forward? This is a question everyone should consider and look into before taking any steps. We offered our personal outlook above.
- Cryptobonitix’ and Arbitrade’s teams look very impressive. One concern we have is that a lot of them are not 100% committed as they serve roles at other companies. But even then they keep announcing new team members and we have reason to believe that this is just the start of bigger reveals.
- We did not cover Arbitrade much in this paper but it is another very impressive project. Especially the consumer-facing services like the gift card systems look very promising. They seem to have the necessary partnerships for something like this in place in the U.S. Already. The important point here is that both projects are linked and we will see news and further announcements out of this soon.
- If we agree that this plan is feasible and Cryptobontix/Arbitrade are likely able to execute then buying the tokens between 10–15 cents would still be early. And this is likely to generate some buzz in the crypto space and even in the broader media too: Crypto to gold, gold to silver, silver to dash, then lets go back to platinum, all with some simple clicks starting with a gift card at the gas station. Gifting precious metal and crypto for Christmas has never been so easy, “Tokenize it, they said”.
- So what makes this thing attractive and could get people interested in it? One thing that is easily conveyed is that this team is super strong for such an unknown project only trading on a single, unknown exchange called Livecoin. Then, this year we are expecting to see another parabolic market cycle that might be followed by a consolidation of the crypt market and naturally, a lot of people will be looking for ways to exit or to diversify into other assets. Around comes Cryptobontix that now offers us the opportunity to diversify into gold at a fraction of the actual gold price. And it makes it easy for crypto traders to do so, even possibly bringing in new buyers through Arbitrade’s Gift Card program. Looking at the global markets and geopolitical conflicts going on, gold could even go up in value until people start redeeming their tokens, making this even more attractive.
- We are expecting news about Arbitrade to hit on May 11, the one year anniversary of the original UNY ICO, and think that the beginning of a proper marketing cycle following that date is likely.
This is not financial advice, please do not invest more than you can afford to lose.
¹ Cryptobontix Whitepaper Version 1.5.1, p. 5.
² You can find a recent and comprehensive list of these projects here: http://www.goldscape.net/gold-blog/gold-backed-cryptocurren
³ Cryptobontix Whitepaper Version 1.5.1, p. 41. We contacted the team about this mechanism as it sounds as if there would be more gold to grab at the end. This does not align with the 1/15th per year quota though so we need clarification. We’ll discuss this in our overall thoughts.
⁴ Arbitrade Whitepaper v. 18.104.22.168., p. 9.
⁶ https://en.wikipedia.org/wiki/Evercore_Partners. Schutzman’s affiliations are plenty and can be viewed here https://www.zoominfo.com/p/Leonard-Schutzman/1064777 and here https://www.bloomberg.com/research/stocks/private/person.asp?personId=644092&privcapId=143674994. Notice that his corporate headquaters are located in Vancouver, Canada. Timothy McGarvey’s company Axens.io recently moved to Canada, too, where the Arbitrade headquarters are located now.
⁸ https://i.redd.it/u6tnr30tfmh01.png Halong Mining are a direct competitor to Bitmain in China and are considered to become a possible Bitmain killer. The DragonMint miners are supposed to be the world’s most powerful Bitcoin miners right now besting Bitmain’s S9s (https://steemkr.com/bitcoin/@kingscrown/the-most-efficent-bitcoin-miner-is-coming-from-halong-mining-bitmain-in-trouble). The partner turned out to be Coin Miner LLC though, but Cryptobontix aquired a ton of Halong miners too.
¹⁰ Cryptobontix Whitepaper Version 1.5.1, p. 35.
¹² http://www.nextgroupholdings.com/sec.html; https://finance.yahoo.com/news/next-group-holdings-inc-provides-135700052.html?guccounter=1 The 2nd article is about a year old and so far they seem to have withered the storm. Still something to notice and monitor.
¹⁵ Cryptobontix Whitepaper Version 1.5.1, p. 43.
¹⁶ Cryptobontix Whitepaper Version 1.5.1, p. 30.
¹⁷ ibid., p. 13.
¹⁸ ibid., p. 30.