Andrew Yeo has no idea what happened to tens of millions of dollars in bitcoin belonging to hundreds of ACX clients, but he’s determined to find out.
Since being named administrator of Blockchain Global, the business that used to manage ACX, in mid-October, the veteran insolvency practitioner has been getting a crash course in all things crypto from the tech gurus at Pitcher Partners, where he is a partner.
“There’s always something unusual — it’s the nature of the job,” he explains.
“It’s always about figuring out what makes this industry unique and how you can apply it.”
A cryptocurrency exchange is a computer program.
Customers can purchase, sell, and hold bitcoins on a marketplace. Set fees or a percentage of transactions are how it makes money. In Australia, no conventional banks allow consumers to purchase and trade cryptocurrencies, however the Commonwealth Bank is working on a trial, thus exchanges are now the sole option.
To figure out what happened to the cash and coins in ACX clients’ accounts, Yeo will have to wade through a maze of claims and counter-claims that have been fought in court since last year.
Philip Lowe, the governor of the Reserve Bank of Australia, has indicated that the central bank is open to retail digital currencies.
“It’s evident that we may have a number of research avenues available to us, and choose which ones to pursue first is not a straightforward process,” he says.
There’s a lot on the line. Creditors, including ACX clients and Blockchain Global’s directors and management, have come forward since Yeo’s appointment, claiming they are owed close to $50 million.
ACX isn’t the first Australian exchange to have stumbled into problems in a sector that is currently unregulated.
Last week, the smaller exchange Mycryptowallet went into administration, owing hundreds of thousands of dollars to its customers.
Exchanges have been vulnerable to failure and theft around the world; in 2014, the Japanese operation Mt Gox collapsed after someone stole 850,000 bitcoins from it, and in 2016, hackers stole nearly 120,000 bitcoins from the British Virgin Islands group Bitfinex, which managed to survive and still exists today. There is no evidence that ACX’s assets have been taken.
The Morrison government unveiled intentions to regulate stock exchanges this week – at some point in the future.
The treasurer, Josh Frydenberg, said the government would consult on establishing a licensing system for digital currency exchanges, as well as regulation of businesses that hold crypto on behalf of consumers, in a speech to the Australia-Israel Chamber of Commerce on Thursday.
After an election must be held by May 21, 2022, the consultation process is expected to be completed by the middle of next year.
Experts agree that licensing swaps are a good idea, but they must be accompanied by enforcement.
“With regulation comes a halo,” says Gerard Brody, CEO of the Consumer Action Law Centre. “Businesses can say they’ve got a stamp of approval, and represent that people should have trust and confidence in them.”
“The regulatory regime must be strong in and of itself.” It’s pointless to provide a corporation a license if the conditions it must achieve under that license are harmful to consumers.”
Licensing constitutes a “moral hazard,” according to Pamela Hanrahan, a professor of commercial law and regulation at the University of New South Wales.
What does it mean for you if Australian banks start accepting cryptocurrency?
“It adds some color to the fact that people are properly regulated,” she says, “but that’s true of every sort of occupational licensure, from hairdressing to whatever.”
She cites instances where licensing regimes have failed to protect consumers, such as the financial planning scandals that rocked the banking industry in the mid-2010s and the 2009 Trio Capital failure, which robbed retirement savers of $176 million and was the largest superannuation collapse in Australian history.
“You have to properly enforce it,” she argues.
Victims of the collapse of ACX believe regulators, notably the Australian Securities and Investments Commission, have failed them.
94 of them say that Blockchain Global, as the exchange’s operator, owes them $13 million in tokens such as bitcoin, ethereum, and ripple, as well as cash kept in their ACX accounts, in a complaint filed at the Victorian supreme court.
One ACX client expresses his dissatisfaction by saying, “The greatest thing I’m furious about is that we’re not getting any support from Asic.”
“These businesses are registered with Asic, but we need to sue them.”
The complaint does not include all of ACX’s clients, but it is estimated that more than 200 claim to have lost access to crypto and cash housed at the exchange.
Judge Richard Attiwill suspended the proceedings against Blockchain Global on Thursday afternoon due to Yeo’s appointment as administrator.
Bitcoin’s value was knocked down by about $12,000 in a weekend ‘thumping.’
He did, however, allow the case to proceed against the other defendants in the case, including Blockchain Global’s CEO, Allan Guo, and the company’s CFO, Samuel Lee.
Guo and Lee have yet to respond to Guardian Australia’s questions, and they have yet to file defenses in the case.
Meanwhile, Blockchain Global and Guo are suing a former firm employee, Jin Chen, over custody of 117 bitcoins in another case before the Victorian supreme court. Chen claims he is entitled the cryptocurrency for work designing software for the ACX exchange, but the firm and Guo argue Chen has broken a pact that was supposed to put an end to the squabble by refusing to make the software’s source code available. Chen refutes this claim.
In light of the appointment of the administrator, Attiwill also halted Chen’s claim against the corporation on Thursday afternoon, but permitted Chen and Guo to compete.
The problems are less evident at Mycryptowallet, which is in the hands of SV Partners liquidator Terry van der Velde.
Because the appointment is “at very early stages,” SV Partners claims little information is known, although van der Velde intends to sell the company.
The crashes, according to Hanrahan, necessitate government regulation of exchanges.
“They need to act pretty rapidly,” she argues, but not so swiftly that the laws fail in the same way that financial services legislation has.
“It’s one thing to declare it,” she adds, “but they’ll have to deliver it and hopefully not make as much of a mess as they did with Chapter 7 of the Corporations Act [which regulates financial services].”
In the meanwhile, those who acquire and sell cryptocurrency should be aware that “they have no inherent value.”
She feels cryptocurrencies are a worse investment than the tulip bulbs that traded hands for fortunes during the Dutch tulipmania of the 17th century, which is recognized as a typical example of a speculative bubble.
“At the very least, you can plant a tulip bulb and grow a tulip,” she explains.
“These items have no effect.”
As the year 2022 begins, we’d want you to consider making a new year’s resolution. We’d like to encourage you to join the more than 1.5 million people in 180 countries who have pledged financial support to keep us open to everyone while being fiercely independent.
This funding will continue to fund investigations into offshore wealth, spyware, sexual harassment, labor abuse, environmental pillage, crony coronavirus contracts, and Big Tech through 2021. In an era of deception, sensation, hype, and spectacular disinformation and misconception, it allowed rigorous, fact-checked, authoritative journalism to thrive.
We’ll be just as busy in 2022, with a slew of elections (France, Brazil, and the United States, to name a few), economic pressures, the next phase of the pandemic, the looming climate problem, and the first ‘winter World Cup’ to keep us occupied.