CryptoAM: ETF Denials, China Crackdowns, and Korean Malware

Thursday, August 23rd

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3 things you need to know:

One: SEC rejected 7 ETF proposals from two companies. Yesterday, the SEC denied 7 ETF applications from ProShares and Direxion for familiar reasons; presence of market manipulation and immaturity of the digital asset markets.

  • Bitcoin is manipulated? The SEC cited failure to prevent manipulation and fraud as the most prominent reason for denial. Reality check — The Bitcoin and cryptocurrency markets are manipulated. Just take a look at the first story from yesterday’s CryptoAM. The moment Bitmex servers went down for announced maintenance, there was a massive pump and dump orchestrated by whales on Bitfinex.

  • Market size concerns: Another concern was the small size of digital assets market. In order for the ETF to be approved, the markets much reach a certain size. In order for the markets to reach significant scale, an ETF approval and development of more crypto-financial products must occur…sounds like some circular logic.

  • No surprise here: The markets in general had priced in the ETF rejection, as all preceding applications were either delayed or outright rejected, and these ETFs were no different. Market conditions have not evolved enough to merit a serious reevaluation by the SEC. Realistically speaking, we aren’t expecting an approval until late 2019, at the very earliest.    

  • Read more…

Two: China cracks down further on crypto. China is taking increasingly tough measures to limit Chinese citizens exposure to crypto. Last week, the Chaoyang district in Beijing banned public venues from hosting any cryptocurrency-related events.

  • Silence of the Crypto: Yesterday reports came out that a number of popular crypto blogs had been silenced on Chinese social media platforms due to some blogs writing about the vaccination scandal currently being censored in Chinese media (but archived eternally on the Ethereum blockchain). Today, it became apparent that China further restricted access to 124 cryptocurrency exchange websites.

  • Conflict Kenny: On one hand, China has banned ICOs, cryptocurrency exchanges, and seemingly does not want its citizens to know about the immutability of the blockchain. On the other hand, China has poured billions of dollars into blockchain initiatives, and has formally identified blockchain as an area of technology to pursue.

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Three: North Korea developed MacOS Trojan to infiltrate cryptocurrency exchange. In a new report published by Kaspersky Lab, it was revealed that North Korea’s “Lazarus” hacking group developed malware for both Windows and MacOS. Victims were recommended to download the cryptocurrency trading program from a legitimate looking website which was recommended by a cryptocurrency exchange over email. The application contained a known malware, FALLCHILL, which has been used by North Korea since at least 2016.

  • Be wary: It doesn’t matter whether you’re a Mac user, Windows user, or a Linux user. You are never safe from hackers. In this specific instance, the program even had valid digital signatures. Keep as many as your funds in cold storage or on a hardware wallet that you can. Do not download things unless you are absolutely sure they are safe. Be smart.

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Also in the news:

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Market Outlook:

Quick Take

We took a quick trip south yesterday after the ETF announcement, but immediately rebounded higher after half an hour.

Most people were expecting a market overreaction to the news of ETF denial, and when the market held steady at only a .5% loss, people realized that the news was already priced in, and the market was getting more efficient. This made the majority of shorts realize the ETF denial had a small affect on the market and they closed out their positions, moving the market higher due to abated sell pressure.

We are now stuck between the trading range of 6.3k-6.6k. I’m looking for a break of 6.6k soon, as we’ve been oversold over the past few days and barely moved on the “bad” news indicating we may have bottomed out for the near future.

Key resistance is 6.55k. Key support is 6.35k.

Daily Chart

Fear & Greed

F&G is overly fearful, indicating we have some room to bounce and that a move upwards may be happening soon.

Here’s a reminder of what these criteria mean

Around the corner:

What I’m reading today:

How the winner got Fomo3D prize — A Detailed Explanation

For those who don’t know, the hottest Ethereum DApp on the market right now is Fomo3D -- a literal Ponzi scheme. In fact, the only DApps getting major traction right now…are Ponzi schemes. Go figure.

Quick rundown: It is played in rounds with a specific time limit. There is a jackpot full of REAL Ethereum that exists you get access to the Ethereum by buying a private key with some Ethereum. While the timer is counting down, people can buy the key from you if they pay more money and you cannot stop them. When the timer runs out, the last person with the key wins!

The first round of Fomo3D just ended, with the winner getting 10k Ether, worth about $3M…

A lot of people were crying foul play, as there were many bots playing the game. But as it turned out, a bot did *not* win! In fact, it was a manual player! There is no way I will explain it better than the founder of Fomo3D, so here you go:

The manual player did with transactions they triggered manually or were directly babysitting. They spent about 40-50 eth over the last week penetration testing... not the game, but the bots that were playing the game. Why try to break the game when you just have to be more clever than the other players right?

They used this to pinpoint a flaw in the way the bots were playing hot potato with the timer. Most the bots use various eth gas APIs, which report the averages ,or the fast gas prices per block. But don't correct very quickly to large gas spikes or individual transactions. They figured this out, analyzed it, and formatted a method to trick both the "Fast" gas prices and the "standard" gas prices the bots were using on the network to lock them out of the final win.

What occurred was the following:

  1. The player purchased about 4,800,000 Gas for 15 Gwei (About 60% of each block)

  2. They then purchased about 2,700,000 Gas for 190 Gwei (About 35% of each block)

  3. Then bought up the rest of the gas in the block for 500 Gwei (That last 5% chunk)

Now, they panicked... a lot, and didn't manage to do this flawlessly. But they did manage it in a rough enough manner to make two things happen.

  1. If you notice, the average gas price across that block was not 500 gwei, it was actually much less around 40ish or so, this is the price bots were submitting transactions for.  The winner did this a couple times, and then started paying very large amounts for all three to block out the other transactions. They did not pull this off flawlessly, but it did work long enough to trick the bots.

  2. The miners, were picking up the 60% and 35% transactions almost automatically because the user was paying a very high price for a large amount of gas. This means that the remaining transactions were now competing with that last 5%, which actually was a gas price of 500.

None of the bots were submitting 500 gwei transactions, because the average they were following was much lower,  so none of them beat that player.

Your "Hack" was really just the bots getting beat. The same issue won't occur again because the botters will now know how they lost and fix it.

It was quite impressive actually, and you should applaud the player that pulled it off. One of the absolutely coolest ways the round could have ended was this player manually outplaying the bots themselves.

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