24.06.202118:12 Forex Analysis & Reviews: Largest crypto-robbery in history happened following BTC contango destruction

The founders of the South African stock exchange Africrypt, which is only two years old, disappeared along with all the investors' money.

A Cape Town-based law firm serving the Africrypt crypto exchange told the police on Thursday, June 24, that it could not get in touch with the two brothers – the founders and executives of the company.

Not only people disappeared – bitcoins worth $3.6 billion were written off from the accounts of the firm's clients at the current exchange rate – only about 69,000 coins.

The incident did not happen overnight. The first signs of problems at the exchange appeared back in April after an impressive rally in Bitcoin. At that moment, the chief operating officer of Africrypt, Ameer Cajee, told clients that the company had been hacked. He also asked them not to report the incident to lawyers and authorities, as this will slow down the process of recovering the missing funds.

Some skeptical investors contacted the law firm Hanekom Attorneys, and a separate group began liquidation proceedings against Africrypt.

Hanekom's lawyers later responded to the request by email as follows: "We have suspicions, since the announcement calls on investors not to initiate legal actions. Employees of Africrypt lost access to server platforms seven days before the alleged hacking."

Calls to the mobile number for Ameer Cajee and his brother Raees Cajee were immediately sent to the voice mail service. The company's website is not working.

The elite unit of the South African police "Hawks" has already begun an investigation. According to their data, the combined funds of Africrypt were transferred from its South African accounts and client wallets, and the coins passed through tumblers and mixers or were redirected to other large Bitcoin pools to make them virtually untraceable.

And although South Africa's Finance Sector Conduct Authority is closely monitoring the situation with Africrypt, they are not officially involved in the investigation. According to the regulator's head of enforcement, Brandon Topham, this is impossible, since crypto assets are not legally considered financial products. The police have not yet commented on the situation, keeping the investigation secret.

This is not the first digital currency fraud in South Africa and around the world this year. Bitcoin trader Mirror Trading International went bankrupt last year. According to the Chainalysis report, losses on its operations amounted to about 23,000 digital coins - this is about $1.2 billion. Africrypt investors could lose three times as much.

Following the Mirror case, the South African regulator has stepped up pressure on virtual exchanges. In turn, they say that they have to move their headquarters abroad due to uncertainties about potential government regulation.

Of course, behind the disappointment is a lack of control and restrictions on marketing to potential customers.

For example, Revix, a Cape Town-based cryptocurrency operator, is relocating its headquarters to the UK and planning a different location in Germany to drive growth. Luno, the largest digital currency platform in Africa, is registered in London and has offices in Singapore.

Revix CEO Sean Sanders argues that regulators in South Africa "are incredibly slow in terms of regulation in the industry, and this is causing companies to look to the international market. In an unregulated environment, the customer comes to our platform with skepticism, and rightfully so."

According to Sanders, it is difficult for cryptocurrency companies in South Africa without proper legal status to speak on Facebook Inc. and Twitter Inc., which lowers their growth prospects. South Africa's revenue collection service is also losing out on a lack of policy, as moving headquarters means paying taxes in different countries.

According to Earle Loxton, CEO of Digital Currency Index, a platform he co-founded with the former head of FirstRand Ltd. Michael Jordaan, "South Africa has a sad history of pyramids and Ponzi schemes, and crypto was an obvious new format for this. Honest operators welcome regulation because it allows their clients to invest with confidence, especially at the institutional level. "

Nevertheless, despite last year's "warning shot" by the Mirror, there have been no special advances in regulating the status of crypto exchanges, which was the reason for the new situation.

Undoubtedly, such a large-scale theft will entail a new wave of repression by government agencies in different countries. This is bad news for Bitcoin, which already suffered a futures crash on Tuesday.

Retail traders may not have noticed much of a difference, but one of the most reliable cryptocurrency trades has gone awry. Bitcoin futures, which typically trade at a premium to the spot price, have crashed along the curve amid a brutal sell-off in the world's largest cryptocurrency.

This destroyed the so-called underlying trade, in which a trader would buy bitcoins in the spot market today and sell long-term futures, fixing the discrepancy between the two prices.

Now, this does not reflect too much on investor sentiment, but for players who make money on the difference, the news is turbulent. Hedge funds invested in the deal, which previously could reliably generate double-digit annual returns. Moreover, arbitration was virtually risk-free considering that CME Group Inc. is a counterparty. Nonetheless, trading existed because long-term futures were more expensive than shorter-term ones, given that BTC is inherently rare and should theoretically rise - a structure known as contango.

Contango and backwardation are the names of curve structures that represent traders' assumptions about how much a given contract might be worth in the future. Contango means upward slope, while reverse movement means downward slope.

A breach of this dynamic means that the built-in bullish sentiment gradually faded as prices declined.

Nic Carter, founding partner of Castle Island Ventures, said by phone Tuesday: "This is a very simple explanation that contango usually indicates a bullish market, and therefore since market participants are pessimistic, it is a signal to me that it is broken."

As we assumed earlier, most likely, part of the capital will be withdrawn from the market due to events in China and the Fed's policy, and Carter confirmed this assumption in his own words. Part of it was redirected to meme stocks.

This may be a seasonal phenomenon associated with a decline in business activity, but it may also be the first signal that the effects of inflationary pressures are looming.

Wilfred Daye, CEO of Enigma Securities, which works with institutional and corporate clients to provide crypto services and tailor-made liquidity solutions, says: "Over the past few days, we have been in a state of underdevelopment due to the current market turmoil on the spot. market. As futures traders close their positions to meet margin calls, that is, through automatic liquidation mechanisms on exchanges, futures are trading below the spot price. "

Indeed, from the point of view of institutional investors, in case of problems with covering the margin, it is better to close positions in highly volatile markets first, since they will be the first to respond to serious pressure in the real economy.

The disappearance of the underlying trade is the last reliable cryptocurrency bet to backfire. The Grayscale Bitcoin Trust (ticker GBTC) rose to a shocking 40% premium to its underlying assets at the end of December amid rising prices and steady demand for the cryptocurrency. Institutional investors were able to capitalize on this by placing grayscale bitcoins in exchange for GBTC shares and then selling those shares at a premium after a six-month lockdown period.

However, the GBTC premium disappeared at the end of February and the fund is currently trading at an 11% discount to its bitcoins.

Stephane Ouellette, CEO and co-founder of FRNT Financial, whose firm claims to offer the world's only regulated BTC-based product, says: "The curve is flat and (now - author's note) these kinds of opportunities are gone. The curve of the futures suggests that it does not know where the market is going. "

In the meantime, the futures market is unstable, JPMorgan Chase & Co. seems to have decided to invest in less volatile crypto-instruments, and are now additionally trying to reduce demand for Grayscale Bitcoin Trust shares, the sale of which will last until July. While weak flows and price action following last month's sell-off led to Bitcoin's recent plunge, the sell-off could add additional pressure, analysts at JPMorgan Chase & Co. wrote. In general, the same dance is repeated that took place before Coinbase entered the market, which was followed by an unprecedented rise in the Bitcoin exchange rate.

However, retail traders are determined. And as recent studies show, their behavior is a fairly accurate predictive indicator for the market. So if inflation does not break the altcoin armor this time around, forcing investors to ditch long-term digital positions to cover margins, we will still see good gains in July.

We recommend keeping an eye on high-tech indices, which are also slightly ahead of the general trend, although they lose in reaction speed to digital markets. And the fact that inflation is more serious than it seems, and this is not a myth.