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The Ledger: Soulja Boy’s ‘Bitcoin’ Millions, PwC Backs a Stablecoin, Tether Sinks Below $1

PricewaterhouseCoopers, the top accounting firm better known as PwC, is backing a cryptocurrency—specifically, a so-called stablecoin backed by the U.S. dollar.

The accounting firm is partnering with Cred, a decentralized lending startup that’s developing a new stablecoin pegged to the dollar, PwC announced Monday. PwC will offer its expertise to help Cred develop more rigorous “standards” for stablecoins—assets that “require a reserve ledger” that “can provide 100% transparency and value substantiation,” the firm said in a statement.

To hear PwC tell it, a lack of trust in stablecoins—and the existence of the dollar reserves backing them—has been keeping many potential investors out of cryptocurrency entirely. According to PwC, such standards, potentially making the dollar reserves backing stablecoins fully auditable, will “usher in the next 100 million users of crypto assets.”

PwC is just the latest major firm to jump on the stablecoin bandwagon, joining companies like IBM and venture capitalist Andreessen Horowitz, who see the coins as a digital proxy for the dollar—and therefore a more easily transferable version of cash.

While the original dollar-backed stablecoin, Tether, has become so popular that it accounts for more Bitcoin trading volume than the U.S. dollar itself, doubts persist about whether it actually has a dollar in reserve for every coin on the market. Tether commissioned a law firm to review its balances and released the figures in June, but warned specifically that the review “should not be construed as the results of an audit.”

Though PwC never mentions Tether by name, between the lines of its announcement is a clear condemnation of Tether, which has so far failed to submit to an audit of its reserves. (To be sure, PwC has not agreed to audit or verify Cred’s dollar reserves, but the firm’s respected reputation and support of new standards for doing so could increase investors’ faith in stablecoins that meet that greater level of transparency.)

Fears about Tether crystalized last week, when the price of the stablecoin—which is supposed to stay stable at $1—fell to as low as 95 cents on the Kraken cryptocurrency exchange before later rebounding. “If I knew that there was a dollar in the bank for every coin, if somebody wanted to sell me a dollar for 95 cents, I would be buying them,” BitGo CEO and founder Mike Belshe tells Fortune on the latest episode of Balancing the Ledger. “So the fact that they’re not out there on Kraken buying those tells me that there’s something wrong with it.”

Those concerns are why BitGo doesn’t support Tether in its wallets, though it does support stablecoins from Circle, Paxos and Gemini. “If you want to have a good stablecoin, it needs to actually be backed by $1,” opines Belshe.

PwC, bringing its auditing renown to stablecoins, is betting many investors will agree.

SCAM UPDATE: In my last installment of this newsletter a few weeks ago, I described a seemingly fraudulent site called Coins Miner that had misappropriated videos I’d filmed for The Ledger and used them to make false claims in its own marketing materials. I’m pleased to report that the very next day, the Texas Securities Commissioner filed an emergency action against Coins Miner and the “Russian hoaxer” allegedly behind the scam. The lesson: Stay alert for potential scams, and report them to securities regulators.

GOT TIPS?

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Jen Wieczner
@jenwieczner
jen.wieczner@fortune.com

Note: This article has been updated to clarify aspects of PwC’s relationship with Cred that were distorted in the company’s original news release.

THE LEDGER’S LATEST

Ripple Debuts XRP-Based Cryptocurrency Product for International Payments by Robert Hackett

Separating Legit Cryptocurrency Ideas From the Ponzi Schemes by Adam Lashinsky

Cryptocurrency Custodian BitGo Adds Stellar and Dash by Robert Hackett

DECENTRALIZED NEWS

To the Moon…WSJ created its own cryptocurrency. Coinbase is raising money at a reported valuation of $8 billion. Yale invests in $400 million crypto fund. Fintech startup Brex rockets into the unicorn club. TD Ameritrade backs crypto exchange. Meet Chia cryptocurrency, from the founder of BitTorrent. Ripple signs up third client for XRP product.

…Rekt. Coinbase’s employee No. 5 who headed GDAX is leaving. Bots may be manipulating the crypto markets. Indicted Russian spies allegedly used Bitcoin. Venezuelans forced to use Petro virtual currency when renewing passports, buying plane tickets, etc. Layoffs at U.K.’s oldest Bitcoin exchange. Experts see long road until Bitcoin becomes mainstream. Fortnite malware targets Bitcoin wallets.

BALANCING THE LEDGER

☝️Click to watch.

Mike Belshe, the CEO and founder of BitGo—a cryptocurrency wallet and institutional custody service—stopped by Balancing the Ledger to discuss why the company will add support for both Dash and Stellar Lumens, as well as how crypto investors can protect their funds against Ponzi schemes and other types of theft—both physical and virtual.

BUBBLE-O-METER

The Bitcoin ETF Effect. Although the prospect of a Bitcoin ETF remains distant (after the SEC recently rejected a spate of applications), investors continue to speculate on the impact such a broadly accessible fund would have on the market. To that end, CoVenture Crypto, an asset manager, has launched a research arm, which published a new analysis likening the effect of a potential Bitcoin ETF to that of the American Gold ETF (GLD) when it was introduced in 2004. (GLD, the researchers say, “unlocked new capital inflows” of some $1.56 billion.)

The researchers’ conclusion: A Bitcoin ETF could significantly boost the price of Bitcoin itself, such that, “For every $1 added toward Bitcoin, there is $11.37 added in Bitcoin market cap.”

Capital Inflow–>Expected Market Cap Increase (B=billion)

$1B–>$11.37B

$5B–>$58B

$10B–>$117B

$15B–>$169B

$100B–>$1137B

 

MEMES AND MUMBLES

Crank that…coin? Soulja Boy has a new album out, and it includes a track called “Bitcoin,” in which the rapper rhymes about spending $6,000 on a Bitcoin and also owning Litecoin.

“Bitcoin” hit Soulja Boy’s official YouTube page over the weekend—and you can listen to him rap about making “a million off of Bitcoins” and using the winnings to buy an Aston Martin:

 

Going by the lyrics, Soulja Boy seems to have made out much better than many other investors who also bought in around $6,000, only to watch Bitcoin go up, come all the way back down, and even sink below that price in recent months. (Today, the Bitcoin price is around $6,600.) Maybe he bought in when Bitcoin first hit $6,000 last year and sold near the peak of $20,000 in December?

Unlikely: the new song also includes a line about sending cryptocurrency through “the Cash App”—a seeming reference to Square’s mobile payments service, which only began officially offering Bitcoin purchases in January.

FOMO NO MO’

ShapeShift vs. WSJ. If you read last week’s Ledger newsletter, you likely saw The Wall Street Journal‘s wave-making investigation, “How Dirty Money Disappears Into the Black Hole of Cryptocurrency,” accusing ShapeShift, a U.S.-based cryptocurrency exchange, of laundering nearly $9 million in funds.

ShapeShift CEO Erik Voorhees has since rebutted many of those allegations in a post claiming that the exchange’s anti-money laundering controls are more rigorous than they were made out to be, and that the amount of “illicit” activity is likely “less than two tenths of one percent” of its overall business. But the heart of Voorhees’s argument is that the WSJ misidentified legitimate transactions with exchange partners as shady, leading to an erroneous conclusion:

Based on our own analysis of the transactions cited in the article, the WSJ erroneously attributed vast sums of allegedly illicit transactions to ShapeShift in a way that exhibits a profound failure to grasp how blockchains, in general, and our system in particular, really work.

1) For example, the authors allege this address is a suspicious person. 1AE2cBJDn4cuLCR6RPESpqdaDXdZwhgUya

2) On 9/20/17 this person sends 0.0959 BTC ($600) to another address, which is an exchange (someone other than ShapeShift) 18G8Mf61kFFDt9AVLUdvh1xTUYrLDny6T4

3) Nearly a year later, on 7/13/18 this 18G8 address sends a batch transaction out of its wallet. As part of the batch, 11 BTC ($70,000) is sent to ShapeShift’s address:
1NSc6zAdG2NGbjPLQwAjAuqjHSoq5KECT7 This 11 BTC is not a user sending funds to ShapeShift, it is one of our exchange partners sending BTC to us.

In other words, $600 of suspicious funds were sent to an exchange that wasn’t ShapeShift. Because ShapeShift happens to be a customer of this same exchange–10 months later in a completely unrelated transaction–the exchange sent funds to ShapeShift. The authors didn’t understand how to properly read the blockchains transactions, so they assumed there was $70k in “dirty money” sent to ShapeShift.

Allegation: $70,000 laundered by ShapeShift
Reality: $0 laundered by ShapeShift

We hope you enjoyed this edition of The Ledger. Find past editions here, and sign up for other Fortune newsletters here. Question, suggestion, or feedback? Drop us a line.