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Crypto lender BlockFi sends free Bitcoin to users mistakenly, then asks them to return it

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  • BlockFi intended to send the users their bonus payments in U.S dollars but instead ended up sending the payments in BTC with exposure at $10 million.
  • It has requested the users to return the money and even suspended withdrawals for others, but some had already taken off with the free Bitcoin.

One of the largest cryptocurrency lending companies recently committed a horrible mistake that could have cost it millions of dollars. BlockFi intended to pay out some of its users in U.S dollars as part of a promotion it had organized. However, it instead sent Bitcoin to the users, massively overpaying them. It then moved quickly to recover the BTC, but reports claim some users had already withdrawn it.

The New York-based crypto lender had been conducting a promotional giveaway for its users. As per its website, the payments were to be in GUSD, a stablecoin issued by the Gemini exchange. However, about a week ago, it noticed a gross mistake where it had been paying off its users in BTC instead.

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“Bring back our Bitcoin”

The company then went to work immediately trying to reverse the payments. However, as the CEO Zac Prince told Bloomberg, some of the users had already withdrawn the BTC. Prince played down the number of users who made away with the BTC, saying it was less than 100 and that the company’s exposure was around $10 million. This number is steadily decreasing as more users cooperate with the lender and return their BTC.

Prince also claimed that the company had put in place measures to ensure such as scenario doesn’t recur.

BlockFi carries loss reserves as part of its accounting policies and this is a fraction of existing loss reserves — so no negative impact to equity or ongoing platform operations. The issue that caused the withdrawals was fixed and incremental safeguards have been developed to prevent any similar issue in the future.

The CEO further stressed that the mistake hadn’t affected the company’s operations. Despite the erroneous deposits, BlockFi is still reportedly notching record volumes on its platform.

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On Reddit, BlockFi also posted a statement to reassure its users, stating, “The situation does not affect any of BlockFi’s ongoing operations and measures have been taken to ensure that an error like this will not be possible in the future. BlockFi’s latest publicly reported AUM is $15B as of Q1 2021. Client funds are not impacted and are safeguarded.”

BlockFi users took to social media to show off some of the BTC they had received. For one user, the company credited him with 701 BTC, instead of $701. The BTC stash is now worth $26.6 million, with Bitcoin’s price now at $38,000. The user didn’t reveal if he had returned the crypto to the company.

It’s nothing new

The erroneous deposit is not unheard of in the financial services world. In arguably the biggest case in recent years, Citibank deposited $900 million to some of its clients by mistake. The bank intended to wire $8 million but ended up making one of the biggest blunders in banking history. Some clients returned the money, but over $500 million wasn’t returned, with the clients deciding to hold on to the money. Citibank took the matter to court, and surprisingly, it lost the case and the money.

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Mt. Gox Bitcoin Payouts On Horizon After Creditors Approve Plan

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The light finally appears to be at the end of the tunnel for the Mt. Gox creditors, who have approved a plan that will let them choose to receive some of the coins they have been waiting years for.

In a translated letter, Nobuaki Kobayashi, the Japanese lawyer and trustee for the now-defunct bitcoin (BTC) exchange, explained that “approximately 99%” of the creditors had voted in favor of an offer that has since been put before a branch of the Tokyo District Court.

A voting process that began back in May this year wrapped up earlier this month.

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The court has since confirmed the order, although there was no mention of an exact timescale for the token refunds.

The trustee wrote that an announcement “will be made to rehabilitation creditors on the details of the specific timing, procedures and amount of such repayments.”

However, Kobayashi wrote that the process would “finalize” and become “binding” in “approximately one month from” October 20.

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The creditors will then be able to file their claims through a website, by filing a proof of rehabilitation claim.

Kobayashi wrote that the trustee “would like to express sincere gratitude to all involved parties for their understanding and support.”

The BTC exchange was once the world’s biggest, but spectacularly folded in 2014 following a spate of hacking attacks that saw raiders make off with thousands of BTC tokens.

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Creditors have been trying to recover their funds ever since, but have been locked in a protracted legal struggle that has rumbled on over the years.

The Fortress Investment Group has previously offered creditors some 80% of claims. But the trustee promised a higher figure, closer to about 90%. The tokens lost in the hacks will likely have to be written off, however, meaning that payouts are going to be a fraction of the original amounts held.

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JPMorgan: Inflation Hedge Narrative Propelled Bitcoin’s Price to ATH

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According to some JPMorgan analysts, bitcoin hit an ATH because people started investing in it as a better hedge against inflation than gold.

Strategists at the financial institution JPMorgan Chase & Co. argued that the reason behind BTC’s all-time high price is not the launch of the ProShares Bitcoin Strategy ETF. Instead, concerns about the rising inflation made the digital asset an attractive investment option, and that led to its recent rally.

Gold Failed, BTC Prevailed

The moment, which many people in the cryptocurrency community have been waiting for, finally arrived on October 19th when the ProShares Bitcoin Strategy futures-backed ETF, named BITO, started trading on the New York Stock Exchange. It became the first such product approved in the United States.

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During the first day of its launch, it generated massive trading volumes and even became the second-highest traded fund ever. Shortly after, BTC’s USD value headed straight north towards a new all-time high at roughly $67,000.

Still, according to JPMorgan strategists, including the managing director Nikolaos Panigirtzoglou, another factor drove bitcoin to that milestone. The specialists indicated that the cryptocurrency had replaced gold as a hedge against inflation in recent months, which had propelled the price north:

“By itself, the launch of BITO is unlikely to trigger a new phase of significantly more fresh capital entering bitcoin. Instead, we believe the perception of bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into Bitcoin funds since September.”

JPMorgan’s team noted that the last couple of weeks were not that successful for the precious metal. Taking a look at a broader period, bitcoin ETF’s have significantly outpaced gold ones, as the strategists revealed:

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“This flow shift remains intact supporting a bullish outlook for Bitcoin into year-end.”

Bitcoin Funds vs. Gold ETFs: Source: JPMorgan
Bitcoin Funds vs. Gold ETFs Inflows: Source: JPMorgan

Can BTC Now Change The Stance of The Big Boss?

Jamie Dimon – Chief Executive Officer of JPMorgan – is among the most prominent critics of the leading digital asset. Still, it seems like he has started releasing the tight grip on it.

It all started in 2017 when the top executive called bitcoin a “fraud.” Dimon did not stop there and warned that “it’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.” Shortly after, though, he regretted making that comment, and his financial institution became much more accepting of BTC.

Last year, Dimon weighed in on the matter once again. This time he was softer in his comments saying that bitcoin is not his “cup of tea” and that he has no personal interest in it.

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A few days ago, the CEO returned to his negative phase, describing BTC as “worthless.” Nevertheless, he acknowledged that most of JPMorgan’s clients do not share his opinion and show an increasing demand for digital asset services.

With BTC charting a new all-time high, the crypto community is yet to find out whether Dimon will maintain his hostile viewpoint on the matter or rather soften a bit and allow more offerings to his bitcoin-hungry customers.

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Another One: Valkyrie Bitcoin Strategy ETF to Commence Trading on Friday

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Another futures-backed Bitcoin exchange-traded fund (ETF) is set to begin trading on Friday.

The Valkyrie Bitcoin Strategy ETF is slated to commence trading on the Nasdaq stock market on Friday, Oct 22, just four days after the first-ever BTC futures fund was launched.

Bloomberg senior ETF analyst Eric Balchunas has confirmed that the Valkyrie fund will be launching on Friday after initially stating it would be trading today.

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He added that the firm has also changed its ticker from BTFD to BTF, commenting that the Securities and Exchange Commission “probably wasn’t a fan” of the former. BTFD is an acronym for “buy the f*cking dip” in crypto circles.

Later on, a company representative confirmed to Bloomberg that the ETF is indeed scheduled to launch on Friday.

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VanEck Bitcoin Fund on Monday

Just like ProShares, the Valkyrie product will not be investing directly in Bitcoin but will seek to purchase a number of BTC futures contracts. It will attempt to ensure that the total value of BTC underlying the futures contracts held by the fund is as close to 100% of the net assets as possible.

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