The Sherman Group Daily Briefing: December 10, 2018

What’s Happening Today?

Bitmain closing Israeli development center. (Globes)

What’s the Story? Bitmain is closing its Israel office and laying off all 23 of the employees who work there.

Why It’s Important? Bitmain has been the leader in the cryptocurrency mining space for some time now. For the past couple of years, they have literally been printing money, but a combination of bad decisions (eg. supporting Bitcoin Cash) and a significant decline in cryptocurrency prices has affected their business. I wouldn’t look too much into the fact that they are shutting down their Israeli office, but it does show that even the mightiest cryptocurrency companies sometimes bleed. It’s not 2017 anymore.

SEC Fines Crypto Fund $50K and Issues Cease-and-Desist (Coindesk)

What’s the Story? Coinalpha, a cryptocurrency hedge fund, was fined $50,000 and ordered to shut down by the SEC.

Why It’s Important? I’ve never heard of this fund and the fund being fined isn’t that important, but what is important is the increase in civil actions being pursued by governmental agencies specifically the SEC. In September, the SEC brought a civil action against cryptocurrency fund, CAM, as well as an action against an unregistered broker-dealer named TokenLot. I’ve reguarly talked about the idea that if something looks like and acts like a security, it’s probably a security and the SEC has jurisdiction. You can’t just say, I am investing in or creating a cryptocurrency and, we don’t have to follow security laws because we are magically exempt. It doesn’t work like that. I’m not a lawyer though, so if you don’t believe me contact one and ask them.

Layoffs Become the Latest Thing in Cryptocurrency (Wall Street Journal)

What’s the Story? Consensys and other cryptocurrency companies are laying off employees left and right.

Why It’s Important? This story is similar to the Bitmain story. Recently, Consensys laid off 13% of its staff while other firms such as Spankchain and Steemit have also reduced headcount. It’s obvious to say that in a recession people get fired while in a bull market people get hired, but I want to go deeper than that. Many firms hired too many people for roles that just weren’t necessary. Consensys employs over a 1,000 people. That is a mind-boggling number. Consensys has offices in 28 cities. Their hiring practices are the definition of profligate spending. I have deep respect for Lubin and think he is a visionary, but before firms go on hiring sprees, they need revenue from a product that is selling. I don’t see many firms making money besides exchanges and maybe mining firms.

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