Lawsuit Against Nano Devs Commences, ‘Rescue Fork’ Requested for BitGrail Funds

A class action lawsuit that was filed in April of 2018 has commenced against the creators of the Nano (NANO) cryptocurrency, in which the plaintiffs allege that developers “violated federal securities laws.” The lawsuit is being handled by Silver Miller Law and Levi Korsinsky, LLP, both US-based firms specializing in securities fraud and/or investment loss. The full text can be found here.

Specifically, the suit claims that developers of Nano - which was previously called “RaiBlocks” before a rebrand earlier this year - “recklessly” encouraged plaintiffs to buy the cryptocurrency on a little known Italy-based exchange called BitGrail, which at the time hosted most of RaiBlocks’ trading volume.

BitGrail (now apparently non-functional) claimed to be hacked last February, but was generally accused of conducting an exit scam. The event caused the value of then-RaiBlocks to plunge 20% in price. Almost $200 million worth of RaiBlocks tokens were either stolen or removed from the exchange.

Notably, the founder of BitGrail Francesco Firano asked the RaiBlocks(/Nano) developers at the time to hardfork the currency in order to return users’ funds to them, à la the Ethereum hardfork which birthed Ethereum Classic. The developers refused.

However, the current lawsuit formally requests that Nano developers conduct such a “‘rescue fork’ or some other procedure” in order to reimburse burned investors.

Securities Violation

There are altogether eleven charges brought against the team, two of them being often-cited violations of Sections 12(a)(1) and 15(a) of the US Securities Act of 1933.

The filing claims that “the success of the investment opportunities and any potential returns thereon were entirely reliant on Defendants’ ability to maintain and expand the functionality and popularity of [RaiBlocks/Nano], thus providing financial returns to investors.”

Whether or not - and which - cryptoassets are considered securities under US law is still a murky and inchoate issue. Although at least two of the best known digital assets, Bitcoin and Ethereum, have been grandfathered in as non-securities, perhaps the next-best known one - XRP - is still languishing in legal limbo.

CryptoGlobe recently reported on the US Securities and Exchange Commission’s efforts to prosecute what it sees as securities violators. There has been recent talk about changing the aged 1933 law to accommodate the emerging asset class that is cryptoassets.

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

Featured Image Credit: Photo via Pixabay.com