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Philippines SEC warns of ‘cloud mining’ Ponzi related to Bitcoin Vault

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The Philippines SEC has released an official warning about Bitcoin (BTC) “cloud mining” company Mining City, advising the public to steer clear of the scheme and others like it. Despite the official condemnation, the price of a related cryptocurrency is on the rise.

The warning describes the company as an unlicensed entity in the country and said it was not functioning “in accordance with guidelines for virtual currency exchanges,” stating:

“The aforementioned scheme used by Mining City clearly shows an indication of a possible Ponzi scheme in which new investor money is used to pay ‘bogus profits’ to those who invested first.”

The notice also identified Mining City’s CEO Gregory Rogowski, team leader Anthony Aguilar, and Facebook page admin Jhon Rey Grey as key personnel involved in the scheme — all of whom will also be reported to the Bureau of Internal Revenue for investigation regarding their tax assessments.

The scheme offers cloud mining packages in the form of three-year contracts where hash power is rented to investors worth between $300 up to $12,600, and purports to provide daily returns of up to $92 per day. Mining City operates in partnership with MineBest, creator of the Bitcoin Vault (BTCV) scam, with investors receiving their profits in the form of BTCV tokens.

The regulator told the public “not to invest or stop investing in plans offered by Mining City or by entities that engage in smart contracts, cryptocurrencies or digital asset exchanges that are not registered with the commission,” adding that promoters could be criminally prosecuted with fines over $100,000 or imprisonment of up to 21 years.

In the two weeks prior to this warning, the price of BTCV plummeted 76% from $425 on Aug 23, to $100 on Sep 10. It has since risen to $163, suggesting the warning may not have been effective in deterring public interest in the scheme. On Mining City’s website, it states the program will continue to run even if its website is closed for any reason — implying that it is immune to government intervention due to its decentralized nature.

The Philippines SEC had previously flagged notorious Ethereum gas gazzler “Forsage” as a Ponzi scheme in July, however, it was stronger than ever in August boasting an expanded userbase of 390,000 users and a daily turnover of over $3 million. Forsage currently has over 1,900 daily active users on Ethereum (ETH) and 800 active users on Tron (TRX), according to DappStats.



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Just HODL! Bitcoin and Ethereum outperform ‘lower risk’ crypto index funds

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In the past two decades, index and exchange-traded funds (ETF) have become some of the most popular forms of investing because they offer investors a passive way to gain exposure to a basket of stocks as opposed to investing in individual stocks which increases risk of loss. 

Since 2018, this trend has extended to the crypto sector and products like the Bitwise 10 Large Cap Crypto Index (BITX) tracks the total return of Bitcoin (BTC), Ether (ETH), Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC), Solana (SOL), Chainlink (LINK), Polygon (MATIC), Stellar (XLM) and Uniswap (UNI).

The ability to access multiple top projects through one weighted average market cap index sounds like a great way to spread out risk and gain exposure to a wider range of assets, but do these products offer investors a better return in terms of profit and protection against volatility when compared to the top-ranking cryptocurrencies?

Hodling versus crypto baskets

Delphi Digital took a closer look at the performance of the Bitwise 10 and compared it to the performance of Bitcoin following the December 2018 market bottom. The results show that investing in BTC was a more profitable strategy even though BITX was slightly less volatile.

Bitcoin price vs. Bitwise 10. Source: Delphi Digital

According to the report, “indices aren’t meant to outperform individual assets, they’re meant to be lower-risk portfolios compared to holding an individual asset,” so it’s not surprising to see BTC outperform BITX on a purely cost basis.

The index did offer less downside risk to investors as the market sold-off in May but the difference was “trivial” as “BTC’s max drawdown was 53% and Bitwise’s was 50%.”

Overall, the benefits of investing in an index versus Bitcoin are not that great because the volatile nature of the crypto market and frequent large drawdowns often have a larger effect on altcoins.

Delphi Digital said:

“Crypto indices continue to be a work-in-progress. Choosing assets, allocations, and re-balancing thresholds is a difficult task for an emerging asset class like crypto. But as the industry matures, we expect more efficient indices to pop up and gain traction.”

Ethereum also outperforms DeFi baskets

Decentralized finance (DeFi) has been one of the hottest crypto sectors in 2021 led by decentralized exchanges like Uniswap (UNI) and SushiSwap (SUSHI) and lending platforms like AAVE and Compound (COMP).

The DeFi Pulse Index (DPI) aims to tap into this rapid growth and the DPI token has allocations to 14 of the top DeFi tokens, including UNI, SUSHI, AAVE, COMP, Maker (MKR), Synthetic (SNX) and Yearn.finance (YFI).

When comparing the performance of DPI to Ether since the inception of the index, Ether significantly outperformed in terms of profitability and volatility, as evidenced by a 57% drawdown on Ether versus 65% for DPI.

Ether price vs. DeFi Pulse Index price. Source: Delphi Digital

While this is an “imperfect comparison” according to Delphi Digital due to the fact that “the risk and volatility of DeFi tokens are higher than Ether’s,” it still highlights the point that the traditional benefits seen from indices are not mirrored by crypto-based baskets.

Delphi Digital said:

“You could’ve just HODL-ed ETH for a superior risk-return profile.”

For the time being, Bitcoin and Ether have proven to be two of the lower-risk cryptocurrency plays available when compared to crypto index funds that offer exposure to a larger number of assets.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.