Plus500 falls foul of litigation in further evidence that cryptocurrency is nothing more than a folly

Cryptocurrency, and the associated cryptobabble that has been permeating the internet since those with aspirations toward operating ponzi schemes based on false instruments with no basis or standing in a genuine, structured financial markets began to realize the potential of their next ruse, is a folly.

This week, FinanceFeeds has made its standpoint clear with regard to the future of ICOs, which are completely disingenuous and in many cases the latest darling of the nefarious binary options fraudsters.

It should be patently obvious to regulatory authorities in regions with developed financial markets, as well as it clearly is to the genuine electronic trading industry, that what commenced as a rebellious attempt at anarchy is now being cultivated into an overhyped non-entity that will likely create substantial loss with no recourse for those enticed by it.

In terms of its fragility and irrelevance in the mainstream electronic brokerage sector is concerned, dissent is the key denominator among those in established positions with firms that have actual real balance sheets and have powered the electronic trading business forward, as opposed to those selling, well, nothing.

Today, a further indicator of the pitfalls of being tempted to join the Bitcoin bandwagon made its presence felt in the shape of an alleged lawsuit against publicly listed retail FX firm Plus500 owing to accusations that the company has been “rigging” its contracts for difference (CFD) markets. Plus500 offer contracts for CFDs for shares, commodities, forex, and over half a dozen cryptocurrencies.

Indeed, the rigging of FX is very easy to prove. A quick analysis of the post trade reports and at the trading platform’s execution logs by auditors would easily prove or disprove whether spot FX prices which were provided to customers are genuine or false, and with the advent of MiFID II (which Plus500 will be subject to) it would be churlish to not be ready with a trade reporting system in order to prove that clients were given ‘best execution’ on OTC trades.

This is because a centralized counterparty is required in order to increase transparency and allow regulators to be able to view full trade details via an impartial component.

Bitcoin, however, is impossible to clear, hence any litigation against any company for rigging prices would be very hard to prove.

Luca Salerno, a representative of Giambrone, the European law firm that is currently preparing the class action lawsuit, discussed the class action against Plus500 with the Australian Broadcasting Corporation. “We have more than 600 people who got in touch with us, and we’ve managed to turn 30 percent into actual claims,” Mr. Salerno said. Plus500 is listed on the London Stock Exchange and offers trading products internationally through subsidiaries located in Australia, New Zealand, South Africa, Cyprus, and Israel.

This is quite a revelation, however it is worth noting that the same law firm has conducted very aggressive marketing campaigns torward binary options victims over the past few years, attempting to get their business in a vain attempt to recover funds, which is in most cases ineffective, and there are several entities that have sprung up recently promoting the recovery of such funds, most of which are simply preying on the exact same people that the binary fraudsters preyed on.

That is not to say Giambrone’s attempts are not well intentioned, however its ‘class action’ attempts are overly marketed and it should be borne in mind that in Cyprus, where this lawsuit aims some of its efforts, class action litigation does not exist.

The accusations against Plus500 are severe indeed, however.

Mr. Salerno maintains that Plus500 has been engaging in “rigging the platform”, as well as accusing the company of failing to execute its customers’ requesting trade actions in a timely manner.

Mr. Salerno states that “each client lost $10,000 [USD], typically, within a timeframe of a couple of months.”

Mr. Salerno alleges that the Plus500 is able to do this through letting its customers trade CFDs, rather than the underlying assets represented by the CFDs. “Let’s say I make a bet today on bitcoin going up,” Mr. Salerno explained, “Plus500 would say ‘by the time we managed to execute the transaction, bitcoin went down again.” Mr. Salerno states that Plus500’s practices “fly in the face” of UK market regulations.

He also considers that Plus500 may well have built in a delay intentionally.

FinanceFeeds spoke today to a London-based expert and consultant to the FX and electronic trading industry, with 30 years experience in the institutional liquidity provision sector, whose opinion is “There will always be a debate when you trade against an asset that’s not centrally cleared.”

Indeed so.

This morning in Limassol, Cyprus, FinanceFeeds reported live from a seminar with Demetra Kalogerou, Chair of CySec, who explained that the European Securities and Markets Authority (ESMA) is intent on reducing the size of the OTC derivatives industry, and wants to ensure that for asset classes with exchange-listed liquidity in those areas, trading on a regulated marketplace (listed derivatives executing venue) will be required.

That is all very well, but Bitcoin by its very nature will never be a ‘commodity’ that appears on any exchange, hence not only its complete inability to be centrally cleared will prevail, but also its peer-to-peer decentralized nature renders it unstable and trades involving it as an underlying asset are almost impossible to judge from an execution perspective by any mediators or investigation should a complaint arise.

Plus500 has often been revered among the retail FX and CFD industry as a company whose business model is remarkably efficient due to its absolute absence of sales or customer contact staff, as all of its marketing is done online.

This also became a moot point for the regulators in 2015, however the firm recovered very quickly from the effect the FCA’s freeze on its operations created and is now still regarded as the $1 billion company whose small operational costs helped it rise to that value within a very short time indeed.

There is absolutely no possible means of estimating whether this litigation attempt will ever come to fruition, however its mere existence highlights the potential difficulties of providing products that cannot be cleared, and whose value is not able to be substantiated at any time by any competent authority.