By Bloomberg
FOUR months ago, BitForex was just one of many obscure exchanges offering users the ability to trade cryptocurrencies like Bitcoin.
Today, the Singapore-based platform is regularly reporting daily transactions that exceed $5 billion — nearly matching turnover on London’s 217-year-old stock exchange.
How did BitForex — and other startups like it — expand so quickly despite tumbling digital-asset prices and slowing activity on more established venues?
Many market participants say they suspect these fast-growing exchanges are either offering incentives that encourage users to inflate volumes, or not doing enough to stop abuse on their platforms. One red flag at BitForex: Its reported volume is by far the biggest among 219 platforms tracked by CoinMarketCap.com, despite traffic on its website amounts to a tiny fraction of most peers.
For individual investors lured to exchanges with inflated volumes, the risk is that cashing out at prevailing market rates may prove much harder than the reported figures suggest. Doubts about the integrity of crypto markets have deterred some professional money managers from investing in virtual currencies and prompted regulators to take a closer look at exchanges, even as some venues go to great lengths to avoid manipulation.
“Some exchanges will say ‘everyone’s doing it, so I’m doing it,’” said Neil Woodfine, a former crypto exchange executive who now runs Clavestone, a Bitcoin key management service. “New traders will get feedback very quickly from engaging with the market on trades not executing at the price they want.”
If the coins distributed by BitForex retain their value, customers can effectively earn free money by using automated programs, known as “bots,” to swap cryptocurrencies back and forth between accounts under their control. (Not all trade-mining exchanges offer rebates that exceed the value of trading fees paid by customers.)
“All users are contributors to this exchange” and should be rewarded, Jin said by email, adding that BitForex “opposes” all kinds of manipulation and that the incentive program is set to end soon. He didn’t elaborate when asked whether the venue has tools to monitor and prevent abusive trading. Jin said it’s “technically possible” for users to trade with themselves using two accounts, and that the exchange is working to address the issue.
Exchanges including DOBI Trade, FCoin, CoinSuper and CoinBene, which offer or have offered similar transaction mining incentives, didn’t reply to requests for comment.
CoinMarketCap.com, which compiles its data from the exchanges, publishes an “adjusted” ranking that excludes volume from trade-mining venues and some other platforms. “We have multiple automated alerts detecting anomalies in the data,” CoinMarketCap.com spokeswoman Carylyne Chan said in an email.
Like other crypto exchanges in Singapore, BitForex isn’t directly regulated by the Monetary Authority of Singapore. “Digital tokens are mainly traded on opaque markets, with no regulatory protection for investors,” MAS said in an emailed response to questions. “There may not be enough active buyers or sellers and consumers may not be able to exit their token investments easily.”
U.S. authorities have expressed similar concerns. Bloomberg reported in May that the U.S. Justice Department has opened a criminal probe into suspected illegal practices in crypto markets, including wash trades. In a report last week, New York’s attorney general said the industry has generally failed to adopt serious market surveillance measures to detect and punish suspicious trading, though it didn’t single out any venues for wrongdoing.
Market participants say quantifying the scale of suspected volume exaggeration is difficult. But Calvin Cheng, a Singaporean entrepreneur who bought a stake in China’s first Bitcoin exchange in January and founded another venue in April, estimated in an interview that most of the trades recorded by crypto platforms globally are bogus. Combined volumes at all exchanges tracked by CoinMarketCap.com totaled about $15 billion over the past 24 hours.
Even the largest exchange operators can’t be trusted, warned Asim Ahmad, who recently left BlackRock Inc. to start Eterna Capital, a blockchain investment firm. He based the assessment on his own trading experience and time spent watching exchanges’ order books.
Both Ahmad and Clavestone’s Woodfine said automated, high-frequency trading strategies are likely fueling inflated volumes. Automated trading is widely used in traditional markets under regulatory oversight, though it can facilitate manipulation when unmonitored. The report from New York’s attorney general said it’s “of particular concern” that many platforms have no formal policies governing automated trading.
BitForex may just be “one of the worst offenders in this parade of inflated volume,” said Dmitriy Budorin, chief executive officer of cybersecurity firm Hacken and founder of Crypto Exchange Ranks, which scores venues on metrics including liquidity and security.
As a rough check on exchanges’ numbers, some traders have started comparing reported volumes to website traffic. On that metric, DOBI Trade, BitForex and Liquid stand out as having reported transactions many times larger than website visits (see the above chart for more details).
Liquid, operated by Japan-based Quoine, said its volume doesn’t correlate with website traffic because of users who deploy automated trading programs. Quoine CEO and co-founder Mike Kayamori said clients who have attempted wash trades have been banned from the platform and that the exchange, which is regulated by Japan’s Financial Services Agency, adopts “stringent compliance measures.”
Almost 40 percent of trades at the top 30 exchanges ranked by CoinMarketCap.com came from the eight venues with the highest volume-to-visits ratio, data compiled by Bloomberg show.
CoinFi, a cryptocurrency research firm co-founded by former Goldman Sachs Group Inc. analyst Timothy Tam, performs a similar analysis comparing exchanges’ reported volumes to the value of assets held in their crypto wallets. High volume-to-asset ratios can be red flags, Tam said, adding a caveat that some of the data on exchange wallets may be incomplete.
Of course, not all digital currency exchanges are raising concerns among investors. Major venues in the U.S. appear to be reporting “pretty accurate” figures and are willing to work with regulators, said Michael Kazley, a Goldman Sachs and Cedar Lake Capital Ventures alum who co-founded Crescent Crypto Asset Management in New York.
Gemini Trust Co., the New York-based crypto exchange owned by Cameron and Tyler Winklevoss, has hired Nasdaq Inc. to conduct market surveillance for Bitcoin and Ether trading as well as the auction that helps price Cboe Global Markets Inc.’s Bitcoin futures. The twins, famous for their early role in Facebook, have also set up a self-regulatory organization called the Virtual Commodity Association to root out bad behavior in the industry and work with the government.
Jim Bai, CEO of EverMarkets Exchange, says he’s optimistic crypto venues will become more trustworthy as the industry grows.
“Fake volumes are unfortunately all too common in today’s crypto-exchange ecosystem,” he said. “The industry will mature of course. As it does, more legitimate exchanges will come along and provide enough real, beneficial structural incentives so that people won’t be misled into trading on questionable venues. It will be a healthier marketplace.”

By Bloomberg
FACEBOOK inc. unveiled a wireless virtual-reality headset called Oculus Quest, an attempt to help popularize the developing technology with a more mainstream audience.
The headset will go sale in spring 2019 for $399, complete with hand controllers to give people a sense of presence in virtual reality, Facebook Chief Executive Officer Mark Zuckerberg said Wednesday at the Oculus Connect conference in San Jose, California. People are more likely to use a technology that they can wear while moving around freely, Zuckerberg said.
Facebook sees VR, a technology that immerses users in a virtual environment, as the next great advance in human communication, after mobile phones. The social-media company acquired Oculus VR, a headset company, in 2014. Facebook wants people to use VR to do more than play games — it has created virtual spaces for users to hang out and watch movies together, for example, or experience events.
That vision may take a while to materialize. Last year, Zuckerberg explained that Facebook’s goal is to eventually get 1 billion people into virtual reality. On Wednesday, he kicked off his presentation by giving an update on the slow progress.
“We have this saying at Facebook that the journey is only 1 percent finished, and in this case, not even quite,” Zuckerberg said, drawing laughs from the audience.
The Quest is the latest in a line of VR products that meet different needs. The Oculus Go, a $199 headset that works without being tethered to a computer, went on sale in early 2018. The Oculus Rift is a $399 headset that requires a connection to a personal computer, and the $130 Gear VR goggles work by attaching them to a Samsung Electronics Co. phone. In the future, any game made for Oculus will work on any of the devices, Zuckerberg said.
Oculus Quest is the last piece of what Facebook sees as the first generation of virtual reality, Andrew Bosworth, the company’s executive in charge of the hardware division, said in an interview. After this, it’s more about making the devices easier to use, more comfortable and smoother in performance, while working on more dramatic bets like augmented reality. Facebook also needs to keep the products affordable as it works to give more people access to virtual reality — a goal that is sometimes technically challenging. The company isn’t focused on making money from the effort, and instead wants to spread it to as many potential users as possible.
Zuckerberg’s speech promoting the future of Oculus came as two of Facebook’s other acquired properties are facing turmoil. The founders of photo-sharing application Instagram said on Monday that they were leaving Facebook, six years after their company was bought. Their departures came after months of tension with Zuckerberg over the direction of the product. On Wednesday, Brian Acton, co-founder of WhatsApp, spoke for the first time about why he left, telling Forbes that Zuckerberg didn’t keep the promises he made during the $22 billion acquisition of the messaging app.
Facebook let the properties operate mostly independently for years, though recently the company has become more reliant on the divisions to contribute to the overall business. Stronger growth at WhatsApp and Instagram would give Zuckerberg more resources to invest in his vision for virtual reality, and eventually augmented reality — the technology that overlays virtual objects on the real world.
Zuckerberg has been busy combating negative sentiment about Facebook, promising to do better on issues like privacy and election interference. But he mentioned none of that onstage Wednesday, using the Oculus conference as an opportunity to tout new innovations, rather than answering for the impact of past ones.
Will the Oculus efforts help change how consumers think about Facebook over time? First, more people have to try it, Bosworth said.
“The proof is in the work,” he said. “Do people show up? Do they feel connected to other people?”

By Bloomberg
A TEXTILE-yarn company in western Indian soon will have more machines than workers. A manufacturer in southern India sold almost double the number of its automated goods last year. India’s biggest carmaker has one robot for every four plant employees.
Automation will double over the next three years in Indian factories, according to a survey by Willis Towers Watson. Companies in the Asia Pacific region reckon machines will account for 23 percent of work, on average, over the next three years, compared with 13 percent today. In India, that figure is expected to rise to almost 30 percent from 14 percent over the same period.
India Inc. is turning to machines quicker than its global peers. But unlike companies in Japan and Germany — which are automating to move up the food chain as their workers age — factories in the world’s second most populous country have a surprising motivation: They’re running out of willing (human) workers.
This is also happening as India’s ballooning working-age population needs more jobs. Over the next decade, 138 million people will be added to the workforce, a 30 percent rise, according to the McKinsey Global Institute.
The trouble is finding jobs that Indians actually want. The country’s workers would rather drive for food-delivery services on the breezy, albeit steamy, roads of Mumbai and work in hotels than in factories. Fair enough. Who would want to work in a yarn mill, which needs to maintain a temperature of 33 degrees Celsius (91 degrees Fahrenheit) and 60 percent relative humidity? Conditions on other industrial factory floors are likely worse.
That India’s yarn and cloth-making industries — among the most labor-intensive in the country — have become the vanguard of automation speaks to the challenge. The textile-yarn company had to ramp up spending on hiring and venture deep into the Indian hinterland to find workers through recruitment camps, luring them with housing and attendance incentives. It even has had to pay them just to return to work after the holiday season or weddings.
The rapid pace of automation has brought its own set of problems. The cost of adding machines is high while labor costs are relatively lower. Many of these companies wouldn’t break even for years by automating, and according to the Willis Towers Watson survey, few believe they are prepared to deal with the onset of machines.
The Indian government’s job-guarantee program, with its skewed incentives, hasn’t helped either. For every worker that signs up for the 100-day plan, fewer will fuel the manufacturing sector and the “Make in India” program. Because wages for those jobs are, in several states, set below the minimum wage, anecdotally workers have been signing up at multiple job sites just to squeak by.
Other laborers have given up altogether. Take the city of Bengaluru, whose ready-made garment industry is composed mostly of young, unskilled migrant women. Studies have found that over a fifth of workers there don’t receive the minimum wage, and move from factory to factory only to end up in domestic-service work.
Who would’ve thought that India’s low- and unskilled workers, and the welfare programs designed to help them, would drive companies toward automation? In a country where manufacturing and construction each comprise 10 percent of the labor force — compared with 25 percent in services — these sectors should be driving India’s economy, not weighing it down. The sad reality is that those in the bottom tiers of the labor force will be the most severely hurt by automation.
Upgrading rusty manual machines isn’t a bad thing. The transition could help overall productivity, efficiency and quality. Research also has found that automation often leads to other, better jobs. The typewriter didn’t replace the stenographer completely but taught people how to type instead.
The difference is that those workers had skills that could be upgraded. Meanwhile, only 18.5 percent of India’s labor force is skilled or holds an intermediate or advanced level of education, according to the United Nations Development Programme.
Manufacturing, as Professor Dani Rodrik of Harvard University, puts it, is “the quintessential escalator for developing economies.” For India, which became a service-heavy economy before it fully industrialized, the consequences of automating the sector are far more dire. The self-fulfilling cycle of India’s manufacturing void means workers may not be fully equipped to move up the ladder or out of the still-large informal economy.
Indian politicians have vowed to create millions of new jobs a year. That hasn’t happened. Ahead of a big election, India’s accidental automation may make that promise even harder to fulfill.

By Bloomberg
WITH cryptocurrency mania over for now, blockchain startups need to dig a little deeper to attract attention. Their latest secret weapon: Nobel laureates.
Covee Network is the latest venture to announce a partnership with an economist of the highest standing: game-theory and market design expert Alvin Roth, who shared the economics Nobel in 2012. Prysm Group is borrowing the brain — and name — of Oliver Hart of Harvard University, a 2016 co-laureate; and Cryptic Labs LLC has partnered with both Eric Maskin — who shared the prize in 2007 — and Christopher Pissarides — a 2010 co-laureate.
A year ago, just uttering the word “blockchain” was enough to spark interest. Photography pioneer Eastman Kodak Co. last year had a brief return to fame, and a 272 percent share-price jump, after a cryptocurrency licensing its name was announced. And soft-drink company Long Island Ice Tea Corp. rebranded as Long Blockchain Corp., with similar results, only to end up accused of misleading investors.
But the magic has faded. In August, funding from initial coin offerings, which are used as an alternative to public offerings by companies in the cryptocurrency business, dropped to the lowest in 16 months, according to data from Autonomous Research.
The question is: Do the laureates just supply their names and reputations, or are they fully engaged in the projects?
“When I was first approached about joining, I spent a good deal of time thinking about whether I would just be a decoration, or whether I would actually be able to contribute,” Roth said by phone. What persuaded him was how he could bring his unique skills to bear on the project. “They are embracing game theory as a way of incentivizing participation.”
Roth will help Zurich-based Covee set strategy in regular phone calls and has direct access to the team because he works in the same building as one of its members. Options remain open for him to become a part-owner of the company, though neither he nor Covee disclosed payment arrangements. Like the partners at Cryptic Labs and Prysm, he’s described as an adviser.
“It was the seriousness of the team, and our existing relationships that distinguished us,” allowing the firm to bag Roth, Covee Chief Executive Officer Marcel Dietsch, an alumnus of Oxford University, said by phone. The interest exhibited by serious thinkers “shows that the blockchain sector is growing up,” he added.
Of course, not all winners of the Nobel Memorial Prize in Economic Sciences agree on the benefits of cryptocurrencies.
“Bitcoin is evil,” Paul Krugman, a 2008 laureate, wrote in his New York Times column in December 2013. Even Roth says much of what Covee is setting out to do can initially be achieved without the blockchain.
Covee’s white paper — with its discussion of game theory, including payoff diagrams — seems custom-designed to win over an economist. It’s authored by six Ph.D.s from, among other schools, Harvard and Imperial College London, one of whom studied under Roth. The project is likely to launch in November. It does not currently have plans to raise funds via an ICO.
AMBITIOUS GOAL
Dietsch’s goal is ambitious: He wants to disrupt the firm itself.
Using the Ethereum network, he aims to create a marketplace for skills that will allow ad hoc teams to form around business projects. A scientist who has developed a new drug, for instance, could seek out an expert in regulation and someone with experience in marketing. Once the project is complete and the drug brought to market, they could disband. Dietsch says blockchains will replace the intermediation function of the firm. Value tokens will be used to enforce participation and solve the free-rider problem, while smart contracts will address coordination issues.
“Why is most of the workforce stuck within the boundaries of centralized intermediaries such as the centuries-old corporation?” Dietsch and his team ask in the white paper. “Both trust and traditional organizations are limited in terms of scale.”

By Bloomberg
IN a first for the solar industry, China’s Longi Green Energy Technology Co. plans to produce all of its panels using solar power in as little as three years.
President Li Zhenguo moved factories to areas of China and Malaysia that have access to hydropower in recent years — and away from China’s coal-heavy manufacturing zones — to make Longi’s production process more sustainable.
“For the future, we will build solar for solar,” Li said in an interview at the Solar Power International Conference in California. “We can do this in three to five years.”

By Bloomberg
ONLINE-polling company SurveyMonkey surged as much as 67 percent in its trading debut after raising $180 million in its bigger-than-targeted U.S. initial public offering.
Shares of SurveyMonkey, the operating name of Svmk Inc., closed up 44 percent at $17.24 Wednesday in New York. That price lifted the company’s market value to about $2.1 billion, topping its $2 billion valuation in a 2014 private funding round.
The company sold 15 million shares for $12 apiece Tuesday after earlier offering 13.5 million of them for $9 to $11. Concurrent with the offering, the company also sold $40 million in stock to Salesforce Ventures, the venture capital arm of Salesforce.com Inc.
SurveyMonkey is older than many of its newly public peers, having been founded almost two decades ago. While the company had more than 16 million active users in the past year, according to its IPO filing, only 3.8 percent of those were paying users.
SurveyMonkey has relied on paying users finding the tools through the company’s website or online searches, it said in its filing. It said it expects growth to continue through word-of-mouth from existing customers, and by up-selling existing users.
SALESFORCE, GOOGLE
In the past three years, the San Mateo, California-based company has begun partnering with companies such as Salesforce, Microsoft Corp. and Google, according to the filing.
For the first six months of 2018, SurveyMonkey’s net loss increased to $27.2 million from $19.1 million for the same period last year. In 2017 it had a net loss of $24 million on revenue of $218.8 million. That compared with a net loss of $76.4 million on $207.3 million in revenue in 2016.
SurveyMonkey plans on using the proceeds to pay down debt and meet income tax obligations related to a restricted stock unit settlement, as well as for working capital and general purposes including acquisitions and investing in technology.
Tiger Global Management LLC holds the largest stake in the company with 25 percent of the stock. The Sheryl K. Sandberg Revocable Trust holds an 8.4 percent stake and Facebook Inc. Chief Operating Officer Sheryl Sandberg is on the board. Her late husband, David Goldberg, was chief executive officer of the company.
JPMorgan Chase & Co., Allen & Co. and Bank of America Corp. led the offering. The company is trading on the Nasdaq Global Select Market under the symbol SVMK.

By Bloomberg
FOR nearly a decade, China has taken great pride at filing the largest number of domestic patents. It’s proving less keen on keeping them.
Despite huge numbers of filings, most patents are discarded by their fifth year as licensees balk at paying escalating fees. When it comes to design, more than nine out of every ten lapses — almost the mirror opposite of the U.S.
The high attrition rate is a symptom of the way China has pushed universities, companies and backyard inventors to transform the country into a self-sufficient powerhouse. Subsidies and other incentives are geared toward making patent filings, rather than making sure those claims are useful. So the volume doesn’t translate into quality, with the country still dependent on others for innovative ideas, such as modern smartphones.
“It means these patents really aren’t as valuable as people thought,” said Lu Junfeng, a patent attorney at Shanghai-based JZMC Patent and Trademark Law Office. “If the retention rate is so low for design patents, then it calls into question whether there’s a bigger systematic problem.”
China overtook Japan eight years ago to become the biggest hoarder of domestic patents and has remained in the lead ever since, approving 1.8 million last year alone. President Xi Jinping’s Made in China 2025 program — now at the center of tensions with the U.S. — aims to make the country a global leader in technology, and developing a hoard of intellectual property has become a central element of achieving that.
To get a clearer picture on the country’s patent history, it’s important to understand that not all of them are equal. In China there are three different categories: invention, utility model and design.
Invention patents, as the name suggests, are for new ideas that represent “notable progress” in advancing a technology. This category represents what most people understand about patents, a breakthrough in design, process or concept. It accounted for just 23 percent of the patents granted in China last year.
Just like in the U.S., they face a challenging path to approval in a process that can take 18 months and exposes them to testing and scrutiny. Successful ideas are protected for 20 years.
It’s the two other categories, which both have a 10-year life, that swell the headline numbers but are proving far less valuable. An example of a design patent would be the shape of a soda bottle, while a utility model would include something like sliding to unlock a smartphone. Neither is subject to rigorous examination and can be granted within less than a year.
As of last year, more than 91 percent of design patents granted in 2013 had been discarded because people stopped paying to maintain them, according to JZMC Patent and Trademark data compiled for a Bloomberg query. Things aren’t much better for utility models with 61 percent lapsing during the same five-year period, while invention patents had a disposal rate of 37 percent. In comparison, maintenance fees were paid on 85.6 percent of U.S. patents issued in 2013, according to the United States Patent and Trademark Office.
“The fact that design patent disposal rates are so high is astonishing,” said JZMC’s Lu. “People have such a low desire to keep them.”
While the Chinese government provides an incentive for new applications, that’s not the case once a patent is granted, and holders must pay ever-increasing fees just to keep them.
It costs 900 yuan ($131) a year to own an invention patent, a price that rises to as much as 8,000 yuan later in its life. For the other categories, tolls rise from 600 yuan to 2,000 yuan annually in the last two years.
A lax approval process for the less inventive categories has led to a flourishing of filings, where people literally copy a patent in the U.S. and seek approval in China, often with the intention of parlaying that into a settlement fee, said Wang Xiang, head of law firm Orrick’s China IP practice.
Some companies have also been exposed as frauds, seeking to use patent filings to get tax and residency benefits for employees. Since 2008, as part of China’s national policy to encourage innovation, companies certified as “high-tech firms” have won significant tax cuts and annual subsidies of 500,000 yuan in provinces like Hainan.
“There’s probably a lack of motive to strictly vet these companies,” Wang said. “Unfortunately under the existing judicial system, there is no effective deterrence against fraudulent filing or falsifying evidence.”
Chinese regulators are only just starting to notice some of the suspect practices. The Ministry of Science and Technology revoked high-tech licenses for at least 14 companies this year, without citing specific reasons. In an unusual move, the state-owned Xinhua News Agency lambasted China’s IP industry for plagiarism, forgery and other sub-par practices in August. It said the sector was beset by “weak IP, fake demands and some companies fervent on phony innovation.”
“Fake innovation takes up resources for subsidies, hurts innovators who are working hard, and also tampers with objectivity with policy makers,” it said.
To be sure, China’s support for patents has bolstered some sectors like artificial intelligence and cloud computing. Chinese companies filed eight times as many patents related to those technologies as their U.S. counterparts, according to Nigel Swycher of London-based IP consultancy Aistemos.
Tencent Holdings Ltd., with the largest portfolio among the Chinese trio, now holds three times as many patents as Facebook and double that of Amazon.com Inc.’s, Aistemos’s data shows. Alibaba Group Holding Ltd. has also outpaced those U.S. firms.
Yet the high disposal rates mean China still has a long way to go till it becomes the technologically sophisticated nation it aspires to be.
“While Chinese patent qualities have been improving every year, they are still far from close to the U.S. counterparts,” said Orrick’s Wang.