UPDATED – Mailbox: Curious case of a R33bn trade in a UAE-linked cryptocurrency

UPDATE: An international cryptocurrency website Trustnodes.com ran an update on our story, in which they probed more questions about the R33bn volume in the ZAR/E-Dinar pair as well as the E-Dinar cryptocurrency’s centralised nature (a factor which differentiates it from more traditional decentralised cryptocurrencies like Bitcoin.) You can read more by clicking here. After publishing the article, Trustnodes also contacted Coinmarketcap.com, where the $2.5bn volume was and still is recorded, to find out if it was just a glitch. Coinmarketcap.com tersely responded to say it was just a ‘glitch’ on the little-known Localtrade.pro exchange. Nevertheless, if it is just a glitch, it makes it one of the more interesting glitches in cryptocurrencies’ short history…


JOHANNESBURG — A potentially seismic event happened in South Africa’s financial industry last week, but it barely caused a flutter because it occurred on a little-known cryptocurrency exchange and has been surrounded by mystery. Global websites that track cryptocurrency trading volumes picked up on a bizarre trading event last week. One such website, Trustnodes.com, reported that there was a $2.5bn (R32.6bn) trading volume in a low-profile cryptocurrency called E-Dinar (EDR) on a little-known crypto exchange called ‘Localtrade’. Looking at the data, Trustnodes reported that South African rands were used in this particular trade as the EDR/ZAR trading pair showed massive volumes. Interestingly, the Localtrade exchange only recently opened up trading to ZAR currency users in June this year. Meanwhile, little is known about E-Dinar (EDR) with Trustnodes saying that EDR seems to be an Arabian based blockchain trying to be compliant with Islamic finance requirements. However, digging deeper into this matter, there also seem to be variances in the E-Dinar cryptocurrency as indicated by the FAQ section on a website called EDinarcoin.com. Explaining the difference between E-Dinar (EDR) and E-Dinar Coin (EDC), the site says the following: “E-Dinar [EDR] is an internal cryptocurrency operating on a closed blockchain. Upon numerous requests from the participants of the community, E-Dinar launched E-Dinar Coin [EDC] cryptocurrency, that already has an open code allowing to trade with EDC on external exchanges.” This is a particularly interesting detail as a closed blockchain on the EDR crypto, in particular, would involve a potential lack of transparency over its digital ledger technology. This means that any further trade emanating from the R33bn may not be immediately transparent on a blockchain. Moreover, the E-Dinar Coin website says that an office linked to the cryptocurrency was also recently opened up in Dubai. (Videos linked to E-dinar Coin also have Dubai as its backdrop – you can watch the videos in the below post.)  Nevertheless, BizNews has sent questions to the South African Reserve Bank to ask them whether they’ve picked up on the reported huge ZAR denominated trading volumes into EDR. SARB did respond to us late on Monday night, saying that at least among local accredited banks, it has not picked up a transfer of R33bn (you can read SARB’s full response below Anonymous’ letter). On various internet forums, there is also some debate about whether the trade volumes in question could be a glitch or a manipulation of sorts. But as a local cryptocurrency trader has told us below, it could also be an elaborate form of a ‘wash trade’, casting further mystery over the event. – Gareth van Zyl

By Anonymous

Hello,

During the course of last week, someone purchased an amount of R32.6 billion (USD 2.5 billion) of a previously little-known crypto-currency coin called the e-Dinar (symbol:EDR). The transactions used South African Rands, and took place on a very small and obscure crypto-currency exchange.

The story has been reported on at the below link:

http://www.trustnodes.com/2017/08/24/trading-volumes-rise-9-billion-combined-market-cap-time-highs-151-billion

For the purposes of this email, I have quoted the bits I would like to bring to your attention:

“Interestingly, some $2.5 billion of the trading volume comes from a coin no one has heard of called e-dinar (EDR) on an exchange no one has heard of either called localtrade… the EDR/ZAR trading pair is showing huge volumes, with Zar being the fiat currency of South Africa. While e-dinar is seemingly an arabia based…blockchain that apparently tries to be compatible with muslim religious requirements regarding money.”

A screengrab of the massive EDR/ZAR trade volume.
Screengrabs of the massive EDR/ZAR trade volume.

As the author/s of the original story pointed out – such market volume should be accompanied by a spike of run ups and pullback in the trading price of the currency pair. The price for the transactions was not driven up or down as would be expected in a market in which people were actively trading $2.5 billion worth of assets.

Assuming one was intent on shifting many billions of Rands out of the country without having any exchange control complications, it would be quite logical to establish a cryptocurrency exchange (or influence the legitimate owners of one) and then utilise a currency (of which there are many hundreds to chose from) for the purpose of moving money across borders.

It would be easy enough to set up a ‘wash trading’ system to move the money across to EDR. Two accounts, with one selling into the other, at the same price and same time. Buy the currency in Rands, and then sell it back, in whichever fiat currency serves you best, in whichever country you like later on.

It’s worth considering that the South African cryptocurrency market cap is probably not even in the region of hundreds of millions of dollars, and in one day there’s a massive increase to $2.5 billion, by a buyer purchasing in Rands.

Could this be an elaborate money laundering exercise or is someone with a huge amount of money gambling R32.5 billion on an unknown crypto-currency?

I am sure you can see where I am going with this? I think based on past activities it is safe to say that the kinds of people who would be able to do this, and would want to do it, also have access to very tech savvy individuals within their organisations. It would not be difficult to pull this off with the required technical skills.

There are a lot more people out there who have a much better understanding of crypto-currencies and block chains and I am no market expert by any means, but it is pretty obvious based on the facts who is doing what, if one ‘joins the dots’.

UPDATE: The Reserve Bank responded our questions about the high ZAR volumes into EDR with this response:

For any large value transactions processed through bank accounts, existing rules and processes require regulatory reporting. In this regard, no *Authorised Dealer (i.e. commercial bank) in South Africa has brought to the SARB’s attention the outward flow of rand for a transaction to the value of R32.6 billion. We rely on the formal financial system, which includes authorised dealers, on reporting to the Reserve Bank on all foreign exchange transactions. Authorised dealers are banks that have the right to buy and sell foreign exchange, subject to conditions and within limits prescribed by the Financial Surveillance Department. The other category of authorised dealers in foreign exchange are those with limited authority including Bureaux de Change, for the sole purpose of facilitating travel related transactions

In South Africa, cryptocurrencies are currencies not backed by the SARB, hence offer no recourse or protection to consumers thereof. Any party or actor involved in the purchase or trading of crypto currencies does so at its own risk. The SARB’s Fintech Programme and related Virtual Currency/ Distributed Ledger working group is researching and analysing these emerging currencies and technologies.  One aspect of the review is assessing the impact on cross border financial flows and stability of the financial system. These working groups are currently reviewing the existing policy stances together with the cross-disciplinary Intergovernmental working group consisting of the Financial Intelligence Centre (FIC), Financial Services Board (FSB) and National Treasury. The concomitant risk and benefits of crypto currencies is being reviewed and revised policy stances will be jointly crafted. Cryptocurrencies is also an area of focus internationally and therefore South Africa have been working closely with global standard setting bodies, such as the Committee for Payments and market Infrastructure (CPMI) of the Bank for International Settlements (BIS) and the Financial Stability Board (FSB).