SINGAPORE – The trial for Singapore’s first legal dispute involving the cryptocurrency bitcoin started on Wednesday (Nov 21), with a court expected to decide whether a number of trades done in April last year had been wrongfully reversed – leading to proceeds deducted allegedly without authorisation.
In the case being heard in the Singapore International Commercial Court, electronic market maker B2C2 is suing bitcoin exchange operator Quoine over a “unilateral reversal” of seven trades on its platform. A market maker is a member firm of an exchange that also trades on it.
B2C2 seeks to recover about 3,085 bitcoins from Quoine, with its lawyers charging in an opening statement that Quoine had sought to “abuse its role as operator of the platform” and “acted in breach” of trust as a custodian for B2C2.
B2C2 is represented by lawyers led by Mr Danny Ong of Rajah & Tann, while Quoine is represented by a team led by Mr Paul Ong of Allen and Gledhill.
No dollar amount was provided in court documents seen by The Straits Times, but according to cryptocurrency exchange CoinDesk’s rates on Wednesday, the disputed amount translates to more than US$13 million (S$18 million). The potential value swelled late last year, following bitcoin’s meteoric surge past US$11,000 at one point.
The plaintiff said in its opening statement: “It is B2C2’s contention that in the face of serious risk of itself having to bear the financial loss arising from the trades… Quoine chose the most advantageous course to mitigate such risk – by simply reversing the ‘irreversible’ trades and deducting the… proceeds from the account.”
“There would then be no necessity for Quoine to seek payment from (its customers) and if they were unable or refused to pay, to shoulder the financial risk itself and be ‘out of pocket’ for the (proceeds),” the statement added.
Quoine countered that a glitch in its program leading up to the disputed trades had caused it to be “unable to access external market price data” for the two cryptocurrencies in question, ethereum and bitcoin.
Due to the glitch, the program stopped creating or placing new orders involving these currencies on the platform, causing issues with liquidity and therefore, problems with the orders made by B2C2.
“There is no other way than to describe these orders as abnormally and absurdly priced orders, given that they were about 250 times higher than the average price at which (the two currencies) then traded on the platform,” said the defendant.
On April 19 last year, B2C2 placed its seven orders to sell ethereum for bitcoin at a rate of 10 bitcoins for one ethereum. The trades were reversed the following day without B2C2’s authorisation.
While B2C2 contends that nothing in their previous terms and conditions allows Quoine to reverse the fulfilment of an order or any resulting trade, Quoine cites a risk disclosure statement to say it can cancel any transaction that “took effect based on an aberrant value”.
B2C2 also argues that under its agreement with Quoine, virtual currency balances would be held by Quoine as “a custodian on trust” and would not be deducted or withdrawn without prior approval. But Quoine says the agreement does not expressly refer to such “trust”.
Taking the stand on Wednesday, B2C2 founder Maxime Boonen was questioned on issues such as whether a market maker like his firm has a role to promote a fair and orderly market, keeping prices stable on exchanges. Mr Boonen disagreed, noting that prices are taken as they are, and he does not decide what they ought to be.
Mr Paul Ong also sought to prove that B2C2 would have agreed to terms allowing the exchange to correct trades affected by errors. He referred to terms of other exchanges that B2C2 trades on, pointing out that these have clauses allowing them to cancel orders that were accepted if they were found to be “erroneous” or constitute “market abuse”.
Mr Boonen conceded it was likely that B2C2 was trading on such terms with some exchanges, but maintained it would not have agreed to these conditions, in Quoine’s case.
The trial is expected to conclude next week, with Quoine co-founder Mario Gomez-Lozada expected to take the stand.