The 95% drop in the price of Miami’s mayor-backed crypto MiamiCoin has dampened the hopes of Miami’s city leaders and raised red flags for regulators looking into cryptocurrency transactions.
Miami’s cryptocurrency, MiamiCoin, was cashed out for the first time on Feb. 2, depositing $5.25 million into city coffers. Mayor Francis Suarez of Miami called it a “historic moment” and predicted that cryptocurrencies would eventually replace municipal taxes as the government’s primary source of revenue.
The coin’s creator, CityCoins, has been as excited, describing the coin as a financial experiment that will empower individuals with a “community-driven revenue stream” while inspiring new digital city services.
Miami isn’t the only city with huge plans for cryptocurrency. In November 2021, CityCoins launched a similar cryptocurrency for New York, and it aims to introduce one for Austin, Texas, soon. Other cities have followed suit, with Fort Worth, Texas, for example, planning to install bitcoin mining rigs at city hall.
So far, only Miami’s mayor has given his complete support to a CityCoin-branded cryptocurrency. The city of Miami got millions of dollars through its deal with CityCoins after promoting MiamiCoin to citizens and investors since its introduction in August.
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MiamiCoin, on the other hand, has lost virtually all of its value in the last nine months, plunging about 95% from its September high to just $0.0032 as of May 13. Its steep decline has burnt investors, dampened the hopes of Miami’s city leaders, and raised red flags for regulators looking into cryptocurrency transactions.
Miami’s mayor is CityCoins’ biggest booster
MiamiCoin is the first of a series of US city-branded cryptocurrencies announced by CityCoins, a Delaware-based company with a mailing address in a Los Angeles strip mall. On Nov. 8, shortly after his election, New York City mayor Eric Adams tweeted his acceptance of NYCCoin, welcome CityCoins to “the global home of Web3” (Web3 is a crypto-optimist idea of a decentralized internet built on blockchains and cryptocurrencies). However, after taking office on January 1st, Adams has said nothing about NYCCoin, which has dropped 68 % in value. Meanwhile, the city of Philadelphia studied the CityCoins concept but decided not to pursue it in April.
However, Miami has forged ahead. It inked a “gift agreement” with CityCoins in October 2021, which allows Miami to collect proceeds from the coin. The city, on the other hand, does not own or administer the cryptocurrency. (In public appearances, Suarez has clarified that the city is just a legal beneficiary.)
Suarez and CityCoins both benefited from the deal at first. As it promotes more cryptocurrencies, CityCoins has needed the support of major city mayors. And Suarez, a rising Republican star with national ambitions, has made it apparent that he feels MiamiCoin may help him improve his image as a pro-technology politician.
Emails received through a freedom of information request between CityCoins and Miami officials reveal a close partnership to promote MiamiCoin to the local tech community. According to the records, Patrick Stanley, who describes himself as a CityCoins “contributor” and “community lead” in interviews and on social media, was the most frequent point of contact for city officials.
Stanley urged city officials to hire tech leaders to create trust within the Miami tech community in an email received on Oct. 8, 2021. “This weekend,” Stanley said, “[Miami chief innovation officer Mike Sarasti] is going to try to find some names of people in the local area that can establish trust locally.” “This will get a lot of pushback in Miami unless there is an OG Miami tech crew who can bridge the gap,” he says, referring to well-known and respected members of the city’s tech sector.
“We don’t want crypto anarchy”
Stanley has been the driving force behind a number of blockchain-based projects. Stacks, for example, is a company that built the infrastructure that MiamiCoin now relies on. He started CityCoins with the goal of generating revenue for municipal governments while also encouraging tech innovation among city inhabitants.
While many crypto enthusiasts preach independence from the government and financial institutions, Stanley sees government and cryptocurrency as natural partners. In a phone conversation he remarked, “We don’t want crypto anarchy.” “It’s more like, ‘crypto civilization.’ Our whole goal is to increase happiness, health, and wealth for citizens. We’re not a replacement for governments, we want to increase state capacity.”
Despite the fact that MiamiCoin’s price is falling, Stanley thinks that it can and will have practical applications in the near future. He acknowledged reasonable concerns of cryptocurrencies, a market filled with scams, deception, and puffery, in an interview, but claimed that CityCoins is an exception, a rare crypto product with transformative potential. “One type of person thinks that everything in crypto is a scam,” said Stanley . “Another type of person thinks ninety-nine percent of crypto is a scam but one percent is insanely important. I’m in that latter group. Bitcoin, Stacks, Ethereum, CityCoins. That all falls in that one percent of projects that are not only not scams, but incredibly important.”
“A few regulatory wires the Mayor has tripped”
Because MiamiCoin remains in an unproven regulatory gray area, CityCoins and Miami are wary of raising red flags with the US Securities and Exchange Commission, which has previously pursued cryptocurrencies as unregistered securities.
CityCoins was anxious about raising red flags with the federal government, according to an email obtained by Quartz. Kara Miley, an outside press agent for CityCoins, sent an email to Suarez’s chief of staff on Oct. 6, 2021, claiming that the mayor had caused issues during his media appearances discussing MiamiCoin.
“We need to get an hour with the Mayor for a comms training session on CityCoins and MiamiCoin. It’s great that he is doing press but he would greatly benefit from an hour session with Patrick on how to best communicate the project. There are a few regulatory wires the Mayor has tripped in recent interviews and it’s really important for the sustainability of the project that he is better prepared. We really care about the Mayor and his role in making MiamiCoin a success—it’s critical that we get time with him as soon as possible.”
Miami mayor’s office representatives did not respond to several requests for comment on MiamiCoin. In an email , Stanley backed MiamiCoin, claiming that Miley had “overstated” the issues and that Suarez was “well within his bounds” throughout the interviews. “Out of an abundance of caution,” Miley said that, she sent the email to Suarez’s team. “But he had not in fact tripped any [regulatory] wires.”
The email itself, according to John Reed Stark, a former chief of the SEC’s Office of Internet Enforcement, is a red signal for regulators looking for potential wrongdoing. “The SEC could very easily see an email like this, become concerned, open up a formal investigation, and issue subpoenas to everyone as to what’s going on,” he warned over the phone.
If the SEC investigates MiamiCoin and finds it to be an unregistered securities, CityCoins and the City of Miami may be obliged to refund investors’ money. If the SEC discovers that anyone involved made false public assertions regarding MiamiCoin, the organizers might be charged with securities fraud.
The SEC has already filed lawsuits against companies for cryptocurrencies that it considers to be unregistered securities. It’s not unreasonable to suggest that citizens of crypto-using municipalities, like investors, require protections. “Their fiscal future is in jeopardy if a municipality is committing any sort of fraud or any sort of registration violation,” Stark explains.
What is MiamiCoin?
MiamiCoin is currently a completely speculative asset. The city itself, as well as private vendors, do not appear to accept cryptocurrencies as payment for goods or services. CityCoins was able to point to one proposed (but not yet implemented) city project involving a city contractor who would use cryptocurrency to reward residents who reported incorrectly parked ridesharing scooters to the city’s 311 phone service.
Instead, MiamiCoin has mostly operated as a volatile asset that generates revenue for the local government by mining and trading it on the cryptocurrency market.
Anyone can theoretically buy MiamiCoin on an exchange or mine new tokens by paying to enter a digital lottery that distributes fresh tokens. The value of a cryptocurrency rises and falls in response to demand from speculative investors or miners. The money staked on cryptocurrency mining is instantly sent to a wallet designated for the municipal administration. The coin has so far raised $5.25 million. The city’s unclaimed money wallet, which formerly held $15 million in a separate cryptocurrency called STX, is now less than half that amount.
Miami municipal commissioners voted in February to allocate MiamiCoin earnings to rental assistance for Miami residents whose rents had increased by more than 20% in the previous year. According to the Miami Herald, over 800 qualifying residents might get $1,000 each month for six months.
CityCoins recently added a feature that allows token holders to propose and vote on ideas for how the city should use cryptocurrency revenue. Stanley told Wired that he believed the voting function would encourage residents of the coin’s namesake city to buy the currency.
Trading and mining MiamiCoin
MiamiCoin is unlikely to take off, if only because it is so difficult to obtain for the average person. Most big cryptocurrencies are traded on well-known exchanges like Coinbase or Binance, but MiamiCoin is only available on OkCoin, the 26th-largest by volume, according to CoinMarketCap. Even experienced crypto investors would have to open a new account to access MiamiCoin, and without a huge number of traders or the liquidity of the larger exchanges, investors may find it difficult to cash out.
It’s considerably more difficult to mine MiamiCoin. MiamiCoin is built on the Stacks (STX) cryptocurrency infrastructure, which is a blockchain technology that allows web developers to build apps on top of the bitcoin blockchain. The Stacks, where Stanley used to be an executive, has raised $94 million in funding since 2019.
Prospective miners must bid hundreds of dollars worth of STX on “blocks” of MiamiCoin using the website MineCityCoins.com after registering with Stacks and accumulating STX tokens. Miners can boost their odds of winning a block by wagering more STX, similar to how buying raffle tickets increases one’s chances of winning a reward. The city of Miami receives 30% of the bids paid in STX after a miner wins the block.
Is crypto a good investment for Miami?
Stanley stated that it is too early to assess the worth of MiamiCoin, highlighting that the coin is still in its early stages. On April 6, Stanley said that, “It’s crawling right now.” “We want to see it walk. We want to see it run .” He believes it will eventually develop into a “open-source app ecosystem…a mini ethereum” for Miami-based projects, comparing it to the popular blockchain, which has facilitated the emergence of decentralized applications and nonfungible coins.
However, critics claim that Miami’s embrace of MiamiCoin diverts resources, especially staff time and attention, away from pressing issues like economic disparity and housing affordability.
“I wish local leaders would approach cryptocurrencies… by asking what problems are we trying to solve and are the risks greater than the benefits,” says Tonantzin Carmona, a Brookings Institution fellow who previously worked as the policy chief for the Chicago City Clerk and as a director of the Chicago mayor’s Office of New Americans.
Carmona sees a clear distinction between recommending risky, unregulated assets such as cryptocurrency and financial goods such as payday loans and subprime mortgages. She sees it as part of a heritage of “predatory inclusion,” in which low-income people are given access to the financial system on dangerous, exploitative terms that can harm the most vulnerable. “Proponents argue that crypto will lead to financial inclusion,” adds Carmona, “but access comes at a cost that compromises the benefits.” “Cryptocurrencies are volatile, they’re risky, complex, and the space is ripe with scams, frauds, and hacks.”
That reality may be dawning in Florida. Suarez admitted to the Miami Herald in February that the project might fail as the price of MiamiCoin plummeted to less than half a cent. He told the publication, “Innovation doesn’t always work.” Suarez, on the other hand, seems to trust in the power of cryptocurrencies to revolutionize municipal government, praising “the impact this technology will have on democracy” during a Miami tech conference on April 19.
Stanley, for one, is unconcerned with MiamiCoin’s price drop. He believes that the price would eventually rebound if more investors and developers come in. (Users of CityCoins have voted to modify the rate at which new coins are created, which is likely to boost the coin’s price.) He remarked in April, “We have seen this movie before, and the market is a little behind what is happening and what is to come.” “The score will take care of itself. No serious stakeholder expects their investment to go up and to the right, and we are patient.”
Stanley, who mined MiamiCoin himself (though he didn’t reveal how much he had), claims to be “breakeven” on his investment. He has no intention of selling.