Exclusive: Financial Auditor Flags ₱2.5B Capital Gap, XRP and Crypto Deficits at Coins.ph

Betur. Inc, the company that holds the VASP or the local crypto license of Coins.ph, disclosed financial challenges in its 2023 Audited Financial Statements (AFS), including a ₱2.5 billion accumulated deficit, crypto reserve deficits (such as a ₱192 million deficit in XRP), and capital deficiency amounting to ₱666.4 million. The AFS is a public document submitted to the Securities and Exchange Commission (SEC).

• Coins.ph’s auditor raised a “going concern” issue and wrote in its audit report that: “The Company’s capital deficiency indicates that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern.”
• The auditor referred to the status of operations as of December 31, 2023, and the audit report was dated September 30, 2024. 

The report was signed by Ofelia Barroga, partner of the auditor Diaz Murillo Dalupan and Company. The report is related to Betur, Inc., the legal name of Coins.ph. The “Statement of Management’s Responsibility” was signed by Manuel Lasam, Jr. (Chairman), David Kao (President), and Jen Bilango (Treasurer).

Before this article is published, BitPinas sought comments both from Coins.ph and the Bangko Sentral ng Pilipinas (BSP). Coins.ph has responded to our questions and noted that they will be refiling the AFS. A BSP representative said they will respond to our email.

BitPinas also acquired the audited financial statements of other relevant locally licensed VASPs for future reporting.

Customers’ Crypto Reserve Deficits, Including ₱192 million XRP Deficit

As per the Audited Financial Statements, as of December 31, 2023, Coins.ph reported deficits in several cryptocurrencies held as customer reserves – the most significant of which is a 5.56 million XRP shortfall worth, the financial statements stated, as ₱192 million.

• Customer Wallet XRP Obligation: 29,756,571 XRP
• Company Operations Wallet XRP: 716,358 XRP
• Total XRP Reserves: 24,200,956 XRP
• Deficit: 5,556,161 XRP (₱192 million as stated in the AFS)

Based on these AFS, if all customers withdrew their XRP from Coins.ph on December 31, 2023, the XRP reserves of the company may not be sufficient to cover all customer withdrawals:

Coins.ph CEO Wei Zhou sent a statement regarding the XRP balances. Please check Coins.ph’s full response at a later section of this article.

The XRP deficit stemmed from a widely reported hack in October 2023, which, according to news outlet The Block, 12.2M XRP (worth around $6 million at the time of the report) had been stolen.

At that time, Coins.ph did not publicly acknowledge the hack, but the Department of Justice, in a news item in July 10 of this year, said it has filed charges against two Russian nationals from stealing XRP from Coins.ph.

What Coins did about the XRP hack:

• The financial statements noted that the company took legal action and identified exchanges where the stolen XRP had been moved.
• The auditor stated that Coins expects to recover 5,586,970 XRP:

“The total quantity and amount of XRP that the Company expects to claw back from third-party virtual currency exchanges are 5,586,970 XRP and ₱193,135,817, respectively.”

Coins.ph Audited Financial Statements

In the financial statements, the auditor accepted the management’s judgment that these XRP could still be recovered.

Betur’s deficits as of Dec. 31 last year extended to other cryptocurrencies, including:

• ORDI – Deficit of ₱2,321,625
• USDC – Deficit of ₱5,798,266
• YGG – Deficit of ₱2,019,648

These are the other cryptocurrencies wherein the company also has deficits as of Dec. 31, 2023. All numbers are from the 2023 Audited Financial Statements:

ALT	APE	ARKM	AXS
BAT	BLUR	BNB	CBX
COMP	DOGE	ENJ	FANC
FLOKI	IMX	LOOKS	MEME
MV	ORDI	PENDLE	PEPE
RDNT	RON	RPL	TRX
UNI	UNIBOT	USDC	XRP
YGG

Coins.ph reported no deficits in major tokens like BTC and ETH.

Betur Inc’s Statement of Financial Position:

As per the Audited Financial Statements, as of Dec. 31, 2023, Betur reveals a negative equity of ₱666.7 million, meaning the company’s liabilities exceeded its assets:

Key figures include:

• Assets and Liabilities: Dropped from ₱1.57 billion in 2022 to ₱977.6 million in 2023
• Accumulated Deficit: Increased from ₱1.44 billion in 2022 to ₱2.52 billion in 2023

Note: Please check the Financial Auditor statement section where the debt-to-equity swap is discussed.

Betur Inc Profit and Loss

Betur’s revenues plunged by 87.8%, from ₱929.6 million in 2022 to ₱112.9 million in 2023, while losses continued to widen:

Key findings include:

• Net Loss: ₱1.09 billion in 2023, up from ₱970.5 million in 2022.
• Gross Income: Shifted from a ₱491 million profit in 2022 to a ₱51.8 million loss in 2023.
• Operating Expenses: Decreased from ₱1.74 billion to ₱920.8 million, but still dwarfed revenues.

Betur also reported other losses of ₱28.3 million, compared to ₱84.3 million in other income the previous year.

The wider crypto industry suffered a long bear market that continued through 2023.

Final Auditor Statement – How Betur is Mitigating the Going Concern

As per the audited financial statements, Betur has also failed to comply with the capitalization requirements set by the Bangko Sentral ng Pilipinas (BSP):

Finally, to address this, the board of directors approved the conversion of ₱1.2 billion in support service payables to its parent company named GCT in Singapore to additional paid-in capital. The approval happened on May 31 and September 30, 2024, but the auditor said their opinion did not change in respect of the conversion. The audit report expressing this opinion discusses operations as of December 31, 2023 only:

BitPinas Questions to Coins.ph

Before this article is published, BitPinas sought Coins.ph’s responses to the following questions:

1. Could you share the specific steps Coins.ph is taking to address the ₱2.5 billion capital deficiency and ensure compliance with the Bangko Sentral ng Pilipinas (BSP) capitalization requirements?
2.  Regarding the ₱192 million XRP deficit reported due to the October 2023 hack, could you confirm the status of recovery efforts and provide any updates on this matter? 
3. Additionally, could you clarify how deficits in other cryptocurrencies occurred? For instance, given the BSP circular’s emphasis on maintaining a 1:1 ratio of customer crypto reserves, how can there be deficits in the customer crypto balances? As an example: As an example: ORDI (₱2,321,625), USDC (₱5,798,266), YGG (₱2,019,648).

Coins.ph Response

Below is the response from Wei Zhou, CEO of Coins.ph, published in full:

We have already infused additional capital and made accounting adjustments to address Betur’s 2023 equity position. It is important to note that Betur represents only one entity within our broader group and does not fully reflect the strength and performance of our overall business.

Betur recorded cash and cash equivalents in excess of Php 300 million as of December 31, 2023. Furthermore, we have cash in our holding Company as well as in DCPay Philippines. This shows we have sufficient liquidity as a group.

All cryptocurrency balances on our platform are fully backed and audited. The AFS represents a snapshot in time; what might appear as a gap is a result of timing differences in transaction confirmations and the sending or receiving of tokens by users.

As for XRP, these balances were fully backed using company funds. Additionally, we hold XRP locked on other exchanges, which will be returned to our reserves. These ensure a full backing of all XRP balances. We cannot comment on additional details as we are currently working with law enforcement agencies. 

While 2023 posed significant challenges for the crypto industry as a whole, Coins.ph was well-positioned to navigate this successfully. This year, Coins.ph has demonstrated strong performance, achieving record highs in both trading volumes and user growth.

[Note: Coins recently submitted a press release that is published on BitPinas, indicating their record highs in trading volume and user growth this November.]

At the time of publication, BitPinas awaits further clarification from Coins.ph to clarify the following:

1. Proof of the capital infusion and accounting adjustments to address Betur Inc.’s 2023 equity issues, such as official SEC filings or other records.
2. A complete figure for cold cash, hard cash, and working capital and expenses to provide clearer context on the ₱300 million figure that CEO Wei Zhou mentioned.
3. Audit trails or reports to confirm that all cryptocurrency balances on the platform are fully backed, as the company claims, and how confident is the company that the XRP that are locked in other exchanges can be retrieved.

Before the article is published, Coins, in another email, said the company is going to refile the 2023 AFS for better representation.

This article is published on BitPinas: Financial Auditor Flags ₱2.5B Capital Gap, XRP Deficits at Coins.ph’s Betur Inc

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