Tag: Crypto

Bitcoin Tops $45K for the First Time Since 2022

Posted on by slightbourne@noblecapitalmarkets.com

The cryptocurrency market is off to a strong start in 2024, led by Bitcoin’s climb back above $45,000 for the first time since April 2022. Bitcoin gained over 150% in 2023, marking its best annual performance since 2020. Analysts say bitcoin’s resurgence is driven by growing optimism that the long wait for a spot bitcoin exchange-traded fund (ETF) may finally end in early 2024.

The Securities and Exchange Commission has rejected numerous proposals for a spot bitcoin ETF over the years, arguing the crypto market is too susceptible to manipulation. But the SEC appears to be warming up to the idea amid maturing crypto regulation and infrastructure. The approval of a spot bitcoin ETF would allow mainstream brokerages to offer crypto exposure to millions of investors for the first time.

Ethereum, the native cryptocurrency of the ethereum blockchain, also rallied to start the year. It gained over 90% in 2023 despite volatility that whipsawed the crypto market. Ethereum has benefited from upgrades to the ethereum network as it transitions to a more energy-efficient proof-of-stake consensus model.

Other layer-1 blockchain tokens like Solana’s SOL, Polygon’s MATIC and Polkadot’s DOT saw steep gains in 2023 as well. The growth of decentralized finance and Web3 applications continues to drive interest in Ethereum rivals.

The upbeat momentum in crypto has also lifted shares of companies with significant digital asset exposure. Crypto exchange Coinbase saw its stock jump in early trading, along with bitcoin holding firm MicroStrategy.

Mining companies like Riot Blockchain and Bit Digital were up sharply as higher bitcoin prices improve profitability for crypto miners. Even crypto-adjacent equities like Tesla, which holds bitcoin on its balance sheet, have outperformed the broader stock market recently.

Macroeconomic trends are also providing tailwinds for the crypto market after a brutal 2022 bear market. The collapse of the Terra/Luna ecosystem, bankruptcies of key industry players like Celsius Network and FTX, and meltdown of algorithmic stablecoins wiped over $2 trillion from the crypto market cap at its lowest point.

But expectations that the Federal Reserve and other central banks could start cutting interest rates in 2024 have renewed appetite for risk assets. Lower rates tend to benefit high-growth, speculative investments. The crypto market meltdown also flushed out excess leverage and speculative frenzy.

With crypto giants like FTX and Alameda Research gone, attention is returning to building and expanding the underlying utility of blockchain networks. The growth of decentralized applications and services like decentralized finance (DeFi), non-fungible tokens (NFTs), metaverse virtual worlds and Web3 remain long-term tailwinds for crypto adoption.

Some analysts predict the crypto market could get an added boost in 2024 from the U.S. presidential elections. Bitcoin’s four-year reward halving schedule has coincided with recent election year performance. If the crypto bull market resumes as 2024 dawns, analysts say the next Bitcoin halving could fuel further growth.

While risks like regulation and security breaches remain, the crypto industry has weathered previous downturns. With fundamentals still favorable for broader blockchain adoption, the crypto market appears ready to leave its 2022 woes behind as it charges into the new year.

Coinbase Aims for Crypto Crown as Binance Stumbles

Posted on by slightbourne@noblecapitalmarkets.com

With the U.S. government cracking down on Binance, slapping the world’s largest cryptocurrency exchange with $4.3 billion in fines and forcing its maverick founder Changpeng “CZ” Zhao to relinquish control, arch-rival Coinbase sees an opening to reclaim market share by playing the role of the “good guy” traded on Wall Street.

Coinbase shares have jumped some 18% over the past week to around $118 as CEO Brian Armstrong asserted last Tuesday’s settlement finally “closes that chapter of crypto’s history” in which Binance flouted global regulations while handling over $15 trillion in trades since 2017. By contrast, Armstrong now aims to position Nasdaq-listed Coinbase as the compliant, institutional exchange best positioned to capitalize on the crypto industry’s shift toward greater oversight.

“Building a company offshore, skirting regulation, it’s just not going to work,” Armstrong told CNBC, taking a shot across the bow of both Binance as well as consumers who transacted on the exchange drawn by its swift listings of new – often risky – digital assets. With federal agencies now policing crypto’s “Wild West” era, Armstrong wants to reassure investors that Coinbase will work hand-in-hand with authorities, supporting his belief that crypto can operate by the same rules as traditional finance.

Whether such harmony emerges remains clouded by legal issues confronting Coinbase itself, including an ongoing SEC lawsuit filed last June. While Armstrong feels “very good” about Coinbase’s defense and his aim is full regulatory clarity, such certainty seems distant given bitcoin’s recent plunge marking another crypto winter. Nonetheless, the humbling of the industry’s one-time dominant exchange gives his company a momentary edge.

Binance’s astronomical rise represented a meteoric challenge to Coinbase’s early market supremacy following its 2012 launch and 2017 debut on public markets weeks before bitcoin hit a historic peak near $20,000. Former Bloomberg programmer and Tokyo Stock Exchange developer Changpeng Zhao founded Binance in Shanghai in 2017, developing technical capabilities allowing it to scale at warp speed by listing new cryptocurrencies faster than cautious Coinbase.

With an opaque corporate structure based initially in Asia and subsequently the Cayman Islands, Binance also dodged oversight as global regulators sounded alarms. But its explosive growth quickly afforded Zhao celebrity status as one of crypto’s biggest whales and most vocal proselytizers. Meanwhile, to keep pace with its insurgent rival now commanding the majority of trading volumes, Coinbase rushed to expand its offerings but continued adhering to compliance standards in order to maintain institutional investor confidence.

Yet as U.S. authorities targeted Binance last year with a series of harsh punitive actions, momentum swung back toward its compliant competitor. Both the CFTC and SEC ultimately launched suits against Zhao’s exchange for allegedly violating investor protection statutes, culminating in extensive settlement terms compromising Binance’s autonomy going forward. With its renegade era under CZ seemingly finished, Armstrong aims to leverage Coinbase’s head start collaborating openly with financial watchdogs.

Despite his bravado about closing an ignominious chapter for crypto, Armstrong must still confront lingering suspicions from regulators like the SEC about whether any exchanges can provide adequate investor protections around highly speculative digital assets. Coinbase itself has fought SEC assertions that it facilitated unregistered securities trades.

While the two suits differ, both target core business models questioning whether current legislation written before crypto’s advent can properly govern such technologies. Beyond exacting large fines, authorities want to slow crypto trading – putting platforms like Coinbase and Binance in an existential vice grip complicated by token assets’ fluctuation between currency and security classifications.

How Congress and agencies like the SEC ultimately delineate acceptable crypto activity under existing statutes or new legislation could determine which exchanges remain standing. Ironically victories could stem as much from legal ingenuity as technology innovation. But with Binance at least temporarily defanged, Coinbase remains well positioned to shape crypto’s second act blending Wall Street’s institutional trust with Silicon Valley’s disruptive daring.

Clearly the crypto landscape entering 2024 stands on shifting sands, clouded by bitcoin’s swoon, regulatory turbulence and possible global recession. Yet should pioneer blockchain currencies and exchanges somehow emerge resilient, Coinbase sits ready to seize the market share boon a humbled Binance left on the table. After years sparring in crypto’s octagon, this match’s decision appears nearer – though mainstream adoption stays stubbornly out of reach.

Binance CEO Pleads Guilty to Money Laundering

Posted on by slightbourne@noblecapitalmarkets.com

In a watershed moment for cryptocurrency oversight, Changpeng Zhao, billionaire founder of crypto exchange Binance, pleaded guilty on Tuesday to charges related to money laundering and sanctions violations. Binance itself also pleaded guilty to similar criminal charges for failing to prevent illegal activity on its platform.

The guilty pleas are part of a sweeping, coordinated crackdown on Binance by U.S. law enforcement and regulators. As part of the settlement, Binance agreed to pay over $4 billion in fines and penalties to various government agencies. Zhao himself will personally pay $200 million in fines and has stepped down as CEO.

The implications of this development on the broader crypto sector could be profound. As the world’s largest crypto trading platform, Binance has played an outsized role in the growth of the industry. Its legal troubles and the record penalties imposed call into question the viability of exchanges that flout compliance rules in the name of rapid expansion.

Prosecutors allege that Binance repeatedly ignored anti-money laundering obligations and allowed drug traffickers, hackers, and even terrorist groups like ISIS to freely use its platform. According to the Department of Justice, Binance processed transactions for mixing services used to launder money and facilitated over 1.5 million trades in violation of U.S. sanctions.

U.S. authorities were unequivocal in their criticism of Binance’s focus on profits over meeting regulatory requirements. This suggests that other exchanges that aggressively pursued growth while turning a “blind eye” to compliance may face similar crackdowns in the future. The $3.4 billion civil penalty imposed on Binance also sets a benchmark for potential fines other non-compliant entities may confront.

The charges against the world’s largest crypto exchange and its high-profile leader represent federal authorities’ most aggressive action yet to rein in lawlessness in the cryptocurrency industry. Officials made clear they will continue targeting crypto companies that break laws around money laundering, sanctions evasion, and other illicit finance.

More broadly, CZ’s guilty plea underscores the pressing need for sensible guardrails if crypto is to shed its reputation as primarily facilitating illegal activity. Though blockchain technology offers many potential benefits, its pseudonymous nature makes it vulnerable to abuse by criminals and terrorists financing unless exchanges rigorously verify customer identities and the source of funds.

For the wider crypto sector, the Binance takedown may spur valuable change. Many experts argue overly lax regulation allowed crypto exchanges to ignore Anti-Money Laundering rules other financial institutions must follow. The billion-dollar penalties against Binance could convince the industry it’s cheaper to self-regulate.

The Binance case may accelerate calls for a regulatory framework tailored to the unique risks posed by cryptocurrencies. Rather than stifle innovation in this nascent industry, thoughtful policies around KYC, anti-money laundering, investor protections and other issues could instill greater confidence in cryptocurrencies among mainstream investors and financial institutions.

Of course, because cryptocurrency transactions are pseudonymous, crypto will likely remain appealing for certain unlawful activities like narcotics sales and ransomware. But with Binance’s guilty plea, regulators sent the message that flagrant non-compliance will not fly. Exchanges allowing outright criminal abuse may face existential legal threats.

For exchanges determined to operate legally, the Binance debacle highlights the existential risks of non-compliance. No matter how large or influential, exchanges that refuse to meet their regulatory responsibilities risk jeopardizing their futures. Expect most exchanges to immediately review their KYC and AML policies in the wake of the Binance penalties.

At minimum, the charges will likely damage Binance’s reputation. Although the company remains operational, it could lose market share to competitors perceived as more law-abiding. For crypto investors, the uncertainty and loss of trust surrounding such a dominant player create fresh volatility in already turbulent markets.

Perhaps most profoundly, seeing handcuffs slapped on crypto’s one-time “king” punctures the industry’s former aura of impunity. After the Binance takedown, ongoing federal probes into FTX and other exchanges, and Sam Bankman-Fried’s criminal conviction, crypto fraudsters might finally fear the consequences many avoided for so long. For better or worse, crypto is evolving.

Sam Bankman-Fried Found Guilty on All Counts in FTX Fraud Trial

Posted on by slightbourne@noblecapitalmarkets.com

Sam Bankman-Fried, the disgraced founder and former CEO of the failed cryptocurrency exchange FTX, has been found guilty on all charges related to fraud and money laundering. The verdict was handed down on Thursday by a jury in a Manhattan federal court following over a month of dramatic testimony in one of the most high-profile white collar criminal trials in recent history.

Bankman-Fried faced seven criminal counts tied to allegations he defrauded FTX customers and investors out of billions of dollars. The jury deliberated for approximately four hours before returning guilty verdicts on all counts, affirming the prosecution’s allegations that the 30-year-old knowingly misled investors and misappropriated customer deposits to cover losses at his hedge fund, Alameda Research.

Each fraud count carries a maximum sentence of 20 years in prison, while the money laundering conviction includes up to another 20 years. This brings the total maximum sentence to 115 years behind bars for Bankman-Fried. His sentencing hearing is scheduled for March 2024, where the exact prison term will be determined by Judge Lewis Kaplan.

Rapid Downfall of a Crypto Pioneer

The verdict represents a dramatic demise for Bankman-Fried, who was once hailed as a pioneer within the crypto industry. The MIT graduate founded FTX in 2019, and it grew rapidly to become one of the largest global cryptocurrency exchanges with a valuation of over $30 billion at its peak.

But FTX collapsed almost overnight last November after a report revealed a leaked balance sheet showing Alameda Research owed billions of dollars in loans to FTX. The news triggered a liquidity crisis and customer withdrawals that quickly bankrupted both companies.

Prosecutors presented evidence over the course of the trial that Bankman-Fried had secretly transferred customer funds from FTX to cover losses at Alameda as the hedge fund made a series of failed investments. In total, an estimated $8 billion in customer money vanished.

When asked on the witness stand whether he stole funds, Bankman-Fried testified “I never intended to commit fraud.” But the 12-person jury ultimately sided with the prosecution in deeming his actions fraudulent.

Watershed Moment for Crypto Accountability

The guilty verdict represents a major victory for authorities seeking greater accountability within the largely unregulated crypto industry. Bankman-Fried’s conviction on all criminal charges related to the FTX collapse will likely spur further calls for regulation to protect investors participating in digital asset markets.

Many Industry observers believe the prosecution and ultimate guilty verdict for Bankman-Fried will serve as a warning for other crypto executives. His undoing may deter similar misconduct, as leaders now know they can face severe criminal repercussions for defrauding customers.

While the FTX saga damaged trust in cryptocurrencies broadly, the decisive guilty verdict helps restore some faith that justice can be served. Investors who lost their savings when FTX failed may find some solace knowing its founder and chief architect will now likely serve substantial prison time.

For Bankman-Fried himself, the future now looks increasingly bleak. His sentencing in March 2024 will determine exactly how many years he’ll spend incarcerated for the crimes that led to FTX’s epic collapse and wiped out billions in customer funds. But the outcome is already clear – his fraud conviction ensures Bankman-Fried will go down in history as a disgraced figure instead of the visionary entrepreneur he once portrayed himself to be.

Coinbase Confident in Coming US Bitcoin ETF Approval After SEC Court Defeat

Posted on by slightbourne@noblecapitalmarkets.com

Cryptocurrency exchange Coinbase is increasingly confident that a bitcoin exchange-traded fund (ETF) will soon be approved by the US Securities and Exchange Commission (SEC), following the regulator’s recent court loss blocking Grayscale’s bitcoin fund from becoming an ETF.

Paul Grewal, Coinbase’s chief legal officer, told CNBC that the company is “quite hopeful” that pending bitcoin ETF applications will now be approved by the SEC. He highlighted that they should be granted under the law, referring to the Appeals Court ruling that the SEC had no basis to deny Grayscale’s bid to convert its Grayscale Bitcoin Trust (GBTC) into an ETF.

The SEC decided last week not to appeal that court decision, likely clearing the path for a bitcoin ETF to be greenlit in the coming months. While Grewal did not give a timeline, he expressed confidence the SEC will now approve a bitcoin ETF application soon since it cannot arbitrarily reject them following its court loss.

A bitcoin ETF would allow mainstream investors to gain exposure to the cryptocurrency through investing in the fund, without having to directly purchase and hold bitcoin. This could benefit crypto exchanges like Coinbase which are commonly held assets in portfolios aiming to give investors crypto exposure.

However, Grayscale still faces some challenges converting its popular GBTC fund into an ETF. Its parent company Digital Currency Group (DCG), along with Genesis Trading and Gemini crypto exchange, were recently accused in a lawsuit by New York’s attorney general of defrauding investors to the tune of over $1 billion.

Nevertheless, Grewal sounded positive that additional bitcoin ETF products will be coming online soon as the SEC complies with court rulings requiring it to evaluate ETF applications neutrally, solely based on their merits.

Bitcoin has stealthily risen around 72% so far this year, recovering strongly after huge declines in 2022. Driving this comeback is renewed investor interest thanks to expectations of fewer Fed interest rate hikes, and hype building ahead of bitcoin’s next “halving” event in 2024 which will reduce bitcoin mining rewards by 50%, constricting supply.

However, crypto trading volumes have declined recently, as retail investors remain gun-shy after massive crashes of large players like FTX, BlockFi and Three Arrows Capital. The collapses have bred distrust of centralized crypto intermediaries.

Grewal expressed encouragement that “bad actors” in crypto like FTX are being held criminally accountable for alleged multibillion dollar fraud. He believes this will renew consumer interest in cryptocurrency investments.

FTX filed for bankruptcy last year amid a liquidity crunch after investors fled the platform over concerns on its financial stability. Its founder Sam Bankman-Fried was criminally charged by US prosecutors over allegations he defrauded FTX customers and investors out of billions. Bankman-Fried has pleaded not guilty and is currently facing trial.

While the crypto winter persists, Grewal foresees developments on the horizon that will entice investors back into digital assets. The expected approval of a bitcoin ETF could be one catalyst. With blue chip financial giants like Fidelity Investments, CME Group and others applying for bitcoin ETFs, credibility could be lent to crypto as an asset class.

As bitcoin and the broader crypto industry aim to rebuild trust, regulators are focused on rooting out bad actors and holding companies to account for violating securities laws. This could pave the way for institutional investors to gain comfort with crypto, with an ETF providing easy exposure.

If the SEC delivers on expectations and approves a bitcoin ETF application in 2023, it would cap a multi-year effort by the industry and represent a major milestone in mainstream acceptance of cryptocurrencies. For exchanges like Coinbase seeking to broaden their client bases, it could provide a crucial on-ramp for the next generation of crypto investors.

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The $8 Billion Trial of Fallen Crypto Titan Sam Bankman-Fried Begins

Posted on by slightbourne@noblecapitalmarkets.com

The criminal trial of Sam Bankman-Fried, the disgraced founder of bankrupt crypto exchange FTX, kicks off on Tuesday in New York. Bankman-Fried faces seven charges related to allegedly misusing billions in customer funds to cover losses at his hedge fund, Alameda Research. If convicted on all counts, he could face over 100 years in prison.

The charges include wire fraud, conspiracy to commit wire fraud, securities fraud, conspiracy to commit money laundering, and conspiracy to commit bank fraud. Prosecutors claim Bankman-Fried orchestrated “one of the biggest financial frauds in American history” by funneling customer deposits from FTX to Alameda to cover bad bets.

Up to $8 billion in customer money has allegedly gone missing. The government’s star witnesses will likely be former Alameda CEO Caroline Ellison and FTX co-founder Gary Wang, both of whom have pleaded guilty to charges and are cooperating.

The trial is anticipated to last 6 weeks. Jury selection begins Tuesday morning. Bankman-Fried has pleaded not guilty, and his defense may argue he was following lawyer guidance and unaware his actions were illegal. A second trial on additional charges is set for March 2024.

The Rise and Fall of Sam Bankman-Fried

Bankman-Fried first made his name in 2017 exploiting arbitrage opportunities in bitcoin prices across exchanges. He launched trading firm Alameda Research to capitalize on these trades. Alameda’s success led to the 2019 founding of FTX, which offered innovative crypto trading products.

Bankman-Fried amassed a $26 billion personal fortune at one point. He became a major political donor and crypto’s poster child. But in 2022, as crypto prices crashed, his empire crumbled. Regulators allege Bankman-Fried secretly used FTX customer deposits to cover Alameda’s losses from the start.

Though FTX claimed to have robust risk management, it had little record-keeping. Alameda lost $3.7 billion despite claims it was profitable. It used FTX customer funds and overvalued FTT tokens as collateral for billions in loans. Lenders issued margin calls in 2022, but Alameda lacked assets to cover debts.

The Collapse and Charges

When FTX’s reliance on customer funds was exposed, customers raced to withdraw. But FTX didn’t have their money. Bankman-Fried tried unsuccessfully to find investors for a bailout. He claimed publicly that assets were fine, but privately admitted billions were missing. FTX paused withdrawals, and Bankman-Fried turned to rival Binance for a takeover.

But the deal fell through as the extent of missing funds and mismanagement was revealed. Bankman-Fried resigned, and FTX filed bankruptcy on November 11, 2022. The DOJ arrested Bankman-Fried in the Bahamas in December on fraud and money laundering charges. Prosecutors allege he knowingly misled investors and misused billions in customer deposits from the very start.

Billions Remain Missing

While FTX’s bankruptcy team has recovered over $7 billion so far, billions more in customer funds remain unaccounted for. Bankman-Fried was previously hailed as an effective altruist who touted crypto’s potential for good. But regulators say greed and deception drove FTX from the beginning. The human toll of lost life savings won’t be fully known for some time.

Bankman-Fried now faces the prospect of spending most of his life in prison. The outcome of the trial could shape crypto regulation going forward. But the damage to retail investors and confidence in the industry has already been done. Crypto may never fully shed the stain of FTX’s epic collapse.

FTX Lawsuit Targets Parents of Disgraced CEO Sam Bankman-Fried

Posted on by slightbourne@noblecapitalmarkets.com

The bankrupt cryptocurrency exchange FTX has taken a surprising legal step by launching a legal battle against Allan Joseph Bankman and Barbara Fried, the parents of its former CEO and founder, Sam Bankman-Fried. The lawsuit aims to recover both luxury property and millions of dollars in what FTX alleges to be “fraudulently transferred and misappropriated funds.”

FTX, once a rising star in the cryptocurrency world, faced financial turmoil amid allegations of extensive financial misconduct. The exchange’s new leadership has been working tirelessly to locate the billions of dollars in missing assets. Their latest move is an attempt to hold Bankman and Fried accountable.

Legal representatives of the FTX bankruptcy estate assert that Allan Joseph Bankman and Barbara Fried “exploited their access and influence within the FTX enterprise to enrich themselves, directly and indirectly, by millions of dollars.” This stunning accusation suggests that Bankman and Fried might have played a significant role in the financial irregularities that led to FTX’s collapse.

One of the most notable claims in the lawsuit is that Bankman and Fried discussed transferring a $10 million cash gift and a $16.4 million luxury property in The Bahamas to their son, Sam Bankman-Fried, despite FTX’s precarious financial situation. This raises questions about whether Bankman and Fried were aware of the exchange’s dire financial straits.

The lawsuit doesn’t stop there. It also alleges that as early as 2019, Allan Bankman actively participated in efforts to cover up a whistleblower complaint that could have “exposed the FTX Group as a house of cards.” The lawsuit cites emails written by Bankman in which he complained about his annual salary being only $200,000 when he believed he was “supposed to be getting $1M/yr.” The suit portrays this as Bankman lobbying his son to significantly increase his own salary.

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Shockingly, within two weeks of these discussions, the suit claims that Sam Bankman-Fried collectively gifted his parents $10 million in funds from Alameda. Within three months, Bankman and Fried were deeded the $16.4 million property in The Bahamas. The timing and circumstances of these transactions raise serious questions about their legality and ethical implications.

Moreover, the lawsuit alleges that Bankman-Fried’s parents urged substantial political and charitable contributions, including significant amounts to Stanford University, seemingly aimed at enhancing Bankman and Fried’s professional and social status. Barbara Fried is also accused of encouraging her son and others within the company to avoid or even violate federal campaign finance disclosure rules by engaging in straw donations or concealing the FTX Group as the source of the contributions.

The involvement of Bankman-Fried’s parents in these activities is particularly noteworthy. Both are accomplished legal scholars who have taught at Stanford Law School. Barbara Fried specializes in ethics, while Allan Bankman’s expertise is in taxes. Their involvement in the alleged misconduct at FTX raises questions about their awareness of the situation and their potential role in enabling it.

Sam Bankman-Fried himself is independently facing multiple wire and securities fraud charges related to the alleged multibillion-dollar FTX fraud. Federal prosecutors and regulators have accused him of orchestrating “one of the biggest financial frauds in American history.” Bankman-Fried has maintained his innocence and pleaded not guilty to all charges. His criminal trial is scheduled to commence on October 3 in Manhattan.

The lawsuit against Bankman and Fried asserts that they “either knew or ignored bright red flags revealing that their son, Bankman-Fried, and other FTX Insiders were orchestrating a vast fraudulent scheme.” This suggests that FTX believes the parents played a more significant role in the alleged fraud than previously thought.

In their legal action against Bankman and Fried, FTX seeks various forms of compensatory relief, including punitive damages. The exchange aims to hold them accountable for their alleged “conscious, willful, wanton, and malicious conduct” that contributed to FTX’s financial woes. Additionally, FTX is looking to recover any property or payments made to the couple from the exchange.

The outcome of this legal battle remains uncertain, and it raises questions about how any potential clawbacks may affect Bankman and Fried’s ability to support their son’s legal defense as he faces criminal charges. The legal counsel for Allan Joseph Bankman and Barbara Fried has vehemently denied the allegations, characterizing them as “completely false.” They view FTX’s legal action as an attempt to intimidate their clients and undermine the upcoming trial of their child.

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The implications of this legal showdown extend beyond the immediate parties involved. FTX’s efforts to recover lost assets and hold those responsible accountable are a crucial chapter in the cryptocurrency industry’s ongoing struggle with regulatory scrutiny and legal challenges. The outcome of this case may set a precedent for how authorities and stakeholders deal with alleged fraud and financial misconduct in the rapidly evolving world of cryptocurrencies.

As the legal battle unfolds, it will be closely watched by industry observers, legal experts, and cryptocurrency enthusiasts alike. The allegations and accusations against the parents of Sam Bankman-Fried have added another layer of complexity to a case that has already drawn significant attention and could have far-reaching consequences for the cryptocurrency ecosystem.

Gensler’s Appeal for Much More Oversight Over Cryptocurrencies

Posted on by phoffman@channelchek.com
Image: Gary Gensler on Bloomberg TV, July 27, 2023

SEC Chairman Pushes for More Crypto Cops on the Beat

Gary Gensler, the SEC chair, was asked on Bloomberg TV whether the efforts to protect the consumer related to cryptocurrency are complicated by non-compliance and lack of growth in the agency’s staff. Gensler discussed the need for more enforcement of current laws and lively debate with Congress to create new rules, “the capital markets really wouldn’t work without cops on the beat and rules of the road,” replied the SEC chair.

During his discussion on July 27, the head of the SEC demonstrated the Commission is still taking aim at the crypto markets despite what is seen as legal setbacks related to its authority. Gensler said that the cryptocurrency sector remains underhanded and unregulated. “The securities laws are there to protect you, and this is a field rife with fraud, rife with hucksters. There are good-faith actors as well, but there are far too many that aren’t.”

The overall theme of the conversation is that the crypto asset class lacks adequate protections for investors.

Gensler calmly appealed to investors not to assume that they are getting full protection despite the securities laws applied to many tokens in the crypto space. “A lot of investors should be aware that it’s not only a highly speculative asset class, it’s also one that they currently should not assume they are getting the protections of the securities law,” he said. He alleged that some crypto platforms were “co-mingling and trading against” investors.

As it relates to crypto exchanges and how they operate, the SEC chair said crypto violates laws that other exchanges abide by. “You as investors are not getting the full, fair, and truthful disclosure, and the platforms and intermediaries are doing things that we would never in a day allow or think the New York Stock Exchange or NASDAQ would do,” declared Gensler.

Earlier this month, a U.S. judge ruled that Ripple did not break securities law by selling its XRP token on public exchanges. The decision sent positive ripples through the entire crypto market and sent the value of XRP soaring. If tokens can not be deemed securities, transactions within the asset class may not fall under the SEC at all. This leaves open the question of who will regulate and oversee crypto and its exchanges.

Take Away

SEC chair Gary Gensler warned investors in late July about the lack of regulation for cryptocurrencies. He told Bloomberg TV the sector was rife with “fraud” and “hucksters,” leaving investors at risk. Gensler made listeners aware that some crypto platforms were “co-mingling and trading against” investors.

It is likely that there will ultimately be regulation handed down from Congress and enforced by an agency, which may include self-regulation, but after the Ripple decision, the oversight will not automatically be from the SEC. It appears Gary Gensler has taken to the interview circuit in order to sway opinion in favor of the SEC.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bloomberg.com/news/videos/2023-07-27/sec-chair-says-crypto-rife-with-fraud-hucksters-video

https://www.bloomberg.com/news/videos/2023-07-27/sec-s-gensler-on-ai-stock-market-plans-and-crypto-video

Where Investors Might Hide in a Storm

Posted on by phoffman@channelchek.com
Image Credit: DonkeyHotey (Flickr)

Doomsday Investor Sees Ongoing Moves by Policymakers as Destructive

We’d all like to think that global decision-makers responsible for economic conditions have the best interest of the world’s citizenry in mind when making decisions – but doubts and concerns are growing. Among the most concerned are economic stakeholders that don’t believe “bad” things should always be prevented. One very credible voice highlighting this idea is hedge fund manager Paul Singer. He’s the CEO of Elliot Investment Management and recently moved his firm’s offices out of NY, NY, to the more business-friendly West Palm Beach, FL. Singer says a credit collapse and deep recession may be needed to restore financial markets.

Paul Singer is the founder and CEO of Elliott Investment Management. Its year-end 13F reportable AUM was $12.25 billion. The firms opportunity-based investment style allows Singer and Company, known for their corporate activism, to move to wherever profit may lie.  

The current thinking of Singer, a registered Republican, has been making headlines. This includes a widely circulated opinion piece published in the Wall Street Journal last week. In it, he discusses more than a decade of what he believes are damaging easy-money policies and how a deep recession and even credit collapse will be necessary to purge financial markets of excesses.  

“I think that this is an extraordinarily dangerous and confusing period,” Singer told The Journal, in his interview, he warns that trouble in markets may only be getting started now that a full year has passed from the start of tighter monetary policy.

One of the more chilling quotes from Singer is, “Credit collapse, although terrible, is not as terrible as hyperinflation in terms of destruction wrought upon societies.”

The idea that we are headed down either one path or the other, he doesn’t mention a third option, may be why the New Yorker magazine calls him “Doomsday Investor.” He explains,  “Capitalism, which is economic freedom, can survive a credit crisis. We don’t think it can survive hyperinflation.”

The Doomsday Investor has been outspoken against government safety nets for a while, including the sweeping banking regulations from the Dodd-Frank Act of 2010. This act created the Financial Protection Bureau (CFPB) and established the Financial Stability Oversight Council (FSOC). Singer strongly opposed prolonged market interventions by global central banks following the 2008 global financial crisis. Interventions that still haven’t been drained from the U.S. monetary system.

Singer, who is 78 called crypto, “completely lacking in any value,” in his WSJ interview. He also said: “There are thousands of cryptocurrencies. That’s why they’re worth zero. Anybody can make one. All they are is nothing with a marketing pitch—literally nothing.”

While his funds performance have placed him near the top of hedge fund manager performance, Singer personally worries the Fed and other central banks will respond to the next downturn by referring to the failed playbook of slashing interest rates and potentially resuming large-scale asset purchases. The point was shown to be current, as Singer called the regulatory response to the collapse of Silicon Valley Bank and Signature Bank, including the guaranteeing of all deposits from the two lenders akin to “wrapping all market movements in security blankets.”

He complained, “…all concepts of risk management are based around the possibilities of loss.” He encouraged decision makers to, “Take it away, it’s going to have consequences.”

Where Can Investors Hide

Paul Singer said in his interview there may be a few places for investors to ride out what he sees as a coming storm. One place comes as no surprise, “At such times, some consider the safest bet to be relatively short-term U.S. government debt,” he said, adding that “such debt pays a decent return with virtually no chance of a negative outcome.” He is likely speaking of U.S. Treasuries two years and shorter as the longer duration bonds would be more volatile as rates shift, and other government debt like GNMAs are fraught with extension risk.

Singer also believes some gold in portfolios may make sense.

Take Away

Without some rain, nothing could flourish. Without an occasional brush fire, the risk of massive forest fire greatly increases. Paul Singer, in his interview with the WSJ, indicates he believes the economic brushfires that decision-makers have been preventing should have been allowed to run their course. Preventing them is a big mistake and a collapse may not be far off.

This collapse in easy credit and crypto, among other bubble-type excesses Singer believes could be destructive but preferred by society over continuing to move toward hyperinflation.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wsj.com/articles/the-man-who-saw-the-economic-crises-coming-paul-singer-banking-signature-svb-financial-downturn-asset-hyperinflation-recession-debt-federal-reserve-cd2638fe

https://www.newyorker.com/magazine/2018/08/27/paul-singer-doomsday-investor

https://opencorporates.com/companies/us_fl/B21000000006

https://www.marketwatch.com/story/hedge-fund-billionaire-paul-singer-still-sees-dangerous-bubble-securities-bubble-asset-classes-in-markets-4cd81a76?mod=search_headline

What Americans Really Think of Cryptocurrency

Posted on by phoffman@channelchek.com
Image Credit: Duncan Rawlinson (Flickr)

Does the News Chatter Surrounding Cryptocurrencies Match the Interest in the Asset Class?

Over the 14 years since bitcoin sprung to life, expectations have ranged from overwhelming enthusiasm over its possibilities to fear of the risks inherent in an, as yet, not integrated payment method. A recent 50% run up in bitcoin has refired up the believers, but the most heard about crypto is still valued at less than half of its high point. Issues beyond volatility that cause some to disregard cryptocurrencies as a payment method are regulatory threats, the environmental cost of mining, and failed exchanges. During the week March 13-19, Pew Research Center conducted a survey measuring usage, confidence, and investment success. The survey is important for those paying attention to crypto as it cuts through our personal opinions and offers less biased statistics.

Survey Says…

Most Americans, 88% have heard of cryptocurrency. Almost 40% of those that are aware of crypto told surveyors they are not at all confident in the reliability and safety of crypto, with an additional 36% not very confident. Of the results for those that responded that they are extremely confident the result is 4%, and 2% as very confident.   Of those that have heard of it, 18% say they are somewhat confident.

Digital technology is shown to be less embraced with age. Although the current concern for crypto is high, some age groups have a greater concern than others. This is reflected in that those 50 and older who know about cryptocurrency and are more inclined to say 85% they are not confident in its reliability and safety. Compare this to those adults 49 and younger, where the figure drops to 66%.   

Does sex play a role in skepticism toward cryptocurrencies? 80% of women say they are not confident in it, compared with 71% of men out of the 88% that have heard of crypto.

Does experience lead to acceptance, or acceptance lead to experience? For those that invested in one or more digital currencies, 20% say they are extremely or very confident that it is safe and reliable. For those that have no experience investing in it, the slice drops to 2%. It is worth understanding that of the group that has had experience with crypto, 43% still  responded that they are not very or not at all confident in it.

Cryptocurrency Usage in the U.S.

Younger males are more likely to use cryptocurrency compared with men 50 and older and women overall. The number of men 18-29 that have used crypto is more than double that of woman of the same age, 41% of men ages 18 to 29 compared with 16% of women in the same age range.

Adults with upper incomes that have used crypto totaled 22%, with middle incomes slightly less at 19%. Lower incomes that have ever invested in, traded or used cryptocurrency compared at 13%.  

Few that have invested in or transacted using cryptocurrency used it for the first time within the past year. Pew Research asked when they first used cryptocurrency, 74% of those who have ever invested in, traded, or used cryptocurrency say they did for the first time one to five years ago. Only 16% say they first did this within the past year, and 10% more than five years ago.

For college graduates, 25% and those with some college experience, 20% showed they were more likely than those with just a high school education or less, 10% to answer that their cryptocurrency investments hurt their personal finances.

Results of Investment

Of those that have invested in crypto, 15% say their investments have done better than expected, 32% say they have done about the same as expected and 7% are unsure. 19% of cryptocurrency users say the investments have hurt their personal finances at least a little.

Most users, 45% indicated their investments performed worse than expected.

Measuring the impact the speculation had on users’ personal finances, three-in-five users (60%) say that they have neither helped nor hurt. Roughly equal shares say that these investments have helped (20%) or hurt (19%) their finances. Just 7% say cryptocurrency has helped their finances a lot and 3% say it has hurt a lot. ­

Take Away

There seems to be far more noise reporting cryptocurrencies than activity or actual usage. This could mean a number of things. One could read into this that the asset’s potential when the fear lifts are high and the potential includes a large percentage of those that are now keeping away. The argument suggests that the ongoing dramatic headlines are warranted since once the potential is realized, there could be much greater movement than we have already seen. Bitcoin had once gone from pennies to $68,000 $USD. Another reason for so much news coverage for an asset class that is favored is it is still novel, so we are all evaluating the asset class as investors; since we’re showing interest or intrigue, news services will report on it to gain audience. If we turn our attention elsewhere, that is then what we will hear more about.

It is truly a speculative asset class with little history. While some are betting everything on crypto, far more are currently just spectators on the sidelines. The hype and attention it is currently receiving may not match actual investor interest.

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.pewresearch.org/wp-content/uploads/2023/04/sr_2023.4.10_crypto_topline.pdf

 Will the Binance Legal Action Crown the CFTC as the Crypto-Police

Posted on by phoffman@channelchek.com
Image Credit: CoinDesk (Flickr)

What Binance’s US Lawsuit Says About the Future for Cryptocurrency Regulation

The world’s largest cryptocurrency exchange, Binance, has been hit with a lawsuit by US regulator the Commodity Futures Trading Commission (CFTC). This is not the first time a cryptocurrency exchange has been charged by a regulator. But this particular case involves a regulator that does not directly oversee cryptocurrencies. This indicates how regulators – particularly those in the US – hope to clamp down on the cryptocurrency industry.

The CFTC’s lawsuit alleges that Binance violated US derivatives laws by offering its derivative trading services to US customers without registering with the right market regulators. It says Binance has prioritised commercial success over regulatory compliance.

The CFTC has also levied charges against Binance’s founder and CEO, Changpeng Zhao (known as CZ) and former chief compliance officer Samuel Lim. They are charged with taking steps to violate US laws, including directing US-based “VIP customers” to open Binance accounts under the name of shell companies. The regulator has pointed to chat messages as evidence of CZ and Sim’s knowledge of various criminal groups using the exchange.

People visit Binance nearly 15 million times a week to trade on the over 300 cryptocurrencies it offers in more than 1,600 different markets. CZ is an outspoken advocate for cryptocurrencies and regularly tweets about the industry and his company. He even tweeted a link to his initial response to the recent CFTC charges, which he called “unexpected and disappointing”. Promising full responses in due time, he said:

Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.

Last year CZ’s tweets arguably contributed to the collapse of FTX, one of his company’s main rivals. Binance saw its market share grow following FTX’s collapse.

So, this charge – against not only a crypto giant but also the company of an outspoken industry advocate – has created further upheaval in a market that has already suffered multiple crises in the last year. Investors withdrew a reported US$1.6 billion (£1.3 billion) from Binance within days of the CFTC’s announcement of its charges. These outflows could continue if US regulators tighten their squeeze on crypto companies further, causing major players like Binance to shift focus to other jurisdictions.

Creeping Oversight

The CFTC aims to “protect the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets”. Previous actions by this regulator in 2021 against Tether and Bitfinex resulted in major fines and a loss of credibility for the crypto industry.

But a statement published at the time by one of the CFTC’s five commissioners, Dawn Stump, pointed out that the CFTC doesn’t actually have responsibility for regulating cryptocurrencies. She warned that these fines might “cause confusion about the CFTC’s role in this area”. She said the action was based on defining stablecoins (a type of cryptocurrency) as a commodity, but: “we should seek to ensure the public understands that we do not regulate stablecoins and we do not have daily insight into the businesses of those who issue such”.

These latest charges against Binance focus on its activities in derivatives – financial contracts that are linked to the value of an asset such as oil or, in this case, cryptocurrencies. This is a market the CFTC does regulate.

Another US financial regulator, the Securities and Exchange Commission (SEC), has also been ramping up its crypto oversight activities. As well as focusing on the Initial Coin Offering market, it saw a 50% increase in enforcement actions against digital asset companies last year compared to 2021.

Crypto Market Changes

So, Binance is up against two powerful US financial regulators. Some experts have warned that “significant regulatory action could prompt Binance to increasingly shift its business operations beyond the United States”. Certainly, the fact that Binance held a 92% share of the crypto market at the end of 2022 means it facilitates many transactions and offers a lot of liquidity to traders around the world, including in the US.

A trader’s capacity to find competitive prices when buying and selling, as well as sources of liquidity (or other people to trade with) would be affected by the loss of or pull back of one of the world’s top ten crypto exchanges. This would be bad news for retail and institutional investors who could be confronted with a smaller and potentially more expensive market as a result.

And even if the complaints and investigations by the CFTC and SEC take a while to conclude, as is likely, the US legislature may step in before that. A report published by the Financial Times days after the CFTC announcement alleges that Binance has hidden links to China for many years. A statement issued by the the exchange to the FT said this is not “an accurate picture of Binance’s operations” and that the paper’s sources were “citing ancient history (in crypto terms)”.

But recent actions against Chinese tech company Huawei and social media platform Tiktok indicate political leaders are keen to crack down on Chinese companies’ access to US technology systems and customer data. So any similar concerns could lead US politicians to start acting in this area as well.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Andrew Urquhart, Professor of Finance & Financial Technology, ICMA Centre, Henley Business School, University of Reading and Hossein Jahanshahloo, Assistant Professor in Finance, Cardiff University.

The Microstrategy Plan for Bitcoin is to Hold “Forever”

Posted on by phoffman@channelchek.com
Image Credit: Marco Verch (Flickr)

Bitcoin’s Largest Corporate Owner Sold But Remains a net Buyer

“Bitcoin is the exit strategy,” says Michael Saylor, the Executive Chairman overseeing Microstrategy (MSTR), a company he founded. The comment was to a question in a Twitter Space interview with Eric Weiss of Bitcoin Roundtable. During this insightful interview, it becomes clear that the enterprise analytics company stands behind its commitment to the cryptocurrency and is investing in the ecosystem in other ways. Saylor also addressed his recent sale of 704 bitcoin, explaining it created tax benefits that serve stockholders.

The Company is a Bitcoin Maximalist

Bitcoin owners are “Either traders, technocrats, or maximalists.” Explained Saylor in the podcast-style interview.

Accordingly, Saylor says, traders don’t have any opinion on it long-term other than it’s an asset that moves enough to trade. Holding times may be minutes or months.

Technocrats view bitcoin as a digital monetary network like Google or Facebook. It’s a big tech network to them, so if they are bullish on big tech, they will hold bitcoin. And they may try to time their investments based on economic trends.

Maximalists view bitcoin as an instrument of economic empowerment that is just good for the human race. If you’re a maximalist, you don’t try to time it, and you have a much longer time horizon. While the technocrats are looking out 3-5 years, and they think that’s long, maximalists are looking out 10-100 years. Part of that is believing this is good for the human race.

“We’re maximalists, we think bitcoin is more than a digital monetary network; we think it is the digital monetary network. It’s good for the human race, and anything we can do in order to encourage adoption of bitcoin, and help with the adoption, is going to be good for the world.” Saylor while discussing Microstrategy.

Saylor’s company is the largest owner of bitcoin, costing Microstrategy a little more than $4 billion, the crypto assets are now valued just above $2 billion. Saylor says how we acquire bitcoin is less market-driven, as this is permanent capital that flows into the bitcoin ecosystem. Permanent capital that becomes part of the Microstrategy enterprise. Capital that is ongoing and may be held as a base forever.

In Response to December Selling

Michael Saylor recently took some criticism for selling 704 bitcoin after previously repeating he won’t sell bitcoin. He put the confusion to rest by explaining the benefit to stockholders of tax loss harvesting. With crypto the selling is treated as property so you can take the capital loss, “so we have some capital gains we pay taxes on, and then we have some capital, losses in bitcoin, so by selling the bitcoin, and taking the capital loss, we’re able to use that to offset some capital gains.” He added, it’s very tax efficient for the corporation.” Which is good for shareholders.

Lightning Network

Lightning allows “lightning-fast” blockchain payments without worrying about block confirmation times. Payment speed measured in milliseconds to seconds.Security is enforced by blockchain smart-contracts without creating an on-blockchain transaction for individual payments.

Microstrategy has said they will be offering bitcoin Lightning solutions in the first quarter of 2023. This tech investment in the growth of Microstrategy is another way Saylor and company support the bitcoin ecosystem.“If bitcoin is the underlying base layer, I think that Lightning is money over IP.” He said it’s an open permissionless protocol to let eight million people move money and monetary assets at the speed of light.

“We want to make it possible for any enterprise to spin up Lighting infrastructure in an afternoon” and onboard thousands of employees or customers, Saylor explained. “We want to plug it into enterprise technology and make it a marketing strategy for any forward-thinking CMO.”

Areas that MicroStrategy is exploring for Lightning services include online content monetization, enterprise marketing, web paywalls, and internal corporate controls. Every chief marketing officer should be able give away satoshis –– Bitcoin’s smaller denomination unit –– as incentive for customers

Take Away

Bitcoin still has its perma-bulls. Michael Saylor of Microstrategy is solidly in that category. He is not necessarily bullish on other crypto or digital currencies, bitcoin is the digital currency in his mind, and he intends for the ongoing holding of bitcoin and growth of the company in other ways that support its adoption.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://twitter.com/i/spaces/1mrGmkzmmbDxy?s=20

https://cointelegraph.com/news/microstrategy-bitcoin-purchase-divides-the-crypto-community

https://www.microstrategy.com/en/investor-relations

Would it Be Possible at This Point to Ban Non-CBDC Crypto?

Posted on by phoffman@channelchek.com
Image Credit: ByBit (Flickr)

Senate Banking Committee Chairman Could Support Difficult Crypto Ban

Most new and revolutionary innovations go through growing pains – and at times fraud and deceit. Cryptocurrency and all the ancillary services are no different. One common reaction to some crypto problems is for legislators or regulators to swoop in and show they are protecting citizens from the newly discovered dangers. The cryptocurrency market is now 13 years young and not yet mature. This is evidenced by the meltdown of crypto exchange FTX, which has just placed the entire crypto industry in the crosshairs of the head of the Senate Banking Committee as well as others in Washington. Will crypto survive?

Killing Crypto?

With swirling allegations of fraud, misuse of customer funds, and negligence, the bankruptcy of cryptocurrency exchange FTX has caused lawmakers to try to take action to protect US citizens from activity that largely takes place outside of the States. The chairman of the Senate Banking Committee went as far as to suggest a total ban on cryptocurrencies.

When asked on NBC’s Meet the Press this past weekend whether regulation only gives legitimacy to crypto, rather than a ban, Senate Banking Committee Chair Sherrod Brown said that an immediate course of action is to have the Treasury Department embolden federal agencies such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).

 “We want them to do what they need to do,” the Senator said, “at the same time, maybe banning it—although banning it is very difficult because it will go offshore, and who knows how that will work.”  

Banning crypto would be difficult. Most transactions in the world’s digital currencies and tokens take place outside of the US, including major platforms such as Binance and Deribit.

Does Regulation Help?

While crypto is becoming a topic of scrutiny among lawmakers, the push to regulate digital assets has in some ways served as a safer opening for institutional investors to involve themselves in the asset class. A ban would seem catastrophic to publicly traded, US based Coinbase (COIN), and also halt some investment but could be largely ineffective, chasing transactions offshore. “One in six American households own crypto, a domestic ban at this stage would only lead to more FTX-like situations where Americans are forced to interact with off-shore exchanges that have no regulatory oversight,” a Coinbase spokesperson told investment publication Barron’s, adding, “Congress should focus on passing workable, comprehensive federal crypto legislation that protects consumers, enables innovation, and bolsters American competitiveness.”

A ban in place since 2021 on mining or trading cryptocurrencies in China has not prevented the country from being number two worldwide in crypto mining with 20% of the market share. The country also is ranked 10th in terms of transactions.

Take Away

New investment products have ups and downs. Regulations are clearly on their way in the crypto asset class, but an outright ban would seem to be more lip service from the Senate Banking Committee chair than something that may be implemented. The asset class has now become so entrenched in portfolios of so many in the US, including retirees, and so available outside US jurisdictions that it would seem that any measure to protect investors would be regulatory and implemented slowly.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.barrons.com/articles/bitcoin-prices-crypto-markets-today-51670584352?mod=article_inline

https://www.barrons.com/articles/sherrod-brown-cryptocurrency-ban-ftx-sec-51671471539

Meet the Press

https://www.deribit.com/