Crypto winter may be over, Morgan Stanley Wealth Management said in a report “based on current data” and a rosy view of Bitcoin’s halvening event expected next year. Morgan Stanley strategist Denny Galindo argued in previous crypto winters bitcoin’s lowest low has occurred 12 to 14 months after its peak (bitcoin set an all-time high of $68,000 in November 2021). Meanwhile, the programmatic reduction of mined bitcoin that happens every four years, the halvening, may boost BTC’s price. Meanwhile, according to AltIndex, the number of bitcoin ATMs sank to a two-year low. Globally, there are now just 32,500 BTMs, a 17% reduction since 2021.
FTX lawyer Can Sun, testifying under a non-prosecution agreement, said “never approved” Alameda Research's use of customer funds. Sun, the general counsel between August 2021 and November 2022, when it the exchange collapsed, said he believed FTX customers' assets were segregated from the company’s funds, based on conversations he’d had with Sam Bankman-Fried.
SBF used customer funds to buy back Binance’s stake in FTX, according to University of Notre Dame accounting professor Peter Easton, who was hired by the Department of Justice to trace Alameda and FTX’s funds, on Wednesday. Binance CEO Changpeng Zhao said 2022 his company received over $2.1 billion in BUSD stablecoins and FTT tokens as part of the repurchase.
SBF’s defense isn’t the only side getting excoriated by Judge Lewis Kaplan. On Tuesday the federal judge accused prosecutors of "calling up a mannequin" after ex-FTX lobbyist Eliora Katz seemingly unwillingly mumbled her way through questions. Kaplan was annoyed at the sheer number of documents Katz was asked to read. Further, the DOJ also flew in a Google employee from Texas to discuss a document's metadata, despite his lacking expertise. "Lawyers are supposed to do a little better than this – and I’m talking to both sides," the judge said.
The trial will resume next Thursday, Oct. 26, with the DOJ's final witnesses, after which the defense will begin presenting its case – if it chooses to do so. It is still unknown whether SBF will testify in his defense.
Brian Beute is running for office under the pro-tech political party founded by Andrew Yang. While not a supporter of crypto, his story shows crypto — now a widespread phenome...
Regulatory oversight is a force of legitimacy and stability for businesses with new ideas, Flowdesk's Anne-Sophie Cissey writes.
In the Family
New York Attorney General Letitia James sued Winklevoss-owned exchange company Gemini Trust as well as CoinDesk sister firm Genesis Global Capital and parent company Digital Currency Group (DCG) for allegedly defrauding more than 230,000 investors (including 29,000 New Yorkers) out of over $1 billion. In a lawsuit filed Thursday, Gemini is accused of lying about the riskiness of its retail-focused lending platform called “Earn,” while DCG and Genesis are accused of misleading counterparties about soundness of their businesses, particularly after the collapse of Three Arrows Capital. Genesis Global Capital filed for bankruptcy in January.
New Hub
Coinbase picked Ireland as its hub in the European Union. The crypto exchange is on track to apply for a Markets in Crypto Assets (MiCA) license from the EU, and already holds an e-money license in Ireland. Coinbase VP Daniel Seifert said “The country already plays host to tech giants like Apple and Google,” companies that are widely recognized to be using the island nation as a tax shelter. As Binance is routed from multiple nations in Europe, Coinbase appears to be expanding — it’s registered in Italy, the Netherlands and Spain.
The Takeaway: Daddy Deceit
(Fortune, modified by CoinDesk)
My colleague, the intrepid reporter/editor Nik De recently wrote a column about how amateurish the crypto industry seems as details come to light from Sam Bankman-Fried’s ongoing criminal trial. To some extent you can almost, almost forgive the crooked dealings at SBF’s twinned exchange and trading shop businesses. Afterall, FTX and Alameda Research were managed by a close-knit crop of longtime friends of SBF, who all had limited experience in finance and who were guided, seemingly, by the genuine utilitarian desire to make the world a better place.
Last week, during Alameda CEO Caroline Ellison’s multi-day testimony, she admitted guilt to sending Alameda’s business partners cooked books and running a longhaul scheme to defraud FTX investors and customers — including deceiving CoinDesk’s sister company Genesis, the lending subsidiary of Digital Currency Group. I’m not going to bite my tongue just because we share a parent organization. In Ellison’s testimony, Genesis — nominally a victim of SBF’s scheme — is an unsympathetic participant.
New York Attorney General Leticia James today filed lawsuits against Genesis and DCG, as well as their principal managers, ex-CEO of Genesis Michael Moro and DCG founder and Chief Executive Barry Silbert, accusing the firms of lying to customers, each other and the general public. It’s a complicated case involving another crypto exchange Gemini, century-old securities law and Gemini’s retail-focused crypto lending platform called “Earn.”
What’s painful about this particular lawsuit, apart from the familiar connection, is that this was supposed to be the big leagues of crypto. There was real money on the line (Earn customers are estimated to have lost upwards of $1 billion) and well-established firms involved. Before a unit of Genesis declared bankruptcy this year, the firm’s employees were widely considered to be “the adults in the room,” the people who knew business best.
At its height, DCG was compared to Standard Oil, a firm that grew oligarchically big. Only it turns out The State doesn’t need to dissemble Silbert’s empire — it tore itself apart.
The line between fraud and “rookie mistakes” is a prominent theme throughout the FTX story. SBF’s lawyer has described FTX’s misfit operation as a plane being built mid-flight. Ellison’s testimony spoke to the casual relationship Alameda had with Genesis, where it seemed routine to transact hundreds of millions of dollars over a Telegram chat. That level of insouciance speaks both to confidence gained through expertise and a basic error in judgment.
Of course, it was also a casual relationship established in trust — and allegedly, SBF and his cadres willingly violated that trust. To the extent that Genesis was deceived, it is a victim. However, Attorney General Leticia James is also accusing Genesis and DCG of trying to pull the wool over the eyes of the world. Genesis made what are in retrospect insane decisions — like facilitating a $1 billion swap of Do Kwon’s rickety stablecoin for bitcoin, and accepting the FTX casino token FTT as collateral for billions of dollars in loans — that show poor risk-management.
Where things cross the line, James might argue, is when Genesis and DCG tried to hide their losses and mismanagement. At the center of this is a $1.1 billion promissory note DCG made to Genesis, allegedly used to conceal the firm’s "true financial health." At one point, Alameda accounted for 60% of Genesis’ loan book, a worrisome concentration of risk made worse by the loans being undersecured. Winklevoss-owned Gemini, also being sued by the Attorney General, knew as early as February 2021 that Genesis was risk-prone, yet entrusted its customers’ funds to Genesis to earn yield for the supposedly “low-risk” Earn program.
Is this amateur hour? Or what we would expect of boardroom-level financial dealings in a hot market? Where James’ might overcomplicate things in her lawsuit is by grouping together a number of firms — many of which are feuding publicly — and splitting a number of business dealings into "two distinct fraudulent schemes.” The "Gemini Scheme," perpetrated by that legacy institution of crypto, supposedly lent money to a firm it knew it shouldn’t (Genesis), and misrepresented its own offerings (Earn).
The so-called "DCG Scheme" is of a different kind — an apparent attempt to conceal a "structural hole" of $1 billion at Genesis Capital. In crypto, companies are often more intertwined and dependent than you would suspect, and, after a while, all of the schemes that brought down firms like Three Arrows Capital, Celsius Network and BlockFi begin to rhyme. Genesis’ hole appeared after the collapse of 3AC, itself brought down by the implosion of Do Kwon’s UST stablecoin.
However, there are real differences of kind and degree in the many business failings following crypto’s largest market run-up to date. Yet, if there is a single lesson to be learned through it all, it’s that even the experienced can fall prey to wishful thinking. And maturity is knowing how to handle it.
If cryptocurrency-as-payment were truly easy and ubiquitous, there wouldn’t be playful articles about how hard it is. And that gets to the crux of the issue. The idea of “buying coffee with bitcoin” was quirky and fun but not mainstream. Not only Bitcoin, other cryptocurrency like Ethereum, Litecoin, Dogecoin, XRP have been used to make payments, but failed to take off as a widespread payment solution. None have truly caught fire in a mainstream way.
The reason for this lack of adoption? Let’s look at it from the perspective of users, merchants, and enterprises. Continue reading
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