The unstable cryptocurrency market was shaken by the demise of FTX; it lost billions in value and fell below $1 trillion.
The fallout from FTX’s abrupt slide and collapse will probably affect cryptocurrencies for a very long time to come and hurt other markets as well. Sam Bankman-Fried is accused in a class-action lawsuit filed on November 16 in a federal court in Florida of developing a fraudulent cryptocurrency scheme intended to take advantage of uneducated investors from all over the nation. Steph Curry, Shaquille O’Neal, Shohei Ohtani, Naomi Osaka, Larry David, and Kevin O’Leary are among the other famous people included in the case as people who allegedly assisted Bankman-Fried in carrying out the scheme.
The FTX bankruptcy has an effect on Genesis Global Capital, the Gemini cryptocurrency exchange, and BlockFi, a platform for crypto financing with substantial exposure to FTX. Due to FTX’s bankruptcy on November 16, the lending division of cryptocurrency investment bank Genesis halted redemptions and new loans. Following the information, Genesis, a lending partner in Gemini, the cryptocurrency exchange founded by the Winklevoss twins, announced delays in withdrawals from its Earn product. BlockFi, a cryptocurrency lending company with substantial exposure to FTX, stopped allowing withdrawals and declared bankruptcy on November 28.
On November 18, the Bahamas Securities Commission assumed authority of the bitcoin holdings of the defunct exchange FTX. The U.S. House Financial Services Committee announced that it will hold a hearing on the FTX collapse in December 2022.
As part of the most recent development in the FTX affair, Reuters reported on December 6 that Bankman-Fried had retained white-collar defense lawyer Mark S. Cohen. In the sex trafficking trial that resulted in Ghislaine Maxwell’s conviction on many counts, Cohen, a former assistant US attorney for the Eastern District of New York, represented her on behalf of Cohen & Gresser. Additionally, Caroline Ellison, who oversaw the trading company Alameda Research, has retained the legal services of Washington-based Wilmer Cutler Pickering Hale and Dorr.
Few rules that could avoid FTX’s demise
The FTX failure has made it clear that a sizable portion of the digital asset market thrives in regulatory grey areas and jurisdictional gaps, which makes the need for new rules and regulations even more pressing. Nevertheless, a lot of experts concur that despite being mainly outside of US jurisdiction due to its offshore location, FTX might have avoided failure if only certain tried-and-true guidelines had been followed. According to Carla Reyes, an associate professor of law at the SMU Dedman School of Law, FTX is a centralized corporation like any other corporate business. It wasn’t a case of the regulations not being in place. It was an instance where they disobeyed them. Five topics have come to light as being essential for Congress and regulators to concentrate on in interviews with securities professionals and remarks from politicians and regulators.
1. Commingling of Assets
The inability to secure consumer assets lies at the heart of a series of crypto mishaps. The most severe example may be FTX, which used client cash to lend to its sister business, the hedge fund Alameda Research, to support dangerous investments.
In order to guarantee that customer assets are walled off in the event that a brokerage business collapses, the US Securities and Exchange Commission already has a consumer protection provision. The business has resisted filing with the government, arguing that tokens are not securities subject to the agency’s regulations, therefore crypto client accounts are not protected.
Gary Gensler, the hated chairman of the SEC, disagrees with crypto fans. The same was true of Jay Clayton, his predecessor during the Trump administration. Both would use a criterion from a 1946 ruling by the US Supreme Court, which said that an asset falls under the SEC’s purview when investors contribute funds to a business with the goal of benefitting from the leadership of the organization. Almost all tokens are now considered securities by the SEC.
According to James Cox, a professor specializing in business and securities law at Duke University School of Law, establishing that the majority of cryptocurrencies are securities is arguably the most significant action Congress could take.
Additionally, mixing client money is prohibited by the Commodity Futures Trading Commission, which currently regulates some crypto derivatives. But rather than commodities, its regulations apply to swaps and futures. Despite the fact that the majority of experts believe that Bitcoin is a commodity and not a security, no federal regulator currently controls crypto commodities, necessitating a congressional remedy to safeguard investors.
2. Separate Business Lines
To the disadvantage of their clients, several cryptocurrency businesses have provided a wide range of products and services that obscure the distinctions. The most notable example is cryptocurrency exchanges. The platforms carry out a wide range of tasks, including market-making, trading, custody, and securities lending. The arrangement, according to critics like Gensler, is fraught with problems. Contrarily, conventional financial institutions that offer many services normally register each of their distinct business lines with the relevant regulators. That also has to be done for crypto, according to experts.
3. More Disclosure
The foundation of financial regulation in US markets is risk disclosure. In crypto, however, disclosures are practically nonexistent. There are hardly any details available on the dozens of FTX offices outside the US. The American division, FTX US, is more understood, but there are still a lot of unknowns because it was a closely held private firm.
Existing SEC regulations for investment advisors and securities issuers would lessen the opaqueness of cryptocurrency, but Congress may need to strengthen them. In order to determine if programmers may, for example, influence token pricing, SMU’s Reyes adds, “I’d like to know more about the code that produced the tokens.”
Congress has been urged by a few state securities authorities to tighten disclosure rules for businesses valued at $700 million or more. While not crypto-focused, such a measure could have given investors a peek inside the crypto giants. Another option would be to treat crypto platforms like stock exchanges, which have their own registration and reporting requirements.
4. Advertising Standards
Although unrelated to cryptocurrencies, such a policy may have allowed investors to see inside the industry’s titans. The treatment of cryptocurrency platforms similar to stock exchanges, which are subject to different registration and reporting requirements, is one alternative.
Crypto companies like FTX have prospered by luring throngs of commoners through glitzy advertisements, frequently including well-known celebrities like Tampa Bay Buccaneers quarterback Tom Brady and actor Matt Damon. Over 112 million people watched the Super Bowl in February when FTX and other cryptocurrency businesses broadcast advertisements.
Individuals cannot promote stocks without revealing payment information thanks to SEC regulations. The organization has utilized its power to punish celebrities for promoting cryptocurrency, including Kim Kardashian.
However, whether or not the token is regarded as security will affect these activities. The Federal Trade Commission, which regulates false or deceptive advertising, might also take enforcement action.
5. Corporate Governance
One of FTX’s most startling flaws was the complete absence of corporate governance. The person in charge of FTX at the moment, John Ray III, gave the Delaware court in charge of the firm’s bankruptcy proceedings the advice not to believe any of its financial statements. He said that most FTX organizations never conducted board meetings.
Last month, Erica Williams, the head of the US accounting watchdog, issued a warning that the US cannot inspect the audits of privately held crypto firms like FTX. Williams is essentially telling investors to exercise caution and ask more questions of crypto vendors. And they should be on high alert if they don’t receive satisfactory responses.
An increasing number of cryptocurrency service providers are closing their doors permanently in the midst of the bear market, including the German crypto bank Nuri.
Three Arrows Investment. Celsius. Voyager Electronics In 2022, the number of cryptocurrency bankruptcies, closures, and trade freezes seemed never-ending. The year is still not over. Nuri, a German cryptocurrency bank, asked users to withdraw money this week in advance of the company’s anticipated liquidation in December. At least users of Nuri received adequate notice.
The market has been mercilessly purified of excess, leverage, bad risk management, and outright scams by the cryptocurrency bear. If business forecasters are to be believed, the market may experience one more surrender before things start to get better.
The closure of Nuri, the most recent drama involving Voyager Digital, and Silvergate Capital’s challenging quarter are all covered in this week’s Crypto Biz.
500K consumers are advised by the German cryptocurrency bank Nuri to withdraw money before the closure.
Nuri informed its 500,000 subscribers this week that it would suspend operations on December 18 after citing liquidity concerns in August. Users have two months to withdraw their money before the business closes the shop as a result of the bear market. Users were given the reassurance that all assets in their Nuri account are safe and untouched by Nuri’s insolvency by Nuri CEO Kristina Mayer. Although the industry wasn’t helped by Nuri’s collapse, Celsius handled its insolvency far worse by locking user withdrawals.
Voyager Digital won’t sue its executives for negligence and will instead make a claim against its insured.
This week, the story of Voyager Digital took another unexpected turn when the business decided against suing its management for negligence for their part in enabling the Three Arrows Capital disaster (and Voyager’s in the process). For those who are not familiar with the drama: Without conducting adequate due diligence, Voyager provided Three Arrows Capital with a $675 million loan. This loan was never repaid, and it played a significant role in Voyager’s bankruptcy. Why then don’t the executives face legal action? They reportedly got immunity from the lawsuit when FTX US purchased the assets of Voyager through an auction in late September.
Crypto-to-fiat transactions at Silvergate Capital fell by $50 billion from the 3rd Quartile of 2021 to the 3rd Quartile of 2022.
Silvergate Capital’s crypto-to-fiat transfers are among the statistics that best illustrate how severe the crypto winter has been. This week, the company revealed that transfers on its network fell by $50 billion year over year in Q3, which is worrying news for those hoping for widespread adoption of cryptocurrencies by financial institutions. However, there was a bright spot: Silvergate’s profits increased by 84% to $43.328 million from the previous year. In response to the announcement, investors sold off Silvergate shares, which fell 20% on October 18.
Cryptocurrency miners can now apply for $500 million loans from Binance.
Binance, a cryptocurrency exchange, has announced the launch of a new $500 million financing programme to assist struggling Bitcoin miners during the current bear market. By putting up physical or digital assets as collateral and paying 5% to 10% in interest, miners will have access to loans with terms of 18 to 24 months through the new Binance Pool. For the financing, only “blue-chip” miners are eligible. A spokesman for Binance informed Cointelegraph that one of the requirements is that the applicant is a Binance VIP member and connects at least 500 PH/s to the Binance Pool for at least 24 months after the loan is provided.
When will the crypto market bear market end?
Are you over the bear market in cryptocurrencies? How much time is left before the market turns? Even though no one has a crystal ball, I am still adamant that Bitcoin will most likely reach a cyclical bottom in the coming months, which will be followed by a protracted accumulation phase. I sat down with fellow analysts Marcel Pechman and Benton Yaun to talk about the near-term forecast for cryptocurrencies in this week’s Market Report. Every Thursday, Crypto Biz is a weekly email that gives you a pulse on the blockchain and cryptocurrency industries.
Describe Ethereum. that’s a reasonable question for someone new to the cryptocurrency world to ask, as long as they are likely used to seeing Ethereum and its native (Eth) token alongside Bitcoin in the media and on exchanges. It’s not exactly fair to compare Ethereum in with Bitcoin. Its characteristics, objectives, and even technology are distinct.
According to Cointelegraph, with Ethereum, users can conduct transactions, stake their holdings to earn interest, utilise and store nonfungible tokens (NFTs), trade cryptocurrencies, play games, access social media, and far more. Ethereum may be a decentralised blockchain network powered by the Ether token.
A bank or a web brokerage like Vanguard or Fidelity won’t let you acquire cryptocurrency. you want to instead make use of a bitcoin trading platform. There are many cryptocurrency exchanges accessible, with dashboards that range from basic to complex for knowledgeable traders. Before registering, it is a good idea to conduct some research on the various platforms because they have varying pricing structures, security measures, and other features.
You’ll almost probably have to provide some personal information and have your identity validated to register an account with a cryptocurrency exchange. then, you’ll add money to your account by linking a debit card or bank account. counting on the option you select, fees may change.
As with any investment account, funding your account doesn’t mean you have purchased Ethereum, and you do not want your unspent money to sit there. to take a position at this time, you want to first buy Ethereum.
After your account has been credited, you’ll exchange your dollars for Ethereum. Enter just the dollar amount you would like to convert to Ethereum. you’ll purchase shares of a single Ethereum currency, counting on the price of the cryptocurrency and the amount you choose to invest. A percentage of the whole amount of ether coins will be shown as your purchase.
If you simply have a small amount, it’s simpler to go away your cryptocurrency investment in your exchange account. However, a digital wallet might offer additional security if you select to move your holdings to a more secure storage site. Digital wallets are available in many different forms, each with differing levels of security, like paper wallets or mobile wallets.
Should you buy Ethereum?
According to market capitalization, Ethereum is the second-most valued cryptocurrency and is viewed as the silver to Bitcoin’s gold. like all investments, there is a chance that Ethereum’s higher risk will also result in higher rewards. In any case, the year 2009 is not longer relevant because Ethereum has advanced past the proof-of-concept stage, and now’s the perfect time for investors to start looking into this asset class.
Do your research before investing a large portion of your retirement money in Ethereum or any other cryptocurrency due to the unpredictability and volatility of the market. But it is often worthwhile to take into account as an aggressive growth option in a diversified portfolio. Naturally, never risk extra money than you can afford to lose.
The future of Ethereum
The Ethereum blockchain has become increasingly well-known in recent months as a result of the development of numerous NFTs and decentralised finance projects. Advocates claim that the arrival of new applications like these, which are among the primary ones to operate on a public blockchain, has already resulted in a significant network effect, where new developers are drawn to Ethereum due to the increased activity.
However, there are still fundamental questions over whether Ethereum, which is not on time due to a complex series of technological upgrades, are going to be able to compete with more agile rivals and whether any consensus on its long-term function will emerge as the cryptocurrency industry expands.
As a result of Ethereum’s long-term significance, investors like Garg warn that the cryptocurrency markets could also be due for a turnaround, with Bitcoin returning to undisputed dominance.
Like many industries, the crypto industry is also not free from vices that affect its overall functioning and output. Therefore, certain checks and steps are necessary to prevent it from degrading to a higher extent. In the past few years, several such steps have been taken to keep the crypto industry in check. However, there have been various such instances wherein crypto mixers have also become a matter of concern.
In a recent report, the assistant secretary of the Treasury Department has said that putting sanctions on crypto miners can be of huge help. It can prevent the evil systems prevalent in it such as money laundering. It can spread across various countries such as North Korea, Russia, and Iran.
How can sanctions on cryptocurrency mixers be of help?
Elizabeth Rosenberg stated in a recent report that the enforcing of sanctions on entities such as crypto miners can be of huge help to the Government. It can be the best way to prevent foreign countries from making use of the crypto platform for various illegal activities. She, being the assistant secretary for terrorist financing and financial crimes came up with this suggestion as a preventive measure to make the digital currency platform a safer space for all.
Further comments on the crypto mixer sanction
There have been various steps taken towards the fulfillment of the above-mentioned goal. In one of the recent hearings of the Senate Banking, it has been quite vividly elaborated how the inclusion of various crypto mixers in the group of Specially designated nationals can work in favor of the US in letting foreign countries know the steps it is taking to prevent exploitation or breach of sanctions. These crypto mixers include blender.io, Tornado cash, etc. It is a step that has been deemed necessary to an extent that it has become almost mandatory.
Role of sanctions in preventing money laundering
It has been also been stated by Rosenberg that with the use of sanctions if prevention of usage of mixers for illicit activities can be encouraged, then it should and must be used likewise. It would be the best way to indicate or represent that the entity does not respond well to any sort of money laundering and prevent criminals from engaging in such activities. Does not matter which group or country they belong to, a criminal should be taken action against without any further consideration.
Some more information on the sanction on crypto mixers
Even though there have been several oppositions to this particular decision, it has still stood strong and held its ground. Its motive and aim have been questioned time and again for it, as per the views of the opposition, could bring about disastrous consequences. Several well-reputed entities like Coinbase even went as further as threatening to charge a lawsuit against the government authority for the step they have taken, especially for imposing sanctions on Tornado cash.
This particular government entity has directed its initiative towards those trying to use various Bitcoin assets and aimed at different Bitcoin addresses. These addresses included groups from Russia as well as Iran. However, it later made it clear that the Treasury does not aim at putting any sort of regulations on users which would affect the sharing of Tornado Cash’s code on different websites. This declaration was made by the treasury in between the unrest and lack of clarity that is prevalent among crypto users for some time now. Needless to say, the crypto market being volatile is susceptible to changes that may or may not be accepted by each and everyone associated with it or affected by it.
Crypto-analyst Arthur Hayes says Hong Kong has a vital part to play in the development of the global Bitcoin and other virtual currencies market. The next cryptocurrency bull run, according to the former CEO of BitMEX, a market leader in cryptocurrency futures, will begin when China enters the market again.
The Hong Kong government’s announcement about introducing a bill to regulate crypto is a sign that China is trying to ease its way back into the market. This could be because Hong Kong acts as “the proxy through which China interacts with the world,” according to former Bitcoin co-creator Sean Hayes.
He commented, “When China loves crypto, the bull market will come back and It will be a slow process, but the red shoots are budding.”
As per Hayes, Hong Kong might serve as Beijing’s test market for its experiments with cryptocurrency markets and as a conduit for Chinese capital entering the international cryptocurrency markets:
Further, he stated, “If these flows actually materialize in the way I imagine, they will be a strong supporting pillar of the next bull market.”
In a survey by Forex Suggest released in July 2022, Hong Kong has named the nation best poised for the broad adoption of cryptocurrencies. Numerous aspects were taken into account, including startup culture, crypto ATM installations, and crypto-friendly regulations.
Unfortunately, it is said that by the end of September this year, Hong Kong has lost this position partly because of its murky cryptocurrency regulations. Due to this, a number of significant crypto-focused companies and events were obliged to relocate their operations to Singapore and other nations and territories that were viewed as more welcoming.
Despite having one of the largest economies on earth, China has generally been hostile to the cryptocurrency sector. The nation’s initial ban, which forbade banks from processing Bitcoin transaction, was enacted back in 2013.
When Beijing conducted numerous regulatory operations to banish Bitcoin mining from the nation and declared all cryptocurrency transactions to be banned in 2021, it stepped up its crackdown on the industry.
But as per Hayes, “China has not left crypto — it has just been dormant.”
In September 2022, China did start up its Bitcoin mining once more, and Chainalysis stated in its 2022 Global Crypto Adoption Index that China had re-entered the top ten this year after coming in 13th place in the previous year.
Given the Chinese government’s assault on cryptocurrencies, the Global Crypto Adoption Index’s authors said they considered the development “particularly noteworthy,” but their data shows that “the prohibition has either been unsuccessful or lightly implemented.”
How China is essential for Hong Kong’s cryptocurrency growth?
Arthur Hayes, co-founder of BitMex, commented on news of Hong Kong’s “comeback” efforts on his blog, saying that access to Chinese consumers is essential for Hong Kong’s appeal to cryptocurrency businesses.
As cryptocurrency investors, we are concerned about Hong Kong’s capacity to meet China’s capital needs, he stated. The regular wealthy Chinese people are what drive the Hong Kong economy, whether it is through retail sales or capital flows.
He also voiced concerns about how China could use its influence over Hong Kong to undermine any pro-crypto measures such as, “What’s to say Beijing won’t reconsider tomorrow and roll back all these advantageous crypto policies?”
But he went on to say that he thought this time, “China is for real.”
By the end of the month, the nation is anticipated to make its position on digital assets known. As previously reported, the Hong Kong Special Administrative Region of China will make a policy announcement at the next Hong Kong Fintech Week event, which is set to take place between October 31 and November 1.