Knowing about the asset shuffling and tips to invest
According to a recent report, Binance allegedly mixed up various investors’ cash last year in a method that was “eerily” similar to what the now-defunct crypto trading FTX did. Late the year before, the largest cryptocurrency exchange in the market shifted $1.8 billion in assets that were to serve as the backing for its users’ stablecoins, Forbes said on Monday, saying that FTX had also engaged in similar actions.
More particularly, despite Binance’s claims that such equipment are fully backed by the gesture they are marked down to, purchasers of more than $1 billion in B-peg USDC tokens—digital copies of USDC that exist on Binance’s exclusive Binance Smart Chain—were left without securities from August 17 to around early December.
The article claims that $1.1 billion of those assets were delivered by Binance to Chicago-based frequent trader firm Cumberland/DRW as protection for the B-peg USDC stablecoins. According to the allegation, Binance might have boosted had its stablecoin BUSD with the money. The mixing of funds here between now-defunct bitcoin exchange and its trade arm Alameda Studies was a major reason in FTX’s demise. Through a backdoor, Alameda being able to stealthily spend FTX client funds while the loan remained hidden from auditors, workers, and shareholders.
Tips to invest
Despite the fact that cryptocurrency has only recently emerged, it has grown into a vast, complex cosmos that is challenging for beginners to comprehend. Yet, given the price volatility of cryptocurrencies like Bitcoin, there is potential for significant gains—if you can handle the risk. The ability to invest in well-known cryptocurrencies like Bitcoin has become substantially simpler because to online platforms such as Coinbase and Robinhood. The procedure is still a little trickier than getting a standard money, though. You can attain your cryptocurrency investment goals by developing a financial strategy with the assistance of a financial advisor.
Simply said, you require a location to purchase it and a location to store it. Cryptocurrency exchanges are the most common location to buy cryptocurrencies. There are many exchanges to select from, including Coinbase, GDAX, and Bitfinex being the most well-known. You may use a debit card to buy currencies such as Bitcoin and Ethereum on these platforms. You may purchase parts of a coin using the majority of widely used currencies, including Bitcoin, so users don’t need to put up a sizable sum of money to start playing.
It’s likely that you’ll need to have some Bitcoin or Ethereum to buy any cryptocurrencies you’re engaged in. Generally speaking, fiat currency—what crypto aficionados call paper money like dollars or euros—cannot be used to purchase altcoins. But, that might alter in the future. Although there are other platforms you may visit to communicate directly with other individuals looking to trade cryptocurrency, exchanges generate money by collecting fees for carrying out transactions. Local Bitcoins is one well-known illustration. The procedure will probably take longer than it would with an interchange, and actually dealing with someone whose money you cannot verify has an additional danger. If you’re unfamiliar with cryptocurrencies, you should probably use an exchange.
For a proportion of your investment, dealing in bitcoins can be an exciting idea, but you need make absolutely sure to diversified your holdings. You could receive asset allocation advice and investment scheme creation assistance from a financial advisor. Hiring a competent financial advisor need not be difficult. Start your search for a financial advisor right away if you’re prepared to do so. So, this is how you can usually plan in investing in any of the crypto currencies that can be useful in future and you can get returns form it.
Futures Exchange (FTX): definition and connotation
FTX Trading Ltd., or FTX, is a bankrupt firm that operated a cryptocurrency exchange and hedge fund in the past. The exchange was founded in 2019 and had over one million clients at its peak in July 2021, ranking it third in terms of volume. FTX was founded in Antigua & Barbuda and has its headquarters in the Bahamas. FTX is closely related to FTX.US, a separate exchange for US citizens. FTX has been in Chapter 11 bankruptcy proceedings in the US court system since November 11, 2022.
Concerns were raised after a CoinDesk report published in November 2022 said that FTX’s partner business Alameda Research owned a considerable chunk of its assets in FTX’s native coin (FTT). Following this discovery, rival exchange Binance’s CEO Changpeng Zhao said that Binance will liquidate its token holdings, prompting a surge in client withdrawals from FTX.
FTX was unable to satisfy consumer withdrawal requests. Binance signed a letter of intent to buy the business, with due diligence to follow, to guarantee that clients’ cash could be recovered from FTX in a timely way, but Binance retracted its offer the next day, citing claims of mismanaged customer funds and US government investigations. On December 12,2022, founder Sam Bankman-Fried was detained for financial crimes by Bahamian authorities at the behest of the US government.
John J. Ray III, the current CEO of FTX, specializes in recovering cash from bankrupt firms. Ray stated that he had never witnessed such a catastrophic failure of business controls and such a complete lack of trustworthy financial information as occurred here.
Customers of FTX launch a class action lawsuit to have their payments prioritized.
Four FTX clients have launched a class action lawsuit seeking priority recovery for $2 billion in unpaid consumer payments. The claim was filed in the United States Bankruptcy Court for the District of Delaware, where FTX is now in bankruptcy proceedings. Retail customers who experienced financial losses as a result of FTX and sister business Alameda Research’s bankruptcy filing “should not have to stand in line” with other creditors waiting for cash recovery, according to the complaint.
Former Alameda Research CEO Caroline Ellison told investigators that customer cash at FTX was misused to bridge financial deficiencies in the closely related investment firm Alameda Research. The illicit FTX transfers to Alameda, according to the plaintiffs, were in flagrant violation of FTX’s own customer agreements and terms of service, as well as common law and basic principles of honesty and fair dealing. In mid-December, a committee of unsecured creditors was constituted for over 100 businesses that had invested in the defunct exchange and its related activities but had no security for what FTX owed them.
According to the court petition, “cash and assets traceable to consumers that were never owned by FTX or Alameda and do not belong to the estates should be put aside entirely for the customers,” and Wronged clients should be given top priority over any additional monies owed or is recovered by [the group of related debtors]. Sam Bankman-Fried, co-founder of FTX and Alameda, is facing a slew of fraud charges that may land him in prison for up to 115 years. Earlier last month, Ellison and FTX co-founder Gary Wang pled guilty to criminal and civil charges, adding to Bankman’s already significant legal weight.
Concerns over Changpeng Zhao’s Binance’s hegemonic position in the cryptocurrency market have grown since Sam Bankman-utter Fried’s passing. The auditing firm Mazars Group halted work on paperwork intended to demonstrate that Binance and other cryptocurrency companies had the necessary cash reserves to handle any unanticipated increase in customer withdrawals on Friday, which raised concerns once again.
Zhao, who goes by the initials CZ, has emphasized time and time again that his exchange, Binance, doesn’t misappropriate customer funds, unlike FTX, as well as that it can handle any volume of withdrawals that come its way. As evidence that it has survived prior “crypto winters,” including a more than 80% drop in Bitcoin from to Binance has a longer track record than FTX.
Still, the past few days have been trying. The action by Mazars raises concerns about an accounting picture that many people already thought was murky. In fact, Mazars likely stopped working on “proof-of-reserves” reports because the market did not find them convincing. Critics had further fodder for another round of heckling after CZ was subjected to a barrage of questions regarding Binance’s financial stability at a televised appearance earlier in the week.
Even for those who claim to support CZ and his exchange, Binance’s dominance of the market following FTX’s demise doesn’t sit well in a sector that promotes decentralization. This week’s drop in cryptocurrency prices that was accompanied by news about CZ’s company raises more questions about whether Binance has developed into a “too big to fail” participant in the market. Unlike traditional finance, there is no one on hand to stop a failure, offer a rescue, or stop any contagion.
Mark Lurie, CEO, and co-founder of Shipyard Software, a maker of decentralized exchanges, said: “I don’t think Binance is attempting to cause difficulties, but that organization is now a risk to all of us. There are several systematic dangers whenever one player controls a sizable amount of volume.”
According to CryptoCompare, Binance has raised its market share to 52.9%, its greatest ever, and grown its share of derivatives trading to 67.2% while, Bankman-FTX Fried’s empire went into bankruptcy and the 30-year-old former billionaire traded a fancy apartment for a Bahamas jail cell.
When the subject of Binance’s dominance came up during a Senate committee hearing on FTX on Wednesday, Sen. Bill Hagerty of Tennessee warned it would be “catastrophic for the cryptocurrency sector, and it would prove catastrophic to all of the customers that use the market.”
For his part, Binance’s CZ has reaffirmed in tweets and public remarks that no client exodus will be enough to put the business under strain. This week, a surge in client withdrawal requests put that confidence to the test. The native coin of Binance, BNB, has taken a significant hit as well, falling 20% since Monday.
Despite $6 billion in net withdrawals between Monday and Wednesday, a spokeswoman for Binance said in an email on Friday that “we were able to fulfill them without breaking stride.” According to the spokesman, Binance does not invest user funds and keeps clients’ cryptocurrencies in separate accounts with 1-to-1 asset backing. The representative stated that Binance has a $1 billion emergency fund and a debt-free capital structure to protect users in dire circumstances.
CZ likes to attribute a large portion of the recent interest to the unfounded “FUD” (fear, uncertainty, and doubt) that has hounded cryptocurrency from its inception. The sky won’t likely clear for him any time soon, though.
Even if Mazars’ report on Binance’s reserves didn’t amount to a full audit and didn’t completely restore confidence, the accounting firm’s departure deprives CZ of a credible outside source to support his claims. Furthermore, in the post-FTX context, public confidence in the claims of crypto billionaires is declining more quickly than the value of their coins.
The spokesman for Binance said the exchange is looking into ways to increase transparency for users to see that their assets are on the blockchain and is looking for a different accounting firm to partner with it to demonstrate proof of its reserves. That might be challenging: The Wall Street Journal reported late on Friday that BDO was rethinking its work for cryptocurrency companies after recently endorsing the reserves of stablecoin juggernaut Tether.
Government Scrutinyfor Binance
Binance might prove impervious to the kind of bank run that brought down FTX and other companies this year, but CZ continues to be subject to legal risks and government scrutiny that might escalate into existential dangers to the company.
The Internal Revenue Service and Justice Department are both looking into Binance, according to a story from Bloomberg from last year. In 2020, Chainalysis Inc., a blockchain forensics company with clients that include U.S. federal agencies, came to the conclusion that Binance was the exchange through which more funds associated with criminal activities were transferred than any other cryptocurrency exchange.
According to Reuters on Monday, which cited people familiar with the situation, disagreements among the prosecutors are preventing the DOJ investigation from being completed. According to the report, some of the case’s prosecutors want to analyze more evidence while others think the government has enough to press criminal charges against CZ and other executives of Binance. The corporate representative said on Friday that “Binance has created clear business policies to guarantee we operate globally in a regulatory compliant manner.” (CZ worked from 2002 to 2005 at Bloomberg LP, the organization that owns Bloomberg News.)
The cryptocurrency community is also closely monitoring the possibility that FTX’s bankruptcy case would lead to attempts to recoup the $2.1 billion that FTX paid to buy back Binance’s investment in Bankman-business, Fried’s much of which was paid in an FTX token whose value has since plummeted. Kevin O’Leary, a “Shark Tank” television personality who has millions of dollars in cryptocurrency from a sponsored sponsorship locked up in FTX, said to a Senate committee, “Maybe I want a Madoff clawback on those revenues.”
When asked if he was willing to repay the $2.1 billion during a CNBC interview on Thursday, CZ responded, “I think we’ll leave that to the attorneys,” which sparked a fresh round of criticism on Twitter from the crypto community. Time will tell if they were merely more false information.
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.
Major media agencies and experts have repeatedly failed to provide readers with a clear interpretation of what happened, despite the fact that Sam Bankman-cryptocurrency Fried’s venture was revealed as a hoax in recent weeks. August publications have made several significant revelations on the incident, but they have also frequently appeared to downplay those revelations in ways that minimized Fried’s and Bankman’s guilt.
The listed Fraud.
It is clear that what happened at the FTX cryptocurrency exchange and the hedge fund Alameda Research involved several intentional and deliberate fraud efforts intended to defraud both investors and users of their money. Therefore, a recent New York Times interview came under fire for appearing to attribute FTX’s demise to bad management rather than criminal activities. A Wall Street Journal article has deplored the loss of FTX’s charitable donations, presumably validating Fried’s strategic philanthropy Bankman-pretensions. Vox co-founder Matthew Yglesias, a court chronicler of the neoliberal status quo, sought to conceal his personal involvements while avoiding the idea that the Bankman-funds Fried’s were truly embezzled by attributing them to helping Democrats in the 2020 elections. The most outrageous element of this is that some media outlets have referred to what happened at FTX as a “bank run” or a “run on deposits,” despite Bankman-repeated Fried’s claim that the business was simply overleveraged and poorly managed. Both of these attempts to cast blame for the consequences obfuscate the real problem, which is the misappropriation of client monies. Banks are vulnerable to “bank runs” since they are obviously in the business of lending client money out to generate profits. They could momentarily run out of money if everyone withdraws at once, but there won’t be any long-term problems. Although not banks, FTX, and other cryptocurrency exchanges are not. Since they don’t (or shouldn’t) participate in lending, even a very sudden increase in withdrawals shouldn’t generate a liquidity squeeze. Customers were clearly guaranteed that the firm would never lend out or otherwise use the bitcoin when they committed it to the FTX exchange. Actually, the funds were moved to the affiliated trading firm Alameda Research, where it seems they were just thrown away. Simply said, this is theft on a level that is practically unheard of. Even though the total losses have not yet been determined, a bankruptcy filing claims that up to one million consumers might be impacted. A large number of further decisions and activities that, even in the absence of crypto-specific legislation, would have been regarded as financial fraud if FTX had been a U.S.-regulated firm have been uncovered in less than a month as a result of reporting and the bankruptcy process. These schemes are nonetheless subject to legal action in U.S. courts to the extent that they made it possible for American people’s property to be effectively stolen.
Their many crimes.
1. The link to Alameda
The connections between Bankman-hedge Fried’s fund, Alameda Research, and FTX, the exchange that attracted ordinary speculators, are at the center of his deception. Unlike an exchange, which eventually makes money from transaction fees on assets owned by users, a hedge fund like Alameda seeks to make money by actively trading or investing funds it controls.
2. The FTT print and ‘collateralized’ loans
The majority of the FTX exchange token, FTT, which FTX and Alameda held, was produced by FTX, but only a small piece of it was traded on open markets. As a result, their holdings were practically illiquid and couldn’t be sold for the open market price. In spite of this, Bankman-Fried recorded its worth at that false market value.
3. Margin liquidation exemption for Alameda Research
According to legal documents submitted by the new CEO overseeing FTX’s bankruptcy and liquidation, Alameda Research was said to have special user status on the platform, including a “hidden exemption” from the platform’s liquidation and margin trading restrictions.
4. Alameda leading the FTX lists
According to the crypto analytics company Argus, Strong evidence suggests that Alameda Research had access to knowledge regarding FTX’s plans to sell certain coins. Alameda was able to buy significant quantities of these tokens ahead of the listing and subsequently sell them since an exchange listing often has a beneficial effect on a token’s price.
5. Executive personal loans of a large amount
FTX officials are said to have received loans totaling $4.1 billion from Alameda Research, including substantial personal loans that were likely unsecured. According to documents from bankruptcy proceedings, Bankman-Fried received a staggering $1 billion in personal loans as well as a $2.3 billion loan to a firm called Paper Bird in which he had a 75% ownership interest. Director of engineering Nishad Singh received a $543 million loan, while co-CEO of FTX Digital Markets Ryan Salame received a $55 million personal loan. And the list goes on…
