January 8, 2023 | Issue 47
CRYPTO SLITHERS INTO 2023
Happy 2023 and welcome back to my take on the never boring crypto world. Here are the main crypto events from the last two weeks.
FTX's former CEO Sam Bankman-Fried was arrested in the Bahamas and flown to New York City where he was in custody until released on bail. His bail was set at $250M, the largest bail amount in US history. It was 25 times higher than Bernie Madoff. SBF was released into his parent's custody when they put up their $4M home as collateral. There were two other undisclosed people who also put up funds. Clearly, the court allowed his release for less than $250M.
The bail conditions did not include prohibiting Bankman-Fried from using the internet. Experts who track crypto transactions discovered that a crypto wallet previously linked to Alameda (the hedge fund tied to FTX and controlled by Bankman-Fried) transferred $1.7M out of Alameda into a series of crypto mixing services and then exchanged for bitcoin.
Shortly after articles appeared in crypto publications about this transfer, Bankman-Fried tweeted, "None of these are me. I'm not and couldn't be moving any of those funds; I don't have access to them anymore. I believe it is likely the case that various legit legs of FTX have the ability to access these funds; hopefully that's what's happening here. If not, hopefully one steps in soon to do so. I would be happy to help advise regulators on this if any wanted."
At Bankman-Fried's arraignment hearing where he pleaded not guilty, the prosecutor requested the judge prohibit the defendant from using the internet while out on bail. Instead, the judge modified the bail conditions prohibiting Bankman-Fried from moving any FTX or Alameda funds.
Two former FTX executives are cooperating with investigators – Caroline Ellison, former CEO of Alameda Research, and Gary Wang, co-founder of FTX Trading. Both pleaded guilty. Bankman-Fried pleaded not guilty and his trial is scheduled for October.
New York State Attorney General Letitia James filed suit against Alex Mashinsky, former CEO of bankrupt Celsius Network. Celsius was a crypto lending company.
James said, "As the former CEO of Celsius, Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin...
Mashinsky made numerous false and deceptive statements about Celsius’s safety, number of users, and investment strategies to recruit investors, and repeatedly asserted that Celsius was safer than a bank. However, investors’ assets were routinely exposed to high-risk counterparties and strategies, many of which resulted in losses that Mashinsky concealed from investors."
Crypto is in a deep reckoning phase and as the new Congress begins setting its agents, crypto hearings will be plentiful.
Regarding this newsletter, many of you have noticed that I started writing another weekly newsletter, Important Stuff in Westfield. This is unrelated to crypto and instead focuses on Westfield, New Jersey. It is not feasible for me to write both newsletters on a weekly basis. Beginning this year, I will be writing the crypto newsletter every two weeks.
The best part of writing these newsletters has been meeting new people who share my interests.
If you want to talk about crypto, New Jersey real estate, or how I am building audiences with my newsletter and social media, reach out to me. If you want to see past issues of my crypto newsletter, go Crypto News for Realtors. Also, check out my YouTube videos and Podcast.
Let's have a great 2023 and don't forget to stay crypto curious!
Rich Hopen
richard.hopen@compass.com | 908.917.7926
PS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home in New Jersey, please reach out to me.
CRYPTO NEWS ▸ GENESIS IS STRUGGLING TO SURVIVE Genesis Global Trading, Inc. announced this week that it is laying off 30% of its staff and is considering bankruptcy, according Wall Street Journal reporter Caitlin Ostroff. The crypto lender was hit hard in 2022 when several of its loans were not repaid by other companies in bankruptcy. Notably, Three Arrows Capital and Alameda Research. Alameda was the hedge fund connected with FTX and Sam Bankman-Fried. Genesis had lent hundreds of millions dollars to Alameda. As Genesis struggles, it has not paid back its own creditor loans. Crypto exchange Gemini relied upon Genesis for its earn program and this week Gemini's Cameron Winklevoss and Genesis' parent company's CEO, Barry Silbert, attacked each other on Twitter. Genesis is owned by Digital Currency Group which owns Grayscale Investment and crypto publisher CoinDesk. Breaking news – Bloomberg just reported that the Securities and Exchange Commission is investigating a transfer of funds between Genesis and Digital Currency Group.
▸ Crypto Legislation Hopes Dim The crypto supporters on Capitol Hill have gotten very quiet since the FTX collapse. Rep. Jake Auchincloss, a member of the Congressional Blockchain Caucus, was awarded a "digital future award" by the Crypto Council for Innovation. Recently, however, he is not so bullish.
Auchincloss expressed exasperation by saying that in crypto's 14 years of existence, it only delivered "white papers and podcasts." Another member who appears more open minded, Rep. Patrick McHenry (R., NC) will lead the House Financial Services Committee. The committee could introduce crypto bills for a vote. McHenry said, "We have to separate out the bad actions of an individual from the good created by an industry and an innovation. So let me be clear: I believe in the promise of digital assets.” Instead of comprehensive crypto legislation, the focus on Capitol Hill will likely to be on expanding existing regulatory authority for banking, securities, taxes, and anti-money laundering. Additional resources are likely to flow to enforcement.
▸ Crypto-Friendly Banks Are Bleeding Since the collapse of FTX, banks that welcomed crypto have suffered major losses. Silvergate Capital stock has dropped 80% since early October. It reported this week that customers withdrew $8.1 B in the fourth quarter.
Shares in three other crypto-friendly banks are down double digits since October. This contrasts with the broader banking industry which has risen a bit more than the overall market.
Thanks for reading! See you in two weeks. Go to Crypto News for Realtors to read previous issues.