A new FTX report is out that is as bitingly scathing as we have come to expect from an FTX report. Binance is in the news again. Other crypto companies are acting like crypto companies. And central banks and governments are wanting to control money and populations.
FTX spent customer funds on cartoon, book about humans and ‘Pineapple House’
The new FTX reports lists some of the things FTX customer funds were used for. As can be expected with anything FTX, these are unrelated to anything that might be beneficial to the customers in question, such as, for example, leaving customer funds in customer accounts. $1.8 million went to a “Pineapple House”. It isn’t known what exactly a Pineapple House is but it seems to be part of FTX’s $243 million Bahamian property portfolio, all allegedly purchased with customer funds. Around $700,000 went to FTX Foundation “grants”. Of this, $400,000 reportedly went to an entity that produces animated YouTube videos about “rationalist and [Effective Altruism] material” and $300,000 to a book on deciphering human utility functions. Yup. $20 million went to the non-profit organisation, Guarding Against Pandemics, Inc which the report claimed “worked closely” with the similarly named political action committee, Guarding Against Pandemics PAC. It might be be a mere coincidence that it’s headed by Gabe Bankman-Fried, former FTX CEO Sam Bankman-Fried’s younger brother.
FTX has recovered $7B in assets so far, has almost $2B to go to cover misappropriations
The new management of FTX, has, according to its very well paid CEO John Ray, regained approximately $7 billion in liquid assets. The report has stuck to its by now familiar style of going to great lengths to disparage the exchange’s former management and repeat how terribly bad it all was. Someone more cynical than I may wonder how much is an attempt to justify continued payment of the high salaries in question. Motivations aside, the report makes clear the comprehensive intermingling of funds is adding a layer of complexity to the recovery process.
FTX Debtors, consisting of FTX and its subsidiaries, estimate the total customer assets misappropriated to be around $8.7 billion, although it’s now thought this could be up to $10 billion. Of this, $6.4 billion was in fiat and stablecoins. It’s worth noting that fiat and stablecoins are two different things. One is, in this case, a dollar. One is a digital thing which claims to be backed by something (though usually not a dollar) and when things are good is worth roughly a dollar, but not always. FTX had notably not differentiated between fiat and stablecoins in its accounting.
The report stresses that the previous FTX leadership “did not commingle and misuse customer deposits by accident”. Rather, these deliberate actions were concealed “with the assistance of a senior FTX Group attorney” and others, making it “extremely challenging to… differentiate between the FTX Group’s operating funds and deposits made by its customers.” The former FTX Group attorney also reportedly terminated a less senior lawyer who questioned these practices.
A new squiggly chart has been issued to detail the flows of FTX customer money out of primary deposit accounts “as identified to date.”
The report alleges that the misappropriated customer funds shown in the squiggly chart went amongst other things to political and charitable donations, luxury real estate, and company investments and acquisitions. Those outflows were made possible by misrepresenting their purpose to banks, which it seems let them slide, and other alleged false representations.
Creditor pledges tokenised FTX claim as collateral for DeFi loan
An FTX creditor has tokenised a $31,307 claim and pledged it as collateral for a DeFi loan on the Arcade protocol. This makes it the first on-chain loan backed by an FTX claim, according to the bankruptcy claims platform Found. According to some estimates, FTX claim holders could otherwise hope to recover between 35% and 66% of their face value.
SBF shot a MasterClass video about crypto trading months before FTX collapsed
FTX co-founder and former CEO Sam Bankman-Fried is alleged to have shot a crypto trading video course for MasterClass, which offers classes taught by celebrity experts, just months before his crypto exchange collapsed, according to a The New York Times report. His lesson was not included after FTX’s spectacular November collapse.
SEC Sought Freeze Order Despite ‘No Evidence’ That Binance Was Moving U.S. Customer Funds
The pre-trial proceedings against Binance aren’t going too well so far for the SEC. SEC lawyers have been trying to get a near total freeze on assets on Binance.US. To do this, they need to persuade a judge a freeze is in the nation’s interests. To persuade a judge they need an at least vaguely solid argument. So far, they’ve failed at coming up with one the judge presiding over the case hasn’t scoffingly dismissed. The one word that seems to be repeatedly used to describe the emotions of Judge Amy Berman Jackson over the weak claims presented is frustration.
The SEC had stated that the freeze was necessary to ensure “that Binance.US customers’ assets are protected and remain in the United States.” All good so far, until when Judge Jackson asked for evidence that Binance International had, or was planning to exfiltrate U.S. customer assets. The SEC reportedly failed to deliver a clear answer. Its counsel could only confirm that “the current accounts, we’re not seeing any flows of money [to] outside of the United States” leading Judge Barrett to at one point ask “It’s happening or it’s not?”.
“There are a lot of details about amounts transferred and where they went…” Barrett asked the SEC’s lawyers “You say these funds consisted in significant part of Binance platforms, plural, customer assets, including those of Binance.US … Can you clarify or walk me through the transfers you allege were made specifically from the U.S. entities, as opposed to the international Binance platform, to offshore accounts held by Zhao, and how you know that those were customer assets?” The SEC lawyers did not or could not clarify.
The judge hinted the SEC may have overstepped its boundaries in its ‘crusade to destroy cryptocurrency’ in the United States. Ultimately, Judge Jackson rejected the SEC’s request for an emergency asset freeze, considering it a “Minority Report”-style “pre-crime” argument and calling out their claims of US customer funds “dissipating” abroad as unsupported and unclear. “It’s kind of stunning to me that I’ve now asked this question to each of you [SEC lawyers] five times” without getting a clear answer.
There’s a things going on here. 1) It looks more and more like the SEC is trying to find a way to paint Binance as not just being in violation of U.S. securities law, but as a fraudulent exchange equal to FTX. 2) It seems the SEC is set on a broader crypto crackdown that is merely using Binance as a key starting point before jumping on to the rest of the industry. 3) Binance is hardly whiter than white. If there is a crypto angel, Binance isn’t it. But the SEC is doing the opposite of helping its own case here. It’s making the world see its cases aren’t infallible and that judges aren’t just going to lie on their backs and do its bidding just cos its the SEC, indicating that the rest of its crypto crackdown isn’t going to be as plain sailing as it might have imagined. 4) It seems that sentiment is growing that the SEC is overstepping its case.
FSMA Orders Binance to Immediately Halt Services in Belgium
Belgium’s Financial Services and Markets Authority (FSMA) has issued an order against Binance for servicing Belgian customers from countries outside of the European Economic Area. The regulator noted that Binance does not deny offering such services in Belgium. According to the FSMA, 27 companies, termed as ‘Binance Operators’, have been involved in offering operational and/or technical support to Binance’s crypto exchange and custody services for Belgian clients. Binance however allegedly failed to prove that 19 of these companies are actually located in the EEA and authorised to provide these services in Belgium, according to local laws. “Persons or firms governed by the law of a country that is not a member of the European Economic Area are prohibited from offering or providing, within Belgium, by way of a professional activity – even if supplementary or ancillary – exchange services between virtual currencies and legal currencies or custody wallet services,” the FSMA stated.
Binance has been given the option to either return all assets to Belgian customers or to transfer them to entities regulated under the law of an EEA member state that are authorised to provide crypto exchange and custody services in Belgium. As a motivational help, the FSMA informed Binance that it has made Belgium’s Chief Prosecutor aware of the case and criminal sanctions under Belgium’s anti-money laundering and terrorist financing law may be enforced if Binance fails to comply with the order.
Binance Australia got 12 hours’ notice before it was debanked, claims exec
Binance Australia was suddenly “cut off” from Australia’s banking system with no warning, according to Regional Manager Ben Rose. “We received 24 hours’ notice of debanking at 11:30 pm in the evening, that was later turned into 12 hours, and so we had our banking cut off.”
Their payment provider, Zepto, was ordered by banking partner Cuscal to cease supporting Binance, impacting nearly a million local customers. Cuscal reportedly cited crypto-related “scams and fraud” as their main concern. “The reasons given were not entirely clear and didn’t look that great in the media”, Rose said.
It soon transpired that this debunking didn’t just affect Binance however, but all crypto companies banking with Cuscal, which until recently had banked “the majority of this industry” in Australia. The same day Cuscal offboarded Binance, “Big Four” bank Westpac said it would start trials to block payments to crypto exchanges. Less than a month later Commonwealth Bank started similar crypto-related payment blocks in Australia.
Despite these challenges, Rose assured that Binance Australia’s business hasn’t been significantly impacted. He stressed on cooperation with regulators and the need for “sensible licensing,” urging Australia to act quickly. He warned, “We have a window as a country and we think there’s an opportunity, but there’s also a risk if we don’t move on licensing relatively quickly.”
Binance eyes United Arab Emirates as ‘focal point’ for future operations
Binance is seeing the UAE as an opportunity for growth, according to its Dubai General Manager Alex Chehade. “Binance identified that the senior leadership of the UAE wanted to establish the region as a focal point for Web3… they see [crypto] as a great driver for doing so” Chehade says. The UAE has clear(er) crypto regulations, which are attracting increasing numbers of crypto companies. Chehade has stated “Binance is here [in the UAE] because we’ve been given the surety that we can set up operations and build for the future.” “You don’t want to set up where the goalposts move. For big businesses, you need predictability, you need to plan and you need to budget.” The Virtual Assets Regulatory Authority (VARA) was also mentioned as a key attraction. “There’s a clear framework for people and businesses to engage with… you’re just not seeing as much of that elsewhere.”
Celsius creditors allege Wintermute facilitated ‘wash trading’
Celsius Network creditors, currently in bankruptcy, have accused crypto market maker Wintermute of assisting Celsius executives in the illicit manipulation of the price of Celsius’s CEL token. A recent lawsuit alleges Wintermute aided Celsius CEO Alex Mashinsky and other executives to “unlawfully manipulate and profit from the illegal wash trading of unregistered CEL Tokens.“ Both the Celsius executives and Wintermute are accused of deliberate wrongdoing, the suit claims. “Defendant Wintermute and the Executive Defendants engaged in a scheme that artificially inflated the trading volume of the CEL tokens sold and marketed by Celsius”.
According to the lawsuit, these activities were discovered through “publicly available internal conversations” among Celsius executives and were purportedly carried out from March 2021 until June 2022 when Celsius froze withdrawals. The filing claims “The supposed controls were virtually non-existent, and those that did exist did not monitor for or protect against “wash trading” or self-dealing”.
Huobi co-founder sues Huobi, under new management, for copyright infringement
The former co-founder of Huobi Global, Leon Lin Li, is suing Houbi for copyright infringement in Hong Kong. It’s all seems like a bit of a playground spat between two crypto exchange owners with a bit of you can’t do this/ yes I can catfighting thrown in. Li sold his majority stake to a Justin Sun-controlled entity. Li asserts his firm, X-Spo, retained trademark rights over the ‘Huobi’ trademark. He now alleges Sun’s new management of Huobi Global used this trademark without authorisation to promote the exchange. Sun’s Huobi Global maintains it possesses the right to use the trademark in multiple legal jurisdictions globally. It isn’t all about the trademark. This lawsuit is a follow on from a public dispute last May between the two men, when Sun accused Li’s brother, Wei Li, of illicitly acquiring and offloading Huobi (HT) tokens. Li countered Sun’s allegations by challenging Huobi to substantiate the claims, pledging to pay the company ten times the amount of any unlawfully obtained tokens. Whilst the owner and former owner are spatting, Huobi Global is confronting mounting regulatory scrutiny as it aims to expand its Hong Kong presence.
ECB member who backs ECB-run digital Euro is scathing about crypto. Doesn’t want stablecoins backed by central bank money, worried it will take away from digital Euro
Fabio Panetta, a member of the European Central Bank (ECB) Executive Board, has criticised cryptocurrencies and has specifically recommended against providing stablecoin issuers access to central bank reserves. He stated that if stablecoin issuers could deposit their reserves with the central bank, it would eliminate investment risk. This wouldn’t be bad, except if you’re an ECB banker. Reducing investment risk makes the stablecoin a close substitute for central bank money. “A stablecoin could displace sovereign money by using the large customer network of a big tech, with far-reaching implications,” Panetta noted. Panetta also referenced USDC stablecoin issuer Circle’s previous attempt to access central bank money by creating a custom money market fund with BlackRock. Tellingly, Panetta backs the terrifying concept that is the government run digital Euro.
He likens crypto assets to gambling tools due to their volatility. Which to be fair, is a perfectly valid point, if talking about the volatile crypto assets, but completely disregards the many use cases which avoid the volatility altogether. His remarks came during the Bank for International Settlements Annual Conference, where he stated, “The crypto ecosystem is riddled with market failures and negative externalities” Panetta critiqued the crypto industry’s attempts to integrate into traditional finance for legitimacy, terming its claims of security, scalability, and decentralisation as “not achievable”. He illogically viewed blockchain’s immutability as a flaw, warning that new technology doesn’t eliminate financial risks.
Swiss central bank announces plans for wholesale CBDC pilot with ‘real money’
The Swiss National Bank (SNB) is set to launch a pilot project for a wholesale central bank digital currency (wCBDC). Its chair confirmed “This is not just an experiment, it will be real money equivalent to bank reserves and the objective is to test real transactions with market participants.” For now, it’ll be a limited-time experiment on the Swiss SIX digital exchange. SNB governing board member Andréa Maechler has claimed that that cash will not be replaced in the country. For now, at least. Maechler last year said that SNB officials believe “the risks outweigh the benefits” when it comes to a retail CBDC. One hopes they maintain that stance. CBDCs serve to benefit no-one except their issuers and their governments.
Switzerland’s central bank is gearing up to issue a CBDC. The wholesale digital currency is set to pilot on the SIX digital exchange, according to Swiss National Bank Chairman Thomas Jordan. Speaking at the Point Zero Forum, Jordan stressed that “this is not just an experiment,” confirming the digital currency would equate to bank reserves and enable real transactions with market participants. His announcement comes amid a worrying global trend towards central bank digital currencies (CBDCs). The central banks of over 100 nations are examining potential CBDC designs, with each G7 economy having moved past the research phase into development or pilot testing and at least 10 central banks on the cusp of issuing national digital currencies. The Bank of International Settlements and a collective of central banks see CBDCs as an innovative opportunity for monetary systems, by which they presumably mean an innovative opportunity to control their populations and further reduce user privacy and financial freedom.
ChatGPT plugin goes live for Hedera network
A new ChatGPT plugin has gone live for users of the Hedera network. Hedera users can use the chat AI to establish secure interactions with the Hedera network, accessing its tools like the Hedera Consensus Service, Hedera Token Service and Smart Contract Service. The integration will allow users to retrieve HBAR and token balances from Hedera accounts and will streamline the interaction and simplify asset monitoring and management for users. Once fully live and operational, users will be able to install the plugin in their ChatGPT interface.
JPMorgan Chase Launches Euro-Denominated Transactions With JPM Coin
J.P. Morgan Chase has expanded its blockchain-based JPM Coin offerings to include euro-denominated transactions, alongside the dollar-denominated ones that have been available since 2019. Over the four years, JPM has facilitated approximately $300 billion in transactions via JPM Coin, primarily large multinational firms using it for fund transfers or payments. JPM Coin provides several advantages over traditional transactions: 24/7 operation, quicker execution, and the potential to schedule future payments. JPM Head of Coin Systems for Europe, the Middle East, and Africa Basak Toprak says “There are cost benefits to paying at the right time”. “This could mean they could earn more interest income on their deposits.”
JPM, which introduced the first real-world digital token from a major US bank says of the token “The JPM Coin isn’t money per se”. Rather, “It is a digital coin, representing United States dollars, held in designated accounts… In short, a JPM Coin always has a value equivalent to one U.S. dollar. When one client sends money to another over the blockchain, JPM Coins are transferred and instantaneously redeemed for the equivalent amount of U.S. dollars, reducing the typical settlement time.”
Mastercard Focuses Its ‘Engage’ Program on Crypto
Mastercard has broadened its ‘Engage’ program to facilitate the development of cryptocurrency card programs. By connecting potential card issuers with technical partners, Mastercard is aiming to have a growing number of crypto companies using its network. It’s aiming to speed up the process of bringing crypto cards to the market and allow for crypto-to-fiat conversions. This initiative aligns with the recent interest of traditional finance firms in digital assets. Last month, Mastercard also announced a program to perform anti-money laundering checks for cross-border transactions using technology from CipherTrace, a blockchain analytics firm it recently acquired.
NEAR Foundation Partners With Alibaba Cloud to Accelerate Web3 Growth in Asia
The NEAR Foundation, responsible for the development of the NEAR protocol, has partnered with China’s Alibaba Cloud platform to enhance Web3 development in Asia and the Middle East. Through this partnership, the NEAR Foundation will be able to leverage Alibaba Cloud’s expansive developer ecosystem in these regions to attract more developers to build on the NEAR protocol. Developers looking to launch new NEAR validators will have the convenience of using Alibaba Cloud’s “plug-and-play” infrastructure service. Crypto and blockchain and emerging tech companies are moving. And it isn’t towards the UK or US.
Insurance platform launches parametric reinsurance on blockchain
Insurtech firm Arbol and The Institutes RiskStream Collaborative are live on blockchain. The dRe insurance platform uses smart contracts for on-chain reinsurance calculations. Arbol specialises in parametric insurance, which automatically settles claims based on AI-analysed weather data. The initial use-case for dRe is automating claims for severe weather events, with data registered by a decentralised weather monitoring system. The data is then fed into the smart contracts via the Chainlink blockchain oracle network. Arbol’s CEO Sid Jha says “By leveraging blockchain technology and smart contracts, we are fundamentally reshaping the landscape of parametric (re)insurance. It transforms how we manage severe storm catastrophe transactions by providing rapid, auditable, and reliable payouts.”
BCB Group’s Deputy CEO Departs After Failed German Bank Merger
Noah Sharp, Deputy CEO, has left BCB Group. This follows the cancellation of BCB’s proposed acquisition of Germany’s Sutor Bank due to regulatory delays and shifting market conditions. Sharp was initially hired to facilitate the company’s international expansion, particularly through the integration of Sutor Bank. BCB Group’s CEO Oliver von Landsberg-Sadie said, “In light of the shift in the current banking and regulatory environment and the decision to step away from the bank deal, Noah has decided to pursue an external opportunity in the fintech space.”
Study: Crypto Adoption More Significant in Poorer African Countries
A study by Kenyan firm Kasi Insights has indicated that despite 66% of Africans claiming exposure to digital assets, 82% have never owned crypto. The research challenges the belief of widespread crypto adoption across the African continent. The data suggests poorer nations like Namibia and Angola show higher adoption rates compared to more affluent ones such as Kenya and South Africa. The report emphasised the potential role of government support in facilitating mass crypto adoption. It found that 60% of African crypto users are millennials and 54% are men. A third of investors seek to “make money quickly,” while others view crypto as a way to diversify portfolios or to seize an opportunity.
