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Cryptocurrency, Blockchain, and Fintech News Headlines Update on 2023-04-18

The latest report on bankrupt exchange FTX is out – it’s still a mess, but they’ve managed to recover $7.3 billion of customer funds, and are remarkably considering re-launching the exchange as one option. The EU is looking to give enhanced training to police to combat crypto crime, and is calling for tougher identity checks on crypto exchange users to combat the increasing use of darknet marketplaces for illegal transactions. This, despite acknowledging that shutting down one darknet marketplace just pushes trade onto others waiting in line. The SEC is trying to put DeFi under securities law, upsetting basically everyone. The IMF is writing a report trying to help countries to control populations by giving them advice on launching CBDCs (central bank digital currencies). Not all is good if you’re a crypto exchange. The Winklevoss twins have reportedly made a personal $100m loan to Gemini after it reportedly failed to get funding, and the SEC has sued Bittrex for allegedly operating without registration and other no nos. And a former nvestment banker and registered broker with the Financial Industry Regulatory Authority has been charged with defrauding investors in a fake crypto investment scheme….. Crypto is still cryptoing…

SEC: DeFi Falls Under Securities Rules, Sparks Controversy

The US SEC is facing criticism for its new intensified scrutiny of DeFi (Decentralised Finance). The SEC claims the amendments aim to provide regulatory oversight of platforms trading crypto assets considered securities, which now include DeFi protocols. The changes would subject DeFi protocols and other platforms that trade “crypto asset securities” to additional regulatory requirements, such as registration as national securities exchanges or compliance with reporting and record keeping obligations. In theory, good. Except, the whole point of decentralised finance is that it is, in fact, intended to be decentralised. Anyhow, SEC Commissioner Hester Pierce criticised the proposed regulations, saying they would stifle innovation and would embrace “stagnation, centralization, expatriation, and extinction” instead of embracing the promise of new technology. Pierce also claims the new regulations could (i.e. would) cause remaining blockchain innovators to leave the US for more favourable regulatory environments. She also accuses the SEC of dismissing the possibility of practical adjustments to the registration framework to allow entrepreneurs to register more easily. Pierce argues that the SEC does the opposite of supporting innovation in crypto, by responding to companies reaching out in good faith with enforcement actions

Do Kwon lawyers received $7 million before Terra collapse

At least some are doing well out of crypto: Do Kwon’s lawyers! South Korean prosecutors confirmed that Terraform Labs CEO Do Kwon sent $7 million to South Korean law firm Kim & Chang before the collapse of LUNA and UST ecosystems. Prosecutors flagged Kwon’s decision as a deliberate move. It’s reportedly alleged this move indicated his awareness of the upcoming collapse and anticipated legal issues. The lawyers got a trip to Montenegro out of it, to meet Kwon after he was arrested there for attempting to fly to Dubai with fake documents, as well as to meet former CFO, Han Chang-joon. Both US and South Korean authorities are seeking Kwon’s extradition, but the court has not yet made a decision.

Hong Kong’s largest virtual bank to enter crypto

Hong Kong’s largest virtual bank is planning to enter the crypto sector by offering crypto-to-fiat conversion and account services. ZA Bank CEO Ronald Lu said the bank will provide crypto-to-fiat currency conversion through licensed crypto exchanges, initially supporting the HK Dollar, U.S. Dollar, and Chinese Yuan. It plans to expand the service as more trading platforms are authorised in HK. The bank will allow Web3 startups and small to medium-sized blockchain businesses to open accounts. ZA Bank, established in 2018, serves over 50% of Hong Kong’s virtual bank customers and holds total assets worth over $760 million. This as Hong Kong is becoming increasingly known for its crypto-friendly policies.

Winklevoss twins infuse Gemini with $100M personal loan

The Winklevoss twins have reportedly made a personal $100 million loan to their US-based crypto exchange Gemini, amid the current market downturn. This followed unsuccessful attempts to secure funding from outside investors. The loan comes as regulators have been scrutinising Gemini’s activities, with the US SEC charging the exchange and Genesis Global Capital in January for offering unregistered securities through Gemini’s Earn program. New York’s Department of Financial Services has also started investigating the exchange after users claimed assets in their Earn accounts received FDIC protection.

EU-Funded Report Calls for Crypto ID Checks, Police Training to Combat Darknet Markets

A new report commissioned by the European Monitoring Centre for Drugs and Drug Addiction calls for tougher identity checks on crypto exchange users to combat the increasing use of darknet marketplaces for illegal transactions. The report, funded by the European Commission and co-authored by Chainalysis head of research Kim Grauer and and cybercrime research lead Eric Jardine emphasises that better police training is more effective than outright bans, stating that forbidding the use of crypto entirely does little to reduce darknet activity, and police-led closures tend to have only short-lived impacts, as other alternatives quickly spring up in their place. It also highlights the importance of implementing Financial Action Task Force recommendations to identify crypto users. It stated that law enforcement “require training on the technologies that are being employed and the new investigative techniques necessary for conducting these sorts of investigations” citing skills such as using encrypted platforms, and how to trace and seize crypto. The European Parliament is set to vote on new licensing rules for the crypto sector, including identity checks and upper limits on anonymous transactions.

Crypto exchange FTX could reopen, $7.3 billion so far recovered, Firm’s FTT token surges

FTX, the bankrupt crypto exchange which went spectacularly tits up in November, stands a chance of restarting, according to attorneys representing it. One potential option discussed involved allowing FTX’s creditors to convert a portion of their holdings into a stake in the reopened exchange. This, despite that new CEO John Ray seems to be enjoying spending time on his $1300 an hour salary writing about how spectacularly bad and fraudulent pretty much everything about the exchange was. Thankfully, the lead attorney for FTX, Andy Dietderich, stressed that restarting the exchange is just one of many options being considered and that any decisions are far from final. In happy news, FTX attorneys have recovered $7.3 billion in liquid assets from the defunct exchange, up from January’s $1.9 billion tally, but they noted that FTX is still “far away from an equity distribution.”

New FTX report is out…

New FTX CEO John Ray has issued his latest scathing report on how bad FTX and its former management was and is, despite saying they might still try and relaunch it. It includes snide, damning remarks from Ray and otherwise-would-be-unbelievable-but-being-crypto-believable quotes from former CEO SBF, such as ‘We sometimes find $50m of assets lying around that we lost track of; such is life’. This from the same man who once reassuringly described his mulit-billion dollar (now bankrupt) fund as ‘hilariously beyond any threshold of any auditor being able to even get partially through an audit’.

Swiss court gives green light for FTX to sell its European arm

Bankrupt crypto exchange FTX has announced that a Swiss court has approved a petition that may enable it to sell its European arm, FTX Europe. This would permit FTX’s European subsidiary to “facilitate the exploration of strategic alternatives, including the previously disclosed potential sale of its business,” in line with US bankruptcy court regulations. FTX Europe AG was included in FTX’s Chapter 11 filing in the US Bankruptcy Court for the District of Delaware in November 2022. In March, FTX Europe launched a website enabling customers to submit withdrawal requests for the first time since declaring bankruptcy. FTX customers are still seeking more information on the exchange’s plans to sell its subsidiaries, however.

US Court Orders FTX’s Alameda Research to Be Repaid $53M Deltec Loan

A Delaware bankruptcy court has ordered Deltec International Group to repay nearly $53 million to Alameda Research. Alameda had loaned Deltec $50 million loan in 2021. DIG is now required to pay that, plus $2,859,644 interest to Alameda within seven days, as part of ongoing efforts to compensate customers of the failed crypto exchange. This comes as FTX/ Alameda bankruptcy lawyers are ramping up efforts to get funds back.

Circle and BlockFi questioned on banking with SVB by Congress Members

Executives at stablecoin issuer Circle and bankrupt crypto lender BlockFi have been questioned about their alleged “mutual backscratching arrangements” with now-failed Silicon Valley Bank (SVB). Congress members Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez (AOC) sent letters to Circle, BlockFi, and 12 other non-crypto tech firms, seeking information on their relationships with SVB and any “agreements” or “perks” they received from the bank. It’s been reported that SVB’s “coddling” and “white glove” treatment towards its largest depositors might have been linked to “an abnormally high percentage of deposits” held at SVB that weren’t insured by the Federal Deposit Insurance Corporation (FDIC), Warren and AOC questioned “the role that companies like yours might have played in precipitating the $42 billion single-day-run on SVB” and to try and to understand if these firms played a role in SVB’s collapse. They aim to understand how SVB failed and how to prevent future failures. Circle had $3.3 billion tied up at SVB, while BlockFi had $227 million in uninsured deposits with the bank.

SEC Sues Crypto Exchange Bittrex, CEO for Operating without Registration

The US SEC has charged crypto exchange Bittrex and its founder and former CEO, William Shihara, with operating as an unregistered national securities exchange, broker, and clearing agency. It’s alleged that Bittrex ran three unregistered services under one platform to maximize profit. The SEC claims that Bittrex violated federal securities law registration requirements and has accused the exchange of instructing its crypto issuers to delete information suggesting their digital assets were securities, to to evade securities law. Bittrex Global GmbH, a foreign affiliate, has also been charged for operating a shared order book with Bittrex without registering as a national securities exchange. This comes two weeks after Bittrex’s announcement that it was shutting down its US operations due to unclear regulatory requirements. Coincidence?

Brooklyn court charges former banker for allegedly defrauding crypto investors

A man has been charged in Brooklyn, New York, for allegedly defrauding investors with fake cryptocurrency investments and misappropriating the funds to finance his lifestyle. Rashawn Russell convinced investors about the fake crypto investment scheme based on his credibility as a former investment banker and a registered broker with the Financial Industry Regulatory Authority. He allegedly exploited the growing interest in crypto to mislead investors, convincing them to swap their fiat savings into cryptocurrencies with the promise of significant or “guaranteed” returns. However, it’s alleged that he used the investors’ money for personal expenses, including gambling and repaying other investors. The U.S. Department of Justice reported that he fabricated documents to deceive investors about the status of their crypto investments. If convicted, he faces a maximum of 20 years in prison. The DOJ encourages other potential victims to come forward. The moral of the story is- if anyone tries to get you to part money for anything that sounds good, it’s usually best to run away screaming.

Crypto phishing attacks up by 40% in one year

The last year has seen a 40% year on year increase in crypto phishing attacks with 5,040,520 detected incidents in 2022 compared to 3,596,437 in 2021, according to cybersecurity firm Kaspersky. Phishing attacks typically involve scammers reaching out to investors via fake websites and communication channels that impersonate official companies, tricking users into sharing sensitive information, such as private keys, allowing attackers to steal funds. In a 2022 survey, one in seven respondents admitted to being affected by cryptocurrency phishing. Crypto’s image as a quick way to get rich with minimal effort seems to still be attracting scammers who continuously innovate their techniques to target unsuspecting investors.

Individual behind $3.4B Silk Road Bitcoin theft sentenced to one year in prison

The United States Attorney’s Office for the Southern District of New York has sentenced an individual who pleaded guilty to wire fraud charges connected to “unlawfully obtained” 51,680 Bitcoin from the Silk Road marketplace in 2012, by exploiting a flaw in the site’s system. US authorities found the missing Bitcoin the home of James Zhong in Georgia, hidden in a floor safe and a computer hidden inside a popcorn tin. At the time, the seized Bitcoins were worth $3.4 billion. Zhong was sentenced to one year and one day in prison.

Euler Finance opens redemptions after hacker returns fund

Euler Finance, an Ethereum-based non-custodial lending protocol, announced it would open redemptions after hackers returned the majority of assets stolen in a $197 million flash loan exploit last month. Euler will repay all sub-account liabilities at the block on which the protocol was disabled on March 13, using on-chain price oracles provided by Uniswap or Chainlink to determine the value of assets and liabilities. A smart contract has been created containing funds for all exploited addresses. Users’ addresses must pass a Merkle proof of validity and an individually computed acceptance token to confirm they agree with T&Cs for redemptions to be processed. The hacker returned nearly all of the recoverable funds after Euler’s developers issued an ultimatum to return 90% of stolen assets or face legal action. The hacker also felt for a victim’s claim of losing life savings due to the exploit prompting the return of 100 ETH to the individual, who then donated 12 ETH to the Euler treasury.

IMF to publish CBDC handbook in response to increasing demand for guidance

Controlling populations by money via CBDC is the trend of the decade. As such, the IMF (International Monetary Fund) is planning to release a central bank digital currency (CBDC) handbook. The handbook, which is set to be completed in four to five years, will “mostly be descriptive rather than prescriptive, offering information, experience, empirical findings, and frameworks to evaluate CBDCs”. It will prioritise assistance for systemically important countries and those with high-capacity constraints or weak regulatory standards. It aims to address the digital divide and prevent poor CBDC design. The project is being mostly funded by Japan. The IMF has engaged with almost 30 countries in the past two years and over 40 countries overall. They don’t however mention the main risks being a total dissolution of privacy or freedom or other basic human rights which CBDCs are designed to erode.

Montenegro’s Central Bank to Test CBDC With Ripple

A bug in a smart contract on DeFi protocol SushiSwap led to $3.3 million in losses on April 9th. The attack exploited a vulnerability, causing the losses within a few hours. Lead developer Jared Grey said they are working on a retrieval plan to secure the stolen funds and compensate affected users. SushiSwap has since recovered 100 Eth worth approximately $186,000 from a hacker’s drained wallet, thanks to blockchain security firm Blocksec, by intercepting a transaction from prominent user @0xsifu’s wallet to the hacker’s wallet. Much of the missing $3.3 million is also thought to come from Oxsifu, amongst others. Where this starts to get interesting, is that convicted fraudster and co-founder of the Quadriga exchange scam Michael Patryn resurfaced going by the username Oxsifu. This will be one to watch the crypto analytics unravel on….

Bhutan’s sovereign investment arm quietly invests millions in crypto

It came out in the Celsius and BlockFi bankruptcy proceedings that Bhutan’s sovereign investment arm, Druk Holding and Investments (DHI), which manages around $2.9 billion in assets, reportedly invested millions of dollars in cryptocurrencies without public disclosure. According to a Forbes report, DHI’s undisclosed crypto portfolio came to light only after the 2022 bankruptcies.

TRON Loses Steam, Binance Announces TRX Delisting After Justin Sun Controversy

Binance has delisted controversial cryptocurrency TRON following the US SEC’s recent action against crypto mogul Justin Sun and his three wholly-owned companies: Tron Foundation Limited, BitTorrent Foundation Ltd, and Rainberry Inc. The SEC accused Sun of “extensive wash trading which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership, and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.” Celebrities including Jake Paul, Ne-yo, and Lindsay Lohan were also charged for touting the tokens without disclosing their compensation. After the delisting announcement, TRX’s value dropped by 5% in 24 hours. Crypto being crypto, rumours naturally started circulating, this time that Sun was arrested in Hong Kong, despite soon after being seen attending a cryptocurrency event there.

Mining Crypto Is Even Worse for the Environment Than We Thought

Cryptocurrency mining’s energy consumption is worse than thought, in a revelation surprising no one who isn’t in denial, with significant environmental and social impacts on surrounding communities. The New York Times reports that energy consumption for crypto mining in the US is equal to a second New York City. In the US, Bitcoin mining reportedly generates nationwide pollution equivalent to 3.5 million cars. The most efficient Bitcoin mining computers release over 105 metric tons of CO2 per Bitcoin mined, but average emissions are easily double that. As crypto mining exacerbates the climate crisis, urgent action is necessary to address the problem. Some are saying this is just bad science…..

Trump Earned Up To $1M From NFT Sales

One way to make money if you’re an ex-president, or other, who allegedly wants to pay off younger female sex workers, or other: sell NFTs of oneself. On a separate note, former President Donald Trump has reportedly earned between $500,001 and $1 million from sales of Trump-branded NFTs, according to a filing from the U.S. Office of Government Ethics. The 45,000 digital collectibles featuring his likeness were released in December and sold out within a day. Though the project has generated over $19 million in sales since its launch, there are apparently only 208 active wallets actually holding Trump NFTs as per on-chain data from NFT data aggregator CryptoSlam.

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