Crypto News Bites 2022/11/21
FTX drainer wallet sold ETH for renBTC / GBTC 45% discount / $138b Man Group starts crypto fund / FIFA World Cup kickoff / KPMG B2B metaverse explosion
Top News Summaries
The wallet containing crypto drained from bankrupt exchange FTX sold ETH for renBTC, potentially for bridging to hide their tracks, ETH down over 5%. Reports that Bahamas government was the FTX hacker is incorrect, as only part of the funds were sent to the regulator. Funds being transferred to other exchanges.
GBTC record 45% discount, Grayscale not disclosing proof-of-reserves, speculation DCG may sell business units (Grayscale/Genesis). LUNA collapse domino effect led to FTX bankruptcy? $1b USDT moved from Solana to Ethereum.
$138b Man Group to launch crypto fund. Bill Ackman says crypto here to stay. Crypto fan tokens rally as FIFA World Cup kicks off. Legendary manga Captain Tsubasa soon a blockchain game. NFT football game Sorare no longer considered gambling.
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Market Overview
Crypto markets traded flat for most of the weekend until falling on Sunday led by ETH down 5% in a few hours, as the wallet that drained bankrupt exchange FTX started selling ETH for renBTC. Contagion concerns spread on speculation DCG could be forced to sell a business unit, such as GBTC owner Grayscale or Genesis Trading, the latter which sought $1b emergency fund before halting withdrawals in its lending arm. GBTC record 45% discount. In happier news, FIFA World Cup kicked off! The Chiliz CHZ token and national team fan tokens such as Argentina ARG and Portugal POR all rallied into the weekend but reversed following the general market.
US-listed crypto-friendly bank Silvergate SI drops 11% for 2nd day in a row, after rising short-seller who publicly denounced FTX before the bankruptcy put out a short recommendation on the stock, despite the CEO saying bankrupt exchange FTX had deposits in their bank and not the other way around. Also, a law firm investigates whether the bank violated security laws, while crypto broker FalconX stopped using Silvergate for transfers.
68,200 BTC worth $1.15b on the BSC blockchain moved into Binance exchange. Analysts believe this wasn’t a Binance liquidity issue, but more likely a client’s coins moving onto the exchange to be sold. Community concerns that shortly after posting proof-of-reserves, Binance moved $2.7b USDT into another wallet, which Binance says is a cold wallet.
The most accurate Wall Street analyst of 2022 says credible big bull trade in bonds 1H23, stocks 2H23. Risk on sentiment hopefully spills over to crypto, which has typically seen a positive 30-day correlation between BTC & S&P.
FTX Bankruptcy Fallout
Plot twist: the ‘hack’ that happened the night when FTX filed for bankruptcy was actually the Bahamian government taking control over their assets? 2nd plot twist, only partly, some funds were stolen. The wallet holding drained FTX funds converted millions worth of ETH into renBTC, which they could then transfer to start hiding their tracks. Some funds have now moved onto other centralized exchanges, FTX advises them to help facilitate their return to the bankruptcy estate. More twists and turns than your favorite drama show. Waiting for the FTX documentary to come out. In other news, court filings on Saturday shows FTX owes over $3b to its top 50 creditors, of which $1.45b to the top 10.
Grayscale, who operates the US-listed Bitcoin Trust GBTC, disappointed many when they refused to provide their crypto wallet addresses for proof-of-reserves which many crypto exchanges have been providing following the collapse of FTX. They claim security concerns which some point out would reveal deposit wallets too. Regardless, GBTC dropped to a record 45% discount to BTC spot price last Friday. I think even if they showed proof of reserves, there is no proof that they or any exchange have current reserves greater than their liabilities, but at least it is better than not publishing them. Serious investors need to learn self-custody.
On the back of proof-of-reserves, Vitalik Buterin, co-founder of Ethereum, wrote Having a safe CEX: proof of solvency and beyond. Ideas explored are using zero knowledge proofs to provide privacy on the Merkle Tree, which was one issue mentioned above regarding Grayscale not providing proof-of-reserves. Buterin thinks perhaps one day there could be a CEX with user funds in a smart contract, or half-custodial CEXs where users trust them with fiat but not cryptocurrencies.
An older post on blog DataFinnovation links some coincidences between bankrupt Three Arrows Capital, GBTC, Grayscale’s parent company DCG and sister company Genesis. Completely speculative, but interesting if true and shows how opaque the institutional side of crypto really is. Another reason to learn self-custody.
More news from FTX bankruptcy contagion: Hong Kong’s leading crypto retail broker Genesis Block will close their OTC trading on Dec 10. NFT protocol Metaplex, based on the Solana blockchain, laying off staff. Ren, acquired by Alameda last year, will wind down Ren 1.0 as the team only has funding until Q4, and re-launch and deploy Ren 2.0 testnet soon, but needs to secure additional funding. Crypto fund Sino Global said direct exposure to FTX was mid-seven figures, however documents show they also had large exposures to FTX-related tokens which have plummeted in value. Nickel Digital has $12m funds stuck on FTX. Expecting more of these announcements. Multicoin Capital co-founder Kyle Samani expects many trading firms to be wiped out. Investor trust gone, liquidity will drop. I recall after the Terra Luna blockchain implosion, it took around 2-3 months to see most of the fallout, 6 months if you count FTX, where some analysts allege started the domino effect that led to FTX’s bankruptcy.
The Solana blockchain is facing many difficulties after the collapse of FTX, who backed the blockchain and held their token SOL, which has collapsed ~70% in the span of 4 days. One difficulty is the exodus of users on the chain, as indicated by stablecoin issuer Tether doing a chain swap of $1b USDT from Solana to Ethereum - that is, Tether saw that demand for USDT had shifted away from Solana and moved their funds over. Despite all the promising developments on Solana, that lack of trust is a serious impediment to its adoption, and user adoption is the lifeblood of any blockchain. I can’t be bullish on SOL, except perhaps for a very quick trade off a technical oversold bounce, until there are signs that this trend has reversed.
Adoption
Captain Tsubasa, one of the best selling manga series in history, will be released as a blockchain game Captain Tsubasa Rivals on Polygon MATIC. The FIFA World Cup kicked off today which hopefully gives it more exposure. Have yet to do due diligence, but this could bring more blockchain adoption by attracting manga & game fans.
Not all companies are deterred by the FTX chaos. Man Group, the world’s largest publicly traded hedge fund firm with $138b AUM, may soon launch a crypto fund. Another data point showing institutions are still very interested in crypto, although after FTX the institutional adoption should have slowed considerably.
Even hedge fund billionaire Bill Ackman says crypto is here to stay. However he erroneously said bike-sharing company Lime was a client of Helium HNT, which Lime has earlier denied.
KPMG Futures expects a Metaverse explosion driven by B2B, not retail consumers. Their Australian Web3 arm looking to build a multimillion dollar business by 2025. McKinsey previously released a report expecting metaverse to be worth $5 trillion by 2030.
NFT
In a sudden reversal, NFT marketplace X2Y2 will enforce creator royalty fees on all NFT collections. X2Y2 was the first exchange to make royalties optional, sparking much debate and contention in the NFT industry as other exchanges such as Magic Eden & LooksRare followed suit in an attempt to gain marketshare at the expense of creators and other exchanges adhering to royalties.
Legal & Regulations
On Friday just a few days before FIFA World Cup kicked off, Sorare, a NFT trading card game based on Ethereum, is no longer classified as a gambling platform by French regulators. Big win for NFT adoption. In other news, football star Ronaldo released his NFT collection on Binance.
US CFTC Commissioner Mersinger says the time has come for crypto regulation, that Congress needs to work out the jurisdiction between CFTC & SEC. As mid-term elections are over, new congress starts on January 3, and this may be a high priority given the large media exposure of FTX’s bankruptcy.
Prime Minister of Singapore announces they are not open to crypto speculation at all. This continues their stance to tighten crypto regulations even before the collapse of FTX, as last month they proposed that retail investors need to take a test and not use credit card payments for trading crypto. Quite a reversal to their previously welcoming stance, and may have been kicked off by the collapse of Singapore-based crypto fund Three Arrows Capital back in June.
Theranos founder Elizabeth Holmes was sentenced to 11+ years in prison, convicted of running a fraudulent blood-testing company. Bit of random history now. Enron accounting scandal saw multiple executives sentenced for as much as 24 years. CEO of WorldCom was sentenced for 25 years for the accounting fraud. Bernie Madoff, who ran the largest Ponzi scheme in history, was sentenced to 150 years. So the question here is, how many years in prison will the FTX/Alameda executives get? How about executives of ‘failed’ companies, like Do Kwon of the Terra Luna blockchain, or Su Zhu and Kyle Davies of Three Arrows Capital fund, who all seem to be on the run? Perhaps Holmes’ sentence could act as a deterrent to crypto future scammers and make the whole industry safer, but in the meantime I will keep my crypto off any centralized black-box entities.
SEC moves to suspend sale of American CryptoFed DAO tokens, citing misleading statements & omissions, tokens could be securities. I think they just didn’t like the name…
Other interesting news
Sushi, one of the top decentralized exchanges (DEX), has launched an education portal Sushi Academy. Conveniently lists articles by difficulty.
The Cardano blockchain plans to launch USDA, a fully collateralized stablecoin, in early 2023. Maybe that will help adoption on Cardano, which currently sits 31st with $53m of Total Value Locked (TVL), which is the value of crypto locked on that blockchain’s smart contracts. Solana for example despite dropping 67% in the past month still has around $295m placing it as the 11th largest chain by TVL.
Ongoing Trends
Bankruptcy of 2nd largest crypto exchange FTX causes contagion risks. How many funds & protocols have yet to announce their exposure?
Decentralization no longer just a tagline. Centralized to decentralized movement for remaining crypto traders & investors.
Global crypto adoption and increased regulation, launches of Centralized Bank Digital Currencies.
Bitcoin mining industry consolidation as margin squeezed on low BTC prices and higher costs (electricity, funding, hashrate difficulty etc).
Macro: US CPI peaking & potential slowing of Fed rate hikes / Russia Ukraine war may be thawing / China pivoting from zero-Covid policy, small steps to re-opening.
Tokens Mentioned Today
BTC ETH RENBTC MATIC LUNA CHZ ARG POR SOL USDT HNT