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Crypto bulletin

November 8th, 2023

Crypto Bulletin – Week 308

The former cryptocurrency mogul Sam Bankman-Fried was found guilty by a jury in New York of fraud, conspiracy, and money laundering. The jury, comprising nine women and three men, concluded that the FTX founder was guilty on seven counts of fraud and conspiracy. Although the verdict has been issued, it will likely be some time before U.S. District Judge Lewis Kaplan pronounces Bankman-Fried’s sentence, which could be up to 115 years in prison. The sentence date has been set for March 28, 2024. Defense attorney Mark Cohen expressed disappointment with the jury’s decision while stating that Bankman-Fried maintains his innocence and will continue to fight the charges vigorously.

During his trial, Bankman-Fried and his defense team tried to convince the jury that he had not orchestrated a vast fraud or embezzled $10 billion in client funds. Prosecutors accused Bankman-Fried of stealing billions of dollars from clients through his trading company Alameda Research and lying to Alameda’s lenders and to FTX’s investors and clients. The jury’s decision comes nearly a year after FTX’s collapse, which significantly impacted cryptocurrency prices and damaged the digital asset industry’s reputation. Key members of Bankman-Fried’s inner circle testified against him, admitting to committing crimes at his behest and hoping for a reduced sentence through their cooperation with government investigators.

What about the other players in this massive fraud? Caroline Ellison, Nishad Singh, and Gary Wang, former collaborators of Sam Bankman-Fried at FTX, despite having pleaded guilty to several charges of fraud and conspiracy and providing crucial testimony that contributed to the conviction of their former boss, still face heavy prison sentences. Despite their cooperation with the prosecution, Ellison could receive a maximum sentence of 110 years, Singh 75 years, and Wang 50 years. The prosecutors have agreed to send letters to the trial judge to describe their criminal conduct and the extent of their assistance with the case, but without recommending specific sentence lengths. The final decision will be up to Judge Lewis Kaplan. Legal consultant Christopher Zoukis suggests that the defendants could face sentences ranging from 210 to 262 months in prison, not considering other aggravating or mitigating factors. Judge Kaplan may choose to make an example of them or to reward their cooperation. If the former crypto executives avoid prison, they will likely still have to return stolen funds and pay restitution to victims.

Where might SBF be incarcerated? Regardless of the answer, it goes without saying that his life of luxury is now but a memory. According to Zoukis, it is likely that Bankman-Fried will be sent to a medium-security prison in California because of the facts of his case. These prisons, especially those on the West Coast, are known to be tougher, with a stronger gang presence and more complex prison politics than those on the East Coast. In medium-security prisons, inmates with more severe cases or longer sentences are placed in heavily guarded cells. Zoukis mentions that the federal prison FCI Victorville, known for its inmate violence, and FCI Herlong, which has recently lost its reputation as a relatively safe medium-security prison, could be possible destinations, although the Bureau of Prisons may hesitate to send Bankman-Fried there to avoid bad publicity in case of assault. Despite potential requests from Bankman-Fried’s lawyers for a better placement, such requests rarely succeed. Zoukis doubts that Bankman-Fried’s well-documented legal requests for Adderall and vegan food will be met. He also believes, tangentially, that the former cryptocurrency mogul will probably have to say goodbye to these comforts for an indefinite future. “I would be astounded if they provided Adderall,” he said. “And they will have a vegetarian option at every meal. It won’t be delightful.”

Coinbase is ready to act quickly if a cash Bitcoin ETF is approved soon, stated Emilie Choi, the company’s COO, during an earnings call with investors and analysts. “We are ready to hit the ground running,” Choi claimed. She emphasized that the approval of such a product would add credibility to the market, increase liquidity, and stabilize the market, as has been the case for other asset classes, like gold ETFs. JP Morgan analysts believe it is “very likely” that a cash Bitcoin ETF will be approved in the next three months, despite the SEC’s hesitations until now. Contrary to the idea that the approval of a cash Bitcoin ETF could drive up prices, promoted by influential figures like Michael Saylor of MicroStrategy, Choi focuses on the stability it could bring. Such an ETF would make Bitcoin transactions easier for institutional investors, who wouldn’t have to worry about self-custody, which should lead to greater stability for an asset class known for its volatility.

Coinbase, which has been chosen as the custodian for several cash Bitcoin ETFs, plans to generate additional revenue from these products, particularly through custody fees. At the same time, Choi highlighted the potential of a cash Bitcoin ETF to

broaden access for retail investors and increase crypto ownership in the U.S., noting that 52 million Americans already own crypto despite the current regulatory uncertainties. She imagines the positive impact this could have once ETFs are introduced and widely available.

Furthermore, Coinbase has warned its users that they must withdraw their Bitcoin SV (BSV) holdings before January 9, or they will be liquidated. The support for BSV, a derivative of Bitcoin known as “Satoshi’s Vision,” had already been suspended in 2021 following a 51% attack that rendered its network unstable. Since then, Coinbase clients could neither buy nor sell BSV, but could still keep it in their wallets on the platform. Coinbase has confirmed the end of support for BSV, which will be converted into another asset for users who have not withdrawn it. BSV, resulting from a fork of Bitcoin Cash, is controversial, especially due to the unproven claims of Craig Wright, who asserts he is the creator of Bitcoin, Satoshi Nakamoto, and who has threatened to sue those who dispute his claims.

MicroStrategy has announced the purchase of an additional 6,067 Bitcoins for $167 million since the end of the second quarter of 2023, bringing its total to 158,400 Bitcoins acquired at a total cost of $4.69 billion, or $29,586 per coin. The company, known for its massive purchases of Bitcoin, made these acquisitions at an average price of $27,531 per Bitcoin, including 155 additional Bitcoins bought for $5.3 million in October, as revealed by MicroStrategy’s chairman Michael Saylor. “Our commitment to acquiring and holding Bitcoin remains strong, especially in the promising context of increased institutional adoption,” said MicroStrategy’s CFO Andrew Kang. This purchase comes as the cryptocurrency market records a significant increase in 2023.

Saylor also expressed his optimism about the future of Bitcoin on CNBC, anticipating an unprecedented price increase in modern financial history. According to him, several Bitcoin-related events are expected in the coming year, including the next “halving” in April which will halve the mining rewards for Bitcoin, thus limiting the amount of new Bitcoins put on the market by miners. Moreover, there are rumors that the first cash Bitcoin ETF, long-awaited but never yet approved by U.S. regulators, could be authorized by Christmas, opening the cryptocurrency to more widespread investment. Saylor predicts an increase in demand coupled with a reduction in supply, which is, according to him, unprecedented on Wall Street. He believes that when major financial institutions and responsible custodians manage Bitcoin, not only the stability of the currency but also that of the entire crypto industry will be strengthened, which will further propel the price of Bitcoin. Saylor believes that the sector will evolve and multiply by ten from now on, as attention shifts away from the multiple volatile tokens that have so far distracted and destroyed shareholder value.

Bitcoin experienced a rise yesterday, reaching $35,500, boosted by an expansion of the altcoin rally and a risk-taking sentiment on traditional markets, thus raising the total market capitalization of cryptocurrencies to $1.3 trillion, the highest level in 16 months. This increase comes after a calm and slightly down session, where Bitcoin abruptly climbed nearly 3% from $34,600, with some citing a short squeeze in the derivatives market as the reason. According to a K33 Research report, the capital rotation in favor of altcoins is creating a “mini altcoin season,” a typical behavior in the cryptocurrency market where traders take profits after a significant BTC rally and invest them in smaller, riskier tokens. At the same time, the acceleration of fund inflows related to Bitcoin supports its price. “It is difficult, almost impossible, not to remain optimistic,” says Vetle Lunde, senior analyst at K33. A verdict on an ETF is expected in nine weeks, and institutional traders provide the only significant support observed in the derivatives market.

The amount of Bitcoin held by long-term investors has reached a record level, indicating a sustained phase of accumulation of the cryptocurrency. The Glassnode report highlights a decrease in the available supply of Bitcoin on the market, with small investors absorbing a large part of the newly mined coins. This dynamic contributes to strengthening the price of Bitcoin, maintaining solid support above $30,000. Joel Kruger of LMAX Group suggests that the ongoing demand from medium and long-term investors could lead to a significant technical rise, potentially above $36,000. Meanwhile, the supply of Bitcoin is becoming increasingly illiquid, with net monthly additions of 71,000 BTC, reinforcing investor confidence in the rising value of the cryptocurrency.

 

 

Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of November 8th, 2023, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered. 

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