Communications

Crypto bulletin

August 16th, 2023

Crypto Bulletin – Weeks 295-296

Sam Bankman-Fried is in prison. The former CEO of FTX had his bail revoked following charges of witness tampering and will be held in jail until the start of his criminal trial in October. These charges are linked to his interactions with a New York Times journalist who published an article about the former CEO of Alameda Research, Caroline Ellison, who pleaded guilty in December for fraud related to the collapse of the cryptocurrency exchange platform, FTX. Bankman-Fried is accused of illegally passing documents to the newspaper. After his sudden bankruptcy last November, Bankman-Fried was charged with 13 counts, including conspiracy to launder money and electronic fraud against customers. Bankman-Fried, through a VPN software he claimed to have used to watch an NFL game, allegedly tried to tamper with witnesses “at least twice.”

The revocation of bail and the incarceration of Sam Bankman-Fried sparked strong reactions on Crypto Twitter. They are largely unanimous against the former CEO. Several cryptocurrency personalities openly expressed their opinions on the platform, with scathing and critical comments about Bankman-Fried and his alleged actions. Martin Shkreli, the infamous former pharmaceutical executive, also commented on the case, suggesting that Bankman-Fried might spend many years in prison. Others questioned Bankman-Fried’s morality and the risks he took. Analyst Dan Nguyen pulled no punches, saying:

 

 

When it rains, it pours. This week, the US Department of Justice accused Sam Bankman-Fried of diverting more than $100 million of client funds to finance political contributions, both for Democrats and Republicans, ahead of the 2022 US midterm elections. Although charges related to campaign financing were initially dropped in July, they were reintroduced last week amid other fraud and money laundering charges. The DOJ claims that Bankman-Fried used these funds to influence cryptocurrency regulations. He allegedly directed two FTX executives to bypass contribution limits for Democrats and Republicans and to hide the money’s origin.

Coinbase has announced that it has received approval from the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC) to operate as a Futures Commission Merchant (FCM). This validation will allow them to offer investments in cryptocurrency futures contracts to eligible clients in the US. While the service is not immediately available, users are invited to sign up for a waiting list. This move marks a significant turn in the federal regulation of cryptocurrency markets. Faryar Shirzad, Policy Director at Coinbase, emphasized the importance of this regulation for consumer protection and ensuring that the US remains a hub of digital innovation. This approval followed a process started in September 2021 by Coinbase, which also acquired the CFTC-regulated futures exchange, FairX, in 2022, now known as Coinbase Derivatives Exchange.

On our side of the border, Coinbase is announcing its entry into Canada, thereby strengthening its presence in the North American market. To attract new users, Coinbase is offering Canadians a free 30-day trial of its new subscription service, Coinbase One, focused on staking, with no transaction fees and priority customer support. The decision to expand to Canada is due to the country’s strong cryptocurrency knowledge and a solid regulatory framework, unlike the legal issues the company faces in the US following disputes with the SEC. While Canada has shown interest in cryptocurrencies, the country has sent mixed signals about them, with companies pulling out or suspending their operations and criticism from the Prime Minister against crypto proponents. Despite recent financial challenges, Coinbase continues to innovate, recently launching Base, a layer 2 Ethereum network, and exploring the integration of Bitcoin’s Lightning Network.

The US Securities and Exchange Commission has hinted that it might delay decisions on Bitcoin-focused exchange-traded funds until early 2024. This announcement raises questions since the SEC has a maximum window of 240 days to delay cryptocurrency ETF applications. Several companies, including some well-known in the financial world, are eagerly awaiting the SEC’s decision. For example, in June, BlackRock, the world’s largest asset manager, added its request to the growing list of Bitcoin ETF applications under review by the SEC, reigniting investor interest. Furthermore, ARK Invest, led by Cathie Wood, filed its application for its ARK 21Shares ETF in May 2023. This application was postponed by the SEC in August to allow public comments. It should be noted that the SEC has never approved a spot Bitcoin ETF proposal despite multiple requests, although it started accepting financial products linked to BTC futures in October 2021. Historically, the first application for a cryptocurrency-based exchange-traded product was made by the Winklevoss twins in 2013, long before most regulators had a clear understanding of digital currencies. This application was rejected by the SEC.

The cryptocurrency exchange platform Bittrex has agreed to pay $24 million to settle a dispute with the US SEC. The SEC filed a complaint against Bittrex and its former CEO, William Shihara, in April, accusing them of not registering correctly and generating about $1.3 billion in illicit revenues between 2017 and 2022. Without admitting or denying these allegations, Bittrex will pay various fines, including a civil penalty of $5.6 million. This case adds to Bittrex’s recent troubles, which already agreed to pay $29 million in 2022 following sanctions violations and filed for bankruptcy in May, ending its US operations citing an unfavorable regulatory and economic environment.

One of the “big four” accounting firms, KPMG, released a report praised by the Bitcoin community, highlighting the positive contributions of this cryptocurrency to the three ESG investment pillars: environment, social, and governance. Daniel Batten, co-founder of CH4 Capital and ESG analyst, said that demonstrating Bitcoin’s positive contributions is crucial to reassuring the general public and institutions. The report, titled “The Role of Bitcoin in the ESG Imperative”, is seen as a significant moment, highlighting the Bitcoin mining industry’s commitment to net-zero emissions. It also compares Bitcoin’s emissions to those of other major global industries, showing that Bitcoin accounts for only a fraction. Furthermore, KPMG debunked the idea that Bitcoin is primarily used by criminals, citing its potential for global financial inclusion. Regarding governance, the report highlights Bitcoin’s decentralized nature, offering high trust in the system. Batten encouraged reading the report, considering it a significant step for the industry.

If the price of Bitcoin has remained largely static in recent weeks, it’s interesting to note that Bitcoin speculators currently hold the lowest amount of BTC since the price hit its record of $69,000. According to the latest edition of the analytics firm Glassnode’s newsletter, a period of “weariness” is observed among short-term holders (STH) of Bitcoin. After several months of stagnant BTC pricing, a sense of frustration has settled among market participants. The bulls are struggling to break resistance, and support for sellers lies between $29,000 and $25,000. Glassnode defines STH as entities holding tokens for 155 days or less, reflecting the more speculative side of the Bitcoin investor spectrum. The STH cost base acted as support in 2023 and currently stands at $28,600. In contrast, the cost base of long-term holders (LTH) is much lower, at $20,300. Glassnode suggests that the market might be “top-heavy,” implying that a minor decrease in BTC’s price could result in losses for STH. However, the conviction of Bitcoin holders remains impressive, with a low willingness to liquidate their holdings. The last time STH had such a low presence in the market was back in October 2021, just before BTC/USD reached its current record of $69,000.

 

 

 

Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of August 16th, 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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