Author: Reuters

SINGAPORE (Reuters) – The U.S. Securities and Exchange Commission has yet to approve any spot bitcoin exchange-traded fund listings to date, commissioner Mark Uyeda said at the sidelines of a forum in Singapore on Wednesday.

“We’ve had a number of applications … none of those have been approved to date,” said Uyeda, who was in Singapore to speak at the ICI Global Asset Management Asia Forum.

Uyeda said there are applications filed by exchanges, and the SEC considers them “as they come up”.

(Reporting by Rae Wee and Ankur Banerjee; Editing by Amanda Cooper)

By Kevin Buckland

TOKYO (Reuters) – The safe-haven U.S. dollar eased from a one-week high on Wednesday amid increasing optimism for a loosening of China’s COVID restrictions, although moves were muted ahead of a speech by Federal Reserve Chair Jerome Powell later in the day.

The risk-sensitive New Zealand and Aussie dollars rose, while the offshore Chinese yuan hovered near a one-week peak.

“The market is thinking that China taking a bit of a softer stance equals China reopening, and while I think that’s a bit of a stretch, in that it’s not going to happen overnight, that’s seeing the dollar get sold,” said Bart Wakabayashi, branch manager at State Street in Tokyo.

“But there’s a back and forth between dollar selling and dollar strength, because earlier in the week, all we could talk about was hawkish Fedspeak,” he added.

The U.S. dollar index, which measures the greenback against six rivals, eased 0.13% to 106.72 after reaching 106.9 in early Asian trading for the first time since Nov. 23.

The index has dipped to around 105.3 twice since the middle of the month, amid bets the Fed would pivot from aggressive rate hikes after inflation showed signs it may be close to a peak.

Traders currently lay 63.5% odds that the Fed will slow to a half-point pace of rate rises on Dec. 14, and a 36.5% chance for another 75 basis point hike.

New York Fed President John Williams said on Monday that the central bank needs to press forward with rate rises, and St. Louis Fed President James Bullard said there is still “a ways to go” for policy tightening.

“I think the underlying message is that the Fed is not happy with where inflation and employment are at the moment,” State Street’s Wakabayashi added. “Powell will continue to err on the side of hawkishness at this point in time.”

The dollar slipped 0.07% to 138.60 yen, as the pair continued to consolidate following a bounce from a three-month low of 137.50 on Monday.

The euro ticked up 0.11% to $1.0339, lifting from a one-week low reached earlier on Wednesday at $1.0319.

German and Spanish consumer price figures came in weaker than expected on Tuesday, triggering a lowering of rate hike bets for the European Central Bank and shining a spotlight on Wednesday’s euro zone inflation data.

Sterling was flat at $1.19535.

The New Zealand dollar strengthened 0.29% to $0.6218 while the Aussie adding 0.1% to $0.66935.

The Antipodean currencies, which often function as proxy trades on China’s economic outlook, shook off downward pressure from worse-than-expected Chinese manufacturing surveys.

In Australia, lower than forecast inflation data also reduced the pressure for any aggressive tightening by the Reserve Bank next week.

The yuan weakened slightly to 7.1418 per greenback in offshore trading.

Chinese health officials said on Tuesday they will speed up COVID-19 vaccinations for the elderly, aiming to overcome a key stumbling block in efforts to ease unpopular “zero-COVID” curbs, which had sparked vigorous protests in recent days.

“Overall, it appears that China is readying to move from zero‑Covid to living with COVID,” Kim Mundy, a strategist at Commonwealth Bank of Australia, wrote in a client note.

“Expectations for an end to China’s zero‑covid policy in coming months, combined with more targeted restrictions in the meantime, can provide support to CNH, AUD and NZD.”

(Reporting by Kevin Buckland; Editing by Lincoln Feast and Kim Coghill)

SINGAPORE (Reuters) – Singapore’s Deputy Prime Minister Lawrence Wong said on Wednesday that Temasek Holdings has initiated an internal review of its investment in the now-bankrupt FTX crypto exchange, which resulted in a write-down of $275 million.

Wong, who is also finance minister, said the loss did not mean state investor Temasek’s governance system was not working and “no amount of due diligence and monitoring can eliminate the risks altogether”.

But Singapore’s leader-in-waiting told parliament the loss was “disappointing” and had caused reputational damage to Temasek.

“The fact that other leading global institutional investors like BlackRock and Sequoia Capital also invested in FTX does not mitigate this,” said Wong.

After pumping about $275 million into FTX, Temasek decided to write down the investment following the spectacular collapse of the exchange.

The review will be conducted by an independent internal team reporting directly to the board and will not involve those who made the investment, Wong said.

Temasek has said its cost of investment in FTX was 0.09% of its net portfolio value of S$403 billion ($293.97 billion) as of March 31, 2022, and it currently had no direct exposure in cryptocurrencies.

Explaining its actions, Temasek said it had conducted “extensive due diligence” on FTX from February to October 2021 and its audited financial statement then “showed it to be profitable”.

Wong told lawmakers the individual loss did not impact returns to Singapore’s reserves, which are tied to long-term returns.        

FTX’s other backers such as SoftBank Group Corp’s Vision Fund and Sequoia Capital have also marked down their investment to zero after FTX, founded by Sam Bankman-Fried, filed for bankruptcy protection in the United States this month week in the highest-profile crypto blowup to date. 

($1 = 1.3709 Singapore dollars)

(Reporting by Chen Lin and Xinghui Kok; Editing by Kanupriya Kapoor and Ed Davies)

By Dietrich Knauth

(Reuters) – Lawyers for BlockFi, the first direct casualty of crypto exchange FTX’s collapse, made their initial appearance in U.S. bankruptcy court on Tuesday, emphasizing that the U.S. cryptocurrency lender was “the antithesis of FTX.”

BlockFi attorney Joshua Sussberg told the court in Trenton, New Jersey, that the company’s bankruptcy stemmed from its substantial exposure to FTX, which filed for Chapter 11 protection earlier this month after traders pulled $6 billion from the platform, and from broader turmoil in crypto markets.

FTX had extended a $400 million lifeline to BlockFi in July, but the Bahamas-based exchange spectacularly imploded, sparking fears of contagion across the industry just days after BlockFi asked it for additional financing on Nov. 8.

Sussberg went to great lengths to distance BlockFi from FTX, saying the company did not face the myriad issues apparently plaguing FTX. While FTX’s new chief executive has described efforts to find missing assets and pointed to a complete failure of corporate controls – BlockFi had mature and consistent leadership, hired the right experts, and implemented the proper procedures and protocols, Sussberg said.

“This is completely, 180 degrees, a different story,” Sussberg said, before giving U.S. Bankruptcy Judge Michael Kaplan an overview of the crypto industry and BlockFi’s history.

New Jersey-based BlockFi filed for Chapter 11 protection on Monday. It asked Kaplan for the authority to continue paying employees, maintain bank accounts, and other measures needed to continue its day-to-day operations during its bankruptcy case.

Sussberg said BlockFi also intends to seek a court ruling allowing customers in the BlockFi Wallet program to withdraw their funds during the bankruptcy case if they wish.

“If it’s in your wallet, it stays in your wallet,” Sussberg said.

BlockFi’s Wallet program was created in response to regulatory investigations into the company’s interest-bearing accounts, which the U.S. Securities and Exchange Commission had determined were unregistered securities offerings. To resolve those investigations, BlockFi stopped offering interest-bearing accounts to U.S. customers, created the Wallet program for new U.S. customers and agreed to pay a record $100 million fine.

Earlier in November, BlockFi paused withdrawals from its platform amid uncertainty about FTX’s stability.

In a court filing on Monday, BlockFi said it owes money to more than 100,000 creditors. It listed FTX as its second-largest creditor, with $275 million owed on a loan issued earlier this year.

BlockFi’s largest creditor is Ankura Trust, which is owed $729 million. It still owes $30 million to the SEC from the fine it agreed to pay earlier this year. Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19% of BlockFi equity shares.

BlockFi listed its assets and liabilities as between $1 billion and $10 billion. The company sold a portion of its crypto assets earlier in November to fund its bankruptcy, and it entered bankruptcy with $256.5 million in cash on hand.

Two of BlockFi’s largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July, citing extreme market conditions that had resulted in losses at both companies.

BlockFi said it too suffered during that period of volatility, but the FTX loan had helped keep it afloat while its rivals went bankrupt.

BlockFi has proposed an initial restructuring plan that offers two paths out of bankruptcy.

Its Chapter 11 plan envisages that BlockFi Wallet customers would be paid back in full and other account holders and creditors would receive a mixture of cryptocurrency, cash, and new equity shares.

The plan also includes an option for a sale of the company.

(Reporting by Dietrich Knauth in New York and Noor Zainab Hussain in Bengaluru; Editing by Alexia Garamfalvi and Matthew Lewis)

By Medha Singh and Lisa Pauline Mattackal

(Reuters) – The market for fan tokens, a volatile cocktail of crypto and sport, is heating up in the desert of Qatar.

Interest in this niche breed of cryptocurrencies, typically linked to sports teams like Barcelona or Brazil, has been charged up by the soccer World Cup which began on Nov. 20.

Average daily trading volumes for these tokens have risen to around $300 million in November from $32 million the month before, according to Kaiko, a Paris-based crypto data firm.

“So we have 10-fold increase in volume which is huge for these tokens,” said research analyst Dessislava Aubert.

For some buyers, these token offer the chance to engage with their side and gain perks such as the chance to win prizes and vote on songs played at matches. For others, the tradeable coins provide a new investment opportunity.

It’s a brave investor who’d seek to divine any sensible link between erratic coin prices and real-world events, though.

The token of Lionel Messi’s Argentina side slumped 25% to $5.26 following the team’s shock defeat by Saudi Arabia in their opening World Cup game. Yet it has dropped a further 22% since the team’s subsequent victory over Mexico brought fan relief.

The coin of Cristiano Ronaldo’s Portugal rallied 119% to $7 in the 10 days leading up to the tournament but then proceeded to lose almost half its value even though it was unbeaten and top of its group heading into its clash with Uruguay on Monday, which it won to reach the knock-out stage.

Similarly in club football, Arsenal’s token has fallen 12.5% since the start of the season to $1.68 despite their glittering run to the top of the English Premier League.

The broader crypto market malaise is partly to blame for price drops, according to researchers who said the flighty assets were wilting as investors shunned risk.

The overall market cap for fan coins jumped to $401 million on the opening weekend of the World Cup, from $256 million about 10 days earlier, according to data from CoinGecko, but it has since fallen back below $300 million.

Siddharth Jaiswal, founder and CEO of Sportzchain, which mainly issues tokens for the Asian market, said people shouldn’t buy the coins primarily to make money.

“The cherry on the cake is that it’s a tool, available on the blockchain that can be easily traded in the future, so there is a financial connotation attached to it,” he added.

“But the first perception should never be that you’re buying the fan token from a profit-generating standpoint.”

BROODING BITCOIN

Socios, which is promoted by Messi, is the biggest player in this slice of the crypto industry. It facilitates trading of most fan coins, describing buying such tokens as joining a loyalty scheme with exclusive benefits and prizes.

Some of the world’s biggest football clubs have launched tokens supported by Socios including Paris Saint-Germain, Manchester City, Inter Milan and Atletico Madrid, as well as the Portuguese and Argentinian national teams, with market caps of tokens ranging from about $7 million to $21 million.

Trading volumes for the Socios-linked token Chilliz, which users buy in order to trade with their team tokens, hit a seven-month high in early November ahead of the World Cup but have since retreated 40% from that peak.

When looking at the breakdown of trading in the Chilliz token by fiat currency, the Korean won dominates with its total fiat volume exceeding 87% in early November followed by Turkey’s lira, according to data from Kaiko.

The growth spurt in fan tokens comes at a time of tumult in the crypto market, which is reeling from the collapse of major exchange FTX earlier this month. Bitcoin is brooding near two-year lows at around $16,245.

While the FTX fiasco has raised serious questions about the lack of regulation in digital assets, fan coins – which some issuers say fall under the utility token category – remain a grey area.

“Tokens which do not offer sufficient utility could face some regulatory scrutiny, because this would infer that the token is an investment into the club,” said Marcus Sotiriou, analyst at digital asset broker GlobalBlock.

“However, if the token offers exclusive benefits and focuses on the utility it provides to its fans, then I do not think there will be regulatory issues.”

Socios said it believed in regulation to give fans trust and transparency.

In August, Britain’s advertising watchdog upheld a ruling against Arsenal over two adverts about fan tokens posted on the club’s website and Facebook that it deemed were misleading and irresponsible, although the club denied this.

Markus Thielen, head of research at digital assets platform Matrixport, said interest in these tokens among soccer fans could be short-lived.

“Companies and teams that are selling those tokens must now offer more value at regular intervals, otherwise users will lose interest after the World Cup quite quickly,”

(Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Pravin Char)

(Reuters) – Crypto exchange Kraken has agreed to pay a fine to settle civil liability related to apparent violations of sanctions on Iran, the U.S. Treasury Department’s Office of Foreign Assets Control said on Monday.

As part of the settlement with OFAC, Kraken will pay about $362,000, and “invest an additional $100,000 in certain sanctions compliance controls.”

Cryptocurrencies and other digital assets have soared in popularity over recent years, saddling policymakers with monitoring risks in a largely unregulated sector.

“Kraken is pleased to have resolved this matter, which we discovered, voluntarily self-reported and swiftly corrected,” said Chief Legal Officer Marco Santori in an emailed statement to Reuters.

“Even before entering into this resolution, Kraken had taken a series of steps to bolster our compliance measures,” Santori added.

According to the OFAC statement, Kraken’s platform processed 826 transactions for users located in Iran between roughly October 2015 to June 2019.

At the time, Kraken maintained controls intended to prevent users from initially opening an account while in a jurisdiction subject to sanctions, but did not implement IP address blocking based on geolocation across its platform, the statement added.

In October, the Treasury Department had also fined crypto exchange Bittrex Inc $29 million in fines for “apparent violations” of sanctions on certain countries and anti-money laundering law.

(Reporting by Manya Saini in Bengaluru and Hannah Lang in Washington; Editing by Shailesh Kuber)

(Reuters) – U.S. cryptocurrency lender BlockFi said on Monday it had filed for Chapter 11 bankruptcy protection along with eight affiliates in a New Jersey court, the latest casualty since FTX’s collapse earlier this month triggered instability in the crypto market.

In a court filing, New Jersey-based BlockFi said it owes money to more than 100,000 creditors. It listed crypto exchange FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year.

COMMENTS:

FRANCESCO MELPIGNANO, CEO, KADENO ECO, ITALY

“The amazing thing through all of this is that DeFi protocols have been protected through all this. Despite the setback to the industry, the case for the underlying technology is only getting stronger.”

“One thing that would be interesting would be to put a cap on the leverage or the right sort of circuit breakers in the system, similar to what you have in traditional finance, to see that if one company has bad debt, it doesn’t spread higher up the chain.”

BRADLEY DUKE, FOUNDER AND CO-CHIEF EXECUTIVE OFFICER, ETC GROUP, LONDON

“It is unfortunate for BlockFi that the white knight that had offered them a lifeline back in June, hasn’t managed to stay solvent themselves, in part because of the massive losses accumulated at Alameda Research stemming from the same event – the collapse of Terra Luna and Three Arrows Capital.”

“If FTX had been run by a responsible and experienced management team with the requisite transparency, capital adequacy, asset segregation and operational controls in place, it would probably still be in business.”

“At ETC Group, we believe in crypto, but we also believe in applying best practice and the regulatory rigour of traditional finance to our product offering because we know that the rules of good business do not change simply because new disruptive technology has arrived.”

MARTHA REYES-HULME, HEAD OF RESEARCH, BEQUANT, LONDON

“The BlockFi bankruptcy is a sad chapter in the short history of our industry that has forced participants to be more mindful of risk management, counterparty risk, and governance. Our clients have always used diversification to minimize exchange risk but now we are seeing many pull back in the short term and seek better solutions, especially around custody, to protect their assets. We are working closely with them. Ultimately it will be better for everyone. We are still seeing interest to onboard, even in these difficult times, which is reassuring as well as interest from mainstream institutions that attended our conference last week.”

MONSUR HUSSAIN, SENIOR DIRECTOR, FITCH RATINGS, LONDON

“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem, and, potentially, deficient risk management processes. Restructuring processes can be notoriously lengthy – Mt Gox’s creditors are only getting closer to being paid eight years after the operation failed.”

MARK CONNORS, 3iQ DIGITAL ASSET MANAGEMENT, TORONTO

“During a period of unwinding and consolidation, which is where we are, leveraged strategies are more at risk. We’re trying to separate the wheat from the chaff here, and I don’t think many people were surprised by the BlockFi filing… BlockFi received a $250mm loan in Q2, from FTX – likely in self interest to help keep overleveraged Alameda afloat.  So, today’s action was not unexpected.”

“Institutional investment is stalled right now in the wake of this. The first assessment will be, what failed? We believe it’s the unregulated centralized entities. So institutions are going to go back and say, did we invest in the wrong people in the VC stage? I think that’s going to be a big yes. Does this mean that bitcoin and Ethereum, the two main protocols that account for 60-odd percent of the digital asset space are flawed? There’s no institutional investor who can say those protocols failed, or do not hold the same promise they did before the FTX failure. So there are institutions that remain interested, but regulators need to define the state of play for institutions to follow.”

“There are (crypto) lending models that make sense. The decentralized finance models used proper collateralization and they’re intact. Some centralized models did not. I think you’re seeing the models with the weak lungs fail first. If a company gives you 18% yield, you better know really well where that yield is coming from.”

“FTX US, is I think the second largest creditor in BlockFi. But the question is, was that denominated in the FTT token or was it cash? In other bankruptcies, you’d have hard assets or U.S. dollars … we don’t know if they loaned (FTT) to BlockFi but we’re asking that questions for good reason.”

CONOR RYDER, RESEARCH ANALYST, KAIKO, DUBLIN

“The BlockFi filing is the latest in a string of contagion events after FTX, and arguably continued fallout from Celsius/Three Arrows Capital last summer. It was yet another example of neglected risk management when prices were going up, as crypto winter hit those that took on the most counterparty risk are getting exposed.”

“From a customer standpoint it serves as another reminder to be skeptical of any crypto yield products on offer, particularly those that sound too good to be true. That should be the biggest red flag now that a company is taking on added risk with your assets.”

(Compiled by the Global Finance & Markets Breaking News team)

By Hannah Lang, Niket Nishant and Manya Saini

(Reuters) – Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection, it said on Monday, the latest crypto casualty following the spectacular collapse of the FTX exchange earlier this month.

The filing in a New Jersey court comes as crypto prices plummet. The price of bitcoin, the largest digital currency by far, is down more than 70% from a 2021 peak.

“BlockFi’s Chapter 11 restructuring underscores significant asset contagion risks associated with the crypto ecosystem,” said Monsur Hussain, senior director at Fitch Ratings.

New Jersey-based BlockFi, founded by Zac Prince, said in a bankruptcy filing that its substantial exposure to FTX created a liquidity crisis. FTX filed for protection in the United States earlier in November after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

In a court filing on Monday, BlockFi listed FTX as its second-largest creditor, with $275 million owed on a loan extended earlier this year. It said it owes money to more than 100,000 creditors. The company also said in a separate filing it plans to lay off two-thirds of its 292 employees.

Under a deal signed with FTX in July BlockFi was to receive a $400 million revolving credit facility while FTX got an option to buy it for up to $240 million.

BlockFi’s bankruptcy filing also comes after two of BlockFi’s largest competitors, Celsius Network and Voyager Digital, filed for bankruptcy in July citing extreme market conditions that had resulted in losses at both companies.

Crypto lenders, the de facto banks of the crypto world, boomed during the pandemic, attracting retail customers with double-digit rates in return for their cryptocurrency deposits. On the flip side, institutional investors such as hedge funds looking to make leveraged bets paid higher rates to borrow the funds from the lenders, who profited from the difference.

Crypto lenders are not required to hold capital or liquidity buffers like traditional lenders and some found themselves exposed when a shortage of collateral forced them – and their customers – to shoulder large losses.

CREDITOR LIST

BlockFi’s largest creditor is Ankura Trust, a company that represents creditors in stressed situations, and is owed $729 million. Valar Ventures, a Peter Thiel-linked venture capital fund, owns 19% of BlockFi equity shares.

BlockFi also listed the U.S. Securities and Exchange Commission as one of its largest creditors, with a $30 million claim. In February, a subsidiary of BlockFi agreed to pay $100 million to the SEC and 32 states to settle charges in connection with a retail crypto lending product the company offered to nearly 600,000 investors.

In a blog post, BlockFi said its Chapter 11 cases will enable the company to stabilize its business and maximize value for all stakeholders.

“Acting in the best interest of our clients is our top priority and continues to guide our path forward,” BlockFi said.

BlockFi had earlier paused withdrawals from its platform and acknowledged it had “significant exposure” to FTX and its associated entities, including “obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.”

In its bankruptcy filing, BlockFi said it had hired Kirkland & Ellis and Haynes & Boone as bankruptcy counsel and Berkeley Research Group as a financial adviser.

At the end of June, a third of BlockFi’s $1.8 billion outstanding loans were unsecured, according to the company.

ORIGINS

BlockFi was founded in 2017 by Prince, who is currently the company’s chief executive officer, and Flori Marquez. Though headquartered in Jersey City, BlockFi also has offices in New York, Singapore, Poland and Argentina, according to its website.

In July, Prince had tweeted that “it’s time to stop putting

BlockFi in the same bucket / sentence as Voyager and Celsius.”

“Two months ago we looked the ‘same.’ They shut down and have impending losses for their clients,” he said.

According to a profile of BlockFi published earlier this year by Inc, Prince was raised in San Antonio, Texas, and financed his college education at the University of Oklahoma and Texas State University with winnings from online poker tournaments. Before starting BlockFi with Marquez, he held jobs at Orchard Platform, a broker dealer, and at Zibby, a lease-to-own lender now called Katapult.

Marquez previously worked at Bond Street, a small business lending outfit that was folded in to Goldman Sachs in 2017, according to Inc.

(Reporting by Hannah Lang in Washington, Niket Nishant and Manya Saini in Bengaluru and Elizabeth Howcroft in London; Additional reporting by Dietrich Knauth, Editing by Megan Davies, Conor Humphries and Matthew Lewis)

(Reuters) – Collapsed cryptocurrency exchange FTX remains the subject of “an active and ongoing investigation” by Bahamian authorities, Bahamian Attorney General Ryan Pinder said on Sunday, as he praised the Bahamas’ regulatory regime and swiftness with which it responded to the crisis.

FTX, which had been among the world’s largest cryptocurrency exchanges, is headquartered in the Bahamas. The firm, whose liquidity crunch forced the company to declare bankruptcy on Nov. 11, is the subject of investigations by Bahamian and U.S. authorities. In mid-November, the Royal Bahamas Police said that government investigators in the Bahamas were looking at whether any “criminal misconduct occurred.”

“We are in the early stages of an active and ongoing investigation,” Pinder said on Sunday, according to prepared remarks for the speech. “It is a very complex investigation.” He said it involved both civil and criminal authorities.

Pinder said that the Bahamas Securities Commission, Financial Intelligence Unit and the police’s Financial Crimes Unit would “continue to investigate the facts and circumstances regarding FTX’s insolvency crisis, and any potential violations of Bahamian law.”

Pinder also defended the Bahamas’ regulatory regime and said that its Securities Commission had moved quickly “because of the strength of the legislative framework.”

Bahamas securities regulators had revoked FTX Digital’s license and began involuntary liquidation proceedings the day before the U.S. bankruptcy case kicked off.

“Any attempt to lay the entirety of this debacle at the feet of the Bahamas, because FTX is headquartered here, would be a gross oversimplification of reality,” Pinder said, adding that the Bahamas Securities Commission had moved with “remarkable” speed in response.

Sam Bankman-Fried, 30, founded FTX in 2019 and rode cryptocurrency boom to a net worth that Forbes pegged a year ago at $26.5 billion. Bankman-Fried resigned as FTX’s chief executive officer the same day as the firm’s bankruptcy filing.

The liquidity crunch came after Bankman-Fried secretly moved $10 billion of FTX customer funds to his proprietary trading firm, Alameda Research, Reuters reported, citing two people familiar with the matter.

The U.S. Attorney’s Office in Manhattan, led by veteran securities fraud prosecutor Damian Williams, in mid-November began investigating how FTX handled customer funds, a source with knowledge of the probe told Reuters. The Securities and Exchange Commission and Commodity Futures Trading Commission also opened probes.

FTX’s demise comes after a string of meltdowns that have taken down other key players including Voyager Digital and Celsius Network and led some global investors to question the viability of the cryptocurrency sector.

(Reporting by Jasper Ward, Mrinmay Dey, David Randall, Jaiveer Shekhawat; Editing by Megan Davies and Daniel Wallis)

(Reuters) – State securities regulators are investigating Genesis Global Capital as part of a wide-ranging inquiry into the interconnectedness of crypto firms, Barron’s reported on Friday citing a comment from the Alabama Securities Commission Director.

While it does not directly serve individual investors, Genesis backs products offered by crypto companies such as Circle Internet Financial, the principal operator of one of the largest stablecoins, USD Coin, and by Gemini. Those products pay yield to customers who deposit certain cryptocurrencies on the platforms.

The inquiry will look into Genesis’s connection to such retail investors, and whether it or other industry participants might have violated securities laws, the report added.

Genesis and Alabama Securities Commission did not immediately respond to Reuters’ requests for comment on the report.

In the aftermath of the collapse of crypto exchange FTX, Genesis suspended customer redemptions in a spillover effect citing “abnormal withdrawal requests” that exceeded its liquidity.

Earlier this week, the New York Times reported Genesis hired investment bank Moelis & Company to serve as the firm’s restructuring advisor as it explored options including a potential bankruptcy.

Several crypto firms have been plagued by contagion concern from the fallout of the FTX collapse, with many counting their exposure in millions to the beleaguered exchange.

(Reporting by Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri)

ATHENS (Reuters) – Binance Chief Executive Officer Changpeng Zhao said on Friday regulation rather than opposition of the crypto sector is a better option for world governments as digital currencies become more mainstream.

Regulation of crypto currencies has come into sharp focus following the collapse of several platforms, culminating in the crash of the FTX currency exchange earlier this month.

“I think most governments now understand that adoption will happen regardless. It’s better to regulate the industry instead of trying to fight against it,” Zhao said, speaking at a Binance event in Athens.

The opaque world of crypto came into the spotlight when FTX, a crypto exchange, filed for bankruptcy protection in the United States on Nov. 11 after traders pulled $6 billion from the platform in three days.

The collapse has left an estimated 1 million creditors facing losses totalling billions of dollars.

Nonetheless, Zhao said he expected the industry to recover. “(This year) was a very nasty year, the last two months too much has happened. I think now we see the industry is healthier… just because FTX happened it does not mean that every other business is bad,” he said.

Asked whether he saw countries adding crypto currencies such as Bitcoin to their reserves in the future, Zhao said he expected countries to start, particularly those which did not have their own currency.

“The smaller countries will start first, I think,” he said.

(Reporting by Renee Maltezou, writing by Michele Kambas; editing by Anna Driver)

By Valentine Hilaire

MEXICO CITY (Reuters) – Mexican cryptocurrency exchange unicorn Bitso laid out a transparency roadmap, as pressure from users mounted following the high-profile collapse of crypto exchange FTX, a top Bitso executive told Reuters on Thursday.

In a spectacular crypto blowup, FTX filed for protection in the United States earlier this month after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal.

Bitso, which operates in Mexico, Brazil, Colombia and Argentina, will publish a solvency report in less than a month and is in the process of selecting an external partner to carry out an audit, Bitso’s Chief Regulatory Officer Felipe Vallejo told Reuters.

Bitso recently joined a group of international firms in the crypto sector, which are working to create an easy-to-understand report so users can decide for themselves if firms have funds to back their transactions.

“The proofs of funds published by some companies are insufficient since they only show assets and do not reflect how much crypto or money it owes its users,” he said.

FTX’s crash has created a sense of urgency to regulate crypto, the chair of global securities watchdog IOSCO Jean-Paul Servais said in an interview published Thursday.

Regulators across the region are stepping up efforts. Brazilian lawmakers are speeding up crypto regulation, and in the United States, Congress is expected to make progress next year on regulating its sprawling crypto sector.

In Argentina there are also signs of activity, said Vallejo, without giving more details.

“Well-constructed regulation can even be an advantage as it will remove bad actors from the ecosystem,” he added.

While Bitso’s growth could suffer in the near-term as it implements the new transparency methods, Vallejo said non-crypto services, such as remittances to Mexico, could help offset the blow.

(Reporting by Valentine Hilaire; Editing by Stephen Coates)

(Reuters) – Cryptocurrency exchange Binance is aiming for a roughly $1 billion fund for the potential purchase of distressed assets in the digital sector, Bloomberg News reported on Thursday, citing an interview with Chief Executive Officer Changpeng Zhao.

Zhao hinted at the possibility of allocating more funds in the interview. “If that’s not enough we can allocate more”, he said.

Zhao said while speaking at a conference in Abu Dhabi last week that there was significant interest from industry players in a recovery fund his company plans to launch to help cryptocurrency projects facing a liquidity squeeze, following the collapse of rival FTX.

He said such a fund would help “reduce further cascading negative effects of FTX” without giving an exact figure for the fund.

The crypto market is teetering after the collapse of FTX, which is seeking Chapter 11 bankruptcy protection in the United States.

Several crypto firms have been bracing for the fallout from the FTX collapse, with many counting their exposure to the exchange in millions.

Major crypto player Genesis said last week it had suspended customer redemptions in its lending business, while BlockFi is reportedly preparing to file for bankruptcy.

(Reporting by Akanksha Khushi in Bengaluru; Editing by Anil D’Silva)

By Huw Jones

LONDON (Reuters) – The crash of FTX exchange has injected greater urgency into regulating the crypto sector and targeting such ‘conglomerate’ platforms will be the focus for 2023, the new chair of global securities watchdog IOSCO said in an interview.

Jean-Paul Servais said regulating crypto platforms could draw on principles from other sectors which handle conflicts of interest, such as at credit rating agencies and compilers of market benchmarks, without having to start from scratch.

Cryptoassets like bitcoin have been around for years but regulators have resisted jumping in to write new rules.

But the implosion at FTX, which left an estimated one million creditors facing losses totalling billions of dollars, will help change that, Servais told Reuters.

“The sense of urgency was not the same even two or three years ago. There are some dissenting opinions about whether crypto is a real issue at the international level because some people think that it’s still not a material issue and risk,” Servais said.

“Things are changing and due to the interconnectivity between different types of businesses, I think it’s now important that we are able to start a discussion and that’s where we are going.”

IOSCO, which coordinates rules for G20 countries and others, has already set out principles for regulating stablecoins, but now the focus is turning to platforms which trade in them.

In mainstream finance there is functional separation between activities like broking, trading, banking services and issuance, with each having its own set of conduct rules and safeguards.

“Is it the case for the crypto market? I would say most of the time not,” Servais said.

Crypto ‘conglomerates’ like FTX have emerged, performing perform multiple roles such as brokerage services, custody, proprietary trading, issuance of tokens all under a single roof that give rise to conflicts of interest, Servais said.

“For investor protection reasons, there is a need to provide additional clarity to these crypto markets markets through targeted guidance in applying IOSCO’s principles to crypto assets,” Servais said.

“We intend to publish consultations report on these matters in the first half of 2023,” he added.

Madrid-based IOSCO, or International Organization of Securities Commissions, is an umbrella body for market watchdogs like the Securities and Exchange Commission in the United States, Bafin in Germany, Japan’s Financial Services Agency, and the UK Financial Conduct Authority, who all commit to applying the body’s recommendations.

The European Union’s new markets in cryptoassets or MiCA framework is an “interesting starting point” for developing global guidance as it focuses on supervision of crypto operators, said Servais, who also chairs Belgium’s financial regulator FSMA.

“I think that the world is changing. We know there is some space for developing new standards about supervision of this kind of crypto conglomerates. There is an obvious necessity,” Servais said.

(Reporting by Huw Jones; Editing by Bernadette Baum)

By Dietrich Knauth, Tom Hals and Tom Wilson

NEW YORK/LONDON (Reuters) – FTX was run as a “personal fiefdom” of former CEO Sam Bankman-Fried, attorneys for the collapsed crypto exchange said in its first bankruptcy hearing as they detailed ongoing challenges such as hacks and substantial missing assets.

In the highest-profile crypto blowup to date, FTX filed for protection in the United States after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. The collapse has left an estimated 1 million creditors facing losses totaling billions of dollars.

An attorney for FTX said at a bankruptcy hearing on Tuesday the company now intends to sell off healthy business units, but has been the subject of cyberattacks and had “substantial” assets missing.

FTX said on Saturday it has launched a strategic review of its global assets and is preparing for the sale or reorganization of some businesses. FTX said on Tuesday it was receiving interest from potential buyers for its assets and would conduct a process to reorganize or sell them.

The hearing was held at the U.S. Bankruptcy Court in Wilmington, Delaware and was livestreamed to around 1,500 viewers on YouTube and Zoom.

An attorney also said the firm had been run as a “personal fiefdom” of Bankman-Fried with $300 million spent on real estate such as homes and vacation properties for senior staff. FTX, led since the bankruptcy filing by new CEO John Ray, has accused Bankman-Fried of working with Bahamian regulators to “undermine” the U.S. bankruptcy case and shift assets overseas.

Bankman-Fried did not immediately reply to an email seeking comment.

Reuters earlier reported that Bankman-Fried’s FTX, his parents and senior executives of the failed cryptocurrency exchange bought at least 19 properties worth nearly $121 million in the Bahamas over the past two years, official property records show.

Attorneys also said an investigation must take place into Binance’s sale of FTX in July 2021. Binance bought a stake in FTX in 2019.

Separately a filing late on Monday by Ed Mosley of Alvarez & Marsal, a consultancy firm advising FTX, showed FTX’s cash balance of $1.24 billion as of Sunday was “substantially higher” than previously thought.

It includes around $400 million at accounts related to Alameda Research, the crypto trading firm owned by Bankman-Fried, and $172 million at FTX’s Japan arm.

Reuters has reported Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business, and that at least $1 billion of those deposits had vanished.

DISCLOSURE DEBATE

At the hearing, FTX representatives argued that names of customers should be kept secret, as disclosing them could destabilize the crypto market and open customers up to hacks. FTX also argued its customer list is a valuable asset, and disclosing it could impair future sale efforts or allow rivals to poach its user base.

A judge said those names can remain undisclosed until a future court hearing.

FTX lawyers also described an uneasy truce with court-appointed liquidators overseeing the wind-down of FTX’s Bahamas unit, FTX Digital Markets.

The two sides reached an initial agreement to coordinate their U.S.-based insolvency proceedings before Judge John Dorsey, avoiding the possibility of conflicting rulings from two different U.S. bankruptcy judges. But both sides signaled they still have broader disagreements over how to coordinate the recovery and preservation of assets held by various FTX affiliates.

Bankman-Fried, FTX and the Bahamas liquidators did not immediately respond to requests for comment.

CONTAGION FEARS

FTX’s fall from grace has sent shivers through the crypto world, driving bitcoin to its lowest level in around two years and triggering fears of contagion among other firms already reeling from the collapse in the crypto market this year.

Major U.S. crypto lender Genesis said on Monday it was trying to avert bankruptcy, days after FTX’s collapse forced it to suspend customer redemptions.

“Our goal is to resolve the current situation consensually without the need for any bankruptcy filing,” a Genesis spokesperson said in an emailed statement to Reuters, adding it continues to have conversations with creditors.

A Bloomberg News report, citing sources, had said Genesis was struggling to raise fresh cash for its lending unit.

The Wall Street Journal reported, citing sources, that Genesis had approached Binance seeking an investment but the crypto exchange decided against it, fearing a conflict of interest. Genesis also approached private equity firm Apollo Global Management for capital assistance, the WSJ said.

Apollo did not immediately respond to a Reuters request for comment on the WSJ report, while Binance declined to comment.

Crypto exchange Gemini, which runs a crypto lending product in partnership with Genesis, tweeted on Monday it was continuing to work with the company to enable its users to redeem funds from its yield-generating “Earn” program.

Gemini said on its blog last week there was no impact on its other products and services after Genesis paused withdrawals.

Since the implosion of FTX, some crypto players are taking to decentralized exchanges known as “DEXs” where investors trade peer-to-peer on the blockchain.

Overall daily trading volumes on DEXs leapt to their highest level since May on Nov. 10, as FTX imploded, according to data from market tracker DeFi Llama, but have since pared gains.

(Reporting by Dietrich Knauth in New York and Tom Wilson in London; additional reporting by Manya Saini, Rishabh Jaiswal, Juby Babu and Lavanya Sushil Ahire in Bengaluru; Editing by Megan Davies, Alexander Smith and Nick Zieminski)

(Reuters) – Cryptocurrency exchange FTX said on Tuesday it was receiving interest from potential buyers for its assets and would conduct process to reorganize or sell them.

(Reporting by Arunima Kumar in Bengaluru; Editing by Rashmi Aich)

By Hannah Lang

(Reuters) – Venture capital company Digital Currency Group, which owns Genesis Trading and cryptocurrency asset manager Grayscale, owes $575 million to Genesis’ crypto lending arm, Chief Executive Barry Silbert said in a letter to shareholders on Tuesday afternoon.

Loans from Genesis Global Capital, which suspended customer withdrawals last week, were used to “fund investment opportunities” and repurchase stock from non-employee shareholders, Silbert said in the letter, which was seen by Reuters. That debt is due in May 2023, he added.

Aside from the money owed to Genesis, Digital Currency Group’s only debt is a $350 million credit facility from “a small group of lenders” led by investment firm Eldridge, as well as a $1.2 billion claim it filed in July against bankrupt crypto hedge fund Three Arrows Capital. Digital Currency Group (DCG) had assumed that liability from Genesis.

DCG is still on pace to do $800 million in revenue this year, Silbert said.

In suspending redemptions and pausing new loans, Genesis Global Capital cited the “unprecedented market turmoil” that rippled through the market after crypto exchange FTX filed for bankruptcy. At the time, DCG said the halted withdrawals at Genesis had no impact on its operations or subsidiaries.

Silbert also told shareholders he appreciated words of support “along with offers to invest in DCG” and that he would notify investors if the company decides to do a funding round. Genesis is seeking to raise as much as $1 billion, and has approached crypto exchange Binance and asset manager Apollo Global Management for assistance, the Wall Street Journal reported on Monday.

(This story has been corrected to say that Digital Currency Group owes Genesis Trading’s crypto lending arm, not the other way around, in paragraph 1)

(Reporting by Hannah Lang in Washington; Editing by Chris Reese and Jonathan Oatis)

(Reuters) – Troubled cryptocurrency lender Genesis Global Capital has hired investment bank Moelis & Company to explore options including a potential bankruptcy, the New York Times reported on Tuesday citing three people familiar with the matter.

The company has not yet made a final decision on bankruptcy and it was still possible to be averted, the NYT added.

Genesis did not immediately respond to a Reuters request for comment on the matter.

Earlier this month, crypto exchange FTX filed for U.S. bankruptcy protection in the highest-profile crypto blowup to date, after traders pulled billions from the platform in three days and rival exchange Binance abandoned a rescue deal.

The collapse of FTX has sparked worries of a contagion effect on other firms already reeling from dampened crypto market this year.

On Monday, Genesis had asserted it had no plans to file bankruptcy imminently, days after it suspended customer redemptions citing the collapse of FTX.

(Reporting by Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri)

By Medha Singh and Lisa Pauline Mattackal

(Reuters) – As the crypto castle crumbles, some true believers say the answer is to double down on DEX. Decentralized exchanges, that is.

The spectacular collapse of Sam Bankman-Fried’s FTX, a major centralized crypto exchange, has unleashed a wave of calls for more regulation from mainstream bankers and investors.

By contrast, some crypto players are channeling bitcoin creator Satoshi Nakamoto’s original crypto vision by cutting out the financial middleman and taking to decentralized exchanges, where investors trade peer-to-peer on the blockchain.

On Nov. 10, as FTX imploded, overall daily trading volumes on DEXs including the likes of Uniswap leapt as high as $12 billion, their highest level since May, according to data from market tracker DeFi Llama, though they have since pared gains.

Four days later, November volumes had surpassed the whole of the month before, according to CryptoCompare.

Meanwhile, weekly bitcoin flows from centralized exchanges, or CEXs, recorded their largest-ever net outflow, with 97,805 coin moved off platforms in the seven days to Nov. 13, CryptoCompare data shows.

“It is now clear that there can be risk associated with holding assets in a centralized entity,” said Varun Kumar, CEO of decentralized crypto exchange Hashflow. “Data is showing that users are turning to decentralized trading solutions.”

Nonetheless, DEXs are not necessarily safer than their centralized rivals, with inexperienced investors potentially exposed to huge risks.

Users trade tokens directly with each other using blockchain-based smart contracts instead of passing funds through an intermediary or central authority.

Thus, as with other platforms in the world of decentralized finance (DeFi) or Web3, there is no central oversight and – for good or for ill – investors are responsible for their trades, settlements and safe-keeping of coins or tokens.

By comparison CEXs, such as Coinbase, Binance and FTX, are more akin to traditional exchanges on Wall Street, acting as the middleman in transactions, thus making trading more user-friendly especially for new investors, and sometimes offering coin custody services, as FTX did.

Many centralized players have also been pushing to boost user confidence with measures to increase transparency, such as demonstrating proof of their reserves.

Coinbase, Binance and FTX didn’t immediately respond to requests for comment.

Graphic: Crypto investors move cautiously – https://graphics.reuters.com/FINTECH-CRYPTO/WEEKLY/mopaknqzgpa/chart.png

FTX SHENANIGANS

That said, advocates of decentralization say DEXs could offer investors some protection from the kind of shenanigans that appear to have gone on at FTX, where as much as $1 billion of customer funds are reported missing.

DEXs cannot halt withdrawals, they require users to retain custody of their funds, and trading activity and reserves can be traced directly on the blockchain.

“There are definitely elements of DEXs appealing to people as they mitigate the chances of some nefarious operator or a single point of failure in the system,” said David Wells, CEO at crypto exchange Enclave Markets, which offers elements of both centralized and decentralized services.

The FTX crash certainly pumped up trading volumes on decentralized exchanges at the time.

Volumes at the largest DEX, Uniswap, spiked to $17.2 billion in the week of Nov. 6-13, from just over $6 billion the week before, while other smaller decentralized exchanges also reported higher volumes.

GMX saw over $6 billion in the week after Nov. 6, when FTX’s troubles came to light, three times recent its weekly averages. Hashflow saw $110 million on Nov. 9, the day Binance dropped a plan to bail out FTX, versus a daily average of $25 million.

Despite the recent surge, crypto isn’t migrating en masse to DeFi exchanges, and daily DEX volumes have fallen back near October levels of below $3 billion.

Nonetheless, there has been a broader, more subtle shift to decentralized exchanges, with data from Chainalysis showing overall monthly trading volumes on DEXs were between $181.5 billion and $240.3 billion from August through October, compared with a range of $173 billion to $203.5 billion for CEXs.

LOWER TRADE SPEEDS

The renewed interest in DEXs ties into the debate at the heart of crypto since Satoshi Nakamoto’s bitcoin white paper 14 years ago: the role, if any, that centralization and regulation should play in the crypto ecosystem.

While some investors prefer the transparency of decentralized exchanges, the platforms aren’t suitable for investors such as traditional financial institutions and specialized trading firms, said Wells at Enclave Markets.

For example, DEXs typically have slower transaction speeds, while hedge funds might not want their trading strategies to be publicly traceable on the blockchain.

Many traditional finance institutions are also legally required to hold external funds with an external custodian and would not be able to “self-custody” investors’ assets to trade them on decentralized exchanges.

So is the future DEX or CEX?

Many market participants see both centralized and decentralized exchanges coexisting.

“The interconnectedness is critical,” said Chris Kline, co-founder of Bitcoin IRA, which offers cryptocurrency retirement accounts, referring to DEXs and CEXs growing together as crypto trading expands.

“Both will exist in the future.”

(Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Vidya Ranganathan and Pravin Char)

(Reuters) – Bankrupt cryptocurrency exchange FTX said on Tuesday it was seeking to indemnify unidentified individuals for actions they took and continue to take in connection with assets that represent a significant share of the company’s estate.

(Reporting by Niket Nishant in Bengaluru; Editing by Sriraj Kalluvila)