Author: Reuters

(Reuters) – Hong Kong-based Babel Finance temporarily suspended the withdrawals and redemption of crypto assets on Friday, as the crypto lender scrambles to pay its clients after the recent slump in the digital currency market.

Cryptocurrency valuations have plunged in recent weeks as investors dump risky assets in a rising rate environment, with bitcoin, which reached a record high of $69,000 in November, having lost more than half its value this year.

“Recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events. Due to the current situation, Babel Finance is facing unusual liquidity pressures,” the company said.

Crypto lenders gather crypto deposits from retail customers and re-invest them, proclaiming double-digit returns and attracting tens of billions of dollars in assets. However, the recent meltdown has lenders unable to redeem their clients’ assets.

Babel, which has 500 clients and limits itself to bitcoin, ethereum and stablecoins, raised $80 million in a funding round last month, valuing it at $2 billion. It had ended last year with $3 billion of loan balances on its balance sheet.

Earlier this week, U.S.-based retail crypto lending platform Celsius Network froze withdrawals and transfers between accounts “to stabilize liquidity” as the collapse of cryptocurrency TerraUSD in May triggered a rise in redemptions.

(Reporting by Sameer Manekar in Bengaluru; Editing by Amy Caren Daniel)

By Jonathan Stempel

NEW YORK (Reuters) – Elon Musk was sued for $258 billion on Thursday by a Dogecoin investor who accused him of running a pyramid scheme to support the cryptocurrency.

In a complaint filed in federal court in Manhattan, plaintiff Keith Johnson accused Musk, electric car company Tesla Inc and space tourism company SpaceX of racketeering for touting Dogecoin and driving up its price, only to then let the price tumble.

Musk is CEO of both Tesla and SpaceX.

“Defendants were aware since 2019 that Dogecoin had no value yet promoted Dogecoin to profit from its trading,” the complaint said. “Musk used his pedestal as World’s Richest man to operate and manipulate the Dogecoin Pyramid Scheme for profit, exposure and amusement.”

The complaint also aggregates comments from Warren Buffett, Bill Gates and others questioning the value of cryptocurrency.

Tesla, SpaceX and a lawyer for Musk did not immediately respond to requests for comment.

A lawyer for Johnson did not immediately respond to requests for comment on what specific evidence his client has or expects to have that proves Dogecoin is worthless and the defendants ran a pyramid scheme.

Johnson is seeking $86 billion in damages, representing the decline in Dogecoin’s market value since May 2021, and wants it tripled.

He also wants to block Musk and his companies from promoting Dogecoin and a judge to declare that trading Dogecoin is gambling under federal and New York law.

The complaint said Dogecoin’s selloff began around the time Musk hosted the NBC show “Saturday Night Live and, playing a fictitious financial expert on a “Weekend Update” segment, called Dogecoin “a hustle.”

Tesla in February 2021 said it had bought $1.5 billion of bitcoin and for a short time accepted it as payment for vehicles.

Dogecoin traded at about 5.8 cents on Thursday, down from its May 2021 peak of about 74 cents.

The case is Johnson v. Musk et al, U.S. District Court, Southern District of New York, No. 22-05037.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)

By Hannah Lang and Katanga Johnson

WASHINGTON (Reuters) – Liquidity troubles at crypto lending platform Celsius Network, which have left its 1.7 million customers unable to redeem their assets, will increase U.S. regulatory pressure on the sector, which was already on the defensive amid other crises this year.

The industry has been battling scrutiny over concerns that digital assets are being used to evade sanctions on Russia and the May collapse of cryptocurrency TerraUSD, which sent the market plunging and raised systemic risk worries.

New Jersey-based Celsius’s move this week to freeze withdrawals, citing “extreme” market conditions, has spotlighted other problems with the crypto sector: weak investor safeguards.

Securities regulators in Alabama, Kentucky, New Jersey, Texas and Washington have opened an investigation into the Celsius decision, the director of enforcement for the Texas State Securities Board told Reuters on Thursday.

Crypto executives say recent problems show U.S. regulators have been too slow to provide the clarity necessary to protect everyday Americans, but they expect that to change fast.

“We are now seeing the consequences of regulators failing to provide clarity,” said Perianne Boring, founder and CEO of the Chamber of Digital Commerce. “I am hopeful that recent events will accelerate efforts to deliver clearer policies to the industry and certainty to those who invest in digital assets.”

Recent turmoil in the cryptocurrency market underscores the “urgent need” for regulatory frameworks that reduce digital asset risks, a U.S. Treasury official said on Thursday.

Crypto lenders gather crypto deposits from retail customers and re-invest them. Sometimes touting double-digit returns, such products have attracted tens of billions of dollars in assets. As its investments soured amid the crypto market slump, however, Celsius was unable to meet redemptions.

Unlike traditional financial firms, crypto lenders operate in a regulatory grey area which means their deposits are not insured by the government, a risk Celsius discloses on its website. Like many peers, Celsius has not registered with the Securities and Exchange Commission (SEC), meaning it was subject to few risk management, capital and disclosure rules.

As a result, its customers had little visibility over how it was investing their assets, and it’s unclear if they will get them back.

“At bare minimum, depositors/investors need to understand the risks they are taking,” said Todd Phillips, director of financial regulation at the Center for American Progress, a Washington think tank.

Celsius CEO Alex Mashinsky tweeted on Wednesday that the company was focused on customer concerns.

While bank regulators believe they need Congress to give them oversight of crypto companies, securities regulators had begun cracking down on lending products over the past year or so.

To be sure, Celsius has been on their radar. In September, regulators in Kentucky, New Jersey and Texas hit Celsius with a cease and desist order, arguing its interest bearing products should be registered as a security.

The SEC meanwhile last year blocked a Coinbase Global Inc plan to launch a lending product and sued lending platform BitConnect for fraud.

In February, the SEC and state regulators fined BlockFi $100 million for failing to register its crypto lending product. The SEC said the deal should provide a roadmap for other crypto lenders to register their products, although its unclear how many companies are poised to follow.

The SEC and regulators in Kentucky, New Jersey, and Texas did not immediately respond to request for comment on Thursday. On Tuesday, SEC chair Gary Gensler warned that some crypto product returns my be “too good to be true.”

Registering crypto lending products would not eliminate all risks to investors, but would increase transparency around such products and ensure some risk management controls, said experts.

Many companies, though, want to avoid that burden, putting the onus on regulators to bring enforcement actions, which take years to build. Still, lawyers said the SEC would likely increase such efforts.

“Given the SEC’s general aggressiveness under Gensler…the agency is likely combing through the statutes to find claims that can be brought regarding crypto lending,” said Howard Fischer, a partner at law firm Moses & Singer.

Some industry executives welcome more regulation, which would see the best companies rise to the top. In February, rating agency Fitch said increased disclosures and requirements would be “credit positive” for the lending sector.

“Investors wants to know that their assets are secure,” said Mike Belshe, CEO of BitGo, a digital asset trust company. “We’re going to see a shakeout of healthy companies that manage risk well.”

(Writing by Michelle Price; Additional reporting by Andrea Shalal in Washington; Editing by Nick Zieminski)

WASHINGTON (Reuters) – The Texas State Securities Board has opened an investigation into crypto lender Celsius Network’s decision this week to suspend customer redemptions, its director of enforcement Joseph Rotunda told Reuters on Thursday.

“The team met and began investigating the freezing of accounts first thing on Monday morning,” Rotunda said in an email, adding he considered the probe to be a “priority.”

“I am very concerned that clients – including many retail investors – may need to immediately access their assets yet are unable to withdraw from their accounts. The inability to access their investment may result in significant financial consequences.”

(Reporting by Michelle Price; Editing by Richard Chang)

(Reuters) – Russian authorities are discussing the idea of giving foreign investors who are willing to cut exposure to Russia a chance to ditch their Russian stocks and bonds later this year despite capital controls, a finance ministry official said on Thursday.

Russian authorities imposed capital controls days after Russia sent tens of thousands of troops into Ukraine on Feb. 24, hitting foreign investors in Russia who lost access to their holdings of shares and bonds.

Ivan Chebeskov, head of the finance ministry’s financial policy department, said authorities were studying the option of granting foreign investors the opportunity to sell their assets in a separate order book.

    “We are discussing a second order book and its segregation from the regular order book as we think that Western investors could behave in a non-market way. They just need to sell and that’s it,” Chebeskov told reporters.

    But not all foreign investors want to leave the Russian market so this separate order book would also give them the chance to buy Russian assets cheaply while others would be looking at selling them at any price, Chebeskov said.

Russia is also looking into using cryptocurrencies in its barter trade with other countries, but it needs to change the civil code to legalise such digital assets as property, Chebeskov said.

    Russian officials are wrestling with how to regulate the country’s crypto market and use of digital currencies, with the finance ministry opposed to the central bank’s calls for a ban.

     “The central bank is not against using cryptocurrencies to pay….They realise that if we have crypto in Russia it’d be good to get rid of it,” Chebeskov said.

    Central Bank Governor Elvira Nabiullina said earlier on Thursday that cryptocurrencies should not be used in Russia as a means of payment.

    Discussions have been going on for months and though the government expects cryptocurrencies to be legalised as a means of payment sooner or later, no consensus has yet been reached.

    Allowing crypto as a means of settlement for international trade would help counter the impact of Western sanctions, which have seen Russia’s access to traditional cross-border payment mechanisms “limited,” Chebeskov said last month.

    Unprecedented sanctions for what Russia calls “a special military operation” in Ukraine have hammered Russian financial markets and imports by disrupting trade and logistics chain.   

(Reporting by Reuters; Editing by Mark Heinrich)

By Lisa Pauline Mattackal and Medha Singh

(Reuters) – Major cryptocurrency volatility has hit stablecoins, typically considered the market’s safer-havens, with investors pulling money out of the sector and several losing the peg to their underlying assets.

The market capitalization of stablecoins had plummeted to $156.8 billion on Thursday, from around $181 billion at the start of May, CoinGecko data showed.

Tether, the world’s largest stablecoin, briefly dropped to $0.993 on Wednesday, though it quickly regained parity with the dollar.

“Stablecoin market cap goes hand in hand with sentiment and liquidity in crypto markets, and it’s slightly worrying that USDT appears to see another round of liquidations,” crypto digital asset manager IDEG wrote in a note.

Digital asset markets are facing a perfect storm, reeling after crypto lender Celsius froze withdrawals and transfers between accounts on the heels of last month’s demise of the terraUSD stablecoin, as well as global tightening of monetary conditions making riskier assets such as cryptocurrencies less attractive.

Stablecoins are crypto tokens pegged to the value of mainstream assets such as the dollar, and are the main medium for moving funds across digital tokens or into cash due to their lower volatility.

They are also the target of funds that arbitrage between exchanges and geographies, and try to bet on stablecoins that are quoted marginally below par regaining their parity.

Worries over reserves-backed Tether’s exposure to Celsius, as well as ongoing concerns about its reserve assets, have seen it lose more than $5 billion in market cap in the past 30 days.

“There is some recognition they (Tether) are going to have some bad loans because of Celsius,” said Joseph Edwards, head of financial strategy at crypto firm Solrise Group.

However, “Tether’s market cap is still above $70 billion and these things are like a drop in an ocean”, he added.

For its part, Tether said any loans to Celsius were overcollateralized and that worries about the make-up of its commercial paper reserves were being fuelled by “false rumours”.

ALGORITHMIC STABLECOINS ALSO HIT

A number of algorithmic stablecoins – which, similar to terraUSD, use complex mechanisms to control token supply and maintain their peg to the underlying asset – have also taken a hit.

USDD, the algorithmic stablecoin of smart contract platform Tron and the ninth-largest stablecoin by market cap, lost its peg to the dollar on Monday, at one point dropping as low as $0.96 as short-sellers built up extreme positions against the cryptocurrency, according to researcher CryptoCompare.

Tron founder Justin Sun promised to deploy more than $2 billion to defend the stablecoin’s peg.

“I don’t think they can last for even 24 hours. Short squeeze is coming” he tweeted on Monday. Sun did not respond immediately to a request for comment.

The Tron DAO, which manages reserves for the stablecoin, said on Wednesday it would remove 2.5 billion of its tron tokens off the Binance crypto exchange to help bolster USDD. However, USDD has yet to regain its peg and is trading at $0.976.

Other algorithmic stablecoins have also faced de-pegging in the past few weeks, including the Frax stablecoin, which has since recovered, and the Neutrino USD ,which dropped as low as $0.93 on Wednesday and is still trading under the dollar at $0.966.

Still, these stablecoins are much smaller in size than Tether, or even terraUSD at its peak.

“There are depegs in algoriththmic stablecoins again but those keep happening over and over… if something bad were to happen to them it wouldn’t represent any fracture for the ecosystem in the way Tether would have done,” Edwards said.

One potential winner of the current turmoil is USD Coin, backed by reserves of cash and U.S. Treasury notes, which has seen its market cap steadily climb to more than $54 billion from $52 billion over the past month even as other stablecoins struggled.

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

By Steven Scheer

JERUSALEM (Reuters) – Israel’s central bank said on Thursday it was teaming up with the Hong Kong Monetary Authority and the Bank of International Settlements’ (BIS) Innovation Lab to test the feasibility of a central bank digital currency (CBDC) for retail.

The test will be cyber-security secured and in the proposed model, the intermediaries will have no financial exposure from customers holding or transferring CBDC, resulting in reduced risk and costs, the Bank of Israel said.

The so-called Sela project, led by the BIS Innovation Hub’s Hong Kong centre, is planned to begin in the third quarter and findings will be published by the end of the year.

The Bank of Israel has stepped up its research and preparation for the possible issuance of a digital shekel to create a more efficient payments system after first considering issuing a CBDC in late 2017.

“Providing an efficient payment system that will increase competition in the payment market is one of the primary motivations we’ve identified for a possible issuance of a digital shekel – an Israeli CBDC,” Bank of Israel Deputy Governor Andrew Abir said in a statement.

Last month, the bank said that while it had received public support, it had yet to make a final decision on issuing a digital shekel.

The joint project will explore the feasibility of a two-tiered architecture where there is no financial exposure of the intermediaries involved in the transaction, unlike traditional ways of central bank funds being provided to the public via commercial banks.

“This architecture is assumed to have several benefits: less financial risk for the customer, more liquidity, lower costs, increased competition, and wider access,” the Bank of Israel said.

(Reporting by Steven Scheer; Editing by Robert Birsel)

(Reuters) – Russia’s inflation rate may come in close to 14% in 2022, the central bank governor said on Thursday.

Elvira Nabiullina said the pace of price rises, which surged in March following the imposition of Western sanctions, had fallen faster than the central bank’s initial expectations.

Speaking at Russia’s flagship annual economic forum in St. Petersburg, she added that Russia’s economic contraction for 2022 would also be softer than initially feared.

(Reporting by Reuters; Editing by Frank Jack Daniel)

(Reuters) – Cryptocurrency exchange Binance has opened 2,000 positions for hiring, Chief Executive Officer Changpeng Zhao said on Wednesday, a sharp contrast to a slew of job cuts by companies operating in the digital currency space.

“It was not easy saying no to Super bowl ads, stadium naming rights, large sponsor deals a few months ago, but we did. Today, we are hiring for 2000 open positions for #Binance,” Zhao said in a tweet to his 6.4 million followers on the social media app.

Binance did not immediately respond to Reuters request for additional details on the new jobs.

The move by Binance comes amid extreme volatility in the cryptocurrency market as investors are dumping risky assets over fears that soaring inflation would force the U.S. Federal Reserve to aggressively raise interest rates and tip the economy into a recession.

Cryptocurrency exchange Coinbase Global Inc said on Tuesday it would cut about 1,100 jobs, or 18% of its workforce, the latest company preparing to ride out a downturn in the cryptosphere.

BlockFi and Crypto.com have also slashed hundreds of jobs, while Meta Platforms and Intel Corp also tapped the brakes on hiring.

Bitcoin tumbled on Wednesday to a new 18-month low, dragging smaller tokens down with it and spurring a sharp fall in the digital currency market sparked by crypto lender Celsius freezing customer withdrawals.

(Reporting by Mehnaz Yasmin and Noor Zainab Hussain in Bengaluru; Editing by Amy Caren Daniel)

(Reuters) – Short sellers of crypto stocks have clocked about 126% in mark-to-market gains this year, far outpacing those from other sectors, according to financial and analytics firm S3 Partners, amid a risk-off sentiment in the broader equities market.

The downturn in the world’s largest cryptocurrency, bitcoin, which has fallen to $21,229 from its record high of $69,000 hit in November, and other key players such as cryptocurrency exchange operator Coinbase Global has set the stage for what is being termed as the “crypto winter”.

Short sellers, who bet on a stock’s decline, have an average short interest of $3 billion on the sector, according to S3.

In comparison, short sellers’ gains in software and services as well as media and entertainment were at about 50% and 46% so far in 2022.

Shares in Coinbase and software developer Microstrategy Inc have dropped 78.6% and 69% so far this year. Short interest as a percentage of the company’s float stood at 15% for Coinbase and 27.5% for Microstrategy, according to S3.

“Shorting crypto stocks may continue to be a profitable trade,” said S3 Partners’ Ihor Dusaniwsky and Matthew Unterman. “Short sellers should not be blamed for near term downward price moves, but they may be an active participant in future rallies.”

There has been $71 million worth of new short selling in crypto stocks so far this month, according to S3 Partners.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Vinay Dwivedi)

By John O’Donnell, Huw Jones and Marc Jones

LONDON (Reuters) – A markets sell-off has brought back memories of the euro zone debt crisis more than a decade ago, highlighting divisions that have plagued the currency bloc’s efforts to forge a closer bond.

While the years since the debt crisis have seen the 19 countries in Europe’s euro area centralise and toughen bank controls, many planned economic reforms in Italy and elsewhere were watered down as vast money printing buoyed the economy.

Spurred by fears higher borrowing costs will choke economic growth, the markets rout has exposed cracks in the uneasy alliance which – unlike the United States – is held together largely by the central bank rather than a government with power to tax and spend.

Two events this week expose the fragility of the union: the ECB’s efforts to restore confidence in weaker states facing surging borrowing costs as its debt-buying programme ends, and ministers’ decade-long failure to put the bloc’s savers on a solid footing.

After a rare emergency meeting on Wednesday, the ECB promised fresh measures to temper the market selloff but the lack of a concrete plan to help debt-laden countries like Italy and Greece disappointed some.

This was in sharp contrast to 2012, when then ECB president Mario Draghi tackled a crisis of confidence in the currency’s future with a pledge to do “whatever it takes”, followed by a vast programme of money printing.

Now, however, rocketing prices, triggered by that money printing, as well as soaring energy costs in the wake of Russia’s invasion of Ukraine and pandemic lockdowns in China, makes this feat difficult to repeat.

“It was easy to do whatever it takes when inflation was low,” said Guntram Wolff of think-tank Bruegel, adding that rising prices would push the ECB to reverse course.

“The emergency meeting created a lot of expectations that the ECB cannot ultimately meet,” he said. “Only governments can address the real economic divergence and incomplete set up of the euro zone.”

GRAPHIC: ECB interest rates and balance sheet (https://fingfx.thomsonreuters.com/gfx/mkt/egvbkwrngpq/Pasted%20image%201654781200997.png)

French Finance Minister Bruno Le Maire cautioned against a fragmentation of the bloc, the type of public warning once common but that largely disappeared since vast money printing eased the debt crisis.

Speaking to students in London, Lagarde gave no further clues as to how ECB action could look, talking instead about climate change and the impact of war on global grain supplies.

‘GONE BACKWARDS’

The divisions in the euro zone are likely to come to the fore at a ministers’ meeting later on Thursday to discuss a deadlocked plan to reinforce the bloc’s financial system.

A central pillar of financial crisis reform, the so-called banking union remains mired in debate, with the critical question of region-wide protection of deposits still unresolved.

“We have gone backwards rather than forwards,” said Karel Lannoo of the Centre for European Policy Studies.

“If there is a bank failure, it will be the same as 2008,” he said, adding that individual states rather than the wider bloc would be left to shoulder the burden. “The Draghi period is over.”

The ministers are expected to further delay plans for the single safety net for the bank deposits, long opposed by Germany which did not want to be on the hook for problems elsewhere, prolonging the decade-long push to unify the sector to better withstand crises.

Thomas Huertas, a former alternate chair of the EU’s banking watchdog and now at the Leibniz Institute, said the absence of such a safety net put European banks at a disadvantage to American rivals.

“It is one of those benefits that the person can see and recognise. It’s an important element not only for finance, but I think also of the Union itself,” he added, commenting on the need for cross-border saver protection.

That lack of progress with a banking union, in turn, has weighed on the stocks of Europe’s banks, which have been trailing their U.S. rivals for years.

The ministers’ debate takes place against the backdrop of a rise in Italy’s borrowing costs, exacerbated by the ECB’s plans to raise interest rates and wind down its debt-buying to temper rising prices. Spanish, Portuguese and Greek bonds are under similar pressure.

GRAPHIC: Euro zone yields (https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnxnmwpq/Pasted%20image%201655281213512.png)

How Europe responds is being closely watched by bankers and investors.

“So much of what we do is a confidence game,” said Vis Raghavan, CEO of EMEA and Co-Head of Global Investment Banking at JPMorgan. “A lot of what we are seeing is about confidence in policy and achieving an orderly route out of stagflation.”

But with the ECB running out of road to keep investors happy, the ball is back in the court of politicians to act.

“While the ECB could keep markets happy with a bazooka, it’s getting harder to do this in a time when it has to fight inflation,” said Carsten Brzeski, an economist with Dutch bank ING.

“That leaves it up to the governments to finally get their act together in finding a proper union.”

(Writing By John O’Donnell; additional reporting by Leigh Thomas in Paris and Sinead Cruise in London; editing by Emelia Sithole-Matarise)

By Tom Wilson, Gertrude Chavez-Dreyfuss and Hannah Lang

LONDON/NEW YORK (Reuters) – Bitcoin recovered on Wednesday after diving to an 18-month low, buoyed by the U.S. Federal Reserve’s tough stance on inflation even in the midst of a market meltdown this week after crypto lender Celsius froze customer withdrawals.

The world’s largest cryptocurrency fell as much as 7.8% to $20,079.72, its lowest since December 2020. It has lost about 33% against the U.S. dollar since Friday, dropping more than 50% since the beginning of the year. It has slumped about 70% from its record high of $69,000 in November.

Bitcoin was last down 1.31% at $21,669.37.

The digital currency sector has been pummelled this week after Celsius froze withdrawals and transfers between accounts, stoking fears of contagion in markets shaken by the demise of the terraUSD and luna tokens last month.

Cryptocurrencies were buoyed as the S&P 500 rallied after a policy announcement by the Fed to raise interest rates, snapping a five-session losing skid.

The Fed raised its target interest rate by three-quarters of a percentage point, its biggest rate hike since 1994.

Crypto funds saw outflows of $102 million last week, according to digital asset manager CoinShares, citing investors’ anticipation of tighter central bank policy.

The value of the global crypto market has tumbled 70% to under $900 billion from a peak of $2.97 trillion in November, CoinMarketCap data shows.

Graphic: Bitcoin so far in 2022 – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwbwqapo/Bitcoin%20so%20far%20in%202022.png

“Some parts of the broader crypto ecosystem are facing a rather harsh reckoning,” said Mikkel Morch, executive director at digital asset hedge fund ARK36. “As the reality of the bear market starts to settle in, the hidden leverages and structural weaknesses of projects that only worked when the prices went up are finally brought to light.”

Celsius has hired restructuring lawyers and is looking for possible financing options from investors, the Wall Street Journal reported, citing people familiar with the matter. Celsius is also exploring strategic alternatives including a financial restructuring, it said.

Smaller cryptocurrencies, which tend to move in tandem with bitcoin, also fell. Ether, the second largest token, fell to as low $1,013, the lowest since January 2021, and was last down 1.22% at $1,172.76.

The chaos in the crypto market has spread to other companies, with a number of exchanges slashing workforces.

Major U.S. exchange Coinbase Global Inc said on Tuesday it would cut about 1,100 jobs, or 18% of its workforce. Gemini, another U.S. exchange, said this month it would cut 10% of its workforce.

Still, others continue to hire. Binance, the world’s largest exchange, said it was hiring for 2,000 positions, and U.S. exchange Kraken said it had 500 roles to fill.

“Hunker down,” tweeted Binance CEO Changpeng Zhao.

Crypto hedge fund Three Arrows, facing social media chatter it is facing liquidation issues, said it was committed to working things out.

U.S. crypto broker Genesis also sought to ease investor concerns, saying its balance sheet was strong and its lending business continued to meet client demand despite elevated market volatility.

(Reporting by Tom Wilson in London, Gertrude Chavez-Dreyfuss in New York and Hannah Lang in Washington; Additional reporting by Alun John in Hong Kong; Editing by Jason Neely, Mark Potter and David Gregorio)

SINGAPORE (Reuters) – Software firm MicroStrategy said it has not received a margin call against its bitcoin-backed borrowing on Wednesday, and it has plenty of extra collateral to pledge if necessary.

MicroStrategy borrowed $205 million from crypto bank Silvergate Capital in March, mostly secured against bitcoin. On Tuesday bitcoin’s price briefly dropped below a level company officers had said could trigger extra capital requirements.

“MicroStrategy has not received a ‘margin call’ against our Silvergate loan even as bitcoin prices have fluctuated recently,” the company said in an emailed statement.

“We can always contribute additional bitcoins to maintain the required loan-to-value ratio … even at current prices, we continue to maintain more than sufficient additional unpledged bitcoins to meet our requirements under the loan agreement.”

(Reporting by Tom Westbrook; Editing by Jacqueline Wong)

(Reuters) – Crypto lender Celsius Network LLC has hired restructuring attorneys from law firm Akin Gump Strauss Hauer & Feld LLP to advise on possible solutions for its mounting financial problems, the Wall Street Journal reported https://on.wsj.com/3zDL82U on Tuesday.

Celsius is first looking for possible financing options from investors, but is also exploring other strategic alternatives, including a financial restructuring, the newspaper said, citing people familiar with the matter.

Celsius Network and Akin Gump did not immediately respond to Reuters’ requests for comment.

The crypto lender said on Sunday it was pausing all swaps, transfers and withdrawals between accounts due to extreme market conditions.

The Celsius move triggered a slide across cryptocurrencies, with their value dropping below $1 trillion on Monday for the first time since January 2021.

As of May 17, Celsius had $11.8 billion in assets, its website showed, down by more than half from October, and had processed a total of $8.2 billion worth of loans.

Rival crypto lender Nexo said on Monday it had offered to buy Celsius’ outstanding assets.

(Reporting by Mrinmay Dey in Bengaluru; Editing by Subhranshu Sahu)

By John McCrank

NEW YORK (Reuters) – The Financial Industry Regulatory Authority plans to increase its resources to understand and monitor cryptocurrencies as more of the Wall Street watchdog’s members trade digital assets, Chief Executive Officer Robert Cook said on Tuesday.

“We are already having to be engaged in the space and we think that as a result it’s appropriate for us to bulk up our capabilities there,” Cook said at a trading industry conference.

FINRA has several dozen members that have been approved to trade digital asset securities, as well as members who allow customers to access crypto products, and members with registered representatives who have outside business activities around crypto, Cook said.

The regulator is also developing digital asset verification techniques and is looking at whether it can do cross market surveillance on various blockchains, he said.

Cryptocurrencies prices have dropped sharply in recent weeks, with bitcoin hitting an 18-month low on Tuesday after major crypto lender Celsius Network froze withdrawals and the prospect of sharp U.S. interest rate rises shook the volatile asset class.

Crypto exchange Coinbase Global Inc said on Tuesday it will cut about 1,100 jobs, or 18% of its workforce to ride out the downturn in the cryptosphere. Companies like BlockFi and Crypto.com have also slashed hundreds of jobs, while top firms including Meta Platforms and Intel Corp have tapped the brakes on hiring.

While federal agencies jockey for position to be the primary regulator for digital assets, regardless of the outcome, FINRA will most likely have a role to play, Cook said.

“We’re going to need to be engaged and prepared to have the resources to do that, so anybody who is getting laid off from a crypto platform and wants to work for FINRA, give me a call,” he said.

(Reporting by John McCrank; Editing by Chizu Nomiyama and David Gregorio)

By Tom Westbrook

(Reuters) – MicroStrategy CEO Michael Saylor said on Tuesday the software firm was capable of withstanding volatility in bitcoin prices after the token slumped to levels that triggered fears of possible liquidation on its leveraged position.

MictroStrategy, an aggressive investor in bitcoin, said it borrowed $205 million from crypto bank Silvergate Capital in March, with the three-year loan mostly secured against some 19,466 bitcoins.

If the bitcoin price dropped below about $21,000, it would trigger a “margin call” or demand for extra capital, MicroStrategy President Phong Le said in webcast in May.

Bitcoin fell below that level to $20,816.36 on Tuesday before steadying near $22,000. Typically a margin call is met by providing more capital or liquidating the loan’s collateral.

It was unclear if the price moves had any consequences for MicroStrategy, or if the firm already provided more bitcoin or cash to secure the loan. The company did not respond to requests for comment.

MicroStrategy had “anticipated volatility and structured its balance sheet so that it could continue to #HODL through adversity,” Chief Executive Officer Saylor said in a tweet on Tuesday.

A spokesperson for Silvergate declined requests from Reuters for comment.

MicroStrategy shares rose 6% and Silvergate gained 3% on Tuesday, following 25% and 17% tumble on Monday in line with a pullback in crypto assets.

MicroStrategy’s Le said in May that the firm had 95,643 “unencumbered bitcoin” that it could use as extra collateral. Based on bitcoin’s last traded price of $22,254, the value of those coins was $2.1 billion.

“We could contribute more bitcoin to the collateral package, so … we don’t get into a situation of a margin call,” he had said.

Mark Palmer, head of digital asset research at BTIG, downplayed the risk of a margin call forcing MicroStrategy to trim its holdings. “We see no circumstance in which MicroStrategy is going to need to sell any of its bitcoin holdings,” he said.

(Reporting by Tom Westbrook in Singapore and Medha Singh in Bengaluru; Editing by Arun Koyyur and Maju Samuel)

By Tom Wilson, Elizabeth Howcroft and Hannah Lang

LONDON/WASHINGTON (Reuters) – Bitcoin steadied on Tuesday after earlier hitting a new 18-month low, as major crypto lender Celsius Network’s freezing of withdrawals and the prospect of sharp U.S. interest rate rises shook the volatile asset class.

Bitcoin clawed its way to positive territory after much as 7.3% overnight to $20,816, its lowest since Dec. 2020. It was last hovering around $22,470.

The world’s largest cryptocurrency fell 15% on Monday, its sharpest one-day drop since March 2020. It has shed about half its value this year and over 20% since Friday alone. Since its record high of $69,000 in November, it has slumped nearly 70%.

Citing “extreme” market conditions, New Jersey-based Celsius said this week that it had frozen withdrawals and transfers between accounts “to stabilise liquidity and operations while we take steps to preserve and protect assets.”

The move, combined with expectations of sharper U.S. Federal Reserve interest rate hikes after high U.S. inflation data last week, pushed the value of the crypto market under $1 trillion for the first time since January 2021.

Most crypto market-watchers were pessimistic on bitcoin’s immediate prospects.

“With the broader risk sentiment firmly negative the sellers have had it all their own way for a few days,” said Richard Usher at crypto firm BCB Group. “It will take a shift in the overall risk sentiment to turn the price around significantly.”

Bitcoin’s slump is likely to have ramifications for other companies exposed to the crypto market.

On Tuesday, cryptocurrency exchange Coinbase Global Inc said it would slash 18% of its workforce, or about 1,100 jobs, as part of efforts to rein in costs amid volatile market conditions.

U.S. software firm MicroStrategy Inc – a major backer of bitcoin – said last month a drop below $21,000 would trigger a demand for extra capital against a loan secured by some of its bitcoin holdings.

That could see it stake more bitcoin against the loan or trigger the sale of some of its vast holdings. The company did not immediately respond to a request for comment outside business hours.

MicroStrategy and Coinbase both fell more than 5.5% in premarket trading on Tuesday as the decline in bitcoin roiled crypto-related stocks, but were up 8.11% and 0.27% respectively by the afternoon.

No. 2 token ether also recovered somewhat after losing as much as 10% to $1,075, a fresh 15-month low. Ether is down 75% from its record high of $4,869, hit in November.

(Graphic- bitcoin chart: https://fingfx.thomsonreuters.com/gfx/mkt/myvmnrmbapr/bitcoin%20chart.JPG)

‘PANIC’

Celsius, which had around $11.8 billion in assets, offers interest-bearing products to customers who deposit crypto at its platform. It then lends out coins to earn a return.

“The market is now panicking about the impact and contagion if Celsius becomes insolvent,” wrote Singapore fund manager QCP Capital in a note.

Crypto investors were already rattled by the collapse of the TerraUSD and luna tokens in May which were shortly followed by Tether, the world’s largest stablecoin, briefly breaking its 1:1 peg with the dollar.

Celsius’s move to suspend withdrawals has raised fresh questions about regulatory oversight of such crypto-lending platforms.

On Tuesday, U.S. Securities and Exchange Commission chair Gary Gensler told an event that such platforms were operating akin to banks, and questioned how they could offer such large returns.

“I caution the public. If it seems too good to be true, it just may well be,” he added.

(Reporting by Tom Wilson and Elizabeth Howcroft in London, additional reporting by Sujata Rao in London, Alun John in Hong Kong and Katanga Johnson and Hannah Lang in Washington; Editing by Muralikumar Anantharaman, Emelia Sithole-Matarise, Michelle Price, Chizu Nomiyama and Nick Zieminski)

LONDON (Reuters) – El Salvador’s bet on bitcoin was slashed on Tuesday by half as the more than $100 million in the country’s publicly disclosed purchases dropped more than 50% in value.

The 10 purchases announced by President Nayib Bukele via Twitter have a market value of just over $51 million, with the biggest single trade – 420 coins at more than $59,000 per coin – down almost 63%.

Bukele has said on Twitter at least four times that El Salvador has bought a “dip”, a term used by traders to mean they took advantage of a price dislocation that resets for a quick gain.

One of the “dips” Bukele said El Salvador bought was 420 coins for more than $59,000 each in late October, a total of almost $25 million that is now worth $9.5 million.

The government didn’t respond to a request for comment on the value of its bitcoin portfolio.

(Graphic: El Salvador publicly reported bitcoin purchases, balance El Salvador publicly reported bitcoin purchases, balance- https://graphics.reuters.com/ELSALVADOR-BITCOIN/PURCHASES/akpezrzrzvr/chart.png)

The amounts, both the investment and the loss, are only a fraction of the $3.65 billion that the Central America nation held in foreign exchange reserves as of last month, according to credit rating agency DBRS Morningstar.

The country has $7.65 billion in marketable debt outstanding according to Refinitiv data. An $800 million payment is due in January, on a bond that is trading at 73.5 cents on the dollar and yielding 67.6%.

“Bondholders are no wiser on how bond payments will be made,” Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities, said in a note on Tuesday.

“The monthly fiscal data do not yet show an obvious trend shift, with the pace of spending less than revenue growth, but not yet enough to markedly reduce the structural fiscal deficit.”

(Reporting by Rodrigo Campos in London and Nelson Rentería in San Salvador)

MILAN (Reuters) – Swiss bank UBS is working to offer digital services that allow customers to buy real assets, but would advise them to stay away from crypto assets based purely on algorithms, Chief Executive Ralph Hamers said on Tuesday.

“If you would go to any digital application of real assets, like money, we can help you and that is what we’re creating,” he told a student conference on financial education in Milan.

UBS offers clients the “tokenisation” of gold, he said.

“You can buy crypto gold through UBS … in two minutes you have the gold on your App but we make sure we have the gold in our safe.”

However, “if you really want to go into the crypto world where it’s literally only determined through algorithms, that’s not where, at least for the moment, I see a role for us other than advising you not to do it.”

(Reporting by Valentina Za; Editing by Keith Weir)