Author: Reuters

(Reuters) – Ripple Labs Inc said in court papers Friday that a recent U.S. Supreme Court decision supports one of its key defenses in the U.S. Securities and Exchange Commission’s case over the cryptocurrency XRP.

The San Francisco-based blockchain payments company said the ruling on Tuesday limiting the government’s ability to levy penalties on U.S. taxpayers who fail to report foreign bank accounts emphasized that federal laws must give “fair warning” of what they prohibit.

Ripple asked U.S. District Judge Analisa Torres to consider the decision when she rules in the SEC’s case accusing the company and its current and former chief executives of conducting a $1.3 billion unregistered securities offering by selling XRP, which Ripple’s founders created in 2012.

Ripple and the executives have denied the allegations, and the company has argued that XRP has traded and been used as a digital currency.

The SEC has asked Torres to decide that Ripple had fair notice that XRP was a security under U.S. law. Ripple and the executives have said the question of whether or not the law was vague should go to trial.

Torres may decide a trial is unnecessary to determine whether XRP was a security, or narrow the issues that go before a jury.

A ruling in the case could further define what digital assets are considered securities in the U.S.

The case is SEC v. Ripple Labs Inc, U.S. District Court, Southern District of New York, No. 20-CV-10832.

(This story has been corrected to fix a typo in paragraph 6)

(Reporting by Jody Godoy in New York)

(Reuters) – Binance Chief Executive Officer Changpeng Zhao on Friday reiterated support for the exchange’s U.S. partner to acquire Voyager Digital, after an earlier tweet indicated he was weighing walking away from the offer.

Voyager, a crypto lender which went bankrupt last year, signed an agreement to be acquired by Binance.US in December.

But the U.S. Securities and Exchange Commission (SEC) and the New York Department of Financial Services later opposed the deal.

At a court hearing on Thursday, a U.S. bankruptcy judge criticized the SEC for its vague objections to the proposed acquisition.

“We are still in support of the deal and helping returning funds to users as quickly as possible, if allowed to do so,” Zhao tweeted.

In an earlier tweet on Friday, Zhao had signaled the possibility of calling off the deal.

(Reporting by Niket Nishant in Bengaluru; Editing by Krishna Chandra Eluri)

By Angus Berwick and Tom Wilson

(Reuters) – Three U.S. Senators have asked giant cryptocurrency exchange Binance and its U.S. partner Binance.US for information about their regulatory compliance and finances, citing a series of investigations by Reuters and some other media reports, according to a letter released on Wednesday.

In the letter, Democrats Elizabeth Warren and Chris Van Hollen along with Republican Roger Marshall, called on Binance “to provide transparency about potentially illegal business practice,” adding that the exchange and its related entities “have purposefully evaded regulators, moved assets to criminals and sanctions evaders, and hidden basic financial information from its customers and the public.

In a statement, Binance said that “a lot of misinformation has been spread about our company” but that “we appreciate the senators’ request” and that it will provide information to help them better understand the firm.

The senators also questioned the legitimacy of the company’s business and the safety of customers’ assets, in the letter addressed to Binance CEO Changpeng Zhao and Binance.US CEO Brian Shroder.

The collapse of rival crypto exchange FTX, whose founder Sam Bankman-Fried has been charged with fraud, “underscored the need for real transparency and accountability in the crypto industry,” the senators wrote.

Warren and Van Hollen are members of the Senate Banking Committee.

The letter cited Reuters articles from last year that found that Binance intentionally kept weak anti-money laundering controls, processed over $10 billion in payments for criminals and companies seeking to evade U.S. sanctions, and plotted to evade regulators in the United States and elsewhere.

The letter also cited a Reuters report this February that Binance had secret access to Binance.US’s bank account and was able to move $400 million to an account held by a trading firm managed by Zhao.

Binance.US publicly maintains that it is entirely independent of the global Binance.com exchange and operates as its “US partner.” However, Reuters has reported that, in fact, Binance created Binance.US as a de facto subsidiary to draw the scrutiny of U.S. regulators away from Binance.com.

Binance has previously disputed Reuters’ articles, calling the illicit-fund calculations inaccurate and the descriptions of its compliance controls “outdated.” The exchange has said it is “driving higher industry standards” and seeking to “further improve our ability to detect illegal crypto activity on our platform.” A Binance.US spokeswoman said in February that “only Binance.US employees have access” to its bank accounts.

In the letter, first reported by the Wall Street Journal, the senators requested Binance and Binance.US provide documents and answers to their questions by March 16.

The senators are seeking information about the companies’ balance sheets, U.S.-based users, anti-money laundering policies. They want written policies regarding Binance and Binance.US’s relationship.

(Reporting by Angus Berwick; Editing by Anna Driver)

(Reuters) – Some oil and gas drillers operating on U.S. public lands are diverting natural gas to power cryptocurrency mining operations without paying federal royalties, according to a government watchdog report published on Wednesday.

The Interior Department’s Office of Inspector General advised the agency, which oversees 420 million acres of federal lands, to issue guidance to address the rise of an industry that may operate unnoticed in its vast territory.

“Mining” cryptocurrency requires huge amounts of electricity to power computers that compete to solve mathematical puzzles to validate transactions.

The process has drawn criticism from environmentalists and governments that worry about its heavy reliance on climate-warming fossil fuels to create electricity.

In its report, the IG said cryptomining units in Colorado had been located on or near federal lands leased for oil and gas development and were diverting gas from those leases.

The mobile units may be undetected for long periods of time by federal officials responsible for overseeing large areas of public land, the report said.

“These activities generate revenues for private companies using federally owned gas, at times without the leaseholder paying mineral royalties,” the report said.

The issue was raised by the Colorado Oil and Gas Conservation Commission, which told the IG that the crypto operations may pose environmental and health and safety risks and could be underinsured for accidents.

In its response to the IG, Interior said it would take action to inform staff of the threats outlined in the report and work with agency officials to discuss how guidance could be crafted for the department.

The royalty rate for federal onshore oil and gas leases issued since August of last year is 16.67%, and it is 12.5% for older leases, according to the Bureau of Land Management. The Interior Department generated more than $1.7 billion in revenue from onshore natural gas royalties last year, according to federal data.

(Reporting by Nichola Groom; Editing by Leslie Adler)

By Niket Nishant

(Reuters) – Cryptocurrency heavyweights including Coinbase Global Inc and Galaxy Digital on Thursday dropped Silvergate Capital Corp as their banking partner after the lender’s latest filing raised questions about its ability to stay in business.

Coinbase and Galaxy Digital also said they had minimal exposure to Silvergate, which has been plunged into a crisis stemming from a bank run after the collapse of major crypto exchange FTX in November spooked investors.

La Jolla, California-based Silvergate, one of the most influential banks in the digital asset industry, has drawn the ire of lawmakers in the United States over its dealings with FTX and Alameda.

In January, a bipartisan group of U.S. senators sent a letter to Silvergate, asking for details of the bank’s risk management practices and alleging its due diligence processes “failed miserably.”

“This does not bode well for the whole crypto market, as Silvergate is a major player in the space,” said Marcus Sotiriou, analyst at digital asset broker GlobalBlock.

“The result of this remains to be seen, but we could potentially see a contagion from crypto businesses who use Silvergate Bank being impacted,” Sotiriou added.

Stablecoin issuers Paxos and Circle, Cboe’s digital asset exchange and European crypto exchange Bitstamp also suspended their partnerships with Silvergate.

“It is now getting increasingly difficult for crypto companies to establish or sustain relationships with a U.S. bank,” said Ivan Kachkovski, FX and crypto strategist at UBS.

“This could potentially mean a certain trend towards crypto offshorization, at least until more comprehensive regulatory framework is established in the U.S.”

Silvergate was founded in 1988 and ventured into crypto in 2013. After high interest rates and the bankruptcy of FTX rattled crypto markets last year, the company reported a loss of $1 billion for the fourth quarter and slashed headcount by 40% in a bid to cut costs.

Coinbase, which was earlier one of Silvergate’s top clients, said it would partner with Signature Bank and others to facilitate cash transactions for institutional clients who had parked funds with the exchange.

Silvergate’s shares plunged to a record low of $6.80 following the announcement, erasing over $200 million of its market capitalization.

GRAPHIC: Silvergate stock performance vs peer Signature Bank https://www.reuters.com/graphics/SILVERGATE-PAYMENTS/COINBASE/gdpzqmbwqvw/chart.png

On Wednesday, Silvergate delayed its annual report and said it had sold additional debt securities – investments that can include bonds and notes – to repay debts this year and was evaluating the impact of these events on “its ability to continue as a going concern.” 

“The bank to some degree has become a lightning rod victim of circumstances, given industry news flow over the last few months,” Canaccord Genuity analysts wrote in a note after the disclosure.

The bank has also become a target for short sellers. Short interest in Silvergate stock is estimated to be as much as 22.6 million shares, or 82% of the float, making it the most shorted stock in the United States in terms of percentage of float, according to data from analytics firm S3 Partners.

(Reporting by Niket Nishant in Bengaluru; Additional reporting by Elizabeth Howcroft in London; Editing by Uttaresh Venkateshwaran, Sriraj Kalluvila, Anil D’Silva and Maju Samuel)

By Dietrich Knauth

(Reuters) – A U.S. bankruptcy judge on Thursday criticized the Securities and Exchange Commision for casting vague doubts about crypto lender Voyager Digital’s proposed sale to Binance.US, saying the regulator had essentially asked to “stop everybody in their tracks” without explaining how to address its concerns.

U.S. Bankruptcy Judge Michael Wiles made the remarks at a court hearing in New York to consider Voyager Digital’s restructuring plan that would sell its assets and transfer its customers to crypto exchange Binance.US.

Even if Wiles confirms the plan, the sale, which Voyager values at $1.3 billion based on current crypto prices, cannot close until it gets final approval from the SEC and the Committee on Foreign Investment in the United States (CFIUS), which has also raised doubts about the deal.

The SEC, which has objected to the sale, is currently investigating whether Voyager’s crypto lending business involved the sale of unregistered securities. It has raised concerns in court filings that Voyager cannot prove that the Binance deal or any other crypto transaction complies with U.S. securities law.

When pressed by Wiles as to whether the SEC believed that the Voyager sale violated U.S. securities laws, SEC attorney William Uptegrove did not have a definite answer.

“We can’t take a position at this point,” Uptegrove said. “The SEC is a deliberative body, and it’s process is a nonpublic one by federal law.”

Wiles was not satisfied with that response.

“Deliberative is one thing, but what have you done?” Wiles asked. “If there are reasons to be concerned here, I need to hear specifics.”

Wiles is expected to rule on whether Voyager’s bankruptcy plan should be confirmed later on Thursday.

The Binance transaction includes a $20 million cash payment and an agreement to transfer Voyager’s customers to Binance.US’s crypto exchange. The crypto assets deposited by Voyager customers account for the bulk of the deal’s valuation, according court documents.

Once Voyager’s customers have Binance.US accounts in place, they will be able to make withdrawals for the first time since Voyager froze their accounts last summer.

Voyager filed for bankruptcy in July, months after the crash of major crypto tokens TerraUSD and Luna sent shockwaves across the digital asset industry.

It estimates the sale will allow customers to recover 73% of the value of their deposits at the time of Voyager’s bankruptcy filing, the company’s attorney Christine Okike said at Thursday’s hearing.

CFIUS did not formally object to the Binance sale, but it warned that its ongoing review of national security concerns could end up blocking the deal.

Binance.US has said that it is “fully independent” of its international parent company Binance, which is owned by Chinese-born and Singapore-based Changpeng Zhao.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and Bill Berkrot)

By Lewis Jackson

SYDNEY (Reuters) – Thousands of Australians who used do-it-yourself (DIY) pension funds to bet on cryptocurrencies face hundreds of millions of dollars in losses, jeopardising their savings in a scheme originally set up to ensure adequate retirement income.

    These risky bets are possible as DIY or self-managed superannuation funds (SMSFs) fall outside the remit of the prudential regulator that oversees professionally managed funds, thereby allowing them to invest with fewer restrictions.

DIY pension funds account for a fourth of Australia’s A$3.4 trillion ($2.29 trillion) pension pool. Tens of thousands set up such funds over the pandemic, pouring money set aside for retirement into markets, including cryptocurrency. But regulators can do little more than warn about the risks.

Peter, 50, who describes himself as a “bitcoiner”, is among those who is content to ignore the warnings.

He moved his A$130,000 nest egg from an Australian pension fund into an SMSF and invested it in bitcoin in 2021. At one point his fund was up A$100,000 as bitcoin scaled an all-time high, but is now “underwater” after prices crashed.

However, Peter continues to buy bitcoin.

“My conviction hasn’t changed,” said Peter, without giving his full name to keep his financial affairs private.

“It doesn’t bother me, honestly. After ten years of being on this ride, part of me has died inside when it comes to price.”

And Peter is not alone.

According to Australia’s tax office, more funds are adding cryptocurrencies, although they remain a small minority.

CRYPTO ‘WILL HELP’

There is about A$880 billion in Australia’s SMSFs, with crypto assets accounting for $1.4 billion of that in fiscal 2021. The quantity of crypto assets has likely grown since then.

Regulatory rules require investors to keep assets for retirement, run audits and acknowledge risks, but say nothing about the appropriateness of investments by SMSFs.

That is in stark contrast to measures in some other countries or even Australia’s oversight of the A$2.3 trillion professionally managed pension sector where funds can be barred from taking new members if they underperform.

The tax office does not provide information about portfolio losses. However, bitcoin prices, near $24,000 now, are 16% below the 2021 trough and 60% below the 2021 peak.

Assuming an average 40% decline would imply an almost A$600 million drop in the value of SMSF cryptocurrency investments, Reuters calculations show.

This estimate was validated by Liam Shorte, a financial planner specialising in SMSFs.

“Most of the people I’m dealing with got in late,” he says.

But crypto loyalists believe the asset class should be judged over decades, not days.

“If I want an early retirement, this will help,” said Ken, a 47-year old professional who piled into cryptocurrency in May 2021 after first checking with his wife.

He bought more than A$100,000 of bitcoin and ether via his SMSF, accounting for 10-20% of the fund.

“If the investment goes pear-shaped, I work an extra year,” said Ken, who also did not want his full name disclosed.

LITTLE REGULATION

New SMSFs grew 30% in 2021, a survey from Vanguard and Investment Trends shows, with more than half the new starters surveyed saying they could outperform their pension fund.

“I was getting calls every week at the peak,” says Sevan Tuna, managing director at financial adviser Alexander Spencer. “It was ridiculous, people had a lot of time on their hands.”

Australia’s DIY pension sector combines size and freedom in a way that sets it apart from other countries.

The United States also has a freewheeling DIY pension sector but take-up is negligible.

In Britain, self-managed pension funds cannot directly invest in bitcoin or other cryptocurrencies, according to Victoria Scholar, head of investment for Interactive Investor.

Hargreaves Landsdown, among Britain’s largest retail stockbrokers, also bars its 460,000 self-managed pension customers from property.

But in Australia, SMSFs can take out loans for houses and farms, buy shares in private companies or collectibles like fine wine and jewellery.

Australian regulators in 2019 recommended banning SMSFs from borrowing, and in the same year the Australian Tax Office (ATO) warned 17,700 fund trustees they were not diversified enough.

Where funds are highly concentrated, investors must show they have considered the risks, the ATO said in a statement.

Treasury, which oversees the ATO, said there are no changes planned to SMSF governance.

Regulating SMSF investment decisions could have unpopular consequences, Tuna said. Forced diversification could limit big property investments. Property and the loans to finance it make up a fifth of all SMSF assets.

John Maroney, who stepped down as head of Australia’s SMSF association this week, said big cryptocurrency investments are concerning but changing rules would add costs.

“Our general position is if it’s legal to invest in speculative assets, then no further restrictions should apply to SMSF investments.”

($1 = 1.4828 Australian dollars)

(Reporting by Lewis Jackson; Editing by Praveen Menon and Himani Sarkar)

SYDNEY (Reuters) – Australia’s central bank is launching 14 pilot projects with the financial industry to develop real world applications for a digital Australian dollar, with the focus on business use rather than a new public means of exchange.

The Reserve Bank of Australia (RBA) said proposed uses for a central bank digital currency (CBDC) included offline payments, corporate bond and FX settlement, tokenised bills and even livestock auctions.

Partners include Australia and New Zealand Banking Corp, Commonwealth Bank of Australia and Mastercard, along with a range of fin tech firms.

“The project involves selected industry participants demonstrating potential use cases for a CBDC using a limited-scale pilot CBDC that is a real digital claim on the Reserve Bank,” the RBA said in a statement.

A report on the progress of the live pilots is expected around the middle of the year.

(Reporting by Wayne Cole; Editing by Lincoln Feast.)

(Reuters) – Silvergate Capital shares plummeted 28% late on Wednesday after the cryptocurrency-focused bank warned it was delaying its annual report and said it was evaluating its ability to operate as a going concern.

Silvergate had been trying to ease investor concerns over its future after reporting a $1 billion loss for the fourth quarter in the wake of crypto exchange FTX’s bankruptcy, which shook confidence in the digital asset sector.

Federal prosecutors in Washington are probing Silvergate and its dealings with FTX and Alameda Research. In January, three U.S. senators asked Silvergate for details about its risk management practices and its dealings with FTX.

“The Company is currently analyzing certain regulatory and other inquiries and investigations that are pending with respect to the Company,” Silvergate wrote in a filing to the Securities and Exchange Commission on Wednesday.

Silvergate said it sold additional debt securities in January and February and that it expects further losses related to impaired securities, adding it could be “less than well-capitalized.”

Additionally, “the Company is evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements,” according to the filing.

Silvergate said it does not expect to file its report by an extension date of March 16.

Global cryptocurrency exchange Binance had secret access to an account at Silvergate belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, Reuters reported earlier this month.

Last at $9.40 in extended trade, Silvergate’s stock has plummeted about 96% from its record high close in November 2021.

(Reporting by Noel Randewich; Editing by Lincoln Feast.)

By Elizabeth Howcroft

LONDON (Reuters) – Binance’s stablecoin, Binance USD, has seen around $6 billion of outflows following a U.S. regulatory crackdown on the company that issues the token, according to market tracker CoinGecko.

Paxos Trust Company, which issues Binance USD, said on Feb. 13 that the U.S. Securities and Exchange Commission (SEC) had told the company it should have registered the product as a security and is considering taking action against the platform.

On the same day, New York’s chief financial regulator said in a consumer alert that it had ordered Paxos to stop creating the token.

An NYDFS spokesperson later told Reuters via email that Paxos violated its obligations for “tailored, periodic risk assessments” and due diligence checks on Binance and Binance USD customers needed to stop “bad actors from using the platform”.

Binance CEO Changpeng Zhao said that the regulator’s decision meant the market cap of the token would decrease over time.

On Wednesday, the value of all Binance USD was around $10.5 billion, down from $16.1 billion on Feb. 13, according to market tracker CoinGecko.

The Financial Times reported on Wednesday that investors have pulled more than $6 billion out of the Binance-branded token in the past month, citing data from blockchain analytics firm Nansen.

Analysts said the NYDFS move represented a setback in Binance’s efforts to gain market share from larger stablecoins.

SEC Chair Gary Gensler has previously said he believes some stablecoins to be securities.

(Reporting by Elizabeth Howcroft; editing by Sinead Cruise and Jason Neely)

By Manya Saini

(Reuters) – U.S. payment giants Visa and Mastercard are slamming the brakes on plans to forge new partnerships with crypto firms after a string of high-profile collapses shook faith in the industry, people familiar with the matter told Reuters.

The crypto industry saw a stunning reversal of fortunes in 2022 as bankruptcies of industry majors FTX and BlockFi rattled investors and increased regulatory scrutiny on the sector.

Both Visa and Mastercard have decided to push back the launch of certain products and services related to crypto until market conditions and the regulatory environment improve, said the people, who asked not to be named as talks were confidential.

“Recent high-profile failures in the crypto sector are an important reminder that we have a long way to go before crypto becomes a part of mainstream payments and financial services,” a spokesperson for Visa, the world’s largest payment processor, said.

That does not change the company’s crypto strategy and focus, however, the spokesperson added.

A spokesperson for Mastercard said: “Our efforts continue to focus on the underlying blockchain technology and how that can be applied to help address current pain points and build more efficient systems.”

CRYPTO RETREAT

Over the past couple of years, major card firms had warmed up to crypto as the popularity of the asset class exploded, with some touting it as the next big thing in finance.

Card companies, which pocket a small percentage of the dollar value of transactions they process, had announced multiple partnerships with crypto firms and put in place dedicated teams to explore blockchain technology.

Mastercard teamed up with crypto lender Nexo in April to launch what it called the world’s first “crypto-backed” payment card.

In November, Visa severed its global credit card agreements with FTX, just a month after announcing an expanded partnership with the exchange.

Graphic: Bitcoin battered by crypto shocks https://www.reuters.com/graphics/FINTECH-CRYPTO/BITCOIN/dwpkdemzgvm/chart.png

Card company American Express said in 2021 it would consider using crypto as a possible option to redeem reward points in the future.

But it is not viewing crypto tokens as a strategic priority in the near-term, a source familiar with the matter said.

“In the near-term, we don’t see crypto replacing our core payment and lending services,” an AmEx spokesperson said in an emailed statement, adding that the company continues to explore meaningful use cases for the technology.

“They cannot and should not move ahead until there is a clear regulatory framework,” said Thomas Hayes, chairman and managing member at investment firm Great Hill Capital.

“Delays are not attributable to their core business – as that remains strong. They are related to an uncertain regulatory environment for crypto and demand/interest for crypto services declining in the near term.”

(Reporting by Manya Saini in Bengaluru; Editing by Sweta Singh and Saumyadeb Chakrabarty)

(Reuters) – Customers of Voyager Digital voted in favor of the crypto lender’s Chapter 11 bankruptcy plan, the company said in a tweet on Tuesday.

Of those who participated in the voting, “97% of customers representing 98% of the total claims, voted in favor,” the company said.

(Reporting by Urvi Dugar in Bengaluru; Editing by Sherry Jacob-Phillips)

By Chris Prentice

NEW YORK (Reuters) – The U.S. Commodity Futures Trading Commission (CFTC) has hired a former New York prosecutor with expertise in cryptocurrency and cyber crimes to lead its enforcement unit, the agency said in a statement on Tuesday.

Ian McGinley, who was most recently an attorney with Akin Gump Strauss Hauer & Feld in New York, was previously the co-chief of the complex frauds and cybercrime unit at the Manhattan U.S. Attorney’s Office.

His appointment at the CFTC, which oversees swaps markets and virtual currencies such as Bitcoin, underscores the agency’s focus on policing these markets at a time of “heightened stress and volatility” and new threats, the statement said.

The CFTC is a key agency involved in the oversight of digital assets at a troubled time for the industry following a wave of bankruptcies and high-profile charges levied against crypto players including Sam Bankman-Fried, FTX founder and former chief executive officer.

CFTC Chairman Rostin Behnam in the statement described McGinley as a “leader in combatting modern financial fraud”.

“His background as a prosecutor with unique experience in commodities, crypto, and cyber-crimes and frauds makes him an ideal person to lead the CFTC’s enforcement team,” Behnam said.

While at the Justice Department, McGinley pursued investigations and oversaw cases involving a $1 billion crypto Ponzi scheme, initial coin offering fraud and pandemic-related fraud cases.

McGinley, whose appointment is effective immediately, replaces the CFTC’s acting director of enforcement and veteran CFTC official Gretchen Lowe.

(Reporting by Chris Prentice; Editing by Mark Potter)

By Jody Godoy and Luc Cohen

NEW YORK (Reuters) – Nishad Singh, the former director of engineering at now-bankrupt cryptocurrency exchange FTX, has agreed to plead guilty to U.S. criminal charges, his lawyer said in court on Tuesday, as U.S. prosecutors ramp up their investigation into members of Sam Bankman-Fried’s inner circle.

Bankman-Fried, FTX’s founder, was charged in December with eight counts of fraud and conspiracy. Prosecutors say he stole billions in FTX customer deposits to plug losses at his hedge fund Alameda Research, and lied to investors and lenders about his companies’ financial condition.

He has pleaded not guilty. Federal prosecutors in Manhattan have repeatedly urged people with knowledge of wrongdoing at FTX to come forward.

Singh’s plea is set to come after two of Bankman-Fried’s closest associates in December agreed to cooperate with prosecutors.

Caroline Ellison, who was Alameda’s chief executive, and Gary Wang, who was FTX’s chief technology officer, pleaded guilty to seven and four criminal charges, respectively.

FTX’s former top lawyer, Daniel Friedberg, has also cooperated with prosecutors, but has not been told he is under criminal investigation, a person familiar with the matter told Reuters in early January.

Several other former FTX executives have also hired lawyers to discuss possible cooperation with prosecutors.

Singh was a close friend of Bankman-Fried’s younger brother in high school, Bankman-Fried wrote in a deleted blog post. After working at Alameda, Singh became FTX’s director of engineering in 2019, according to CNBC.

In 2020, Singh tweaked FTX’s software to exempt Alameda from having its assets sold automatically if it were losing too much borrowed money, Reuters reported in December.

The exemption let Alameda keep borrowing from FTX regardless of how much collateral secured its loans.

“Be extra careful not to liquidate,” Singh wrote in a comment in the platform’s code, which was seen by Reuters.

The U.S. Securities and Exchange Commission, which filed civil fraud charges against Bankman-Fried, has said the code change gave Alameda a “virtually unlimited line of credit” at FTX.

It also said the billions of dollars FTX secretly lent Alameda over the next two years came from FTX customers.

Bankman-Fried, 30, rode a boom in the values of bitcoin and other digital assets to amass an estimated $26 billion net worth and become an influential U.S. political donor.

Singh also became a major donor to Democratic politicians, contributing $8 million to campaigns in the 2022 election cycle, according to OpenSecrets.

(Reporting by Luc Cohen in New York; Editing by Matthew Lewis)

By Medha Singh and Lisa Pauline Mattackal

(Reuters) – Satoshi Nakamoto would be proud. Adolescent bitcoin may finally be repaying its creator’s faith.

The 15-year-old cryptocurrency has filled many roles – from source of speculation to hedge against inflation – but has struggled to find a clear identity. Now there are growing signs it’s edging towards its intended purpose: payments.

“The development in terms of building out crypto payments has continued apace, even if it’s gone somewhat unnoticed because of the volatility in the broader market,” said Richard Mico, U.S. CEO of Banxa, a payment-and-compliance infrastructure provider.

The amount of bitcoin stored on the Lightning Network – a payment protocol layered on top of the blockchain – has jumped by two-thirds over the past year to hit an all-time high of 5,580 coin, according to crypto data firm The Block.

Crypto payment specialists have also seen strong volumes.

Graphic: Record capacity on the lightning network https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/gkplwldyrvb/chart.png

U.S.-based BitPay said transaction volumes jumped 18% last year versus 2021. CoinsPaid said volumes in the fourth quarter of 2022 rose 32% compared with a year before.

BITCOIN AND BRAZILIAN REAL

So why has crypto failed to fulfill pseudonymous inventor Nakamoto’s dream, spelt out in a famed 2008 white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”?

Price volatility, slow processing speeds and persistent regulatory uncertainty are among the factors that have rendered cryptocurrencies unwieldy as a means of payment. Few merchants price good or services in crypto.

Nonetheless, proponents say bitcoin offers lower transaction costs and quicker speeds than traditional cash, especially for cross-border transfers.

Aside from bitcoin, other cryptocurrencies including stablecoins, which are pegged to the value of traditional currencies, have emerged as popular options, particularly for cross-border payments, remittances, plus in emerging markets where the value of local currencies have been hit by inflation. 

Stellar, a blockchain that enables cross-border payments, saw the number of trades on its platform increase to 103.4 million last month from 50.6 million in January 2022. 

Volumes for trades across exchanges between bitcoin and Turkey’s lira and Brazil’s real increased by 232% and 72%, respectively, CryptoCompare data showed. 

CAN YOU HANDLE THE STRESS?

It’s not all smooth sailing for the widespread adoption of crypto for payments; for one thing, there’s the question of whether blockchains are ready to handle the stress of processing thousands of transactions at a time, especially without a simultaneous jump in transaction fees.

Efforts by some of the world’s largest economies, including Japan, China and India, to create their own digital currencies (CBDCs) could also choke crypto payments growth, say some market players. For others, though, growing interest in CBDCs is evidence that blockchain payments tech is here to stay.

Traditional finance firms looking to embrace crypto payments have also shrugged off recent market volatility. One, Visa inking a deal this month with crypto firm WireX to directly issue crypto-enabled debit and prepaid cards.

“Crypto is evolving into a viable alternative for more and more people around the world,” said Mico at Banxa.

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

By Aftab Ahmed and Sarita Chaganti Singh

BENGALURU (Reuters) – Group of 20 (G20) nations have some disagreements over restructuring debt for distressed economies, the chief of the International Monetary Fund (IMF) said on Saturday, adding that banning private cryptocurrencies should be an option.

India’s G20 presidency comes as its South Asian neighbours Sri Lanka, Bangladesh and Pakistan are seeking urgent IMF funds due to an economic slowdown caused by the COVID-19 pandemic and the Russia-Ukraine war.

China, the world’s largest bilateral creditor, urged the group of big economies on Friday to conduct a fair, objective and in-depth analysis of the causes of global debt issues as clamour grows for lenders to take a large haircut, or accept losses, on loans.

“On debt restructuring, while there are still some disagreements, we now have the global sovereign debt roundtable with consideration of all public and private creditors,” IMF Managing Director Kristalina Georgieva told reporters after chairing the roundtable with Indian Finance Minister Nirmala Sitharaman.

“We just finished a session in which it was clear that there is a commitment to bridge differences for the benefit of countries.”

U.S. Treasury Secretary Janet Yellen said there were no “deliverables” from the meeting, which was mostly organisational.

Further discussions of the panel, which includes major bilateral creditors including China, India and the G7 countries, several debtor countries, are planned around the time of the IMF and World Bank spring meetings in April.

“We certainly had that agreement that this is a useful forum,” Yellen told Reuters in an interview. “We look forward to participating in it.”

CRYPTO RESTRICTIONS

Apart from restructuring debt, regulating cryptocurrencies is another priority area for India, which Georgieva agreed with.

“We have to differentiate between central bank digital currencies that are backed by the state and stable coins, and crypto assets that are privately issued,” Georgieva said.

“There has to be very strong push for regulation… if regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk.”

Yellen said she had not suggested the “outright banning of crypto activities, but it was critical to put in place a strong regulatory framework.”

(Reporting by Aftab Ahmed, Sarita Chaganti Singh and Shivangi Acharya; writing by Sudipto Ganguly; Editing by Krishna N. Das and William Mallard)

By Marc Jones

LONDON (Reuters) – The International Monetary Fund has laid out a nine-point action plan for how countries should treat crypto assets, with point number one a plea not to give cryptocurrencies such as bitcoin legal tender status.

The global lender of last resort said its Executive Board had discussed a paper, “Elements of Effective Policies for Crypto Assets,” that provided “guidance to IMF member countries on key elements of an appropriate policy response to crypto assets.”

Such efforts have become a priority for authorities, the fund said, after the collapse of a number of crypto exchanges and assets over the last couple of years, adding that doing nothing was now “untenable”.

The top recommendation was to “safeguard monetary sovereignty and stability by strengthening monetary policy frameworks and do not grant crypto assets official currency or legal tender status.”

The IMF had hit out at El Salvador in late 2021 when the central American country became the first to adopt bitcoin as legal tender, a move that has since been copied by Central African Republic.

Other advice on Thursday’s list, which comes as G20 decision makers meet in India, included guarding against excessive capital flows, adopting unambiguous tax rules and laws around crypto assets, and developing and enforcing oversight requirements for all crypto market actors.

Countries should also establish international arrangements to enhance supervision and enforce regulations, the IMF added, as well as set up ways to monitor crypto’s impact on the stability of the global monetary system.

Outlining its Executive Board’s assessment, the IMF said directors welcomed the proposals and agreed the widespread adoption of crypto assets “could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks.”

They “generally agreed,” too, that crypto assets should not be granted official currency or legal tender status, and though strict bans of assets are “not the first-best option,” a few directors thought they should not be ruled out.

(Reporting by Marc Jones; Editing by Leslie Adler)

By Luc Cohen and Jonathan Stempel

NEW YORK (Reuters) – Sam Bankman-Fried was hit with new criminal charges on Thursday, in an expanded indictment accusing the founder of the now-bankrupt FTX cryptocurrency exchange of conspiring to make more than 300 illegal political donations.

Bankman-Fried now faces 12 criminal charges, including four for fraud and eight for conspiracy, up from eight charges in an earlier indictment, to which he has pleaded not guilty.

Prosecutors have accused Bankman-Fried of stealing billions of dollars in FTX customer funds to plug losses at Alameda Research, his crypto-focused hedge fund.

The new charges add to pressure on the 30-year-old former billionaire, who has seen two of his former top lieutenants plead guilty.

Bankman-Fried is also trying to stay out of jail, after his online activity since his arrest prompted U.S. District Judge Lewis Kaplan, who oversees the case, to signal a willingness to revoke his $250 million bail package.

    A spokesman for Bankman-Fried declined to comment.

Bankman-Fried’s trial is slated for October. Kaplan on Thursday extended a temporary ban on Bankman-Fried’s contacting FTX and Alameda employees to March 3 from Feb. 24.

The new indictment said Bankman-Fried conspired with two former FTX executives to donate tens of millions of dollars in order to influence lawmakers to pass legislation favorable to the company.

Those donations were unlawful because they were made with “straw” donors or corporate funds, enabling Bankman-Fried – one of the largest donors to Democrats in the 2022 midterm elections – to evade contribution limits, prosecutors said.

LGBTQ DONATION

Prosecutors said Bankman-Fried directed one executive to donate primarily to left-leaning candidates and organizations and the other to Republicans, with many donations funded by Alameda and including FTX customer funds.

The indictment said a political consultant working for Bankman-Fried told one of the executives, identified as CC-1, that “you being the center left face of our spending will mean you giving to a lot of woke shit for transactional purposes.”

That executive gave more than $1 million to a pro-LGBTQ group at Bankman-Fried’s direction, the indictment said.

Federal Election Commission records show that Nishad Singh, FTX’s former engineering chief, contributed $1.1 million on July 7, 2022 to the LGBTQ Victory Fund, a national organization dedicated to electing openly LGBTQ people.

In a statement, the group said it has “set aside funds and will take appropriate action once we receive guidance from authorities.”

A lawyer for Singh did not immediately respond to a request for comment.

After founding FTX in 2019, Bankman-Fried rode a boom in the value of Bitcoin and other digital assets to attain an estimated $26 billion fortune.

His exchange collapsed in November amid a flurry of customer withdrawals over concerns the exchange was commingling assets with Alameda.

‘DREAD OF THIS DAY’

When it became clear FTX could not meet withdrawal demands, Bankman-Fried directed Alameda to sell assets to pay the exchange’s customers, prosecutors said.

The indictment said that on Nov. 6, five days before FTX’s bankruptcy filing, Bankman-Fried forwarded CC-1 a message from Caroline Ellison, then Alameda’s chief executive.

“I just had an increasing dread of this day that was weighing on me for a long time,” Ellison wrote, “and now that it’s actually happening it just feels great to get it over with one way or another.”

Ellison and former FTX technology chief Gary Wang pleaded guilty to fraud charges in December and agreed to cooperate with prosecutors.

The new charges against Bankman-Fried include conspiracies to commit bank fraud and operate an unlicensed money transmitting business.

Prosecutors said Bankman-Fried told a unnamed California bank he wanted to open an account for a trading company, but intended the account to process deposits and withdrawals for FTX customers.

The bank had previously told Bankman-Fried it was unwilling to process such transactions, the indictment read.

(Reporting by Luc Cohen and Jonathan Stempel in New York; Editing by Mark Porter and Anna Driver)

(Reuters) – The U.S. Federal Reserve on Thursday denied crypto-focused Custodia Bank’s request that the central bank reconsider its application to become a member of the Federal Reserve System.

The Fed previously said Custodia, which is based in Wyoming and is chartered through the state as a special purpose depository institution, lacked a sufficient risk management framework to address the heightened risks associated with crypto.

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

WASHINGTON (Reuters) – Top U.S. banking regulators issued a fresh warning to banks to be on guard for any liquidity risks from cryptocurrency-related clients, cautioning some of their deposits could prove volatile.

In a joint statement issued Thursday, the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency said banks should have robust tools in place to monitor funds placed by crypto-asset related entities. The agencies noted deposits placed with banks for the benefit of crypto consumers, as well as stablecoin reserves, could be subject to rapid outflows.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama)