Category: News

AMSTERDAM (Reuters) – The Dutch central bank (DNB) has fined U.S. cryptocurrency exchange Coinbase 3.3 million euros ($3.6 million) for failing to obtain the correct registration in the Netherlands before offering services.

The fine mirrors one handed to Coinbase rival Binance in July.

Coinbase said it disagreed with the DNB’s decision, which it said “includes no criticism of our actual services” and was considering an appeal.

Cryptocurrency companies operating in the Netherlands have been obliged to register as money transmitters under the country’s anti-money laundering rules since May 2020.

The DNB said Coinbase was out of compliance between November 2020 and “at least” August 2022, before it successfully registered on Sept. 22, 2022.

During that period “a large number of unusual transactions may have gone unnoticed by the investigative authorities”, it said.

The DNB said it had taken into consideration that Coinbase was one of the largest cryptocurrency companies and had a “significant number of customers in the Netherlands”.

Coinbase has until March 2 to appeal.

($1 = 0.9156 euros)

(Reporting by Toby Sterling; Editing by David Goodman and Alex Richardson)

DUBLIN (Reuters) – Ireland’s central bank governor urged lawmakers on Wednesday to ban the advertising of crypto assets targetted at young adults, likening crypto not linked to any underlying assets to a Ponzi scheme.

A long-time critic of crypto assets, Gabriel Makhlouf said that while they presented minimal financial stability risk for now, the Irish regulator was very concerned about the impact on retail customers.

“There’s a reasonable number of young adults who have put their money into crypto and there is an uncomfortable level of advertising that is targeted at that cohort. If you could find a way, I would recommend that adverts to that cohort are banned,” Makhlouf told an Irish parliamentary committee.

“Unbacked crypto is essentially a Ponzi scheme… People who put their money into unbacked crypo, and most of the significant stock of crypto out there is unbacked, they are essentially gambling.”

“When you gamble you can win, but most of the time when you gamble, you’re actually losing.”

Makhlouf, a member of the European Central Bank’s governing council, said recently agreed EU regulations will provide much-needed “guardrails” for stablecoins – a type of crypto designed to hold a steady value – but that more regulation would likely be needed in the future.

(Reporting by Padraic Halpin; editing by Jonathan Oatis)

(Reuters) – Digital Currency Group-owned Luno said on Wednesday it would cut 35% of its total workforce, the latest in a slew of companies in the digital assets sector to reduce headcount to weather a slump in the cryptocurrency market.

“2022 has been an incredibly tough year for the broader tech industry and in particular the crypto market,” Luno said in a statement, adding that its growth and revenue has been affected by the downturn.

More than a trillion dollars in value was wiped out from the crypto sector last year, with rising interest rates exacerbating worries of an economic downturn. The crash led to high-profile bankruptcies of key industry players such as crypto hedge fund Three Arrows Capital and Celsius Network.

Still, the biggest blow came after major exchange FTX filed for bankruptcy protection in November. Its swift fall has sparked tough global regulatory scrutiny of how crypto firms hold funds and conduct business operations.

CNBC, which first reported the job cuts at Luno, said the reduction would impact more than 330 employees out of about 960.

Last week, the lending unit of crypto firm Genesis filed for U.S. bankruptcy protection, owing creditors at least $3.4 billion after being toppled by the crypto market rout.

(Reporting by Manya Saini in Bengaluru; Editing by Shinjini Ganguli and Anil D’Silva)

By Hannah Lang

(Reuters) – Crypto asset manager Grayscale Investments is gearing up for a prolonged legal fight with the U.S. Securities and Exchange Commission to create a spot bitcoin exchange-traded fund, the company’s chief executive officer said.

As the company awaits a court ruling on a June lawsuit against the SEC, CEO Michael Sonnenshein said he was prepared to appeal if the court backed the SEC’s decision to reject the bitcoin ETF proposal.

“The only option the SEC left us with was to turn around and say, you know what, this just isn’t right,” Sonnenshein said. Suing the regulator was one of the most important decisions he had made as CEO, and was “one that I did not, and we as a team, did not take lightly,” he said.

The SEC rejected Grayscale’s application to covert its flagship Grayscale Bitcoin Trust (GBTC) into an ETF in June, arguing that the proposal did not meet standards designed to prevent fraudulent practices and protect investors.

Grayscale sued the SEC almost immediately after its proposal was denied, claiming that the regulator was acting arbitrarily in rejecting applications for spot bitcoin ETFs when it had previously approved bitcoin futures ETFs.

The case is being heard in front of the District of Columbia Court of Appeals. If either party were to appeal the ruling, the case would either go to the U.S. Supreme Court or an en banc panel review. Oral arguments in the case are scheduled to occur March 7 and Grayscale expects a final ruling on the case in the fall, said Sonnenshein.

The SEC did not immediately respond to a request for comment.

Grayscale Bitcoin Trust has $14.5 billion assets under management, according to Grayscale’s website. The GBTC discount to bitcoin is hovering around 41%, coming under pressure after crypto exchange FTX collapsed and crypto lender Genesis suspended withdrawals.

There are further concerns about contagion. Genesis and Grayscale are both owned by venture capital Digital Currency Group (DCG), and questions as to whether DCG would have to sell its GBTC holdings have also weighed on the discount.

Genesis’ crypto lending unit filed for bankruptcy on Jan. 19.

Grayscale had no operational reliance on DCG or Genesis, and was unaffected by the bankruptcy, Sonnenshein said. Still, Genesis owned about 5% of total GBTC shares outstanding, according to a person familiar with the matter. Genesis did not immediately respond to a request for comment.

“Grayscale is a standalone entity with its own leadership, governance, budgets, policies and procedures, and the assets underpinning the Grayscale family of products belong to its respective shareholders,” Sonnenshein said.

If its legal challenge to the SEC was unsuccessful, Grayscale would explore options to return a portion of GBTC’s capital to shareholders, Sonnenshein told investors in a letter in December.

(Reporting by Hannah Lang in Washington; Editing by Lananh Nguyen and Stephen Coates)

(This Jan. 23 story has been officially corrected to say one hacker group, not two, in the headline and paragraph 1)

(Reuters) – A hacker group associated with North Korea, the Lazarus Group, also known as APT38, was responsible for the theft last June of $100 million from U.S. crypto firm Harmony’s Horizon bridge, the Federal Bureau of Investigation said on Monday.

On Jan. 13, North Korean cyber actors used a privacy protocol called Railgun to launder over $60 million worth of ethereum stolen during the theft in June, the FBI said in a statement.

A portion of the stolen ethereum was subsequently sent to several virtual asset providers and converted to bitcoin, the FBI said.

The FBI said North Korea’s theft and laundering of virtual currency is used to support its ballistic missile and Weapons of Mass Destruction programs.

In June last year, California-based Harmony said that a heist had hit its Horizon bridge, which was the underlying software used by digital tokens such as bitcoin and ether for transferring crypto between different blockchains.

Reuters in June reported that North Korean hackers were most likely behind the attack on Harmony, citing three digital investigative firms.

Harmony develops blockchains for decentralized finance – peer-to-peer sites that offer loans and other services without traditional gatekeepers such as banks – and non-fungible tokens.

(Reporting by Sneha Bhowmik in Bengaluru; Editing by Leslie Adler)

CARACAS (Reuters) – Venezuela’s National Assembly on Tuesday passed a first reading of a bill to regulate and inspect non-governmental organizations (NGOs) in the South American country, which has caused uproar among activists.

If the bill is passed into law following a second reading – promised to come quickly by National Assembly President Jorge Rodriguez – advocacy groups fear it will silence Venezuela’s NGOs and stop them from carrying out their work with new threats and intimidation.

The legislative project is gathering pace while Venezuela waits for the UN High Commissioner for Human Rights, Volker Turk, to visit the country at the end of this week following his tour of the region.

“Criminalization advances. NGOs in Venezuela could be fined up to 200 Petros ($12,000) if they don’t comply with the new law,” local NGO the Venezuelan Action Education Program (Provea) said in a message on Twitter.

The Petro is a cryptocurrency which was launched by Venezuela’s government in February 2018.

The 15-page bill entitled “law for the control, regularization, activities and financing of non-governmental and related organizations” was presented by deputy Diosdado Cabello, who is second in command of Venezuela’s ruling party.

“If you are genuine and dedicated to social and humanitarian work, do you have anything to fear? You can register (and) the financing can be reviewed,” Cabello said at in a broadcast via state television.

“Those screaming are those who are up to no good,” he said, adding that some NGOs worked towards political goals and were backed by foreign governments.

More than 500 NGOs and foundations work in Venezuela, focused on topics including prisoner wellbeing, monitoring violence, investigating extrajudicial killings and reviewing economic indicators, among others.

If the bill is approved NGOs will have to declare their assets, balance sheets, financial statements and their “relationship with donations received, with full identification of the donors, indicating whether they are nationals or foreigners,” according to the bill’s text, published by the National Assembly.

These NGOs will be banned from “carrying out political activities, promoting or allowing actions that threaten national stability and the institutions of the republic,” among others, according to the text.

(Reporting by Vivian Sequera; Writing by Oliver Griffin; Editing by Stephen Coates)

By Lisa Pauline Mattackal and Medha Singh

(Reuters) – Paranoid? The domino downfall of FTX and other crypto custodians is enough to make the most trusting investor grab their bitcoin and shove it under the mattress.

Indeed, holders big and small are taking “self-custody” of their funds, moving them from crypto exchanges and trading platforms to personal digital wallets.

In a sign of this shift among retail investors, the number of bitcoin held in smaller wallets – those with under 10 bitcoin – rose to 3.35 million as of Jan. 11, up 23% from the 2.72 million held a year ago, according to data from CoinMetrics.

As a percentage of total bitcoin supply, wallet addresses holding under 10 bitcoin now own 17.4%, up from 14.4% a year ago.

“A lot of this really depends on how frequently you’re trading,” said Joshua Peck, founder of hedge fund TrueCode Capital. “If you’re just going buy and hold for the next 10 years, then it’s probably worth making the investment and learning how to custody your assets really, really well.”

The stampede has been turbocharged by the FTX scandal and other crypto collapses, with large investors leading the way.

The 7-day average of daily movement of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November, at the time of FTX collapse, according to data from Chainalysis.

Big investors with transfers of above $100,000 were responsible for about 68% of those flows, the data showed.

Crypto’s cautious move https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/akveqalqjvr/chart.png

WHERE ARE MY KEYS?

Not your keys, not your coins.

This mantra among early crypto enthusiasts, cautioning that access to your funds is paramount, regularly trended online last year as finance platforms dropped like flies.

Self-custody’s no walk in the park, though.

Wallets can range from “hot” ones connected to the internet or “cold” ones in offline hardware devices, although the latter typically don’t appeal to first-time investors, who often buy crypto on big exchanges.

The multi-level security can often be cumbersome and expensive process for a small-time investor, and there’s always the challenge of guarding keeping your encryption key – a string of data similar to a password – without losing or forgetting it.

Meanwhile, hardware wallets can fail, or be stolen.

“It’s very challenging, because you have to keep track of your keys, you have to back those keys up,” said Peck at TrueCode Capital, adding: “I’ll tell you it’s a very challenging prospect of doing self custody for a multi-million-dollar portfolio of crypto.”

Institutional investors are also turning to regulated custodians – specialized companies that can hold funds in cold storage – as many traditional finance firms would not legally be able to “self-custody” investors’ assets.

One such firm, BitGo, which provides custodian services custody for institutional investors and traders, said it saw a 25% increase in onboarding inquiries in December versus the month before from those looking to move their funds from exchanges, plus a 20% jump in assets under custody.

David Wells, CEO of Enclave Markets, said trading platforms were extremely cautious of the risks of storing the investors’ assets with a third party.

“A comment that stuck with me was ‘investors will forgive us for losing some of their money through our trading strategies, because that’s what they sign up for, what they’re not going to forgive us is for being poor custodians’.”

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

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar rose against the euro on Tuesday after data showed U.S. business activity contracting for the seventh straight month in January but with signs the downturn was moderating.

While U.S. business activity shrank in January, the downturn moderated across both the manufacturing and services sectors for the first time since September and business confidence strengthened as the new year began.

“It just looks like another piece of data showing what the Fed has been preaching: the economy is resilient enough to take on more hikes,” said Juan Perez, director of trading at Monex USA in Washington.

Fed fund futures see only two more quarter-point rate hikes by the Fed to a peak of around 5% by June, before it starts cutting rates later in the year. The Federal Reserve itself has insisted it still has 75 bps of increases in the pipeline.

“It is clear looking at PMIs that the Fed has prevented expansion, but the economy has not taken a hit like many thought,” Perez said.

The dollar extended its gains against the euro but remained near 9-month lows hit in the previous session. The euro was 0.17% lower at $1.0852, just shy of the 9-month high of $1.0927 touched on Monday.

The euro itself was supported through the day after euro area data on Tuesday reinforced the view that the economy was weathering a winter of intense price pressures reasonably well, analysts said.

Surveys showed euro zone business activity made a surprise return to modest growth in January, and service-sector activity in Germany expanded for the first time since June, although price pressures remained sticky.

A stronger economy could potentially allow the ECB to raise interest rates more aggressively as it tackles inflation.

“There is probably enough in there to cement another 50 basis points in increases from the ECB,” TraderX market strategist Michael Brown said.

The U.S. business activity data helped lift the dollar to a near 1-week high against the yen. The U.S. currency was last up 0.03% to 130.7 yen.

Last week, the dollar fell to as low as 127.215 yen, its weakest since May, ahead of a Bank of Japan policy review at which investors bet the central bank might signal the end of its stimulus program. The BOJ, however, left policy unchanged, giving the dollar some respite.

Sterling was one of the worst-performing major currencies against the dollar, falling 0.71% on the day to $1.2288, after a survey showed British private-sector economic activity fell at its fastest rate in two years in January.

“Looking forward, we expect sterling to start underperforming neighboring European currencies as economic data highlights widening growth differentials,” Simon Harvey, who is head of FX Analysis at Monex Europe, said.

Meanwhile, bitcoin was little changed on the day at $22,878, steadying after having jumped by about a third in value since early January, as investors shook off pessimism following the high-profile collapse of the FTX crypto exchange FTX.

(Additional reporting by Anada Cooper in London; Editing by Jacqueline Wong, Simon Cameron-Moore, Christina Fincher and Andrea Ricci)

By Tom Wilson and Angus Berwick

LONDON (Reuters) – Crypto giant Binance processed almost $346 million in bitcoin for the Bitzlato digital currency exchange, whose founder was arrested by U.S. authorities last week for allegedly running a “money laundering engine,” blockchain data seen by Reuters show.

The Justice Department on Jan. 18 said it charged Bitzlato’s co-founder and majority shareholder Anatoly Legkodymov, a Russian national living in China, with operating an unlicensed money exchange business that “fueled a high-tech axis of cryptocrime” by processing $700 million in illicit funds.

Bitzlato had touted the laxity of its background checks on clients, the Justice Department said, adding that when the exchange did ask users for ID information, “it repeatedly allowed them to provide information belonging to “straw man” registrants.”

    Binance, the world’s largest crypto exchange, was among Bitzlato’s top three counterparties by the amount of bitcoin received between May 2018 and September 2022, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) said last week.

Binance was the only major crypto exchange among Bitzlato’s top counterparties, FinCEN said. It said the others to transact with Bitzlato were the Russian-language darknet drugs marketplace Hydra, a small exchange called LocalBitcoins and a crypto investment website called Finiko, which it described as “an alleged crypto Ponzi scheme based in Russia.” FinCEN did not detail the scale of the entities’ interactions with Bitzlato.

Hong Kong-registered Bitzlato was a “primary money laundering concern” related to Russian illicit finance, FinCEN added. It will ban the transmission of funds to Bitzlato by U.S. and other financial institutions from Feb. 1. FinCEN said. It did not name Binance or other individual firms among those subject to the ban.

A Binance spokesperson said via email it had “provided substantial assistance” to international law enforcement to support their investigation of Bitzlato. The company is committed to “working collaboratively” with law enforcement, they added, declining to give details about its dealings with Bitzlato or the nature of its cooperation with such agencies.

Bitzlato, whose website says it has been seized by French authorities, could not be reached by Reuters. Legkodymov, has not made any public comment since his arrest in Miami last week and did not respond to emailed requests for comment.

Hydra’s operator, who was indicted in the United States, and a lawyer representing Finiko’s founder did not respond to requests to comment.

Finland-based LocalBitcoins said it has never had “any kind of cooperation or relationship” with Bitzlato. Some peer-to-peer (P2P) traders at LocalBitcoins “would also have been trading in BitZlato’s P2P market”, it said, adding that “there have practically been no transactions between LocalBitcoins and BitZlato since October 2022.”

    Reuters has no evidence that the Binance, LocalBitcoins or Finiko transactions with Bitzlato, which the Justice Department described as a “haven for criminal proceeds and funds intended for use in criminal activity,” broke any rules or laws.

However, one former U.S. banking regulator and one former law enforcement official said Binance’s status as one of the top counterparties would focus Justice Department and U.S. Treasury attention on Binance’s compliance checks with Bitzlato.

“I wouldn’t call it a warning shot over the bow, I would call it a guided missile,” said Ross Delston, an independent American lawyer and former banking regulator who is also an expert witness on anti-money laundering issues, referring to FinCEN’s citing of Binance and LocalBitcoins.

The Justice Department and FinCEN declined to comment. 

    Binance moved over 20,000 bitcoin, worth $345.8 million at they time they were transacted, across some 205,000 transactions for Bitzlato between May 2018 and its closure last week, according to a review of previously unreported data. The figures were compiled by leading U.S. blockchain researcher Chainalysis and seen by Reuters.

Bitcoin worth about $175 million was transferred to Binance from Bitzlato in that period, making Binance its largest receiving counterparty, the data show.

About $90 million of the total transfers took place after August 2021, when Binance said it would require users to submit identification to combat financial crime, according to the data from Chainalysis, which declined to comment. Such checks, Binance said in a blog last year, tackle “the funding and laundering of money from illicit activities.” Reuters could not determine whether Binance enforced its ID requirements with Bitzlato.

DARKNET MARKET

Chainalysis, which is used by U.S. authorities to track illicit crypto flows, had warned in February of last year that Bitzlato was high risk. In a report, Chainalysis said nearly half of Bitzlato’s transfers between 2019 and 2021 were “illicit and risky,” identifying almost $1 billion in such transactions.

    The U.S. action against Bitzlato comes as the Justice Department investigates Binance for possible money laundering and sanctions violations. Some federal prosecutors have concluded that the evidence collected justifies filing charges against executives including founder and CEO Changpeng Zhao, Reuters reported in December.

Reuters could not establish whether Binance’s dealings with Bitzlato are under review.

Binance, which does not reveal the location of its core exchange, has processed at least $10 billion in payments for criminals and companies seeking to evade U.S. sanctions, Reuters found in a series of articles last year based on blockchain data, court and company records. 

The reporting also showed that Binance intentionally kept weak anti-money laundering controls and plotted to evade regulators in the United States and elsewhere, according to former executives and company documents.

Binance disputed the articles, calling the illicit-fund calculations inaccurate and the descriptions of its compliance controls “outdated.” The exchange said last year it is “driving higher industry standards” and that it is seeking to improve its ability to detect illegal crypto activity.

Both Binance and Bitzlato were significant counterparties of the world’s largest darknet drugs marketplace Hydra. The Russian-language site was shut down by U.S. and German authorities last year. The Justice Department said Bitzlato exchanged more than $700 million in crypto with Hydra, either directly or through intermediaries.

In an article published last June, Reuters reviewed blockchain data that showed that buyers and sellers on Hydra used Binance to make and receive crypto payments worth around $780 million between 2017 and 2022. A Binance spokesperson said at the time that the Hydra figure was “inaccurate and overblown.”

(Reporting by Tom Wilson and Angus Berwick in London; Editing by Elisa Martinuzzi and Louise Heavens)

By Dietrich Knauth

NEW YORK (Reuters) – A lawyer for the bankrupt Genesis Global Capital said on Monday that the cryptocurrency lender had some confidence it could resolve its disputes with creditors this week, with a goal of emerging from Chapter 11 by late May.

Sean O’Neal, the lawyer, spoke at a hearing in Manhattan bankruptcy court to consider “first-day” motions for Genesis Global Capital, the crypto lending business owned by Barry Silbert’s venture capital firm Digital Currency Group.

Genesis and two lending units filed for bankruptcy protection from creditors on Jan. 19, two months after it froze customer withdrawals in the wake of the collapse of Sam Bankman-Fried’s FTX exchange.

The filing followed the bankruptcies since last July of crypto lenders BlockFi, Celsius Network and Voyager Digital.

O’Neal said Genesis had “some measure of confidence” it would resolve its disputes with creditors by the end of this week, following about two months of negotiations, but would ask for a mediator if it became necessary.

“Sitting here right now, I don’t think we’re going to need a mediator,” he said. “I’m very much an optimist.”

Brian Rosen, a lawyer for creditors holding $1.5 billion of claims, said “we are getting closer” to an accord. “Only time will tell,” he said.

Genesis has said it plans to sell various assets at auction, and exit bankruptcy by May 19.

The company listed just over $5 billion of assets and liabilities in its bankruptcy filing, and said it owed more than 100,000 creditors at least $3.4 billion. It estimated it has nearly $1.7 billion of claims against DCG, the parent.

DCG, and Genesis’ derivatives and spot trading, custody and brokerage businesses, are not part of the bankruptcy.

Genesis’ problems have put Silbert into conflict with identical twins Cameron and Tyler Winklevoss, the former U.S. Olympic rowers who run the crypto exchange Gemini, which is owed $765.9 million by Genesis and is its largest creditor.

On Jan. 12, the U.S. Securities and Exchange Commission charged Genesis and Gemini with illegally selling unregistered securities through their Gemini Earn lending product.

The Winklevosses have said Genesis should repay the $900 million of assets owed to about 340,000 Earn investors.

Cameron Winklevoss has also called for Silbert’s removal as DCG chief, and threatened litigation against DCG if Genesis’ bankruptcy did not result in ” a fair offer to creditors.”

Chris Marcus, a lawyer for Gemini and some other creditors, said in court that “there is some work to do” to get everyone on the same page, but that he was “cautiously optimistic” the disputes could be resolved without a mediator.

DCG’s portfolio also includes the crypto asset manager Grayscale and news service CoinDesk.

Genesis’ borrowers also include hedge fund Three Arrows Capital and Alameda Research, a trading firm affiliated with FTX, a person familiar with the matter said last week.

Three Arrows and Alameda are also in bankruptcy proceedings.

(Reporting by Dietrich Knauth in New York, editing by Deepa Babington)

By Nate Raymond

(Reuters) – The U.S. Supreme Court on Monday threw out a case about the scope of attorney-client privilege involving a law firm’s bid to withhold records from prosecutors related to a cryptocurrency-promoting client in a tax investigation.

The unsigned one-sentence ruling “dismissed as improvidently granted” an appeal by an unnamed law firm of court orders holding it in contempt for not turning over records related to one of its clients in response to a federal grand jury subpoena.

The justices did so only two weeks after hearing arguments in the case. Many of the details of the case are unclear, as the names of the law firm and client have been kept from the public record during the normally secretive grand jury probe.

According to court papers, the law firm specializes in international tax issues and advised a client the U.S. Department of Justice says was an early promoter of bitcoin who expatriated himself from the United States in 2014.

The law firm says it prepared the client’s tax returns and also provided legal advice on how to determine ownership of cryptocurrency assets and value them.

In response to a grand jury subpoena seeking records related to the preparation of the client’s tax returns, the firm produced over 20,000 pages of records but withheld others, citing attorney-client privilege.

When a court ordered it to turn over about 54 others, it resisted. Those records, the firm said, were “dual-purpose” communications that contained legal advice as well as non-legal, advice concerning the preparation of its tax returns.

But the San Francisco-based 9th U.S. Circuit Court of Appeals upheld the lower-court judge in saying legal advice had to be the “primary” purpose of the communication to qualify for attorney-client privilege.

That ruling was at odds with what some other federal appeals courts have ruled in similar cases, and several lawyers’ groups like the American Bar Association filed briefs urging the justices to adopt a more expansive standard for privilege.

During arguments on Jan. 9, some justices questioned why the 9th Circuit’s standard was wrong, with liberal Justice Sonia Sotomayor noting that “the vast majority of states use the primary purpose test.”

Liberal Justice Elena Kagan noted that no federal appeals court until 2014 had suggested a different standard should apply. She jokingly asked a lawyer for the law firm to comment on “the ancient legal principle of ‘if it ain’t broke, don’t fix it.’

(Reporting by Nate Raymond in Boston; editing by Jonathan Oatis)

By Hannah Lang

(Reuters) – New York’s chief financial regulator is set to release new guidance on Monday dictating that companies separate customers’ crypto assets from their own, after alleged co-mingling of funds at collapsed crypto exchange FTX and its affiliated trading firm Alameda Research led to hefty losses for clients.

The New York State Department of Financial Services (NYDFS), which leads one of the few state agencies with a regulatory system in place for cryptocurrency companies, will also stipulate that state-regulated companies disclose to customers how they account for clients’ digital currency.

The guidance is the latest in a series of crypto-related directives NYDFS has issued in the past year, which saw a market collapse that wiped about $1.3 trillion off the value of crypto tokens in 2022. The meltdown triggered the bankruptcies of crypto firms such as FTX, Celsius Network and most recently, Genesis Global Capital, whose lending unit filed for U.S. bankruptcy protection on Thursday.

It comes as federal regulators such as the U.S. Commodity Futures Trading Commission (CFTC) are warning about the lack of consumer protections in the crypto sector. Federal agencies like the CFTC say much of what they can do is limited without congressional legislation that would give them additional authority.

“It’s timely, but truth be told, it was something we had on our policy roadmap even before FTX,” said Adrienne Harris, the superintendent of NYDFS, in an interview.

Federal prosecutors in Manhattan have accused FTX founder Sam Bankman-Fried of stealing billions of dollars in customer funds to plug losses at his hedge fund, Alameda Research. Concerns about the crossover between the two firms helped fuel a flurry of customer withdrawals in November, forcing the exchange to file for bankruptcy. Bankman-Fried has denied any criminal wrongdoing and has pleaded not guilty.

CRYPTO MELTDOWNS

Harris, who was confirmed as superintendent last year and is a former senior advisor at the U.S. Treasury Department, has spent much of her first year in the role bolstering her agency’s crypto focus. She says the virtual currency unit at NYDFS has almost 50 employees, and is working on hiring more.

New York requires firms to undergo examinations making sure they are in-line with state requirements and comply with know-your-customer, anti-money laundering and capital requirements. Most other states do not subject crypto firms to examinations.

“While I would never be foolhardy enough to say that no New Yorker will be harmed in all of this, I think it’s very fair to say that New Yorkers are better off than anybody else in the country because of the framework we have,” Harris said.

Nevertheless, the crypto meltdowns of the past year have still touched the state’s residents.

New York’s attorney general Letitia James earlier this month sued Celsius Network founder Alex Mashinsky, claiming he defrauded investors out of billions of dollars in digital currency by concealing the failing health of his now-bankrupt cryptocurrency lending platform.

James said Mashinsky’s alleged fraud ran from 2018 to June 2022, when deposits were frozen, with more than 26,000 New Yorkers among his victims. A lawyer for Mashinsky has denied the allegations. NYDFS declined to comment on the Celsius lawsuit.

ADDITIONAL GUIDANCE

Crypto exchange Gemini, which has a limited purpose trust charter in New York and is permitted to serve New York residents, had partnered with now-bankrupt Genesis Global Capital to offer a crypto yield product, and locked customers from accessing those accounts when Genesis suspended customer withdrawals in November. Gemini says it is owed $900 million from Genesis.

Harris says she recognizes there is more her office can do, and says her agency is working on additional guidance on stablecoins, advertising and disclosures in crypto and consumer protection.

Crypto firms’ compliance with anti-money laundering rules has also been “a big issue,” she said, one she expects her office will continue focusing on in 2023.

Earlier in the month, NYDFS announced a $100 million settlement with Coinbase Inc over the firm’s compliance with rules to prevent money laundering. That followed a $30 million fine the department imposed on the crypto arm of Robinhood Markets Inc for alleged violations of anti-money laundering, cybersecurity and consumer protection rules.

“We’ve really been working hard, not just through enforcement, but through examination, and just in our conversations with industry to say this is a non-negotiable,” said Harris.

(Reporting by Hannah Lang in Washington; Editing by Ira Iosebashvili, Diane Craft and Emelia Sithole-Matarise)

By Huw Jones

LONDON (Reuters) – Banks would have to set aside a punitive amount of capital to cover holdings of cryptoassets under a draft law due to be voted on by lawmakers on Tuesday.

The European Parliament’s economic affairs committee is due to vote on cross-party compromises, seen by Reuters, on a draft law which implements remaining elements of Basel III, a global accord which forces banks to hold more capital to cope with market shocks unaided by taxpayers.

One amendment states that banks would have to apply a risk-weighting of 1,250% of capital to cryptoassets exposures, meaning enough to cover a complete loss in their value.

This is in line with recommendations from the global Basel Committee of banking regulators in December.

The amendments also introduce a definition of “shadow banking”, the vast sector of insurers, hedge funds and investment funds that make up about half the world’s financial system and typically less regulated than banks.

The amendment requires the EU’s executive European Commission to publish a report by June 2023 analysing the possibility of introducing prudential limits on banks’ exposures to shadow banks.

Amendments also require renumeration policies at banks should be aligned with their transition plans to address environmental, social and governance (ESG) risks over the short, medium and long term.

The draft law introduces a new “fit and proper” regime for appointing bankers, with amendments saying there should be targets for a bank’s management body.

They should be “sufficiently diverse as regards age, gender, and geographical and educational background” according to a report from Jonas Fernandez, the committee member leading the negotiations on the draft law in parliament.

The amendments generally go further than changes made by EU states, who reached a deal among themselves in December and which generally focused on temporary carve-outs on some of the requirements to give banks more time to adapt, in the teeth of European Central Bank opposition.

After Tuesday’s vote the lawmakers and EU states will thrash out a final deal which would come into effect in 2025.

(Reporting by Huw Jones, Editing by Louise Heavens)

(Removes extraneous word in para 3)

(Reuters) – Bitcoin rose 2.3% to $23,199 at 10:07 GMT on Saturday, adding $521 to its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is up 40.6% from the year’s low of $16,496 on January 1.

Ether, the coin linked to the ethereum blockchain network, rose 0.58% to $1,668.1 on Saturday, adding $9.7 to its previous close.

(This story has been refiled to remove the extraneous word in paragraph three)

(Reporting by Jose Joseph in Bengaluru, Editing by William Maclean)

By Dietrich Knauth

(Reuters) – Federal prosecutors have seized nearly $700 million in assets from FTX founder Sam Bankman-Fried in January, largely in the form of Robinhood stock, according to a Friday court filing.

Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.

The Department of Justice revealed the seizure of Robinhood shares earlier this month, but it provided a more complete list of seized assets Friday, including cash held at various banks and assets deposited at crypto exchange Binance.

The ownership of the seized Robinhood shares, valued at about $525 million, has been the subject of disputes between Bankman-Fried, FTX, and bankrupt crypto lender BlockFi.

The most recent asset seizure reported by the DOJ took place on Thursday, when prosecutors seized $94.5 million in cash from an account at Silvergate Bank which was associated with FTX Digital Markets, FTX’s subsidiary in the Bahamas. The DOJ seized more than $7 million from other Silvergate accounts associated with Bankman-Fried and FTX.

The DOJ previously seized nearly $50 million from an FTX Digital Markets account at Moonstone Bank, a small bank in Washington state.

DOJ also said that assets in three Binance accounts associated with Bankman-Fried were subject to criminal forfeiture, but did not provide an estimate of the value in those accounts.

(Reporting by Dietrich Knauth; Editing by Noeleen Walder and Daniel Wallis)

(Reuters) – Bitcoin rose 6.24 % to $22,401 at 22:07 GMT on Friday, adding $1,315 to its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is up 35.8% from the year’s low of $16,496 on Jan. 1. Ether, the coin linked to the ethereum blockchain network, rose 5.66 % to $1,639.2 on Friday, adding $87.8 to its previous close.

(Reporting by Siddharth Jindal in Bengaluru; editing by Diane Craft)

LONDON (Reuters) – The lending unit of U.S. crypto firm Genesis filed for U.S. bankruptcy protection on Thursday, the latest company toppled by a market rout last year that wiped about $1.3 trillion off the value of crypto tokens.

While bitcoin has rallied this year, the impact of the market collapse has continued to hit companies in the highly interconnected sector.

Here are the major crypto firms to file for bankruptcy over the last year (listed in reverse chronological order).

GENESIS GLOBAL CAPITAL

One of the largest crypto lenders, Genesis froze customer redemptions in November after major exchange FTX stunned the financial world with its bankruptcy. The company is owned by U.S. venture capital firm Digital Currency Group.

In a filing with the U.S. Bankruptcy Court for the Southern District of New York on Thursday, the firm said it had both assets and liabilities in the range of $1 billion to $10 billion, and estimated it had more than 100,000 creditors.

Genesis Global Holdco, the parent group of Genesis Global Capital, also filed for bankruptcy protection, along with another lending unit, Genesis Asia Pacific.

CORE SCIENTIFIC

One of the biggest publicly traded crypto mining companies in the United States, Core Scientific Inc cited slumping bitcoin prices, rising energy costs and a $7 million unpaid debt from bankrupt crypto lender Celsius Network as it filed for Chapter 11 in December.

BLOCKFI

Crypto lender BlockFi filed for Chapter 11 in late November, some two weeks after FTX’s collapse.

BlockFi said its substantial exposure to FTX had created a liquidity crisis. The New Jersey-based lender had relied on a $400 million FTX credit facility to stay afloat after competing crypto lenders Voyager Digital Ltd and Celsius Network went bankrupt earlier in 2022.

FTX

The Bahamas-based exchange shocked the crypto world by going bankrupt in November after suffering withdrawals of about $6 billion in just 72 hours and rival crypto exchange Binance ditched a possible rescue.

FTX’s affiliated hedge fund Alameda Research also filed for bankruptcy. The collapse of the companies, founded by former billionaire Sam Bankman-Fried, became one of the most high-profile failures in the crypto sector. Investors in FTX had included BlackRock and Canada’s biggest pension plan.

Bankman-Fried pleaded not guilty this month to criminal charges that he cheated investors in FTX and caused billions of dollars in losses.

CELSIUS NETWORK

A crypto lender brought down by the collapse of terraUSD and luna, Celsius began its U.S. bankruptcy case on July 14.

Since then, Celsius has been embroiled in disputes over fraud investigations, disparate treatment of customer accounts, customer privacy, and its spending on a new bitcoin mining facility.

VOYAGER DIGITAL

New Jersey-based crypto lender Voyager Digital filed for bankruptcy in the United States on July 6 after Three Arrows Capital (3AC) defaulted on a crypto loan worth more than $650 million.

The U.S. affiliate of major crypto exchange Binance said in December it intends to buy Voyager’s crypto lending platform in a deal valued at about $1 billion.

The deal, however, could be delayed or blocked in a review by a U.S. body that vets foreign investments into U.S. companies for national security risks.

THREE ARROWS CAPITAL

The crypto hedge fund Three Arrows Capital filed for bankruptcy on July 1, brought down by the collapse of the so-called stablecoin terraUSD and its sister token luna in May.

Those meltdowns wiped out $42 billion in investor value, and led to an arrest warrant in South Korea for terraUSD’s developers.

(Reporting by Tom Wilson in London and Dietrich Knauth in New York. Editing by Sharon Singleton)

By Tom Wilson and Hannah Lang

(Reuters) – As an investment banker, Barry Silbert worked on some of the highest-profile corporate failures. Now, as founder of venture capital firm Digital Currency Group, parent of troubled crypto firm Genesis, he is grappling with problems closer to home.

Silbert, 46, cut his teeth on bankruptcies including Enron’s and WorldCom’s when working at California-based investment bank Houlihan Lokey. “The experience working on complex, problematic restructurings proved invaluable,” he told the U.S. Senate Banking Committee in 2011.

Genesis Global Capital, one of the world’s biggest crypto lending firms, filed for U.S. bankruptcy protection on Thursday owing creditors at least $3.4 billion, the latest in a string of major corporate failures in the digital asset industry sparked by the 2022 rout in crypto prices. It plans to exit the bankruptcy by May 19, filings showed on Friday.

Genesis, which brokers crypto for financial institutions like hedge funds and asset managers, had frozen client withdrawals in its lending unit in November, citing an “extreme market dislocation and loss of industry confidence” following the downfall of major cryptocurrency exchange FTX.

Its two biggest borrowers were Three Arrows Capital, the Singapore hedge fund that went bankrupt in July, and Alameda Research, the hedge fund of FTX founder Sam Bankman-Fried that is also in bankruptcy proceedings, Reuters reported this month.

The troubles at Genesis are a blow to Silbert and his ambition, described to Reuters in a 2017 interview, that DCG would one day become a publicly traded conglomerate akin to Warren Buffett’s Berkshire Hathaway.

DCG did not immediately respond to a request for comment.

EARLY ADOPTER

Silbert, who grew up in Maryland, was an early bitcoin adopter.

He told Reuters in the 2017 interview that he bought about $175,000 worth of the cryptocurrency in 2012, paying about $11 a coin at a time when bitcoin was little known beyond niche internet blogs.

Silbert went on to launch Digital Currency Group in New York in 2015, later moving the firm to Connecticut.

As crypto markets soared in value, DCG raised money from the venture capital arm of Bain Capital, MasterCard, New York Life Insurance Company, and Canadian bank CIBC.

Bain Capital declined to comment while the other firms did not respond to requests for comment.

DCG built up a formidable portfolio of companies – over 200 in more than 35 countries Silbert told shareholders this month – from Genesis and crypto news and events site CoinDesk to New York-based Grayscale, a major digital asset manager.

It has also invested in more than 50 crypto funds and other related projects, Silbert said.

Unlike other prominent crypto moguls, Silbert kept a relatively low profile, eschewing the regular tweets favored by his peers. He was also deeply embedded in the world of financial trading even before the advent of cryptocurrencies.

In 2004, he founded Restricted Stock Partners, a trading platform for restricted securities issued by companies as part of private deals. The company expanded and changed its name in 2008 to SecondMarket and by 2011 had facilitated billions in private market transactions, according to Forbes.

Nasdaq bought SecondMarket in 2015 for an undisclosed amount and Silbert relaunched SecondMarket’s crypto trading division as Genesis Trading the same year, incorporating it into his growing crypto empire.

Silbert’s current worth is unclear but Forbes pegged it last year at $3.2 billion.

Silbert has come under fire since Genesis suspended withdrawals, with the co-founder of crypto exchange Gemini accusing him of misleading investors and engaging in bad-faith stall tactics. Gemini offered a crypto yield product in partnership with Genesis, and says Genesis owes the firm $900 million.

Genesis declined to comment. A spokesperson earlier this month expressed disappointment that Gemini was “waging a public media campaign despite ongoing productive private dialogue between the parties.”

In an open letter posted to Twitter on Jan. 10, Gemini’s Cameron Winklevoss demanded the DCG board remove Silbert as CEO and install a new leader.

“He has proven himself unfit to run DCG and unwilling and unable to find a resolution with creditors that is both fair and reasonable,” the letter said.

In a letter to shareholders, also dated Jan. 10, Silbert called the past year the most difficult of his life.

“It has been challenging to have my integrity and good intentions questioned after spending a decade pouring everything into this company and the space with an unrelenting focus on doing things the right way,” he said.

(Reporting by Tom Wilson in London and Hannah Lang in Washington; editing by Megan Davies, Kirsten Donovan)

By Dietrich Knauth and Andrew Goudsward

(Reuters) – Collapsed crypto exchange FTX will try to convince a judge at a hearing on Friday to sign off on its hiring of lawyers and financial advisers, amid allegations that its chosen law firm’s prior work for FTX creates a conflict of interest.

The U.S. Department of Justice’s bankruptcy watchdog has asked U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware, not to approve FTX’s hiring of Sullivan & Cromwell, arguing that the elite New York law firm has not disclosed sufficient information about its past ties to FTX, including the fact that FTX’s U.S. general counsel, Ryne Miller, is a former partner at the firm.

Former top FTX attorney Daniel Friedberg also opposed Sullivan & Cromwell’s hiring, saying Thursday that the law firm had conflicts of interest stemming from its connections to Miller.

Miller tried to “channel a lot of business to S&C” and “looked forward to returning as a partner to S&C” after his stint at FTX, Friedberg wrote.

Miller could not immediately be reached for comment late Thursday.

FTX pushed back in court filings this week, saying it relies on Sullivan & Cromwell for high-stakes work like securing customer assets and sharing information with U.S. prosecutors and regulators.

FTX said forcing it to find new lawyers would disrupt efforts to clean up the mess left behind by founder Sam Bankman-Fried, who has been accused by U.S. prosecutors of orchestrating an “epic” fraud that may have cost investors, customers and lenders billions of dollars.

Bankman-Fried, who has pleaded not guilty, has repeatedly attacked Sullivan & Cromwell since FTX’s implosion, claiming he was strong-armed by lawyers at the firm into filing for bankruptcy and surrendering control of the company. The firm called those allegations false in court filings this week.

Sullivan & Cromwell has told the court it should not be disqualified simply because it performed some pre-bankruptcy work for FTX. A Sullivan & Cromwell spokesperson has said the firm had a “limited and largely transactional” relationship with FTX prior to the bankruptcy and never served as primary outside counsel to any FTX entity.

FTX filed for bankruptcy protection in November, saying it was unable to completely repay customers who had deposited funds on its exchange. FTX’s new CEO, John Ray, has said his top priority is recovering assets to repay FTX customers.

Serving as primary bankruptcy counsel to FTX would likely allow Sullivan & Cromwell to reap hundreds of millions of dollars in fees, legal experts have said. FTX has sought bankruptcy court permission to pay top Sullivan & Cromwell attorneys more than $2,000 per hour.

Some FTX creditors and a bipartisan group of U.S. senators have separately raised concerns to the Delaware bankruptcy judge about the law firm’s ability to conduct an impartial investigation. Dorsey responded to the senators’ letter at a Jan. 11 hearing, saying that outside pressure “will have no impact on my decisions whatsoever.”

Bankruptcy judges usually allow companies to choose their bankruptcy attorneys, but conflicts of interest can result in attorney disqualification in some rare cases.

(Reporting by Dietrich Knauth in New York and Andrew Goudsward in Washington D.C.; Editing by Alexia Garamfalvi, Matthew Lewis and Kim Coghill)

By Elizabeth Howcroft and Hannah Lang

(Reuters) – U.S. crypto company Digital Currency Group (DCG) is at the center of the industry’s latest meltdown after one of its companies, Genesis, froze customer withdrawals in November.

The lending unit of Genesis Global Capital filed on Thursday for U.S. bankruptcy protection from creditors.

Here is what we know about the many companies Digital Currency Group owns:

COINDESK

DCG acquired crypto news website CoinDesk in 2016 after previously investing in the outlet. TechCrunch at the time pegged the deal as being worth about $500,000 to $600,000.

CoinDesk in November published a leaked balance sheet of Alameda Research, the crypto trading firm founded by Sam Bankman-Fried. Many industry observers cited the report as the catalyst for the downfall of Alameda and Bankman-Fried’s crypto exchange FTX, which filed for bankruptcy less than two weeks later.

GENESIS

Genesis Trading was originally the bitcoin trading division at DCG Chief Executive Barry Silbert’s SecondMarket, but relaunched with its new name as a subsidiary of DCG when Silbert started the venture firm in 2015.

Genesis’s crypto lending arm, Genesis Global Capital, announced in November it would stop making new loans and blocked customers from withdrawing funds, citing the market dislocation caused by the collapse of FTX.

Genesis Global Capital had partnered with a number of other crypto companies, including crypto exchange Gemini, to offer a crypto lending product. Gemini now says its customers are owed $900 million from Genesis.

Genesis owes more than $3 billion to its creditors including Gemini, according to a person familiar with the matter.

DCG itself owes $1.675 billion to Genesis’ crypto lending arm, according to a November letter Silbert sent to shareholders. That includes a $1.1 billion promissory note that appears to be connected with liabilities DCG assumed from Genesis after it was hit hard by the collapse of Singapore-based crypto hedge fund Three Arrows Capital.

GRAYSCALE

Silbert started Grayscale Investments in 2013 after he stepped down as CEO of SecondMarket. After selling SecondMarket to Nasdaq Inc in 2015, he launched DCG, with Grayscale as one of the firm’s subsidiaries.

Grayscale’s flagship Grayscale Bitcoin Trust (GBTC) is the world’s largest bitcoin fund, one that the company hopes will someday be converted into an exchange-traded fund.

GBTC has not traded at a premium relative to the price of bitcoin, its underlying asset, since early 2021. DCG embarked on an effort to reduce the discount in 2021, announcing a plan to spend up to $1 billion to purchase GBTC shares.

Troubles at Genesis’ lending business had no impact on DCG and its subsidiaries, DCG said in November, while Grayscale said its underlying assets were unaffected.

OTHER VENTURE CAPITAL INVESTMENTS

DCG is a prolific venture capital investor, listing more than 160 companies in its portfolio on its website, of which it has acquired 28, it says. Crypto exchange Luno and crypto mining and staking firm Foundry are listed as subsidiaries.

DCG is also an investor in U.S. crypto exchanges Coinbase and Kraken, and its other holdings include the U.S. firm Circle, which runs the stablecoin USDC, and blockchain analytics companies Chainalysis, Dune Analytics, Elliptic and Etherscan.

(Reporting by Elizabeth Howcroft in London and Hannah Lang in Washington; Editing by Lananh Nguyen and Matthew Lewis)