Category: News

LONDON (Reuters) –

By Elizabeth Howcroft and Rishabh Jaiswal

Stablecoin USD Coin (USDC) lost its dollar peg and slumped to an all-time low on Saturday after Circle, the U.S. firm behind the coin, revealed that some of the reserves backing it were held at Silicon Valley Bank.

Circle has $3.3 billion of its $40 billion of USDC reserves at collapsed lender Silicon Valley Bank, the company said in a tweet on Friday.

The coin broke its 1:1 dollar peg and fell as low as $0.88 shortly after 0800 GMT on Saturday according to market tracker CoinGecko. It recovered slightly to trade around $0.90 by 1120 GMT.

Silicon Valley Bank collapsed on Friday in the largest U.S. bank failure since the 2008 financial crisis, roiling global markets and stranding billions of dollars belonging to companies and investors.

Circle said in a tweet on Friday that the company and USDC “continue to operate normally” while the firm waits for clarity on what will happen to Silicon Valley Bank depositors.

Meanwhile, U.S. crypto exchange Coinbase said in a tweet it was not allowing USDC to be exchanged for U.S. dollars over the weekend while banks are closed, citing “heightened activity”, while it plans to resume swaps on Monday.

Circle did not immediately respond to a request for comment about the dollar peg, sent outside of U.S. working hours.Joseph Edwards, investment advisor at Enigma Securities, said the situation was “extremely serious” for USDC.

“No matter how sound Circle’s operations are, this sort of depeg on a stablecoin tends to fundamentally undermine confidence in it,” Edwards said.

“The short-term implications here are dramatic and unknowable, especially once systems start to have to be adjusted to the reality that 1 USDC isn’t trading at 1 USD for the time being.”

CONSTANT EXCHANGE RATE

Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with “fiat” currencies – those backed by a central government rather than a physical commodity such as gold – for example through a 1:1 U.S. dollar peg.

Used in cryptocurrency trading, they have surged in value in recent years. USDC is the second-biggest stablecoin with a market cap of $37 billion. The largest, Tether, has a market cap of $72 billion, according to CoinGecko.

USDC’s price usually holds close to $1, making Saturday’s drop unprecedented. According to CoinGecko data, its previous all-time low was around $0.97 in 2018, though in 2022 it fell just below $0.99 when cryptocurrency markets were roiled by the collapse of crypto hedge fund Three Arrows Capital.

Traders have been on guard this week for signs of contagion in the financial sector and beyond from troubles for Silicon Valley Bank and crypto-focused Silvergate, which this week disclosed plans to wind down operations and voluntarily liquidate.

Boston-based Circle said last week it had moved a “small percentage” of USDC reserve deposits held at Silvergate to its other banking partners.

The chief executive of cryptocurrency exchange Binance said in a tweet on Friday it had no exposure to Silicon Valley Bank, as did Tether Chief Executive Paolo Ardoino.

Stablecoin issuer Paxos and crypto exchange Gemini also tweeted that they do not have relationships with the bank.

(Reporting by Elizabeth Howcroft in London and Rishabh Jaiswal in Bengaluru; Editing by William Mallard and David Holmes)

(Reuters) – U.S. lawmakers met with the Federal Reserve and Federal Deposit Insurance Corporation on Friday to discuss the collapse of SVB Financial Group, Coindesk reported on Saturday citing a source.

Democratic U.S. Representative Maxine Waters held briefings with officials from the two regulators and the Treasury Department, hours after the startup-focused SVB’s collapse, the report said.

The report comes after SVB, which did business as Silicon Valley Bank, collapsed on Friday in the largest bank failure since the 2008 financial crisis, roiling global markets and stranding billions of dollars belonging to companies and investors.

Separately, Representative Ro Khanna said in a tweet on Friday that he reached out to both the White House and the Treasury Department to discuss the situation with the bank.

U.S. Treasury Secretary Janet Yellen on Friday met with banking regulators on the collapse of SVB, as she and the White House expressed confidence in their abilities to respond to the bank failure.

(Reporting by Anirudh Saligrama in Bengaluru; Editing by Mark Potter)

By Hannah Lang

(Reuters) – Greg Becker, the chief executive officer who presided over the collapsed Silicon Valley Bank, joined the company three decades ago as a loan officer.

The executive cut his teeth during the dotcom bubble and later steered the startup-focused lender in the wake of the 2008 global financial crisis. He became president and CEO of SVB Financial Group in 2011.

The company’s operations abruptly came to a halt on Friday as California banking regulators moved quickly to shut it down in what became the largest bank failure since the financial crisis. Just 24 hours earlier, Becker had personally called clients to assure them their money with the bank was safe.

Becker, who served on the board of directors at the Federal Reserve Bank of San Francisco, departed the board effective Friday, a spokesperson for the regional Fed bank said.

In January, Becker said the economic outlook was improving after a downbeat 2022.

“We’re optimistic because our crystal ball is a little clearer,” Becker told CNBC. While he expected public markets to stabilize, “We still think in the first half there is going to be more volatility.”

Becker graduated from Indiana University with a bachelor’s degree in business, according to Silicon Valley Bank’s website. From there, he worked at a bank that served what he called “traditional companies.” When his manager left to work for Silicon Valley Bank, Becker followed, he said in 2021 on a Bloomberg podcast.

Representatives for Silicon Valley Bank did not immediately respond to a request for comment.

The banker described his first few years at SVB as “the highest of highs and the lowest of lows” as the lender navigated the tech rout in the late 1990s.

“We took losses. It was a challenging time for us… I look back on it fondly. I learned a lot about the institution. I learned a lot about how to lend money,” he said.

Before becoming president and CEO of SVB Financial Group, Becker co-founded SVB Capital, the company’s investment arm. He also served as the chairman of the Silicon Valley Leadership Group from 2014 to 2017 and was a member of the U.S. Commerce Department’s Digital Economy Board of Advisors from 2016 to 2017. Becker cycles in his free time and has five grown children.

Silicon Valley Bank’s website calls Becker a “champion of the innovation economy.” In a video for the BBC in December, Becker said his best career advice was for job seekers to build a skill-set around the innovation economy in fields like computer programming and project management.

“When you think about your opportunity, if you are underrepresented with those skills, it truly is endless,” he said.

(Reporting by Hannah Lang in Washington; Editing by Lananh Nguyen and Josie Kao)

By Dietrich Knauth

(Reuters) – The U.S. Department Justice has appealed a court order approving Voyager Digital’s bankruptcy plan, creating a new hurdle for the crypto lender’s plan to sell its assets and transfer its customers to Binance.US in a deal valued at $1.3 billion.

The U.S. Attorney’s Office for the Southern District of New York and the Office of the U.S. Trustee, the Department of Justice’s bankruptcy watchdog, filed a notice of appeal late Thursday in U.S. bankruptcy court in Manhattan. It did not detail why they were appealing.

U.S. Bankruptcy Judge Michael Wiles, who is overseeing Voyager’s Chapter 11 bankruptcy process, had approved Voyager’s restructuring plan, which is built around the acquisition by crypto exchange Binance.US, at a hearing on Tuesday after overruling objections from the U.S. Securities and Exchange Commission and DOJ.

Voyager, Binance.US and the DOJ did not immediately respond to requests for comment on the appeal.

Lawyers for the U.S. Trustee and U.S. Attorney’s office spoke up at hearings to consider Voyager’s bankruptcy plan to oppose provisions Voyager included to protect employees from potential legal claims resulting from actions taken during the bankruptcy. They argued that Wiles’ order approving the plan was written too broadly, potentially preventing the government from bringing regulatory enforcement actions or criminal charges if misconduct was discovered later.

Wiles disagreed, saying that Voyager and its employees should not be penalized for carrying out a court-approved sale to Binance.US. If the DOJ or any government agency had evidence of misconduct specifically related to the bankruptcy, they should have presented it in court, Wiles said.

In approving the plan, Wiles had also overruled an objection from the SEC, saying that it attempted to cast doubt on the legality of the sale without presenting any evidence that Voyager or Binance.US had violated securities laws.

Binance.US has agreed to pay $20 million in cash to Voyager, and to take on crypto assets deposited by Voyager customers. The Those assets, valued at $1.3 billion in February, account for the bulk of the deal’s valuation, according to Voyager.

Last week, Voyager said it still could pull out of the Binance.US deal and make an effort to return customer funds without outside help.

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

(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi and Paul Simao)

LONDON (Reuters) – The easy-cash era is over and its impact is only just starting to felt by world markets yet to see the end of the sharpest interest rate hiking cycle in decades.

Risks were brought to a fore this week as U.S. tech specialist Silicon Valley Bank was shut by California banking regulators on Friday, sparking a rout in bank stocks. SVB was seeking funds to offset a hit on a $21 billion bond portfolio, a result of surging rates, as customers withdrew deposits.

Central banks meanwhile are shrinking their balance sheets by offloading bond holdings as part of their fight against hot inflation.

We look at some potential pressure points.

1/ BANKS

Bank have shot up the worry list as the SVB rout hit bank stocks globally on contagion fears. European banks slid on Friday after JPMorgan and BofA shares fell over 5% on Thursday.

SVB’s troubles stemmed from deposit outflows as clients in the tech and healthcare sectors struggled to raise cash elsewhere, raising questions over whether other banks would have to cover deposit outflows with loss-making bond sales too.

In February, U.S. regulators said U.S. banks had unrealised losses of more than $620 billion on securities, underscoring the hit from rising interest rates.

Germany’s Commerzbank issued a rare statement playing down any threat from SVB.

For now, analysts saw SVB’s issues as idiosyncratic and took comfort from safer business models at larger banks. BofA noted European banks’ bond holdings have not grown since 2015.

“Normally speaking, banks would not be taking big duration bets with deposits, but with such rapid rate rises it is clear why investors could be worried and are selling now and asking questions later,” said Gary Kirk, partner at TwentyFour Asset Management.

Graphic: U.S. banking sell-off U.S. banking sell-off https://www.reuters.com/graphics/EUROPE-MARKETS/byprlqyxkpe/chart.png

2/ DARLINGS NO MORE

Even after a first-quarter surge in stock prices, higher rates have dampened the willingness to take punts on early-stage or speculative businesses, especially as established tech firms have issued profit warnings and cut jobs.

Tech firms are reversing pandemic-era exuberance, cutting jobs after years of hiring sprees. Google owner Alphabet plans to axe about 12,000 workers; Microsoft, Amazon and Meta are together firing almost 40,000.

“Despite being a rate sensitive investment, NASDAQ has not responded to the implications of interest rates. If rates continue to rise in 2023, we may see a significant sell-off,” said Bruno Schneller, a managing director at INVICO Asset Management.

Graphic: Tech layoffs announced in the last four months https://www.reuters.com/graphics/GLOBAL-MARKETS/lgvdkoyajpo/chart.png

3/ DEFAULT RISKS

The risk premium on corporate debt has fallen since the start of the year and signals little risk, but corporate defaults are rising.

S&P Global said Europe had the second-highest default count last year since 2009.

It expects U.S. and European default rates to reach 3.75% and 3.25%, respectively, in September 2023 versus 1.6% and 1.4% a year before, with pessimistic forecasts of 6.0% and 5.5% not “out of the question.”

And with defaults rising, the focus is on the less visible private debt markets, which have ballooned to $1.4 trillion from $250 billion in 2010.

In a low rate world, the largely floating-rate nature of the financing appealed to investors, who can reap returns up to the low double digits, but now that means ballooning interest costs as central banks hike rates.

Graphic: Corporate default rate may double in 2023 https://www.reuters.com/graphics/GLOBAL-STRESS/dwpkdegzdvm/chart.png

4/CRYPTO WINTER

Bitcoin staged a recovery at the start of the year but was languishing at two-month lows on Friday.

Caution remains. After all, rising borrowing costs roiled crypto markets in 2022, with Bitcoin prices plunging 64%.

The collapse of various dominant crypto companies, most notably FTX, left investors shouldering large losses and prompted calls for more regulation.

Shares of crypto-related companies fell on March 9, after Silvergate Capital Corp, one of the biggest banks in the cryptocurrency industry announced it would wind down operations and sparked a crisis of confidence in the industry.

Graphic: Pain in crypto land https://www.reuters.com/graphics/GLOBAL-MARKETS/lgpdknmayvo/chart.png

5/FOR SALE

Real estate markets started cracking last year and house prices will fall further this year.

Fund managers surveyed by BofA see China’s troubled real estate sector as the second most likely source of a credit event.

European real estate reported distress levels not seen since 2012 by November, law firm Weil, Gotshal & Manges found.

How the sector funds itself is key. Officials warn European banks risk significant profit hits from sliding house prices, which is making them less likely to lend to the sector.

Real estate investment management firm AEW estimates the sector in UK, France and Germany could face a 51 billion euro debt funding gap through 2025.

Asset managers Brookfield and Blackstone recently defaulted on some debt tied to real estate as interest rate hikes and falling demand for offices in particular hit property values.

“The reality that some of the values out there aren’t right and perhaps need to be marked down is something that everyone’s focused on,” said Brett Lewthwaite, global head of fixed income at Macquarie Asset Management.

Graphic: Distress in Europe’s real estate sector rises https://www.reuters.com/graphics/GLOBAL-STRESS/byprlryzbpe/chart.png

($1 = 0.9192 euros)

(Reporting by Yoruk Bahceli, Chiara Elisei, Nell Mackenzie, Dhara Ranasinghe, Naomi Rovnick, Elizabeth Howcroft; Graphics by Kripa Jayaram and Vincent Flasseur; Editing by Dhara Ranasinghe and Toby Chopra)

(Reuters) – Cryptocurrency token Ether fell to its lowest in two months on Friday after the New York attorney general labeled it a security, bracketing it with assets such as stocks and bonds and fueling fears of a wider regulatory crackdown.

New York Attorney General Letitia James on Thursday referred to Ether as a security in her lawsuit against KuCoin for failing to register with the state before facilitating cryptocurrency transactions on its platform. KuCoin is one of the biggest cryptocurrency platforms in the United States.

“The situation in Ethereum (the blockchain that underpins Ether) could get real ugly,” investment research firm Citron Research tweeted.

The world’s second-biggest cryptocurrency token was trading around $1,390, its lowest since January 10.

The “secrets” of the Ethereum network will be unveiled as James builds out her case, Citron said, adding that the network was being controlled by a small group of people “under a guise of decentralization”.

The crypto industry and regulators have been in a tussle over the categorization of crypto assets as securities, which would subject digital asset firms to stricter oversight.

(Reporting by Niket Nishant in Bengaluru; Editing by Vinay Dwivedi)

By Elizabeth Howcroft

LONDON (Reuters) – Zodia Custody, a crypto custodian owned by Standard Chartered, said on Friday it has registered its Irish unit with Luxembourg’s financial regulator.

The registration will allow Zodia to provide digital asset custody services for financial institutions in Luxembourg, the company said.

According to the regulator’s website, Zodia will be subject to supervision from the watchdog for compliance with rules around anti-money laundering and combating the financing of terrorism.

“There is a massive opportunity for financial institutions to offer a range of products and services related to cryptoassets,” John Cronin, chief executive of Zodia Custody Ireland, said in a statement on Friday.

Cronin said the firm is seeing increasing interest from investors in establishing products such as a “RAIF” – a type of Luxembourg investment fund for alternative assets that can be set up without regulatory approval.

The registration was first reported by Bloomberg News on Thursday.

(Reporting by Elizabeth Howcroft; Editing by Shounak Dasgupta)

By Luc Cohen

NEW YORK (Reuters) – A U.S. judge is expected on Friday to consider what restrictions Sam Bankman-Fried should face while free on bail, and whether the FTX cryptocurrency exchange founder’s Oct. 2 fraud trial should be pushed back.

Bankman-Fried is fighting to stay out of jail after U.S. District Judge Lewis Kaplan raised concerns last month that the 31-year-old former billionaire wunderkind was testing the limits of his $250 million bail package by communicating in ways that could not be monitored.

Federal prosecutors in Manhattan have charged Bankman-Fried with perpetrating an “epic” fraud by stealing billions of dollars in FTX customer funds to plug losses at Alameda Research, his hedge fund.

They have also said Bankman-Fried made tens of millions of dollars in illegal political donations to buy influence in Washington, D.C.

Late last month, prosecutors added new fraud and conspiracy charges against Bankman-Fried over the November collapse of his now-bankrupt exchange, meaning he now faces 12 charges. He had pleaded not guilty to the original eight charges in January.

In a letter to Kaplan on Wednesday, Bankman-Fried’s lawyers said they may need more time than expected to review the evidence and prepare a defense in light of the new charges.

They also said prosecutors had not yet handed over evidence from electronic devices belonging to former Alameda CEO Caroline Ellison and former FTX technology chief Gary Wang.

Ellison and Wang, once among Bankman-Fried’s closest associates, have pleaded guilty and agreed to cooperate with the government.

Last Friday, prosecutors proposed letting Bankman-Fried have a flip phone with no internet capability and a basic laptop with limited functions, but be forbidden from using other electronic communication devices while on bail.

Prosecutors, defense lawyers and Kaplan began revisiting Bankman-Fried’s bail conditions after the government said he sought to contact FTX Chief Executive John Ray and an in-house lawyer in what prosecutors described as a possible attempt to tamper with witnesses.

Defense lawyers said Bankman-Fried was trying to help, not interfere.

(Reporting by Luc Cohen in New York; Editing by Lincoln Feast.)

NEW YORK (Reuters) – New York’s attorney general on Thursday sued KuCoin for failing to register with the state before letting investors buy and sell cryptocurrencies on its platform, as part of her effort to rein in what she calls “shadowy” cryptocurrency companies.

Attorney General Letitia James said KuCoin has not registered as a broker-dealer and has falsely represented itself as an exchange, and wants a permanent injunction to stop it from operating in New York until it complies with the law.

James said KuCoin lets investors trade popular virtual currencies such as ETH, LUNA and TerraUSD, and that her case is among the first by a regulator alleging that ETH is a security.

“One by one my office is taking action against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk,” James said in a statement.

KuCoin did not immediately respond to a request for comment.

(Reporting by Jonathan Stempel in New York; Editing by Diane Craft and Daniel Wallis)

By Niket Nishant, Medha Singh and Hannah Lang

(Reuters) – Shares of crypto-focused companies fell on Thursday after Silvergate Capital Corp disclosed plans to wind down operations and voluntarily liquidate, as the aftermath of FTX’s implosion last year reverberates through the industry.

Shares in Silvergate plunged more than 35% to $3.17, a day after hitting a record low and have lost 64% since March 1 when the company flagged a going concern risk.

Analysts said a complete closure of the crypto lender could take one or two years depending on how quickly outstanding loans are repaid and assets are disposed of.

Silvergate’s latest move adds to a list of high-profile collapses among crypto market players since last year.

“We believe this decision was made, at least in part, to help mitigate Silvergate Bank’s legal liability related to FTX’s bankruptcy,” Wedbush analysts wrote in a note.

Silvergate did not immediately respond to a request for comment on the analysts’ view.

GRAPHIC-Silvergate stock performance since FTX crisis (https://www.reuters.com/graphics/FINTECH-CRYPTO/SILVERGATE/egpbyoxkrvq/chart.png)

Meanwhile, shorting in the shares of Silvergate has proved profitable for bearish investors as its shares have lost 95% of their value in the past 12 months and 72% so far this year.

Nearly 85% of the company’s free float is under short position with short sellers making $241 million in year-to-date mark-to-market profit, according to analytics firm S3 Partners.

While Silvergate said its liquidation plan includes a full repayment of all deposits, many within the crypto industry were still left wondering how the bank’s demise would impact other firms.

“As the situation continues to unfold, we’ll have to closely monitor whether exchanges can smoothly transition from Silvergate and whether Silvergate truly is sufficiently capitalized,” said Eric Chen, the chief executive officer and co-founder of Injective Labs, a company focused on decentralized finance.

Shares of peer Signature Bank, which has been pivoting away from crypto since late last year, fell more than 11%. The S&P 500 bank index tumbled nearly 6% on Thursday.

In its second mid-quarter update this month, Signature said digital assets accounted for just 18.5% of its total deposit balance.

Crypto exchange Coinbase Global, which cut ties with Silvergate last week, dipped more than 7%. Miners Riot Blockchain fell more than 11% and Marathon Digital slid 10% .

Bitcoin was last trading at $20,754, near its lowest level since January, with analysts and investors saying the market impact of the news was limited as it was widely expected.

(Reporting by Medha Singh and Niket Nishant in Bengaluru and Hannah Lang in Washington; Editing by Sriraj Kalluvila, Arun Koyyur and Nick Zieminski)

(Reuters) – Silvergate Capital Corp, one of the biggest banks in the cryptocurrency industry, said on Wednesday it was planning to wind down operations and liquidate voluntarily.

MARKET REACTION:

Shares of crypto-related companies fell on Thursday, as the bank’s collapse sparked a crisis of confidence in the industry.

Silvergate shares were down 26% while peer Signature Bank and former Silvergate partner Coinbase Global Inc fell 8% each.

COMMENTS:

MARCUS SOTIRIOU, MARKET ANALYST AT GLOBALBLOCK

“Investors are concerned about the consequences of Silvergate’s collapse. I think this could have significant implications for crypto regulations in the U.S. and banks’ ability to deal with digital asset platforms and cryptocurrency brokerages.”

“Silvergate’s demise was not a crypto problem. It was clearly due to Silvergate not having enough cash leading to the lack of capital from the bank run.”

KONSTANTIN SHULGA, CEO AND CO-FOUNDER OF FINERY MARKETS

“Traditional banks have refused to engage with crypto companies due to a lack of clear rules, leaving a gap that was filled by a few banks willing to take the risk.”

“One of the largest of these banks was Silvergate, which positioned itself as a crypto-friendly institution. However, this concentration on one player proved to be risky.”

“It’s definitely not good for the crypto industry, and this could potentially mean a certain trend towards crypto moving outside the U.S., at least until a more comprehensive regulatory framework is established in the U.S.”

MICHAEL PERITO, MANAGING DIRECTOR AT KBW

“It’s difficult to know what the ultimate outcome and time-line of this (winding down) process will be.”

“Silvergate still has a $205 million outstanding term loan to Microstrategy as far as we are aware; while this loan was significantly over-collateralized with BTC and performing as of year-end, we don’t have insight into how, or at what value this loan could be liquidated at.”

AARON KAPLAN, CO-CEO OF PROMETHEUM INC

“In order for events like FTX and Silvergate to be avoided in the future, crypto financial intermediaries need to come into compliance with the federal securities laws. The domino effect from FTX, and the spillover now into the traditional financial system, underscores the need for there to be proper oversight of this industry.”

“This would entail licensing crypto financial intermediaries under the securities laws and oversight by the SEC, and doing this should prevent the kind of debacles that led to the bank run on Silvergate in the first place.”

RICHARD MICO, U.S. CEO AND CHIEF LEGAL OFFICER OF BANXA

“There’s clearly a regulation-by-enforcement push by federal agencies in the United States – dubbed Operation Chokepoint 2.0 – that is making it harder for crypto-focused financial institutions to operate. Indeed, this pressure is making it increasingly challenging for crypto businesses and traders to operate within the United States.”

“As a result, there will likely continue to be a significant brain and investment drain from the United States to other jurisdictions, such as Hong Kong, the UK, Europe and Dubai, which appear to be embracing this revolutionary technology.”

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

By Luc Cohen

NEW YORK (Reuters) – Sam Bankman-Fried’s lawyers said on Wednesday it may be necessary to delay the FTX cryptocurrency exchange founder’s scheduled Oct. 2 criminal trial, arguing it may take more time than expected to review the evidence and prepare a defense.

In a letter to U.S. District Judge Lewis Kaplan, the 31-year-old former billionaire’s lawyers said federal prosecutors in Manhattan had not yet turned over evidence collected from electronic devices belonging to Caroline Ellison and Gary Wang, previously two of their client’s closest associates.

Both have since pleaded guilty and agreed to cooperate with prosecutors. 

The lawyers also noted that prosecutors added new fraud and conspiracy charges late last month, boosting the number of counts to twelve, following the November collapse of Bankman-Fried’s now-bankrupt exchange and his arrest the next month.

In January, Bankman-Fried pleaded not guilty to the original eight counts that he cheated investors and caused billions of dollars in losses, in what prosecutors have called an “epic” fraud.

“While we are not making such an application at this time, we wanted to note this issue for the Court now,” Christian Everdell, one of Bankman-Fried’s lawyers, wrote in the letter.

A spokesman for the U.S. Attorney’s office in Manhattan declined to comment. 

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

But his fortune evaporated after concerns about commingling of funds between FTX and Alameda Research, a hedge fund he also owned, spurred the cryptocurrency equivalent of a run on the bank at FTX. 

Bankman-Fried was released on $250 million bond and has been under house arrest at his parents’ Palo Alto, California home.

Kaplan has suggested his bail could be revoked after prosecutors said he may have tried to tamper with witnesses. Prosecutors over the weekend proposed Bankman-Fried remain free with strict limits on his use of technology. 

The trial schedule and Bankman-Fried’s bail conditions are expected to be discussed at a court hearing on Friday.

(Reporting by Luc Cohen in New York; Editing by Lincoln Feast.)

By Pete Schroeder

WASHINGTON (Reuters) – The top regulatory official for the U.S. Federal Reserve said cryptocurrency technology still could have “potential transformative” effects on the financial system, but needs “guardrails” to realize them.

Fed Vice Chair for Supervision Michael Barr said recent turmoil in crypto markets make clear the sector could still pose a risk to traditional banks, but that the impact has been limited as regulators urge caution.

U.S. bank regulators, including the Fed, have taken several steps in recent months to ensure banks are approaching the crypto sector with caution, including requiring banks to flag any crypto activities to regulators before proceeding, and warning firms that crypto deposits can be particularly volatile.

“These liquidity concerns are particularly acute for banks that have a meaningful portion of their balance sheets funded with such deposits,” said Barr in prepared remarks, which came one day after crypto-focused bank Silvergate Capital Corp (SI.N) announced plans to liquidate after facing dramatic losses.

Barr stopped short of saying banks have no role to play in crypto, but rather said regulators are busy figuring out what firms could do in the space while remaining safe and sound. He noted that technology behind crypto could make financial markets and payments systems more efficient and affordable.

“Our goal is to create guardrails, while making room for innovation that can benefit consumers and the financial system more broadly,” he said.

(Reporting by Pete Schroeder)

(Reuters) – Crypto-focused bank Silvergate Capital Corp became the latest casualty of a meltdown in the industry after announcing plans to wind down operations and voluntarily liquidate.

Founded in 1988, Silvergate ventured into crypto in 2013. The bank in December said it would shut its mortgage warehouse business amid rising interest rates and declining mortgage volumes.

Date Development

Jan 31, 2022 Meta Platforms Inc-backed Diem Association

sells Blockchain Payments Network and other

intellectual property assets to Silvergate

Oct 18, 2022 The company posted Q3 adj EPS of $1.28, 10

cents below Refinitiv IBES estimate as volumes

on its Silvergate Exchange Network (SEN)

decreased

Nov 11, 2022 The company said it has no outstanding loans or

investments in FTX and as of Sept. 30, 2022 the

crypto exchange represented less than 10% of

total deposits from digital asset customers

after FTX said it would initiate bankruptcy

proceedings in the United States

Nov 28, 2022 The company said it has a minimal exposure to

BlockFi with deposits limited to less than $20

million of its total deposits after the

cryptocurrency lender filed for Chapter 11

bankruptcy protection

Jan 5, 2023 Silvergate cuts 200 jobs and said total

deposits from digital asset customers declined

to $3.8 billion at the end of Dec. 31, 2022,

compared with $11.9 billion at Sept. 30, 2022

Jan 6, 2023 Moody’s Investor Service downgraded

Silvergate’s long-term deposit rating to Ba1

from Baa2

Jan 17, 2023 The company reports a net loss of $1 billion in

the fourth quarter

Jan 27, 2023 Silvergate suspends dividend payouts on some of

its preferred stock to preserve capital

Jan 31, 2023 U.S. senators ask Silvergate for details of its

risk management practices and its dealings with

bankrupt exchange FTX

Feb 2, 2023 U.S. custodian bank State Street Corp reports a

9.32% passive stake in Silvergate Capital as of

Dec. 31

Feb 2, 2023 Federal prosecutors in Washington are also

probing Silvergate and its dealings with

bankrupt crypto exchange FTX and Alameda

Research, according to a source

Feb 14, 2023 Citadel Securities, the market maker owned by

Ken Griffin, reports a 5.5% stake in Silvergate

worth about $25 million, according to a

regulatory filing.

March 1, 2023 Silvergate warned it was delaying its annual

report and said it was evaluating its ability

to operate as a going concern

March 2, 2023 Cryptocurrency heavyweights including Coinbase

Global Inc and Galaxy Digital drop Silvergate

as their banking partner

March 3, 2023 The company said it made a “risk-based

decision” to discontinue payments network

Silvergate Exchange Network

March 6, 2023 A slew of crypto firms issue statements about

material exposure and services with the bank

March 8, 2023 Silvergate plans to wind down operations and

voluntarily liquidate

(Reporting by Mehnaz Yasmin in Bengaluru; Editing by Sriraj Kalluvila)

By Elizabeth Howcroft and Tom Wilson

LONDON (Reuters) – Bitcoin steadied on Thursday near its lowest since mid-February, after U.S. crypto-focused bank Silvergate said it would voluntarily liquidate, the latest in a series of high-profile crypto collapses triggered by the collapse of the FTX exchange.

Silvergate Capital Corp said on Wednesday it planned to close and voluntarily liquidate, after warning last week that it was evaluating its ability to operate as a going concern.

The California-based company, which was a key banking partner for crypto businesses, had been hit by investors rushing to withdraw around $8 billion of deposits after the sudden bankruptcy of FTX last year.

Bitcoin was last down 0.4% at $21,624, having fallen 2.2% on Wednesday to a 3-1/2 week low of $21,590.

Investors and analysts said the market impact of the shuttering of Silvergate – seen as an important bridge between the crypto sector and traditional financial world – was limited as it had been widely expected.

Multiple partners of the bank, including major crypto exchange Coinbase Global Inc, severed ties with Silvergate last week. Others, including Binance, said they did not have any asset losses at Silvergate.

“Investors in bitcoin have had some time to digest this news, they are also much more focused on macro economic developments,” said James Butterfill, head of research at digital asset manager CoinShares.

“With growing doubt in the bond market over the risk of the damage further interest rate rises will do to the U.S. economy, it is supporting bitcoin prices to some extent, despite the bad news on Silvergate.”

Bitcoin has gained more than 30% so far this year, clawing back some of its losses of almost 65% in 2022 that were triggered by a string of high-profile corporate failures in the crypto world. 

(Reporting by Elizabeth Howcroft and Tom Wilson. Editing by Jane Merriman)

NEW YORK (Reuters) – Alpha Sigma Capital, a U.S.-based digital asset fund, and Transform Ventures, a venture capital firm, will raise $100 million for two new funds focused on the blockchain and so-called decentralized Web 3.0 ventures, Alpha Sigma founder and Chief Executive Officer Enzo Villani said on Wednesday.

Transform Ventures, founded by crypto investor Michael Terpin, also merged some of its assets with Alpha Sigma’s parent to form a new holding company called Alpha Transform Holdings. The latter will oversee the two new funds.

Terpin in 2019 won $75.8 million in a civil judgment against Nicholas Truglia, who was 21 years old at the time and part of a scheme that defrauded Terpin of digital currencies, according to court documents. Truglia along with other participants stole 3 million tokens from Terpin’s cellphone account in early 2018.

The new Alpha Liquid digital assets fund was launched early this month, with an initial investment by Terpin, who made a personal investment in cash, bitcoin and ethereum of $2.65 million, with an option to invest an additional $2.9 million.

The second fund, a closed-end venture capital firm called the Aegean Fund, is still in the process of being established, Villani said.

These new funds have emerged as the cryptocurrency industry faces more intense scrutiny after the high-profile bankruptcy of crypto exchange FTX in November and the collapse of several other market players such as lender Celsius Network.

“The real growth of blockchains and the real growth of Web 3 are starting to happen,” Villani told Reuters in an interview. Web 3.0 refers to the third iteration of the internet in which users interact with data through the use of artificial intelligence and machine learning, among others.

“A lot of things that are happening right now (in the crypto and blockchain space) may be challenging. But I think the industry would be going through these (challenges) anyway,” he added.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Mark Porter)

By Hannah Lang and Anirban Chakroborti

(Reuters) – Crypto-focused bank Silvergate Capital Corp said on Wednesday it planned to wind down operations and voluntarily liquidate after it was hit with losses following the dramatic collapse of crypto exchange FTX, sending its shares down 35% in after-hours trade.

The decision to shutter the bank comes after the company warned last week that it was evaluating its ability to operate as a going concern, disclosing that it had sold additional debt securities this year at a loss and that further losses mean the bank could be “less than well capitalized.”

The dire outcome for La Jolla, California-based Silvergate, one of the crypto industry’s favored banks, shows the extent of the impact on the digital asset industry from the downfall of FTX which filed for bankruptcy in November after failing to cover customer withdrawals.

In a statement, Silvergate said the decision to wind down its bank was “the best path forward” in light of “recent industry and regulatory developments.” Its wind-down and liquidation plan includes full repayment of deposits, the bank added.

Multiple partners of the bank, including high-profile firms such as Coinbase Global Inc and Galaxy Digital, severed ties with Silvergate last week.

After Silvergate’s statement, crypto exchange Coinbase said it has no client or corporate cash at Silvergate, while Binance chief Changpeng Zhao said the company did not have any asset losses at Silvergate.

Silvergate reported a $1 billion loss for the fourth quarter as investors raced to withdraw more than $8 billion in deposits.

Silvergate has retained Centerview Partners LLC as a financial adviser and Cravath, Swaine & Moore LLP as a legal adviser, the bank said in a statement.

Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December that it would be winding down that division, citing the rising interest rate environment and reduction in mortgage volumes.

Last week, Silvergate discontinued the Silvergate Exchange Network, its crypto payments network and one of its most popular offerings. That network enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank wires, which can often take days to settle.

While risks of contagion are minimal, given that Silvergate has said it will repay depositors and has performing loans, the loss of the Silvergate Exchange Network is disappointing, said Ram Ahluwalia, the chief executive officer of Lumida Wealth, an investment adviser that specializes in digital assets.

“It’s more of a strategic loss of critical infrastructure for crypto,” he said.

The Federal Deposit Insurance Corp (FDIC) declined comment on Wednesday when asked about the bank’s failure beyond saying that it does not regulate the bank or the holding company. Bloomberg earlier reported the FDIC had been discussing with Silvergate ways to avoid shutdown.

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

In a statement, the California Department of Financial Protection and Innovation, which supervised Silvergate under a state charter, said it was evaluating the bank’s compliance with financial laws, as well as safety and soundness obligations, and was working with its relevant federal counterparts.

More than a trillion dollars in value were wiped out from the crypto sector in 2022 with rising interest rates exacerbating worries of an economic downturn.

After rapid growth in 2020 and 2021, bitcoin – the most popular digital currency by far – fell more than 60% last year, pressuring the digital assets industry.

(Reporting by Hannah Lang in Washington and Anirban Chakroborti in Bengaluru; Additional reporting by Manya Saini and Mrinmay Dey in Bengaluru; Editing by Maju Samuel, Matthew Lewis and Lincoln Feast.)

By Dietrich Knauth

(Reuters) – Bankrupt crypto lender Celsius Network on Wednesday revealed that it was speaking to another potential buyer and will seek additional bids, despite having an offer in hand from asset manager NovaWulf Digital Management.

Celsius attorney Chris Koenig said at a hearing in bankruptcy court in Manhattan that the company remains open to better offers, and that it and its creditors committee met with a potential buyer two days ago to review an alternate proposal.

At the hearing, the New Jersey-based lender asked U.S. bankruptcy judge Martin Glenn, who is overseeing Celsius’ Chapter 11, for more time to submit a bankruptcy restructuring plan built around the NovaWulf deal, which would cash out customers with less than $5,000 in crypto deposits and hand ownership of the company’s remaining assets to customers with larger accounts.

Glenn agreed to give Celsius an extra three weeks to file a Chapter 11 plan.

With NovaWulf’s offer in hand, Celsius should be able to exit from bankruptcy by June, less than a year after it filed for Chapter 11, Koenig said.

If Celsius chooses an alternate bidder, Koenig said, it intends to offer NovaWulf up to $20 million in breakup fees.

“If there is a higher offer, it will be because of the floor set by NovaWulf,” Koenig said.

NovaWulf did not immediately respond to a request for comment.

Crypto lenders such as Celsius boomed during the COVID-19 pandemic, but many companies in the highly interconnected sector went bankrupt in 2022.

Celsius filed for U.S. bankruptcy in July after freezing customer withdrawals. Celsius said at the time that it had more than 1.7 million registered users and approximately 300,000 active users with account balances greater than $100.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and David Gregorio)

By Niket Nishant

(Reuters) – JPMorgan Chase & Co is cutting ties with Gemini, the cryptocurrency exchange founded by Cameron and Tyler Winklevoss, according to a source familiar with the situation.

The decision comes days after Silvergate Capital Corp, one of the most influential lenders in the digital asset industry, warned of doubts over its ability to continue as a going concern, fueling a rout in the crypto markets.

In a tweet, Gemini said its relationship with the bank remains intact. JPMorgan declined to comment.

Analysts have warned of a lack of options for cryptocurrency firms looking for banking partners in the United States, after regulators cautioned banks to be on alert for any liquidity risks that could stem from their involvement with crypto clients.

Last month, the Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency together said banks should have robust tools in place to monitor funds placed by crypto-asset related entities.

Major exchange FTX’s collapse spurred Silvergate’s depositors into withdrawing $8 billion from the bank in the fourth quarter, sparking a liquidity crisis at the lender.

JPMorgan’s plan was first reported by CoinDesk.

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

By Luc Cohen

NEW YORK (Reuters) – Since his December arrest on fraud charges, FTX founder Sam Bankman-Fried and his lawyers have suggested part of his defense will be seeking to distance himself from the day-to-day operations of the now-bankrupt cryptocurrency exchange.

But new accusations against him and a third former member of his inner circle in recent weeks could complicate that strategy, some experts said.

Federal prosecutors in Manhattan unveiled new charges on Feb. 23 that appeared to undermine some of Bankman-Fried’s public claims since the collapse of FTX, and later revealed the guilty plea and cooperation of the exchange’s former engineering chief Nishad Singh.

Former FTX technology chief Gary Wang and Caroline Ellison, formerly the CEO of Bankman-Fried’s Alameda Research hedge fund, had each previously pleaded guilty and are cooperating.

Bankman-Fried previously pleaded not guilty to stealing billions of dollars in FTX customer funds to plug losses at Alameda.

The 31-year-old former billionaire and his lawyers have suggested they will attempt to shift blame onto Ellison and dispute her expected testimony at his Oct. 2 trial.

It is common for defendants to challenge the credibility of cooperating witnesses, often arguing that they are motivated to lie and implicate others in a bid to win leniency.

Doing so is more difficult when multiple witnesses point the finger at the same person, experts said.

“The defendant is going to say, ‘No, you did it, you’re the one who was the most responsible, and now you’re trying to blame me,'” said Rebecca Mermelstein, a former Manhattan federal prosecutor.

Spokespeople for Bankman-Fried and for the U.S. Attorney’s office in Manhattan declined to comment.

‘VERY DIFFERENT VIEW’

At her plea hearing in December, Ellison admitted she and Bankman-Fried conspired to mislead Alameda’s lenders, with Alameda providing secret loans to Bankman-Fried which the hedge fund then hid on its balance sheets.

Bankman-Fried appeared to contradict that in a Jan. 12 blog post, saying he was not running Alameda and “was told” – without saying by whom – that its balance sheets were accurate.

Bankman-Fried’s defense lawyer Mark Cohen also challenged another of Ellison’s statements to prosecutors: according to U.S. District Judge Lewis Kaplan, she told them that Bankman-Fried had instructed FTX employees it was “best not to have documents” because they could be used as evidence.

“We have a very different view of what happened,” Cohen said at a Feb. 16 court hearing. “That’s for trial, your Honor, but that’s not what happened.”

Ellison’s lawyer did not respond to requests for comment.

In unveiling the new charges in a superseding indictment, prosecutors dismissed the idea that Bankman-Fried was in the dark about his former colleagues’ crimes. Prosecutors said he directed Ellison to mislead creditors about the money Alameda borrowed, and that he remained Alameda’s “ultimate decisionmaker” despite stepping down as CEO.

“The superseding indictment seems designed to undercut the defenses that he has floated in public,” said Mark Kasten, counsel at Buchanan Ingersoll & Rooney in Philadelphia.

It also complicates Bankman-Fried’s defense because it contains references to an electronic message Bankman-Fried received from Ellison, as well as messages between him and Singh, who is referred to in the indictment as CC-1. Prosecutors described the conversation between the two men as a plot to conceal a scheme to make illegal political campaign donations.

Beyond the content of the particular messages, the mere revelation that prosecutors have them could be troubling for Bankman-Fried, since contemporaneous statements by a defendant can make it harder to refute witness testimony, experts said.

Despite the hurdles, experts said Bankman-Fried will still likely dispute that he knew former members of his inner circle were breaking the law, Kasten said.

“He still is going to have to attack the government witnesses,” Kasten said, summing up one possible defense: “Yes, he was the public face of the company, but he trusted his confidantes to run the business, and he thought that they were doing it lawfully.”

(Reporting by Luc Cohen in New York; Editing by Daniel Wallis and Noeleen Walder)