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Cryptoverse: Forget crypto winter, this is a bitcoin ‘bloodbath’

By Medha Singh and Lisa Pauline Mattackal

(Reuters) – “I’m nearly bankrupt,” says Jad Fawaz, a crypto trader in Abu Dhabi. “I’m laughing because there’s no point in exerting more depression and more frustration about it.”

The 45-year-old, who quit his real-estate job a year ago to focus on trading, has seen his holdings evaporate in recent months. He hasn’t slept in a week because of the stress.

“I had about 40 coins and then I came down to 20 coins then I came down to 10 coins, came down to five coins and now I’m down to the last two coins, and it’s bitcoin and ripple XRP,” he says.

“So these are the last two coins and I will die before selling them.”

For many retail traders and investors, enough is enough.

Bitcoin balances on crypto exchanges – where retail investors typically transact – have fallen to around 2.3 million from its 2020 all-time high of 3.1 million, exchange Bitfinex said. Self-custody wallet balances have not grown at the same pace, indicating more selling than storage, it added.

“There are signs that a significant number of retail investors have been discouraged to the point of exiting crypto entirely,” Bitfinex analysts said.

Indeed, Fawaz is not alone.

It’s been a brutal year for investors. Bitcoin’s price has dropped 63%, while the overall cryptocurrency market capitalization has lost $1.63 trillion in value.

The collapse of Sam Bankman-Fried’s FTX exchange hammered a long nail into the market.

November saw a 7-day realized loss of $10.16 billion in bitcoin investments as investors were forced to exit long-term positions, the fourth-largest loss on record by this measure, according to Glassnode data.

“This is not the winter season anymore, this is a bloodbath, because the FTX crisis was like a domino that toppled so many companies,” said Linda Obi, a crypto investor in the Nigerian city of Lagos who works at blockchain firm Zenith Chain.

The 38-year-old said she was a “long-haul” investor with an investment horizon of five years and traded “a bit of everything”, including altcoins and memecoins.

“I’m gonna be very honest, I do think there’s a whole lot of hype around crypto, with influencer marketing and your favorite celebrities talking about crypto,” she added.

“People don’t research, and just jump in, and that should change. We have started to have serious conversations around how we can actually sanitize and advertise the space.”

DAVID VS GOLIATH

Crypto retail investors losing money is nothing new. A study from the Bank of International Settlements (BIS), conducted between 2015 and 2022, estimated that 73% to 81% likely lost money on their investments in cryptocurrencies.

Retail trading has grown increasingly difficult as deeper-pocketed, more sophisticated investors like hedge funds entered crypto as the asset class grew.

“It’s really difficult to trade on news because we don’t have inside information, a tweet can change everything,” said Lisbon-based Adalberto Rodrigues, 34, who trades crypto in addition to running a software firm.

BIS researchers said blockchain data analysis found that the largest holders of bitcoin often sold while smaller players were buying, “making a return at the smaller users’ expense”.

Eloisa Marchesoni, a trader who said she had about $2,000 on FTX she was unable to withdraw, is sure crypto will retain its attraction for smaller investors.

“Retail will suck it up, like always,” said Marchesoni, who leaves near Tulum on the coast of Mexico’s Yucatan Peninsula.

Yet the hefty investor losses from the FTX collapse could serve to kick regulators into action, said Charley Cooper, communications chief at blockchain technology firm R3.

“Politicians have a lot harder time ignoring calls from constituents that lost their savings or grocery money than from high-flying crypto hedge funds.”

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

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U.S. agency investigating crypto firms for misconduct

WASHINGTON (Reuters) – A U.S. agency that probes allegations of deceptive conduct confirmed on Monday that it had investigations open into several cryptocurrency firms for “possible misconduct.”

The Federal Trade Commission spokesperson declined to name the firms or say precisely what actions prompted the investigations.

“While we can’t comment on current events in the crypto markets or the details of any ongoing investigations, we are investigating several firms for possible misconduct concerning digital assets,” the spokesperson said in a statement.

Bloomberg said in a report that the investigation was linked to misleading advertising but the FTC spokesperson declined to confirm this.

The spectacular implosion of FTX recently sent fresh shock waves through the cryptocurrency industry, with the value of bitcoin down sharply this year.

The Securities and Exchange Commission, which also has regulations mandating disclosures from individuals promoting securities, has cracked down on celebrity endorsements, including reality TV star Kim Kardashian on allegations of promoting a crypto token on her Instagram account without proper disclosure that she had been paid.

The FTC has also pursued companies that presented themselves as cryptocurrency-related firms but which were allegedly nothing more than scams.

(Reporting by Diane Bartz; additional reporting by Anirban Chakroborti in Bengaluru; Editing by Stephen Coates)

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Britain finalises plans for regulation of crypto industry – FT

(Reuters) – Britain’s Treasury is finalising plans for a package to regulate the cryptocurrency industry, including limits on foreign companies selling into the country and restrictions on advertising, the Financial Times reported on Monday.

(Reporting by Jyoti Narayan in Bengaluru)

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Bankman-Fried says he will testify before U.S. House committee

(Reuters) – FTX founder Sam Bankman-Fried tweeted on Sunday that he would testify before the House Financial Services Committee after he finished “learning and reviewing” the events that led to the spectacular collapse of his cryptocurrency exchange.

The U.S. House Financial Services Committee plans to hold a hearing in December to investigate the collapse of FTX and expects to hear from the companies and individuals involved, including founder and CEO Bankman-Fried.

Committee Chair Maxine Waters last week invited Bankman-Fried to participate in the panel’s hearing on Dec. 13.

“Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain,” the founder and former FTX CEO wrote in a reply to Waters.

Bankman-Fried added that he was unsure if that would happen before Dec. 13.

He rejected suggestions of fraud in a range of interviews last week after his company’s collapse stunned investors and left creditors facing losses totaling billions of dollars.

FTX filed for bankruptcy in November after a week in which a possible merger with rival crypto exchange Binance failed, Bankman-Fried was accused funneling customer deposits to FTX’s affiliated trading firm Alameda Research, and the exchange experienced withdrawals of about $6 billion in just 72 hours.

(Reporting by Akriti Sharma in Bengaluru; Editing by Stephen Coates)

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U.S. House committee chair says Bankman-Fried must testify next week

(Reuters) – The chair of the U.S. House of Representatives Financial Services Committee demanded on Monday that Sam Bankman-Fried, founder and former CEO of the now-bankrupt crypto exchange FTX, testify before Congress on Dec. 13.

“It is imperative that you attend our hearing on the 13th, and we are willing to schedule continued hearings if there is more information to be shared later,” Representative Maxine Waters, the committee chair, wrote on Twitter.

On Sunday, Bankman-Fried tweeted that he would testify before the committee after he finished “learning and reviewing” the events that led to the spectacular collapse of his cryptocurrency exchange.

In the tweet Bankman-Fried said he was unsure if that would happen before Dec. 13.

But in her reply on Monday, Waters wrote on Twitter: “Based on your role as CEO and your media interviews over the past few weeks, it’s clear to us that the information you have thus far is sufficient for testimony.”

Bankman-Fried rejected any suggestion of fraud in a series of interviews last week after his company’s collapse stunned investors and left creditors facing losses totaling billions of dollars.

FTX filed for bankruptcy in November after a week in which a possible merger with rival crypto exchange Binance failed.

(Reporting by Akriti Sharma in Bengaluru; Editing by Leslie Adler and Howard Goller)

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Crypto lender Nexo to quit United States

By Elizabeth Howcroft

LONDON (Reuters) – UK-based crypto lender Nexo said on Monday it would phase out its U.S. products and services over the coming months due to clashes with regulators.

“Our decision comes after more than 18 months of good-faith dialogue with US state and federal regulators which has come to a dead end,” Nexo said in a blog post on Monday.

Crypto lenders act like banks for the crypto world, offering customers interest on cryptocurrencies they deposit with the platform.

The firms grew rapidly during the COVID-19 pandemic, but as crypto markets slumped earlier this year various crypto lenders froze withdrawals, leaving customers with large losses. Major U.S.-based lenders Celsius, Voyager Digital Ltd and BlockFi have all filed for bankruptcy this year.

Eight U.S. state regulators charged Nexo in September for allegedly failing to register its Earn Interest Product.

California’s Department of Financial Protection and Innovation said Nexo’s interest-earning accounts promised an annual interest rate as high as 36%. Nexo said that the 36% interest was applicable only for one asset, and that it did not advertise the high rate.

Lawmakers around the world have stepped up calls for regulation of crypto firms following the collapse of major exchange FTX last month.

Nexo said it will continue to process customer withdrawals “in real-time” as it withdraws from the United States.

(Reporting by Elizabeth Howcroft in London; Editing by Tom Wilson and Matthew Lewis)

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Crypto broker Genesis owes Gemini’s customers $900 million, Financial Times reports

(Reuters) – Crypto broker Genesis and its parent company Digital Currency Group (DCG) owe customers of the Winklevoss twins’ crypto exchange Gemini $900 million, the Financial Times reported on Saturday.

Crypto exchange Gemini is trying to recover the funds after Genesis was wrongfooted by last month’s failure of Sam Bankman-Fried’s FTX crypto group, the newspaper said, citing people familiar with the matter.

Venture capital company Digital Currency Group, which owns Genesis Trading and cryptocurrency asset manager Grayscale, owes $575 million to Genesis’ crypto lending arm, Digital Currency Chief Executive Barry Silbert told shareholders last month.

Gemini, which runs a crypto lending product in partnership with Genesis, has now formed a creditors’ committee to recoup the funds from Genesis and its parent DCG, the report added.

Genesis and Gemini did not immediately respond to Reuters’ request for comment.

Genesis has hired investment bank Moelis & Company to explore options including a potential bankruptcy, the New York Times reported last month, citing three people familiar with the matter.

Genesis Global Capital suspended customer redemptions in its lending business last month, citing the sudden failure of crypto exchange FTX.

Crypto trading platform FTX filed for bankruptcy protection in the United States on Nov. 11 in the highest-profile crypto blowup to date, after traders pulled billions from the platform in three days and rival exchange Binance abandoned a rescue deal.

(Reporting by Shubhendu Deshmukh and Rhea Binoy in Bengaluru; Editing by Toby Chopra and Christina Fincher)

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FTX’s LedgerX attracts interest from Blockchain.com, Gemini- Bloomberg

(Reuters) – FTX’s digital currency futures and clearinghouse LedgerX is up for sale and has attracted interest from crypto firms including Blockchain.com, Gemini, Bitpanda and Kalshi, Bloomberg reported on Friday, citing people familiar with the matter.

There could be over half a dozen other potential buyers for the crypto derivatives exchange, the people told Bloomberg, adding that some of the interested parties have signed non-disclosure agreements.

Blockchain.com, Gemini and Bitpanda did not immediately respond to Reuters’ request for comment, while Kalshi could not be reached for comment.

Crypto trading platform FTX filed for bankruptcy protection in the United States on Nov. 11 in the highest-profile crypto blowup to date, after traders pulled billions from the platform in three days and rival exchange Binance abandoned a rescue deal.

LedgerX was omitted from the bankruptcy proceedings. FTX US acquired it last year to expand into crypto futures and options trading.

(Reporting by Jyoti Narayan in Bengaluru; Editing by Sandra Maler and Cynthia Osterman)

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Galaxy wins bid for collapsed crypto lender Celsius’ GK8 unit

(Reuters) – Galaxy Digital Holdings Ltd will buy crypto lender Celsius Network LLC-owned digital asset custody platform GK8, the crypto financial services company said on Friday.

The purchase followed a sale process executed in connection with Celsius’ Chapter 11 bankruptcy and is subject to court approvals and other closing conditions, the company said.

New Jersey-based Celsius filed for bankruptcy in July, citing extreme market conditions and listed a $1.19 billion deficit on its balance sheet.

The deal will add nearly 40 people, including cryptographers and blockchain engineers, as well as an office in Tel Aviv, Galaxy said.

Founded by Michael Novogratz, the company offers a suite of financial services including trading, asset management and investment banking among others to the crypto-focused companies.

Reuters had reported in August that San Francisco-based blockchain payments company Ripple Labs Inc was interested in potentially purchasing assets of bankrupt crypto lender Celsius Network, according to a company spokesperson.

Crypto markets were shaken by the collapse of the popular terraUSD and luna tokens in May, followed by the implosion of crypto exchange FTX last month.

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

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Crypto meltdown a boon for bankruptcy lawyers

By Andrew Goudsward

(Reuters) – Turmoil in the cryptocurrency industry has rattled major exchanges and sent the value of digital assets tumbling, but at least one group stands to gain: bankruptcy lawyers.

High-profile bankruptcies involving crypto exchange FTX, hedge fund Three Arrows Capital and crypto lenders BlockFi, Celsius Network and Voyager Digital Ltd are generating new opportunities – and big fees – for law firms that counsel troubled companies.

Large law firms can rake in more than $100 million in legal fees during a long-running bankruptcy, experts said.

“You’ve got to pay the gravedigger,” said Adam Levitin, a law professor at Georgetown University who specializes in bankruptcy law. “These are complicated cases with a bunch of novel issues, and it shouldn’t be surprising that they are going to require a lot of attorney involvement.”

The value of bitcoin has dropped 65% so far this year, dragging down other crypto assets and leaving investors reeling. The spectacular implosion of FTX last month sent fresh shock waves through the cryptocurrency industry.

One U.S. law firm, Kirkland & Ellis, is representing BlockFi in its bankruptcy case filed on Monday and is also lead counsel for Celsius Network and Voyager Digital, which both filed for bankruptcy earlier this year.

Kirkland commands some of the highest billing rates in the industry, charging up to $1,995 per hour for work by its partners on the Celsius and Voyager cases, according to court filings. The firm, which did not respond to a request for comment, has billed an average of about $3.3 million every month in each of those cases so far.

Law firm billing rates are normally not public, but in bankruptcy cases lawyers for the debtor company must detail their billings and request a judge’s approval for their fees.

The lawyers are paid from the assets of a bankruptcy estate, and experts said judges rarely demand significant reductions in professional fees.

“Kirkland is dominant in large public company bankruptcies already, and this is just extending to a new area of bankruptcy,” said Lynn LoPucki, a law professor at the University of Florida who has studied bankruptcies and corporate restructuring. “If they dominate crypto, it will keep them at the top.”

Among its larger recent cases, Kirkland earned $83 million in legal fees and reimbursements for its work in the long-running bankruptcy of satellite services provider Intelsat, billing more than 87,000 hours, court filings show.

Kirkland partner Joshua Sussberg is lead counsel in all three of the firm’s crypto-related bankruptcies. He has been involved in many major corporate bankruptcies in recent years, including for movie theater chain Cineworld Group and J.C. Penney Co Inc.

COMPLEX QUESTIONS

Wall Street firm Sullivan & Cromwell is bankruptcy counsel for FTX. The firm has not yet revealed its fees, but in a 2021 case involving Kumtor Gold Company, the firm’s partners billed up to $1,825 per hour.

Sullivan & Cromwell is also representing trading firm Alameda Research, founded by FTX founder Sam Bankman-Fried, as a creditor in the Celsius and Voyager bankruptcies. The law firm did not reply to a request for comment.

As crypto bankruptcies mount, the law firm with the highest maximum billing rate disclosed so far is Latham & Watkins, which is advising Celsius on regulatory issues and is debtor’s counsel to Three Arrows Capital. Its top rate is $2,075 an hour, according to court papers. Latham also did not respond to a request for comment.

The cryptocurrency cases are particularly significant for law firm bankruptcy practices as Chapter 11 filings set off by the COVID-19 pandemic and the struggles of big-box retailers have begun to slow, legal experts said. Crises within certain industries, such as cryptocurrency, can keep business flowing and provide years of steady revenue.

Lawyers in the crypto cases must deal with a host of issues new to bankruptcy law, including whether digital assets deposited on a platform are owned by the customer or the platform itself, according to bankruptcy law experts. That determination could help decide how much of their deposit a customer is likely to recoup from a bankrupt firm.

Levitin, a former member of the restructuring department at law firm Weil, Gotshal, & Manges, said such complex questions call for top-shelf lawyers.

“Otherwise it becomes just a grab race where it’s the biggest and most sophisticated creditors grabbing everything for themselves,” he said.

(Reporting by Andrew Goudsward in Washington; Editing by David Bario and Matthew Lewis)

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REUTERS NEXT: After FTX collapse, pressure builds for tougher crypto rules

(Reuters) – Regulators must step in to protect crypto investors after the collapse of FTX, financial industry executives and lawmakers said at the Reuters NEXT conference this week, the latest call for tougher oversight of a sector prone to meltdowns.

Policymakers have for years highlighted the need for effective rules on the crypto industry, pointing to risks to consumers after a string of big market crashes and corporate failures.

But cryptocurrencies and related businesses remain mostly unregulated.

The European Union regulations designed to bring crypto to heel are expected to take effect in 2024, but the United States in particular still lacks overarching rules.

The collapse of Sam Bankman-Fried’s FTX was the biggest in string of big crypto-related failures this year. It sparked a cryptocurrency rout and has left an estimated 1 million creditors facing losses of billions of dollars.

“The collapse of something as major as FTX just illustrates the importance of transparency, importance of appropriate regulatory protection, regulatory requirements for all financial activities,” Laura Cha, chairman of Hong Kong Exchanges and Clearing said.

New York Stock Exchange President Lynn Martin said institutional investors will be unlikely embrace crypto without clearer rules.

“There was no regulatory framework, and an institutional investor is not going to really dip their toe in a meaningful way in a market unless they understand what the regulatory framework is,” Martin said.

Some crypto investors share these concerns.

“Regulators could have posted a lot more guidance for crypto,” said Brian Fakhoury at crypto venture capital fund Mechanism Capital.

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

REGULATORY CATCH-UP?

The crypto sector hit a record value of almost $3 trillion late last year, before market turmoil prompted by rising interest rates and a string of industry blow-ups wiped more than $2 trillion from its valuation. Bitcoin, the biggest token, is down by three-quarters from its record high of $69,000.

This extreme volatility has not done the crypto sphere any favours in terms of winning broader support in the financial services industry.

“I don’t think it’s a fad or going away but I can’t put an intrinsic value on it,” Morgan Stanley CEO James Gorman said at Reuters NEXT. “I don’t like investing in things that have a range of outcomes or putting clients in it.”

After FTX’s collapse, regulators in the United States as well as finance industry executives and crypto entrepreneurs are focused on the need for a workable set of rules and greater transparency.

Nasdaq CEO Adena Friedman called for a balance in regulation between protection and innovation – a common refrain among mainstream businesses involved in crypto.

Nasdaq, whose crypto custody arm is expected to launch in the first half of 2023, pending regulatory approval, has provided trading and surveillance tech to crypto exchanges for several years.

“Now is the time for regulation to catch up and make sure that as we go forward, to have safety and soundness, but we also allow for innovation and a nimble ecosystem,” Friedman said.

India’s Finance Minister Nirmala Sitharaman said the collapse of FTX underscored the need for greater visibility on often-anonymous crypto transactions.

The FTX collapse “shows the importance of a well-framed regulation,” Sitharaman said, “so that countries can be clearly aware of by whom, for what for these transactions are happening. Who’s the end beneficiary?”

Crypto entrepreneur Justin Sun said investors seldom have clarity on how funds at crypto companies are used.

“For a lot of exchanges and lending providers and institutions in the space, (there’s) a lack of transparency. The customers basically have no idea where the funds are allocated,” said Sun, founder of Tron cryptocurrency.

Investors “can lose their life savings in seconds, but they have no idea where their money goes.” he said.

(Reporting by Sumeet Chatterjee, Megan Davies, Aftab Ahmed, John McCrank, Lananh Nguyen, Elizabeth Howcroft, Saeed Azhar and John Sinclair Foley. Writing by Tom Wilson. Editing by Jane Merriman)

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Binance CEO says paused withdrawals after Ankr hack

(Reuters) – Binance Chief Executive Officer Changpeng Zhao said on Friday that the cryptocurrency exchange has paused withdrawals after the possible attacks on Web 3 operator Ankr and Hay.

“Initial analysis is developer private key was hacked, and the hacker updated the smart contract to a more malicious one.”, he tweeted.

(Reporting by Urvi Dugar in Bengaluru; Editing by Rashmi Aich)

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U.S. authorities asking FTX investors for information on firm and Bankman-Fried – Bloomberg News

(Reuters) – U.S. authorities are asking crypto investors and trading firms who worked closely with FTX to hand over information on the company and its key figures including Sam Bankman-Fried and Caroline Ellison, Bloomberg News reported on Thursday.

The U.S. Attorney’s Office for the Southern District of New York recently sent out a series of requests, asking recipients to hand over information on a list of FTX employees and associates, the report said, citing people familiar with the case.

Attorneys from the U.S. Securities and Exchange Commission’s enforcement division also sent similar requests for information to companies that invested in or traded on FTX, the report added.

The regulator is trying to get a better sense of what FTX representatives told investors and whether any misrepresentations were made that would violate securities laws, according to the report.

The U.S. Department of Justice’s bankruptcy watchdog earlier on Thursday called for an independent investigation into the collapse of crypto exchange FTX.

FTX’s downfall will be examined in several more congressional hearings this month, with the House Financial Services Committee set to hold the first in a series of meetings on Dec. 13.

Last month, newly-appointed FTX CEO John Ray had said in a U.S. court filing that there was flawed regulatory oversight and a lack of corporate control of the bankrupt crypto exchange founded by Sam Bankman-Fried.

U.S. Attorney’s Office for SDNY, SEC, FTX and Caroline Ellison did not immediately respond to Reuters requests for comment. Bankman-Fried could not be immediately reached.

(Reporting by Kanjyik Ghosh in Bengaluru; Editing by Lincoln Feast.)

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DOJ watchdog seeks independent review of FTX bankruptcy

By Dietrich Knauth

(Reuters) – The U.S. Department of Justice’s bankruptcy watchdog on Thursday called for an ihttp://content.reuters.com/auth-server/content/tag:reuters.com,2022:newsml_RC26JX9BBGZW:1692162663/tag:reuters.com,2022:binary_RC26JX9BBGZW-BASEIMAGE?action=download&mediatype=picture&mex_media_type=picture&token=%22mwBUp%2BosqWSEU3ejd4TI%2F34aSJDP2atyImvrSv5CoSE%3D%22ndependent investigation into the collapse of crypto exchange FTX, saying customers need a neutral party to investigate allegations of “fraud, dishonesty, incompetence, misconduct, and mismanagement.”

FTX has ousted founder Sam Bankman-Fried, and new CEO John Ray, who was hired to steer the company through bankruptcy, has said investigating FTX’s implosion and recovering customer assets are among his top priorities.

The DOJ’s Office of the U.S. Trustee said in a filing in Delaware bankruptcy court that it did not question Ray’s competence or earnestness, but an independent investigation would carry more weight with FTX customers and allow Ray to devote more energy to stabilizing FTX’s operations.

FTX did not immediately respond to a request for comment.

“The questions at stake here are simply too large and too

important to be left to an internal investigation,” U.S. Trustee Andrew Vara wrote in court papers.

Ray has said the lapses in oversight, security and corporate governance he identified were greater than in any other process he has managed in his 40 years as a bankruptcy specialist.

A neutral examiner would also provide more public and transparent findings than an internal review, the U.S. Trustee wrote, which is “especially important because of the wider implications that FTX’s collapse may have for the crypto industry,” Vara added.

FTX filed for bankruptcy in November after a week in which a possible merger with rival crypto exchange Binance failed, FTX founder Sam Bankman-Fried was faced with allegations he had funneled customer deposits to FTX’s affiliated trading firm Alameda Research, and the exchange experienced withdrawals of about $6 billion in just 72 hours.

Bankman-Fried has said he is “deeply sorry about what happened” and acknowledged a “massive failure of oversight of risk management,” but said he did not intentionally commingle FTX’s user deposits with Alameda’s trading activity.

Examiners have been appointed in the bankruptcies of crypto companies Celsius Network and Cred Inc.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and Lincoln Feast.)

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Factbox-Crypto companies crash into bankruptcy

By Dietrich Knauth

(Reuters) – 2022 has been a rough year for the crypto industry. The price of bitcoin has dropped 65% since the start of the year, the cryptocurrency Luna suffered a total collapse in value, and crypto exchange FTX went from buying Super Bowl ads to crash landing into bankruptcy.

Here are the major crypto companies that have gone bankrupt in 2022.

FTX

FTX’s implosion was the biggest and most spectacular crypto downfall in 2022 thus far. The Bahamas-based exchange started the year with a $32 billion valuation, hired celebrities including Larry David and Tom Brady for flashy Super Bowl ads, and put its name on the home arena of the NBA’s Miami Heat. FTX, which said it had more than a million users, positioned itself as a “white knight” that could rescue other crypto firms amid market turbulence earlier this year.

But by November, FTX went bankrupt after a week in which a possible merger with rival crypto exchange Binance failed, FTX founder Sam Bankman-Fried dealt with allegations that he had funneled customer deposits to FTX’s affiliated trading firm Alameda Research, and the exchange suffered withdrawals of about $6 billion in just 72 hours. Bankman-Fried has said he is “deeply sorry about what happened” and acknowledged a “massive failure of oversight of risk management,” but said he did not intentionally commingle FTX’s user deposits with Alameda’s trading activity.

John Ray, the new CEO brought in to oversee FTX’s bankruptcy, said he had never before seen “such a complete failure of corporate controls” – and Ray was the executive tasked with cleaning up Enron’s debts in the wake of its early-2000s accounting fraud scandal.

BLOCKFI

Crypto lender BlockFi was the first crypto company to follow FTX into bankruptcy, filing for Chapter 11 about two weeks after FTX’s collapse.

BlockFi had several ties to FTX, and it had relied on a $400 million FTX credit facility to stay afloat after competing crypto lenders Voyager Digital Ltd and Celsius Network went bankrupt as a result of market turbulence earlier in 2022.

BlockFi has previously said it had 450,000 users and intends to ask a bankruptcy judge to allow some of them to withdraw funds. The users that would be able to withdraw funds have non-interest-bearing BlockFi Wallet accounts, which BlockFi created earlier this year as part of a $100 million settlement with the U.S. Securities and Exchange Commission.

THREE ARROWS CAPITAL

The crypto hedge fund Three Arrows Capital (3AC) was the first major crypto firm to go bankrupt in 2022, brought down by the collapse of cryptocurrencies Luna and TerraUSD in May. Those meltdowns roiled crypto markets around the world, wiped out $42 billion in investor value, and led to an arrest warrant in South Korea for the cryptocurrencies’ developers.

Singapore-based 3AC, which was reported to have $10 billion in cryptocurrency earlier in 2022, began bankruptcy proceedings in the British Virgin Islands in June.

Professionals overseeing 3AC’s liquidation have said that its founders fled overseas and are not cooperating with efforts to recover assets for creditors.

VOYAGER DIGITAL

Voyager, a New Jersey-based crypto lender, in July filed for bankruptcy in the United States after 3AC defaulted on a crypto loan worth more than $650 million.

Voyager had hoped to move its bankruptcy quickly through the U.S. court system, having reached an agreement in September to sell its assets for $1.4 billion in crypto to FTX.

The proposed sale fell through following FTX’s implosion, and Voyager reopened discussions with other potential buyers, including the crypto exchange Binance.

CELSIUS NETWORK

Another crypto lender brought down by the Terra and Luna collapse, Celsius Network began its U.S. bankruptcy case in July on rockier footing than Voyager.

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.

Celsius’ bankruptcy judge has appointed an examiner to investigate whether Celsius operated as a Ponzi scheme and to broadly review the company’s finances. Celsius has said it welcomed an independent review, but it expressed concern about overlapping investigations undertaken by its creditors, state securities regulators and the bankruptcy examiner.

(Reporting by Dietrich Knauth in New York; Editing by Noeleen Walder, Alexia Garamfalvi and Matthew Lewis)

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REUTERS NEXT: U.S. Treasury’s Adeyemo calls for global cooperation on crypto regulations

WASHINGTON (Reuters) – The collapse of Bahamas-based cryptocurrency exchange FTX points up the need for the United States to cooperate with other countries to develop effective international regulations for the crypto sector, U.S. Deputy Treasury Secretary Wally Adeyemo said on Thursday.

Adeyemo told the Reuters NEXT conference that it was important to erect regulatory regimes to protect investors, consumers and financial stability and block illicit uses of cryptocurrencies. Because FTX was not a U.S.-based firm, the effort must broadened, he said.

“This is a global phenomenon. And what that means is that we’re going to have to work closely with our international partners to design a regulatory regime in a framework that helps us to make sure we protect the global economy as we think about innovation like cryptocurrency,” Adeyemo told Reuters NEXT.

To view the Reuters NEXT conference live on Nov. 30 and Dec. 1, please click here [https://www.reuters.com/world/reuters-next/]

(Reporting by Dan Burns and David Lawder; Editing by Chizu Nomiyama)

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LSEG CEO says weak links in markets exposed by recent volatility

By Peter Thal Larsen

(Reuters) – London Stock Exchange Group Plc Chief Executive David Schwimmer said on Thursday that large spikes in volume associated with algorithmic trading have worsened recent market volatility, exposing weak links in the global market infrastructure.

“What that means is when there’s an event … some kind of crisis like the onset of COVID in the spring of 2020, you see massive moves in the markets very quickly, and a lot of the plumbing out there cannot handle that,” he said in an interview at the Reuters NEXT conference.

At the onset of the COVID pandemic in March 2020, some banks asked LSEG to close its markets for a day or two so they could catch up with post-trade settlement and processing, he said.

“We didn’t do that, obviously, because it’s important for us to keep the markets open and maintain that functionality, but I mentioned that because it’s where there may be some progress made over time,” he said.

Volatility across markets has soared this year, as global central banks have jacked up rates to grapple with the worst outbreak of inflation in decades, sparking wild fluctuations in the prices of currencies, stocks and bonds.

Equity markets around the globe have been particularly turbulent. One-month volatility for the MSCI world equity index, which tracks shares in 47 countries, averaged 19 this year, compared with an average of 11 for the prior 10 years, according to Refinitiv data.

Another area of concern is in the private equity and debt markets, which have grown quickly in recent years, while using lots of leverage, but with very little transparency, he said.

“A lot of people are sort of wondering and watching, how does that play out as rates continue to go up,” he said.

Regarding cryptocurrencies, Schwimmer said it is not surprising that the zeal around the assets has died down as interest rates are going up, as the recent explosion in enthusiasm around crypto can be seen as a byproduct of excess liquidity in the financial system while interest rates were in negative territory.

Cryptocurrencies have also been under pressure this year after a string of high-profile bankruptcies at crypto lenders and exchanges, the biggest being FTX, which collapsed after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. FTX’s failure has left an estimated 1 million creditors facing losses totaling billions of dollars.

The price of bitcoin is hovering around $17,000, down about 75% from its record high of around $69,000 in November.

LSEG has taken a cautious approach to crypto and does not provide digital asset trading, but it provides data on digital assets and Schwimmer said the exchange operator is “open to doing a lot of work with the underlying technology.”

“So not crypto trading, but I’ll call it digital technology, whether that’s digital ledger technology, whether it’s digitization in other forms, there are a number of different aspects that can benefit from improved digitization,” he said.

LSEG’s purchase of Refinitiv, which it bought for $27 billion in 2021, turned the 300-year-old exchange into a major market data player, but outages and sums invested in integration raised concerns among some investors.

Thomson Reuters, which owns Reuters News, has a minority shareholding in LSEG.

(Reporting by Peter Thal Larsen and John McCrank in New York and Noor Zainab Hussain in Bengaluru; Additional reporting by Saqib Iqbal Ahmed in New York; Editing by Matthew Lewis)

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U.S. CFTC chairman says met with former FTX chief 10 times over clearing application

WASHINGTON (Reuters) – The U.S. Commodity Futures Trading Commission (CFTC) chairman Rostin Behnam told lawmakers on Thursday that he met with former FTX chief executive officer Sam Bankman-Fried 10 times to discuss the company’s clearing house application.

Behnam said he and his team met with Bankman-Fried and his FTX team 10 times over the past 14 months in addition to follow-up calls and messages.

“We were doing what we were required to do by law,” he said during a Senate hearing into the FTX collapse.

(Reporting by Chris Prentice and Hannah Lang)

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FTX ex-CEO Bankman-Fried says he did not know of improper use of customer funds -ABC News

WASHINGTON (Reuters) – FTX founder Sam Bankman-Fried said there was a borrowing-lending facility at the cryptocurrency exchange but he did not know of deposits being used to pay its affiliated trading firm Alameda Research, he told ABC News in an interview aired on Thursday.

Asked if he knew whether funds were being funneled to Alamed, FTX’s former chief executive officer told ABC: “I did not know that there is any improper use of customer funds.”

(This story has been corrected to fix headline to say “not”, not “now”)

(Reporting by Susan Heavey)

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Yen, pound hit strongest in three months on Powell remarks on Fed slowing

By Alun John

LONDON (Reuters) – The dollar weakened to three month-lows against the yen and the pound on Thursday, after comments by Fed Chair Jerome Powell that U.S. rate hikes could be scaled back “as soon as December”, but the euro failed to climb past a major resistance level.

The aggressive pace of U.S. Federal Reserve rate increases this year has sent the dollar soaring, thanks to higher U.S. benchmark yields and fears the central bank would push the U.S. economy into recession in its attempts to combat inflation.

But Powell said on Wednesday that “slowing down at this point is a good way to balance the risks”.

He added, however, that controlling inflation “will require holding policy at a restrictive level for some time”.

Markets are pricing in a 80% probability that the Fed increases rates by 50 basis points at the next meeting, versus a 20% chance of another 75 basis point hike according to CME’s Fedwatch tool.

The greenback tumbled as much as 1.64% to 135.85 yen, its lowest level since August 23, but then recovered to 136.26.

The dollar-yen pair is extremely sensitive to changes in long-term U.S. Treasury yields, which fell after Powell’s comments and hit a two month low of 3.587% in London trading Thursday.

The pound also gained sharply, rising 0.88% to $1.2164, its highest since 12 August, hovering around its 200 day moving average.

Traders are also looking out for Thursday’s U.S. personal consumption expenditure price index to see if that offers any further insights into the inflation situation and hence the Fed’s hiking plans, and also Friday’s U.S. jobs data.

But both could be overshadowed by Powell’s remarks.

Simon Harvey, head of FX analysis at Monex Europe said he thought markets would largely look through PCE data and even when it came to Friday’s jobs data “if they weaken substantially then the market moves, if they stay the same, we’re onto thinking about CPI”.

The euro also made some gains, up 0.38% to $1.04485, but was holding off from making another effort to cross the $1.05 level.

“Euro-dollar has had two failed runs at $1.05. We’re looking to see if there is something that is going to drive things through those barriers,” Harvey said, referring both to the euro at that level and sterling-dollar’s 200 day moving average of $1.22155

The dollar weakened against most other G10 currencies, falling 0.2% against the Swiss franc while the Australian dollar reached $0.684, the highest since Sept. 13 and the New Zealand dollar touched $0.636, the highest since Aug. 17.

The Aussie and kiwi have also been buoyed by signs the Chinese government will relent on its zero-COVID policy.

Giant cities Guangzhou and Chongqing announced easings of COVID curbs on Wednesday, while officials in Zhengzhou, the site of a Foxconn factory that is the world’s biggest maker of Apple iPhones and has been the scene of worker unrest over COVID, also announced the “orderly” resumption of businesses.

China’s yuan saw some volatility in offshore trading after media reports that the capital Beijing would allow some people to home-quarantine. The dollar was last 0.3% stronger at 7.068 yuan after having weakened as much as 0.3% to a two-week low of 7.0256.

(Reporting by Kevin Buckland; Editing by Stephen Coates, Ana Nicolaci da Costa, William Mallard, Alex Richardson and Alexander Smith)