Tag: Cryptocurrencies

By Hannah Lang and Pete Schroeder

(Reuters) – New York’s financial regulator said its decision to close Signature Bank had “nothing to do with crypto,” citing what it called “a significant crisis of confidence in the bank’s leadership” that occurred over the weekend after regulators shuttered Silicon Valley Bank.

The comments from a New York State Department of Financial Services spokesperson were in contrast with those made by Signature Bank board member and former U.S. Rep. Barney Frank, one of the pioneers of the landmark Dodd-Frank Act, which was enacted after the 2008 financial crisis to better insulate the banking system from shocks.

“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” Frank told CNBC on Monday. “We became the poster boy because there was no insolvency based on the fundamentals.”

But NYDFS denied Frank’s claims in a statement on Tuesday, saying that its decision to close Signature Bank on Sunday and appoint the Federal Deposit Insurance Corp as receiver “was based on the current status of the bank and its ability to do business in a safe and sound manner on Monday.”

The FDIC and Signature Bank did not immediately respond to a request for comment.

“The decisions made over the weekend had nothing to do with crypto. Signature was a traditional commercial bank with a wide range of activities and customers,” an NYDFS spokesperson said.

“DFS has been facilitating well-regulated crypto activities for several years, and is a national model for regulating the space,” they said.

The spokesperson added that as withdrawal requests ballooned over the weekend, Signature Bank failed to provide reliable and consistent data.

In response to NYDFS’ statement, Frank said he was surprised the regulator said the decision to close the bank was not related to cryptocurrency.

“I think that was a factor,” he said in an interview. “I’m puzzled as to why it was closed.”

He added that to his knowledge, bank executives were working to provide data to regulators.

“What we heard from our executives is that the deposit situation had stabilized and they would be getting the capital from the discount window and I continue to be convinced that if we had opened on Monday given the announcements of those two policies, we would have been in a reasonably good shape and certainly functional,” he said.

Signature was a commercial bank with private client offices with nine national business lines including commercial real estate and digital asset banking.

As of September, almost a quarter of its deposits came from the cryptocurrency sector, but the bank announced in December that it would shrink its crypto-related deposits by $8 billion.

The FDIC established a “bridge” successor bank to Signature Bank on Sunday to enable depositors to access their funds. The U.S. Treasury Department and other bank regulators announced Sunday that all of the depositors at both Signature Bank and Silicon Valley Bank would be made whole and “no losses will be borne by the taxpayer.”

(Reporting by Hannah Lang in Washington, Editing by Nick Zieminski)

LONDON (Reuters) – Top cryptocurrency bitcoin hit a nine-month high of $26,533 on Tuesday, in its fourth consecutive day of gains, as it appeared to benefit from chaos in global markets following last week’s collapse of Silicon Valley Bank.

Bitcoin rose to $26,533 at around 1306 GMT, up around 10% on the day at its highest since June 2022. It gained 7.6% on Sunday and 9.1% on Monday.

The dollar was little changed overall after U.S. consumer price data on Tuesday showed inflation still rising, but at a slower pace than the previous month, in a widely anticipated reading that may lead the Federal Reserve to slow or even pause hiking interest rates next week.

Cryptocurrency prices fell sharply in 2022 as rising rates prompted investors to ditch risky assets. A series of collapses at high-profile crypto firms, including major exchange FTX, left customers with large losses.

(Reporting by Elizabeth Howcroft, editing by Sinead Cruise)

By Elizabeth Howcroft and Tom Wilson

LONDON (Reuters) – Binance is halting its sterling deposits and withdrawals, a company spokesperson said on Tuesday, a month after the world’s largest crypto exchange ceased dollar transfers.

Binance has been informed by its partner for sterling transfers, Paysafe, that it would halt its services from May 22, the spokesperson said, impacting all Binance customers.

Sterling transfers for new users were stopped on Monday, it said.

“Binance will ensure that affected users are still able to access their GBP balances,” the spokesperson said, adding that the change “affects less than 1% of Binance users.”

Binance, which has more than 128 million customers, did not give details on the number of clients the move would impact. The company is working to find an “alternative solution” for sterling transfers, the spokesperson said.

The cessation of sterling transfers, first reported by crypto news outlet The Block, is the latest obstacle for Binance in accessing traditional currencies. Binance last month suspended all dollar bank transfers amid a growing crackdown on crypto by U.S. authorities.

The Justice Department is also investigating Binance, run by billionaire CEO Changpeng Zhao, for suspected money laundering and sanctions violations, Reuters has previously reported. A top Binance executive told The Wall Street Journal and Bloomberg last month that Binance expected to pay penalties to resolve U.S. investigations into the company.

A further hindrance for Binance in accessing dollars came after the U.S. Securities and Exchange Commission told the company which issued its “BUSD” stablecoin it was considering taking action against it. The move sparked around $6 billion in outflows as of earlier this month.

The importance of sterling funding to Binance is unclear. The company does not make public its finances, with the core of the business – the giant Binance.com exchange – mostly hidden from public view.

Paysafe did not immediately respond to a request for comment from Reuters. The company offers the service via UK payments network Faster Payments, which also had no immediate comment.

A spokesperson for Skrill, the Paysafe unit that works with Binance, told crypto website Decrypt that “the UK regulatory environment in relation to crypto is too challenging to offer this service at this time and so this is a prudent decision on our part taken in an abundance of caution.”

Britain’s financial watchdog said last year that it lacked powers to stop Binance from accessing the Faster Payments network via Paysafe.

The UK’s Financial Conduct Authority (FCA) warned consumers in June 2021 that Binance did not hold “any form” of permission to offer services regulated by Britain.

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

(Reporting by Tom Wilson and Elizabeth Howcroft; editing by Jason Neely)

(Reuters) – The U.S. Justice Department is investigating last year’s collapse of the TerraUSD stablecoin, the Wall Street Journal reported on Monday, citing people familiar with the matter.

The Federal Bureau of Investigation and the Southern District of New York (SDNY) have questioned former team members of the company behind the stablecoin, the report said.

Spokespeople for Terraform Labs and the U.S. Attorney’s office for the Southern District of New York did not immediately respond to Reuters’ requests for comment.

Last month, the U.S. Securities and Exchange Commission charged Terraform founder Do Kwon with defrauding investors in what the regulator deemed a multibillion-dollar scheme.

(Reporting by Niket Nishant in Bengaluru; Additional reporting by Luc Cohen and Ananya Mariam Rajesh; Editing by Maju Samuel)

(Reuters) – Meta Platforms Inc will stop supporting digital collectibles or non-fungible tokens (NFTs) on its platforms, the social media firm’s fintech head Stephane Kasriel said on Monday.

“We’re winding down digital collectibles (NFTs) for now to focus on other ways to support creators, people, and businesses,” Kasriel tweeted.

(Reporting by Eva Mathews in Bengaluru; Editing by Devika Syamnath)

By Elizabeth Howcroft

LONDON (Reuters) – U.S.-based crypto firms are trying to open Swiss bank accounts after the collapse of two U.S. crypto-focused banks made it harder for them to use lenders in the United States, but bankers said the Swiss firms may not take them.

Crypto-focused U.S. bank Silvergate Capital Corp said it planned to close last week after it was hit with losses following the dramatic collapse of crypto exchange FTX in November last year.

Its closure was followed by the collapse on Sunday of Signature Bank — seen as U.S. crypto firms’ main alternative to Silvergate — in one of the largest failures in U.S. banking history.

The global banking sector was thrown into turmoil by Friday’s collapse of Silicon Valley Bank, which sent global bank stocks plunging on Monday on concern about further contagion. The tech-focused lender also banked crypto companies and was the second-biggest U.S. bank failure.

Crypto analysts said that the U.S. bank closures, along with a regulatory crackdown in the U.S., would push firms to seek banking partnerships in Europe, Asia, and “offshore”.

“U.S. regulators have issued multiple warnings to banks about potential risks of working with crypto companies. They haven’t banned it explicitly but made it clear this would be frowned upon,” said Ivan Kachkovski, crypto and FX analyst at UBS.

“This is likely to push crypto companies to other jurisdictions in search of non-U.S. banks willing to work with the industry.”

Switzerland, long famous for its private banking sector, has also been one of the more welcoming countries in Europe for crypto firms, with the Swiss city of Zug dubbed “The Crypto Valley.”

Yves Longchamp, managing director of crypto-focused SEBA Bank in Switzerland said there had been a “pronounced uptick” in traffic to the bank’s website from the U.S., and that in a global call on Friday representatives from the Singapore, Hong Kong, Abu Dhabi, and Switzerland offices all said they’d seen increased interest from prospective clients.

“Crypto firms and other money managers have already started the onboarding process and many calls are scheduled next weeks,” he said via email.

Switzerland-based Arab Bank said it saw an increase in U.S. firms, mostly crypto funds or involved in crypto venture capital, seeking to open accounts in the last few weeks as doubts about Silvergate grew. Rani Jabban, head of treasury and financial institutions at Arab Bank, said around 80% of them had been Silvergate customers.

“We had 10-20 enquiries so far… but that doesn’t mean that we can cater and open accounts for all of them,” he said, citing regulatory difficulties of onboarding U.S.-based clients and estimating that only one or two of them would ultimately become Arab Bank customers.

Crypto firms relied on Silvergate’s crypto payments network, the Silvergate Exchange Network, which allowed round-the-clock transfers between investors and crypto exchanges, unlike traditional bank wires, which can often take days to settle.

“I don’t see any banks also offering the structure that Signature and Silvergate were offering with their internal blockchain 24/7 settlement,” Arab Bank’s Rani said.

Swiss bank Sygnum, which describes itself on its website as “the world’s first digital asset bank”, is sticking to its policy not to take on U.S. clients “due to a lack of regulatory clarity” Sygnum’s chief marketing officer Dominic Castley told Reuters via email.

(Reporting by Elizabeth Howcroft; Editing by Sharon Singleton)

(Reuters) – U.S. cryptocurrency firm Circle said on Sunday its $3.3 billion USDC reserve deposit held at the collapsed Silicon Valley Bank will be fully available when U.S. banks open Monday.

“Circle’s USDC operations will open for business, including with new automated settlement via our new partnership with Cross River Bank,” Chief Executive Officer Jeremy Allaire said in a tweet.

(Reporting by Akriti Sharma in Bengaluru; Editing by Sonali Paul and Rashmi Aich)

SINGAPORE (Reuters) – Bitcoin and other cryptocurrencies rallied on Monday after U.S. authorities announced plans to limit the fallout from the collapse of Silicon Valley Bank (SVB).

The U.S. Treasury and Federal Reserve announced a range of measures to stabilise the banking system and said depositors at SVB would have access to their deposits on Monday.

The moves came as authorities took possession of New York-based Signature Bank, the second bank failure in a matter of days.

Stablecoin USD Coin (USDC), which had lost its 1:1 dollar peg and hit an all-time low on Saturday on concerns over the exposures of Circle, the firm behind USDC, to Silicon Valley Bank, recovered. It was at $0.9917, closer to par and up from last week’s lows around $0.88.

Circle CEO Jeremy Allaire said in a tweet on Monday all of USDC’s reserves are safe and will be transferred from SVB to BNY Mellon.

Bitcoin was up about 7% at $22,183, compared to Sunday’s low of $20,456.

(Editing by Kim Coghill)

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.)