Tag: Cryptocurrencies

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)

(This March 6 story has been corrected to remove the reference to Signature Bank in paragraph 3)

By Manya Saini

(Reuters) – Shares of Silvergate Capital Corp fell as much as 11% on Monday after the bank suspended its crypto payments network and expressed doubts over the viability of its business.

The stock closed the volatile session 6.4% lower at $5.40, after wild swings between gains and losses through the day.

Several crypto stocks also closed in negative territory. BTC mining machine makers Ebang International and Canaan Inc dropped 2.8% and 8.4%, respectively. BTC buyer MicroStrategy declined 3.8% and exchange Coinbase Global slipped 2.7%.

Crypto-focused bank Silvergate said late on Friday it had made a “risk-based decision” to discontinue the Silvergate Exchange Network (SEN) effective immediately.

“The SEN is Silvergate’s main flagship product that previously was the key attraction for depositors to bring funds to the bank,” said analysts at Wedbush.

The discontinuation could signal that Silvergate may consider winding down its operations, they added.

Shares of Silvergate hit a record low of $4.86 on Friday, shedding nearly 98% of their value since closing at an all-time high in November 2021 and wiping out more than $7 billion from the company’s market capitalization.

“The crypto market reacted to the negative news from Silvergate Bank, with both bitcoin and ethereum down about 4.8% for the week,” analysts at brokerage Bernstein said.

Graphic: Crypto-related deposits at Silvergate plunge https://www.reuters.com/graphics/SILVERGATE-STOCKS/dwpkdzqorvm/chart.png

“We believe a receivership/liquidation scenario is a distinct possibility and arrive at a liquidation value of $5 per share,” Wedbush analysts said. The estimated price marks a roughly 13% downside to the stock’s previous close.

A slew of crypto heavyweights including Coinbase Global have dropped Silvergate as their banking partner.

The firm has been struggling to stay afloat after the collapse of Sam Bankman-Fried’s crypto exchange FTX in November drove investors to pull out $8 billion in deposits from the bank in the last three months of the year.

Graphic: Crypto-friendly bank’s shares dive as industry winter bites https://www.reuters.com/graphics/SILVERGATE-STOCKS/zgpobnyqevd/chart.png

Silvergate reported a net loss of $1 billion in the fourth quarter.

(Reporting by Manya Saini in Bengaluru; Editing by Anil D’Silva, Devika Syamnath and Krishna Chandra Eluri)

(Reuters) – U.S. federal officials have been discussing with Silvergate Capital Corp’s management to avoid a shutdown, Bloomberg News reported on Tuesday, citing people familiar with the matter.

Shares of the cryptocurrency-focused bank rose about 5% in after-market trading.

Last week, the bank warned it was delaying its annual report and said it was evaluating its ability to operate as a going concern.

The company late on Friday said that effective immediately it made a “risk-based decision” to discontinue the Silvergate Exchange Network, which enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank wires, which can often take days to settle.

U.S. regulators have been sent to the headquarters of Silvergate as the company looks for a way to stay in business, the report said.

One possible option involves lining up crypto-industry investors to help Silvergate shore up its liquidity, the report said.

Federal Deposit Insurance Corp (FDIC) examiners were authorized to go to Silvergate’s offices by the Federal Reserve, which is its main federal overseer and the examiners are reviewing the company’s books and records, Bloomberg News added.

FDIC examiners arrived at the company’s La Jolla, California offices last week, the people told Bloomberg News, and added the company has not made a decision on how to deal with its deepening financial turmoil.

FDIC and Silvergate were not immediately available for comments.

Silvergate had been trying to ease investor concerns over its future as it reported a $1 billion loss for the fourth quarter after the collapse of Sam Bankman-Fried’s crypto exchange FTX in November drove investors to pull out $8 billion in deposits from the bank in the last three months of the year.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Maju Samuel)

By Hannah Lang

WASHINGTON (Reuters) – U.S. federal appellate court judges questioned on Tuesday whether the U.S. Securities and Exchange Commission (SEC) was correct to reject Grayscale Investment’s application for a spot bitcoin exchange-traded fund, since the agency had previously approved bitcoin futures products.

The SEC rejected Grayscale Investment LLC’s application to convert its flagship spot Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF) last June, arguing the proposal did not meet anti-fraud and investor protection standards.

A panel of judges in the District of Columbia Court of Appeals in Washington pressed the SEC on Grayscale’s argument that, because the regulator previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs, the same setup should also be satisfactory for Grayscale’s spot fund, since both spot and futures funds rely on bitcoin’s price.

Bitcoin futures ETFs track bitcoin futures contracts, or agreements to purchase or sell bitcoin at a certain price on a specified date. A spot bitcoin ETF would track bitcoin’s underlying market price. Proponents say a spot bitcoin ETF would give investors exposure to bitcoin without directly buying it.

“It seems like it’s fine for an agency to say okay, we need some more information, but it seems there’s quite a bit of information here on how these markets work together, and the SEC has not offered any explanation… that the petitioners here are wrong,” said Judge Neomi Rao.

Grayscale’s lead counsel Donald Verrilli Jr., an Obama-era U.S. solicitor general, told the court that a spot bitcoin ETF would “better protect investors” because it would give them the benefit of oversight on the basis of the surveillance agreements set up with the Chicago Mercantile Exchange, where bitcoin futures trade.

Emily True Parise, senior litigation counsel for the SEC, argued the regulator lacks data to determine whether those surveillance agreements could also pick up potential fraud and manipulation in the spot markets.

“The evidence is just mixed at this point. It’s bi-directional sometimes,” she said, noting that bitcoin futures have only been trading since 2017.

The case comes as the crypto industry has increasingly been at odds with the SEC over the regulator’s crackdown on digital asset products, including those that offer investors returns on certain digital tokens.

The case’s outcome could either vindicate the SEC’s posture or pave the way for other companies to offer spot bitcoin exchange-traded funds (ETFs) if the judges rule in favor of Grayscale.

Other would-be issuers of spot bitcoin ETFs that the SEC rejected include FMR LLC’s Fidelity, SkyBridge Capital and Valkyrie Investments Inc.

Valkyrie’s chief investment officer, Steven McClurg, said in a statement that his company does not believe a spot bitcoin ETF will be approved within the next year. A Fidelity spokesperson said the company looks forward to constructive dialogue with the SEC. A representative for Skybridge declined to comment.

Grayscale’s chief executive officer, Michael Sonnenshein, has said he expects a final ruling in the case this fall, and that he anticipates the court will rule in Grayscale’s favor. He told Reuters in January that Grayscale would appeal the case if the court backed the SEC’s decision to reject its bitcoin ETF proposal.

Grayscale Bitcoin Trust, launched in 2013, has $14 billion in assets under management, according to Grayscale’s website. The GBTC discount to bitcoin is hovering around 45%, having come under pressure after crypto exchange FTX collapsed in November.

(Reporting by Hannah Lang in Washington; editing by Jonathan Oatis, Louise Heavens and Josie Kao)

By Hannah Lang and Lisa Pauline Mattackal

(Reuters) – For investors living on the digital edge, bitcoin is starting to look a little old-fashioned.

Hooked on high growth, some are turning away from the original cryptocurrency – designed as an alternative to regular cash – in favor of its descendants created as native tokens of blockchain platforms that host smart contracts and apps.

MarketVector’s Smart Contract Leaders Index, which tracks major tokens of this kind – including ether, dot and solana – is up 36% in 2023, outpacing even bitcoin’s 33% rise. Solana’s token is up 76% this year.

Bundeep Rangar, CEO of crypto-focused asset manager Fineqia, said he expected the biggest crypto returns to come from smart contract tokens on platforms that support decentralized finance (DeFi) apps.

“Those are ones that you will find capital appreciation, similar to what a growth stock will be,” he added.

Some investors in the $1 trillion world of digital assets appear to agree, according to CoinShares data which shows investment products tracking ether and solana have seen small inflows even as bitcoin products suffered four consecutive weeks of outflows.

Around seven of the top 20 biggest crypto assets are smart contract tokens, including ether and dot, solana and cardano.

BofA analysts also pointed to smart contract tokens and the blockchain-based applications they power as similar to growth stocks in the equities world, typically technology shares.

“We expect 2023 to be the year of token price divergence,” analysts at Bank of America wrote in a Feb. 24 research note.

BITCOIN STILL BOSS

Bitcoin has long traded in tandem with tech stocks, but that cord may be fraying just as smart-contract tokens increasingly take up its crypto super-growth mantle.

The cryptocurrency’s 30-day correlation with the Nasdaq turned negative on Feb. 23 for the first time since early December, where a measure of 1 indicates the two assets are moving in lockstep.

Some crypto watchers say the relative strength in smart-contract tokens this year points to a solid performance by the most established DeFi protocols despite the market ructions of 2022. They caution, though, that the global macro outlook and central bank policy could hit the growth of crypto projects and their associated tokens.

James Butterfill, head of research at CoinShares, warned it was also too early to call a major divergence in crypto. Indeed, bitcoin’s shadow still looms large over the sector, with its share of the total crypto market capitalization up slightly to 40%, from 38% at the start of the year.

But on the other hand, Butterfill said such departures could be a potential sign of the cryptoverse growing up.

“We should be increasingly adopting the view that the market, as it evolves, will become more sophisticated and more mature, and we will start to see that price divergence.”

(Reporting by Lisa Mattackal in Bengaluru and Hannah Lang in Washington, D.C.; Editing by Vidya Ranganathan and Pravin Char)

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

La Jolla, California-based Silvergate, one of the most influential banks in the digital asset industry, also said it has made a “risk-based decision” to discontinue the Silvergate Exchange Network that enabled crypto payments.

Shares of the crypto-friendly bank have lost nearly 98% in value from their record close in November 2021.

Here is a list of crypto firms that have issued statements in light of the developments at the embattled bank:

Okcoin:

The crypto exchange said its corporate and customer fund exposure to Silvergate was quite limited, adding that all customers’ funds were safe.

Bakkt Holdings Inc:

The digital asset platform said it was closely monitoring the situation with Silvergate and was in the process of discontinuing certain services.

Microstrategy Inc:

The crypto firm said it has a loan from Silvergate not due until the first quarter of 2025, adding that the bank’s insolvency or bankruptcy will not accelerate the loan. Acceleration clause requires a loan to be repaid immediately under certain conditions.

Coinbase Global:

The crypto exchange said it was no longer accepting or initiating payments to or from Silvergate. The firm also said it has minimum exposure to the crypto-focused bank.

Crypto.com:

A spokesperson for the crypto exchange said in an emailed statement to Reuters it was temporarily suspending USD deposits and withdrawals via Silvergate out of caution.

Gemini:

The crypto firm said on Twitter it has stopped accepting customer deposits/processing withdrawals via automated clearing house (ACH) and wire transfers through Silvergate on the Gemini exchange.

Galaxy Digital:

The company said in a tweet in light of recent developments that it has stopped accepting or initiating transfers to Silvergate, adding that it has no material exposure to the bank.

Bitstamp:

The crypto exchange said that as a precautionary measure in light of recent news it is no longer processing transfers with Silvergate, adding that client funds remain secure and fully available.

Circle:

The firm said it is sensitive to the concerns around Silvergate and is in the process of unwinding certain services with the bank and notifying customers.

Paxos:

The crypto firm said it does not have any material exposure to Silvergate but added that in light of recent developments with the bank, it has discontinued all Silvergate Exchange Network transfers and wires to its Silvergate account.

Cboe Clear Digital:

The company said it would be pausing all transactions with Silvergate Bank at this time until further notice.

Tether:

The company’s chief technology officer said on Twitter it has no exposure to Silvergate.

(Reporting by Manya Saini in Bengaluru; Editing by Maju Samuel and Vinay Dwivedi)

(Reuters) – FTX said on Monday its affiliate Alameda Research had sued asset manager Grayscale Investments for imposing a “redemption ban” that “could realize over a quarter billion dollars” of asset value for the bankrupt cryptocurrency exchange’s customers.

If Grayscale had reduced its fees and did not implement redemption prevention measures, which the cryptocurrency exchange alleges are improper, FTX’s shares would be worth nearly 90% more than the current value of those locked up with the asset manager, FTX said.

FTX also accused Grayscale owner Digital Currency Group of breaching trust agreements and fiduciary duties.

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

BRASILIA (Reuters) – Brazil’s central bank announced the start of a digital currency pilot project on Monday, aiming to replicate the success of its instant payment system Pix to popularize financial services in the country.

According to Fabio Araujo, coordinator of the initiative at the bank, the public use of the digital currency should begin at the end of 2024, after the completion of the testing phase – which will include buying and selling of federal public bonds among individuals – and its subsequent evaluation.

Araujo said the “digital real” will be built as a means of payment executed on distributed ledger technology (DLT), to support the provision of retail financial services settled through tokenized deposits in institutions of the financial and payment systems in Brazil.

“This environment reduces costs and brings the possibility of financial inclusion for people. You have services that are very expensive to carry out, such as repo operations, which today are only for banks, but which could be performed by anyone with a technology based on digital currencies,” he said.

“This could reduce the cost of credit, the cost of improving the return on investments. There is a great potential for new service providers, fintechs, democratizing access to the market and offering new services.”

Araujo stressed that the concept of the Brazilian central bank digital currency (CBDC) was not intended to leverage digital payments, as this is already being done on a large scale with Pix, which was launched at the end of 2021 and has been widely adopted in Brazil.

Bank deposits would continue to exist within the Brazilian CBDC, only being registered in a more modern environment, meaning that financial institutions would not lose this source of funds for credit generation.

“Banks are very interested in this new tokenized world, in every conversation we have they have shown a lot of interest,” said Araujo.

(Reporting by Marcela Ayres; Editing by Leslie Adler)

(Reuters) – Brazilian digital lender Nubank said on Monday it had expanded its board to add David Marcus, former digital wallet executive at Meta Platforms Inc.

Marcus, 49, who headed payments and cryptocurrency operations at Meta, left the social media company at the end of 2021 to launch a crypto-focused startup, Lightspark.

Prior to Meta, he was the president at digital payments company PayPal Holdings Inc for more than two years.

Nubank is one of the most popular financial technology platforms in Latin America, with around 75 million customers across Brazil, Mexico and Colombia.

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

(Reuters) – Binance, one of the world’s largest cryptocurrency exchanges, developed a plan to avoid the threat of prosecution by U.S. authorities as it started an American entity in 2019, the Wall Street Journal reported on Sunday.

Any lawsuit from U.S. regulators, who had signaled a coming crackdown on unregulated offshore crypto players, would be like “nuclear fall out” for Binance’s business and its officers, the WSJ said, citing a Binance executive’s warning to colleagues in a 2019 private chat.

The report is based on messages and documents from 2018 to 2020 reviewed by The Wall Street Journal as well as interviews with former employees.

Binance, founded in 2017, and Binance.US are more intertwined than the companies have disclosed, mixing staff and finances, and sharing an affiliated entity that bought and sold cryptocurrencies, the report said.

It noted that Binance.com operated mainly from hubs in China and Japan, yet a fifth of its customers were based in the United States. Binance.US is based in San Francisco.

Binance developers in China maintained the software code that supported Binance.US users’ digital wallets, potentially giving Binance access to U.S. customer data, the WSJ reported.

Since 2020, the Department of Justice and Securities and Exchange Commission have been investigating Binance’s relationship to Binance.US, the report said, citing subpoenas and people familiar with the matter. If U.S. regulators determine that Binance has control over its U.S. entity, they could claim the power to police Binance’s entire business.

Binance, Binance.US, the SEC and DOJ did not immediately respond to Reuters’ requests for comment.

Binance is under heightened scrutiny as three U.S. senators this week asked the giant cryptocurrency exchange and Binance.US for information about their regulatory compliance and finances.

Reuters has reported that Binance.US was created as a de facto subsidiary in 2019 to draw the scrutiny of U.S. regulators away from Binance.com.

(Reporting by Akriti Sharma in Bengaluru; Editing by Richard Chang)

By Jonathan Stempel

NEW YORK (Reuters) – Sam Bankman-Fried should be allowed while on bail to have a flip phone with no internet capability and a basic laptop with limited functions, but be forbidden from using other electronic communication devices, the U.S. Department of Justice said.

The proposal to limit the indicted FTX cryptocurrency exchange founder’s communications was filed late on Friday in Manhattan federal court, on behalf of the government and Bankman-Fried’s defense team.

It requires approval by U.S. District Judge Lewis Kaplan, who oversees the case.

Kaplan had signaled at a Feb. 16 hearing that he might jail the 30-year-old Bankman-Fried for testing the limits of his $250 million bail package by communicating in ways that could not be monitored.

The judge said he did not want to set Bankman-Fried “loose in this garden of electronic devices,” following accusations that Bankman-Fried tried to contact possible government witnesses and used a virtual private network to watch football.

Bankman-Fried pleaded not guilty after prosecutors said he stole billions of dollars of FTX customer funds to plug losses at his Alameda Research hedge fund. He faces 12 criminal charges under an indictment made public on Feb. 23.

The proposed flip phone or other non-smartphone for Bankman-Fried would be limited to voice calls and SMS text messages.

Laptop internet use would be restricted to specified virtual private networks, 23 websites for personal use including news, sports and food delivery, and websites to help Bankman-Fried prepare for his scheduled Oct. 2 trial.

Bankman-Fried is living under house arrest with his parents, both Stanford Law School professors, in Palo Alto, California.

The parents agreed to submit sworn affidavits that they would not bring other electronic devices into their home or let their son use theirs.

They also agreed that each device would carry software that periodically takes videos or photos of the user, which court officers would be allowed to review, the letter said.

Bankman-Fried’s lawyers did not immediately respond on Saturday to requests for comment.

(Reporting by Jonathan Stempel in New York and Anirudh Saligrama in Bengaluru; Editing by Daniel Wallis)

By Hannah Lang and Akriti Sharma

(Reuters) – Silvergate Capital Corp said on Friday it made a “risk-based decision” to discontinue the Silvergate Exchange Network, its crypto payments network, two days after the digital asset-focused bank raised doubts about its viability.

“Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational,” Silvergate said in a statement posted on its website.

The Silvergate Exchange Network, one of the bank’s most popular offerings, enabled round-the-clock transfers between investors and crypto exchanges, unlike traditional bank wires, which can often take days to settle.

Silvergate shares on Friday slumped more than 2% in after-hours trading, after closing up 0.9% at $5.77 in regular trade. The shares on Thursday had fallen to a record low, ending the day down more than 97% from their all-time high in November 2021.

Silvergate on Wednesday warned in a filing 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.”

After the warning, cryptocurrency heavyweights including Coinbase Global Inc and Galaxy Digital dropped Silvergate as their banking partner. Stablecoin issuers Paxos and Circle, Cboe’s digital asset exchange, and crypto exchanges Bitstamp and Gemini also suspended their partnerships with Silvergate.

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

(Reuters) – Bitcoin dropped 5.2% to $22,253 at 2204 GMT on Friday, losing $1,213 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down 11.9% from the year’s high of $25,270 on Feb. 16.

Ether, the coin linked to the ethereum blockchain network, dropped 5.3% to $1,560.9 on Friday, losing $87.1 from its previous close.

(Reporting by Kanjyik Ghosh in Bengaluru; Editing by Maju Samuel)