The last week in crypto was mixed with new updates and ongoing controversies. A new scandal arose as new allegations were brought against cryptocurrency lender Nexo, with reports accusing the regulated CeFi of criminal activities. The FTX case continued to unfold, and founder Sam Bankman-Fried maintained his innocence. Also, the situation between DCG and Gemini has escalated. Despite the recent market recovery, the industry experienced another round of layoffs.
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Nexus involved in new scandals
Nexus became the latest to be embroiled in a scandal. Reports on January 12 showed that the Bulgarian authorities had raided the company’s offices in Sofia, the capital of Bulgaria. It was part of a large-scale investigation launched against the loan company for alleged illegal activity.
Authorities suspect the company of money laundering, tax crimes, illegal banking operations, computer crimes and facilitating transactions aimed at circumventing sanctions against Russia. Investigations by international authorities revealed that several transactions processed by Nexo violated Western sanctions against Russia, and others involved terrorist financing.
According to a spokesperson for the country’s attorney general, Siika Mileva, Nexo has prosecuted a staggering $94 billion in the past five years. However, Mileva also claimed that one of Nexo’s clients is a high-profile individual known to finance terrorist organizations.
In a statement to BloombergAntoni Trenchev, co-founder of Nexo, clarified that the recent raid involved a third-party entity with ties to the company. He emphasized that this firm does not have direct interactions with Nexo’s clients. Other reports said that four people had been detained as part of the investigation. Nexo denied these developments, saying the investigation appeared to be politically motivated.
In the aftermath of these events, there was a significant outflow of funds from the platform as investors and clients rushed out. More than $46 million, or 10% of total assets, were withdrawn from the platform in 24 hours.
Progress in FTX bankruptcy proceedings
As FTX’s bankruptcy proceedings progressed on January 12, creditors received positive news. The reports said that the company’s advisers had discovered a substantial amount of its assets, totaling nearly $5 billion in crypto and fiat currencies. Andrew Dietderich, the bankruptcy attorney, said the assets are currently being liquidated.
The funds will go toward settling the claims of aggrieved creditors, along with other assets already discovered. It is worth noting that the Bahamas Securities and Exchange Commission (BSC) had previously identified $425 million worth of FTX assets that will also be used in the debt settlement process. Additionally, on January 13, the Delaware Bankruptcy Court granted FTX permission to liquidate four business units, including LedgerX and FTX Japan, to raise additional funds for the benefit of creditors.
As the FTX saga continues, a new player entered the fray last week. SkyBridge Capital announced its intention to buy back the 30% stake it sold to FTX in September last year. SkyBridge boss Anthony Scaramucci revealed these plans on January 13, saying they are awaiting approval from bankruptcy lawyers. He acknowledged that the process could be long, potentially extending into the second half of 2023.
On January 12, a federal court ruling added to FTX’s woes when a judge invalidated the naming rights agreement between the bankrupt exchange and Miami-Dade County. Due to a breach of contract, FTX is legally obligated to pay $17 million in damages to Miami-Dade over three years. The Miami Heat can now remove the FTX brand from their NBA stadium and other locations.
Sam Bankman-Fried insists he’s innocent, but that’s a hard sell
In the midst of these events, Sam Bankman-Fried upholds his plea of not guilty. With $8 billion in client funds unaccounted for, the disgraced CEO insists he is innocent of crimes bordering on allegations of misappropriation of funds and fraud. Last week, the disgraced American businessman pleaded not guilty to numerous charges brought against him by the US Department of Justice, the SEC and the CFTC.
Sam Bankman-Fried maintains he is innocent of charges suggesting he stole or embezzled customer funds, according to a Substack article published Jan. 12. The FTX founder also seized on the circulating claims that Binance’s Changpeng Zhao (CZ) is behind the FTX crash. . CZ had refuted these rumors in the past.
A day after the post appeared, American billionaire and hedge fund manager Bill Ackman claimed that Sam Bankman-Fried may be telling the truth. Ackman took to Twitter on January 13 to provide a hypothesis for how the former FTX boss could be innocent despite numerous allegations of fraud and corruption.
However, the consensus within the crypto community is in stark contrast to Ackman’s claims. Notably, Anthony Scaramucci, a close acquaintance of the former CEO, recently admitted that he believes there was fraud in the case after choosing not to give any opinion on the matter since the start of the issue.
Coinbase CEO Brian Armstrong also believes that the FTX situation involved fraud and misappropriation of client funds. Armstrong told Bloomberg on Jan. 11 that he believes the cause of the fiasco goes beyond poor bookkeeping. Amid these claims, a wallet affiliated with Alameda Research, the trading wing of FTX, received another $30 million in assets on January 12, raising more questions.
The situation between DCG and Gemini develops
While the crypto space has yet to see the end of FTX woes, the situation between Digital Currency Group (DCG) and crypto exchange Gemini developed further last week.
Following his open letter to DCG CEO Barry Silbert on January 2, Gemini co-founder Cameron Winklevoss wrote another letter to the DCG Board on January 10, calling for Silbert’s removal as CEO. Winklevoss cited poor managerial decisions under Silbert.
Winklevoss had previously accused Silbert of using funds from its subsidiary loan firm, Genesis, in “kamikaze Grayscale NAV operations,” which led to losses on creditors’ assets, including Gemini’s $900 million loan to Genesis. Winklevoss, along with other creditors, is demanding repayment of the outstanding loans. Reports on January 12 suggested that DCG may consider selling some of its assets to pay down the debt.
Grayscale has become entangled in the situation, being a sister company to Genesis and a main subsidiary of DCG. The contribution could be contributing to the underperformance of Grayscale’s Trusts, especially Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE). Both have been trading at record discount rates. Consequently, around 20% of GBTC shareholders voted last week to exchange their shares for BTC.
Charges emerge as SEC weighs in
Meanwhile, the US SEC came on the scene last week as the saga progressed. On January 12, the regulatory watchdog slammed charges against Gemini and Genesis for allegedly offering unregistered securities to the public through the Gemini Earn program. Even so, the entire crypto scene believes that the agency needs to catch up with the party.
Tyler Winklevoss, co-founder of Geminis voiced his disappointment at the SEC’s charges, noting that they are counterproductive to the company’s efforts to obtain the $900 million funds for Gemini Earn clients. Winklevoss explained that the SEC should have informed Gemini of the additional regulatory requirements despite having been in talks with the exchange for months.
The SEC charges aren’t Gemini’s only legal concerns, however, as Rosen Law Firm, a New York-based investor rights law firm, filed a lawsuit against the exchange on Jan. 13 for failing to disclose necessary information about the risks associated with the Gemini Earn program.
Another round of layoffs
The crypto markets started the new year with good prospects, but the gradual gains have not made up for the losses suffered since the beginning of the bear market. In response to tough market conditions, some companies are still laying off staff to cut costs as revenues shrink.
On Jan. 10, Coinbase announced the decision to lay off another batch of employees as it looks to weather the bear storm during the bear market. The American exchange revealed that it would lay off 950 employees this time after laying off another 1,100 in June 2022.
Three days after Coinbase’s last announcement, Kris Marszalek, CEO of Singapore-based Crypto.com, revealed that his company would be cutting its global workforce by 20% due to unfavorable market conditions and recent events. Last June, they cut 5% of their staff, citing the unfavorable winter.
Binance remains unfazed
Amid this trend of layoffs, Binance is ramping up its HR activities as it seems barely affected by the ravages of 2022. On Jan. 11, CZ said the exchange was looking to increase its workforce by 30% in 2022. despite the economic downturn. Two weeks ago, crypto journalist Jacob Silverman said that the exchange has up to 700 open positions.
Furthermore, Binance is outperforming competitors based on revenue, as evidenced by recent reports. CryptoQuant data from a January 10 report revealed that Binance’s revenue increased 10 times over the past two years.
Despite processing $12 billion in client withdrawals in the last two months alone due to previously introduced FUD that occurred immediately after the FTX crash, Binance appears stable and continues to make growth moves. The firm obtained a license to operate in Sweden on January 11.
The end of the bear market or a bull trap?
Meanwhile, the broader crypto market rallied, raising asset valuations to the era before the FTX crash. The market-wide rally, which was most pronounced on Jan. 10, saw bitcoin (BTC) recover $21,000. ETH, meanwhile, shot up to record a high of $1,599 on Jan. 14. Most assets also rose to 2-month highs.
Two days after the rally gained momentum, BTC topped 18%, leaving more than 60% of its circulating supply in gains. The resurgence comes despite a decline in its dominance. The asset printed seven consecutive bull bars last week, creating demand across all cryptocurrencies.
Notably, as BTC soared above $19,500, more than $141 million in short BTC positions were liquidated in the 24 hours leading up to Jan. 14. While some proponents believe this could be the end of the bear run, others are more pessimistic about the rally saying it is a dead cat bounce.
The new week will provide useful information about which review is accurate.
