Tag: cryptocurrency

Binance CEO’s Trading Firm Received $11 Billion via Client Deposit Company, Claims SEC

Merit Peak, an offshore trading company controlled by Binance CEO Changpeng Zhao, received around $11 billion (nearly Rs. 90,890 crore) of client assets through a Seychelles-based firm set up to take customer deposits, a US Securities and Exchange Commission filing shows.

The SEC filing, which on Tuesday asked a US court to freeze Binance’s US assets, came a day after the SEC sued Binance, its billionaire CEO Zhao, and the operator of its US affiliate exchange, for allegedly operating a “web of deception.”

In its 13 charges, the SEC alleged that Binance and Zhao used Merit Peak and Sigma Chain, another trading firm controlled by Zhao, to commingle corporate funds with client assets and use the monies “as they please.” This put customers’ assets at risk while Binance sought to “maximize” its profits, the SEC wrote in its civil complaint on Monday.

In response to the SEC’s lawsuit, Binance said it would defend its platform vigorously. “All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure,” it said in a statement on Monday. 

The funds received by British Virgin Islands-based Merit Peak between 2019 and 2021 flowed from Key Vision Development Ltd, also controlled by Zhao, the SEC filing on Tuesday showed.

The $11 billion sent from Key Vision to Merit Peak form part of the $22 billion (nearly Rs. 1,81,780 crore) in assets — mostly belonging to Binance and its US affiliate — that Merit Peak received between 2019 and 2021, the SEC filing on Tuesday showed.

Binance did not respond to Reuters’ emailed questions on the filing, and a spokesperson did not respond to a voice message.

Reuters reported last month that Key Vision and Merit Peak, along with Binance’s Cayman Islands holding company, formed the core of the global crypto exchange’s financial network. 

In response to that article, Binance denied mixing customer deposits and company funds, saying users who sent money were not making deposits but rather buying Binance’s bespoke dollar-linked crypto token. 

The SEC said in its lawsuit that Merit Peak, which described itself as trading with the “self-made wealth” of Zhao, operated on both the Binance.com and Binance.US platforms. 

The SEC said in the filing on Tuesday it could not determine why an entity “purportedly trading” on Binance.US with Zhao’s personal funds “acted as a ‘pass through’ account for billions of dollars of Binance Platforms customers’ funds.” 

Between 2019 and 2023, Sigma Chain’s US bank accounts received almost $500 million (nearly Rs. 4,130 crore), mostly from Binance and BAM Trading, with $15 million (nearly Rs. 120 crore) coming from Key Vision, the SEC’s Tuesday filing said. 

FX wires

The SEC’s filing on Tuesday gave further examples of how Binance and Zhao, one of the most prominent figures in crypto, allegedly moved “billions of dollars” through the United States.

Some Zhao-owned accounts have sent monies “offshore” over the last few months, the SEC wrote in the filing. 

Through 2022, a US account for a company called Swipewallet, of which Zhao is the beneficial owner, sent $1.5 billion (nearly Rs. 12,400 crore) in foreign exchange wires offshore, the SEC said in the filing without elaborating. The SEC said in such processes, dollars are converted to a foreign currency before transmitting to a beneficiary. 

Binance acquired Swipe, a digital wallet and debit card platform, in 2020. There have been no public posts on Swipe’s social media accounts since early last year. Swipe did not respond to a request for comment.

In some of the most detailed examples of the fund transfers by Binance and Zhao, the SEC’s filing on Tuesday alleged that on January 1 this year, $840 million (nearly Rs. 6,940 crore) was deposited into eight companies owned by Binance and Zhao, with $899 million (nearly Rs. 7,430 crore) withdrawn from those accounts “during that same time frame.” At the end of March, all but one of the accounts had a balance of zero, the SEC said. 

The SEC’s filing also said between January and March this year, multiple Binance bank accounts then wired over $162 million (nearly Rs. 1,340 crore) offshore to a foreign account belonging to a Singapore company beneficially owned by Binance’s back office manager, Guangying Chen, a close associate of Zhao. 

Binance did not respond to requests for comment on these alleged transfers.

Some money was also sent from Sigma Chain to Chen, the SEC said, without elaborating. Chen did not respond to Reuters’ requests for comment.

© Thomson Reuters 2023

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Coinbase CEO Says the Crypto Exchange Has Been Always Transparent With US SEC

Coinbase Global’s CEO Brian Armstrong said on Wednesday that the crypto exchange has a long history of being transparent with the US Securities and Exchange Commission.

Armstrong was speaking in an interview with CNBC, a day after the company was sued by the US securities regulator on allegations it failed to register as an exchange.

“The SEC allowed us to become a public company … so, its not great to have a regulator come back and say, actually, we changed our mind,” Armstrong said.

The Securities and Exchange Commission (SEC) alleged Coinbase traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano and Polygon.

Coinbase shares rebounded on Wednesday to rise nearly 1 percent to $52.03 (nearly Rs. 4,000).

The stock has declined about 20 percent since the SEC sued Coinbase and rival Binance alleging securities law violations, wiping roughly $3 billion (nearly Rs. 24,800 crore) from Coinbase’s market value.

Short sellers have raked in roughly $463 million (nearly. Rs. 3,800 crore) in paper profits betting against Coinbase over the past two sessions, according to data from analytics firm Ortex.

Meanwhile, the US Securities and Exchange Commission have accused the company of operating illegally because it failed to register as an exchange. The lawsuit is the SEC’s second in two days against a major crypto exchange, following its case against Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao.

Crypto companies say the SEC rules are unclear, and that the agency is overreaching by trying to regulate them. On the other hand, ten US states led by California also on Tuesday accused Coinbase of securities law violations concerning its staking rewards program.

© Thomson Reuters 2023

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Blockchain.com CEO Says US Debt Default Would Hit Cryptocurrencies Initially

A US government default would trigger an initial pull-back from cryptocurrencies followed by a “push upward” the CEO of London-based crypto firm Blockchain.com said on Thursday.

The US government could fall behind on its bills next month – and even default on its debt – if Congress does not raise a $31.4 trillion (roughly Rs. 2,59,54,29,80 crore) cap on government borrowing, a failure that could trigger economic calamity and panic on global financial markets.

In the short term, “a US default or a US recession is probably bad for crypto. These are risk assets, and you want to take risk off,” Blockchain.com CEO Peter Smith said at the Qatar Economic Forum, organised by Bloomberg.

“On a long horizon, these are probably good for crypto…If the US government defaults, we’ll probably see a quick pull-back and then a very strong push upward in the crypto market.”

The cryptocurrency market has followed cyclical patterns and while 2022 was “quite painful”, it is recovering this year and 2024 will be “another exponential year”, Smith said.

Blockchain.com, which offers users a crypto wallet and is also a crypto exchange, is considering an expansion of its small Middle Eastern office in the commercial center of Dubai.

“The (Dubai) governments in a very healthy, consultative process with the industry and about regulations…I think so long as those end up where we think they will, we’ll probably be investing heavily in Dubai,” he said.

Last September, Blockchain.com signed an agreement with Dubai’s crypto regulator Virtual Assets Regulatory Authority (VARA) and has since opened an office and hired staff.

Currently, the company is investing most heavily to shore up operations in Singapore and Europe, Smith said. 

© Thomson Reuters 2023

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FTX Seeks to Claw Back Over $240 Million From Embed Acquisition

Bankrupt crypto exchange FTX is seeking to claw back more than $240 million (nearly Rs. 2,000 crore) it paid for stock trading platform Embed, saying former FTX insiders did no investigation before buying the essentially worthless bug-ridden software platform. 

FTX filed three lawsuits late Wednesday in US Bankruptcy Court in Delaware targeting former FTX insiders including indicted founder Sam Bankman-Fried, Embed executives including founder Michael Giles, and Embed shareholders. FTX alleged that Bankman-Fried and other FTX insiders misappropriated company funds to acquire stakes in Embed as part of the transaction.

FTX closed on the Embed acquisition just six weeks before the crypto exchange collapsed into bankruptcy in November. FTX lost billions in customer money while propping up its own risky investments, actions its current CEO John Ray called “old-fashioned embezzlement.”

FTX’s new management has been seeking to recover assets to repay customers since the bankruptcy filing. US law allows debtors to claw back payments made under certain circumstances shortly before a bankruptcy filing and use those funds to repay other creditors.

FTX recently tried to sell Embed, but the highest bidder was Giles, who offered only $1 million (nearly Rs. 8.27 crore). 

FTX’s auction “leaves no doubt” that the $220 million (nearly Rs. 1,820 crore) it spent to acquire Embed was “wildly inflated relative to the company’s fair value, which Giles well knew,” FTX wrote in its lawsuit. 

FTX intended to use Embed’s software to add stock trading to its crypto exchange platform, but Embed’s software was “essentially worthless,” the lawsuits said. FTX performed almost no investigation of Embed and “prioritized speed over all else,” they added.

Embed’s own insiders were surprised that FTX paid so much for the company after little more than a meeting with Giles, describing FTX’s approach to due diligence with a cowboy emoji in internal messages.

As part of the purchase, FTX also paid Embed employees $70 million (nearly Rs. 580 crore) in retention bonuses. Most of that went to Giles, who later worried how to explain his $55 million (nearly Rs. 455 crore) bonus to other Embed shareholders, according to the lawsuits.

FTX is seeking to recover $236.8 million (nearly Rs. 1,959 crore) from Giles and Embed insiders, and $6.9 million (nearly Rs. 57 crore) from Embed minority shareholders.

© Thomson Reuters 2023

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Bankrupt Crypto Lender Voyager Digital Hopeful to Provide 35 Percent Customer Payout

Crypto lender Voyager Digital said Wednesday that customers will recover about 35 percent of their cryptocurrency deposits as the company winds down its operations after a failed buyout attempt by crypto exchange Binance.US.

US Bankruptcy Judge Michael Wiles approved Voyager’s proposed liquidation plan at a court hearing in Manhattan on Wednesday, allowing the company to return about $1.33 billion (nearly Rs. 11,000 crore) in crypto assets to customers and end its efforts to reorganize under Chapter 11.

Voyager filed for bankruptcy protection in July, citing volatility in cryptocurrency markets and a default on a large loan made to crypto hedge fund Three Arrows Capital (3AC).

Voyager suffered through two failed sale attempts during its bankruptcy. It initially sought to sell its assets for $1.42 billion (nearly Rs. 11,700 crore) to FTX, a deal that failed when FTX imploded in November. Binance.US stepped in with a $1.3 billion offer, but called off the deal on April 25, citing a “hostile and uncertain regulatory climate.”

Voyager customers’ recovery hopes are highly dependent on the outcome of litigation with FTX, which is seeking to claw back $445.8 million (nearly Rs. 3,670 crore) in loan repayments made to Voyager before FTX collapsed into bankruptcy.

If Voyager fully prevails in the FTX litigation, customers’ expected recovery would be 63.74 percent, according to Voyager’s court filings.

Voyager intends to repay customers with the same type of cryptocurrency that they had in their accounts. For deposits held in unsupported cryptocurrencies that cannot be withdrawn from Voyager’s platform and for Voyager’s proprietary VGX token, Voyager will instead repay customers using the stablecoin USDC.

Voyager was one of several crypto lenders to file for bankruptcy in 2022 after a boom in the COVID-19 pandemic. Others were Celsius Network, BlockFi, and Genesis Global Capital.

© Thomson Reuters 2023

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BlockFi Gets Court’s Approval to Return $297 Million to Customers

Bankrupt crypto lender BlockFi received court permission on Thursday to return $297 million (roughly Rs. 2,439 crore) to customers with non-interest-bearing accounts, without repaying customers who had tried to move funds into those accounts at the last minute.

US Bankruptcy Judge Michael Kaplan in Trenton, New Jersey ruled that customers owned their deposits in BlockFi’s Wallet program, which did not pay interest and kept customer deposits separate from BlockFi’s other funds. Customers who had interest-bearing accounts did not own their deposits, which were turned over to BlockFi for use in its broader lending business, Kaplan ruled.

BlockFi was one of several crypto lenders to go bankrupt in 2022, and questions about the ownership of customer funds have also been raised in the bankruptcies of Celsius Network and Voyager Digital. Judges have ruled in those cases that funds in interest-bearing accounts are the property of a bankrupt company, to be pooled with other assets and used to repay all creditors at a later date.

The division at BlockFi between the two account types became muddied when BlockFi froze accounts on Nov. 10 shortly before filing for bankruptcy without fully disabling customer-facing functions on its app, creating a situation that Kaplan called “confusing, misleading, and frustrating.”

About 48,000 BlockFi customers tried to transfer $375 million (roughly Rs. 3,080 crore) from interest-bearing accounts into Wallet accounts during BlockFi’s shutdown on Nov. 10, and they received in-app and email confirmation that the transfers were complete. Lawyers for those customers argued that BlockFi should honor the transfers and return funds to those customers as well.

But BlockFi never performed the back-end work that was required to complete transfers between the two account types, and its terms of service allowed it to block transfer requests as part of its broader shutdown, Kaplan ruled.

“Quite simply, a customer’s withdrawal or transfer request on the user interface did not and does not automatically transfer digital assets,” Kaplan said.

BlockFi attorney Michael Slade had argued in an earlier court hearing that allowing the $375 million (roughly Rs. 3,080 crore) in transfers would severely dilute the recovery for Wallet customers and potentially prevent BlockFi from returning any customer funds, due to the practical difficulty of sorting out how to pay the additional Wallet claims from a fixed pool of assets.

BlockFi filed for Chapter 11 protection in November, citing volatility in crypto markets and its exposure to crypto exchange FTX, which imploded amid revelations that customer funds were missing from the exchange.

© Thomson Reuters 2023

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FTX Gets Court Permission to Sell Its LedgerX Business to Raise Funds for Repaying Creditors

Bankrupt crypto exchange FTX received US bankruptcy court permission on Thursday to sell its LedgerX business for $50 million (nearly Rs. 408 crore), raising additional funds to repay creditors.

At a hearing in Wilmington, Delaware, US Bankruptcy Judge John Dorsey signed off on FTX’s sale of LedgerX, its non-bankrupt crypto derivatives trading platform, to an affiliate of Miami International Holdings.

Miami International Holdings owns the Bermuda Stock Exchange and several US-registered securities exchanges, including the Miami International Securities Exchange.

FTX is attempting to repay an estimated $11 billion (nearly Rs. 89,850 crore) to customers through a combination of asset sales and clawback actions. Since filing for bankruptcy in November, FTX has recovered more than $7.3 billion (nearly Rs. 59,630 crore) in cash and liquid crypto assets, the company reported in April.

As part of that broader effort, FTX on Wednesday said it would seek repayment of nearly $4 billion (nearly Rs.  32,670 crore) from Genesis Global Capital (GGC), the bankrupt lending arm of crypto firm Genesis.

FTX said in a court filing that Genesis owes it that money as a result of transactions that took place shortly before FTX’s bankruptcy filing. Under US bankruptcy law, debtors can try to claw back payments made in the 90 days before a bankruptcy filing so that those funds can be more equitably distributed among creditors.

Genesis was a primary “feeder fund” for FTX-affiliated hedge fund Alameda Research, loaning Alameda crypto assets that it used for further loans and investments, according to FTX.

At one point, Alameda held $8 billion (nearly Rs. 65,340 crore) in loans provided by Genesis, according to FTX. Genesis, unlike other creditors, was largely repaid before FTX went bankrupt, FTX said.

Companies in the crypto lending industry were highly intertwined during a turbulent 2022 that saw many tumble into bankruptcy. FTX, a once-prominent crypto exchange, filed for Chapter 11 amid allegations that founder Sam Bankman-Fried used FTX customers’ money to prop up Alameda‘s balance sheet.

Bankman-Fried has been indicted on fraud charges for his role in the company’s collapse, and he has pleaded not guilty. Former members of his inner circle have pleaded guilty and agreed to cooperate with prosecutors.

© Thomson Reuters 2023

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European Parliament Backs EU’s First Set of Regulations for Crypto Assets; Rules to Roll Out in 2024

The European Parliament on Thursday overwhelmingly backed the European Union‘s first set of rules to regulate cryptoasset markets.

Parliament voted by 517 in favour and 38 against to approve the world’s first comprehensive set of regulations for issuing and trading cryptoassets such as bitcoin.

“This regulation brings a competitive advantage for the EU,” said Stefan Berger, the lawmaker who steered the rules through parliament.

“The European crypto-asset industry has regulatory clarity that does not exist in countries like the U.S.,” Berger said.

EU states have already given the nod to the rules which will be rolled out from mid 2024, requiring firms that issue and trade cryptoassets to be licensed by a national regulator, giving them a “passport” to serve customers across the 27-member country bloc.

Major service providers will have to disclose their energy consumption.

“I hope that our rules could become a model for other countries,” the EU’s financial services chief, Mairead McGuinness, said in a debate on the rules on Wednesday.

Parliament also backed new rules for tracing transfers of cryptoassets like bitcoins and electronic money tokens.

It applies the international “travel rule” already used in traditional financial transactions, meaning information on the source and recipient of the cryotoasset will have to accompany and be stored on both sides of the transfer to help combat money laundering.

The tracing rule also covers transactions above 1,000 euros from “self-hosted” wallet or crypto address of a private user.

© Thomson Reuters 2023
 

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Indian Automobile Tycoon Anand Mahindra Hints at Considering Bitcoin Payments for Cars



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Regulatory Action on Crypto Assets Requires Global Coordination: FM Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman on Thursday said that there was a greater acceptance among Group of 20 (G20) member countries that any new regulations on the crypto assets need to be globally coordinated.

“I am glad to say that there is a greater acceptance among all G20 members, that any action on crypto assets will have to be global. “The G20, I think, has responded fairly with alacrity (on the crypto challenge),” Sitharaman told reporters at a news conference after a meeting of G20 finance ministers and central bank governors.

“The G20 and its members agree that it’s not going to be possible to have an independent, standalone country dealing with the crypto assets,” the minister added.

Sitharaman told reporters that the group has willingly responded to the issue. A “synthesis paper” would be taken up on matters related to crypto assets during India’s G20 presidency.

India has maintained it wants a collective global effort to deal with problems posed by cryptocurrencies such as bitcoin, and the finance ministry back in February said it had held a seminar for G20 member states to discuss how to come up with a common framework.

Earlier in February, Sitharaman had said, “We are going through the study process so that there can be informed discussion. International Monetary Fund (IMF) and also the Financial Stability Board (FSB) have been doing their own little work on the crypto matter and progressing on their own. We’ve now asked them to do the papers and give it to us and the rapidity with which these papers have been already from IMF given and from FSB which will be given in time for the July meeting. I feel that we are progressing in this direction. So, something should develop.”

She made the remarks while responding to a question regarding a consensus among the G20 nations on crypto assets during India’s Presidency.

“Recognising the risks attached to the private virtual assets, G20 nations moved a step closer to developing a coordinated and comprehensive policy approach to deal with the crypto assets by considering macroeconomic and regulatory perspectives,” she said.

The Central government led by Prime Minister Narendra Modi has for several years debated drafting a law to regulate or even ban cryptocurrencies but has not made a final decision. The Reserve Bank of India has said that cryptocurrencies should be banned as they are akin to a Ponzi scheme.

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Ethereum’s Shapella Upgrade to Unlock Around $33 Billion of Staked Ether

Investors are finally set to gain access to more than $33 billion (roughly Rs. 2,70,900 crore) of ether this week under a planned revamp of the blockchain.

A new software upgrade to the Ethereum blockchain, dubbed Shapella, will let market players redeem their “staked ether” – coins they have deposited and locked up on the network over the past three years in return for interest.

About 15 percent of all ether is staked, totaling $33.73 billion (roughly Rs. 2,76,900 crore) in market value, according to data from Dune Analytics.

Up to 1.1 million ether will be ready for withdrawals in the week following the revamp of the blockchain, estimated Sreejith Das, CEO at Attestant, a company that facilitates the staking of ether. That would be worth nearly $2 billion (roughly Rs. 16,400 crore), based on the latest ether price of about $1,860 (roughly Rs. 1,52,700).

Traders hunting an edge are now trying to figure out how this sudden ether windfall might hit prices. It’s difficult to judge though, said Robert Quartly-Janeiro, chief strategy officer at crypto exchange Bitrue.

“The only thing certain is that the Shanghai hard fork will bring about some short-term volatility,” he added.

Some corners of the market are worried that unlocking staked coins could lead to massive withdrawals and a wave of selling, which could push prices rapidly lower.

Yet only about 29 percent of all ether staked by volume is currently in profit in dollar terms, which would mean most would be sold at a loss, according to Bundeep Rangar, CEO of blockchain investment firm Fineqia International.

“It seems unlikely, therefore, that much of the staked ether will be sold,” Rangar added.

Final piece of the puzzle

Shapella would mark the end of a long wait for investors who had opted to deposit ether in exchange for a yield since the staking project began in 2020.

Ethereum developers paved the way for this development with a major upgrade called the “Merge” last year, which ditched energy-intensive mining and moving to a “proof-of-stake” system where ether owners lock up 32 coins to check new records on the blockchain, earning new ether on top of their “staked” coins.

Until the planned revamp this week, investors looking to stake coins had to deposit a minimum of 32 ether at a time (worth $59,520 at current prices) for an indefinite period, a hefty sum beyond the reach of an average retail investor.

“Before Shanghai, a lot of people and institutions probably chose not to stake their ether because, once they did, it would have been locked up for an undefined period of time, which was risky,” said Dave Weisberger, CEO of digital assets trading platform CoinRoutes.

Following the upgrade, staked ether will no longer be locked up on the blockchain, so investors may be more willing to stake coins.

The market value of tokens behind projects like Lido Finance and Rocket Pool, some of the largest projects providing liquidity for crypto staking, have soared nearly six times to $2 billion (roughly Rs. 16,400 crore) and four times to $875 million (roughly Rs. 7,200 crore) respectively this year, according to CoinMarketCap, on expectations of further growth.

“It is likely that in the long term the amount of ether staked will increase, especially in comparison with the percentage of supply staked for other digital assets such as Solana, Mathic and Ada,” said Rangar at Fineqia.

So what manner of investors are likely to enter the market following the changes wrought by Shapella?

“It will be those institutions that have sat on the side lines, silently waiting for this final piece of the puzzle to be put in place, the ones that needed the ability to withdraw their ether before they were allowed to stake it,” said Das at Attestant.

© Thomson Reuters 2023

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