Tag: Crypto

The crypto ‘contagion’ that helped bring down SVB

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As U.S. banking regulators begin their post-mortem of Silicon Valley Bank, some pundits are pointing the finger at crypto markets, whose own collapse over the past year left the tech-focused lender hopelessly exposed.
The conventional wisdom about crypto is that it’s “self-referential” — a separate universe to conventional finance — and that its inherent volatility can be contained. The emerging “contagion” theory is that there are enough linkages for extreme turmoil to spill over, much as a virus can sometimes jump from one species to another.
That’s what happened here, according to Barney Frank, the former U.S. congressman who wrote sweeping new banking rules after the banking crisis in 2008, and joined the crypto-friendly Signature Bank as a board member in 2015.
“I think, if it hadn’t been for FTX and the extreme nervousness about crypto, that this wouldn’t have happened,” Frank told POLITICO this week. “That wasn’t something that could have been anticipated by regulators.”
FTX, the crypto exchange that collapsed in November amid allegations of massive fraud, capped a year of turmoil in crypto markets, as investors began withdrawing funds from riskier ventures in response to rising interest rates, which in turn exposed the shaky foundations underpinning the industry. The ensuing “crypto winter” saw the value of the industry plummet by two-thirds, from a peak of $3 trillion in 2021.
Policymakers sought to reassure the public that volatility in the crypto market, blighted by scams and charlatans who sought to profit from investors’ fear of missing out, would naturally be contained. With the collapse of SVB, that claim is facing its biggest test yet.
Patient zero
Under the contagion theory, “patient zero” could be traced back to the implosion of TerraUSD, an “algorithmic stablecoin” that relied on financial engineering to keep its value on par with the U.S. dollar. That promise fell short in May last year following a mass sell-off, creating panic among investors who had used the virtual asset as a safe haven to park cash between taking punts on the crypto market. The origin of the crash is still subject to debate but rising interest rates are often cited as one of the main culprits.
TerraUSD’s demise was catastrophic for a major crypto hedge fund called Three Arrows Capital, dubbed 3AC. The money managers had invested $200 million into Luna, a crypto token whose value was used to prop up TerraUSD, which had become the third largest stablecoin on the market. A British Virgin Islands court ordered 3AC to liquidate its assets at the end of June.

The fund’s end created even more problems for the industry. Major crypto lending businesses, such as BlockFi, Celsius Network and Voyager, had lent hundreds of millions of dollars to 3AC to finance its market bets and were now facing massive losses.
Customers who had deposited their digital assets with the industry lender were suddenly locked out of their accounts, prompting FTX — then the third largest crypto exchange — to step in and bail out BlockFi and Voyager. Meanwhile, central banks continued to raise rates.
The contagion seemed under control for a few months until revelations emerged in November that FTX had been using client cash to finance risky bets elsewhere. The exchange folded soon after, as its customers rushed to get their money out of the platform. BlockFi and Voyager, meanwhile, were left stranded.
Outbreak widens
This is the point where the outbreak of risk in the crypto industry might have jumped species into the banking sector.
Silvergate Bank and Signature Bank, two smaller banks that also failed last week, had extensive business with crypto exchanges, including FTX. Silvergate tried to downplay its exposure to FTX but ended up reporting a $1 billion loss over the last three months of 2022 after investors withdrew more than $8 billion in deposits. Signature also did its best to distance itself from FTX, which made up some 0.1 percent of its deposits.
FTX, the crypto exchange that collapsed in November amid allegations of massive fraud, capped a year of turmoil in crypto markets | Leon Neal/Getty Images
SVB had no direct link to FTX, but was not immune to the broader contagion. Its depositors, including tech startups, crypto firms and VCs, started burning their cash reserves to run their businesses after venture capital funding dried up.
“SVB and Silvergate had the same balance sheet structure and risks — massive duration mismatch, lots of uninsured runnable deposits backed by securities not marked to market, and inadequate regulatory capital because unrealized fair value losses excluded,” former Natwest banker and industry expert Frances Coppola told POLITICO.
Eventually, the deposit drain forced SVB to liquidate underwater assets to accommodate its clients, while trying to handle losses on bond portfolios and an outsized bet on interest rates. As word got out, the withdrawals turned into a bank run as frictionless and hype-driven as a crypto bubble.
Zachary Warmbrodt and Izabella Kaminska contributed reporting from Washington and London, respectively.
This article has been updated to correct the value of the crypto industry.

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( With inputs from : www.politico.eu )

March 14, 2023
House GOP plots crypto overhaul

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Why it matters: It’s unclear what the committee will propose, but the effort comes as federal banking and markets regulators ramp up enforcement of traditional financial regulations in the crypto space. Digital asset firms are urging Congress to carve out a specialized rulebook for crypto, as some jurisdictions like the European Union have started to do.
The recent crackdown by U.S. agencies will be the focus of a subcommittee hearing that Hill will lead Thursday. It will feature testimony from Paul Grewal, chief legal officer of the U.S.-based crypto exchange Coinbase.
“Europe, the U.K., Australia and Singapore — just to name a few — are putting in place regulatory frameworks that are creating high standards for crypto,” Grewal said in prepared remarks. “It is truly a race to the top, and the U.S. is already behind.”
Fed Chair Jerome Powell, testifying on Capitol Hill this week, suggested it would be a good idea for Congress to weigh in. Hill pressed him on it Wednesday.
“I do think it would be important for us to have a workable legal framework around digital activities,” Powell said Tuesday. “That is important, and something Congress in principle needs to do because we can’t really do that.”
Hill dropped some possible hints Wednesday about the GOP’s direction on a crypto regulation plan.
During the hearing, he asked Powell if a U.S. digital asset framework would help banks, brokers and custodians understand how they could participate in the market safely. He also asked if it should preserve the role of state regulators in overseeing the industry.
Republicans signal crypto support: Thursday’s digital assets subcommittee hearing will showcase a handful of Republican-led crypto bills that are generally supportive of the industry and its customers. The legislation may get a committee vote at a markup planned for March 28.

“I’m not sure that we’ll mark them up there, but we’re talking about it,” Hill said. “We may have some other ones introduced, so we may have some other priorities.”
The bills include proposals that would express congressional support for blockchain tech and digital assets, exempt blockchain developers from some reporting and licensing requirements and scale back tax reporting requirements for crypto firms.
The Senate: Senate Agriculture Chair Debbie Stabenow (D-Mich.), who has floated her own crypto regulation plan, said Wednesday she has “had some conversations” with her House counterparts.
“There’s certainly, I think, a general belief that this is an area that needs to be regulated, so [as] to protect consumers,” she said.
Asked whether she expected lawmakers to reach agreement, she replied: “I’m actually optimistic. I think the hard part is the farm bill.”
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( With inputs from : www.politico.com )

March 9, 2023
Crypto firms brace for ‘carpet-bombing moment’ in U.S. as Europe beckons

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“We will have the best framework in the world in which companies can develop,” said Stefan Berger, the conservative German lawmaker who shepherded the EU crypto rulebook that will come into force in the second half of 2024. “We will have everything that you need for a workable market.”
It’s an argument that no U.S. policymaker is in a position to make, with American politicians at odds over whether to embrace or discourage the growth of crypto and regulators taking matters into their own hands. The collapse of the digital asset exchange FTX only complicated matters, revealing widespread industry mismanagement and taking down its former chief executive Sam Bankman-Fried, once a major crypto player in Washington. Lobbyists and sympathetic lawmakers stateside are trying to keep pressure on Congress by warning that the U.S. is falling behind the rest of the world without a clearer set of rules.
At stake is America’s reputation as a promoter of innovation and a global hub for finance. While the crypto world has lost political clout in recent months, the advancement of the EU is providing fresh motivation for industry allies in Congress to press ahead with their agenda.
“The European Union’s ahead of us. Switzerland’s ahead of us. Australia’s ahead of us,” said Sen. Cynthia Lummis of Wyoming, a Republican Bitcoin advocate who has drafted a comprehensive crypto regulation bill. “England’s ahead of us. So it’s not just second- and third-world countries.”
The contrast with the EU is clear because the U.S. regulation of the industry rests on a melange of state-level rules and licensing that operates alongside federal financial safeguards designed for old-school banks, traditional stock trading and commodity exchanges.
Despite the inconsistencies, crypto has flourished for years in the U.S. system — thanks to friendly state-level approaches and little intervention from Washington.
But the sector is beginning to face a sweeping crackdown by federal agencies that have lost patience with what they see as flagrant flaunting of traditional financial regulations on investments and lending.
“We’re feeling a crypto carpet-bombing moment, where they seem to be trying to throw whatever they can within their authority — or potentially exceeding their authority — and we think that’s shortsighted,” said Kristin Smith, CEO of the Washington-based Blockchain Association. “We think it’s bad for U.S. competitiveness.”

The EU’s openness toward crypto is a striking turnaround: the Europeans crafted their new rules after essentially freezing out the industry when Facebook, now known as Meta, announced its Libra digital currency in 2019.
European officials — prompted by fears of big tech minting private money — effectively stopped the project from launching.
That episode prompted lawmakers to draft industry-specific regulations before similar crypto products could take hold on the continent.
The Markets in Crypto-Assets law that EU policymakers came up with, dubbed MiCA, sets strict rules for stablecoins, a type of digital asset like the now-defunct Libra that’s anchored to a national currency or other established financial product. It also creates investor safeguards, capital requirements and corporate governance rules for the broader crypto market. Aides to U.S. lawmakers were in Brussels in recent days to talk with EU officials about the new law.
“Europe is clearly outpacing the U.S. by establishing holistic regulatory frameworks for the cryptoasset industry,” said Susan Friedman, international policy counsel at Ripple, a digital currency firm that’s mounting a legal challenge against an enforcement action brought by the U.S. Securities and Exchange Commission “We fully expect Europe to become a natural hub for responsible participants going forward.”
To be sure, some European officials are concerned that the new law isn’t sufficient to head off another debacle at a global crypto company like FTX. They want to layer on additional safeguards.
“MiCA is a positive step in the right direction, but it is certainly not perfect or complete,” said Ernest Urtasun, Spain’s left-leaning Green parliamentarian who helped write the rulebook. “More work needs to be done to respond to the regulatory and supervisory challenges we are seeing today.”
Mark Hays, a senior policy analyst at Americans for Financial Reform, said parts of the EU regime may be more permissive in the eyes of the crypto industry compared to “the straightforward effort underway in the United States to simply apply the rules that exist.”
“The tension between the European Commission, the Council and the parliament means that EU rules are especially complicated, and that’s an environment in which industry lobbyists thrive,” Hays said.
In the U.S., the pressure from the crypto industry is falling flat with its skeptics in Congress, who are unfazed by the prospect of Europe taking market share. And some top crypto firm players say the EU still isn’t a welcoming place to operate.
“Crypto, it’s not like it provides that many jobs,” Senate Banking Chair Sherrod Brown (D-Ohio), a digital currency critic, said in an interview. “Companies always threaten to offshore when they’re gaming the system.”
Dante Disparte, chief strategy officer and head of global policy at stablecoin issuer Circle, said he would take the U.S. regulatory ambiguity “over the near five years of hurry up and wait the Europeans have embarked on” while drafting and implementing their new law.
Disparte speaks from experience. He was one of the leaders of Facebook’s Libra project, which EU officials stopped from getting off the ground.
“You might not like that America is stuck in a fintech constitutional crisis that protects and preserves the states as the laboratories of fintech innovation in the country,” he said. “But that’s a powerful feature and not a bug.”
Eleanor Mueller contributed to this report.
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( With inputs from : www.politico.com )

February 26, 2023
Two major crypto exchanges failed to block sanctioned Russians

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Huobi and KuCoin did not respond to requests for comment.
One year after Russia launched its full-scale invasion of Ukraine, a conflict that has since killed hundreds of thousands of soldiers on both sides and forced millions of Ukrainians from their homes, the news reveals the continued limits of Washington’s attempts to cordon off Russian institutions and oligarchs from the broader financial system.
“Despite the bogus claims from crypto lobbyists, this is further evidence of crypto being the currency of choice for illicit finance, including by Russians looking to evade sanctions,” Sen. Elizabeth Warren (D-Mass.) said in a statement
Policymakers like Warren have warned for the better part of a year that crypto markets represent a gaping vulnerability in the U.S.’ sanctions on Russia. While Treasury officials say they’ve seen little evidence that digital assets can be used to duck sanctions at scale, the U.S. has cracked down on services — including Russian exchanges and so-called mixing services that make transactions more difficult to track — in an attempt to shut off the spigot.
Inca, whose market surveillance tools have been used by Commodity Futures Trading Commission and Defense Advanced Research Projects Agency, prepared the report on the anniversary of the Russian invasion to spotlight how certain exchanges still allow Russians to move their holdings in and out of the country using peer-to-peer platforms despite escalating sanctions. The report identifies potential vulnerabilities on two other major exchanges, most notably Binance — the world’s largest crypto trading platform and a frequent target of regulators across the globe.
Binance offers “multiple methods” for Russians to convert local currencies into crypto, including through its exchange and a peer-to-peer market, according to the report. While the platform doesn’t allow users to use Russian credit cards, debit cards or accounts from sanctioned banks on its exchange, those deposits are accessible through its peer-to-peer market, according to the report.
Binance called the report’s allegations “categorically false” in a statement.
“Binance is a full-KYC [know your customer] platform and was the first major exchange to implement EU crypto-related sanctions,” said Binance’s global head of sanctions, Chagri Poyraz. He said the company “takes the extraordinary additional step of filtering any forms of communication between users to ensure there is absolutely no potential nexus with Russian entities through any sort of workaround.”

The exchange has engaged in a major lobbying and public relations push in recent weeks in an attempt to head off state and federal agencies’ ongoing push to rein in lightly regulated crypto businesses.
Binance has previously said that it would like to settle any allegations that might be brought by the Justice Department or civil regulators. Patrick Hillmann, the exchange’s chief strategy officer, has acknowledged that Binance failed to fully verify the identity of its customers — a basic requirement for any financial company — during its first two years of operation. He said Binance has no timeline for reaching an agreement with regulators.
Meanwhile, the Singapore-based exchange ByBit allows users to convert Russian rubles into crypto using their peer-to-peer market and fiat deposit, according to the report. Russians may also purchase crypto on the exchange after depositing fiat currency via an online digital wallet or a local bank card — including “any Russian-issued card.”
“Many of these exchanges officially curtailed their operations in Russia due to the imposed sanctions. They claimed to block users from Russia and to prevent them from opening new accounts,” the report states. Instead, they’ve continued to work with Russian citizens, including allowing them to use the maximum deposit, trading, and withdrawal limits, the report said.
BitBy did not respond to a request for comment.
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( With inputs from : www.politico.com )

February 25, 2023
A new crypto threat to government launches

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Fourteen years after Bitcoin’s release, law enforcement and cybersecurity officials continue to grapple with the fallout from the first generation of cryptocurrency-related technology — from money laundering, to unregistered securities offerings, to ransomware attacks. But even as regulators and law enforcement figure out how to handle the first wave of blockchain networks, developers around the world are racing to deploy more advanced variations on the original concept.
While many of these next-generation tools are being designed to ensure greater legal compliance than their predecessors — or even for use by governments themselves, as crypto’s underlying technology grows in legitimacy and institutional heft — the planned launch shows that radical anti-government ideas remain a driving force in the evolution of many crypto networks.
The anarchist project calls itself DarkFi, a reference both to “DeFi” — the nickname for crypto-based decentralized finance — and a 2014 speech by former FBI Director James Comey about the “Going Dark” problem that widespread encryption presented for law enforcement agencies hoping to surveil digital activity.
Representatives of the group say its members are spread across parts of Europe and the Middle East. Though they frame the software as a tool for shielding users from government-imposed violence, law enforcement officials say the proliferation of enhanced encryption is making it harder to catch drug dealers, terrorists and human traffickers
Bill Callahan, a former Drug Enforcement Administration agent who oversaw money laundering investigations during a two-decade stint at the agency, said that that the potential for advanced encryption to cloak crime is troubling — and that for the sake of public safety, new encryption tools need to strike a balance between personal freedom and government oversight.
“We have a reasonable expectation of privacy,” said Callahan, who now works at Blockchain Intelligence Group, which conducts forensic investigations of crypto activity. “We don’t have an absolute expectation of privacy.”
Callahan, who was not familiar with the details of DarkFi, said that people building and running crypto networks could face legal liability for criminal activity conducted on the networks. “If they are allowing this to be used by nefarious actors,” he said, “they run the risk of being held responsible.”
The risk only grows if developers publicly tout their intention to flout law enforcement. “That’s probably going to be Exhibit A,” Callahan said.

Like many of the newer crypto tools being developed for use by governments and legally compliant businesses, the DarkFi project leans heavily on zero-knowledge proofs, a cryptographic technique invented by mathematicians in the 1980s that allows for targeted verification of encrypted information in a way that allows most aspects of the information to remain secret.
Experts who reviewed DarkFi’s announcement and its website at POLITICO’s request said the project appeared to be technically sophisticated, even as they expressed skepticism of its developers’ vision.
“They seem like they’re actually putting a lot of engineering effort into it,” said Matthew Green, a computer science professor at Johns Hopkins University and a co-founder of Sealance, a startup that aims to integrate advanced encryption into a legally compliant version of crypto.
“It’s not a small project,” he said. “They are aiming to do something very, very powerful.”
“They do know how to do it and they’re thinking correctly,” said Evan Shapiro, the San Francisco-based CEO of the Mina Foundation, which supports another next-generation crypto network backed by venture capital investors.
But Shapiro said that in critical respects, DarkFi was behind in its development to a handful of venture-backed crypto protocols that had similar technical ambitions while being designed for more conventional commercial purposes. He said that at a technical level, DarkFi was likely to differ little from these more-commercial projects, even if it attracted applications and users more aligned with its anarchist vision.
Taaki, who has spent time in London and Syria in recent years and did not respond to questions about his current location, says the new platform will permit more secrecy than commercially-minded projects that can’t afford to buck government pressure to ensure legal compliance.
In other words, the group believes that the high-tech game of cat and mouse between rogue crypto coders and governments that has gone on for over a decade is still only just beginning.
In a sense, this is an extension of the mission of the original cryptocurrency, Bitcoin, which was invented specifically to challenge government control of money and banking. As it has spread and gained wider adoption, governments have found ways to mitigate the threat posed by the original cryptocurrency and its immediate successors.
Despite Bitcoin’s use of pseudonymous addresses, for example, all transactions on the network are recorded in public view, and law enforcement officials have honed techniques to trace them back to individual users. Even as the total volume of illicit cryptocurrency activity has continued to grow in recent years, its share of transaction volume has fallen to new lows as legitimate usage has exploded, according to a report released last year by analytics firm Chainalysis.
And on the technical side, a report funded by the Pentagon’s Defense Advanced Research Projects Agency and released last year identified several vulnerabilities in Bitcoin that an attacker with the resources of a national government could use to disrupt the network itself.
Since Bitcoin’s launch, thousands of successors have sought to improve elements of its design. Starting with Ethereum, launched in 2015, many newer systems have offered more advanced functions, such as smart contracts, which can automate financial activity. Others, like Monero — which became a cryptocurrency of choice for illicit use following its 2014 launch — have offered higher levels of secrecy.
But developers are still trying to perfect blockchain systems that integrate next-generation functionality and secrecy in a single system. Doing so will help fulfill “the destiny of crypto,” Taaki said, to bring about individual freedom at the expense of governments.
Among the features promised by DarkFi are ones that will allow people to form organizations that collectively raise and distribute money in total secrecy. Taaki said this was inspired in part by the group’s experience using existing technology to form a crypto-based organization to support jailed Wikileaks founder Julian Assange.
But technical and political obstacles remain in the way of this anarchist vision.
“Building private blockchains that can do things like Ethereum is really hard,” said Green, who was instrumental in the development of ZCash, an early privacy-focused cryptocurrency released in 2016.
Green said that he, too, believes that advances in encryption and network design could bring further crypto-driven disruption. But, at least, for now, he said governments have shown they can and will find ways to crack down on networks used for criminal activities.
“We’re more in the taking-the-cap-off-of-the-toothpaste phase,” he said. “The toothpaste won’t be out of the tube probably for 10 years.”
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( With inputs from : www.politico.com )

February 3, 2023
Crypto collapse spurs calls for new rules to crack down on abuse

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The clashes in bankruptcy and civil courts vindicate industry skeptics like Sen. Elizabeth Warren (D-Mass.) and Securities and Exchange Commission Chair Gary Gensler, who have long warned that crypto businesses are defying basic rules that would protect retail investors and traders.
They are also fueling calls to enforce the laws and regulations that are currently on the books, which the industry has fiercely resisted.
“There are a lot of regulatory tools out there already to deal with that,” Warren said in an interview. “We need regulators to use those tools, and Congress needs to make sure that those regulators have the resources they need to be an effective cop on the beat.”
The legal conflicts are injecting even more uncertainty into a market that has lost two-thirds of its value since November 2021. For retail traders and customers — including those who were enticed into risky lending products with promises of secure and reliable investment returns — there is no safety net.
The battles over the corporate remains of once high-flying digital asset startups may take years to resolve. More litigation is in the offing as the contagion that emerged last spring wends its way through the markets.
“In traditional finance, there are means and mechanisms to wind down institutions. On the crypto asset side, because it grew so quickly — in a space that had a light touch regulation — you don’t have the same kinds of well-established procedures,” said John Rizzo, a former U.S. Treasury official who’s now a senior vice president of public affairs at Clyde Group.
Some crypto businesses that have gone under-operated as banks, brokers, custodians and agents for their customers — a combination of services that doesn’t exist at regulated financial institutions — making their bankruptcy proceedings even more chaotic.
Bankrupt lending platforms like Celsius Network and Voyager Digital solicited customers with investment products that guaranteed double-digit yields in exchange for crypto deposits. FTX’s marketing campaigns assured crypto traders that its exchange offered a safe venue for buying, selling and storing digital tokens.

But those customers were locked out of their accounts when those platforms ran into trouble. They now have to compete in bankruptcy court with major creditors who secured massive loans to those businesses.
“The likelihood that these individuals are going to ever be made whole is distilled down to almost nothing,” said Martin Auerbach, a former federal prosecutor who leads the white collar and investigations practice at the law firm Withers.
Gensler has already started to lay down the hammer on the industry. The SEC this month charged the crypto exchange Gemini and a widely used brokerage known as Genesis Global with securities law violations in connection to a lending product that froze roughly $1 billion of customer assets after the downfall of Bahamas-based FTX.
Genesis had used Gemini customer assets to issue loans to groups like Alameda Research, the personal hedge fund of FTX founder Sam Bankman-Fried, as well as the defunct hedge fund Three Arrows Capital, according to the SEC. Genesis, which is owned by the crypto behemoth Digital Currency Group (DCG), declared bankruptcy a week after the SEC announced its charges, and Gemini, which is led by the Winklevoss twins, is the subject of a class action lawsuit.
“It’s devastating,” said Hee-Jean Kim, an attorney who’s leading the class action case against Gemini. “People really felt this was safe.”
Gemini and the Winklevoss twins, who accused DCG and Genesis of accounting fraud in a public letter, did not respond to requests for comment. DCG has waved off the allegations as a publicity stunt. Genesis also did not respond to requests for comment.
Meanwhile, as multibillion-dollar failures cascade across the industry, the survivors are scrapping over a dwindling pool of assets that remain.
“The crypto ecosystem right now is working towards solutions through the markets and market forces with no government bailouts and no government assistance,” Mike Katz, the vice president and head of legal at DCG, told POLITICO prior to Genesis’s bankruptcy.
The calamity in crypto markets has been “a terrible outcome for unsophisticated people, but customers wanted their return,” said Brown Rudnick bankruptcy group partner William Baldiga, who’s advising Bahamian officials on the FTX restructuring. “If you’re going to promise customers 6 percent, 12 percent return, how is the company going to make the money to give them those returns? Well, too often, only by gambling with the funds the customer gave you.”
“You get in the hole, some people keep digging,” he said.
Crypto trading platforms and brokerages are highly interconnected, so when one company’s investments go south, those losses are felt by its lenders and business partners.
That problem became acute in mid-2022 after a widely used crypto token lost its value and pushed one of its backers, hedge fund Three Arrows Capital, into liquidation.
Others soon followed. Celsius Network and Voyager Digital, two trading platforms where millions of retail customers held accounts, both declared bankruptcy in July. Genesis, which had loaned almost $2.4 billion to Three Arrows, wobbled in the market downturn until DCG arranged to absorb some of the losses.
That was only a dress rehearsal for FTX’s main event. Exposure to Bankman-Fried’s investment empire, which included dozens of exchanges, digital startups and venture capital investments, paralyzed Genesis and other crypto businesses that survived the initial downturn.
With regulators circling and crypto asset values plummeting, FTX’s bankruptcy and the restructuring proceedings for Three Arrows, Celsius, Voyager and the crypto lender BlockFi’s assets became critical venues for creditors to recover their losses.
“The domino effect is extensive, in part because FTX had positioned itself as such a successful and dominant player in the market,” said Auerbach. When a market pillar of that size falls, he said, “the ripples and waves are … dramatic.”
Celsius, FTX, Three Arrows and Genesis did not respond to requests for comment.
FTX’s restructuring team says it has recovered more than $5 billion from Bankman-Fried’s ruined empire, but it’s far from clear if that will be enough to compensate millions of customers and creditors whose funds were lost when the platform imploded last year.
Meanwhile, a new ruling in Celsius Network’s bankruptcy determined that customers will be at the back of the line for any claims on its assets. Federal authorities have warned about Voyager’s sale of its assets to Binance.US — a deal the company’s restructuring team pursued after FTX’s planned acquisition of the portfolio was derailed by its collapse.
Even if Binance.US completes its acquisition of Voyager’s assets, Voyager isn’t making any assurances that its customers will see the value of their accounts restored.
“It’s a whack-a-mole problem,” Rizzo said. “You make one party whole, and then here’s less resources for another party.”
Zachary Warmbrodt contributed to this story.

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( With inputs from : www.politico.com )

January 31, 2023