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Fahrenheit has officially won the bid for the bankrupt Celsius Network’s assets — pending approval by the court, which is near-certain, and by regulators, which is less so. A $10 million deposit is due by Monday. [Doc 2713, PDF]
Fahrenheit is a consortium that includes VC firm Arrington Capital, miner US Bitcoin, investment firm Proof Group, former Algorand CEO Steven Kokinos, and Seasons Capital CEO Ravi Kaza.
The new deal is an adaptation of the previous NovaWulf proposal. A “NewCo” will be created to take ownership of Celsius’ remaining DeFi tokens, its loan portfolio, its venture capital investments, its bitcoin mining operation, and $500 million in “liquid cryptocurrency” (not specified, but presumably Celsius’ remaining BTC and ETH). US Bitcoin will manage Celsius’ bitcoin mining operation.
Holders of Earn claims, some holders of Convenience claims, Withhold claims, and Borrow claims will receive equity in NewCo, pro rata. NewCo will endeavor to get a public stock exchange listing for the equity. Earn claimants will also get a distribution of the liquid cryptocurrency and any proceeds from litigation.
If you’re a Celsius creditor, the plan contains lots of important details. Read it and discuss this with your fellow creditors.
As with the original NovaWulf proposal, we think this is a Hail Mary pass that can only work if number goes up. On the other hand, it’s doing something and not just liquidating what little remains. Also, Alex Mashinsky won’t be involved.
DCG: When your left pocket can’t pay your right pocket
In the Genesis bankruptcy, Genesis’ parent company Digital Currency Group missed a $630 million payment to Genesis due earlier this month. Note that that’s a payment from themselves to themselves, and they still failed to make it.
This failure to pay was noted by Gemini, which has a tremendous interest in getting that money so Gemini Earn investors can be paid back. Gemini Earn’s retail customers are the largest creditor of Genesis. [Gemini, archive of May 25, 2023]
Gemini Earn was an investment product where Gemini customers put their money into Genesis to earn unlikely interest rates. Gemini’s customers were not so happy at the prospect of their money being stuck in the Genesis bankruptcy for months or years.
So in February, the creditors worked out an “agreement in principle” — not, you’ll note, an actual deal — whereby they would get money back from DCG, as the owners of Genesis. [press release]
In April, the creditors got sick of DCG messing about and upped their demands. This led to a bizarre statement from DCG on May 9 that they were “in discussions with capital providers for growth capital and to refinance its outstanding intercompany obligations with Genesis.” They didn’t have the money to pay themselves. [CoinTelegraph]
Gemini also plans to file a reorganization plan of its own. This is likely why Genesis has filed asking for its exclusive right to make reorganization proposals to be extended to August 27. The court will hear this motion on June 5. [Doc 329, PDF]
Either DCG is trying extremely hard to screw over Genesis customers … or, despite all the millions and billions with dollar signs in front in their accounts, and “$200 million” a year in Grayscale management fees, DCG is broke — at least in actual money — and has been pretending not to be broke. And we’re pretty sure Gemini is pushing this point this hard because they can’t cover their customers either. Imaginary assets are great — until you have to pay up.
Binance is outraged at Reuters catching them out again
Reuters has caught Binance at it again. This time, Binance was commingling customer funds and company revenue on the order of billions of (actual) dollars in their Silvergate accounts in 2020 and 2021. Controls? What are controls? [Reuters]
Binance told Reuters that this was money being used to buy BUSD and this was “exactly the same thing as buying a product from Amazon,” per Brad Jaffe, Binance’s VP of communications since August 2022.
This explanation is at odds with Binance’s previous claims to customers that dollars they sent to Silvergate were “deposits” that they could “withdraw” as dollars. Jaffe said that “the term ‘deposit’ is a communication term, it’s not an indication of the technical treatment of the funds.” Oh, a communication term — you mean like when words mean things in a context?
Reuters didn’t find any misappropriation of customer funds in the documents they saw. But commingling is a massive red flag for incompetence (as it turned out to be with FTX) and fraud — such as moving money around to evade regulatory scrutiny. Reuters includes a complex diagram of the international flows of Binance’s cash in the report.
Binance PR person Patrick Hillmann dismissed the story as “1000 words of conspiracy theories” and said that Reuters was “making stuff up.” Though Hillmann never stated at any point that Binance hadn’t commingled funds at Silvergate. Hillmann also decried “the xenophobia behind consistently mentioning @cz_binance’s ethnicity without noting that he’s been Canadian since the age of 12” … which the Reuters story didn’t do at all. [Twitter, archive]
Hong Kong brings some regulatory clarity
The Hong Kong Securities And Futures Commission (SFC) has finished its consultation on virtual asset trading platforms opening to retail investors. The rules allow licensed exchanges to offer trading to the public in tokens that are highly liquid and are not securities.
The rules are strict — no securities, no lending, no earn programs, no staking, no pro trading, and no custody. Unlicensed crypto exchanges are not allowed to advertise. Hong Kong very much wants to avoid the sort of embarrassment that comes with a large exchange like FTX failing.
Exchanges will be required to assess the failure risk of all tokens they offer trading in. Tokens are required to have a 12-month track record. Exchanges will need to get smart contract audits where appropriate. 98% of client assets must be in cold wallets (offline); hot wallets must not hold more than 2%.
Margin trading is not yet allowed even for professional investors, but the SFC will issue guidance on derivatives in the future.
The guidelines take effect June 1, which is when exchanges can begin to apply for a license. [SFC; Consultation Conclusions, PDF]
Regulatory clarity around the world
Japan will be enforcing FATF rules on crypto from June. This went through with no objections because Japan learned its lesson from Mt. Gox and regulated crypto exchanges early. [Japan Today]
FATF tells CoinDesk that it didn’t actually demand that Pakistan not legalize crypto. “Countries are permitted, but not required, to prohibit virtual assets and virtual asset service providers.” [CoinDesk]
The International Organization of Securities Commissions is putting together recommendations on crypto. Service providers need to address conflicts of interest, separation of functions, and accounting client assets, and this has to work across borders. Get your comments in by July 31. [IOSCO, PDF; recommendations, PDF]
Huobi gets kicked out of Malaysia for failure to register. Not registering is a violation of Malaysia’s Capital Markets and Services Act of 2007. The Securities Commission Malaysia said Huobi has to disable its website and mobile apps on platforms including the Apple Store and Google Play. [Securities Commission Malaysia]
The CFTC is talking about all the fraud in crypto, says it’s on good working terms with the SEC on these matters, and warns the crypto industry that it’s not going to be a soft touch. [Reuters]
The SEC has changed the disclaimer that commissioners say before speeches — probably in response to William Hinman’s comments saying ether wasn’t a security being cited in the Ripple case. [blog post]
Molly White put up Rep. Sean Casten (D-IL) questions at May 18, 2023, stablecoin hearing, and it’s a lovely five minutes. This guy understands precisely how Web3 was fundamentally a venture capital-funded securities fraud. [YouTube]
Bitfinex: whoops, apocalypse
The Organized Crime and Corruption Reporting Project obtained an internal report on the August 2016 hack of the Bitfinex crypto exchange — the hack that led to the Tether printer going wild and the 2017 crypto bubble.
The report was commissioned by iFinex and prepared by Ledger Labs. It was never released, but OCCRP has obtained a draft.
Bitfinex kept transaction limits secured by three keys. It looks like someone made the mistake of putting two of the three keys on the same device. This is how the hacker was able to raise the global daily limit and drain the accounts.
One key was associated with a generic “admin” email address and another linked to “giancarlo,” which belonged to Bitfinex CFO Giancarlo Devasini. The report does not blame Devasini for the hack.
Ledger Labs thinks the hacker came in from an IP address in Poland. [OCCRP]
Tether’s issuance is up — but its usage is through the floor. The trading volume is at its lowest in four years. Most of the tether trading happens on Binance, which is where the majority of all trading volume happens, and where USDT is accepted as being worth a dollar. We mentioned last time that volume was down, but Kaiko has the numbers. [Kaiko]
More good news for bitcoin
Do Kwon’s bail has been scrapped. He’s back in jail in Montenegro, awaiting his local trial on charges of forging documents, specifically the ones he was using to try to get out of Montenegro to his next bolt-hole. [Reuters]
Glassnode tells us that hodling has never been more popular! 68.1% of BTC hasn’t moved in the past year! Now, you might think that this is because most people who bought in during the bubble are still underwater. But “baghodler” isn’t yet a word. [Glassnode]
Shaquille O’Neal was finally served in the FTX class action suit against the exchange’s celebrity promoters — at the former FTX Arena. [Washington Post]
Openfort is scraping up the very last of the Web3 gaming venture cash — they just got $3 million to do an online crypto wallet for blockchain games. You know, that gigantic current market that anyone has the slightest interest in. Openfort doesn’t appear to have a customer as yet. [VentureBeat]
Coinbase has a new TV ad! We know you lost all your money — but crypto is like the early Internet, really. [Youtube]
Solana is so thoroughly out of ideas that they’re adding a ChatGPT plugin. Presumably, it can write tweets for them. [The Block]
Crypto fans make up new justifications for the importance of their magic beans all the time. David Rosenthal takes us through a few. [DSHR Blog]
Video: The problems with Crypto Currency. Max Silverman wanted to do an animation, so asked David for 90 seconds of audio. It came out great! [YouTube]