Crypto.news Weekly Digest: Global Regulators Step Up Efforts, Genesis Global Is Bankrupt
The past week has seen a marked increase in global regulatory efforts focused on cryptography and a corresponding increase in government interest across the board. The Gemini and DCG case has seen some updates, with Genesis Global officially filing for bankruptcy. Meanwhile, FTX remained in the spotlight as bankruptcy lawyers demanded pennies to settle aggrieved creditors.
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Intensifying global regulatory efforts
Last week, an expected trend prevailing across the cryptocurrency industry was an increase in regulatory efforts from various financial bodies around the world. Granted, the recent explosion and scams in digital currencies have resulted in huge losses for investors.
One notable development came from Iran, where the government introduced policies to provide a regulatory framework for the domestic crypto industry. However, some analysts have expressed disappointment with the limitations that could destabilize the crypto space. One such restriction is the ban on futures and margin trading. Iran has also banned foreign nationals from using local cryptocurrency exchanges. Notably, the government was also granted access to users’ data. After that, they now have the ability to terminate any user’s account at their discretion.
In the aftermath of the collapse of FTX, which also hurt Japanese clients, financial regulators in Japan, on January 16, highlighted the need to regulate the domestic cryptocurrency space with as much scrutiny as applied to the traditional banking sector. They note that FTX explodes due to a lack of proper supervision.
Meanwhile, cryptocurrency exchanges in France have been directed to apply for a license by January 1, 2024. The government cited the FTX debacle as an example of why regulatory efforts must be stepped up.
The United States is at the forefront of enforcement action
With that out of the way, French law enforcement agencies teamed up with the US Department of Justice (DoJ) to crack down on the alleged illegal activities of Bitzlato, a Hong Kong-registered cryptocurrency exchange.
On January 18, the US Department of Justice said it would announce a global enforcement action. A few hours later, the agency revealed that it had arrested Anatoly Legkodimov, the founder of Bitzlato. Slope is accused of money laundering and illegal Russian financing.
Amid Department of Justice enforcement efforts, other US regulators have turned their attention to alleged Mango Markets fraud, with the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) filing numerous fraud charges to the tune of $116 million. v. Avraham Eisenberg, Mango Markets scalper.
These enforcement actions from the United States were prevalent not only last week but throughout 2022. A report from Cornerstone Research, dated January 18, indicated that enforcement action by US regulators increased by 50% last year.
As regulators ramp up their efforts, the crypto industry is gradually seeing the need for compliance. Many players in the industry believe that the current regulatory landscape still needs to be improved for the sake of safety and stability in the crypto market. Venture capitalist and former FTX spokesperson Kevin O’Leary has emphasized the importance of proper regulation in developing a more secure and mature crypto market.
Furthermore, in the wake of the multiple bankruptcies in the space, CFTC Commissioner Christy Romero called attention to the dangers of allowing crypto entities to self-certify and list products without extensive oversight. Another CFTC commissioner, Caroline Pham, pointed to the need for global crypto regulations in 2023.
Increased interest from federal governments
Rising global regulatory efforts also coincide with increased interest from governments. This trend was particularly evident last week when several countries announced updates on central bank digital currencies (CBDCs) and stablecoin projects.
In Spain, the Central Bank has given the go-ahead to start a pilot phase for EURM, a stablecoin pegged to the euro. The pilot project is expected to last between six and twelve months and will be conducted by Monei, a financial technology company. Upon completion of the beta phase, it will appear for the first time on the mainnet.
Meanwhile, a crypto-focused transcontinental partnership was created between Iran and Russia. Over the years, both countries have been interested in cryptocurrency due to the numerous sanctions imposed by the West. Last Sunday, reports revealed that the two countries will be launching a gold-backed stablecoin.
Australia also announced plans to launch its own stablecoin, “AUDN”, on the Ethereum and Algorand networks. The stablecoin will be pegged to the Australian dollar (AUD) and is scheduled to be launched in mid-2023. According to reports, the country’s central bank will be the sole entity responsible for minting the coin.
CBDCs: China’s Advancement and England’s Indifference
While others were planning to launch their own native stablecoins, China was already making improvements to its already launched digital currencies. On January 17, reports revealed that the government has added support for digital yuan (eCNY) smart contracts, with the feature already being leveraged by Meituan, the Chinese shopping platform.
Even with this growing global interest, the CBE’s dream ran into some opposition last week. Andrew Bailey, Governor of the Bank of England, has expressed doubts about the importance of the digital pound. Although not completely ruling out its necessity, Bailey noted that the British economy may not need the digital pound.
Governments welcome cryptocurrency
Last week, Mykhailo Fedorov, Ukraine’s deputy prime minister, claimed that the European country has the potential to grow into the largest booming ground for digital assets, speaking at this year’s World Economic Forum (WEF).
Fedorov mentioned that the country is working on creating a regulatory framework to legalize cryptocurrencies in Ukraine. Last February, Parliament passed the Digital Assets Bill. He also noted that Ukraine is receiving financial aid in cryptocurrency as the Russia war continues while expressing his gratitude to the cryptocurrency community.
In Davos, the UAE Minister of Foreign Trade, Thani Al-Zeyoudi, revealed their desire to make cryptocurrencies a crucial aspect of economic development and trade. He noted that the country will periodically enact legislation guiding the use of cryptocurrencies as a means of ensuring that the domestic crypto industry is adequately regulated.
FTX’s creditors have been greeted with unfavorable reports
The FTX saga occasionally took the spotlight last week, as updates emerged on bankruptcy proceedings amid efforts to settle creditors. FTX’s native token, FTT, started the week on a favorable note, rising 60% in the 24 hours leading up to January 16th. It reached as high as $2.50 before returning. However, some attributed the rise to the pump-and-dump scheme.
With its parent token soaring, FTX was still battling bankruptcy proceedings. Scrabble’s efforts to obtain funds led to an investigation into a $415 million cryptocurrency theft last year. Among the stolen funds was $90 million from FTX US, according to current FTX CEO John Ray. Despite this, Sam Bankman-Fried asserted that FTX US is solvent, and urged Ray to acknowledge the claim.
Additionally, reports on January 17 indicated that FTX was still far from generating enough funds to settle creditors despite the disclosure of $5.5 billion in liquid assets. The company has found $3.5 billion worth of bitcoin (BTC), $1.7 billion in cash, and $0.3 billion in securities, but there is still a significant shortfall of funds. Thus, investors and clients may not receive all of their lost assets.
Nevertheless, Ray continued to support recovery efforts. He filed on January 17, seeking to retain attorneys for Sullivan and Cromwell in the ongoing bankruptcy case, citing its relevance. The request responded to a previous proposal to remove lawyers from the case due to a conflict of interest.
FTX.com to restart?
Ray also revealed plans to restart FTX.com, the collapsed international platform for the FTX ecosystem. In an interview with The Wall Street Journal last Thursday, Ray mentioned that clients believe the technology behind the FTX.com platform is commendable despite the mismanagement. Ray and his team are looking into restarting the stock exchange to make money for the investors.
After the disclosure, the FTT token rose again, this time by 34%, within a couple of hours. Sam Bankman is also fried answered For Ray’s comments. He was pleased with the decision but claimed Ray was only “ranting lip service” to the initiative, alleging that the FTX CEO had been working against plans to implement the decision for months.
When Ray attempted a refund, the Alameda Research liquidators lost money on the liquidated centers. Arkham Intelligence revealed last Wednesday that the liquidators responsible for Alameda’s wallets and accounts had suffered massive losses, more than $4 million of which could have been prevented.
Genesis goes bankrupt
FTX Reports did not pull updates on the situation between the Digital Currency Group (DCG) and Gemini last week, as Genesis Global joined the long list of bankrupt cryptocurrency companies. Reports from January 18 revealed that the creditors and the company were working on a pre-arranged bankruptcy plan.
Two days later, Genesis Global filed for Chapter 11 bankruptcy protection, revealing that it had between 1 and 49 creditors, with assets ranging from $100 million to $500 million, and liabilities also in the $100 million to $500 million range. The bankruptcy filing also covered its subsidiaries. After the filing, court documents revealed that the lender owed its creditors $5.1 billion.
In response, Gemini co-founder Cameron Winklevoss expressed his excitement, claiming that it gives Gemini and other creditors a good chance to recover lost funds. At its discretion, Genesis Global’s bankruptcy proceedings will be subject to judicial oversight that will help reveal what led to the current situation.
Prior to the bankruptcy, reports indicated a sustained effort by Barry Silbert’s DCG to raise funds to settle creditors and weather the liquidity storm. The company told its shareholders last Wednesday that it would temporarily halt dividend payments to conserve liquidity.
CoinDesk, DCG’s media unit, is already in talks with Bermuda-based asset management firm Lazard, about a potential acquisition. Cardano founder Charles Hoskinson has also shown interest. Last week, he revealed plans to acquire CoinDesk in order to “restore journalistic ethics.”
A terrible start to the year for Nexo
It was mostly quiet in Nexo camp last week after the legal and organizational problems it faced two weeks ago. After the quiet, on January 19, the US Securities and Exchange Commission charged Nexo with offering an earning interest product (EIP) to US investors without prior registration. The Securities and Exchange Commission revealed that Nexo agreed to pay a $22.5 million fine to settle fees and stop offering the product to US-based investors.
The development came a week after Bulgarian authorities raided Nexo offices to investigate allegations of illegal financial activities. Nexo addressed rumors that the developments in Bulgaria were politically motivated. However, this week Bulgarian officials came out to counter the allegations saying that the investigation had nothing to do with politics.