Government exhibit in the case against former FTX CEO Sam Bankman-Fried.
Source: SDNY
While prosecutors are requesting that FTX founder Sam Bankman-Fried spend 40 to 50 years in prison for his crimes, the defense team is urging the judge to consider a sentence that’s roughly 90% shorter.
Bankman-Fried’s fate will be announced in Manhattan on Thursday morning by Judge Lewis Kaplan, who presided over the monthlong trial in November. Bankman-Fried was found guilty of seven charges tied to the collapse of crypto exchange FTX and the roughly $10 billion of customer deposits that went missing.
The hope for Bankman-Fried’s team is that Kaplan takes into account the increased likelihood that FTX customers will be able to recoup most, if not all, of the money they lost when the exchange spiraled into bankruptcy in 2022.
Lawyers representing the bankruptcy estate of FTX told a judge in Delaware last month that they expect to fully repay customers and creditors with legitimate claims. Bankruptcy attorney Andrew Dietderich, who works with FTX’s new leadership team, said “there is still a great amount of work and risk” ahead in getting all the money back to clients, but that the team has a “strategy to achieve it.”
It was a potentially dramatic change in the narrative surrounding FTX’s collapse 16 months ago. At the time, it was believed that many thousands of customers — reportedly up to a million — collectively lost billions of dollars that would be unrecoverable due to the lightly regulated and unsecured nature of the crypto industry. Those clients faced the real possibility that the vast majority of their money had evaporated, just like in other cases of hedge funds and lenders that failed during the so-called crypto winter of 2022.
Much of the government’s successful case against Bankman-Fried hinged on convincing the jury that the defendant had stolen billions of dollars worth of FTX customer money to make risky bets at Alameda.
For months, as FTX has wound its way through a Delaware bankruptcy court, new CEO John Ray III and his team of restructuring advisors have been clawing back cash, luxury property, and crypto, as well as tracking down missing assets. They’ve already collected more than $7 billion, and that doesn’t include valuables like $26 million in gifts and property to Bankman-Fried’s parents, or the $700 million handed over to K5 Global and founder Michael Kives, who invested FTX cash in companies like SpaceX that have since increased in value.
Bankman-Fried’s defense team has asked the court for a sentence in the range of 63 to 78 months. Beyond the fact that he’s a “first time, nonviolent offender,” attorneys for the FTX founder largely lean on the argument that Bankman-Fried’s risky bets paid off and the bankruptcy estate expects to fully repay FTX customers.
It’s a story that Bankman-Fried was trying to sell as he awaited trial.
“FTX US remains fully solvent,” Bankman-Fried wrote in a Substack post on Jan. 12, 2023, while he was under house arrest at his parents’ home in Palo Alto, California. He said the exchange “should be able to return all customers’ funds.”
One key asset in FTX’s portfolio is its stake in artificial intelligence startup Anthropic. Late last week, FTX’s bankruptcy estate struck a deal with a consortium of buyers to sell the majority of its Anthropic holdings for $884 million. Under Bankman-Fried’s leadership, FTX invested $500 million in the startup in 2021 before the boom in generative AI. The company’s valuation hit $18 billion in December 2023, which would put FTX’s roughly 8% stake at about $1.4 billion.
During Bankman-Fried’s trial, Kaplan denied the defense’s request that it be permitted to say that FTX’s investment in Anthropic was a smart bet.
Renato Mariotti, a former prosecutor in the U.S. Justice Department’s Securities and Commodities Fraud Section, told CNBC that the more money the estate is able to recover for clients, the better for Bankman-Fried.
“If true, that is relevant and the judge is required to consider victim restitution at sentencing,” Mariotti said. “But even if victims weren’t harmed, he is still guilty of the offense.”
Mariotti said he expects the sentence to fall somewhere in between what the prosecution and defense are asking, predicting it will be “at least 20 to 25 years.”
Joseph Bankman and Barbara Fried arrive for the trial of their son, former FTX Chief Executive Sam Bankman-Fried, who is facing fraud charges over the collapse of the bankrupt cryptocurrency exchange, at Federal Court in New York City, U.S., October 26, 2023.
Brendan Mcdermid | Reuters
In addition to the Anthropic gains, FTX customers can look at the rebound in crypto for signs of optimism. Bitcoin is trading at close to $70,000, up from less than $17,000 at the time of FTX’s collapse.
Solana fits into a category of so-called “Sam coins,” a group that also includes Serum, a token created and promoted by FTX and Alameda. Solana saw a huge run-up of late, climbing more than eightfold since the end of September.
Meanwhile, FTX’s bitcoin stash, which was worth $560 million at the time of the September report, when the coin was trading at around $25,000, has seen a significant uptick as well. Bitcoin’s value has increased by around 180% since then.
For FTX customers, being made whole, according to a judge’s ruling, means getting the cash equivalent of what their crypto was worth in November 2022. In other words, they’re not seeing any of the upside of FTX’s investments or being given virtual coins that would allow them to cash out at higher valuations.
Braden Perry, who was once a senior trial lawyer for the Commodity Futures Trading Commission, told CNBC that Bankman-Fried faces at least 70 months in prison based on his base level offense, number of victims, sophisticated means and leadership role — even if there’s no monetary loss to the victims. The massive losses that were originally expected would suggest 30 years to life, Perry added.
US President Joe Biden speaks to employees at the CS Wind America Inc on November 29, 2023 in Pueblo, Colorado.
Helen H. Richardson | The Denver Post | Getty Images
This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Mixed bag on Wall Street U.S. stocks ended mixed Tuesday as investors prepared for key inflation data due out later this week. The S&P 500 and the Nasdaq Composite closed with small gains, up 0.17% and 0.37%, respectively. The 30-stock Dow fell for a second straight day, off by 0.25%. Bitcoin also extended gains rising above $57,000.
Apple kills EV plans Apple has cancelled its plan to build electric cars, according to Bloomberg. This signals an end to the company’s secretive effort to compete in the EV space against rival Tesla. Reports of Apple’s ambition first surfaced in 2014 after it recruited automotive engineers and other talent from auto companies.
Will South Korean measures work? South Korea’s Japan-style measures to boost corporate governance may not work to lift its undervalued stock markets and tackle the so-called “Korea discount.” In its latest attempt, the Financial Services Commission revealed a “Corporate Value-up Program,” aimed at supporting shareholder returns through incentives including tax benefits.
Honor’s foray into flip phones Chinese technology firm Honor will launch a foldable flip phone this year, the company’s CEO George Zhao told CNBC. It will be the firm’s first entry into the vertical-folding style of smartphone as the company looks to push into the premium end of the market in a challenge to tech giants like Samsung and Apple.
[Pro] Alibaba’s compelling appeal Despite the recent slump in Alibaba’s shares, the Chinese e-commerce giant remains on the radar of fund managers. “Alibaba is our third biggest stock [position] now. Why? The valuation is absolutely compelling,” said Andrew Lapping, Ranmore’s chief investment officer.
Americans’ attitudes about the economy have soured.
Consumer confidence fell to 106.7 in February, said the Conference Board, down from a revised 110.9 in January. This comes after a three-month streak of improving mood.
The index measuring short-term expectations for income, business and the job market fell to 79.8 from 81.5 in January. A reading under 80 often signals an upcoming recession.
While Americans were less worried about food and gas prices, there were rising concerns over jobs and the upcoming presidential elections.
“The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the US economy,” said Dana Peterson, chief economist at The Conference Board.
“While overall inflation remained the main preoccupation of consumers, they are now a bit less concerned about food and gas prices, which have eased in recent months. But they are more concerned about the labor market situation and the US political environment.”
The drop in consumer confidence was broad based, affecting most income groups, as well as among people under 35 years old and those aged 55 and over, according to Peterson.
The survey findings reveal that despite data showing a strong labor market and a surprisingly resilient economy, public perception on the economy proves to be a challenge ahead of high-stakes elections this year.
This signals troubling signs for President Joe Biden, who has been trying to tout his administration’s economic accomplishments ahead of a likely rematch against Republican nominee Donald Trump in November.
It remains to be seen how popular such an ETF would be with retail investors, but more than 10 asset managers, including the world’s largest, BlackRock, are working to get their version of a spot bitcoin ETF approved. Industry participants predict that after these offerings become available, it won’t just be high-risk traders, but also retirement savers who will have more access to crypto as an asset class, either through their company 401(k) plan or through solo 401(k)s, if applicable, and self-directed IRAs.
“It’s a big step toward mainstream adoption of bitcoin and cryptocurrency. [Investors] will have more options available,” said Chris Kline, chief revenue officer of Bitcoin IRA, which allows retirement savers to invest in more than 60 cryptocurrencies within retirement accounts.
More from ETF Strategist
Here’s a look at other stories offering insight on ETFs for investors.
Right now, interest in bitcoin is high. The cryptocurrency is up over 150% this year after a dismal 2022, and the spot bitcoin ETF race has helped push its value higher. But it remains an extremely volatile asset class with as many enemies as true believers.
Many major pension funds have earmarked dollars to crypto as an asset class in recent years. According to the 2022 CFA Institute Investor Trust Study, 94% of state and local pension plans had some crypto exposure. Fidelity Investments, the largest 401(k) plan administrator in the U.S., first added a bitcoin fund option in the fall of 2022 to allow employees who are comfortable with the risks and volatility of cryptocurrency to invest in bitcoin within their company-sponsored 401(k) plan.
Here’s what retirement savers who do see long-term potential in cryptocurrency as an asset class need to know about the potential use cases for spot bitcoin ETFs.
Many employers have been hesitant to offer crypto in a 401(k) based on 2022 guidance from the U.S. Department of Labor, according to industry experts.
With options to own crypto within retirement accounts such as 401(k)s and IRAs being limited, most people who own crypto today do so outside of retirement accounts. Many take a self-custody approach or use an exchange such as Coinbase or Gemini. Options are also available in nonretirement accounts at Fidelity and Betterment, for example.
Accordingly, retirement savers seeking to hold crypto assets in a retirement account typically need to find a self-directed provider that allows crypto investments, and that list is also limited. Once spot bitcoin ETFs are approved, however, expect more providers to allow them, and more options for retirement savers to invest in this fashion, say industry experts.
Assuming the SEC gives an affirmative nod to spot bitcoin ETFs, as expected, more companies might decide to offer it within their 401(k) lineup, said Steven T. Larsen, a certified financial planner and founder of Columbia Advisory Partners in Spokane, Washington.
The question is how many.
The Department of Labor doesn’t prohibit crypto in company retirement plans, but in its March 2022 guidance, “it put a pretty heavy thumb on the scale for plan sponsors considering it,” said Joshua Rubin, vice president of legal at Betterment.
“At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies,” the Department of Labor wrote in a compliance assistance release.
A spot bitcoin ETF may solve some of the hesitancies the DOL outlined, including concerns related to custody and recordkeeping and valuation, Rubin said. Still, employers may be hesitant to jump on board, at least initially, some industry watchers said.
“Employers will be very reticent about being the first ones out there to allow this,” said Tim Picciott, a CFP with Lexington, Massachusetts-based Innovative Advisory Group. “I don’t see most HR departments and plan trustees just signing on. I think it’s going to have to be a move from the workers” asking for it, he said.
While market-leading custodians such as Schwab and Fidelity don’t allow investors to invest directly in cryptocurrencies within individual retirement accounts, they have become more involved in the crypto market on multiple fronts, from venture investments both financial services giants made in a crypto trading infrastructure company to a thematic crypto fund launched by Schwab.
But to invest directly, retirement investors need to work with other providers such as Bitcoin IRA, BitIRA and iTrustCapital.
However, market watchers predict more mainstream custodians will offer spot bitcoin ETFs once they become available. “It will be everywhere once these come out,” said Larsen, who is also the founder of Defi Steward, which helps investment advisors manage digital assets for clients. “This is great for people who want exposure to bitcoin as an asset class,” he said.
There are a lot of factors that go into whether bitcoin has a place in your retirement portfolio. First and foremost, bitcoin is extremely volatile and many investors don’t have the risk appetite to invest even a portion of their retirement dollars in this emerging asset class. Investors also need to consider whether they want to hold bitcoin directly in a self-directed IRA, or solo 401(k), if applicable, or invest in bitcoin through an ETF.
With a spot bitcoin ETF, having a professional manager who is going to be diversifying access to crypto could lessen — though not eliminate — risk, said Mark Parthemer, chief wealth strategist at Glenmede, a wealth management firm.
On the other hand, there can be advantages to owning bitcoin directly through a self-directed IRA, Kline said. For instance, when it comes time to take your withdrawals after age 59½, you may be able to receive your distribution as the crypto asset itself, instead of taking the cash. When you sell the spot bitcoin ETF, the redemption would likely be for cash, he said. It’s an approach the SEC regards as safer.
In either case, there can be tax advantages for long-term investors who invest in crypto through a retirement account versus a brokerage account, Parthemer said. Assuming the investment increases dramatically, a retirement account allows investors to avoid the tax at the time of sale. If it’s in a Roth IRA and you meet the holdings requirements, the withdrawals aren’t subject to tax. By contrast, if you held it in a regular brokerage account and sold it, you could be subject to capital gains taxes at the time of sale, Parthemer said.
If your employer won’t offer a spot bitcoin ETF in its 401(k) plan, you could always ask your employer to reconsider. If the answer is no, you can still open an IRA with a provider that makes spot bitcoin ETFs available.
The new spot bitcoin ETFs will be eligible for use in all types of IRA accounts — deductible, nondeductible, Roth and SEP, as well as solo 401(k) plans, said Ric Edelman, founder of Edelman Financial Services, in an email.
“Given the outsized returns that many people expect these ETFs to produce over time, buying them inside an IRA account is going to be a common recommendation by financial advisors,” said Edelman, who wrote the 2022 book, “The Truth About Crypto” to educate advisors on the asset class and has described it as a once-in-a-generation wealth opportunity.
There are applications for an Ether ETF, but that’s likely to be approved by the SEC at a later point, Larsen said. “The spot bitcoin ETF will be the test case.”
Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, walks outside the Manhattan federal court in New York City, U.S. March 30, 2023.
Amanda Perobelli | Reuters
FTX founder Sam Bankman-Fried told jurors in his criminal trial on Friday that he didn’t commit fraud, and that he thought the crypto exchange’s outside expenditures, like paying for the naming rights at a sports arena, came out of company profits.
On Friday morning, defense attorney Mark Cohen asked Bankman-Fried if he defrauded anyone.
“No, I did not,” Bankman-Fried responded.
Cohen followed by asking if he took customer funds, to which Bankman-Fried said “no.”
Bankman-Fried, 31, faces seven criminal counts, including wire fraud, securities fraud and money laundering, that could land him in prison for life if he’s convicted. Bankman-Fried, the son of two Stanford legal scholars, has pleaded not guilty in the case.
Prior to the defendant’s appearance on the stand, the four-week trial was highlighted by the testimony of multiple members of FTX’s top leadership team as well as the people who ran sister hedge fund Alameda Research. They all singled out Bankman-Fried as the mastermind of a scheme to use FTX customer money to fund everything from venture investments and a high-priced condo in the Bahamas to covering Alameda’s crypto losses.
Courtroom sketch showing Sam Bankman Fried questioned by his attorney Mark Cohen. Judge Lewis Kaplan on the bench
Artist: Elizabeth Williams
Prosecutors walked former leaders of Bankman-Fried’s businesses through specific actions taken by their boss that resulted in clients losing billions of dollars last year. Several of the witnesses, including Bankman-Fried’s ex-girlfriend Caroline Ellison, who ran Alameda, have pleaded guilty to multiple charges and are cooperating with the government.
On Friday, Bankman-Fried acknowledged that one of his biggest mistakes was not having a risk management team. That led to “significant oversights,” he said.
At the start of his testimony, Cohen walked Bankman-Fried through his background and how he got into crypto. The defendant said he studied physics at the Massachusetts Institute of Technology and graduated in 2014. He then worked as a trader on the international desk at Jane Street for over three years, managing tens of billions of dollars a day in trading. That’s where he learned the fundamentals of things like arbitrage trading.
In the fall of 2017, Bankman-Fried founded Alameda Research.
“This was when crypto was starting to become publicly visible for the first time,” Bankman-Fried testified.
He said people were excited about it, watching bitcoin, which had jumped from $1,000 to $10,000 in a two-month period. Banks and brokers weren’t involved yet and it seemed like there would probably be big demand for an arbitrage provider, he said.
“I had absolutely no idea” how cryptocurrencies worked, Bankman-Fried said. “I just knew they were things you could trade.”
The first Alameda office was in an Airbnb in Berkeley, California, he said. It was listed as a two bedroom but they used the couch in the living room as a third bed and also repurposed the attic as a fourth bedroom.
He started FTX in 2019. Trading volume grew substantially on FTX from a few million dollars a day to tens of millions of dollars that year to hundreds of millions of dollars in 2020. By 2022, that number was up to $10 billion to $15 billion per day in trading volume, he said.
Bankman-Fried said Alameda was permitted to borrow from FTX, but his understanding was that the money was coming from margin trades, collateral from other margin trades or assets earning interest on the platform.
At FTX, there were no general restrictions on what could be done with funds that were borrowed as long as the company believed assets were greater than liabilities, Bankman-Fried testified.
In 2020, a routine liquidation gone wrong led to some of the special borrowing permissions at Alameda, he said. The risk engine was sagging under the weight of growth. A liquidation that should have been in the thousands of dollars was in the trillions of dollars. Alameda was suddenly underwater because of closing the position.
The incident exposed a larger concern, that the potential of an erroneous liquidation of Alameda could be disastrous for users.
Bankman-Fried said he talked to FTX’s engineering director Nishad Singh and co-founder Gary Wang, both of whom testified earlier on behalf of the prosecution. He suggested creating an alert, which would prompt the user to deposit more collateral, or a delay, Bankman-Fried said. In response to this feedback, Singh and Wang told Bankman-Fried they had implemented a feature like that, he said, adding that he later learned it was the “allow negative” feature.
Bankman-Fried testified that he wasn’t aware of the amount Alameda was borrowing or its theoretical max. As long as Alameda’s net asset value was positive and the scale of borrowing was reasonable, increasing its line of credit from so that Alameda could keep filling orders was fine, he said. Earlier testimony from Singh and Wang suggested the line of credit was raised to $65 billion, a number Bankman-Fried said he was not aware of.
Convincing the jury will be a tall order for Bankman-Fried after a mountain of damning evidence was presented by the government.
Prosecutors entered corroborating materials, including encrypted Signal messages and other internal documents that appear to show Bankman-Fried orchestrating the spending of FTX customer money.
The defense’s case, which consists of Bankman-Fried’s testimony along with that of two witnesses who took the stand Thursday morning, hinges largely on whether the jury believes the defendant didn’t intend to commit fraud.
The logo of FTX is seen on a flag at the entrance of the FTX Arena in Miami, Florida, November 12, 2022.
Marco Bello | Reuters
In Friday afternoon testimony, Bankman-Fried was asked about FTX’s marketing and promotions.
He said there were 15 people on the marketing team, and noted that he got more involved with it as time progressed. In particular, he discussed the naming rights in 2021 for the basketball arena in Miami, which was to be a 19-year deal for $135 million.
Bankman-Fried said the sponsorship of FTX Arena would deliver returns for the company and create wide brand awareness because even he, as an “average level sports fan,” could name dozens of stadiums. He said the investment would be about $10 million a year, or 1% of revenue. The company had been deciding among a few different stadiums, including the homes to the NFL’s New Orleans Saints and Kansas City Chiefs, Bankman-Fried said.
A crucial part of his testimony came when Bankman-Fried said he thought the stadium deal funding was coming from revenue from the exchange and returns from venture investments, as opposed to customer money.
Similarly, Bankman-Fried testified that he believed the lavish Bahamas properties were being paid for with FTX operating cash that came from revenue and venture investments. He said having available property to rent was a necessary incentive if the company wanted to poach developers from Facebook and Google.
As for the venture investments, Bankman-Fried said he thought that money was coming from Alameda’s operating profits and third-party lending desks. Alameda’s venture arm was renamed Clifton Bay Investments, which Bankman-Fried said was a first step in building a dedicated venture brand.
When asked about loans he took from the business, Bankman-Fried said they were to pay for venture investments and political donations. He said that, as the primary owner of Alameda, he thought he had a few billion dollars in arbitrage profit from the past few years and there was no reason he couldn’t borrow from it. He said the loans, except for the most recent one prior to the firm’s bankruptcy filing, were all documented through promissory notes.
Bankman-Fried said he never directed Singh or former FTX executive Ryan Salame to make political donations. Salame pleaded guilty in September to federal campaign finance and money-transmitting crimes, admitting that from fall 2021 to November 2022, he steered tens of millions of dollars of political contributions to both Democrats and Republicans in his own name when the money actually came from Alameda.
Bankman-Fried, who allegedly used FTX customer funds to help finance over $100 million in political giving during the 2022 midterms, testified that he talked to politicians about pandemic prevention and crypto regulation. He said he had a vested interested in crypto policy even though FTX’s U.S. operation was relatively small, because the company was seeking to offer crypto futures products in the U.S.
Bankman-Fried then discussed his public persona. He said he hadn’t intended to be the public face of the company because he’s “naturally introverted.” But a few interviews went well, and it snowballed from there. He said he was the only person at the company that the press sought.
He wore T-shirts and shorts because they were comfortable and said he let his hair grow out because he was busy and lazy.
Bankman-Fried was photographed at the 2022 Super Bowl in Los Angeles with Katy Perry. He told the jury, which was previously presented with the photo by the prosecution, that he thought it was natural to go to the game because he was in town for meetings and the company had a commercial running.
“I thought maybe it would be interesting,” he said.
The afternoon testimony largely focused on Bankman-Fried’s repeated and unsuccessful request to Ellison that she hedge Alameda’s risk. Bankman-Fried said in late 2021, he had talked to Ellison about putting on trades to protect against the risk of market moves since Alameda had been leveraged long, meaning they would lose money if the market went down.
Ellison said she would look into it, which Bankman-Fried said he “interpreted” as her being “far less enthusiastic about it.” Over the course of 2022, Bankman-Fried said every two months he would check in to see if Alameda had hedged, and each time he was told not yet, but Ellison would say she was planning to do so in the near future.
Specifically, Bankman-Fried said he had talked with Ellison and Ramnik Arora, who had been the head of product at FTX, about putting a $2 billion hedge on the company’s investment in Genesis Digital Assets, a bitcoin miner. He told the jury that the hedge was never made.
There was also more detail on how Bankman-Fried was told about FTX’s $8 billion liability. According to the defendant, in October 2022, developers built a Google database that included financial data. That’s where Bankman-Fried noticed the negative $8 billion balance, which he said he was “very surprised” to see.
Cohen then brought the jury through the summer months of 2022, a time when Alameda’s lenders, specifically Genesis, BlockFi, Celsius and Voyager, all had direct conversations with Bankman-Fried about the need for emergency capital. In the end, only BlockFi and Voyager received funds from Alameda and Bankman-Fried.
In late 2021 and early 2022, Bankman-Fried said he wanted FTX revenue to be above $1 billion because it was a round number. He asked company executives if there were ways to reach that mark. Singh said he’d dealt with it by staking the company’s investment in crypto token Serum, a way of putting the coins to work. That had added another $50 million in revenue. Bankman-Fried testified that he was “a little surprised” they found that additional money, but it got him to $1 billion.
A sign is seen in a stand during the Bitcoin Conference 2023, in Miami Beach, Florida, U.S., May 19, 2023.
Marco Bello | Reuters
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Dip in markets U.S. markets were closed Monday for the Labor Day holiday. The pan-European Stoxx 600 was flat, but major bourses dipped slightly and ended the day in the red. Germany’s DAX lost 0.1% as new data showed the country’s July exports dropping 0.9% on the month and 1% year on year, adding to fears about the German economy contracting in the third quarter.
‘Sick man of Europe’ Germany is once again the “sick man of Europe,” said Hans-Werner Sinn, president emeritus at the Ifo institute. The country’s business activity in August contracted sharply, according to the HCOB flash purchasing managers index. Moreover, Germany’s plans to be carbon neutral by 2045 poses a risk to its industry, which might cause a “backlash” from the population, Sinn said.
Missing Xi at G20 Premier Li Qiang will lead China’s delegation at the G20 summit in New Delhi this weekend, said China’s foreign ministry. While the ministry declined to confirm if President Xi Jinping would attend the summit, spokesperson Mao Ning didn’t correct reporters who asked if Li’s attendance meant Xi would not show up. Another noteworthy absence: Russian President Vladimir Putin.
Negotiating new grain deal Putin met his Turkish counterpart Recep Tayyip Erdogan in Sochi, Russia on Monday. Putin reportedly said Russia is ready to renew the Black Sea Grain Initiative which allowed Ukraine to export agricultural products — but only if concessions are made to Russia as well.
[PRO]Don’t sleep on these stocks Adults need seven to nine hours of sleep per day. Even though 63% of U.S. adults don’t meet that requirement, they are growing increasingly concerned about their wellbeing, according to a 2022 McKinsey survey. That’s the start of a good dream for these sleep-related stocks.
If charting the trajectory of interest rates in the U.S. economy is like “navigating by the stars under cloudy skies,” as Federal Reserve Chair Jerome Powell put it in his Jackson Hole speech, then predicting the movement of stocks is like doing so when the stars are snuffed out. As for forecasting the price of bitcoin? Add a blindfold to the intrepid navigator.
Let’s look at two predictions made earlier this year.
At the optimistic end of the spectrum is Geoff Kendrick, head of crypto research at Standard Chartered, who wrote in an April note that bitcoin’s value could jump to as much as $100,000 by the end of 2024.
What do the numbers tell us? As of publication time, bitcoin is trading at $25,774. On Jan. 1, it was at $16,606, so bitcoin’s up around 55% this year. That suggests bitcoin has legs. But if we take a longer-term view, the current price of the digital currency is about 62% lower than its all-time high of $68,990 reached in November 2021.
Adding to the confusion, bitcoin sometimes tracks the movement of stocks because it’s seen to benefit from a booming economy; bitcoin sometimes trades inversely with stocks because some consider it a safe haven in times of uncertainty. The story here, then, is that bitcoin is wildly volatile — and it’s impossible to prove or dismantle either prediction, at this point.
Still, investors are optimistic about bitcoin because a U.S. court recently sided with Grayscale in a lawsuit against the SEC, which denied the company’s application to convert its bitcoin trust into an ETF. That means bitcoin ETFs from major companies are on their way, allowing retail investors to trade the cryptocurrency without actually owning it. The price of bitcoin rallied more than 7% when news broke last Tuesday.
Jensen Huang, chief executive officer of Nvidia Corp.
David Paul Morris | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Markets popped U.S. stocks had a great Tuesday, with the S&P 500 and Nasdaq Composite advancing more than 1% each. Meanwhile, Treasury yields dipped, relieving the pressure on stocks. Asia-markets climbed Wednesday. Australia’s S&P/ASX 200 rose around 1.4%, leading gains in the region, after the country’s consumer price index for July softened to 4.9% from June’s 5.4%.
Stricter regulations for regional banks All U.S. banks with at least $100 billion in assets — which includes regional banks — will have to issue long-term debt, according to plans by U.S. banking regulators. The debt will protect depositors in the event of a bank failure. But raising debt at potentially higher prices will squeeze margins for mid-sized banks.
Nvidia’s record close Nvidia shares popped 4.16% Tuesday to close at a record of $487.84. Investors cheered the chipmaker’s partnership with Google, which gives users of Google Cloud greater access to technology powered by Nvidia’s H100 GPUs. Nvidia’s risen 234% this year, making it the best performer in the S&P 500.
China’s big on Costco too Some parts of China’s economy are booming despite a general slowdown. The average daily foot traffic at Costco was around 7,000 people — two times that of the U.S. — according to David and Susan Schwartz, co-authors of the forthcoming book “The Joy of Costco: A Treasure Hunt from A to Z.” Apart from the wholesale retailer, the premium market is enjoying success as well.
Bitcoin ETF on the way? Crypto asset manager Grayscale prevailed in its lawsuit against the Securities and Exchange Commission, which previously denied the company’s application to convert the Grayscale Bitcoin Trust to an ETF. The ruling paves the way for other companies that want to create bitcoin ETFs, like BlackRock and Fidelity. Bitcoin jumped 6% and shares of Coinbase surged 15% on the news.
[PRO] Year-end high for S&P? The S&P 500 will be close to touching 5,000 by the end of the year, Morgan Stanley Investment Management’s Andrew Slimmon believes. Here’s why Slimmon thinks stocks will rise despite struggling in August — and the three stocks to buy to ride on the wave.
A sudden flurry of positive business news — and not-so-good economic data — is giving stocks a last hurrah as they try to overcome the doldrums of August.
Nvidia’s announcement of its partnership with Google gave the stock the jolt that even its out-of-this-world earnings report couldn’t. It seemed investors were waiting for signs that Nvidia’s sales could be sustained in the long-term before piling back in — and pile back in they did.
Meanwhile, cryptocurrency got a boost from the U.S. Court of Appeals for the D.C. Circuit, which ruled against the SEC’s denial of Grayscale’s bitcoin ETF. “The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP,” the court said, referring to exchange-traded products.
On the other side of the coin, economic data released Tuesday doesn’t look so hot. The Conference Board’s Consumer Confidence Index came in at 106.1 for August, markedly lower than the forecast of 116. “Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular,” said Dana Peterson, chief economist at The Conference Board.
Consumers could also be concerned about the cooling labor market. Job openings in July fell from 9.5 million a month prior to 8.8 million, the lowest level since March 2021. But that’s still around 1.5 openings per unemployed person, so the figure isn’t really cool, but a nice Goldilocks temperature.
Markets found strength on the news. The S&P 500 advanced 1.45%, its best day since June 2 and its first three-day gain for August. The Dow Jones Industrial Average climbed 0.85%. The Nasdaq Composite jumped 1.74%, thanks to a bounce in tech stocks. All three indexes closed above their 50-day moving average — the first time since Aug. 14 for the S&P.
If the personal consumptions expenditure index and the jobs report for August come in softer than expected, there’s a chance stocks can sustain this positive momentum into September.
The U.S. Court of Appeals for the D.C. Circuit has paved the way for bitcoin exchange-traded funds.
On Tuesday, the court sided with Grayscale in a lawsuit against the Securities and Exchange Commission which had denied the company’s application to convert the Grayscale Bitcoin Trust to an ETF. The decision could impact other companies that want to create bitcoin ETFs, like BlackRock and Fidelity.
A spot bitcoin ETF would be traded through a traditional stock exchange, although the bitcoin would be held by a brokerage, and would allow investors to gain exposure to the world’s biggest cryptocurrency without having to own the coin themselves. Many crypto bulls believe that approval of a spot bitcoin ETF will lead to more mainstream institutional adoption.
Bitcoin, ether and other major cap crypto coins surged on the news, and Coinbase, which is listed as the custodian partner in multiple spot bitcoin ETF applications, was up more than 14% on Tuesday.
“The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP,” the court said, referring to exchange-traded products. “In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful.”
Grayscale Investments, which manages the world’s biggest crypto fund, initiated its lawsuit against the SEC in June 2022 after the agency rejected its application to turn its flagship bitcoin fund, better known by its ticker GBTC, into an ETF. The company decided to pursue the ETF, which would be backed by bitcoin rather than bitcoin derivatives, after the SEC approved ProShares’ futures-based bitcoin ETF in October 2021.
The ruling faced multiple delays but the SEC ultimately rejected the application last summer, citing failure by Grayscale to answer questions related to concerns about possible market manipulation and investor protections.
“We are reviewing the court’s decision to determine next steps,” the SEC said in a statement.
A spokeswoman for Grayscale called Tuesday’s ruling “a monumental step forward for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper.”
“The Grayscale team and our legal advisors are actively reviewing the details outlined in the Court’s opinion and will be pursuing next steps with the SEC. We will share more information as soon as practicable,” continued the written statement.
One expert says the SEC’s enforcement action is basically dead in the water.
“The bottom line is that while the SEC can try to take the case to the Supreme Court, they have no other avenue to deny Grayscale’s application,” said Renato Mariotti, a former federal prosecutor in the Securities and Commodities Fraud Section of the United States Attorney’s Office — and now a trial partner in Chicago with Bryan Cave Leighton Paisner.
“If the SEC changed their rationale for denying their application, it would appear even more arbitrary. The SEC already put their best argument forward, and the Court of Appeals rejected it,” continued Mariotti.
Castle Island Venture’s Nic Carter agrees, adding that while the SEC can go back and try to deny the application on different grounds, the best next step is for the agency “to accept the decision as a way to ‘save face’ and allow the spot ETF in a way that shows they disagree with the decision but respect the court’s ruling.”
CoinRoutes CEO, Dave Weisberger, tells CNBC it could even net SEC Chairman Gary Gensler a political win — a spot bitcoin ETF would grant the regulator some oversight of the bitcoin spot market even though the token is not considered a security.
GBTC, which has $16 billion in assets under management as of Tuesday, was the first crypto product investors could trade in their brokerage accounts to get exposure to bitcoin. It was launched in 2013, well before the approval of bitcoin ETFs in Canada or bitcoin futures ETFs in the U.S. Grayscale charges a 2% annual fee to investors, making it a cash cow for parent company Digital Currency Group, led by Barry Silbert.
“It virtually guarantees they will approve BlackRock and Fidelity,” said Dave Weisberger, CEO of CoinRoutes, a platform that provides algorithmic trading and consolidated market data products for digital assets across multiple exchanges and liquidity providers. “Grayscale may need to refile, but they will almost certainly be approved as well.”
Firms have been applying for spot bitcoin ETFs for more than two years, but so far, the SEC has denied more than 30 proposals since 2021 — a 100% rejection rate. But investor sentiment was buoyed in June when BlackRock, the world’s largest asset manager with some $9 trillion in assets under management, put in an application. The firm has had all but one of its previous 575 ETF applications accepted.
Jensen Huang, CEO of Nvidia, shows the Nvidia Volta GPU computing platform at his keynote address at CES in Las Vegas, Jan. 7, 2018.
Rick Wilking | Reuters
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Markets popped U.S. stocks had a great Tuesday, with the S&P 500 and Nasdaq Composite advancing more than 1% each. Meanwhile, Treasury yields dipped, relieving the pressure on stocks. The pan-European Stoxx 600 rose 1%, with all sectors and major bourses in positive territory. Shares of Dutch insurance company NN Group jumped 10.15% after posting strong earnings.
Stricter regulations for regional banks All U.S. banks with at least $100 billion in assets — which includes regional banks — will have to issue long-term debt, according to plans by U.S. banking regulators. The debt will protect depositors in the event of a bank failure. But raising debt at potentially higher prices will squeeze margins for mid-sized banks.
Nvidia’s record close Nvidia shares popped 4.16% Tuesday to close at a record of $487.84. Investors cheered the chipmaker’s partnership with Google, which gives users of Google Cloud greater access to technology powered by Nvidia’s H100 GPUs. Nvidia’s risen 234% this year, making it the best performer in the S&P 500.
Bitcoin ETF on the way? Crypto asset manager Grayscale prevailed in its lawsuit against the Securities and Exchange Commission, which previously denied the company’s application to convert the Grayscale Bitcoin Trust to an ETF. The ruling paves the way for other companies that want to create bitcoin ETFs, like BlackRock and Fidelity. Bitcoin jumped 6% and shares of Coinbase surged 15% on the news.
[PRO] Buy the dip August hasn’t been kind to stocks. It’s been the worst month of the year so far, weighed down by rising bond yields and weak economic data from China and the euro zone. But HSBC thinks now’s precisely the time for investors to buy stocks and other risk assets.
A sudden flurry of positive business news — and not-so-good economic data — is giving stocks a last hurrah as they try to overcome the doldrums of August.
Nvidia’s announcement of its partnership with Google gave the stock the jolt that even its out-of-this-world earnings report couldn’t. It seemed investors were waiting for signs that Nvidia’s sales could be sustained in the long-term before piling back in — and pile back in they did.
Meanwhile, cryptocurrency got a boost from the U.S. Court of Appeals for the D.C. Circuit, which ruled against the SEC’s denial of Grayscale’s bitcoin ETF. “The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP,” the court said, referring to exchange-traded products.
On the other side of the coin, economic data released Tuesday doesn’t look so hot. The Conference Board’s Consumer Confidence Index came in at 106.1 for August, markedly lower than the forecast of 116. “Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular,” said Dana Peterson, chief economist at The Conference Board.
Consumers could also be concerned about the cooling labor market. Job openings in July fell from 9.5 million a month prior to 8.8 million, the lowest level since March 2021. But that’s still around 1.5 openings per unemployed person, so the figure isn’t really cool, but a nice Goldilocks temperature.
Markets found strength on the news. The S&P 500 advanced 1.45%, its best day since June 2 and its first three-day gain for August. The Dow Jones Industrial Average climbed 0.85%. The Nasdaq Composite jumped 1.74%, thanks to a bounce in tech stocks. All three indexes closed above their 50-day moving average — the first time since Aug. 14 for the S&P.
If the personal consumptions expenditure index and the jobs report for August come in softer than expected, there’s a chance stocks can sustain this positive momentum into September.
Traders work the floor of the New York Stock Exchange in New York City on May 31, 2023.
Spencer Platt | Getty Images
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Oh, snap Major U.S. indexes fell across the board Friday and snapped their multiweek winning streaks. Stock markets in Europe traded lower too. Asia-Pacific markets were mostly lower Monday, with South Korea’s Kospi being the only major index that traded higher, climbing 0.5%, as of publication time. Separately, oil prices rose amid fears that supply would be disrupted after the Wagner Group’s attempted insurrection in Russia.
Debts, defaults and distress There have been 41 corporate defaults in the U.S. so far — the most globally and more than double during the same period last year, according to Moody’s Investors Service. Troublingly, Moody’s expects the global default rate to rise to 5% by April 2024, compared with the long-term average of 4.1%. Analysts blame high interest rates for this tumult.
[PRO] Markets on an even footing Markets may have declined last week, but CNBC Pro’s Michael Santoli thinks there’s still a “favorable underlying market trend.” Despite worries about a banking crisis, narrow rallies and speculative stocks, the S&P 500 is still nearly up 15% for the year — which points to a market on even footing, ready to climb further.
Last week wasn’t pretty for U.S. stocks — but that’s not necessarily a bad thing.
On Friday, all major indexes fell and closed lower for the week. On a weekly basis, the S&P 500 was down 1.4%, its first week-over-week loss after five consecutive weeks of gains. The Dow Jones Industrial Average fell almost 1.7% to snap its three-week positive run. The Nasdaq Composite slipped 1.4%, ending an eight-week winning streak to post its worst weekly performance since March.
Those figures may sound disappointing, but Art Hogan, chief market strategist at B. Riley Wealth Management, thinks it’s just the markets finding their balance after being overbought, meaning that stocks have been trading above what they were worth. As Barclays strategist Venu Krishna notes, “the broader Tech sector appears frothy.” That is to say, even though the S&P technology sector has rallied nearly 40% this year, the rest of the index has remained flat.
Going by both those analysts’ logic, the dip in markets last week, then, may be a positive sign that some of the froth around tech is being skimmed off. (Indeed, Nvidia shares lost 1.9%, Microsoft slipped 1.38% and Tesla sank 3.03% Friday.) Investors, then, can focus again on what’s beneath the froth: The financial health of companies amid inflation and interest rates. Compared with excitement over artificial intelligence, that’s a much better indication of stocks’ long-term trajectory.
On that note, the core personal consumption expenditures index, the Federal Reserve’s preferred measure of inflation, comes out Friday, and will give a clearer picture of whether the Fed will continue hiking rates after leaving them unchanged in June. Froth is, by nature, hollow: A slight increase in heat will cause it to melt completely.
Gary Gensler, Chair of the U.S. Securities and Exchange Commission, takes his seat before the start of the Senate Banking, Housing, and Urban Affairs Committee hearing on Oversight of the U.S. Securities and Exchange Commission on Tuesday, Sept. 14, 2021.
Bill Clark | CQ-Roll Call, Inc. | Getty Images
SEC Chair Gary Gensler stepped up his attack on the crypto industry this week, suing Coinbase and Binance for securities violations and casting doubt on the future of token trading.
Crypto investors took the hint. Four of the 10 most valuable coins plunged in value by at least 15% this week, according to CoinMarketCap, a sell-off sparked by the lawsuits and Gensler’s interview with CNBC on Tuesday, in which he said “we don’t need more digital currency.”
In alleging that Coinbase was acting as an unregistered broker and exchange, the Securities and Exchange Commission said at least 13 crypto assets available to the company’s customers were considered “crypto asset securities.” They include Solana’s SOL token, Cardano’s ADA token, Polygon’s MATIC coin and Protocol Labs’ Filecoin token (FIL).
Trading app Robinhood followed on Friday by announcing that, starting June 27, it will no longer support trading of coins from Cardano, Polygon and Solana. The company said “no other coins are affected.” Also on Friday, Crypto.com said it will shut down its U.S. institutional exchange.
“No other coins are affected and your crypto is still safe on Robinhood,” the company said in a post.
Cardano’s coin, the seventh-most valuable cryptocurrency, according to CoinMarketCap, tumbled 20% in the past week. Solana, ranked ninth, dropped 18%. Polygon, ranked 10th, also slid 18%. Filecoin, which is further down the list, dropped 19%. Binance’s BNB token, ranked fourth, fell 16%.
Bitcoin and ethereum, the two most popular cryptocurrencies, were more stable, each declining less than 5%.
Gensler, who was appointed to head the SEC by President Joe Biden in 2021, has spent much of the past year going after crypto firms and exchanges for effectively selling highly speculative and risky securities dressed up as something else.
From high-profile fraud cases involving Sam Bankman-Fried’s FTX and Do Kwon’s Terraform Labs to dozens of charges involving coin offerings and alleged false marketing, Gensler has made the once-burgeoning crypto industry his primary takedown target.
“The investing public has the benefit of U.S. securities laws,” Gensler said in an interview with CNBC’s “Squawk on the Street” on Tuesday. “Crypto should be no different, and these platforms, these intermediaries need to come into compliance.”
Gensler’s TV appearance came after the SEC sued Coinbase and said the company should be “permanently restrained and enjoined” from “operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.”
Shares of Coinbase, the only major crypto exchange that’s publicly traded in the U.S., sank 18% this week. Coinbase legal chief Paul Grewal told CNBC in a statement that the SEC’s approach to enforcement without laying out clear rules is “hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance.”
A day earlier, in its lawsuit against Binance, the SEC alleged that the company and founder Changpeng Zhao comingled billions of dollars worth of user funds and sent them to a European company controlled by Zhao.
While Binance claims no official headquarters and does most of its business overseas, the SEC’s complaint cited a senior executive allegedly telling a compliance officer that the company was operating as a “[f—ing] unlicensed securities exchange in the USA bro.”
In a blog post, Binance said it was “disappointed” in the SEC’s suit and said it had “engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations.”
Others named in the SEC lawsuit also weighed in after this week’s charges landed.
The Cardano Foundation, which works to advance use of its namesake technology, said in a tweet that it disagrees with the labeling of its ADA coin as a security and “we look forward to the continued engagement with regulators and policymakers to achieve legal clarity and certainty on these matters.”
Protocol Labs, the developer of Filecoin, said in a series of tweets on Thursday that the token is critical to the operation of its distributed storage network. It’s how people buy storage from providers, and Protocol says the cost is much less than what users would pay Amazon Web Services or Google Cloud.
“Filecoin is a cryptocurrency-powered global storage network preserving humanity’s most important information, not a security,” Protocol Labs tweeted.
In its 101-page complaint against Coinbase, the SEC made clear that regardless of whether these tokens have some level of utility, they can easily be purchased on the app by people who have no interest beyond investing. And Coinbase generates revenue by executing those trades.
“Coinbase makes these crypto assets available for trading,” the SEC said, “without restricting transactions to those who might acquire or treat the asset as anything other than as an investment.”
Sarah Levy, CEO of Betterment, joins ‘Closing Bell Overtime’ to discuss the regional banking crisis, the impact of the crisis on Betterment, and the state of the crypto space.
Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.
Alex Flynn | Bloomberg via Getty Images
The technology industry is known for innovation and spawning the next big thing. But at a time of economic uncertainty and rising interest rates, a growing piece of the tech sector is going after one of the most noninnovative products on the planet: yield.
With U.S. Treasury yields climbing late last year to their highest in more than a decade, consumers and investors can finally generate returns just by parking their money in savings accounts.
Banks are responding by offering higher-yielding offerings. American Express, for example, offers consumers a 3.75% annual percentage yield (APY), and First Citizens‘ CIT Bank has a 4.75% APY for customers with at least $5,000 in deposits. Ally Bank, which is online only, is promoting a 4.8% certificate of deposit.
However, some of the highest rates available to savers aren’t coming from traditional financial firms or credit unions, but rather from companies in and around Silicon Valley.
Apple is the most notable new entrant. Last month, the iPhone maker launched its Apple Card savings account with a generous 4.15% APY in partnership with Wall Street giant Goldman Sachs.
Then there’s the whole fintech market, consisting of companies offering consumer financial services with a focus on digital products and a friendly mobile experience instead of physical branches with costly bank tellers and loan officers.
Stock trading app Robinhood has a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on uninvested cash swept from the client’s brokerage account to partner banks. It’s part of a $5-a-month subscription that also includes lower borrowing costs for margin investing and research for stock investing.
The company lifted its yield from 4.4% on Wednesday after the Federal Reserve approved its 10th rate increase in a little more than a year, raising its benchmark borrowing rate by 0.25 percentage point to a target range of 5%-5.25%.
Fed Chair Jerome Powell speaks during a conference at the Federal Reserve Bank of Chicago on June 4, 2019.
Scott Olson | Getty Images
“At Robinhood, we’re always looking for ways to help our customers make their money work for them,” the company said in a press release announcing its hike.
LendingClub, an online lender, is promoting an account with a 4.25% yield. The company told CNBC that deposit growth was up 13% for the first quarter of 2023 compared with the prior quarter, “as depositors looked to diversify their money out of traditional banks and earn increased savings.” Year over year, savings deposits have increased by 81%.
And Upgrade, which is led by LendingClub founder Renaud Laplanche, offers 4.56% for customers with a minimum balance of $1,000.
“It’s really a trade-off for consumers, between safety or the appearance of safety, and yield,” Laplanche told CNBC. Upgrade, which is based in San Francisco, and most other fintech players keep customer deposits with institutions backed by the Federal Deposit Insurance Corp., so consumer funds are safe up to the $250,000 threshold.
SoFi is the rare example of a fintech with a banking charter, which it acquired last year. It offers a high-yield savings product with a 4.2% APY.
The story isn’t just about rising interest rates.
Across the emerging fintech spectrum, companies like Upgrade are, intentionally or not, taking advantage of a moment of upheaval in traditional finance. On Monday, First Republic became the third American bank to fail since March, following the collapses of Silicon Valley Bank and Signature Bank. All three saw depositors rush for the exits as concerns about a liquidity crunch led to a cycle of doom.
Shares of PacWest and other regional banks have plummeted this week, even after First Republic’s orchestrated sale to JPMorgan Chase was meant to signal stability in the system.
After the collapse of SVB, Laplanche said Upgrade’s banking partners came to the company and asked it to step up the inflow of funds, an apparent effort to stanch the withdrawals at smaller banks. Upgrade farms out the money it attracts to a network of 200 small- and medium-sized banks and credit unions that pay the company for the deposits.
For well over a decade, before the recent jump in rates, savings accounts were dead money. Borrowing rates were so low that banks couldn’t profitably offer yield on deposits. Also, stocks were on such a tear that investors were doing just fine in equities and index funds. A subset of those with a stomach for risk went big in crypto.
As the price of bitcoin soared, a number of crypto exchanges and lenders began mimicking the banks’ savings model, offering very high yield (up to 20% annually) for investors to store their crypto. Those exchanges are now bankrupt following the crypto industry’s meltdown last year, and many thousands of clients lost their funds.
There is some potential instability for fintechs, even those outside of the crypto space. Many of them, including Upgrade and Affirm, partner with Cross River Bank, which serves as the regulated bank for companies that don’t have charters, allowing them to offer lending and credit products.
Last week, Cross River was hit with a consent order from the FDIC for what the agency called “unsafe or unsound banking practices.”
Cross River said in a statement that the order was focused on fair lending issues that occurred in 2021, and that it “places no limitations on our extensive existing fintech partnerships or the credit products we presently offer in partnership with them.”
While fintechs broadly are under far less regulatory pressure than crypto companies,the FDIC’s action suggests that regulators are beginning to pay closer attention to the kinds of products that high-yield accounts are designed to complement.
Still, the emerging group of high-yield savings products are much more mainstream than what the crypto platforms were promoting. That’s largely because the deposits come with government-backed insurance protections, which have a long history of safety.
They’re also not designed to be big profit centers. Rather, by offering high yields for consumers who have long housed their money in stagnant accounts, tech and fintech companies are opening the door to potentially new customers.
Apple has a whole suite of financial products, including a credit card and payments app, that pair smoothly with the savings account, which is only available to the 6 million-plus Apple Card holders. Those customers reportedly put in nearly $1 billion in deposits in the first four days the service was on the market.
Apple didn’t respond to a request for comment. CEO Tim Cook said on the company’s earnings call Thursday that, “we are very pleased with the initial response on it. It’s been incredible.”
Apple savings account
Apple
Robinhood, meanwhile, wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.
Laplanche said high-yield savings accounts, while compelling for the consumer, aren’t core to most fintech businesses but serve as an onboarding tool to more lucrative products, like consumer lending or conventional credit cards.
“We started with credit,” Laplanche said. “We think that’s a better strategy.”
SoFi launched its high-yield savings account in February of last year. In its annual SEC filing, the company said that offering checking and high-yield savings accounts provided “more daily interactions with our members.”
Affirm, best known as a buy now, pay later firm, has offered a savings account since 2020 as part of a “full suite” of financial products. Its yield is currently 3.75%.
“Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace,” the company said in a 2022 SEC filing. A spokesperson for Affirm told CNBC that the saving account is “one of the many solutions in our suite of products that empower consumers with a smarter way to manage their finances.”
Set against the backdrop of a regional banking crisis, savings products from anywhere but a national bank might seem unappealing. But chasing yield does come with at least a little bit of risk.
“Citi or Chase, feels like it’s safe,” to the consumer, Laplanche said. “Apple and Goldman aren’t inherently risky, but it’s not the same as Chase.”
— CNBC’s Darla Mercado contributed to this report.
Cryptocurrency industry insiders predict bitcoin could hit a new all-time high in 2023 and possibly reach $100,000. It comes after a noted investor bet that the digital currency could go to $1 million in 90 days.
Chris Ratcliffe | Bloomberg | Getty Images
Bitcoin has rallied nearly 70% so far this year — and industry insiders who spoke to CNBC remain bullish, with one saying the world’s biggest cryptocurrency could reach new heights.
Bitcoin previously hit its all-time high of $68,990.90 in November 2021. Since then it has fallen about 60%.
Marshall Beard, chief strategy officer at U.S.-headquartered cryptocurrency exchange Gemini, said $100,000 could be a possibility for bitcoin.
“I think bitcoin probably breaks all-time highs this year,” Beard said, adding that the $100,000 price figure is an “interesting number.”
Beard said that if bitcoin gets to its previous record high of near $69,000, “it doesn’t take much more for it to lift up” to $100,000.
Bitcoin would need to rally around 270% to hit $100,000.
Paolo Ardoino, chief technology officer at stablecoin issuer Tether, said bitcoin could “retest” its all-time high near $69,000.
Bitcoin proponents say this is evidence that bitcoin is offering an alternative to the traditional banking system as a place for people to keep their money safe.
“I think the rally is explicable by saying, people have got freaked out by the banking system by the collapses,” Oliver Linch, CEO of Bittrex Global, told CNBC in an interview at Paris Blockchain Week on Thursday.
For many years, bitcoin advocates have argued bitcoin is a form of “digital gold” — a safe-haven asset that can provide investors a hedge against inflation and an investment in times of turmoil. But over the past few years, bitcoin has traded in correlation with stocks, in particular the tech-heavy Nasdaq.
There are now signs of decoupling with bitcoin massively outperforming the Nasdaq, many other risk-assets and gold this year.
But bitcoin also got a boost on hopes the banking crisis maybe reduce the U.S. Federal Reserve’s ability to be as aggressive on interest rate rises, which would be supportive for risk assets like cryptocurrencies.
Discussion of where the digital coin’s price could go this year has been rife since Balaji Srinivasan, an investor and the former technology chief at Coinbase, wagered on Mar. 17 that bitcoin would be worth $1 million or more in 90 days. He bet $2 million.
The wager was in response to a Twitter user who said that they would bet $1 million that the U.S. does not enter hyperinflation.
Srinivasan argued that the “world redenominates on Bitcoin as digital gold” as hyperinflation kicks in, erodes the value of the U.S. dollar, and nations, individuals and companies begin to buy large amounts of bitcoin. Hyperinflation is the massive rise in prices in an economy.
I think for bitcoin to be a million dollars in 90 days, some crazy things are happening in the world, which we don’t want.
Marshall Beard
Chief strategy officer, Gemini
A $1 million price on bitcoin would represent a roughly 3,600% increase from the digital currency’s current price.
Most people have poured cold water on this prediction.
Gemini’s Bear said “there’s probably a world where bitcoin hits a million dollars” but not in 90 days as Srinivasan wagered.
“I think for bitcoin to be a million dollars in 90 days, some crazy things are happening in the world, which we don’t want,” Beard said, adding that it could take 10 years to get anywhere near that figure.
Tether’s Ardoino echoed the sentiment that if bitcoin were to hit $1 million in 90 days, it would likely mean an unusual economic event.
“I’m kind of skeptical about that, because honestly, I wouldn’t even hope for that,” Ardoino told CNBC in an interview at Paris Blockchain Week, that aired Thursday.
“Because if bitcoin would reach such a high price level, [it] would mean that the entire economy will crumble. I’m not sure [that] is the world that we want to live in.”
The crypto market has been battered this year, with more than $2 trillion wiped off its value since its peak in Nov. 2021. Cryptocurrencies have been under pressure after the collapse of major exchange FTX.
Jonathan Raa | Nurphoto | Getty Images
Bitcoin rose on Saturday above $20,000 for first time in over two months.
Bitcoin, the world’s biggest and best-known cryptocurrency, rose 4.6% to $20,853 at 01:01 GMT on Saturday, adding $922 to its previous close.
The cryptocurrency is up 26.4% from the year’s low of $16,496 on January 1.
Ether , the coin linked to the ethereum blockchain network, rose 5.91 % to $1,536.9 on Saturday, adding $85.90 to its previous close.
Binance’s Co-founder & CEO Changpeng Zhao has given several interviews discussing the outlook for cryptocurrency following a turbulent couple of weeks in the market.
NurPhoto / Contributor / Getty Images
Over a month after the collapse of FTX, investor concern over crypto exchangeBinance isn’t fading.
Binance’snative token, BNB, has fallen 15% in the past week, including a drop of over 6% in the past 24 hours. BNB, first minted in 2017, isthe world’s fifth most valuable cryptocurrency, with a market cap of about $39 billion, according to CoinMarketCap. It’s behind only bitcoin, ethereum, tether and USD Coin.
The latest issue looming over Binance is FTX’s bankruptcy proceedings. Binance was the first outside investor in FTX. In exiting its equity position in the company last year, Binance received payment equal to roughly $2.1 billion.
In an interview with CNBC’s “Squawk Box” on Thursday, Binance CEO Changpeng Zhao dismissed concerns that his company could have that money clawed back as FTX winds its way through bankruptcy court and trustees look to retrieve any fraudulent conveyances made by FTX to outside businesses or investors.
“We are financially OK,” Zhao said, after he was asked by CNBC’s Becky Quick if the company could handle a $2.1 billion demand.
Crypto investors have become skeptical of comments from top executives about the financial health of their companies. FTX founder and ex-CEO Sam Bankman-Fried said on Twitter that his company’s assets were fine, even as executives knew it was in the midst of a liquidity crunch that eventually forced the exchange into bankruptcy. Bankman-Fried was arrested this week in the Bahamas and charged by U.S. prosecutors with fraud and money laundering.
Withdrawal demands are another area of concern. Zhao said that around $1.14 billion of net withdrawals took place on Tuesday, but tweeted that this was “not the highest withdrawals we processed, not even top [five].” On Wednesday, he said the situation had “stabilized.” Blockchain analytics firm Nansen said the withdrawal number on Tuesday reached as high as $3 billion.
Read more about tech and crypto from CNBC Pro
A Binance spokesperson told CNBC in a statement that, “we passed this extreme stress test because we run a very simple business model – hold assets in custody and generate revenue from transaction fees.” The spokesperson did not provide an immediate response to a question about the drop in BNB.
Binance andFTX were intimately connected. Zhao announced publicly last month that his company was liquidating its position in FTT, FTX’s native coin, amid concerns surrounding the solvency of both FTX and its sister trading firm, Alameda Research.
FTX then faced an immediate surge in withdrawal demands, and Binance stepped in with a non-binding agreement to acquire the company as part of a rescue plan. A day later, Binance backed out of the deal, stating that FTX’s “issues are beyond our control or ability to help.”
Like all of the major crypto projects and companies, Binance developed its own currency. On its website, the company says people can “use BNB to pay for goods and services, settle transaction fees on Binance Smart Chain, participate in exclusive token sales and more.” Areas where BNB can be used, the site says, include payment, travel and entertainment.
There’s a circulating supply of about 160 million BNB out of a total maximum supply of 200 million, according to CoinMarketCap. Bloomberg reported in June that the SEC was investigating whether the 2017 token sale amounted to a security offered that should have been registered with regulators.
— CNBC’s MacKenzie Sigalos contributed to this report.
Alan Knitowski holds an MBA, has worked in technology and finance for over 25 years and is CEO of a mobile software company that trades on the Nasdaq. That didn’t prevent him from getting duped by a crypto firm.
Knitowski borrowed $375,000 from crypto lender Celsius over several years and posted $1.5 million in bitcoin as collateral. He didn’t want to sell his bitcoin because he liked it as an investment and believed the price would go up.
That was the Celsius model. Cryptocurrency investors could essentially store their holdings with the firm in exchange for a loan in dollars that they could put to use. Knitowski would get the bitcoin back when he repaid the loan.
But that’s not what happened, because Celsius, which earlier in the year managed $12 billion in assets, spiraled into bankruptcy in July after a plunge in crypto prices caused an industrywide liquidity crisis. Knitowski and thousands of other loan holders had more than $812 million in collateral locked on the platform, and bankruptcy records show Celsius failed to return collateral to borrowers even after they repaid their loans.
“Every aspect of what they did was wrong,” Knitowski, who runs an Austin, Texas-based company called Phunware, said in an interview. “If my CFO or I actually did anything that looked like this, we would immediately be charged.”
Creditors are now working through the bankruptcy process to try and reclaim at least a portion of their funds. They were provided with some level of optimism on Friday, after Celsius announced the sale of its asset custody platform called GK8 to Galaxy Digital.
David Adler, a bankruptcy lawyer at McCarter & English who is representing Celsius creditors, said money from the transaction has to go to paying legal fees. Beyond that, there could be funds remaining for former customers.
“The big question is — who is entitled to the money they get from GK8?” Adler told CNBC. Adler said he’s representing a group of 75 borrowers who have approximately $100 million in digital assets on Celsius’ platform.
Later this month, more relief could be coming as bidding will open for Celsius’ lending portfolio. If another company purchases the loans, customers would likely have a chance to repay them and then have their collateral released.
Knitowski told CNBC he had elected to take out his loans at a 25% loan-to-value rate. That means if he took out a $25,000 loan, he would post four times that amount in collateral, or $100,000.
The more collateral a borrower is willing to post, the lower the interest rate on the loan. If the borrower fails to repay the loan, the lender can seize the collateral and sell it to recoup the cost. It’s just like a residential mortgage, for which the borrower uses the home as collateral. In the crypto world, a borrower can ask for a loan and pledge bitcoin as collateral.
Earlier this year, as the price of bitcoin dropped, Knitowski paid off one of his Celsius loans to avoid getting margin called and having to increase his collateral. But after doing so, the company didn’t return the bitcoin that was serving as collateral for that loan. Instead, the assets were deposited into an account called “Earn.” According to the company’s terms and conditions, assets in those accounts are the property of Celsius, not customers.
“Imagine you pay off your car, but someone keeps it,” Knitowski said. “You pay off your house, but somebody keeps it. In this case, it would be like you pay off the loan. And instead, you don’t get your collateral back even though it’s paid off.”
That wasn’t the only problem. The crypto platform also failed to provide borrowers with a complete federal Truth in Lending Act (TILA) disclosure, according to former employees and an email sent to customers on July 4. The act is a consumer protection measure that requires lenders to give borrowers critical information, such as the annual percentage rate (APR), term of the loan, and total costs to the borrower.
The email to borrowers said, “the disclosures required to be provided to you under the federal Truth in Lending Act did not include one or more of the following,” and then proceeded to list more than a dozen possible missing disclosures.
A former Celsius employee, who asked to remain anonymous, told CNBC that the company was retroactively trying to come into compliance with TILA.
“You don’t get to say, ‘Oh, oops, we forgot like 25 items in the Truth in Lending Act and, as a result, we’re just going to redo them and pray,'” Knitowski said.
Jefferson Nunn, an editor and contributor for Crypto.news, took out a loan with Celsius and posted more than $8,000 worth of bitcoin as collateral. He knows those assets are now unavailable to him even if he repays his loan.
Nunn, who lives in Dallas, said he got the loan to invest in more bitcoin after seeing a promotion for the platform. He said he heard about Celsius after doing a podcast with co-founder Nuke Goldstein. On the show, Goldstein said, “your funds are safe,” Nunn said. Alex Mashinsky, Celsius’ former CEO, made similar comments shortly before halting withdrawals.
Alex Mashinsky, Celsius CEO on stage in Lisbon for Web Summit 2021
Piaras Ó Mídheach | Sportsfile | Getty Images
“It’s basically a mess and my funds are still locked up in there,” Nunn said.
That theme has come up repeatedly in crypto, most recently with the failure last month of FTX. Sam Bankman-Fried, the founder and CEO of the exchange, told his followers on Twitter that the company’s assets were fine. A day later, he was seeking a rescue package amid a liquidity crunch.
While Celsius’ implosion doesn’t carry the magnitude of FTX, which had been valued recently at $32 billion, company management has faced its share of criticism. According to a court filing in October, top executives took out millions of dollars in assets prior to the company halting withdrawals of customer funds.
A former employee, who asked not to be named, said there was a lack of financial oversight that led to significant holes on the company’s balance sheet. One of the biggest problems was that Celsius had a synthetic short, which occurs when a company’s assets and liabilities don’t correspond.
The former employee told CNBC that when customers deposited crypto assets with Celsius, it was supposed to ensure those funds were available any time a customer wanted to withdraw them. However, Celsius was taking customer deposits and lending them to risky platforms, so it didn’t have the liquidity to return funds on demand.
As a result, when customers wanted to withdraw funds, Celsius would scramble to purchase assets on the open market, often at a premium, the person said.
“It was a tremendous error in judgment and operational control that really put a dent in the balance sheet of the organization,” the former employee said.
He also said that Celsius was accumulating cryptocurrency tokens that had no value as collateral. On its platform, Celsius touted that customers could “earn compounding crypto rewards on BTC, ETH, and 40+ other cryptocurrencies.” But according to the former employee, the teams responsible for deploying those coins had nowhere to go with many of the more obscure tokens.
The ex-employee said he left Celsius after discovering the company wasn’t being prudent with customer funds and that it was making risky bets to continue generating the high yields it promised depositors.
“A lot of individuals took all of their money out of traditional banking systems and put their full faith in Alex Mashinsky,” the person said. “And now those individuals are left unable to pay medical bills, pay for weddings, mortgages, retirements, and that continues to weigh very heavily on me and my colleagues that have left the organization.”
Celsius didn’t respond to multiple requests for comment. Mashinsky, who resigned from Celsius in September, declined to comment.
An attendee wears a “Will Work for NFTs” shirt during the CoinDesk 2022 Consensus Festival in Austin, Texas, US, on Thursday, June 9, 2022. The festival showcases all sides of the blockchain, crypto, NFT, and Web 3 ecosystems, and their wide-reaching effect on commerce, culture, and communities.
Jordan Vonderhaar | Bloomberg | Getty Images
A year ago this week, investors were describing bitcoin as the future of money and ethereum as the world’s most important developer tool. Non-fungible tokens were exploding, Coinbase was trading at a record and the NBA’s Miami Heat was just into its first full season in the newly renamed FTX Arena.
As it turns out, that was peak crypto.
In the 12 months since bitcoin topped out at over $68,000, the two largest digital currencies have lost three-quarters of their value, collapsing alongside the riskiest tech stocks. The industry, once valued at roughly $3 trillion, now sits at around $900 billion.
Rather than acting as a hedge against inflation, which is near a 40-year high, bitcoin has proven to be another speculative asset that bubbles up when the evangelists are behind it and plunges when enthusiasm melts and investors get scared.
And the $135 million that FTX spent last year for a 19-year deal with the Heat? The crypto exchange with the naming rights is poised to land in the history books alongside another brand that once had its logo on a sports facility: Enron.
In a blink this week, FTX sank from a $32 billion valuation to the brink of bankruptcy as liquidity dried up, customers demanded withdrawals and rival exchange Binance ripped up its nonbinding agreement to buy the company. FTX founder Sam Bankman-Fried admitted on Thursday that he “f—ed up.”
“Looking back now, the excitement and prices of assets were clearly getting ahead of themselves and trading far above any fundamental value,” said Katie Talati, director of research at Arca, an investment firm focused on digital assets. “As the downturn was so fast and violent, many have proclaimed that digital assets are dead.”
Whether crypto is forever doomed or will eventually rebound, as Talati expects, the 2022 bloodbath exposed the industry’s many flaws and served as a reminder to investors and the public why financial regulation exists. Bankruptcies have come fast and furious since midyear, leaving clients with crypto accounts unable to access their funds, and in some cases scrapping to retrieve pennies on the dollar.
If this is indeed the future of finance, it’s looking rather bleak.
Crypto was supposed to bring transparency. Transactions on the blockchain could all be tracked. We didn’t need centralized institutions — banks — because we had digital ledgers to serve as the single source of truth.
That narrative is gone.
“Speaking for the bitcoiners, we feel like we’re trapped in a dysfunctional relationship with crypto and we want out,” said Michael Saylor, executive chairman of MicroStrategy, a technology company that owns 130,000 bitcoins. “The industry needs to grow up and the regulators are coming into this space. The future of the industry is registered digital assets traded on regulated exchanges, where everyone has the investor protections they need.”
Saylor was speaking on CNBC’s “Squawk on the Street” as FTX’s demise roiled the crypto market. Bitcoin sank to a two-year low this week, before bouncing back on Thursday. Ethereum also tanked, and solana, another popular coin used by developers and touted by Bankman-Fried, fell by more than half.
Equities tied to crypto suffered, too. Crypto exchange Coinbase tumbled 20% over two days, while Robinhood, the trading app that counts Bankman-Fried as one of its biggest investors, fell by 30% during the same period.
There was already plenty of pain to go around. Last week, Coinbase reported a revenue plunge of more than 50% in the third quarter from a year earlier, and a loss of $545 million. In June, the crypto exchange slashed 18% of its workforce.
“We are actively updating and evaluating our scenario plans and prepared to reduce operating expenses further if market conditions worsen,” Alesia Haas, Coinbase’s finance chief, said on the Nov. 3 earnings call.
The downdraft started in late 2021. That’s when inflation rates started to spike and sparked concern that the Federal Reserve would begin hiking borrowing costs when the calendar turned. Bitcoin tumbled 19% in December, as investors rotated into assets deemed safer in a tumultuous economy.
The sell-off continued in January, with bitcoin falling 17% and ethereum plummeting 26%. David Marcus, former head of crypto at Facebook parent Meta, used a phrase that would soon enter the lexicon.
“It’s during crypto winters that the best entrepreneurs build the better companies,” Marcus wrote in a Jan. 24 tweet. “This is the time again to focus on solving real problems vs. pumping tokens.”
The crypto winter didn’t actually hit for a few months. The markets even briefly stabilized. Then, in May, stablecoins became officially unstable.
A stablecoin is a type of digital currency designed to maintain a 1-to-1 peg with the U.S. dollar, acting as a sort of bank account for the crypto economy and offering a sound store of value, as opposed to the volatility experienced in bitcoin and other digital currencies.
When TerraUSD, or UST, and its sister token called luna dove below the $1 mark, a different kind of panic set in. The peg had been broken. Confidence evaporated. More than $40 billion in wealth was wiped out in luna’s collapse. Suddenly it was as if nothing in crypto was safe.
The leading crypto currencies cratered, with bitcoin dropping 16% in a single week, putting it down by more than half from its peak six months earlier. On the macro front, inflation had shown no sign of easing, and the central bank remained committed to raising rates as much as would be required to slow the increase in consumer prices.
In June, the bottom fell out.
Lending platform Celsius paused withdrawals because of “extreme market conditions.” Binance also halted withdrawals, while crypto lender BlockFi slashed 20% of its workforce after more than quintupling since the end of 2020.
Prominent crypto hedge fund Three Arrows Capital, or 3AC, defaulted on a loan worth more than $670 million, and FTX signed a deal giving it the option to buy BlockFi at a fraction of the company’s last private valuation.
Bitcoin had its worst month on record in June, losing roughly 38% of its value. Ether plummeted by more than 40%.
Then came the bankruptcies.
Singapore-based 3AC filed for bankruptcy protection in July, just months after disclosing that it had $10 billion in assets. The firm’s risky strategy involved borrowing money from across the industry and then turning around and investing that capital in other, often nascent, crypto projects.
After 3AC fell, crypto brokerage Voyager Digital wasn’t far behind. That’s because 3AC’s massive default was on a loan from Voyager.
“We strongly believe in the future of the industry but the prolonged volatility in the crypto markets, and the default of Three Arrows Capital, require us to take this decisive action,” Voyager CEO Stephen Ehrlich said at the time.
Next was Celsius, which filed for Chapter 11 protection in mid-July. The company had been paying customers interest of up to 17% to store their crypto on the platform. It would lend those assets to counterparties willing to pay sky-high rates. The structure came crashing down as liquidity dried up.
Meanwhile, Bankman-Fried was making himself out to be an industry savior. The 30-year-old living in the Bahamas was poised to pick up the carnage and consolidate the industry, claiming FTX was in better position than its peers because it stashed away cash, kept overhead low and avoided lending. With a net worth that on paper had swelled to $17 billion, he personally bought a 7.6% stake in Robinhood.
SBF, as he’s known, was dubbed by some as “the JPMorgan of crypto.” He told CNBC’s Kate Rooney in September that the company had in the neighborhood of $1 billion to spend on bailouts if the right opportunities emerged to keep key players afloat.
“It’s not going to be good for anyone long term if we have real pain, if we have real blowouts, and it’s not fair to customers and it’s not going to be good for regulation. It’s not going to be good for anything,” Bankman-Fried said. “From a longer-term perspective, that’s what was important for the ecosystem, it’s what was important for customers and it’s what was important for people to be able to operate in the ecosystem without being terrified that unknown unknowns were going to blow them up somehow.”
It’s almost as if Bankman-Fried was describing his own fate.
FTX’s lightning-fast descent began this past weekend after Binance CEO Changpeng Zhao tweeted that his company was selling the last of its FTT tokens, the native currency of FTX. That followed an article on CoinDesk, pointing out that Alameda Research, Bankman-Fried’s hedge fund, held an outsized amount of FTT on its balance sheet.
Not only did Zhao’s public pronouncement cause a plunge in the price of FTT, it led FTX customers to hit the exits. Bankman-Fried said in a tweet Thursday that FTX clients on Sunday demanded roughly $5 billion of withdrawals, which he called “the largest by a huge margin.” Lacking the reserves to cover the virtual bank run, FTX turned to Zhao for help.
Binance announced a nonbinding agreement to acquire FTX on Tuesday, in a deal that would’ve been so catastrophic for FTX that equity investors were expecting to be wiped out. But Binance reversed course a day later, saying that FTX’s “issues are beyond our control or ability to help.”
Bankman-Fried has since been scrambling for billions of dollars in an effort to stay out of bankruptcy. He says he’s also been working to maintain liquidity so clients can get their money out.
Venture firm Sequoia Capital, which first backed FTX in 2021 at an $18 billion valuation, said it was marking its $213.5 million investment in FTX “down to 0.” Multicoin Capital, a crypto investment firm, told limited partners on Tuesday that while it was able to retrieve about one-quarter of its assets from FTX, the funds still stranded there represented 15.6% of the fund’s assets, and there’s no guarantee it will all be recouped.
Additionally, Multicoin said it’s taking a hit because its largest position is in solana, which was tumbling in value because it “was generally considered to be within SBF’s sphere of influence.” The firm said it’s sticking to its thesis and looking for assets that can “outperform market beta across market cycles.”
“We are not short term or momentum traders, and we do not operate on short time horizons,” Multicoin said. “Although this situation is painful, we are going to remain focused on our strategy.”
It won’t be easy.
Ryan Gilbert, founder of fintech venture firm Launchpad Capital, said the crypto world is facing a crisis of confidence after the FTX implosion. While it was already a tumultuous year for crypto, Gilbert said Bankman-Friedman was a trusted leader who was comfortable representing the industry on Capitol Hill.
In a market without a central bank, an insurer or any institutional protections, trust is paramount.
“It’s a question of, can trust exist at all in this industry at this stage of the game?” Gilbert said in an interview Thursday. “To a large extent the concept of trust is as bankrupt as some of these companies.”
Binance is backing out of its plans to acquire FTX, the company said Wednesday, leaving Sam Bankman-Fried’s crypto empire on the verge of collapse.
The reversal comes one day after Binance CEO Changpeng Zhao announced that the world’s largest cryptocurrency firm had reached a non-binding deal to buy FTX’s non-U.S. businesses for an undisclosed amount, rescuing the company from a liquidity crisis. Earlier this year, FTX was valued at $32 billion by private investors.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity,” Binance said in a tweet on Wednesday. “But the issues are beyond our control or ability to help.”
On Monday night, facing a liquidity crunch, Bankman-Fried was scrambling to raise money from venture capitalists and other investors before he went to Binance, according to sources with knowledge of the matter. Zhao initially agreed to step in, but his company quickly changed course, citing reports of “mishandled customer funds and alleged U.S. agency investigations.”
It’s unclear who is next in line to buy the beleaguered crypto exchange. Bankman-Fried told investors that the company is facing a shortfall of up to $8 billion from withdrawal requests and needs emergency funding, according to a person familiar with the matter.
Read more about tech and crypto from CNBC Pro
The disintegration of the Binance-FTX deal is the latest chapter in a shocking collapse that’s rocked the crypto world this week. Bankman-Fried tried to reassure investors just on Monday that the company’s assets were fine. But after Binance’s Zhao said publicly that his company was selling its holdings in FTX’s native token FTT, the selloff was on, and FTX could do nothing to stop it.
One of Silicon Valley’s most prominent VC firms, Sequoia Capital, sank $210 million into the company, according to reporter Eric Newcomer. FTX was telling investors recently that its operating income in 2022 was projected to drop to $144 million this year, down from $338 million in 2021, while revenue was projected to rise to $1.1 billion from $1 billion last year, Newcomer reports.
Bankman-Fried said on Tuesday that customers had demanded withdrawals to the tune of $6 billion. He also deleted tweets from the prior day indicating that FTX had enough assets to cover clients’ holdings.
Zhao told Binance employees in a memo earlier on Wednesday that he “did not master plan” the collapse of FTX. He said FTX going down is “not good for anyone in the industry” and employees should not “view it as a win for us.”
He also told them not to trade FTT tokens while this ordeal unfolds.
“If you have a bag, you have a bag,” he wrote. “DO NOT buy or sell.”
FTT had already lost 80% of its value between Monday and Tuesday, falling to $5 and wiping out more than $2 billion in a day. It fell by more than half on Wednesday to around $2.30, shrinking the total value of circulating tokens to roughly $308 million.
Cryptocurrencies have plummeted amid the deal turmoil, with bitcoin falling 15% on Wednesday after a 13% drop on Tuesday. It’s trading below $16,000 for the first time since November 2020. Ether, meanwhile, has plunged more than 30% over the past two days and is close to falling below $1,000.
Here’s the company’s full statement:
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.
In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.
Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.
As regulatory frameworks are developed and as the industry continues to evolve toward greater decentralization, the ecosystem will grow stronger.”
Correction: FTX was telling investors its operating income was projected to drop to $144 million this year, down from $338 million in 2021.
Aerial view of the seafront Manara district near downtown Beirut.
Bilwander | Getty Images
When Georgio Abou Gebrael first heard about bitcoin in 2016, it sounded like a scam.
But by 2019, as Lebanon plunged into a financial crisis following decades of expensive wars and bad spending decisions, a decentralized and borderless digital currency operating outside the reach of bankers and politicians sounded a lot like salvation.
Gebrael was an architect living in his hometown of Beit Mery, a village eleven miles due east of Beirut. He had lost his job and needed to figure out another way to quickly get ahold of cash. In the spring of 2020, Gebrael says, the banks were closed and locals were barred from withdrawing money from their accounts. Receiving cash via international wire transfer wasn’t a great option either, since these services would take U.S. dollars from the sender and give Lebanese pounds to the recipient at a much lower rate than market value, according to the 27-year-old.
“I would lose around half of the value,” explained Gebrael of the experience. “That’s why I was looking at bitcoin – it was a good way to get money from abroad.”
Gebrael discovered a subreddit dedicated to connecting freelancers with employers willing to pay in bitcoin. The architect’s first job was to film a short commercial for a company that sold tires. Gebrael was paid $5 in bitcoin. Despite the tiny amount, he was hooked.
Georgio Abou Gebrael filmed a short commercial for a company that sells tires, in exchange for $5 worth of bitcoin.
Georgio Abou Gebrael
Today, half of Gebrael’s income is from freelance work, 90% of which is paid in bitcoin. The other half comes from a U.S. dollar-denominated salary paid by his new architecture firm. Beyond being a convenient way to earn a living, bitcoin has also become his bank.
“When I get paid from my architecture job, I withdraw all my money,” continued Gebrael. He then uses that cash to buy small amounts of bitcoin every Saturday. The rest he keeps as spending money for daily needs and home renovations.
Gebrael isn’t alone in seeking alternative ways to earn, save, and spend money in Lebanon – a country whose banking system is fundamentally broken after decades of mismanagement. The local currency has lost more than 95% of its value since Aug. 2019, the minimum wage has effectively plummeted from $450 to $17 a month, pensions are virtually worthless, Lebanon’s triple-digit inflation rate is expected to be second only to Sudan this year, and bank account balances are just numbers on paper.
“Not everyone believes that the banks are bankrupt, but the reality is that they are,” said Ray Hindi, CEO of a Zurich-based management firm dedicated to digital assets.
“The situation hasn’t really changed since 2019. Banks limited withdrawals, and those deposits became IOUs. You could have taken out your money with a 15% haircut, then 35%, and today, we’re at 85%,” continued Hindi, who was born and raised in Lebanon before leaving at the age of 19.
“Still, people look at their bank statements and believe that they’re going to be made whole at some point,” he said.
Despite losing nearly all of their savings and pension, Gebrael’s parents – both of whom are career government employees – are holding out hope that the existing financial system will rightsize at some point. In the meantime, Gebrael is covering the difference.
Others have lost faith in the monetary system altogether. Enter cryptocurrency.
CNBC spoke with multiple locals, many of whom consider cryptocurrencies a lifeline for survival. Some are mining for digital tokens as their sole source of income while they hunt for a job. Others arrange clandestine meetings via Telegram to swap the stablecoin tether for U.S. dollars in order to buy groceries. Although the form that crypto adoption takes varies depending upon the person and the circumstances, nearly all of these locals craved a connection to money that actually makes sense.
“Bitcoin has really given us hope,” Gebrael said. “I was born in my village, I’ve lived here my whole life, and bitcoin has helped me to stay here.”
Bettmann | Lebanon League of Progress | Getty Images
Between the end of the second World War and the start of Lebanon’s civil war in 1975, Beirut was in its golden age, earning it the title of “the Paris of the Middle East.” The world’s elite flocked to the Lebanese capital, which boasted a sizable Francophone population, Mediterranean seaside cafes, and a banking sector known for its resilience and emphasis on secrecy.
Even after the brutal 15-year civil war ended in 1990, Lebanon competed with offshore banking jurisdictions such as Switzerland and the Cayman Islands as an ideal destination for the rich to park their cash. Lebanese banks offered both a certain degree of anonymity and interest rates ranging from highs of 15% to 31% on U.S. dollars, according to one estimate shared by Dan Azzi, an economist and former CEO of the Lebanese subsidiary of Standard Chartered Bank. In return, Lebanon drew in the foreign currencies that it so desperately needed to re-stock its coffers after the civil war.
There were strings attached. Some banks, for example, had a lock-up window of three years and steep minimum balance requirements. But for a while, the system worked pretty well for everyone involved. The banks got an influx of cash, depositors saw their balances swiftly grow, and the government went on an undisciplined spending spree with the money it borrowed from the banks. The mirage of easy money was further reinforced by the government putting some of that borrowed cash towardmaintaining a fixed exchange rate for deposit inflows at an overvalued peg.
Tourism and international aid, plus foreign direct investment from oil-rich Gulf states, also went a long way toward shoring up the balance sheet of the central bank, Banque du Liban. The country’s brain drain and the subsequent boom in remittance payments sent home by the Lebanese diaspora injected dollars as well.
World Bank data shows remittances as a percentage of gross domestic product peaked at more than 26% in 2004, though it stayed high through the 2008 global financial crisis. Those payments, however, began to slow through the 2010s amid unrest throughout the region, and the growing prominence of Hezbollah – an Iranian-backed, Shiite political party and militant group – in Lebanon alienated some of the country’s biggest donors.
To try to stave off a total economic meltdown, in 2016, central bank chief Riad Salameh, an ex-Merrill Lynch banker who had been on the job since the early 1990s, decided to dial up banking incentives. People willing to deposit U.S. dollarsearned astronomical interest on their money, which proved especially compelling at a time when returns elsewhere in the world were relatively underwhelming. El Chamaa tells CNBC that those who deposited U.S. dollars and then converted those dollars to Lebanese lira earned the highest interest.
The era of easy money fell off a cliff in October 2019, when the government proposed a flurry of taxation on everything from gas, to tobacco, to WhatsApp calls. People took to the streets in what became known as the October 17 Revolution.
As the masses revolted, the government defaulted on its sovereign debt for the first time ever in early 2020, just as the Covid pandemic took hold around the world. Making a terrible situation worse, in Aug. 2020, an explosion of a stockpile of ammonium nitrate stored at the port in Beirut – blamed on gross government negligence – killed more than 200 people and cost the city billions of dollars in damages.
Anti-government protesters take part in a demonstration against the political elites and the government, in Beirut, Lebanon, on August 8, 2020 after the massive explosion at the Port of Beirut.
STR | NurPhoto via Getty Images
The banks, spooked by all the chaos, first limited withdrawals and then shut their doors entirely as much of the world descended into lockdown. Hyperinflation took root. The local currency, which had a peg of 1,500 Lebanese pounds to $1 for 25 years, began to rapidly depreciate. The street rate is now around 40,000 pounds to $1.
“You need a backpack to go for lunch with a group of people,” explained Hindi.
After re-opening, the banks refused to keep up with this extreme depreciation, and offered much lower exchange rates for U.S. dollars than they were worth on the open market. So money in the bank was suddenly worth much less.
Azzi dubbed this new form of money “lollars,” referring to U.S. dollars deposited into the Lebanese banking system before 2019. Today, withdrawals of lollars are capped, and each lollar is paid out at a rate worth about 15% of its actual value, according to estimates from multiple locals and experts living across Lebanon.
Meanwhile, banks still offer the full market-rate exchange rate for U.S. dollars deposited after 2019. These are now known colloquially as “fresh dollars.”
For many Lebanese, this was the point at which money just stopped making sense.
“I send actual dollars from my dollar account in Switzerland to my dad’s Lebanese account,” Hindi told CNBC. “They count as fresh dollars because it came from abroad, but of course, my dad is running counterparty risk with the bank.”
Mohamad El Chamaa, a 27-year-old Beirut-based journalist at L’Orient Today tells CNBC that when the bank began instituting these restrictions, he had $3,000 in his savings account from odd jobs he did in grad school.
“One of my life’s regrets was not withdrawing my money in full before the crisis hit,” said El Chamaa, who is studying for a Masters in Urban Planning at the American University of Beirut. “I could see the writing on the wall, because the bank started charging me a small percentage for every dollar withdrawal I made a month before the crisis hit, which I thought was kind of odd.”
El Chamaa says that he has since grown accustomed to withdrawing money from his bank account at a “bad rate” of 10% to 15% of its original worth, but “there is no way in hell” he would ever deposit cash in a Lebanese bank ever again. Instead, he keeps what remains of his life savings in cash and just uses his bank account to pay for his iCloud service and music streaming account.
Currency exchange dealer in Lebanon shows a U.S. dollar and Lebanese lira as the value of the country’s currency against the USD continues to plunge.
Houssam Shbaro | Anadolu Agency | Getty Images
Access to his account is spotty. The banks closed again in September, and there are daily nationwide power cuts, which translate to limited ATM access.
“It gets worse over time, but the fundamentals have been bad since 2019. They haven’t changed that much,” said Hindi.
The World Bank says Lebanon’s economic and financial crisis is among the worst it’s seen anywhere on the planet since the 1850s. The United Nations estimates that 78% of the Lebanese population has now fallen below the poverty line.
Goldman Sachs analysts estimate losses at the local banks are around $65 billion to $70 billion – a figure that is four times the country’s entire GDP. Fitch projects inflation rising to 178% this year – worse than in both Venezuela and Zimbabwe – and there are conflicting messages from the government’s top brass as to whether the country is officially bankrupt.
The International Monetary Fund is in talks with Lebanon to put a big bandaid over the whole mess. The global lender is considering extending a $3 billion lifeline – with a lot of conditions attached. Meanwhile, there is a power vacuum as Parliament keeps trying and failing to elect a president.
Demonstrator looks on as Lebanese policemen stand guard outside the Central Bank in Dec. 2018.
A little over two years ago, Ahmad Abu Daher and his friend began mining ether with three machines running on hydroelectric power in Zaarouriyeh, a town 30 miles south of Beirut in the Chouf Mountains.
At the time, ethereum — the blockchain underpinning the ether token — operated on a proof-of-work model, in which miners around the world would run high-powered computers that crunched math equations in order to validate transactions and simultaneously create new tokens. This is how the bitcoin network is still secured today.
The process requires expensive equipment, some technical know-how, and a lot of electricity. Because miners at scale compete in a low-margin industry, where their only variable cost is energy, they are driven to migrate to the world’s cheapest sources of power.
Abu Daher taps into a hydropower project which harnesses electricity from the 90-mile Litani River that cuts across southern Lebanon. He says he is getting 20 hours a day of electricity at old pre-inflationary rates.
“So basically, we are paying very cheap electricity, and we are getting fresh dollars through mining,” continued Abu Daher.
Ahmad Abu Daher and his friend began mining ether with three machines running on hydroelectric power in Zaarouriyeh, a town 30 miles south of Beirut in the Chouf Mountains. Abu Daher has since scaled his business to thousands of machines spread across Lebanon.
Ahmad Abu Daher
When 22-year-old Abu Daher saw that his mining venture was profitable, he and his friend expanded the operation.
They built their own farm with rigs acquired at fire sale prices from miners in China and began re-selling and repairing mining equipment for others. They also started to host rigs for people living across Lebanon, who needed stable money but lacked the technical expertise, as well as the access to cheap and steady electricity — a highly coveted commodity in a country with crippling electricity blackouts. Abu Daher also has customers outside of Lebanon, in Syria, Turkey, France, and the United Kingdom.
It has been 26 months since they first set up shop, and business is thriving, according to Abu Daher. He says that he had profits of $20,000 in September — half from mining, half from selling machines and trading in crypto.
The government, facing electrical shortages, is trying to crack down.
In Jan., police raided a small crypto mining farm in the hydro-powered town of Jezzine, seizing and dismantling mining rigs in the process. Soon after, the Litani River Authority, which oversees the country’s hydroelectric sites, reportedly said that “energy intensive cryptomining” was “straining its resources and draining electricity.”
AntMiner L3++ miners running at one of Ahmad Abu Daher’s crypto farms in Mghayriyeh in the Chouf Mountains.
Ahmad Abu Daher
“We had some meetings with the police, and we don’t have any problems with them, because we are taking legal electricity, and we are not affecting the infrastructure,” he said.
Whereas Abu Daher says that he has set up a meter that officially tracks how much energy his machines have consumed, other miners have allegedly hitched their rigs to the grid illegally and are not paying for power.
“Basically, a lot of other persons are having some issues, because they are not paying for electricity, and they are affecting the infrastructure,” he said.
Rawad El Hajj, a 27-year-old with a marketing degree, found out about Abu Daher’s mining operation three years ago through his brother.
“We started because there is not enough work in Lebanon,” El Hajj said of his motivation to jump into mining.
El Hajj, who lives south of the capital in a city called Barja, began small, purchasing two miners to start.
“Then every month, we started to go bigger and bigger,” El Hajj told CNBC.
Rawad El Hajj, a 27-year-old with a marketing degree, tells CNBC that his 11 machines mine for litecoin and dogecoin.
Rawad El Hajj
Because of the distance to Abu Daher’s farms, El Hajj pays to outsource the work of hosting and maintaining the rigs. He tells CNBC that his 11 machines mine for litecoin and dogecoin, which collectively bring in the equivalent of about .02 bitcoin a month, or $426.
It’s a similar story for Salah Al Zaatare, an architect living 20 minutes south of El Hajj in the coastal city of Sidon. Al Zaatare tells CNBC that he began mining dogecoin and litecoin in March of this year to augment his income. He now has 10 machines that he keeps with Abu Daher. Al Zaatare’s machines are newer models so he pulls in more than El Hajj — about $8,500 a month.
Al Zaatare pulled all of his money out of the bank before the crisis hit in 2019, and he held onto that cash until deciding to invest his life savings into mining equipment last year.
“I got into it, because I think it will become a good investment for the future,” Al Zaatare told CNBC.
Official government data shows that just 3% of those earning a living in Lebanon are paid in a foreign currency such as the U.S. dollar, so mining offers a rare opportunity to get ahold of fresh dollars.
“If you can get the machine, and you get the power, you get the money,” said Nicholas Shafer, a University of Oxford academic studying Lebanon’s crypto mining industry.
Abu Daher, who graduated from the American University of Beirut six months ago, has also been experimenting with other ways to get more use out of crypto mining. As part of his year-end project at university, he designed a system to harness the heat from the miners as a means to keep homes and hospitals warm during the winter months.
But mining crypto tokens to earn a living is not for everybody.
Gebrael considered it, but ultimately, the cost of buying gear, plus paying for electricity, cooling, and maintenance seemed like a roundabout way of getting what he wanted.
“It’s easier to just buy bitcoin,” he said.
AntMiner L3++ miners running at one of Ahmad Abu Daher’s crypto farms in his village of Zaarouriyeh.
When Gebrael needs cash to pay for groceries and other basics, he first uses a service called FixedFloat to swap some of the bitcoin he has earned through his freelance work for tether (also known as USDT), a stablecoin that is pegged to the U.S. dollar. After that, he goes to one of two Telegram groups to arrange a trade of tether for U.S. dollars. While tether does not offer the same potential for appreciation as other cryptocurrencies, it represents something more important: a currency that Lebanese still trust.
Each week, Gebrael finds someone willing to make the swap, and they set up an in-person meeting. Because he is often making the trade with a stranger, Gebrael typically chooses public spaces, like a coffee shop, or the ground floor of a residential building.
“One time I was scared because it was at night and the person I contacted asked me to go up to their apartment,” Gebrael said of one hand-off. “I asked them to come meet me on the street, and it all went fine. I try to stay as safe as possible.”
These kinds of backchannels have become a critical lifeline to fresh dollars, which are vital in Lebanon’s mostly-cash economy.
“It’s easy here to get cash from crypto,” said El Hajj of his experience. “There’s a lot of guys that exchange USDT for cash.”
Exchanges over the Telegram group that Gebrael uses range from $30 to trades in the hundreds of thousands of dollars.
In addition to Telegram, a network of over-the-counter traders specialize in swapping several different types of fiat currencies for cryptocurrencies. The model bears resemblance to the centuries-old hawala system – which facilitates cross-border transactions via a sophisticated network of money exchangers and personal contacts.
Lebanese anti-government protesters seal an ATM with tape in Beirut during a rally against the banking system on November 11, 2019.
Patrick Baz | AFP | Getty Images
Abu Daher offers exchange services in tandem with his mining business, and charges a 1% commission fee to both of the parties participating in the trade.
“We started by selling and buying USDT because the amount of demand on USDT is very high,” said Abu Daher, who added that he was “shocked” at the flood of inbounds for his service.
Some people are tinkering with covering their daily expenses in tether directly to avoid either paying commissions to crypto exchangers — or having to go through the motions of setting up an informal trade with a stranger.
A man stands outside a currency exchange booth in the Lebanese capital on October 1, 2019.
Joseph Eid | AFP | Getty Images
Even though accepting crypto as a payment method is prohibited under Lebanese law,businesses are actively advertising that they accept crypto payments on Instagram and other social media platforms.
“The use of USDT is widespread. There’s a lot of coffee shops, restaurants, and electronics stores that accept USDT as a payment, so that’s convenient if I need to spend not in fiat, but from my bitcoin savings,” explained Gebrael. “The government has much bigger problems right now than to worry about some stores accepting cryptocurrency.”
Local businesses in the Chouf region have also begun to accept crypto payments amid the rise of mining farms, according to El Chamaa. In Sidon, the 26-year-old owner of a restaurant called Jawad Snack says that around 30% of his transactions are in crypto, according to written comments translated by Abu Daher and shared with CNBC via WhatsApp.
“It’s better for me to accept tether or U.S. dollars due to the huge inflation in the Lebanese lira,” continued the owner, who added that once he is paid in tether, he cashes it out to fiat through a trader in the black market. He says he typically uses Abu Daher for this, since he lives the closest.
Abu Daher uses tether to pay for imported machines, but he still has to cover a lot of his expenses in the Lebanese lira (electricity, internet fees, and rent), as well as in U.S. dollars (cooling systems and security systems).
Some hotels and tourism agencies accept tether, as does at least one auto mechanic living in Sidon.
Detailed administrative and political vector map of Lebanon.
Getty Images
Indeed, new research from blockchain data firm Chainalysis shows that Lebanon’s crypto transaction volume is up about 120%, year-over-year, and it ranks second only to Turkey in terms of the volume of cryptocurrency received among countries in the Middle East and North Africa. (Globally, it’s in 56th place in peer-to-peer trading volume.)
Access to a smartphone is critical, too. Although officialstatistics show that internet penetration in Lebanon is around 80%, the country’s debilitating power cuts disrupt internet service. But the country’s telecom networks operate their own power generators to keep running continuously.
“We are putting our money in our phones. That is the easiest way,” said Abu Daher.
A Lebanese woman stands next to her empty refrigerator in her apartment in the port city of Tripoli, north of Beirut, on June 17, 2020.
In 2017, Marcel Younes was working as a marketing manager with Pfizer in Beirut when he tried to get rich by getting into bitcoin.
A pharmacist by training, Younes soon strayed from tracking price charts and instead became engrossed by the economic theory underpinning digital currencies like bitcoin.
As he continued his studies, he noticed a lot of similarities between Lebanon, Venezuela, and Argentina.
“I panicked and withdrew all my money from the bank,” said Younes, who added that he emptied his account in mid-2019 — just a couple months before banks locked people out of their accounts. “I was paranoid thanks to bitcoin.”
Younes tells CNBC that he initially moved 15% of his money into bitcoin, and he kept the remaining balance in cash. Today, 70% of his cash is in bitcoin.
“I was actually telling everyone to do the same in my family, like, please try to withdraw some money, and don’t keep it in the bank,” said Younes.
“But no one really believes a pharmacist — a person who is not related to our banking system,” said Younes.
Graffiti reading “VIRUS” and “THIEF” covers the facade of a fortified local branch of the Bank of Beirut in the Lebanese capital on May 18, 2020.
Patrick Baz | AFP | Getty Images
Younes, who was born in Poland but moved to Lebanon with his family in 1998, tells CNBC that most of his family works in the banking system in Lebanon.
“They always believe that everything is fine with the banking system, so you get this confidence that everything is alright,” he said.
Within months, his family was wiped out.
His father-in-law, who is 75 years old and retired years ago, had safeguarded his entire net worth in the bank.
“My family, like every single family member in Lebanon, got really hurt by the whole devaluation and currency crisis,” said Younes.
A by-product of the spiraling currency has been the erosion of earning power.
“My aunt, for example, she’s a teacher. Right now, her salary is $50 per month. My father, who’s a doctor with over 30 years of experience, his salary is around $500 a month,” explained Younes. “It happened gradually, because every few months, we have a small devaluation, and it all culminated in a 95% devaluation of the Lebanese lira.”
Younes has since founded Bitcoin du Liban (a play on the name of Lebanon’s central bank, Banque du Liban), a group with a mission to help close the knowledge gap on bitcoin in Lebanon through in-person meetings, online tutorials, and chats via the organization’s Telegram group.
A man holding a smartphone shows a screen grab taken from a video of an armed depositor gesturing at employees of a local bank in Beirut after he stormed the branch and held employees and customers as hostages. The man, who entered the bank carrying a machine gun and gasoline, demanded to be handed over part of his deposited money, which amounts to $209,000.
Marwan Naamani | Picture Alliance | Getty Images
Multiple sources tell CNBC that people across the country are afraid to put their money in the banks or store it in cash at home because of the risk of theft. Alex Gladstein, chief strategy officer for the Human Rights Foundation, says these kinds of situations are one clear value proposition for bitcoin.
In bitcoin, one of the mantras is — “not your keys, not your coins” — meaning that rightful ownership of tokens comes through the custody of the passwords that enable the crypto to be moved out of the wallet.
“If you had your money in the bank in Lebanon, it’s all gone. Who knows how much of it you will ever see again. Meanwhile, bitcoin rises and falls in the global market, but if you self-custody your bitcoin, you always have it as an asset, and you can use it as you see fit and send it anywhere in the world,” explained Gladstein. “It has superpowers compared to fiat currency.”
There are a lot of ways to store crypto coins. Online exchanges like Coinbase, Binance, and PayPal will custody tokens for users. Abu Daher, for example, keeps 100% of his cash in online crypto wallets on Binance and KuCoin, as does Al Zaatare, who says that he saves his bitcoin on Binance.
More tech-savvy users sometimes cut out the middleman and hold their crypto cash on personally owned hardware wallets. Gebrael, for example, prefers the autonomy and security that he derives from self-custody of his bitcoin. He tells CNBC that he keeps all of his bitcoin in cold storage on a thumb drive-sized device called a Trezor hardware wallet.
A person holds a cryptocurrency hardware wallet.
Geoffroy Van Der Hasselt | AFP | Getty Images
Beyond the added security of holding his own keys and disconnecting his wallet from the internet, Gebrael says the appeal of cold storage has a lot to do with the fact that he doesn’t have to connect his personal identity to his bitcoin. He added that the anonymity offered by self-custody helps protect him from being caught in the crosshairs of government-issued sanctions. Gebrael cited the example of the Canadian government blacklisting all crypto exchange wallets connected to the truckers participating in the ‘Freedom Convoy’ protests.
Gebrael says he also doesn’t like the user experience of centralized digital asset exchanges like Binance and Coinbase “with all their flashy charts.”
“It’s like one huge casino, and they want you to gamble your money,” said Gebrael.
Lebanon has six bitcoin ATMs — one in Aamchit and five in Beirut, according to metrics offered by coinatmradar.com. But those who spoke with CNBC for this story say that the optimal on-ramps to accessing bitcoin are either earning it (through mining or paid work), or buying it with tether.
A worker uses a mobile phone torchlight to illuminate his cutting space at the fish market, where portable emergency lighting runs due to a power cut, in Beirut, Lebanon, on Wednesday, Sept. 8, 2021.
Francesca Volpi | Bloomberg | Getty Images
When asked how reliable it is to safeguard wealth in an inherently volatile asset like bitcoin — which is down more than 70% in the last year — Younes says that “it’s a matter of perception.”
“If you go back to two, three years ago, it was $3,500,” said Younes, who added that he isn’t really concerned about the price of bitcoin.
When Younes first bought bitcoin, it was trading at about $20,000, so as of today, he tells CNBC that he hasn’t made any money. But investing his cash into the world’s largest cryptocurrency also has to do with the fact that he wants to bet on a new monetary system.
“Bitcoin offers a system that is uncorruptible; a system that is basically permissionless and censorship-resistant,” he said. “No one can really devalue bitcoin due to its monetary policy, which is 21 million bitcoin.”
Ultimately, money is a human belief system. For some in Lebanon, it has been a lifeline, for others, it’s a passing fad.
El Chamaa hasn’t turned to crypto, and he stands by the decision, even after spending time reporting on the ground at Abu Daher’s crypto mines.
“If you look at what bitcoin and ethereum are worth today, I mean, it’s worth a fraction of what it was a year ago. So I’m kind of glad I didn’t get into it,” said El Chamaa.
“Warren Buffett is basically saying that it doesn’t have an intrinsic value and just passing it on to the next person and helping to make a profit off of that doesn’t make any sense. So I’m a bit skeptical,” he said.
An array of bitcoin mining units inside a container at a Cleanspark facility in College Park, Georgia, U.S., on Friday, April 22, 2022.
Elijah Nouvelage | Bloomberg | Getty Images
Core Scientific, one of the largest publicly traded crypto mining companies in the U.S., raised the possibility of bankruptcy in a statement filed with the Securities and Exchange Commission. The company also disclosed that it will not make its debt payments coming due in late Oct. and early Nov.
Core’s stock was down as much as 77% on Thursday following the filing.
Since listing on the Nasdaq through a special purpose acquisition company, or SPAC, Core’s market capitalization has fallen to $90 million, down from a $4.3 billion valuation in July 2021 when the company went public. The stock is now down more than 97% this year. In the event of a bankruptcy, Core says that holders of its common stock could suffer “a total loss of their investment.”
Core Scientific mines for proof-of-work cryptocurrencies like bitcoin. The process involves powering data centers across the country, packed with highly specialized computers that crunch math equations in order to validate transactions and simultaneously create new tokens. The process requires expensive equipment, some technical know-how, and a lot of electricity.
Core, which primarily mints bitcoin, has seen the price of the token drop from an all-time high above $69,000 in Nov. 2021, to around $20,500. That 70% loss in value, paired with greater competition among miners — and increased energy prices — have compressed itsprofit margins.
The crypto miner said its “operating performance and liquidity have been severely impacted by the prolonged decrease in the price of bitcoin, the increase in electricity costs,” as well as “the increase in the global bitcoin network hash rate” — a term used to describe the computing power of all miners in the bitcoin network.
The filing also blamed “litigation with Celsius Networks LLC and its affiliates” for Core’s financial struggles. Celsius was once one of the biggest names in the crypto lending space, offering annual returns of nearly 19%, until it filed for bankruptcy this spring.
The Austin, Texas-based miner, which has operations in North Dakota, North Carolina, Georgia, and Kentucky, says that it may “seek alternative sources of equity or debt financing.” The company is also considering asset sales, as well as delaying larger capital expenditures, including construction projects.
As for its creditors, Core wrote in the filing that they were free to sue the company for nonpayment, take action with respect to collateral, as well as“electing to accelerate the principal amount of such debt.”
Analysts believe Chapter 11 bankruptcy is a real possibility.
“With the substantial decline in mining rig prices in 2022, we believe there’s a significant chance the creditors holding this debt decide to restructure instead of taking possession of the collateral,” wrote analysts from Compass Point. “Still, without knowing how discussions are going with CORZ’s creditors, we think a scenario where CORZ has to file for Chapter 11 protection has to be taken seriously, especially if BTC prices decline further from current levels.”
Core — which is one of the largest providers of blockchain infrastructure and hosting, as well as one of the largest digital asset miners, in North America — isn’t alone in its struggles. Compute North, which provides hosting services and infrastructure for crypto mining, filed for Chapter 11 bankruptcy in Sept., and at least one other miner, Marathon Digital Holdings, reported an $80 million exposure to the bankrupt mining firm.
