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Credit unions and community banks are looking to digital communications platform Eltropy to strengthen call center authentication and ultimately reduce fraud as voice-cloning tools and advanced AI present more opportunities for fraudsters within financial services. In the third quarter of 2022, email scams increased 217% year over year, especially following digitization that skyrocketed amid the […]
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Whitney McDonald
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Former FTX chief executive Sam Bankman-Fried (C) arrives to enter a plea before US District Judge Lewis Kaplan in the Manhattan federal court, New York, January 3, 2023.
Ed Jones | AFP | Getty Images
Federal prosecutors are attempting to bar indicted FTX co-founder Sam Bankman-Fried from using encrypted messaging software, citing efforts that may “constitute witness tampering,” according to a letter filed in Manhattan federal court Friday.
Bankman-Fried reached out to the “current General Counsel of FTX US who may be a witness at trial,” prosecutors said. Ryne Miller, who was not identified by name in the government filing, is the current counsel for FTX US, and a former partner at Kirkland & Ellis.
The government claims that Bankman-Fried wrote to Miller via Signal, an encrypted messaging app, on Jan. 15, days after bankruptcy officials at crypto exchange disclosed the recovery of more than $5 billion in FTX assets.
“I would really love to reconnect and see if there’s a way for us to have a constructive relationship, use each other as resources when possible, or at least vet things with each other,” Bankman-Fried allegedly told Miller.
Bankman-Fried has also been in contact with “other current and former FTX employees,” the filing said. Federal prosecutors allege that Bankman-Fried’s request suggests an effort to influence the witness’s testimony, and that Bankman-Fried’s effort to improve his relationship with Miller “may itself constitute witness tampering.”
Both Miller and a representative for Bankman-Fried declined to comment.
In restricting Bankman-Fried’s access to Signal and other encrypted messaging platforms, the government cites a need to “prevent obstruction of justice.” Federal prosecutors claim that Bankman-Fried directed Alameda and FTX through Slack and Signal, and ordered his employees set communications to “autodelete after 30 days or less.”
Citing previously undisclosed testimony from ex-Alameda CEO Caroline Ellison, the government claimed that Bankman-Fried indicated “many legal cases turn on documentation and it is more difficult to build a legal case if information is not written down or preserved.” Ellison pled guilty to multiple charges of fraud and has been cooperating with the U.S. Attorney’s efforts to build a case against Bankman-Fried.
Bankman-Fried pled not guilty to eight charges in connection with the collapse of his multibillion-dollar crypto empire, FTX. He is due in federal court in October, after being released on $250 million bond.
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“The pitch for consumers is an easier online checkout experience,” Rossman said. “You won’t need to enter all of your card information because it will already be saved in the system.
“And it will be managed by the banks, which will in theory have better fraud protection than retailers.”
The good news is “they are already a regulated sector,” added Pam Dixon, executive director of the World Privacy Forum, a nonprofit research group, in contrast to the equally popular buy now, pay later programs.
However, “consumers still have to be really careful,” Dixon cautioned. “This is your financial information.”
During the pandemic, shoppers showed a growing preference for cashless transactions and still do: Peer-to-peer payment apps — known as P2P — such as Zelle and Paypal’s Venmo, which let users store their banking information on their smartphone, have exploded in popularity.
Now, 64% of Americans use peer-to-peer payment apps, although for young adults that jumps to 81%, according to a March 2022 survey by Consumer Reports.
Roughly 40% of the more than 2,000 people polled said they use payment apps at least once a month, while 18% use them at least once a week.
Digital payments are generally more secure than credit card transactions because there’s a biometric component, Rossman said — “this online solution will likely have some sort of two-factor authentication, like a code sent via text message.”
But it is not without risk. Users are vulnerable to fraud or scams or can lose money if they accidentally send a payment to the wrong person, a Consumer Reports analysis found.
And peer-to-peer payments still have varying degrees of consumer protections, which could cause an issue when it comes to getting a refund.
Trying to get money back into your personal account after it’s been transferred to someone else may require more work compared to requesting a refund with a credit card company, which often reverses charges almost immediately and fights on your behalf.
“It’s kind of like getting the toothpaste back in the tube,” Rossman said.
Zelle, in particular, has been the subject of recent criticism. A U.S. Senate report last fall stated that “Zelle is rampant with fraud and theft, and few customers are getting refunded — potentially violating federal laws and consumer rules.”
The Consumer Reports analysis included a call on policymakers to strengthen consumer protections. “There is a lag between the protections available to consumers and the latest technologies for payments,” said Delicia Hand, director of financial fairness for Consumer Reports.
In the meantime, “payment providers can raise the bar for consumer protection by taking more aggressive steps to minimize user risks,” Hand added.
If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.
Pam Dixon
executive director of the World Privacy Forum
Contrary to those findings, “99.9% of the 5 billion transactions processed on the Zelle network in the past five years were sent without any report of fraud or scams,” the American Bankers Association, Bank Policy Institute, Consumer Bankers Association and The Clearing House said in a joint statement.
And in every instance in which a customer disputes a transaction made via Zelle, banks are obligated under federal law to investigate and provide reimbursement if the transaction was unauthorized, the statement said.
For now, Dixon offers consumers this advice: “Let the buyer beware.”
“If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.”
Also, adjust your privacy setting to minimize the amount of information that companies are collecting, Hand advised.
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Islamic fintech startup Wahed has opened its first physical branch on Baker Street in London. The glossy retail location is designed to look like an Apple store.
Wahed
An investing platform backed by the likes of oil giant Saudi Aramco and French soccer player Paul Pogba is launching a novel proposition in the U.K.: a physical branch and bank accounts backed by gold.
New York-based Wahed, which describes itself as a “halal investing platform,” has opened a branch in the U.K. in a bid to target the country’s 3.9 million Muslims with a sharia-compliant investment management and advice service.
The glossy retail location has a similar design to an Apple store, with digital displays inside and a bright sign displaying its logo outside. It is located on Baker Street in central London, just opposite a branch of U.K. banking giant HSBC.
Khabib Nurmagomedov, the Russian former professional mixed martial artist, is a promoter of the firm and will be among those attending the branch opening Tuesday.
Wahed is also debuting a debit card that lets users deposit funds with an exchange-traded commodity that tracks the price of gold, meaning they can effectively pay for everyday goods via gold.
Investors will be able to redeem the gold in their accounts for physical bars. Junaid Wahedna, CEO and Co-founder of Wahed, said it’s a way for Muslim — as well as non-Muslim — consumers to beat currency fluctuations and the rising cost of living.
“[Muslims are] an underserved community as a whole,” Wahedna said in an interview with CNBC, referring to the market opportunity for digital Islamic finance. “It’s a minority community, there’s a lack of financial literacy.”
Banking startups such as Monzo and Revolut have flourished in the U.K. without physical bank branches, offering smartphone apps that help users manage all their finances. But Wahedna cautioned that this risks leaving behind Muslim consumers.
“In the United Kingdom, [the Muslim community is] actually one of the lowest socio-economic segments of the country,” Wahed’s boss said, with “low incomes or financial literacy.”
“They have trust issues,” he added. “And so they want to see a physical presence before they trust you with money.”
Wahed’s service aims to help clients adhere to the Islamic faith’s strict doctrines on financial services: sharia law forbids its followers from charging or earning interest on loans, or investing in firms that make most of their money from the sale of things such as alcohol and gambling.
Wahed prohibits investments in companies that make money from lending, gambling, alcohol and tobacco. An account with Wahed also doesn’t offer interest on savings, nor does it tout wild returns on risky crypto tokens. Instead, the value of users’ deposits tracks the value of gold, with the precious metal fluctuating in price depending on supply and demand.
“I think it really fits with the Muslim community and what their needs are,” Wahedna said. “Because otherwise, what happens is the Muslim community, because they’re underserved, they keep their money in cash under their mattress, or in something that’s very unsafe, and they lose their money every few years because there’s a scam in the community or someone takes advantage of them. And that poverty cycle just continues.”
Junaid slammed the state of modern fintech companies, suggesting that the industry is too focused on consumer lending with the rise of Klarna and other hyped “buy now, pay later” services.
“All of their business plans are built around lending revenue, right? Even digital banks, it’s like, okay, I’ll start off being a new bank, but then eventually, I’m gonna get a banking license,” said Wahedna.
Wahed is debuting a debit card linked to a gold-backed spending account. The startup is backed by French soccer star Paul Pogba.
Wahed
He said Wahed is focused on making money by charging wealth management fees, which charge users a percentage of their overall asset holdings. The startup, which was founded in 2017, remains lossmaking, but has hit operating breakeven in Malaysia and the U.S., he added.
“I feel that fintech, like most of the finance industry, is very heavily geared towards lending,” Wahedna said. “In fact, I would say, it’s making the cost of living crisis, a debt crisis, worse with a lot of the products.”
“If you look at the buy, now pay later companies, people are struggling — that’s the worst type of innovation, you’re making it easier to get people into debt,” he added.
Wahedna stressed that the company is not only for Muslims and aims to serve followers of other Abrahamic faiths as well, including Judaism and Christianity.
Staff at its London branch will help customers open accounts, make investments and give guidance on wills and estate planning.
The firm is targeting high-net-worth individuals as well as less well-off consumers, Wahedna said.
Wahed has raised $75 million of total funding to date from investors including Saudi Aramco Entrepreneurship Capital, the venture capital arm of Saudi state-backed oil firm Saudi Aramco, as well as French footballer Paul Pogba, who is a practicing Muslim.
Islamic finance has achieved significant growth over the past decade and is expected to reach $4.9 trillion in value by 2025, according to Refinitiv’s Islamic Finance Development Indicator. A number of other fintech players are seeking to tap into the halal money space, including Zoya and Niyah.
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Bitcoin had a tough 2022. Now investors are looking toward 2023 with caution when it comes to cryptocurrencies.
Thomas Trutschel | Photothek | Getty Images
Bitcoin rose further over the weekend, as traders took news of another crypto bankruptcy in their stride and placed bets on a Federal Reserve “pivot” to cutting interest rates.
The price of the No. 1 token briefly topped $23,000 for the first time since Aug. 19, 2022, according to data from CoinGecko. It has since ebbed slightly to $22,917.94. The jump brings bitcoin up almost 39% since the start of January.
Ether, the second-biggest digital coin, rallied as high as $1,664.78 on Saturday. That’s the first time it has surpassed $1,600 since Nov. 7, 2022. As of 12:00 p.m. ET, ether was worth $1,620.94 apiece.
Bitcoin has kicked off 2023 on a positive note, with investors hoping for a reversal in the monetary tightening that spooked market players last year.
The Fed and other central banks began cutting interest rates in 2022, shocking holders of risky asset classes, like stocks and digital tokens. Publicly-listed tech stocks and private venture capital-backed start-ups particularly took a beating, as investors sought protection in assets perceived as safer, such as cash and bonds.
A chart showing bitcoin’s year-to-date price performance; the digital currency has climbed nearly 39% since the start of January.
With inflation now showing signs of cooling in the U.S., some market players are hopeful that central banks will start easing the pace of rate rises, or even slash rates. Economists previously told CNBC they predict a Fed rate cut could happen as soon as this year.
“Fed tightening seems to be lighter and inflation less of a risk,” Charles Hayter, CEO of crypto data site CryptoCompare, said in emailed comments to CNBC. “There is hope there will be more caution to rate rises globally.”
The Fed is likely to keep interest rates high for the time being. However, some officials at the bank have recently called for a reduction in the size of quarterly rate hikes, wary of a slowdown in economic activity.
The world’s top digital currency, bitcoin, is “increasingly looking like it has put in its bottom,” according to Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.
Bitcoin short sellers have been squeezed by sudden upward moves in prices, according to Ayyar. Short selling is an investment strategy whereby traders borrow an asset and then sell it in the hope that it will depreciate in value.
A wipe-out of those short positions sparked by the rising price of bitcoin has added “fuel to the fire,” Ayyar said, as short sellers are forced to cover their bets by buying back the borrowed bitcoin to close them out.
Investors don’t seem to have been greatly perturbed by the collapses of top crypto companies, stemming from the fallout of digital currency exchange FTX’s insolvency in November.
Last week, the lending arm of New York-based crypto investment firm Genesis became the latest casualty of the crypto crisis, seeking bankruptcy protection in a “mega” filing listing aggregate liabilities ranging from $1.2 billion to $11 billion.
“The Genesis debacle has been playing out for a while and is likely priced in already. FTX, on the other hand, has already had a significant impact on many investors, on market psychology and on the prices of several toxic assets,” Mati Greenspan, founder and CEO of crypto investment advisory firm Quantum Economics, told CNBC.
“It should be noted however that the price on bitcoin itself is quite limited since FTX didn’t have any on their balance sheets.”
Bitcoin is still about 67% off its all-time high, despite its recent surge.
The latest crypto plunge is different from past cycles, in large part due to the role played by leverage. Major crypto players became entangled in risky lending practices, offering lofty yields that many investors now say were unsustainable.
This began in May with the collapse of terraUSD — or UST — an algorithmic stablecoin that was supposed to be pegged one-to-one with the U.S. dollar. The failure of UST brought down terraUSD’s sister token luna and hit companies with exposure to both tokens.
Three Arrows Capital, a hedge fund with bullish views on crypto, plunged into liquidation because of its exposure to terraUSD.
Then came the November collapse of FTX, one of the world’s largest cryptocurrency exchanges. It was run by Sam Bankman-Fried, an executive who was often in the spotlight.
The fallout from FTX continues to ripple across the cryptocurrency industry. Roughly $2 trillion of value has been erased from the overall crypto market since the peak of the crypto boom in November 2021, in a deep downturn known as “crypto winter.”
One analyst cautioned that technical indicators suggest there could be some pullback from the token’s recent rally.
Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank, said that while bitcoin’s trend indicators are “generally signaling a strong upward trend,” its relative strength indicator, or RSI, “is diverging from the price’s upward movement and starting to slide down, which is not a good sign for the current price trend.”
“Bitcoin could test its August high and be supported at the $20k~$21k level, but with its RSI’s divergence and a couple of big tech earnings ahead this week, it could get quite unstable,” Hagesawa said in a Monday note.
The recent bitcoin price boost has nevertheless offered some investors hope that the ice may be starting to thaw.
Greenspan said upward moment in bitcoin is typical of the cryptocurrency, as investors anticipate the next so-called “halving” event — a change to the bitcoin network that reduces rewards to miners by half. It is viewed by some investors as positive for the price of the token, as it squeezes supply.
The next halving is slated to take place sometime between March and May of 2024.
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Brendan McDermid | Reuters
Several banks are reportedly working on a digital wallet that links with debit and credit cards to compete with Apple Pay and PayPal.
According to the Wall Street Journal, the digital wallet would be operated by Early Warning Services, a joint venture from several banks that also runs Zelle. The major banks involved include Wells Fargo, JPMorgan Chase and Bank of America, according to the report.
The new wallet would initially be launched with Visa and Mastercard already on board, according to the report.
The move could be seen as an effort to slow Apple‘s push into consumer banking, as the tech giant already offers a branded credit card and is exploring other products for their famously loyal customer base.
Shares of PayPal, which has digital payments as its core business, slipped about 1.5% in premarket trading.
The report follows a mixed earnings season for big banks, with several CEOs including Bank of America’s Brian Moynihan warning that the U.S. was likely to see a mild recession. Bank stocks have struggled over the past year even as interest rates have risen, as fears of a recession and a slower investment banking environment have offset gains in net interest income.
Read the full WSJ story here.
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Just weeks before crypto lender Genesis filed for bankruptcy, three former employees of the company claimed they had secured millions of dollars for a new crypto hedge fund, according to correspondence viewed by CNBC.
Matt Ballensweig, who left Genesis in September after more than five years at the firm, sent a message to a prospective investor in mid-December, regarding a fund he was starting called Hunting Hill Digital. Ballensweig said he had already secured $2.5 million from Bessemer Venture Partners at a $30 million post-money valuation, and wrote in the message that he and his partners were in the process of raising another $5 million.
Bessemer told CNBC in an email that they are not an investor in Hunting Hill Digital.
The fund’s “flagship product” would go live in the first quarter of 2023, the message said.
Other partners in the fund would include Martin Garcia, who spent more than six years at Genesis, and Reed Werbitt, Genesis’ former head of trading, the message said. Werbitt, Garcia, and Ballensweig all left Genesis around the same time in 2022.
Genesis, which is owned by Barry Silbert’s Digital Currency Group, filed for bankruptcy protection on Thursday, the latest casualty in the industry contagion caused by the collapse of crypto exchange FTX in November. In its bankruptcy filing, Genesis listed over 100,000 creditors, with aggregate liabilities ranging from $1.2 billion to $11 billion dollars.
Ballensweig was named in legal filings surrounding the implosion of Genesis’ lending book. Gemini, a crypto exchange and major Genesis client, accused Ballensweig of falsely reassuring Gemini in July that Genesis was financially stable. Gemini claimed that Ballensweig told its representatives that Genesis had “capital to operate… for the long term,” according to court filings.
Ballensweig did not respond to a request for comment on the allegations made against him by Gemini or on his recent capital raise.
Ballensweig spent his final nine months at Genesis as managing director and co-head of trading and lending.
The ex-Genesis employees teamed up with Adam Guren from hedge fund Hunting Hill, Ballensweig said. Hunting Hill is a $718 million hedge fund, which launched in 2010 and moved into digital asset investing in 2020 with a crypto opportunities fund.
Hunting Hill did not immediately respond to a request for comment.
Ballensweig pitched the flagship product as an “alpha multistrat (delta neutral),” or a fund specializing in multi-strategy, low-risk, high-return investments. He added that the trio would also launch two other beta products including a “Top 25 Index” and a “DeFi beta.”
“Think you’d be a valuable early partner,” Ballensweig said in his pitch.
Ballensweig isn’t the only Genesis alum seeking to launch a fund. Roshun Patel, a former vice president at Genesis who left the company in March after almost four years, was raising cash for a new fund in mid-2022. CNBC reached out to Garcia, Werbitt and Patel for comment on their raises but did not immediately hear back.
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JPMorgan Chase & Co. and International Finance Corp. are leading a $27 million round of investment in KLYM, a data-driven fintech that focuses on providing working capital to small and midsize companies in Latin America. KLYM will use the capital to expand, with Brazil as the main priority in 2023, Diego Caicedo, co-founder and chief […]
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As states continue to impose 36% interest rate caps on loans, some fintechs say these blanket cutoffs do more harm than good. There’s a place for small-dollar loans that help people out in a pinch and come with a fee, they say.
“If somebody needs $1,500 on a Friday because the brakes on their car blew out, we can facilitate getting that customer $1,500 on the same day,” said Todd Schwartz, founder and CEO of OppFi, in an interview. The loan would cost around $6 a day, an APR of 160%. “The APR may seem high but APR is calculated on an annual basis. It may seem expensive but OppFi has to cover certain costs.” There are no prepayment penalties and the loans are fully amortizing, he said.
“The question is, if you took that [loan] out for a month and paid $180, is it worth $180 to stabilize your financial situation, fix your car so you can go to work and take your kids to school and not derail yourself?” he said. “The APR is always looked at as a number, but it’s never looked at as, what value are you driving to your customer and are you actually solving a problem?”
Regulators and consumer advocates think a 36% interest rate cap will protect people from predatory lenders. A growing number of states, including Illinois, Arizona, Colorado, Montana, Ohio and South Dakota, have made this view the law.
Those who object to a 36% rate cap have data to back them up: An analysis of the impact of the 36% interest-rate cap Illinois set almost two years ago found that it decreased the number of loans to subprime borrowers by 44%.
Most borrowers said they were unable to borrow money when they needed it following the imposition of the interest-rate cap, according to the research paper, which was written by J. Brandon Bolen, assistant professor of economics at Mississippi College; Gregory Elliehausen, principal economist for the Board of Governors of the Federal Reserve; and Thomas Miller, professor of finance at Mississippi State University. They surveyed short-term, small-dollar-credit borrowers in Illinois.
“Only 11% of the respondents answered that their financial well-being increased following the interest-rate cap, and 79% answered that they wanted the option to return to their previous lender,” the report stated. “Thus, the Illinois interest-rate cap of 36% significantly decreased the availability of small-dollar credit, particularly to subprime borrowers, and worsened the financial well-being of many consumers.”
Borrowers who have lost access to their lender have paid bills late, cut back on everyday expenses, coped with debt collectors, and had utilities turned off, the report said.
Some fintech leaders argue that the fees on small-dollar loans should not be translated into annual percentage rates.
“We do not believe that APR is an accurate measure anymore,” said Rodney Williams, co-founder of SoLo Funds, in a recent interview. Many fees that banks and other lenders charge, including rollover fees, instant pay fees, transaction fees, subscription fees and late fees, are not included in APR calculations but do make loans predatory, he said.
“APR is not what gets people in trouble,” Williams said. “I know what happens when you pay an extra $15 every two weeks to roll a loan over. Total cost is a much more accurate perspective.”
Consumer advocates believe the 36% interest-rate cap has merit and should be applied to all loans.
When Illinois passed its rate cap, Lisa Stifler, director of state policy at the Center for Responsible Lending, said the law will save the state’s families more than $500 million per year, “dollars that can be put back into the local economy.”
She and others have pointed out that people tend to get trapped by small-dollar lenders.
“The industry likes to ignore the fact that, historically, the majority of people do not only borrow once and just pay it back; there’s a history of repeat borrowing multiple loans back to back to back to back to back,” said Beverly Brown Ruggia, financial justice program director at New Jersey Citizen Action, which has pushed for a 36% rate cap in New Jersey. “The people who enter into these loans and pay them right back have no problem. Those people exist, but what the industry makes its money on is repeat borrowers, and they know this.”
The 36% rate cap came out of the 2006 Military Lending Act, Brown Ruggia noted.
“The military did a lot of research and looked at what was a reasonable number for the industry to continue to exist, but not cause the kind of harms that we’ve been seeing in repeat borrowing and people who are trapped in these loans,” she said.
As long as high-cost, low-dollar loans exist, people are going to use them, “as opposed to building a culture where there’s a reasonable interest rate across the country,” Brown Ruggia said. “We are still seeing this effort by the industry to sell this high-cost loan as the only solution to short-term problems. And what we see over and over again is repeat borrowers who sink themselves into endless debt. The industry’s always talking about innovating. Let’s innovate for something that gets people on their feet without usurious rates.”
Schwartz at OppFi would like to see a federal small-dollar lending law and federal backing of these loans, similar to Federal Housing Authority-backed mortgages.
“I think if the government was willing to talk about a small dollar lending rule where there was some type of backstop for insurance, lowering the rates would be a possibility,” Schwartz said.
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Penny Crosman
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The Securities and Exchange Commission on Thursday charged crypto firms Genesis and Gemini with allegedly selling unregistered securities in connection with a high-yield product offered to depositors.
Gemini, a crypto exchange, and Genesis, a crypto lender, partnered in February 2021 on a Gemini product called Earn, which touted yields of up to 8% for customers.
According to the SEC, Genesis loaned Gemini users’ crypto and sent a portion of the profits back to Gemini, which then deducted an agent fee, sometimes over 4%, and returned the remaining profit to its users. Genesis should have registered that product as a securities offering, SEC officials said.
“Today’s charges build on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws,” SEC chair Gary Gensler said in a statement.
Gemini’s Earn program, supported by Genesis’ lending activities, met the SEC’s definition by including both an investment contract and a note, SEC officials said. Those two features are part of how the SEC assesses whether an offering is a security.
Regulators are seeking permanent injunctive relief, disgorgement, and civil penalties against both Genesis and Gemini.
The two firms have been engaged in a high-profile battle over $900 million in customer assets that Gemini entrusted to Genesis as part of the Earn program, which was shuttered this week.
Gemini, which was founded in 2015 by bitcoin advocates Cameron and Tyler Winklevoss, has an extensive exchange business that, while beleaguered, could possibly weather an enforcement action.
But Genesis’ future is more uncertain, because the business is heavily focused on lending out customer crypto and has already engaged restructuring advisers. The crypto lender is a unit of Barry Silbert’s Digital Currency Group.
SEC officials said the possibility of a DCG or Genesis bankruptcy had no bearing on deciding whether to pursue a charge.
It’s the latest in a series of recent crypto enforcement actions led by Gensler after the collapse of Sam Bankman-Fried’s FTX in November. Gensler was roundly criticized on social media and by lawmakers for the SEC’s failure to impose safeguards on the nascent crypto industry.
Gensler’s SEC and the Commodity Futures Trading Commission, chaired by Rostin Benham, are the two regulators that oversee crypto activity in the U.S. Both agencies filed complaints against Bankman-Fried, but the SEC has, of late, ramped up the pace and the scope of enforcement actions.
The SEC brought a similar action against now bankrupt crypto lender BlockFi and settled last year. Earlier this month, Coinbase settled with New York state regulators over historically inadequate know-your-customer protocols.
Since Bankman-Fried was indicted on federal fraud charges in December, the SEC has filed five crypto-related enforcement actions.
This is breaking news. Check back for updates.
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Dimon said in June that he was preparing the bank for an economic “hurricane” caused by the Federal Reserve and Russia’s war in Ukraine.
Al Drago | Bloomberg | Getty Images
JPMorgan Chase on Thursday shut down the website for a college financial aid platform it bought for $175 million after alleging that the company’s founder created nearly 4 million fake customer accounts.
The country’s biggest bank acquired Frank in Sept. 2021 to help it deepen relationships with college students, a key demographic, a Chase executive told CNBC at the time.
JPMorgan touted the deal as giving it the “fastest-growing college financial planning platform” used by more than five million students at 6,000 institutions. It also provided access to the startup’s founder Charlie Javice, who joined the New York-based bank as part of the acquisition.
Months after the transaction closed, JPMorgan said it learned the truth after sending out marketing emails to a batch of 400,000 Frank customers. About 70% of the emails bounced back, the bank said in a lawsuit filed last month in federal court.
Javice, who had approached JPMorgan in mid-2021 about a potential sale, lied to the bank about her startup’s scale, the bank alleged. Specifically, after being pressed for confirmation of Frank’s customer base during the due diligence process, Javice used a data scientist to invent millions of fake accounts, according to JPMorgan.
“To cash in, Javice decided to lie, including lying about Frank’s success, Frank’s size, and the depth of Frank’s market penetration in order to induce JPMC to purchase Frank for $175 million,” the bank said. “Javice represented in documents placed in the acquisition data room, in pitch materials, and through verbal presentations [that] more than 4.25 million students had created Frank accounts to begin applying for federal student aid using Frank’s application tool.”
Instead of gaining a business with 4.25 million students, JPMorgan had one with “fewer than 300,000 customers,” JPMorgan said in the suit.
A lawyer for Javice told the Wall Street Journal that JPMorgan had “manufactured” reasons to fire her late last year to avoid paying millions of dollars owed to her. Javice has sued JPMorgan, saying that the bank should front legal bills she incurred during its internal investigations.
“After JPM rushed to acquire Charlie’s rocketship business, JPM realized they couldn’t work around existing student privacy laws, committed misconduct and then tried to retrade the deal,” attorney Alex Spiro told the Journal. “Charlie blew the whistle and then sued.”
Spiro, a partner with Quinn Emanuel, didn’t immediately return a call from CNBC.
JPMorgan spokesman Pablo Rodriguez had this response:
“Our legal claims against Ms. Javice and Mr. Amar are set out in our complaint, along with the key facts,” he said. “Ms. Javice was not and is not a whistleblower. Any dispute will be resolved through the legal process.”
The alleged fraud perpetrated by Javice and one of her executives “materially damaged JPMC in an amount to be proven at trial, but not less than $175 million,” JPMorgan said in its suit.
Regardless of the outcome of this legal scuffle, this is an embarrassing episode for JPMorgan and its CEO Jamie Dimon. In a bid to fend off encroaching competitors, JPMorgan has gone on a buying spree of fintech companies in recent years, and Dimon has repeatedly defended his technology investments as necessary ones that will yield good returns.
The fact that a young founder in an industry known for shaky metrics and a “fake it ’til you make it” ethos managed to dupe JPMorgan calls into question how stringent the bank’s due diligence process is.
In an interview at the time of the deal, Javice marveled at how far she had come in just a few years leading her startup.
“Today is my first day employed by someone else, ever,” Javice told CNBC. “I mean it still feels very much like, pinch me, did this really happen?”
As a result of the legal scuffle, JPMorgan shut down Frank early Thursday morning.
“Frank is no longer available” the website now reads. “To file your Free Application for Federal Student Aid (FAFSA), visit StudentAid.gov.”
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Over the past couple of years, I have been working with my team at Broxus to develop the infrastructure necessary for central banks to deploy digital versions of their currencies. While we have been doing this work, and other projects have been engaged in similar endeavors, the dialogue around CBDCs has taken on something of a life of its own, colored by misconceptions about what Central Bank Digital Currencies (CBDCs) are and their purpose.
At their essence, CBDCs are digital versions of a country’s fiat currency that are pegged at a 1-1 ratio with the original currency. For example, if the US were to release a CBDC, that would be in the form of a digital dollar that is always equal to its fiat counterpart. While CBDCs are related to cryptocurrencies and blockchain technology, some key distinctions exist.
CBDCs are, by definition, recognized digital legal tender. That means that, unlike other similar digital assets like stablecoins, CBDCs carry the equivalent legal weight as fiat currencies. This is important as one of the main drivers of CBDC expansion is the shift occurring globally to cashless societies. As more societies become increasingly cashless, the current economic infrastructure has struggled to support local and international economies. CBDCs are a potential way of solving these issues.
Much of the disconnect has arisen from many’s perceptions concerning cryptocurrencies, and the association CBDCs have in the public’s eye with cryptocurrencies. The truth is, while cryptocurrencies remain primarily speculative, CBDCs are something else entirely. Here, speculation plays no role. CBDCs, if instituted correctly, would be able to optimize financial systems that have grown outdated and been failing to meet the needs of the world’s most vulnerable demographics from a financial perspective.
While the value of cryptocurrency is often tied to future developments and use cases, with CBDCs, the value is in the here and now. The utility of these digital currencies is something real, something that addresses shortcomings that are palpable around the world right now. I believe that the framework in which we discuss CBDCs needs to change so that ongoing efforts to integrate this technology into the fabric of the world economy may come to fruition.
Related: $465 Million of Robinhood Shares Linked to FTX’s Sam Bankman-Fried Are in Question — What Now?
Social security systems of the 19th and 20th centuries have all required the construction of a significant state body to redistribute wealth. These bloated governance structures have generally not been able to adequately assist the people who find themselves in the more vulnerable spheres of society. To address this issue, an experiment was conducted in Finland that sought to provide a Universal Basic Income (UBI) to generally unemployed people. Rather than using a welfare model, benefits were given out in Finland through a €560 direct cash deposit each month. On the one hand, this provided direct support to those in need and, on the other hand, reduced the costs of collecting, accounting and spending funds that run high in welfare programs.
The final results of the Finnish experiment are now in, and the findings are intriguing: the UBI in Finland led to a modest increase in employment, greatly improved results in the material well-being of recipients, and increased positive individual and societal feedback.
CBDCs can be uniquely positioned to improve the performance of Universal Basic Income (UBI) programs. Since most of the launched pilot projects and prototypes for CBDCs are focused on a 0% deposit rate, i.e., a situation where CBDCs are subject to inflation and depreciation, central banks could gain more effective leverage in managing aggregate demand in the economy by collecting taxes and distributing part of them to UBI recipients. By issuing currency in digital form, central banks will be able to radically reduce the costs of the state to ensure the circulation of the national currency and social support for the population.
Related: Regulated Blockchain: A New Dawn in Technological Advancement
In 2021, according to the World Bank Group, 1.4 billion adults were still unbanked. That is a massive portion of the world’s population, and the failure to provide these people with adequate banking services is likely to prolong poverty cycles and have a stunting effect on global economic growth.
This problem is acute in South East Asia, and a good example of it can be seen in The Philippines, an area that we have focused on in our work. Just over half of the adult population in The Philippines has access to banking services. In a healthy economy, small and medium-sized businesses need access to banking services to thrive. With just over half of the population having access to those services, the Filipino economy cannot flourish, leaving the less affluent to bear most of the brunt.
Related: Crypto vs. Banking: Which Is a Better Choice?
The lack of banking services has led Filipinos to utilize alternative financial methods and seek work in other countries. Nowadays, remittances from Filipinos working overseas and sending money home account for 10% of the Philippine GDP or roughly 70-80 billion dollars. At the same time, the cost of money transfers is approximately 8-10% of the total amount of the transaction.
Even here, CBDC technology can be effective in improving the situation. As part of our work in CBDC development, we have established a partnership between the Everscale network and DA5, one of the leading authorized direct agents of Western Union in the Philippines. The blockchain remittance service created by Everscale and DA5 will be the first technology in the Philippines capable of speeding up and lowering the cost of this process. As a result, people will no longer have to pay such high fees on their transactions once the service is launched.
The first phase of the partnership will see the launch of Everscale’s new stablecoin, which will be tied to the Philippine peso. After the stablecoin is released, users in the Philippines can immediately exchange fiat for its digital counterpart at industry-low rates. But this is just a stablecoin; if The Philippines were to launch a CBDC, there would be benefits for all sectors of the economy.
A common argument against CBDCs is their lack of privacy. However, this is only partially true: it can be shown that more centralized systems can allow more privacy than decentralized protocols. The bad privacy properties of Ethereum, in which states are made up of reused addresses, are widely known. In addition, users sometimes use uniquely linked domain names, making their transactions transparent to outside observers.
There is a trade-off when designing decentralized protocols: complete on-chain privacy can lead to an inflation problem within the protocol that cannot be tracked – because the recipient and quantities are not known. A sidechain like Liquid gets around this problem quite simply: no more bitcoins can be created inside the protocol than were received at the input. In a centralized system, one trusted oracle can be provided that determines the boundaries of the issue.
Centralized solutions based on Chaumian e-cash could use more advanced cryptographic methods to hide counterparties and quantities and selectively disclose this information at the request of the parties involved in transactions. In addition, there is no limitation on how privacy-enhancing features can be implemented since they are not bound to decentralized protocols with limited network resources and free space on the blockchain.
Related: Web3, Crypto, Cybersecurity, Rural Fintech: Trends To Look Out For In 2023
The issues above are not going away, and as countries worldwide continue to develop, the people affected by them are likely to continue to suffer. Quite simply, governments have never had the tools necessary to implement adequate benefits programs for those who need them. Now, however, that opportunity is here.
That is the real utility that all of the efforts towards developing CBDCs are based upon, and that should be at the center of the discussion around this new technology.
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Sergey Shashev
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John Ray, chief executive officer of FTX Cryptocurrency Derivatives Exchange, arrives at bankruptcy court in Wilmington, Delaware, US, on Tuesday, Nov. 22, 2022.
Eric Lee | Bloomberg | Getty Images
FTX has recovered over $5 billion worth of liquid assets, including cash and digital assets, attorneys in Delaware bankruptcy court said during an FTX bankruptcy hearing Wednesday.
The news comes after federal prosecutors announced plans to seize at least $500 million worth of FTX-connected assets as part of their ongoing prosecution of FTX co-founder Sam Bankman-Fried.
The recovery will be a welcome boon to FTX customers after the crypto exchange imploded in November. FTX’s new CEO, John J. Ray, previously attested that at least $8 billion of customer assets were unaccounted for in the “worst” case of corporate control he’d ever seen.
The $5 billion figure doesn’t include any illiquid cryptocurrency assets, FTX attorney Adam Landis told the court. He said the company’s holdings are so large that selling them would substantially affect the market, driving down their value.
FTX’s collapse was related to, among other things, a failure to correctly mark illiquid assets to market. FTX executives, including Bankman-Fried and Alameda Research CEO Caroline Ellison, borrowed against the value of the FTX-issued token FTT. Alameda controlled the vast majority of FTT coins circulating, similar to a publicly traded companies float, and could not have liquidated their position at full book value.
Correction: This article has been updated to reflect that FTX attorney Adam Landis told the court the $5 billion figure doesn’t include any illiquid cryptocurrency assets.
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The Huobi crypto exchange logo displayed on a smartphone.
Nikolas Kokovlis | Nurphoto via Getty Images
Digital currency exchange Huobi on Friday reportedly said it plans to reduce its global headcount by about 20%, in the latest round of layoffs to hit the beleaguered cryptocurrency industry.
The Seychelles-based company is one of the largest crypto exchanges globally, handling about $370 million of trading volumes on a single day, according to data from CoinGecko.
A company spokesperson told news agency Reuters that Huobi had a “planned layoff ratio” of about 20%. Bloomberg and the Financial Times also reported on the layoff plans Friday.
“With the current state of the bear market, a very lean team will be maintained going forward,” the Huobi spokesperson told Reuters.
Justin Sun, who sits on the company’s advisory board as a member, described the move to Reuters as a “structural adjustment” that had not yet started and was expected to be completed by the first quarter.
Huobi was not immediately available for comment when contacted by CNBC. Sun had not responded to a direct message on Twitter by the time of publication.
Huobi had about 1,600 employees worldwide as of October, according to a Financial Times report.
Huobi’s native HT token at one point sank as low as $4.3355 Friday, down more than 7% from the 24 hours prior, according to CoinMarketCap data.
After the collapse of FTX, crypto traders are scanning for clues as to what will be the next company to fall prey to the downturn in digital assets.
Floods of investors have piled out of centralized exchanges, with nearly 300,000 bitcoins being moved out from Nov. 6 to Dec. 7, according to the most recently available data from CryptoQuant.
Last month, Binance briefly paused withdrawals of the USDC stablecoin, prompting concerns over its own ability to cover client redemptions. It has since resumed USDC withdrawals.
As much as $6 billion in digital tokens were pulled from the exchange between Dec. 12 and Dec. 14.
In a so-called “proof of reserves” statement on Nov. 25, the world’s largest crypto exchange revealed it had a reserve ratio of 101%, indicating it had more assets than liabilities.
Doubts have been raised about the effectiveness of proof of reserves reports, which offer only a snapshot of the assets an exchange holds at a single point in time.
Consultancy Mazars, which had compiled a separate proof of reserves report for Binance, stopped producing such documents altogether for crypto firms on Dec. 16, citing “concerns regarding the way these reports are understood by the public.”
Huobi was acquired by About Capital Management, a Hong Kong-based asset management firm, on Oct. 7. Sun, who founded the Tron blockchain project, serves an advisor to Huobi.
Huobi was originally founded in China, but it was driven out of the country after an intense crackdown from Beijing on the crypto industry.
Today, Huobi only does consulting and research out of China, while its trading operations are run outside of mainland China. The company has offices in Hong Kong, South Korea, Japan and the U.S.
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Blue Ridge Bankshares has named a president of its fintech division.
On Tuesday the Charlottesville, Virginia, bank announced that Kirsten Muetzel would oversee its fintech practice, which involves managing the bank’s partners, ensuring regulatory compliance and furthering its banking-as-a-service strategy.
Previously, Muetzel spent a decade in the Federal Reserve system, including supervising banks in BaaS partnerships, and has served as a chief financial officer and chief risk officer for fintech companies.
“She brings the perfect combination of banking supervision experience coupled with fintech industry knowledge and business acumen,” said Brian Plum, chief executive officer of the $2.9 billion-asset Blue Ridge Bank, in a press release. “Kirsten will be instrumental as we continue building the necessary infrastructure to support current partnerships while preparing the foundation upon which to build future success.”
The bank has run into trouble with regulators before. It had to delay its merger with FVCBankcorp in 2021 after the Office of the Comptroller of the Currency raised concerns and called off the deal in early 2022. In September, a securities filing revealed that the OCC required Blue Ridge Bank to make several changes. It must obtain a non-objection from the OCC before it signs any contracts with new fintech partners or adds new products with its existing partners, refine the ways it complies with the Bank Secrecy Act, and explain how it will improve its monitoring of suspicious activity.
One possible trigger behind this enforcement action: the dissolution of Aeldra Financial, a company that partnered with Blue Ridge to offer U.S. bank accounts to non-U.S. citizens in India. The company ceased operations in August, and various members of Blue Ridge’s board of directors signed the agreement with the OCC one week later.
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Miriam Cross
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Tyler Winklevoss and Cameron Winklevoss (L-R), co-founders of crypto exchange Gemini, on stage at the Bitcoin 2021 Convention in Miami, Florida.
Joe Raedle | Getty Images
Cameron Winklevoss, co-founder and president of digital currency exchange Gemini, accused the head of crypto conglomerate Digital Currency Group of engaging in “bad faith” tactics but insists he wants to resolve a complex lending dispute with the company that emerged in the wake of FTX’s collapse.
The spat arises from a pact Gemini has with Genesis Global Capital, the lending arm of crypto investment firm Genesis Global Trading, a subsidiary of Digital Currency Group. Gemini offered users yields as high as 8% via its lending product Gemini Earn. To generate those returns, Gemini lent users’ funds to Genesis Global Capital, which in turn loaned them out to institutional borrowers.
A few days after FTX filed for bankruptcy, Gemini paused redemptions for its Gemini Earn service as Genesis Global Capital also suspended new loan originations and redemptions. Gemini has denied any exposure to Sam Bankman-Fried’s crypto empire, but Genesis said in a Nov. 10 tweet that its derivatives business has roughly $175 million in funds locked inside FTX.
Winklevoss on Monday penned an open letter to Digital Currency Group boss Barry Silbert, alleging Silbert refused to meet with the Gemini team on multiple occasions to find a resolution to the liquidity crisis facing clients of Gemini Earn.
According to the letter, Gemini Earn clients are owed more than $900 million from Genesis.
“For the past six weeks, we have done everything we can to engage with you in a good faith and collaborative manner in order to reach a consensual resolution for you to pay back the $900 million that you owe, while helping you preserve your business,” Winklevoss said in the letter, which was tweeted publicly Monday.
“We appreciate that there are startup costs to any restructuring, and at times things don’t go as fast as we would all like. However, it is now becoming clear that you have been engaging in bad faith stall tactics.”
Winklevoss accused Silbert of hiding behind behind “lawyers, investment bankers, and process,” adding, “After six weeks, your behavior is not only completely unacceptable, it is unconscionable.” He also alleged that Digital Currency Group and Genesis are “beyond commingled.”
Digital Currency Group owes Genesis $1.675 billion. The debts consist of a $575 million liability due in May 2023, and a $1.1 billion promissory note Genesis issued to Three Arrows Capital, which Digital Currency Group absorbed following the controversial crypto hedge fund’s collapse.
“To be clear, this mess is entirely of your own making. Digital Currency Group (DCG) — of which you are the founder and CEO — owes Genesis (its wholly owned subsidiary) ~1.675 billion,” Winklevoss said.
“This is money that Genesis owes to Earn users and other creditors. You took this money — the money of schoolteachers — to fuel greedy share buybacks, illiquid venture investments, and kamikaze Grayscale NAV [net asset value] trades that ballooned the fee-generating AUM [assets under management] of your Trust; all at the expense of creditors and all for your own personal gain.”
In addition to Genesis, Digital Currency Group also owns Grayscale, the embattled digital asset manager. Grayscale is facing difficulties of its own, with its Grayscale Bitcoin Trust trading at a 45% discount to the price of its underlying asset even as bitcoin trades at multiyear lows.
“DCG did not borrow $1.675 billion from Genesis,” Silbert said in reply to Winklevoss’ tweet Monday.
“DCG has never missed an interest payment to Genesis and is current on all loans outstanding; next loan maturity is May 2023,” he added. “DCG delivered to Genesis and your advisors a proposal on December 29th and has not received any response.”
Despite the fiery exchange, Winklevoss said he wants to reach a solution to the liquidity crunch by Sunday. “We remain ready and willing to work with you, but time is running out,” he said.
A Gemini spokesperson declined to comment further on the matter when contacted by CNBC.
The accusations from Winklevoss against Silbert come as his crypto exchange Gemini faces legal threats from users. A group of investors filed a class-action lawsuit against the company, alleging it sold its Earn interest-bearing accounts without first registering them as securities. Crypto lender BlockFi was forced to pay the Securities and Exchange Commission and 32 states $100 million in penalties to settle charges that its retail lending product violated U.S. securities laws.
Three Arrows Capital co-founder Zhu Su also weighed in on the matter Tuesday. In a Twitter thread, Su said that Digital Currency Group “took substantial losses in the summer from our bankruptcy” and other firms impacted by the failure of algorithmic stablecoin terraUSD. Su, whose company collapsed into insolvency after making risky bets across the industry, has been active on Twitter even as lawyers seek to establish his whereabouts, and he reportedly faces investigations from U.S. regulators.
Gemini and Genesis are the latest firms to get caught up in the messy, entangled contagion resulting from FTX’s fall into bankruptcy last year.
Evgeny Gaevoy, founder and CEO of crypto market maker Wintermute, said in a November interview that industry contagion is expected to be widespread “because anyone in the crypto space and beyond crypto could have been exposed to them one way or another.” Wintermute itself had funds trapped in FTX, the amount of which was “within our risk tolerances and does not have a significant impact on our overall financial position,” according to a Nov. 9 tweet.
— CNBC’s Ari Levy, MacKenzie Sigalos and Rohan Goswami contributed to this report.
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Increasing loan volumes has been the main driver for bank-fintech partnerships over the last three years. This is a big change from pre-pandemic business plans when new product development was the main objective. In our endeavor to meet higher expectations of engagement we cannot forget the goal of making business work for people.
Americans are overbanked and underserved. $2.5 trillion in extra savings was squirreled away during the early days of the pandemic. It only took only 15 months for that money to dwindle.
Pent-up savings was thought to be the workhorse of economic growth that will drive consumer spending for years to come. And yet, we’re in the midst of a sobering predicament. Wages have fallen out of step with rising inflation. Families are increasingly taking on more debt. Credit card balances are the highest in over 20 years.
Global economists have shared their thesis that there is going to be a long recessionary period. When this happens, we should be encouraging consumers to stave off spending more than their means. Yet, many in the lending and payments industry are using advances made in digital technology such as enhanced ease of use and increased access to credit products as a way to exploit borrowers into overextension.
Overconfidence only serves to make markets more volatile. Ignoring early signs of stress can exacerbate the issue of economic inequality. In earnings calls during the third quarter of 2022, strong credit metrics and spending behaviors have been cited as means to entice investors to the credit industry. When business leaders take this approach, we risk fintech development becoming a force for greater division than a boon for open and competitive markets.
Although October’s inflation report shows abating price pressures, Treasury Secretary Yellen warns shelter costs — expenses such as mortgage or rent — are still expected to rise sharply. When housing advocates talk about an affordability crisis it often boils down to one important statistic: the share of “cost-burdened” households as defined by those spending 30% of their income on housing. In 2022, the average mortgage payment climbed to 31% of a typical household income — the highest share since 2007. For renters, the situation is much worse. Forty-six percent of renters spend 30% or more of their income on housing, including 23% whose rents exceed 50% of their take home pay.
Mortgage application volume for aspiring homeowners is now lower than the bottom of the 2008 crash. This is terrible for the health of a nation dependent on a strong, aspiring and growing middle class. For a great majority of the income strata, real estate tends to be the most valuable asset to build wealth that can be passed down from one generation to another.
Time is a huge component to building generational wealth. But digging out of debt is a big first step. Strategic use of debt like paying down a mortgage that results in equity can help consumers reach personal financial goals. Wealth can be created from a lending environment, but what this requires is for all parties to take an investment lens. In other words, banks and their digital partners should be doing everything possible to encourage consumers to think and act like portfolio owners.
It can’t be stated firmly enough: At this moment homeowners should seriously consider the drawback of using cash-out refinances to extract equity out of their homes. There is this fairytale belief that shifting debt can save money. Instead, what often takes place is the consumer is reduced to being exposed financially. Issue should be taken with a “BNPL” (buy now, pay later) approach. Calling for a resurgence in home equity lines of credit (HELOC) programs is not the answer. Pushing out payments has been long and rightly criticized by financial advisors and consumer advocates, alike.
For far too long servicing a loan — especially a mortgage — has been seen as just a process and not an opportunity. When delinquency and default are on the rise, the importance of compliant servicing also rises. However, the typical playbook for helping consumers who are taking on water becomes no longer relevant when interest rates climb. Greater flexibility with work-out strategies will be required to maintain portfolio integrity and positive customer relations. Servicing innovation not origination innovation is what will prevent a 2008 repeat.
Financial institutions must shift their operations to the needs of the hour. To position for the recovery, financial institutions and their fintech partners need to look beyond their own walls. Financial technology is an essential part of our economic infrastructure. We must allow it to direct and align engagement with responsible business practices. A more stable, open ecosystem that is broadly inclusive of consumers holds great promise.
Consumer alignment is where real innovation and technology breakthrough is now needed most. There is no substitute for a great return to business fundamentals, a focus on sustainable growth and a collective operation showing greater pragmatism. Frankly, the need at every moment is to put a focus on consumer connection and allocate for the long run. When the market bounces back, the brands that focus on education, engagement and loyalty will capitalize.
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Eric Rachmel
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A worsening macroeconomic climate and the collapse of industry giants like FTX and Terra have weighed on bitcoin’s price this year.
STR | Nurphoto via Getty Images
2022 was a rough year for crypto. More than $1.3 trillion was wiped off the value of the market. And bitcoin, the world’s largest digital coin, saw its price slump more than 60%.
Investors were caught off guard by a wave of collapses in the industry from stablecoin project terraUSD to crypto exchange FTX, as well as a worsening macroeconomic climate. Those who made predictions about bitcoin’s price in the past year really missed the mark.
But with 2023 now here, some market players have stuck their neck out with price calls for what could be another volatile year.
Interest rates around the world are on the rise, and that’s weighing on risk assets like stocks and bitcoin. Investors are also watching how the FTX saga, which resulted in the arrest of the company’s founder Sam Bankman-Fried in the Bahamas, will develop.
CNBC rounds up some of the boldest price calls for bitcoin in 2023.
Bitcoin bull Tim Draper had one of the most optimistic calls on bitcoin of 2022, predicting the token would be worth $250,000 by the end of the year.
In November, the billionaire venture capitalist said he’s extending the timeline for that prediction until mid-2023. Even after the collapse of FTX, he’s convinced the coin will hit the quarter-of-a-million milestone.
“My assumption is that since women control 80% of retail spending, and only 1 in 7 bitcoin wallets are currently held by women that the dam is about to break,” Draper told CNBC via email.
Bitcoin would need to rally 1,400% in order for it to trade at that level.
Despite the depressed prices and trading volumes drying up, there could be reason to suspect the market has found a bottom, according to Draper.
“I suspect that the halvening in 2024 will have a positive run,” he said.
The halvening, or halving, is an event that happens every four years in which bitcoin rewards to miners are cut in half. This is viewed by some investors as positive for bitcoin’s price, as it squeezes supply. The next halving is slated to happen sometime in 2024.
Bitcoin miners, who use power-intensive machines to verify transactions and mint new tokens, are being squeezed by the slump in prices and rising energy costs.
These actors accumulate massive piles of digital currency, making them some of the biggest sellers in the market. With miners offloading their holdings to pay off debts, that should remove most of the remaining selling pressure on bitcoin.
That’s historically a good sign for bitcoin, said Vijay Ayyar, vice president of corporate development at crypto exchange Luno.
“In prior down markets, miner capitulation has usually indicated major bottoms,” Ayyar told CNBC. “Their cost to produce becomes greater than the value of bitcoin, hence you have a number of miners either switching off their machines … or they need to sell more bitcoin to keep their business afloat.”
“If the market reaches a point where it’s absorbing this miner sell pressure sufficiently, one can assume that we’re seeing a bottoming period.”
For some market participants, the worst is yet to come.
In a Dec. 5 research note, Standard Chartered said bitcoin may sink as low as $5,000. The prediction, one of the bank’s list of “surprises” that are being “under-priced” by markets, would represent a 70% plunge from current prices.
“Yields plunge along with technology shares” in Standard Chartered’s nightmare 2023 scenario, “and while the Bitcoin sell-off decelerates, the damage has been done,” said Eric Robertsen, the bank’s global head of research.
“More and more crypto firms and exchanges find themselves with insufficient liquidity, leading to further bankruptcies and a collapse in investor confidence in digital assets,” he added.
Robertsen said the scenario has a “non-zero probability of occurring in the year ahead” and falls “materially outside of the market consensus or our own baseline views.”
Veteran investor Mark Mobius had a relatively successful 2022 in terms of his price call. In May, he forecast bitcoin would drop to $20,000 when it was trading above $28,000.
He said bitcoin would fall to $10,000 in 2022. That did not happen. However, Mobius told CNBC that he is sticking for his $10,000 price call in 2023.
The investor, who made his name at Franklin Templeton Investments, told CNBC that his bear case for bitcoin stemmed from rising interest rates and general tighter monetary policy from the U.S. Federal Reserve.
“With higher interest rates, the attraction of holding or buying Bitcoin or other cryptocurrencies becomes less attractive since just holding the coin does not pay interest,” Mobius said via email.
Carol Alexander, professor of finance at Sussex University, wasn’t far off the mark with her prediction that bitcoin would slip to $10,000 in 2022.
Now, she thinks the cryptocurrency could be set for gains — but not for reasons you might expect.
The catalyst would be more dominos from the FTX fallout tipping over, Alexander said. If this happens, she expects the price of bitcoin will top $30,000 in the first quarter, and then $50,000 by quarters three or four.
“There will be a managed bull market in 2023, not a bubble — so we won’t see the price overshooting as before,” she told CNBC.
“We’ll see a month or two of stable trending prices interspersed with range-bounded periods and probably a couple of short-lived crashes.”
Alexander’s reasoning is that, with trading volumes evaporating with traders on edge, large holders known as “whales” will likely step in to prop up the market. The wealthiest 97 bitcoin wallet addresses account for 14.15% of the total supply, according to fintech firm River Financial.
Some investors have given up trying to predict the price of bitcoin. For Antoni Trenchev, CEO of crypto lending platform Nexo, the recent events are a sobering moment.
Bitcoin was on a “positive path” earlier in 2022, with institutional adoption rising, but “a few major forces interfered,” he said.
Trenchev once predicted bitcoin surging to a peak of $100,000 by early 2023. Now, he’s done trying to predict the price.
Laith Khalaf, financial analyst at AJ Bell, suggested attempts to forecast bitcoin’s price are futile.
“We could be sitting here talking this time next year and it could be at $5,000 or 50,000 it just wouldn’t surprise me because the market is so heavily driven by sentiment,” he told CNBC’s “Squawk Box Europe.“
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Solana logo displayed on a phone screen and representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on August 21, 2021.
Jakub Porzycki | NurPhoto | Getty Images
Solana was touted as the cryptocurrency that would challenge ether with an eco-friendlier approach, faster transaction speeds and more consistent costs.
Investors who made that bet had a miserable year. The token’s market cap collapsed from over $55 billion in January to barely above $3 billion at year-end.
Among Solana’s biggest problems in late 2022 was its close relationship to FTX founder Sam Bankman-Fried, who faces eight criminal fraud charges after his crypto exchange went bankrupt last month. The disgraced former crypto billionaire was one of Solana’s most public boosters, touting the advantages of the blockchain technology and investing over a half-billion dollars in Solana tokens.
“Sell me all you want,” Bankman-Fried told one skeptic in January 2021. “Then go f— off.”
Bankman-Fried’s companies held nearly $1.2 billion worth of the token and associated assets in June, according to documents reviewed by CoinDesk.
When FTX fell apart, investors bailed on Solana to the tune of about $8 billion. But in recent days, as the rest of the crypto world has been relatively quiet and prices stable, Solana has plummeted further.
Two of the biggest non-fungible token (NFT) projects built on Solana announced their migration off of Solana’s platform on Christmas Day. But the recent slides came after that news had already broken, making Solana’s recent slide something of a mystery.
In the last week, Solana has declined over 30%. Ether has held steady, shedding 1.7% in the same time period, while bitcoin has only dropped 1.2%. Among the 20 most-valuable cryptocurrencies tracked by CoinMarketCap, the next biggest loser over that stretch is Dogecoin, which has fallen 9%.
In just one hour of trading on Thursday, Solana slid 5.8%, bringing it to the lowest since early 2021, around the time that Bankman-Fried began to vocally offer his support for the project.
Solana has since come off the lows, with a market cap now crossing $3.5 billion. Its 24-hour trading volume is up over 200% on a relative basis.
During the crypto market’s heyday in 2021, Bankman-Fried was hardly alone in his bullishness.
Developers raved about Solana’s support for smart contracts, pieces of code that execute pre-programmed directives, as well as an innovative proof-of-history consensus mechanism.
Consensus mechanisms are how blockchain platforms assess the validity of an executed transaction, tracking who owns what and how well the system is working based on a consensus between multiple record-keeping computers called nodes.
Bitcoin uses a proof-of-work mechanism. Ethereum and rival Solana use proof-of-stake. Rather than relying on energy-intensive mining, proof-of-stake systems ask big users to offer up collateral, or stake, to become “validators.” Instead of solving for a cryptographic hash, as with bitcoin, proof-of-work validators verify transaction activity and maintain the blockchain’s “books,” in exchange for a proportional cut of transaction fees.
Solana’s supposed differentiating factor was augmenting proof-of-stake with proof-of-history — the ability to prove that a transaction happened at a particular moment.
Solana soared over the course of 2021, with a single token gaining 12,000% for the year and reaching $250 by November. Yet even before the collapse of FTX, Solana faced a series of public struggles, which challenged the protocol’s claim that it was a superior technology.
Much of Solana’s popularity was built around growing interest in NFTs. Serum, another exchange backed by Bankman-Fried, was built on Solana. When the calendar turned to 2022, Solana’s limitations started to become apparent.
Barely a month into the year, a network outage took Solana down for over 24 hours. Solana’s token fell from $141 to a low of a little over $94. In May, Solana experienced a seven-hour-long outage after NFT minting flooded validators and crashed the network.
A “record-breaking four million transactions [per second]” took out Solana and caused the price of its token to drop 7%, CoinTelegraph reported at the time, pushing it further into the red during the bruising onset of crypto winter.
In June, another outage prompted a 12% drop. The hours of downtime came after validators stopped processing blocks, immobilizing Solana’s touted consensus mechanism and forcing a restart of the network.
The outages were concerning enough for a protocol that sought to upend ether’s dominance and assert itself as a stable, rapid platform. Solana was experiencing growing pains in public. The project was first built in 2020 and is a younger protocol than ether, which went live in 2015.
Technology challenges are to be expected. Unfortunately for Solana, something else was brewing in the Bahamas.
The SEC called it “brazen” fraud. Bankman-Fried’s use of customer money at FTX to fund everything from trading and lending at his hedge fund, Alameda Research, to his lavish lifestyle in the Caribbean roiled the crypto markets. Bankman-Fried was released on a $250 million bond last week while he awaits trial for fraud and other criminal charges in the Southern District of New York.
Solana since November 2022, the month that FTX failed and filed for bankruptcy protection.
Solana lost more than 70% in total value in the weeks following FTX’s November bankruptcy filing. Investors fled from anything associated with Bankman-Fried, with prices for FTT (FTX’s native token), Solana, and Serum plunging dramatically.
Solana founder Anatoly Yakovenko told Bloomberg that rather than focusing on price action, the public should remain focused on “having people build something awesome that’s decentralized.”
Yakovenko did not immediately respond to CNBC’s request for comment.
FTT has fared the worst, losing practically all its value. But Solana has seen a continued flight in recent days, reflecting ongoing concerns about FTX contagion and skepticism about the long-term viability of its own protocol.
Developer flight is the most pressing concern. Solana’s raison d’etre was to solve bitcoin and ether’s struggle “to scale beyond 15 transactions per second worldwide,” according to developer documentation. But active developers on the platform have dropped to 67 from an October 2021 high of 159, according to Token Terminal.
Multicoin Capital, a cryptocurrency investment firm, has maintained a bullish stance on Solana. Even after the implosion of FTX, Multicoin continued to strike an optimistic tone about the suddenly beleaguered blockchain.
“We recognized that SOL was likely to underperform in the near term given the affiliation with SBF
and FTX; however, since the crisis began we’ve decided to hold the position based on a variety of factors,” Multicoin wrote in a message to partners obtained by CNBC.
Multicoin, and other prominent crypto voices, maintain that the fallout from FTX underscores the need for a return to basics for the crypto industry: A transition away from juggernaut centralized exchanges in favor of decentralized finance (DeFi) and self-custody.
An uptick in daily activity at now peerless Binance might suggest that many crypto enthusiasts have yet to take that missive to heart.
It’s unsurprising that Yakovenko continues to believe in Solana. Yet even Vitalik Buterin, the man behind ethereum, voiced his support for Solana on Thursday. “Hard for me to tell from outside, but I hope the community gets its fair chance to thrive,” Buterin wrote on Twitter.
Chris Burniske, a partner at a Web3 venture capital firm Placeholder, said he was “still longing” Solana in a Dec. 29 Twitter thread.
Crypto saw mass adoption thanks to centralized platforms like FTX, Crypto.com, and Binance. FTX splashed millions of dollars on stadium deals and naming rights. Crypto.com invested heavily in prominent ad campaigns. Even Binance announced a sponsorship tie-in with the Grammys.
2023 may prove a seminal year for defi, as crypto-curious investors look for safer ways to garner returns and custody their assets. Bitcoin was born out of the 2008 financial crisis. Now the cryptocurrency industry faces a test of its own.
“Lehman was not the end of the banking industry. Enron was not the end of the energy industry.
And FTX won’t be the end of the crypto industry,” Multicoin told investors.
– CNBC’s Ari Levy and MacKenzie Sigalos contributed to this report.
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The FTX logo on a laptop screen.
Andrey Rudakov | Bloomberg via Getty Images
The Securities Commission of The Bahamas says it seized $3.5 billion worth of cryptocurrency from collapsed crypto exchange FTX.
In a media release late Thursday, the watchdog confirmed the total sum taken from FTX’s Bahamian subsidiary, FTX Digital Markets, and added that the funds were moved into its own digital wallets “for safekeeping.”
The regulator had previously confirmed it was holding some of FTX’s digital assets but did not specify the amount.
The funds were valued at more than $3.5 billion, based on market pricing at the time of transfer, according to the commission. The transfer took place Nov. 12, the day after FTX filed for Chapter 11 bankruptcy protection in the U.S.
The Bahamian securities commission said the funds are being held on a “temporary basis” until it is directed by the Bahamas’ Supreme Court to deliver them to customers and creditors, or to liquidators of the insolvency estate.
The regulator said it took the funds after receiving information from Sam Bankman-Fried, FTX’s disgraced co-founder, concerning cyberattacks on the systems of FTX’s Bahamian unit.
There was “significant risk of imminent dissipation” of the assets under FTX Digital Markets’ control, it said.
After FTX filed for bankruptcy, it was targeted in a suspected hack that saw $477 million drained from the firm’s crypto wallets. The identity of the perpetrator is not yet known.
The Bahamian regulator has been scrutinized over its role in the FTX collapse and subsequent legal proceedings.
The commission wanted to handle insolvency proceedings for FTX in the Bahamas. But FTX’s U.S. lawyers contested the move, alleging in a Nov. 17 filing that the regulator coordinated with Bankman-Fried to gain “unauthorized access” to FTX systems to transfer digital assets to its own custody.
In response, the Bahamian regulator said that the claims were “inaccurate,” and that its decision to move the funds was taken to protect the interests of clients and investors.
Bankman-Fried, 30, also FTX’s former CEO, was arrested in the Bahamas and subsequently extradited to the United States, where he is awaiting trial on charges of fraud, conspiracy to commit money laundering, and conspiracy to defraud the U.S. and violate campaign finance laws.
He was released last week on $250 million bail, and has reportedly been receiving visitors at his parents’ California home, including “The Big Short” author Michael Lewis.
Bankman-Fried is expected to be arraigned and enter a plea in federal court in Manhattan on Jan. 3.
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