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.
Bitcoin surged to kick off 2024, topping $45,000 for the first time since April 2022 as investor confidence in a potential bitcoin exchange-traded fund approval continued to build.
The world’s largest cryptocurrency hit an intraday high of $45,913.30 early Tuesday morning, according to Coin Metrics. That was its highest level since April 5, 2022, and the first time it has traded above the $45,000 mark since then. It was last higher by 3%, trading at $45,045.65.
The move comes amid growing excitement among traders that the U.S. could approve the first bitcoin ETF. This would allow investors to buy a product that tracks the price of bitcoin without having to own the cryptocurrency directly, likely appealing to larger institutional investors.
On Friday, BlackRock and other potential issuers updated the registration forms for their proposed bitcoin ETFs, including names of authorized participants. Investors are reading that extra detail as evidence that a decision by the U.S. Securities and Exchange Commission is coming soon. Many industry experts expect the funds to be approved in January.
The continued price gains for bitcoin come off the back of the bumper of 2023, when the price of the digital coin rose 157% — and many expect the bold rises to continue.
Investors have high hopes for bitcoin in 2024. A decision on an ETF is widely expected to come sometime in January. Shortly after, in the spring, the Bitcoin halving is expected to take place, an event that historically has preceded steep price rises. Plus, Fed officials are anticipating at least three interest rate cuts this year after almost two years of hikes that have hurt the cryptocurrency.
Other cryptocurrencies also rallied overnight into Tuesday. Ether traded at around $2,387, up around 4%, while Solana surged 7% to around $113.
A flag outside the U.S. Securities and Exchange Commission headquarters in Washington, Feb. 23, 2022.
Al Drago | Bloomberg | Getty Images
Regulators around the world from Europe to Asia ramped up efforts to bring about formal laws for digital currencies in 2023 — but it was the U.S. that took some of the harshest legal actions against major players in the industry.
In a year that saw crypto heavyweight Binance ordered to pay more than $4 billion to U.S. authorities and its former CEO’s guilty plea, along with high-profile lawsuits against five crypto companies by the Securities and Exchange Commission, regulators overseas have been equally busy both adopting new legislation — and pushing for more — to rein in the sector’s bad actors.
Here’s the state of play globally for crypto regulation and enforcement in 2023 — and a look at what to expect in 2024.
The U.S. has proven to be one of the most active enforcers of penalties and legal action against crypto companies this year, as authorities looked to counter bad practices in the industry following the collapse of Sam Bankman-Fried’s crypto empire — including his FTX exchange and sister firm Alameda Research.
“To be clear, in some cases — like FTX — enforcement was necessary,” said Renato Mariotti, a former prosecutor in the U.S. Justice Department’s Securities and Commodities Fraud Section. “But U.S. enforcement actions against market participants that are more focused on compliance are questionable and the result of the U.S. ‘regulation by enforcement’ approach.”
While many regions have passed laws with potentially tough penalties, the U.S. is still the only country that has actively taken action against large-scale crypto companies and projects. Thus far, the U.S. has led that campaign against crypto firms by enforcement and has, by far, been the most punishing of regulators when it comes to penalties and fines.
“Other countries have a comprehensive regulatory framework in place. We don’t,” Mariotti told CNBC. “As a result, issues that should be determined by legislation or regulation are instead litigated.”
Indeed, in the absence of hard-and-fast rules from Capitol Hill, the SEC, the Commodity Futures Trading Commission, the Department of Justice, and Treasury’s Financial Crimes Enforcement Network (FinCen), have worked in parallel to police the space, in a sort of patch-quilt version of regulation-by-enforcement.
Richard Levin, a partner at Nelson Mullins Riley & Scarborough who has represented clients before the SEC, CFTC, and Congress, tells CNBC that these agencies have been some of the most active enforcers around the world concerning the regulation of digital assets and cryptocurrencies.
“These agencies have provided guidance to the industry on how digital assets and cryptocurrencies must be offered and sold, traded, and held by custodians,” said Levin, who has been involved in the fintech sector for 30 years.
“However, much of their work has involved providing guidance to the industry through enforcement actions,” continued Levin.
Since 2019, Justice’s Market Integrity and Major Frauds Unit has charged cryptocurrency fraud cases involving over $2 billion in intended financial losses to investors worldwide.
In its annual report summing up enforcement actions, the CFTC noted that nearly half of all cases in 2023 involved conduct related to digital asset commodities. Meanwhile, the SEC highlighted that 2023 was notable for its enforcement of “crypto-related misconduct, including fraud schemes, unregistered crypto assets and platforms, and illegal celebrity touting.” Since 2014, the SEC has brought more than 200 actions related to crypto asset and cyber enforcement.
The most stringent cases played out in the first half of the year when the SEC accused Binance and Coinbase of engaging in illegal securities dealing in a pair of lawsuits.
Most notably, the SEC alleges that at least 13 crypto assets available to Coinbase customers — including Solana’s sol, Cardano’s ada, and Protocol Labs’ filecoin — should be considered securities, meaning they’d need to be subject to strict transparency and disclosure requirements.
In Binance’s case, the SEC went a step further. In addition to securities law violations, the company and its co-founder and CEO Changpeng Zhao were also accused of commingling customer assets with company funds.
Concerning criminal enforcement, Damian Williams, the U.S. attorney for the Southern District of New York, has been leading some of Justice’s highest-profile crypto prosecutions, including the monthlong trial of Bankman-Fried, the disgraced FTX founder. In November, a jury found the former FTX chief executive guilty of all seven criminal counts against him following a few hours of deliberation.
But crypto companies have begun to push back, with some threatening to decamp from the U.S. entirely should this dynamic of policing by enforcement continue.
Coinbase CEO Brian Armstrong condemned the SEC’s actions against the exchange and suggested the company may be forced to move its headquarters overseas. Armstrong later walked back the threat of relocating abroad, but Coinbase and other major crypto firms have still begun to invest more heavily in their international operations.
Crypto market participants nevertheless hope that the spate of legal challenges brought to crypto companies in 2023 will bring clarity in the form of new regulations.
“Clearer regulatory frameworks and stance from regulators globally have provided a sense of legitimacy and security, encouraging more widespread participation in the bitcoin market,” Alyse Killeen, managing partner of Stillmark Capital, told CNBC.
The crypto industry saw the most legislative progress on crypto laws in the U.S. this year, with one of the competing digital asset bills making it past multiple House committees for the first time.
Even as U.S. lawmakers take steps toward crypto legislation, there remains no law in the U.S. tailored specifically for the industry. Nelson Mullins Riley & Scarborough’s Levin tells CNBC it’s unlikely that we’ll see much progress in a presidential election year and with a divided federal government.
He argues that even without rules on crypto from lawmakers, routine complaints that U.S. regulators are not providing guidance to the industry are without merit.
According to Levin, “The SEC, the CFTC and FinCEN routinely provide informal guidance on the regulation of digital assets and cryptocurrencies.”
“The SEC even went so far as to provide a framework for the analysis of digital assets and cryptocurrencies. The SEC also created a fake digital asset (Hosey Coin) that gave advice to the FinTech community on how not to launch a digital asset,” Levin added.
“Some members of the industry forget the SEC is relying on laws that were written when American football players wore leather helmets, and the SEC must apply those laws to the FinTech industry,” he said.
Despite crypto’s recent fading buzz, Killeen of Stillmark Capital doesn’t expect regulators to become fatigued by crypto in 2024. In the same time year that two of crypto’s leading figures were sent to jail, shares of Coinbase — and prices of digital currencies like bitcoin and ether — have rallied sharply.
Since the start of this year, Coinbase’s stock price has surged more than 400%. Bitcoin and ether, meanwhile, have both roughly doubled in price. That’s as investors anticipate that approval for a bitcoin exchange-traded fund by the SEC may be around the corner.
The European Union looks set to apply its Markets in Crypto-Assets legislation, which is aimed at taming the “Wild West” of the crypto industry, in full force starting next year.
The law, initially proposed in 2019 as a response to Meta’s digital currency project Diem, formerly known as Libra, aimed to clean up fraud, money laundering and other illicit financing in the crypto space, and stamp out the sector’s bad actors more broadly.
Read more about tech and crypto from CNBC Pro
It also sought to tackle a perceived threat from so-called stablecoins, or blockchain-based tokens that serve as a representation of government money but are backed by private companies. Stablecoins are effectively digital currencies that are pegged to the value of fiat currencies like the dollar.
While tether and Circle’s USDC aren’t perceived as “systemic” assets capable of disrupting financial stability, a private stablecoin from a massive company like Meta, Visa or Mastercard could pose a bigger threat and potentially undermine sovereign currencies, in several EU central bankers’ eyes.
The U.S.’s dominant role in global finance and its focus on consumer protection plays a crucial role in its leading position in crypto regulation enforcement. However, the landscape is evolving, and other jurisdictions are steadily enhancing their regulatory and enforcement frameworks in crypto.
Braden Perry
Former federal enforcement attorney and current partner at
Part of the EU’s framework for crypto is aimed at tackling threats — particularly that of the euro being undermined — by making it impossible for issuers to mint stablecoins backed by currencies other than the euro, like the U.S. dollar, once they meet the threshold of more than 1 million transactions per day.
Meanwhile, the European Union is moving towards a unified regulatory framework for cryptocurrencies with its Markets in Crypto-Assets Regulation (MiCA).
This year, the three main political institutions of the EU-approved MiCA, paving the way for the regulation to become law. MiCA came into force in June 2023, but it’s not expected to apply fully until December 2024.
Companies are already getting ready to take advantage of the new rules, with Coinbase submitting an application for a universal MiCA license in Ireland. If and when it is approved, this would allow Coinbase to “passport” its services into other countries like Germany, France, Italy, and the Netherlands.
Braden Perry, former federal enforcement attorney and current partner at law firm Kennyhertz Perry, said that while the U.S. remains a top enforcer for the crypto industry, its perception as a regulator “may be diminishing,” as other jurisdictions have stepped in with clearer rules.
“This perception stems from the proactive measures taken by U.S. regulatory bodies like the SEC, CFTC, and IRS, especially in addressing fraud and security issues in the crypto market. High-profile legal actions in the U.S. further cement its image as a strict enforcer,” he said.
“However, other regions, including Singapore, Dubai, Hong Kong, and the European Union, are also developing robust regulatory frameworks,” Perry added. “While these regions may not be as visible in international media for enforcement actions, they possess significant and sometimes stringent regulatory mechanisms.”
But while the broader EU has been racing to implement new crypto laws, individual European countries haven’t been resting on their laurels.
France has been tempting crypto companies and traders alike to its shores with the promise of tax cuts on crypto profits and a smoother registration process for digital asset firms.
Starting from Jan 1, 2024, France’s Financial Markets Authority, or AMF, is set to amend its registration requirements for crypto firms to better align with MiCA, according to an August statement from the regulator.
At the same time, French authorities have kept a skeptical eye on fraudulent activity among various crypto players. In September, French regulators added 22 fraudulent websites — including some that market trading in crypto and crypto-linked derivatives — to a blacklist of unauthorized foreign exchange providers.
In Germany, meanwhile, the financial regulator Bafin has said it wants to accelerate its approach to licensing crypto custody services, as part of a broader effort to instill trust and transparency in the crypto market.
The U.K., a non-member of the EU, passed a law in June that gives regulators the ability to oversee stablecoins. But there are no concrete rules for crypto just yet.
The U.K.’s Treasury department released its response to a consultation on new crypto rules earlier this year, confirming that it plans to bring a range of crypto activities, including crypto custody and lending, within existing laws governing financial services firms in the country.
Earlier this year, the Monetary Authority of Singapore, which is recognized for clear fintech and crypto regulations that do not rely heavily on enforcement actions, finalized rules for stablecoins, making it one of the world’s first jurisdictions to do so.
Singapore was notably bruised by the collapse of TerraUSD, a controversial algorithmic stablecoin, in 2022, as well as the fall of Three Arrows Capital, or 3AC. Both Terra Labs, the company behind Terra, and 3AC were headquartered in Singapore.
Singapore’s new framework requires stablecoin issuers to back them with low-risk and highly-liquid assets, which must equal or exceed the value of tokens in circulation at all times, return the par value of the digital currency to holders within five business days of a redemption request, and disclose audit results of reserves to users.
The region has been increasingly warming to crypto assets, despite a broader anti-crypto push from China, which banned bitcoin trading and mining in 2021.
The Hong Kong Securities and Futures Commission, or SFC, launched a registration regime for digital asset businesses earlier this year, with clear regulations for crypto exchanges and funds.
So far, only two firms, OSL Digital and Hash Blockchain, have been handed licenses.
The United Arab Emirates has emerged as a popular base for the fintech sector more broadly, given its lack of personal income tax, flexible visa policies, and competitive incentives for international businesses and workers.
In 2022, in a bid to lead the virtual assets sector in the Middle East and Africa, Dubai — the UAE’s most populous city — launched VARA, or the Virtual Asset Regulatory Authority.
“Dubai and the UAE have created favorable conditions for cryptocurrency businesses, offering specific zones and guidelines for crypto trading,” said Perry.
Blockchain analytics firm Chainalysis notes that regulators in the UAE were early to cryptocurrency, with Dubai leading the charge when it launched a blockchain strategy in 2016.
“Since then, UAE regulators have remained at the forefront of the industry,” according to a Chainalysis report.
Two years later, in 2018, Abu Dhabi Global Market created the world’s first regulatory framework for cryptocurrency to foster innovation while safeguarding consumers.
Earlier this year, the UAE passed further crypto regulations at the federal level to make it easier for regulators like VARA to police the sector and run economic-free zones.
A representation of cryptocurrency Ethereum is placed on a PC motherboard in this illustration taken on June 16, 2023.
Dado Ruvic | Reuters
The price of ether jumped on Wednesday as investors moved into the cryptocurrency ahead of key upside catalysts expected in January.
Ether was last higher by 6%, according to Coin Metrics. Solana’s SOL token, among the top performers in crypto this year, was up 2%.
“We believe it’s attributed to … a rotation back into the Ethereum ecosystem from other [Layer] 1s, which so far have outperformed ETH,” Needham analyst John Todaro told CNBC. “Solana and Avax among others have outperformed ETH, and now ETH is playing catch up on the rotation.”
Ether has trailed SOL throughout 2023. This month, it’s up about 15% compared to the SOL token’s 82% gain. On the year, ether has advanced 95%, while SOL has soared more than 980%.
Ether’s rise on Wednesday “signals that the market is finally rotating into an ETH-centric trade, though it probably will not fully manifest until after the U.S. spot Bitcoin ETF receives appropriate regulatory approvals,” said Matt Maximo, a senior research analyst at Grayscale Investments. “Ethereum’s on-chain activity remains extremely strong, so I believe it is less of ‘if’ rather than ‘when’ ETH will catch up.”
Investors are watching two key events in January. The first is Ethereum’s big “Dencun” upgrade, expected around Jan. 17. It’s meant to reduce the costs associated with Ethereum’s Layer 2 solutions, Maximo told CNBC.
Investors have also been closely monitoring developments in the potential approval by the U.S. Securities and Exchange Commission of a spot bitcoin exchange-traded fund. The decision is widely expected to come in January.
Some investors are trading on optimism that if a spot bitcoin ETF gets the green light, that could bode well for the potential of a spot ether ETF, Todaro said.
Crypto prices have recovered from a big dip earlier in the week, with bitcoin hitting a new high for 2023 on Friday.
Bitcoin touched a high of $38,015.16 on Friday morning, according to CoinMetrics, its highest level in more than a year. It was last up by about 1% at $37,709.50, and it’s on pace to end the week higher by 3.5%.
Meanwhile, ether has moved back above the key psychological level of $2,000, last trading nearly 2% higher at $2,101.78. The second largest token by market cap is outperforming the crypto market this week, on pace to end up more than 8%.
Solana, the big outperformer on the year – up more than 470% compared to bitcoin’s 130% – trailed the major tokens this week. It’s roughly flat on the week.
Bitcoin topped $38,000 to hit a fresh high for 2023.
While Binance serves as the most significant liquidity pool for crypto trading, many see the exchange’s settlement as a necessary development to allow the crypto industry – still recovering from FTX’s 2022 collapse – to move forward. With the Binance investigation resolved, some say it may even clear the path for a bitcoin ETF approval, which many investors expect to be the major catalyst that sends bitcoin to major new highs.
Traders are also weighing the minutes of the latest Federal Reserve meeting, which were also released the day of the Binance settlement and showed officials expressed little appetite for cutting interest rates anytime soon.
Bitcoin extended its weekly gains on Friday, briefly topping $30,000 for the second time this week, as confidence a spot bitcoin ETF will soon be greenlit grew and crypto investors continued weighing uncertainty in the U.S. and abroad.
The price of the flagship cryptocurrency was last higher by 2.76% on Friday at $29,538.99, according to Coin Metrics. It ended the week with a 10.4% gain, making it its best week since June 23 when it added 17%. At one point, it climbed as high as $30,193.87. Ether added 2.46% to trade at $1,606.42 on the day and was up 4% for the week — best week since Sept. 29, when it gained 4.4%. On Friday, Ether rose to a high of $1,630.03.
The gains come even as the benchmark 10-year U.S. Treasury yield briefly topped 5% for the first time in 16 years. Higher yields historically have had a negative effect on bitcoin, but the crypto asset is benefiting from a key catalyst investors have been watching all year: the approval of what would be the first spot bitcoin ETF in the U.S. Earlier this week, JPMorgan said the Securities and Exchange Commission is likely to approve an ETF in the next few months. Mike Novogratz, whose Galaxy Digital has an ETF application with the SEC in partnership with Invesco, told CNBC he thinks it could happen as soon as the end of the year.
Bitcoin has hit the $30,000 mark Friday for the second time this week
Several firms have also amended their filings in the past couple weeks to address earlier concerns by the SEC, which investors are taking as a positive sign that the agency is engaging with the firms.
Throughout the week, bitcoin has also been driven by a flight to safety.
“Fears of an escalation in the Middle East conflict, nervousness about the U.S. banking system and overall market tension are pushing bitcoin and gold higher,” said Noelle Acheson, economist and author of the “Crypto is Macro Now” newsletter. “Plus, the public support for this narrative from renowned investors such as Larry Fink and Paul Tudor Jones doesn’t hurt.”
In the rest of the market, altcoins climbed after the SEC Thursday night dropped claims against two Ripple Labs executives – CEO Brad Garlinghouse and co-founder Chris Larsen – in its lawsuit alleging the company violated U.S. securities law.
“Many are – mistakenly, perhaps – taking the SEC’s dismissal of its case against [them] as a sign that the regulatory heat will ease,” Acheson said. “This is unlikely to be the case, unfortunately, as by canceling the trial scheduled for next April, the SEC can now appeal the original ruling. I don’t know for sure that it will do this, but in theory it can.”
Ripple’s XRP jumped 6.5%. Litecoin added 3.5%, and Ethereum competitors Solana and Polygon saw their tokens rise 6.5% and 3.7%, respectively. All ended the week in the green.
The price of bitcoin bounced on Tuesday, reversing losses from the previous day that were driven by fears around FTX liquidations.
Bitcoin was last higher by 4.5% at $26,185.72, according to Coin Metrics. On Monday, bitcoin dipped below the key $25,000 support level for the first time since March. The rebound could be fueled in part by investors who were betting against the crypto asset scrambling to cover short positions, in other words, by a short squeeze.
Investors have been selling their crypto in anticipation of a hearing Wednesday in which liquidators could be permitted to start selling the assets of FTX and Alameda Research, its sister company. The tokens native to the Solana and Polygon networks are among some of the company’s biggest holdings. On Monday they fell 3% and 5%, respectively. On Tuesday, they were last higher by about 2.5% each.
There’s still room for disappointment, however. Fairlead Strategies’ Katie Stockton said weakened momentum in the intermediate term could make it difficult for bitcoin to see a durable recovery. With Tuesday’s bounce, the cryptocurrency’s next level to test on the upside is $27,600 – its 50-day moving average.
FTX liquidations aside, the crypto market has recently struggled for meaningful catalysts as investors wait for clearer regulation and attention has shifted back to inflation and economic inputs – after a string of stronger-than-expected data points last week renewed concern that the Federal Reserve could raise rates once more before yearend.
This week, investors get the August consumer price index and producer price index readings on Wednesday and Thursday, respectively.
A worsening macroeconomic climate and the collapse of industry giants such as FTX and Terra have weighed on bitcoin’s price this year.
STR | Nurphoto via Getty Images
Cryptocurrency prices remained under pressure to end the week.
Bitcoin ended the day lower by about 6% at $26,038.41, according to Coin Metrics. It wavered over $26,000 throughout the day Friday, following a stunning fall that began late Thursday.
The move pulled the rest of the crypto market lower. Ether and Binance coin each fell about 4%, while Cardano’s ada lost more than 3% Friday. Ripple’s XRP slid 13% and the Solana token lost 7%.
For the week, bitcoin ended down 11.28% for its seventh weekly loss in the past eight and its worst week since November. Coin Metrics measures a week in crypto, which trades 24 hours a day, from the 4:00 p.m. ET stock market close one Friday to the next.
Crypto was under pressure throughout Thursday but dropped sharply around 6 p.m. ET., following a report in The Wall Street Journal that Elon Musk‘s SpaceX wrote down the value of its bitcoin holdings by $373 million last year and in 2021, and sold the cryptocurrency.
Bitcoin heads for its worst week since May
“The selloff appears to largely have been fear-induced on the back of headlines that SpaceX sold off Bitcoin assets,” said Darius Tabatabai, co-founder at decentralized exchange Vertex Protocol. “No proof has emerged that happened, and thin summer liquidity led to prices gapping dramatically downward, causing cascading liquidations in derivatives markets, further amplifying the drop similarly to how we’ve seen selloffs occur in panic selling episodes.”
“Currently, we’re seeing negative funding rates for perpetual futures, which can portend bearish momentum for the time being, but in this case it could very well turn on a dime, given the speed and violence of the move,” Tabatabai added.
Bitcoin has been stagnant for much of the third quarter, a historically weak one for the cryptocurrency. It’s now off 14.25% for the quarter and about 10.69% for August. Despite recent softness in the market even ahead of this week’s dramatic slide, bitcoin is still up about 57% in 2023.
Representations of cryptocurrency Bitcoin, August 10, 2022.
Dado Ruvic | Reuters
Crypto prices climbed to end the week Friday, a day after the largest asset manager in the world jumped into the race to launch the first spot bitcoin exchange-traded fund in the U.S.
Bitcoin was last higher by about 4% at $26,438.00, according to CoinMetrics, while ether advanced 3% to $1,718.06.
Even altcoins rose, with the tokens tied to Solana and Cardano gaining 4.5% and 2%, respectively. Binance Coin was 2.75% higher, litecoin gained 3% and the Uniswap token advanced 4%.
For the week, bitcoin is on track to end just below the flatline, while ether is heading for a 6% loss.
Bitcoin (BTC) this week
Investors were weighing the latest development in the crypto industry’s battle with the U.S. Securities and Exchange Commission for regulatory recognition and guidance. After the bell Thursday, BlackRock — the largest asset manager in the world — filed for spot bitcoin ETF, with Coinbase as its crypto custodian.
“One of the big purposes bitcoin serves as an asset class is really diversification. It just has a different risk profile than traditional financial markets,” Gustavo Schwenkler, associate professor at the Leavey School of Business at Santa Clara University said. “If this were to get approved, then I could anticipate a lot more institutional investors adding bitcoin to their investment to their portfolios … it would institutionalize the market in a way that is not possible right now.”
If allowed to move forward, the iShares Bitcoin Trust would become the first approved ETF in the U.S. to track the price of bitcoin, versus the futures contracts tied to the cryptocurrency. It’s been about 10 years since the first filing for a potential spot bitcoin ETF. Since then, every application that has gone through the SEC has been rejected.
The filing comes about a week after the SEC sued its crypto custody partner, Coinbase, for violating securities laws, leaving many questioning the timing of BlackRock’s application.
“That apparent commitment to Coinbase is almost as important near term as their commitment to bitcoin is in the long term,” said Mark Connors, head of research at 3iQ. “It’s a big deal.”
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.
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 millionbond last week while he awaits trial for fraud and other criminal chargesin 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.
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.
The logo of the cryptocurrency Terra Luna is seen on the screen of a computer in an office.
Silas Stein/picture alliance via Getty Images
The cryptocurrency market fell on Tuesday amid rumors of insolvency at crypto exchange FTX and worries about the financial conditions of its sister company Alameda Research.
Bitcoin and ether were lower by 6% and 8% respectively, according to Coin Metrics.
Crypto assets tied to Alameda, the trading company also owned by billionaire Sam Bankman-Fried, were suffering steeper losses. FTX Token (FTT), the native token of the FTX trading platform, has fallen 23% in the past 24 hours. The token tied to Ethereum competitor Solana, of which Alameda is a big backer, has lost 12%.
In crypto equities, Coinbase fell 12.5%, while Robinhood, in which SBF has a 7.6% stake, fell 9%. Crypto banks like Silvergate and Signature and bitcoin miners like Hut 8 and Riot Blockchain were down double digit percentages.
“There are a lot of mirrors to the Celsius and Three Arrows crisis that happened months ago and what you’re seeing is investors having deja vu and fear leaking into the markets,” said Conor Ryder, research analyst at Kaiko.
On Tuesday FTX halted withdrawals from its platform, after spooked investors attempted to pull their funds en masse. Investor confidence has been shaken after Binance founder Changpeng Zhao tweeted over the weekend that the company would sell its holdings of FTT. Binance is the largest crypto exchange in the world by trading volume and was an early backer of FTX.
Zhao said in his tweet that Binance has about $2.1 billion worth of FTT and BUSD, the fiat-backed stablecoin issued by Binance and Paxos, combined.
“Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books,” he said.
Those revelations refer to rumors about the solvency of FTX, the second-biggest crypto exchange in the world by trading volume. A report last week on the state of Alameda’s finances showed a large portion of its balance sheet is concentrated in FTT and its various activities leveraged using FTT as collateral. Alameda has disputed that claim, saying FTT represents only part of its total balance sheet.
“The Alameda hedge fund is tied to FTX through a ton of FTT tokens and the rumors started that if they are using all of these FTT tokens as collateral… there are two issues,” said Jeff Dorman, chief investment officer at Arca. “If the price of FTT goes way down then Alameda could face margin calls and all kinds of pressure; two is if FTX is the lender to Alameda then everyone’s going to be in trouble.”
“What could have been just an isolated issue at Alameda became a bank run,” he added. “Everybody started to pull their assets out of FTX and there’s this fear that FTX would be insolvent.”
‘Another black eye for trust’
Ryder said he has confidence that FTX and its customers “will be fine” but that the panic is understandable. Bankman-Fried, also known as SBF, has said little on the matter to quell fears.
The problem is the opaque nature and the lack of transparency about FTX reserves, Alameda’s reserves, the links between the two – no one really knows how to intertwined the two are,” he said. “From that side of things, it mirrors Celsius issues a lot in that we have no transparency of funds, and FTX hasn’t come out and reassured investors so that’s what we’re seeing now leak into markets.”
It’s a good argument for more regulation of centralized entities, Ryder added, saying it’s imperative for all centralized entities – be it hedge funds like Three Arrows Capital or Alameda Research or centralized exchanges like FTX and Binance that aren’t publicly listed – to maintain a proof of reserves for the sake of investor protection.
Dorman echoed Ryder’s sentiment, saying that while it may be at worst a short-term liquidity issue, it’s “another black eye for trust.”
“Do they put [the reserves] in a bank account? Do they use them to lend out?” Dorman said. “This is where the lack of transparency comes in: something that probably isn’t a problem and shouldn’t be a problem becomes a short-term liquidity problem if FTX can’t immediately process all withdrawals.”
