ProBit Bits — ProBit Global’s Weekly Blockchain Bits Vol. 30

Last week was a big week for crypto. If not for any other news making the rounds, but for the collapse of the second largest crypto exchange, FTX. Enjoy this edition of our weekly update.

And the Great FTX Fell

Last week, the second largest crypto exchange FTX filed for bankruptcy in the U.S after facing a funding gap of about $8 billion. It follows a significant liquidity crunch that had seen Binance sign a non-binding LOI with the intention to fully acquire FTX to protect its users.

A report says that all the 134 entities named in the filing were not informed about the move, but learned of it at the same time as the public, in some cases via Twitter.

John Jay Ray III, who handled Enron’s bankruptcy proceedings in the early-mid 2000s, took over as CEO of FTX after Sam Bankman-Fried (SBF) resigned. Over $600 million was later reported drained from the cryptocurrency exchange hours following a hack after filing for bankruptcy. FTX General Counsel Ryne Miller, noted their “observing unauthorized transactions” in a tweet. While Elon Musk said on a Twitter Space discussion that he’d never heard of Bankman-Fried before their recent chat about investing in the Twitter deal. He said he felt there was something wrong with the former FTX CEO and that he does not have capital.

A leaked balance sheet of Alameda Research, a quantitative trading firm founded by SBF, has been highlighted to have sparked doubts leading to one of the largest holders of FTX’s native crypto token, FTT, choosing to offload their position. The holder, Binance, considered acquiring FTX but backed out after about 36 hours into the due diligence process. The acquisition failure subsequently led to FTX’s fall.

Some Identified and Suggested Impacts of FTX Collapse on Crypto Sector Last Week

• Ikigai Fund “had a large majority of the hedge fund’s total assets on FTX”
• A local report estimates that at least 500,000 users in Taiwan were affected by the FTX collapse
• Half of Galois Capital hedge fund’s assets — around $100 million — -trapped on FTX
• Galaxy Digital’s exposure of approximately $76.8 million of cash and digital assets to FTX
• Crypto broker, Genesis Trading’s $175 million exposure locked up
• Analysis: Less trust in crypto and more aggressive regulators; reduced institutional interest in crypto; Bitcoin dominance likely to increase significantly; and crypto users tired of scams

JPMorgan Says to Expect Bitcoin at $13,000 Price Range

Following the crisis at FTX, Bloomberg reports that JPMorgan Chase & Co. strategists are of the view that the situation could push the price of Bitcoin down to $13,000. They consider the fears that FTX bankruptcy could be contagious and might result in takedowns of other crypto outfits. The crisis might also lead to the possibility of Bitcoin’s production cost — -currently at $15,000 — — revisiting the $13,000 low as the basis for their suggested possible floor. In addition, , the team believes that the number of entities with stronger balance sheets and able to rescue those with low capital and high leverage in the crypto sphere is shrinking.

Key happenings with FTX in the wake of the platform’s crash

1. FTX filed for Chapter 11 bankruptcy.
2. After rumors that FTX former CEO Sam Bankman-Fried had been arrested at The Bahamas Airport, another report says that he, the co-founder of FTX, Gary Wang, and its director of engineering Nishad Singh are in The Bahamas and “under supervision” by the local authorities.
3. With a $3 million balance currently locked up on FTX, bankrupt crypto lender Voyager Digital ended the deal to sell itself to FTX US
4. FTX’s derivatives wing, LedgerX, withdrew a proposed plan to directly settle crypto derivatives products out of intermediaries from the Commodity Futures Trading Commission (CFTC). The derivatives arm filed for the plan earlier this year.
5. Sparked discussions of proof-of-reserves becoming the standard for future exchanges

Some market-related questions left in the trail of the FTX saga

The FTX collapse left some philosophical questions hanging:

1. Is it a time to DCA (dollar cost averaging)?
2. A time to sell and re-enter at a lower price?
3. Is it a great bargain to accumulate Bitcoin at a low of between $15,000+ and $18,000+?
4. Is buying low between 2022–2024 preparing for the 2025 bull run (the next Bitcoin halving is in March 2024)?
5. Is the crash any different this time?
6. A time to convert altcoins to Bitcoin?
7. Did it highlight the difference between traders and ‘hodlers’ in a new way?

US Makes $3.36bn Silk Road-Linked Crypto Seizure

The Southern District of New York last week made a historical conviction and crypto asset seizure in connection with Silk Road, the dark web marketplace that ran from 2011 to 2013 when the FBI shut it down. The massive seizure of over 50,000 Bitcoin from James Zhong made the record of being the second biggest by the US Department of Justice.

Zhong pled guilty on Friday, November 4 to committing wire fraud in September 2012 and illegally obtaining Bitcoin that is now worth $3.36 billion from the Silk Road.

SEC Wins Suit Against Blockchain Firm for Offering Digital Assets as Securities

In another court-related case, the U.S. Securities and Exchange Commission (SEC) last week won its lawsuit against blockchain-based publishing company LBRY Inc. The court ruled that the New Hampshire-based company offered its digital assets as securities.

The SEC sued LBRY in 2021 for violating U.S. law by selling its LBRY Credits without registering them as securities. LBRY CEO, Jeremy Kauffman, said the decision “threatens the entire U.S. cryptocurrency industry” as it could set a standard that would deem “almost every cryptocurrency” a security.

MiCA Plenary Vote Moved to Feb 2023

Following the MiCA text that was approved in the Council of the EU in October, the plenary vote in the European Parliament (EP) that was supposed to be held at the end of 2022 has now been delayed until Feb 2023.

The vote is supposed to come after the lawyer/linguist checks the lengthy text that needs to be translated into the EU’s 24 official languages. However, the checks have proven too complex hence the delay, says a member of the EP, Stefan Berger.

Aside from delaying the publication/entry by two to three months, the fact remains that MiCA is final though and no further changes are expected to be made to the content.