FTX Scandal Continues to Unravel, CBDCs Begin Rollout | The Yellow Digest
In the wake of the FTX collapse, we are continuing to see the ripple effect take place across the rest of the crypto industry. This week we also saw huge moves from foreign governments with digital assets.
FTX Scandal Continues to Unravel
The Wall Street Journal has reported Sam Bankman-Fried, the ex-CEO of FTX has used the venture funds raised by the FTX exchange to cash out $300 million, saying it is a repayment for the $2.1 billion he spent buying out Binance’s roughly 15% stake in his exchange.
Most of the payment ($529 million worth just before FTX fell) was in the FTX-made exchange token $FTT.
This is what later would bring down Bankman-Fried’s house of cards when CoinDesk revealed just how much of it the exchange had on its books, and when Binance CEO “CZ” announced he was going to sell it on Twitter.
Now, weeks following the scandal, we are seeing global government officials give their takes on one of the worst financial disgraces in history. A pair of U.S. Senators have asked the Justice Department in the US to remember the “flesh and blood victims” of the FTX collapse and wherever possible prosecute all executives including ex-CEO Bankman-Fried.
The two Senators, Elizabeth Warren, and Sheldon Whitehouse wrote to Attorney General Merrick Garland on Nov. 23 — telling him that based on his recent
“commitment to holding perpetrators of white-collar crime personally accountable, we expect [the Department of Justice] to investigate the actions leading to the collapse of FTX with the utmost scrutiny… and, if it deems necessary, prosecute the individuals responsible for their harm.”
Further to this, it is clear from their letter that they want to see those behind this failure punished swiftly.
“In the days leading up to FTX’s collapse, company CEO Sam Bankman-Fried attempted to downplay concerns about its liquidity, assuring customers in a since-deleted tweet that ‘FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries).”
It is safe to say that Bankman-Fried is under serious pressure from some of the highest officials and prominent government members in the United States. This partnered with such a public error, it seems unlikely that we see a runaway from clear justice.
FTX Owes Over $3 Billion to its Top 50 Creditors
According to a recent filing to the U.S. bankruptcy court, FTX has revealed that it has $3 billion in outstanding debt to its top 50 creditors. Among these, the top ten creditors are owed approximately $1.45 billion. The company has not disclosed the identities of these creditors.
FTX and its related entities filed for bankruptcy in the state of Delaware on November 11, 2022, which resulted in significant financial losses for an estimated one million customers and other investors, with the total amount possibly reaching billions of dollars. The crypto exchange has announced that they are currently evaluating its worldwide assets and are making arrangements for the sale or restructuring of certain parts of its operations. A court hearing to discuss FTX’s initial motions has been scheduled for Tuesday morning, as per another court filing.
Genesis Balance Sheet Reveals Web of Loans Across Silbert Empire
Bloomberg reported this Tuesday that crypto lender Genesis Global has unpaid loans of $2.8 billion on its balance sheet, with around 30% of lending made to related parties, including parent company Digital Currency Group. According to a further report by The Block, the CEO Barry Silbert said in a note to shareholders that in the
“ordinary course of business, DCG has borrowed money from Genesis Global Capital in the same vein as hundreds of crypto investment firms. These loans were always structured on an arm’s length basis and priced at prevailing market interest rates.”
He also mentions that DCG has a liability to Genesis of $575 million which are due in May 2023. He states that these loans which were given were used to
“fund investment opportunities and to repurchase DGC stock from non-employee shareholders in secondary transactions previously highlighted in quarterly shareholder updates.”
Institutions and Governments Transitioning to Digital Assets
There have been a number of developments in the past week which demonstrate the increasing level of adoption and implementation of digital assets. From the US all the way to Japan, digital currencies are making headlines and into the vocabularies of the average household.
Japanese Companies Form Consortium to Launch Yen-Based Digital Currency
In hopes to launch a new yen-based digital currency this year, 70 Japanese companies have come together to form a consortium. The association which has some of Japan's largest financial institutions joining in is sending a strong signal that the private sector has started to embrace blockchain-based payment systems too.
The CEO of crypto exchange DeCurret, Kazuhiro Tokia has issued a statement saying that the new digital currency dubbed ‘DCPJY,’ will be supported by bank deposits and would rely on a platform to facilitate fund transfers and settlements between the other member companies. According to Reuters, the 70 Japanese companies have been consistently holding meetings since as early as 2020, to negotiate ways to create a new settlement platform for digital payments.
Reserve Bank of India to Launch CBDC
The Central Reserve Bank of India (RBI) is set to launch a central bank digital currency (CBDC) only 9 months after announcing the project in February 2021.
According to Reuters, the pilot, which began in the early week of November, involves nine Indian banks including the largest bank in India, the State Bank of India. The Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC are also participating in the trial of the digital asset.
The primary use case of the Indian CBDC will be to settle secondary market transactions in government securities. The digital rupee is expected to add efficiency to the interbank market by reducing the cost of transactions and settlements, according to the RBI. This classes the digital rupee as a Wholesale CBDC which is a type of CBDC that is mainly used by financial institutions like banks, involving interbank transactions such as securities settlement and cross-currency payments.
The other type of CBDCs known as “Retail CBDCs” are made to be used by regular households and businesses, allowing them to make payments directly and store value via the digital version of a specific fiat currency, such as the Indian rupee. According to the new report, the RBI plans to launch the digital rupee for the retail segment within a month in select locations across the country.
Interestingly, despite the development of the CBDC, India has been undergoing multiple strict measures to limit the public’s exposure to crypto markets, including putting in a 30% tax on digital asset holdings and transfers back in April. As reported by Cointelegraph, the new crypto taxes had a negative impact on the country’s crypto ecosystem, forcing industry entrepreneurs to move to friendlier jurisdictions.
55% of All BTC Wallets are Now in Loss
According to IntoTheBlock, a crypto analysis site, the FTX crash has dragged down BTC prices to levels that have not been seen since November 2020, the average purchase price of 55% of all BTC addresses are now below what the investors paid for them.
Beyond this 44% are in profit and 1% is at breakeven.
A Pew Research study from earlier this year — when Bitcoin was in the $20,000 range — showed that 16% of Americans owned or had owned crypto and 46% said their investments had done worse than they expected. (not surprising)
IntoTheBlock’s research also shows that 30% more funds are flowing INTO centralized exchanges that are coming out — roughly $6.1 billion to $4.3 billion over the past seven days.
This is likely what has added the selling pressure which has caused prices to fall over the week. During the week of the FTX collapse, we saw BTC exchange holding drop as people moved away.
Now people are moving back to centralized exchanges. Seeing this shows that there could be a lot of selling pressure over the coming weeks.
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