By Amy Beaver and David Gerard
“Sidenote: Referring to this as a house of cards is insulting to cards, which have constant value and utility, unlike cryptocurrency.” — Ed Zitron
Celsius strikes back
Jason Stone of KeyFi, a.k.a Whale DeFi 0x_b1used to manage Celsius’s investments. Stone sued Celsius in July, claiming that he had not been paid. Celsius has now filed a countersuit against Stone and KeyFi. The couple were doing business based on a handshake agreement, so it should come as no surprise that they are now suing each other.
Celsius claims KeyFi were incompetent investment managers and also thieves. KeyFi allegedly bought NFTs with Celsius coins and then resold them for millions of dollars (equivalent). Celsius alleges that KeyFi funneled the ether through Tornado Cash. Celsius also claims that KeyFi’s July complaint was drafted in September 2021, but KeyFi only filed it when bankruptcy was imminent – due to confidential negotiations they cannot share. [Complaint, PDF]
In a separate lawsuit, Celsius is seeking to recover $17 million in crypto that is “wrongfully held” by Prime Trust, one of the largest crypto custodians. Celsius had put crypto from New York and New Jersey users into Prime Trust, which had already returned $119 million worth of crypto to Celsius when it ended its relationship with Celsius in June 2021, citing “red flags “. [Complaint, PDF; The Block]
Under Section 345(b) of the Bankruptcy Code, debtors’ cash must be deposited in an assured manner. It’s easy with money – that’s what the FDIC is for. Cryptos are another matter – it’s not even clear that they are “money”, even though Celsius tracks their value in dollars. The U.S. trustee therefore wants Celsius to show that it is adequately protecting crypto assets before any final debtor cash management orders are issued, regardless of what form of protection they offer. [limited objection, PDF]
It’s “until”. The actual amount may be as little as $15 million. Well, BlockFi’s Zac Prince tweeted in June, “I can 100% confirm that we’re not sold for $25m. He just didn’t say it was even less than that. [Twitter]
Apparently the deal is that FTX US will pay a base $15 million, plus:
- An additional $25 million if BlockFi obtains SEC clearance by December 31, 2022 to offer BlockFi Yield;
- An additional $100 million if BlockFi client assets reach $10 billion (currently $4.4 billion) at the time of FTX purchase;
- and 25% of BlockFi’s annual operating revenue, up to a maximum of $100 million.
BlockFi filed a confidential S-1 with the SEC for BlockFi Yield in February 2022, so they cannot disclose details yet. [blog post]
What’s in it for FTX US? A large retail customer base in the US, especially if BlockFi can get that blessing from the SEC. The FTX call option can be exercised in October 2023 at the earliest. In the meantime, BlockFi still has a $250 million line of credit with FTX. [Coindesk]
Prince blessed us with his wisdom regarding the crypto meltdown, in the form of an article he sent as a press release to the Dow Jones Newswire.
You will be shocked to learn that Prince’s plans for BlockFi all assumed that the crypto bubble would continue to inflate for at least the rest of 2022. But in hindsight, it turns out bubbles are popping! Prince places the critical moment on June 11, shortly before Celsius fell, followed soon after by 3AC – not May, when Terraform’s UST/luna crashed. Maybe he means when BlockFi suddenly got into a ton of trouble.
Prince’s innovative new approach is “disciplined risk management, financial transparency, and strong regulatory compliance” – all of which would be unheard of in crypto.
“Crypto was created to be separate from the global economy and central banks,” says the guy who runs an investment firm that is absolutely and totally focused on the US dollar. [Barron’s]
SkyBridge Capital, Anthony Scaramucci’s investment company, suspended redemptions of its “Legion Strategies” fund in mid-July. [Bloomberg]
About 18% of the $230 million fund are crypto-related investments, including a large stack of bitcoins, ether, and Algorand, and an investment in crypto exchange FTX.
Scaramucci says the buyout suspension is temporary. “This is the first time we’ve had a suspension,” he told CNBC Squawkbox. The fund is down 30% since the start of the year. According to Scaramucci, the suspension was because they didn’t want to “damage investors who want to stay in the funds,” if a lot of investors decide to exit in a less “orderly” fashion. It reassures investors that the funds are safe. [CNBC, video]
Like everything else in crypto, it works as long as the numbers grow and few people try to cash out. When they do, accounts are frozen, crypto firms file for bankruptcy, and yachts are coming back to the market.
But no worries! Scaramucci releases a new fund dedicated to Web3 and fintech startups! [Business Insider]
Scaramucci is still incredibly bullish about bitcoin — but then, he has to be, really. He thinks Fidelity’s offering of bitcoin in 401(k) retirement funds is a good sign. And he admits he was wrong when he guessed $100,000 per BTC last year. [CNBC, video]
of the Traveler Key Employee Loyalty Program Payments for 38 employees are moving forward – although the unsecured creditors’ committee negotiated the amounts down. Employees are mainly in accounting and IT; none is executive. Payments will be 22.5% of each employee’s annual salary. [Bloomberg; Twitter]
Voyager asked the court to stay or dismiss the lawsuit against investor Mark Cuban and CEO Steven Ehrlich who claimed Voyager had a Ponzi scheme. Their argument is that bankruptcy protections from lawsuits should extend to key company figures. Since the lawsuit against Erlich and Cuban is related, the company wants the court to dismiss the case. The answer is only pages 1-12; the other 199 pages are exhibits. [adversary complaint, PDF]
In addition to FTX, Binance and Coinbase are also hoping to buy what’s left of Voyager, and apparently there are other smaller players. Voyager’s own VGX token grabbed headlines because it’s all stupid. [CoinDesk]
The capital of the three arrows is considering prison
Teneo has had the BVI liquidation of Three Arrows Capital (3AC) recognized in Singapore. This gives Teneo greater leeway to investigate locally and request access to financial records that 3AC kept in Singapore. Teneo wants to determine exactly which assets 3AC held locally.
Teneo is represented in Singapore by WongPartnership LLP.
Teneo has secured over $40 million in 3AC assets! Creditor claims against 3AC currently stand at approximately $2.8 billion. We think the money is gone and not coming back. [Bloomberg]
3AC co-founder Zhu Su filed an affidavit in Bangkok, Thailand on Aug. 19 accusing Teneo of misleading the Singapore High Court about 3AC’s corporate structure. Zhu says 3AC may therefore not be able to comply with Teneo’s requests for information, risking contempt of court – with consequences of up to imprisonment for 3AC officers! Threaten us to have a good time, okay. [Bloomberg]
Trade is falling
Cryptocurrency “digital banking platform” Nuri GmbH – formerly known as Bitwala – filed for bankruptcy on August 9. The company blames COVID-19, Russia’s invasion of Ukraine, cooling capital markets and, oh yes, the collapse of UST/Luna and Celsius. Nuri reassures clients that the funds are safe. Nuri laid off 20% of its employees two months ago. [Reuters; Nuri blog post]
India’s Law Enforcement Directorate has frozen 3.7 billion rupees (about $46 million) held by bankrupt crypto lender/exchange Vauld. The ED was investigating Yellow Tune Technologies in connection with the Chinese loan sharking scandal that hit WazirX – which may or may not be the Indian arm of Binance – a few weeks ago. The ED says Yellow Tune Technologies has helped companies launder their proceeds in crypto, with help from Flipvolt, a local Vauld entity. [The Block]
Binance continues to operate in the Netherlands without a license, despite repeated warnings. Binance enjoyed a “competitive advantage” by not paying fees to the regulator, De Nederlandsche Bank, and skipping compliance costs. It had started breaking the rules in May 2020. Binance was fined EUR 3,325,000 by DNB in July. The initial fine in April was 2 million euros. Binance has now started the registration process. [Coindesk; DNB, PDF, in Dutch; DNB notice from April, in Dutch; FT, archive]
German “savings fintech” Rubarb is broke. The company was run by Fabian and Jakob Scholz, nephews of Chancellor Olaf Scholz. Rubarb entered DeFi in March 2022 and had 40 million in degrees Celsius. Fabian Scholz assures his clients that the funds are safe. [Business Insider, in German; FinanceFWD, in German]
Hotbit, a crypto exchange registered in Hong Kong and Estonia, suspended operations on August 10 – and it was not because they were playing DeFi markets. A Hotbit management employee, who left in April 2022, joined a questionable GameFi project in 2021 and mixed funds from the project with Hotbit funds, so law enforcement assumed that the exchange was in the scam. The exchange can’t work as long as all the money is frozen in the survey – but they promise the funds are safe. [Hotbit, archive; Hotbit, archive; Hotbit, archive]
So what happens next?
is all of this (we wave our hands at anything that catches fire) … the end for crypto?
We think it’s obvious that bitcoins and cryptos will be around for decades. All you need is software, blockchain data, and two or more enthusiasts.
But no one cares about the basic technical definition – they’re in it for the money and the convoluted system of people who could make money for them.
Will crypto continue to be a financial instrument on which you can win and lose fortunes? It’s a regulatory issue.
The original use case for bitcoin was money that could evade government scrutiny. A decade later, this is still the use case for crypto.
Of course, governments can be boring and stupid. But we don’t think that circumventing regulations is really sustainable in the long term.
We therefore foresee increasing regulation of crypto as it is a financial instrument. When you touch real money, you must follow the real money rules. This should surprise no one.
Genuine Zimbabwe Hundred Trillion Dollar Bills are over $100 in mint condition. We say ‘authentic’ because they’re popular enough that you need to watch out for counterfeits. So there is hope for bitcoin!