What happened this week around blockchain and cryptocurrencies? The most relevant local and international events as well as appealing background reports in a pointed and compact weekly review.
Selected articles of the week:
The contagion effect that has plagued the cryptocurrency industry since 2022 is evident in the interconnections of various service providers, who are now seeking to enforce their claims through legal means. The most prominent example is the dispute between Gemini and Genesis. Genesis is a subsidiary of the cryptocurrency conglomerate Digital Currency Group (DCG) which is also the parent company of the $10 billion trust issuer Grayscale. Gemini, a US-based cryptocurrency exchange founded by the Winklevoss twins, accuses Digital Currency Group (DCG) of “willfully delaying” customer claims worth $900 million. The allegations stem from the Gemini Earn Program, which offered cryptocurrency loans to customers in partnership with DCG’s company Genesis. The program was shut down in November, leaving 340,000 customers without access to their loans or interest. Investors filed a class-action lawsuit against Gemini and its founders on December 27, claiming that the company failed to register the customers’ investments as assets. In an open letter on Twitter, Cameron Winklevoss accuses DCG CEO Barry Silbert of delaying a mutually satisfactory solution. A compromise has not been reached for six weeks, and his behavior towards Gemini’s customers is described as ruthless by the Gemini Cofounder. The current case, as well as the pending liquidation of the formerly second-largest cryptocurrency exchange FTX, illustrates an urgent need for regulatory action regarding the protection of customer deposits by central cryptocurrency providers.
Cameron Winklevoss gives the Digital Currency Group CEO an ultimatum to release the funds owed to customers under the Gemini Earn Program.
A similar issue has arisen in the bankruptcy proceedings of the online lending platform Celsius Network. An American bankruptcy judge has ruled that the majority of cryptocurrencies held by Celsius Network on its online platform belong to the company, meaning that most of its users will be treated as secondary in the proceedings. This decision affects around 600,000 accounts valued at $4.2 billion at the time of Celsius’s bankruptcy in July. Due to various payment failures (such as Three Arrows Capital and Terra/Luna), the company does not have sufficient funds to fully repay these deposits. This means that former Celsius customers with interest-bearing accounts will have a lower priority than secured creditors. The decision sets a precedent and will undoubtedly be taken into consideration in future rulings.
A U.S. bankruptcy judge has ruled that crypto lender Celsius Network owns most of its customers’ crypto deposits.
It was a challenging year. The bankruptcy of centralized crypto service providers not only caused significant financial damage, but also led to a loss of trust. Overall, the market-driven process of eliminating non-competitive players and the future addition of a clear legal framework will contribute to a robust and sustainable infrastructure. The industry must also return to the roots of blockchain technology and replace trust in counterparties with mathematical proof. Despite all the challenges, the integrity of Bitcoin and blockchain technology remains unbroken. The sector is seeing diversified growth driven by developments in areas such as non-fungible tokens, tokenized assets, digital identities, and gaming.
An interesting year is drawing to a close. The most important developments of the past year in a compact review of 2022.
US financial regulators have issued a joint statement warning banks about the risks of crypto assets and emphasizing the importance of adhering to consumer protection and other relevant laws and regulations. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) stated that they will not prohibit or discourage banks from engaging in the crypto sector, but will closely monitor banks with crypto exposures. Overall, the regulators want to ensure that crypto risks do not spill over into the banking system and that banks’ crypto-related activities are in line with banking practices.
U.S. financial regulators have issued a joint statement warning banks of the risks associated with crypto-assets.
In addition, Sam Bankman-Fried, the founder of cryptocurrency exchange FTX, has pleaded not guilty in a federal court in Manhattan to eight counts of fraud totaling billions of dollars. The prosecutor speaks of fraud on an “epic” scale, in which Bankman-Fried used FTX customer funds for his hedge fund Alameda Research, real estate purchases, and large political donations. Bankman-Fried has admitted to mistakes at FTX, but denies criminal responsibility. Two former top employees of Bankman-Fried have pleaded guilty and will testify against him in the trial, which is set to begin on October 2 and is expected to last four weeks. If convicted, Fried faces up to 115 years in prison.
Sam Bankman-Fried, founder of insolvent crypto exchange FTX, pleaded not guilty in federal court to eight charges.
