Crypto collapse: FTX’s fall is one piece of a long, cold, contagious crypto winter

President Joe Biden says Silicon Valley Bank deposits will “be there when you need them.”

It’s the promise the president made to depositors in a speech at the White House on Monday. Throughout his brief remarks, Biden also reassured viewers that no taxpayer money would be used to bail out the bank.

The speech followed a Sunday announcement from the government’s top banking regulators that they were setting up an emergency lending program to ensure all SVB depositors are made whole.

Panic! At the bank.

Silvergate is gone. The FDIC took over Silicon Valley Bank. Several other banks have lost billions in value, and it’s unclear whether a number of tech companies will be able to keep operating while all of this gets figured out.

If you’re unclear why our situation is the way it is, go back and take a look at Liz Lopatto’s article from a few weeks ago about interest rates and what they mean for tech companies right now.

Even if you don’t invest in crypto, keep an eye on Silvergate Bank.

Elizabeth Lopatto has all the information you need about why this now-collapsed institution was so important to US crypto companies, and what its collapse could indicate for the wider economy.

A deep-dive into crypto trainwreck Celsius.

If you’ve been following the case closely, most of the facts here won’t be a surprise to you. Hearing from the people who put their money into Celsius, around 15:24, is the stand-out here: people who lost money saved from years of work, and one person who couldn’t put a down payment on a house because his funds were locked in Celsius.

Bad actors prey on hope. Be careful when someone tells you what you want to hear.

[DJ Khaled voice] Another one.

Nishad Singh, FTX’s head of engineering and owner of a 7.8 percent stake in the company, has pleaded guilty to criminal fraud charges. He wrote the software that let Alameda exempt itself from being auto-liquidated, Reuters previously reported.

Also of note: Singh gave $8 million to Democratic campaigns and PACs in 2022, according to Open Secrets.

A nice reminder to audit the code of the DeFi protocol you’re using.

The founders of Forsage, a alleged Ponzi purporting to be a DeFi protocol have been indicted for fraud. That’s not the funny part.

This is:

Analysis of the computer code underlying Forsage’s smart contracts allegedly revealed that, consistent with a Ponzi scheme, as soon as an investor invested in Forsage by purchasing a “slot” in a Forsage smart contract, the smart contract automatically diverted the investor’s funds to other Forsage investors, such that earlier investors were paid with funds from later investors.

Binance had “secret access” to a bank account owned by a partner, and transferred money to a firm affiliated with Binance CEO Changpeng Zhao.

Binance.US’s executives were concerned by the outflows because the transfers were taking place without their knowledge, according to messages reviewed by Reuters. The CEO of Binance.US at the time, Catherine Coley, wrote to a Binance finance executive in late 2020 asking for an explanation for the transfers, calling them “unexpected” and saying “no one mentioned them.”

Fine and normal, we haven’t had any recent cryptocurrency issues with secret transfers, have we?

When nerds break bad.

Gary Wang, cofounder of FTX, isn’t as famous as Sam Bankman-Fried — but he might be the most important part of the government’s case against SBF. The two met in math camp, and this Bloomberg report traces their history together until SBF got a note explaining a witness was cooperating against him:

Reading the cable from the US, Bankman-Fried realized who CC-1 was: Gary Wang.

Court reveals the two people who helped Sam Bankman-Fried post bail.

The former FTX crypto tycoon is living with his parents in California instead of sitting in jail, thanks to a $250 million bail secured by his parent’s home as well as two people who had been kept anonymous.

Today, after news organizations argued for the information to be released, the court revealed Stanford research scientist Andreas Paepcke put up $200,000 and former Stanford Law School dean Larry Kramer put up $500,000. SBF’s parents teach law at Stanford.

Paxos is facing SEC scrutiny, too.

Remember when I told you Binance has a target on its back? It might not be in the US, but its partner on a stablecoin sure is. And if regulators can’t hit Binance, they can hit its partners.

Paxos not only has to stop issuing BUSD, its Binance-affiliated stablecoin, the SEC may take action against it: a Wells Notice suggests the agency thinks BUSD is an unregistered security.

To scam a scammer!

Scam hunter Coffeezilla decided to see if influencer Dillon Danis really meant what he said about feeling bad about people who got NFT scammed. So he set up an obviously-fake NFT project to see if Danis would promote it.

Personally, my favorite part of this was discovering the going rate for NFT project promotion. It’s very cheap!

Celsius reportedly used investor money to prop up its token price.

Founders Alex Mashinsky and Daniel Leon also sold the token while this all was going on, according to a court-ordered report on Celsius. If you don’t have time for the full filing, Reuters summarizes its results.

“When you look at what the banks pay, you say to yourself, ‘Somebody is lying. Either the bank is lying or Celsius is lying,’” Mashinsky said in 2021. Guess we know who it was now!

Is SBF witness tampering now? His lawyers say no.

“Bankman-Fried’s use of Signal to reach out to the current general counsel of FTX US, who is a witness, was ‘merely an innocuous attempt to offer assistance in FTX’s bankruptcy process and does not reflect misconduct that warrants the restriction the Government proposes here,’” Bloomberg reports.

At this point, I wonder if the government has let him out on bail just so he’ll further incriminate himself.

Why does it matter that Binance is commingling customer funds?

Bennett Tomlin of Crypto Critics Corner takes you through it and uh, it’s maybe not great. “Their entire claimed segregation of client crypto assets depends entirely on Binance having perfect, or very, very good internal accounting records,” Tomlin says.

Yikes.

“Legislation should not greenlight mainstream institutions, like pension funds, to dive headlong into cryptocurrency markets.”

The White House has noticed the crypto shenanigans of the last year, and presumably its denizens are not especially pleased about them.

Of particular note: “While congressional action in these areas would be welcome, Congress could also make our jobs harder and worsen risks to investors and to the financial system.”

Whoopsie-doodle, Binance has been commingling customer funds!

…And violating its own guidelines in the process.

The commingled funds make it difficult to sort out whether Binance can meet redemption requests for its 94 B-tokens. Good luck out there — I think a lot of you will need it.

Still the smartest thing you’ll ever watch about NFTs.

As Reddit points out, today is the one-year anniversary of “Line Goes Up,” Dan Olson’s long investigation/treatise on what NFTs really are… and why there’s really not much value in them at all. Twelve months later it’s amazing how much the video gets right, and how little has changed since. Still a fun watch, too!

Have you been wondering about Gemini, Genesis, and the Grayscale Trust?

If so, this deep dive from the podcast Odd Lots is fantastic.

Three Arrows Capital and BlockFi were both borrowing from Genesis in order to get involved with a Grayscale arbitrage trade… and now Genesis is bankrupt. Of course, this is also why CoinDesk is up for sale, since Genesis, Grayscale, and CoinDesk share a parent company.

Blind item time! Who’s Razzlekhan’s new employer?

Heather Morgan, aka the cringe rapper Razzlekhan, wants to alter her 24-hour house arrest so she can go to her job in New York as a “growth marketing and business development specialist,” Bloomberg reports, citing a legal filing. Morgan’s house arrest stems from allegedly trying to launder a bunch of hacked crypto.

Which one of you hired her?

The creator of Inspector Gadget also headed FTX’s partner banks.

A step-back from Forbes on the deeply weird banking relationships at FTX notes that the exchange’s accounts at Moonstone Bank, supposedly worth almost $50 million, didn’t appear in the FTX bankruptcy proceedings.

What if Inspector Gadget was the bad guy all along?

If you want a friend in the cryptocurrency business, get a dog.

At least, that’s what Sam Bankman-Fried seems to have done. The dog is a German shepherd named Sandor, and — unforgivably — Puck’s Teddy Schleifer has not taken a photo for his post.

Yes, SBF is still giving interviews. There isn’t a lot of meat in this one, and not just because dude’s a vegan. But he tells Schleifer that’s he’s planning to battle this all the way out in court.

Remember the Winklevoss twins?

The twin sea gods famously shafted by Mark Zuckerberg? Inexplicably involved in the tech industry despite having dominion over the sea floor?

Anyway they’re beefing with the Digital Currency Group now, Bloomberg says their reputation has been tarnished, and their rock band, The Mars Junction, is the lede of the story. Perhaps they have been cursed, and the only thing that will free them is breaking some magical conch shell, who can say!

Silvergate Capital survived a post-FTX run on deposits, but now the crypto-focused bank’s stock is tanking.

Exactly one month ago, Silvergate’s CEO insisted things were ok, despite the problems with FTX, a major customer.

Today its Q4 filing reveals deposits from crypto customers shrank from $11.9 billion to $3.9 billion in three months, $150 million of the bank’s deposits are held by customers who’ve filed bankruptcy, and it’s laying off 200 employees.

The company’s stock price is down 46 percent.

“It wasn’t me.”

According to out-on-bail FTX co-founder Sam Bankman-Fried, discussing suspicious transactions on crypto wallets linked to him and FTX / Alameda Research.

We don’t know who is moving the funds, but we do know that SBF just can’t shut up, apparently even while his former associates are copping pleas for fraud and cooperating with prosecutors.

The Bahamas seized $3.5 billion in FTX digital assets.

The country’s Securities Commission took control of the assets soon after the crypto exchange filed for bankruptcy in the US in November, and the value is based on crypto prices at the time — it’s likely changed significantly since then.

The regulator “determined that there was a significant risk of imminent dissipation as to the digital assets under the custody or control of FTXDM to the prejudice of its customers and creditors,” it said in a Dec. 29 media release. That tracks.

An incomplete list of current crypto scandals.

I think that’s everything for now, but follow our stream for more updates.

Bloomberg digs into the $546 million loan Sam Bankman-Fried used to buy a piece of Robinhood.

CNBC follows $200 million diverted by FTX to invest in crypto companies.

NBCNews looked at North Dimension, a fake electronics retailer that somehow helped SBF redirect money wired in by FTX customers.

Investors in the Winklevoss’ twins Gemini Trust Earn say they were wiped out when it abruptly shut down after FTX folded, and now they’re suing.

And someone leaked API keys for thousands of crypto traders who used a service called 3Commas. CoinDesk reports dozens of users have lost millions in hacks over the last few months, with 3Commas claiming they must have been victims of phishing attacks.

Oh, and the feds are investigating the $372 million in crypto that conveniently went missing just after FTX shut down.

If you think about it, bank robbery could be described as a “highly profitable trading strategy.”

Reuters reports that authorities in Puerto Rico have arrested Avraham Eisenberg for the October incident referenced in his tweet below.

By his own admission, he used a cryptocurrency protocol for the MNGO token in a way that flattened the Mango Markets exchange, draining $110 million before negotiating the return of $67 million to Mango to make its users whole.

While some might say this is legal because “code is law,” the FBI apparently disagrees. Eisenberg faces charges of commodities fraud and commodities manipulation, which you can read in the now-unsealed complaint (pdf).

Y’all remember Razzlekhan?

Bloomberg has produced a great mini-documentary on Heather Morgan and Ilya Lichtenstein, a couple accused of attempting to launder billions in Bitcoin from the 2016 Bitfinex hack — crypto scheming that well predates Sam Bankman-Fried and the FTX meltdown.

You may remember Morgan better as Razzlekhan, the name she used to release rap songs about being the “Crocodile of Wall Street,” among many other things. Earlier this year, I listened to all of her publicly-available songs and watched hours of her TikTok and YouTube videos to write an explainer — if you’d like a sample of what my therapist has to hear about, you can read that here.

Here he comes.

And there he goes.

Watch FTX co-founder Sam Bankman-Fried’s extradition hearing.

Reuters has a live stream as proceedings are set to resume in the Bahamas over extraditing the ex-CEO of the failed crypto exchange to the US.

Back home, he’s set to face criminal and civil charges that include fraud and money laundering.

FTX co-founder Sam Bankman-Fried is reportedly agreeing to be extradited to the US.

According to the New York Times, a local lawyer in the Bahamas for FTX co-founder and former CEO Sam Bankman-Fried said that against “the strongest possible legal advice,” SBF is ready to voluntarily agree to extradition to the United States.

SBF had reportedly been ready to contest his extradition; even today, it was reported that he wanted to read the indictment before agreeing to extradition.

In the US, he is set to face a long list of criminal and civil charges covering fraud, money laundering, and more.

Sam Bankman-Fried’s ready to surrender himself to the US for extradition.

According to a report from Reuters, the former FTX CEO no longer plans on contesting extradition to the US, where he’s charged with money laundering and fraud. He’s reportedly set to appear in court in the Bahamas on Monday to waive his extradition rights.

Apple could open up iOS, and the feds finally make a case against SBF.

This podcast was recorded before Elon Musk’s Twitter ban extravaganza reached its peak, but we dug into the @ElonJets mess. From Apple, we’ll check out the report that it will allow outside app stores on iOS as well as the hole left by a missing M-series Mac Pro in its desktop lineup.

I tried to recap Sam Bankman-Fried’s transition from media tour to handcuffs, and then we talked more about the golden age of streaming and why David Zaslav’s biggest problem might be in his presentation.

Ryan Salame sang like a canary.

Salame, FTX’s former co-CEO, warned Bahamian regulators on Nov. 9 that FTX transferred funds to Alameda Research to “cover financial losses,” according to court filings.

The regulators wrote in the filing:

The Commission understood Mr. Salame as advising that the transfer of clients’ assets in this manner was contrary to the normal corporate governance and operations of FTX Digital. Put simply, that such transfers were not allowed and therefore may constitute misappropriation, theft, fraud or some other crime. 

Salame named names, too: only Sam Bankman-Fried, Nishad Singh, and Gary Wang could have done it. FTX filed for bankruptcy on Nov. 11 in the US.

Yesterday, Bankman-Fried was charged with money laundering, wire fraud, securities fraud, commodities fraud, and some assorted conspiracy charges.

SBF is in jail, so what’s going on with FTX and all of the investigations?

The Verge policy reporter Makena Kelly gets us up to speed on what’s going on with FTX and its co-founder Sam Bankman-Fried.

This week both the Senate and the House of Representatives had hearings about the failed crypto exchange. They did not include live testimony from Mr. Bankman-Fried, who has been arrested in the Bahamas ahead of extradition to the US to face a number of criminal and civil charges.

“Yesterday, I was sure gonna drink.”

Coindesk is covering Sam Bankman-Fried’s first hearing from the courtroom after the FTX founder was arrested yesterday on charges of fraud and money laundering.

So far, they’ve reported details on how his parents are handling the proceedings, how he left the courtroom to take his shirt off and administer medication, and the judge trying to decide whether to grant him bail as he faces extradition to the US. It doesn’t seem like an easy decision for her.

Find a QuickBooks plan that’s right for your billion-dollar business.

I’m dying to know which QuickBooks accounting software plan FTX was subscribed to. “Simple start” for $15 a month, or did it splurge on “Advanced” for $100?