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Treasury Secretary Janet Yellen called FTX’s collapse “a Lehman moment” for the digital asset industry.

“It’s a Lehman moment within crypto, and crypto is big enough that you’ve had substantial harm of investors, and particularly people who aren’t very well-informed about the risks that they’re undertaking, and that’s a very bad thing,” Yellen said at the New York Times’ Dealbook Summit, referencing the collapse of the Lehman Brothers bank that accelerated the 2008 global financial crisis.

“This is an industry that really needs to have adequate regulation and it doesn’t,” Yellen said. “We have consistently urged that regulatory gaps be closed and I think this experience with his firm, or set of firms, just couldn’t provide a better illustration,” she added, referring to Sam Bankman-Fried and FTX, Alameda Research and their myriad of affiliated companies.  

Earlier this fall, the Treasury Department and the Financial Stability Oversight Council — a super committee of regulators that Yellen chairs — both recommended continued enforcement of current financial laws governing digital assets prior to the FTX collapse. That failure has only increased legal and regulatory scrutiny over the sector. The FSOC also recommended that Congress pass multiple new laws to address potential gaps in regulation of crypto companies, including “regulatory arbitrage,” where firms like FTX position themselves outside traditional regulatory lanes.

Yellen echoed previous statements from banking regulators in highlighting the lack of exposure that digital assets have to the banking industry. She saw that as a positive.

“The good piece of an explosion like we saw is that it hasn’t spilled over to the banking sector; banking regulators have been very careful,” she said.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Contagion spreading through the crypto industry could have been worse if federally-insured banks were “dangerously intertwined” with crypto, according to Sen. Elizabeth Warren, D-Mass.

Warren laid into the crypto industry during a Senate Banking Committee hearing, slamming troubled crypto exchange FTX as “not much more than a handful of magic beans.” The hearing focused on several Biden administration nominees, including Martin Gruenberg, the acting chair of the Federal Deposit Insurance Corporation. Biden nominated Gruenberg to serve as chair of the agency.

“Our banks stayed safe even as crypto imploded because many of President Biden’s regulators, like Acting Chairman Gruenberg, fought to keep crypto from becoming dangerously intertwined with our banks. And he did this despite the Trump administration’s and crypto boosters’ aggressive efforts to bring crypto and all its risks into traditional banking,” Warren said.

Washington lawmakers and regulators are taking a closer look at crypto after the FTX catastrophe. The company filed for bankruptcy protection in Delaware earlier this month, sending a shockwave through the industry. Crypto lender BlockFi recently filed for bankruptcy protection, citing its exposure to FTX. 

Warren pressed Gruenberg on whether the banking system would be “less safe” if FDIC-insured banks were fully involved in the crypto market. Warren’s examples included if banks held FTX tokens on their balance sheets or accepted crypto tokens as collateral for loans.

“I would think so,” Gruenberg said. “The evidence is clear now. We had companies that were engaging in highly speculative activity, highly leveraged and vulnerable to a loss of confidence in a run. They did not have direct exposures to the insured financial institutions and as a result the failure of those firms was really limited to the crypto space.”

The Massachusetts Democrat warned that integrating “toxic crypto assets” into the banking system in the future could cost taxpayers money. 

“Some industry boosters still argue that these toxic crypto assets should be more integrated into the real banking system, which would mean that the next time crypto stumbles, taxpayers would be on the hook to bail out these banks,” Warren said. “No thanks on that one.”

Senate Democrats have raised similar concerns about SoFi’s crypto arm, warning in a recent letter that taxpayers could be forced to bail out the firm if it faces a crisis. SoFi received Federal Reserve approval to be a bank holding company and be treated as a financial holding company earlier this year, on the condition that it divest SoFi Digital Assets or conform its activities to the law in two years.

Later in the hearing, Sen. Pat Toomey, R-Pa., the top Republican on the committee, came to the industry’s defense.

“I think there’s a danger that some of us confuse bad behavior by individual people with the instruments they use to conduct their bad behavior. There is nothing that I’m aware of — and I’ve studied this pretty closely — about what happened with FTX that requires us to blame crypto,” Toomey said. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

BlackRock Chief Executive Larry Fink said that the firm invested $24 million in FTX through a fund of funds it manages, according to Reuters.

He also said that there were some misbehaviors at the crypto exchange FTX, but that the technology behind crypto is still relevant.

“We’re going to have to wait to see how this all plays out (with FTX). I mean, right now we can make all the judgment calls, and it looks like there were misbehaviors of major consequences,” Fink said, during an event hosted by the New York Times Dealbook, Reuters reported.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Broker-dealer and digital assets trading platform INX is making a play for bankrupt crypto lender Voyager Digital’s assets.

The company submitted a bid for the assets via a non-binding Letter of Intent (LOI), according to a company release.

“Our bid is a strategic next step in executing INX’s vision to democratize finance and reshape existing paradigms in the market by leveraging the power and versatility of its regulated trading platform,” said Shy Datika, CEO of INX, in the release. “We believe that INX can offer the right combination of credibility, technology, and unique regulatory positioning to protect Voyager customers and creditor interests — giving them the stability they are looking for.”

Voyager filed for Chapter 11 bankruptcy protection in July due to its over $650 million exposure to the collapsed crypto hedge fund Three Arrows Capital (3AC).

Crypto exchange FTX.US initially won the bidding process for Voyager’s assets in September. The auction process for Voyager’s assets reopened after the FTX Group filed for Chapter 11 bankruptcy protection.

Several industry players who participated in the initial auction are planning to resubmit bids including Binance.US, Wave Financial and CrossTower.

INX did not submit a bid in the September auction. The company unveiled INX One, a regulated trading platform for security tokens and cryptocurrencies, in September and raised $85 million from over 7,300 investors last year in the first SEC-registered digital security IPO.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Tim Draper, founding partner of VC firm Draper Associates, sounded an optimistic tone at a Wednesday conference in Miami despite ongoing turmoil across crypto markets and his prediction of a looming recession.

“We’re going through a fundamental change, and there’s going to be a lot of friction,” he said at the MiamiWeb3 conference. “Keep your heads down, keep working.”

Draper praised countries like Switzerland and Malta that he said had embraced web3 decentralization, while he said China had taken a turn back into the “dark ages.”

“It’s sort of a critical time for the world, and you see the weak leaders trying to control everybody, and you see the strong leaders setting people free and trusting people,” he said, calling Chinese president Xi Jinping a “weak leader.”

He drew widespread applause when he said that “all the best entrepreneurs are leaving China and coming here to Florida.”

While Draper said he thought a recession was on the horizon, he said that there could be a silver lining, noting that 30 of the top 31 most valuable companies had been formed in the aftermath of bear markets.

“When things are bad, there’s a flight to quality,” he said, predicting that bitcoin would emerge as a winner among more centralized cryptocurrencies such as FTX’s failed FTT token.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Kraken’s the latest crypto firm to announce mass layoffs amid the crypto downturn. 

“We’re reducing our global workforce by approximately 1,100 people, or 30 percent, in order to adapt to current market conditions,” the firm said in a blog post. 

Coinbase kicked off layoffs in June at the beginning of the crypto downturn.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

FTX CEO John Ray stressed in a company all-hands this week that the firm has not been communicating or “dealing with” former senior executives, including its co-founder Sam Bankman-Fried. 

The call between Ray and FTX and FTX.US employees provided few specifics on how the bankruptcy process was unfolding, but the restructuring expert tried to ease anxious employees by noting that “things will relax a bit.”

FTX filed for bankruptcy protection earlier this month following the implosion of its native FTT token and revelations that the company misappropriated customer funds. 

“We’re getting more and more control over the situation,” he added. 

Ray — who led the restructuring of Enron during its bankruptcy — also stressed that former CEO Sam Bankman-Fried and other members of his inner circle, including former Alameda CEO Caroline Ellison, were no longer involved in the company’s day-to-day operations despite tweets from the former billionaire that he would work to make customers whole, and that the firm is not communicating with the former executives.

Ray also said the company would be implementing a pay cap, suggesting that bonuses won’t be given out to employees, according to a person familiar with the situation. He also asked workers to exercise caution on social media and to not answer questions from the press.  

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto lender Nexo has gained a registration as a “virtual currency operator” in Italy, the company said in an announcement today. This allows the European-based firm to legally provide its services to Italian citizens.

The license is issued by Organismo Agenti e Mediatori, which manages the country’s lists of registered financial agents and credit brokers.

“This registration in Italy is part of our master plan to strengthen our presence in the country and improve the robustness of our compliance across Europe,” said Antoni Trenchev, co-founder and managing partner of Nexo, in a statement.

The European Union is set to pass a set of laws on crypto assets that will allow firms to passport their license across the 27-nation bloc. Nexo plans to take advantage of this under the Markets and Crypto Assets regulation, according to the statement. The new rules are anticipated to come into force in 2024.

Nexo’s website shows registrations in several U.S. states and six other countries.

Crypto exchanges Binance, Coinbase and Crypto.com have all seen approval from Italy’s OAM this year. As of February 18, 2022, Registration with the OAM’s Registry is considered mandatory for all Virtual Asset Service Providers (VASPs).

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin and ether traded higher in line with crypto stocks as traditional markets rose marginally.

Bitcoin gained 2.6% in the past day, trading at $16,804 at 8:30 a.m. Eastern, according to CoinGecko. Ether was changing hands for $1,265, climbing over 4.5%.

The price of bitcoin has been relatively stable over the past week despite fresh bankruptcy news from BlockFi. That said, two European Central Bank advisers say  bitcoin is on the brink of irrelevance. 

Dogecoin rose 2.4%, along with Ripple’s XRP. Binance’s BNB went the other direction, dropping by 0.7%.

Grayscale’s bitcoin and ether trusts continue to lag, with the firm’s ETHE trust hitting a new all-time low discount to NAV. ETHE was traded at a discount of 45.22%. The product’s previous low was 44.65% on Nov. 21.

The discount to NAV of Grayscale’s main structured product, GBTC, has widened to 42.37%.

Crypto stocks

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Daylight, a software solution for aggregating web3 perks, raised $3 million in a seed round co-led by Framework Ventures and Chapter One. 

Other backers in the round include 6th Man Ventures, Spice Capital and OpenSea, as well as several angel investors such as Syndicate’s Will Papper and Friends With Benefits’ Alex Zhang, according to an announcement. 

Founded in April this year, Daylight provides an API that aggregates all web3 perks that users can qualify for based on their wallet address. The API can be integrated into crypto applications and wallets.

The startup launched a web application in October to demonstrate the API, which has over 14,000 closed beta users and a waitlist of 15,000 users. 

How does Daylight work?

The API shows users perks such as claiming airdrops and accessing token-gated experiences. It aggregates these from a variety of sources such as indexed on-chain data, integrating data from community tools such as POAP and Snapshot as well as receiving submissions from Daylight Scouts, according to the announcement. 

“Your wallet address has special abilities that you don’t know about, based on the tokens you hold, the allowlists you are on, and the smart contracts you’ve interacted with,” said Kyle McCollom, CEO of Daylight, in a statement. “These abilities are a huge part of how we interact with each other and how communities engage their members, but there is currently no way for people to see or manage all of them in one place.” 

Coming out of closed beta

The round closed in May and gives investors a combination of equity and token warrants, said McCollom in an emailed statement to The Block.

The funds will be used to further customize the API and grow Daylight’s scout community. The API has been built using web2 programming languages Typescript, Node.js and React, McCollom added.

The web application also  recently moved out of closed beta and will be available to any user with an Ethereum wallet address, according to the announcement.  

“As the dApp space continues to expand, Daylight will be the number one guide that helps users make the most of their Web3 experience without them having to constantly monitor Discord and Twitter to understand all that they are capable of,” said Michael Anderson, co-Founder of Framework Ventures, in a statement. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.