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FTX Trading and approximately 101 additional affiliated companies said most subsidiaries are resuming ordinary course payments of salaries to employees worldwide and ordinary course payments to certain non-U.S. contractors and service providers.

“With the Court’s approval of our First Day motions and the work being done on global cash management, I am pleased that the FTX group is resuming ordinary course cash payments of salaries and benefits to our remaining employees around the world,” CEO John Ray said in a statement. “FTX also is making cash payments to selected non-U.S. vendors and service providers where necessary to preserve business operations, subject to the limits approved by the Bankruptcy Court.”

The relief includes cash payments concerning both pre-petition and post-petition periods, subject to limits for payment of pre-petition amounts established by the orders of the bankruptcy court.

The FTX Group will pay vendors and service providers in the ordinary course for all goods and services provided on or after the Chapter 11 filing date.

FTX filed for bankruptcy protection on Nov. 11, the same day that founder Sam Bankman-Fried resigned as CEO.

In The Bahamas, the relief applies only to employees or contractors of FTX debtors, and not to employees or contractors of FTX Digital Markets Ltd. FTXDM Bahamas is the subject of a local liquidation proceeding and not included in, or protected by, the Chapter 11 cases in the U.S.

The relief also does not apply to employees or contractors of FTX Australia Pty Limited and FTX Express Pty Ltd, which is the subject of a separate proceeding in Australia.

© 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.

Most bitcoin mining stocks tracked by The Block traded lower on Monday, continuing a longer-term trend. 

Bitcoin was trading at around $16,200 by market close, according to data from TradingView.

BTCUSD Chart by TradingView

TeraWulf’s stock fell 11.35%, after the company announced operational updates about cost-reducing initiatives. Mawson Infrastructure Group also fell 9.03%, followed by Bitfarms (-8.14%), Iris Energy (-8.11%).

Here’s how crypto mining companies performed on Monday, Nov. 28:

© 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.

In light of the FTX collapse, Sen. Cynthia Lummis, R-Wyo., sees a brighter future for her signature crypto legislation in the next congressional session.

While noting that little action in Congress is imminent before the end of this year, “when we reconvene in January with the new Congress I’m very hopeful that the Lummis-Gillibrand bill will be high on our legislative agenda,” Lummis said in a pre-recorded interview for a Financial Times event in London. “Now we may need to break it apart into standalone pieces that go to different committees.” 

The bill, also known as the Responsible Financial Innovation Act, is wide-ranging legislation that since its June introduction seemed aimed at being broken up into smaller bills.

The bill would amend current securities laws to accommodate digital assets, as well as set new rules around taxation, custody, consumer protection and other areas of federal law touching on cryptocurrencies. Lummis said she’s also open to tightening up definitions around digital assets in the bill, in collaboration with the Securities and Exchange Commission, who are concerned about “unintended consequences,” she said.

The Wyoming Republican cast some doubt on the status of another bill to create new rules around crypto markets and exchanges, the Digital Commodity Consumer Protections Act, or DCCPA. Lummis noted that “FTX was heavily involved in drafting the bill,” and argued, “That bill needs to be rewritten in a way that is more effective and neutral as to business models, but very, very focused on consumer protection.”

Lummis instead plugged her own bill as a safeguard against the alleged malfeasance that led to FTX’s failure. 

“The FTX failure, had they been complying with the regulatory regime in our bill, would not have happened,” Lummis said. “Their customers need to know that when a customer allows someone to custody their asset — whether it’s bitcoin or ethereum, or solana or cardano or anything else — that their custodied funds will be segregated from other monies, so when it goes into a bankruptcy or everything goes wrong, the customers’ money is protected and not commingled with the mismanaged business entity’s liabilities.”

FTX’s recent bankruptcy filing is one of higher-profile instances of crypto firms collapsing, leaving customers locked out of deposits they had thought to be safe. 

Kari McMahon contributed reporting to this article. 

© 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 exchange Kraken agreed to settle with the Treasury Department’s Office of Foreign Assets Control over the firm’s apparent violations of sanctions against Iran.

Kraken, which voluntarily disclosed the violations, has agreed to pay $362,000 and will invest another $100,000 in compliance controls, according to OFAC. 

The settlement marks the fourth time OFAC has settled with a crypto firm, following agreements with BitGo, Inc., BitPay, Inc., and Bittrex, Inc. OFAC is a sanctions office within the U.S. Treasury Department.

For several years, Kraken processed $1.7 million in transactions for users who appeared to be located in Iran. The 826 transactions occurred between October 2015 and June 2019. U.S. companies are banned from doing business in Iran. 

Although Kraken had anti-money laundering and sanctions compliance programs in place, the crypto firm did not implement appropriate geolocation tools, including a system to block internet protocol addresses, OFAC said. Kraken had allowed users who appeared to be in Iran to make digital currency transactions on its platform. 

“This case highlights the importance of using geolocation tools, including IP blocking and other location verification tools, to identify and prevent users located in sanctioned jurisdictions from engaging in prohibited virtual currency-related transactions,” OFAC said in the settlement announcement. “Limiting the use of such controls only to the time of account opening — and not throughout the lifetime of the account or with respect to subsequent transactions — could present sanctions risks to virtual currency-related companies.”

After it discovered the problem, Kraken set up an automated system to block IP addresses linked to sanctioned jurisdictions and began using blockchain analytics tools for sanctions monitoring. The firm also hired a dedicated head of sanctions to direct its compliance efforts. 

The settlement amount “reflects OFAC’s determination that Kraken’s apparent violations were non-egregious and voluntarily self-disclosed,” the agency said. The agreement comes two months after Kraken CEO Jesse Powell stepped down from his role.

Kraken may not be the last crypto firm to face scrutiny for its business dealings in sanctioned countries. Binance reportedly continued to operate in Iran after 2018 despite U.S. sanctions, although the company maintains it is “fully compliant” with international sanctions. 

© 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 taxation is climbing up on the European Union’s agenda as speakers in a Brussels tax symposium highlighted the need to crack down on tax avoidance in crypto. The European Commission plans to adopt a draft of new crypto tax proposals on Dec. 7, several sources confirmed to The Block.

“While digitalization creates new opportunities, it also exposes cracks in our tax systems,” said Valdis Dombrovskis, European Commissioner for trade. “We have already started to address these challenges.” 

Dombrovskis pointed to the upcoming proposal from the European Commission’s new iteration of EU taxation guidelines “so that EU rules stay in line with evolving economies and include areas such as crypto assets.”

Policymakers plan to discuss new rules on crypto taxation over the course of 2023, with an eye towards enforcing them in 2026. The discussion will include whether to implement a single tax regime for crypto across the bloc. But the process will likely be slow; representatives from the EU’s 27 nations need to achieve unanimous agreement on tax decisions, as taxation is largely up to individual members.

The elimination of tax evasion using crypto is one of the recommendations made in the Commission’s report for economic challenges post-covid.

The EU Parliament is set to pass a comprehensive framework for regulating crypto, the Markets in Crypto-Assets legislation, in February. Additional provisions aimed at combating tax evasion and money laundering will have to fit into that framework. 

© 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.

Quick Take

• November 28, 2022 BlockFi files for Chapter 11 Bankruptcy Protection
• BlockFi estimates there will be funds left over to distribute to the more than 100,000 unsecured creditors
• $1 – $10bn estimated assets available for distribution 
• $1 – $10bn estimated liabilities outstanding 
• Bankruptcy process led by CEO and Co-founder Zach Prince 
• This is an ongoing series from The Block Research covering BlockFi’s insolvency and bankruptcy proceedings

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members of The Block Research.
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this Research content on The Block Research.

House lawmakers will begin their investigation into the collapse of crypto exchange FTX, and its broader impact on the digital asset industry, at a hearing scheduled next month.

The House Financial Services Committee will hold its first FTX-focused hearing on Dec. 13. The hearing, titled “Investigating the Collapse of FTX, Part I,” is likely to be part of a series.

FTX, once valued at $32 billion, filed for bankruptcy protection earlier this month. The firm collapsed after a run on its native utility token, FTT. 

The committee did not release a list of witnesses for the December hearing. Waters and Ranking Republican Rep. Patrick McHenry, R-N.C., have previously said they want former FTX CEO Sam Bankman-Fried to participate, along with companies involved including Bankman-Fried’s Alameda Research trading firm and rival exchange Binance. McHenry, the likely chair of the committee next Congress, told The Block earlier this month that he expects Binance’s role in the collapse to also be a focus of the hearing. 

Bankman-Fried is set to speak at a New York Times summit later this week, but has not yet publicly indicated whether he will cooperate with the congressional investigation.

Senate lawmakers are also taking a close look at the FTX crisis. The Senate Agriculture Committee will hold a hearing on Thursday, and the Senate Banking Committee is working to schedule an FTX hearing. 

© 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.

European Central Bank President Christine Lagarde called for more crypto regulations following the collapse of crypto exchange FTX, and cast doubt on the broader digital asset market. 

The “stability and reliability” of crypto “has been exposed in the most obvious way recently,” Lagarde said during an appearance before the European Parliament, responding to questions from policymakers concerned about the implications of FTX’s downfall. 

The ECB president reiterated a previous call for more legislation around cryptocurrencies, with the parliament on the verge of passing the Markets in Crypto-Assets regulation. That bill, expected to pass early next year and come into force in 2024, will cover portions of crypto and service providers. The enforcement of MiCA will put Europe as “pioneers in this world of great inventivity and great unreliability,” Lagarde said.

“There will have to be a MiCA II,” Lagarde added, as part of a bid to embrace more supervision of crypto. “Europe aims to be a leader in that respect.”

Lagarde previously pressed for a so-called MiCA II to expand on the provisions outlined by the landmark framework. In June, she suggested that MiCA II would address risk-producing connections to traditional finance, as well as crypto activities outside of MiCA’s scope like decentralized finance.

Lagarde also added that the ECB will provide EU citizens with digital payment alternatives. The ECB chief told the members of the European Parliament’s economic committee that the central bank’s digital euro will offer EU citizens a digital payment system. “We have to be able to offer that, otherwise somebody else will take that place.”

The ECB’s digital euro project is in the pipeline, as the central bank is collaborating with partners on a prototype.

A decision on whether to move forward with implementation will come by September 2023. The European Commission is also set to propose legislation on a central bank digital currency “soon.”

© 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.

Commodity Futures Trading Commission Chairman Rostin Behnam defended legislation backed by both himself and former FTX CEO Sam Bankman-Fried, arguing on Monday that if his agency gains authority over spot markets it will protect ordinary crypto investors because the agency can more easily clamp down on bad actors. 

Behnam responded to a question on FTX and Bankman-Fried, who pushed for the same legislation Behnam supports to give the CFTC more power over crypto markets and exchanges.

The remarks were among the first Behnam’s made since the crypto giant’s collapse, and a preview of how he’ll address the situation during a Senate hearing on the topic scheduled for Thursday. 

The CFTC had no authority to supervise much of the FTX empire, he said. The legislation under consideration in the Senate would also increase transparency requirements for non-public exchanges, which would help ensure that they don’t commingle client and company funds, as appears to have happened with FTX, Behnam added. 

Sens. Debbie Stabenow, D-Mich., and John Boozman, R-Ark., have pledged to continue to work on the legislation supported by both Behnam and Bankman-Fried, despite the scandal now surrounding what had been the industry’s loudest voice on the issue. The embattled former FTX CEO has also since given an interview undercutting previous positive remarks about regulation. 

Behnam, a former senior aide to Stabenow, stood by the legislation. 

”I think it’s important that we fill this regulatory gap before more harm is done to retail investors and institutional investors as well,” he told a Financial Times crypto asset conference. 

Benham argued that it would allow for more direct supervision, since the agency could require crypto exchanges, broker-dealers and other players to register if they dealt in digital commodities, with bitcoin being the most clearly defined under that rubric. 

© 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.

It’s all fun and games until someone loses…the plot. 

What started as a series of jokes among the crypto Twitterati took on a life of its own. But wrapped ether — a token on Ethereum backed by ether — is perfectly fine despite what some had earlier suggested.

The fun started at a time when there was a lot of confusion surrounding wrapped bitcoin, a token that serves a similar purpose but works very differently. So some mischievous crypto Twitter personalities decided to suggest that wrapped ether (WETH) was insolvent and was going to lose — or already had lost — its peg to ether. 

Arcane Assets CIO Eric Wall tweeted WETH is depegging. Yearn core developer Banteg “revealed” that WETH had been secretly hacked in 2019. Ethereum bull Anthony Sassano tweeted in a since deleted post, “ETH is nuking because WETH is currently insolvent.”

Wrapped ether has about $1.3 billion of value, so this all sounded pretty dire. The worry even briefly made its way into mainstream news reports from Bloomberg.

Thing is, none of it was true. 

Sassano returned to Twitter later with a bit of a mea culpa.

“Gotta be clear for the homies since the WETH shitposting took on a life of its own,” he tweeted. “WETH is completely fine and anyone stating otherwise is joking/being sarcastic (or actually being serious because they don’t understand that WETH is fine).”

WETH is simple

Part of the reason behind the jokes is that WETH is a relatively simple concept. When someone wants to turn their ether into wrapped ether, they use the smart contract and it locks up their tokens. If they want to redeem wrapped ether, they just unwrap it. During that time period, the ether is locked up securely in a smart contract — which is publicly viewable.

This means a couple of things. First, the underlying ether isn’t being lent out to generate yield — so there’s no risk that there might be hidden liabilities that would result in the protocol going insolvent. Second, the ether sits in a smart contract that’s publicly viewable. This ensures that anyone can check it’s fully backed at all times. 

While, like anything in crypto, there is some smart contract risk, it’s a very simple piece of code that’s been safely working for quite some time. And, really, that’s the heart of the matter: if a protocol is truly decentralized and runs on working code, it is much safer than centralized entities that could mishandle the funds and lose them — making WETH one of the few remaining things crypto Twitter can safely joke about when it comes to insolvency.

© 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.