FreeCryptoCurrency.Me

FTX founder Sam Bankman-Fried apologized to his former colleagues and explained why the crypto exchange failed in a new letter.

The letter, sent Tuesday and reviewed by The Block, says that a series of events resulted in the collapse of FTX. It started with the market’s crash in Spring, followed by credit “drying up” and ending with customers withdrawing their funds en masse, Bankman-Fried said. Adding to those issues, FTX’s poor margin management and risk controls ultimately led the company to file for bankruptcy protection, according to the letter.

“I never intended this to happen. I did not realize the full extent of the margin position, nor did I realize the magnitude of the risk posed by a hyper-correlated crash,” Bankman-Fried said in the letter. “The loans and secondary sales were generally used to reinvest in the business–including buying out Binance–and not for large amounts of personal consumption.”

According to Bankman-Fried, FTX had around $60 billion in collateral and $2 billion in liabilities this spring, but a market crash meant the collateral’s value was reduced to half. The drying up of credit in the industry meant FTX’s collateral was worth around $25 billion, though liabilities jumped to $8 billion. Another crash in November “led to another roughly 50% reduction in the value of collateral over a very short period of time,” at $17 billion at the time. Then a bank run, caused by what Bankman-Fried called “attacks” in November, reduced the collateral to $9 billion, he said.

“As we frantically put everything together, it became clear that the position was larger than its display on admin/users, because of old fiat deposits before FTX had bank accounts,” the letter stated. “I did not realize the full extent of the margin position, nor did I realize the magnitude of the risk posed by a hyper-correlated crash.”

Bankman-Fried did not address allegations that FTX loaned customer funds to its affiliated trading firm, Alameda Research, to cover its liabilities in the letter. Neither did he address why customer funds were seemingly backed by illiquid tokens rather than just held as they were.

He said he felt “deeply sorry about what happened” and was pressurized to file for bankruptcy protection — something he appears to regret.

“An extreme amount of coordinated pressure came, out of desperation, to file for bankruptcy for all of FTX–even entities that were solvent–and despite other jurisdictions’ claims,” the letter stated. “We likely could have raised significant funding; potential interest in billions of dollars of funding came in roughly eight minutes after I signed the Chapter 11 docs. Between those funds, the billions of dollars of collateral the company still held, and the interest we’d received from other parties, I think that we probably could have returned large value to customers and saved the business.”

Despite the bankruptcy proceedings, Bankman-Fried still reckons there is a chance to save FTX. “I believe that there are billions of dollars of genuine interest from new investors that could go to making customers whole. But I can’t promise you that anything will happen, because it’s not my choice,” he said in the letter.

Bankman-Fried stepped down as CEO of FTX on Nov. 11 and is not a current employee of the company. He reportedly doesn’t have access to the company’s Slack account, but shared the letter to remaining staff via a current employee.

© 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.

After the high-profile implosion of FTX, crypto skeptics and digital currency advocates have both asked the question: Could the Securities and Exchange Commission have done more?

Expect to hear that question more from Congress.  

Asked if the SEC could have been more aggressive in investigating FTX prior to a bankruptcy process that could potentially affect hundreds of thousands of consumers, New Jersey Sen. Bob Menendez, a senior Democrat on the Senate Banking Committee, replied simply, “Yes.” Asked if he planned to question SEC Chair Gary Gensler about that, Menendez replied, “I am.”  

On the other side of the Capitol, Rep. Tom Emmer, R-Minn., the soon-to-be number-three Republican in the House of Representatives, has echoed criticism from members of the decentralized finance community over Sam Bankman-Fried’s lobbying of the SEC for a no-action letter request that was not granted.  

“What involvement did he have with the SEC and others? I think we’ve got a lot of questions,” Emmer told The Block.  

SEC and Digital Assets Relationship Status: It’s Complicated 

Gensler has become a lightning rod for criticism from digital asset advocates, making him an easy target for them as accusations of massive malfeasance against FTX build. Industry lawyers have been quick to blame the SEC. 

“I simply don’t think you would have ended up with such a disaster if uncertainty and lack of engagement had not driven so much market activity outside of the U.S. in the first place,” said Alex Lindgren, partner at LLOY Law, a law firm focused around a securities practice.  

 “I want to know why our ‘cop on the beat’ was blind to this,” wrote Jake Chervinsky, an attorney for crypto trade group the Blockchain Association.    

Coy Garrison, an attorney with Steptoe and Johnson said the case called into question the agency’s priorities.  

“Obviously the SEC’s not to blame for what happened but there’s some valid questions being raised about where the SEC has been allocating its resources,” said Garrison, formerly a counsel to pro-crypto SEC Commissioner Hester Peirce.   

But some of Gensler’s loudest critics in Congress held their fire in this instance.  

“I’m not sure that there’s an SEC issue here. Let’s remember, most of the problems originated with an offshore exchange and I’m not sure the SEC jurisdiction reaches there,” said Pennsylvania Sen. Pat Toomey, the retiring top Republican on the Senate Banking Committee. “There’s a lot of facts and circumstances that I would need to know before I could answer that question” of whether the SEC should have been more aggressive towards FTX.  

Noting the 130 legal entities tied to FTX in various countries, Sen. Cynthia Lummis, R-Wyo., also hesitated to blame the SEC for not taking action.  

“Knowing that it takes anywhere from one to three years to develop an enforcement action or an action for fraud against a company as complicated as FTX, it would have been really challenging to do it in the timeframe that FTX has been up and running,” she said.   

‘Building evidence, building facts …’ 

Gensler recently defended his agency’s priorities when asked why the agency pursued enforcement actions against celebrities like Kim Kardashian but not FTX.  

“Building the evidence, building the facts, often takes time,” Gensler told CNBC.  

The perception of the SEC’s powers versus the reality of its limits explains part of why the agency has not taken legal action against yet, according to some of the agency’s defenders. Gensler himself has consistently pushed for more companies to come forward and register their tokens as securities offerings, or themselves as securities exchanges, which may explain part of why he and senior SEC staff met with FTX earlier this year.  

“Everybody wants to turn to the SEC and say it’s their fault,” said Lisa Braganca, a former branch chief at the enforcement division of the SEC’s Chicago office. “And I would say that the SEC has been saying for a long time that they think these digital coins are securities. That’s the first thing. And so I think if they had their druthers, they would have had FTX housed in the U.S. and operating under the rules of a regular security exchange.”  

Ty Gellasch, a one-time counsel to former SEC Commissioner Kara Stein, now president and CEO of the Healthy Markets Association, argued that the industry’s lack of cooperation with inquiries from the regulator, and political complications, slow down the SEC’s work.  

“The SEC has the authority to regulate the securities business, but they and their allies in Congress have argued that these aren’t securities,” Gellasch said. “That puts regulators in a very high-stakes game of chicken.”  

Still, not everyone was convinced the SEC has done enough in the FTX case.  

“The average SEC investigation takes about two years, but that is under ordinary conditions where customer funds are safe and the possible defendant is not a flight risk. When customer funds are at risk, the calculus changes entirely,” said Phil Moustakis, former senior counsel in the SEC’s enforcement division and current attorney at Seward & Kissel. “In fact, the SEC was already investigating intermediaries in the crypto market, so with FTX they should have had a head start.” 

Feds now on the case  

The point could be moot. The Justice Department is investigating, and FTX’s lawyers told a federal bankruptcy judge on Tuesday that they are cooperating with federal law enforcement as well as regulators. That could lead to other enforcement cases, noted John Reed Stark, founding head of the SEC’s office of internet enforcement.  

“My guess is that search warrants, grand jury subpoenas and arrests are all ongoing and imminent,” Stark, now a law professor at Duke University, said via online message. 

Regulators including the SEC and FINRA are likely to perform examinations of any firm with contact to the fallout of FTX’s collapse, Stark continued.  

He also predicted that cooperation from FTX insiders could lead to more investigations by law enforcement and the SEC, since scrutiny at one firm could lead to tip-offs on dealings by others as those close to the situation grow more willing to talk. Stark noted, “gregarious informants and immunity-seeking witnesses undoubtedly abound.”  

© 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.

Episode 116 of Season 4 of The Scoop was recorded live with The Block’s Frank Chaparro and Kevin Peng, and Aptos Co-Founders Avery Ching and Mohammed Shaikh.

Listen below, and subscribe to The Scoop on Apple, Spotify, Google Podcasts, Stitcher or wherever you listen to podcasts. Email feedback and revision requests can be sent to podcast@theblockcrypto.com.

Aptos, a new Layer 1 blockchain originating from the Facebook blockchain initiative Libra (later renamed ‘Diem’), recently launched its mainnet.

The architecture behind Aptos was designed to serve millions of people at scale and uses the Move programming language originally intended for Libra.

In this episode of The Scoop, Aptos Co-Founders Mohammed Shaikh and Avery Ching explain why they believe Aptos empowers developers to build faster, more secure applications, and why applications built on Aptos will help onboard millions of users into web3.

According to Ching, experiences built on Aptos will look and feel more like what users are accustomed to on existing Web2 platforms:

“When we think about what’s going to onboard people into web3 from web2, one thing that people are used to in web2 is extremely good latency for their products … being able to see those same kinds of experiences in web3 through the Aptos network is something that will be very powerful.”

In addition to user experience, the Move language offers developers a Rust-based alternative to Solana — something some teams who were developing on Solana are currently exploring.  

While vulnerabilities in smart contracts have cost DeFi projects billions of dollars, the Aptos co-founders claim the Move language allows for fewer vulnerabilities. As Shaikh explains,

“Making sure that engineers or product managers who are excited about a use case aren’t thwarted by having to deal with smart contract complexity and worry about auditability — that’s really meaningful to us.”

During this episode, Chaparro, Ching, and Shaikh also discuss:

• Where Aptos fits into the multichain world
• How Aptos’ was designed with upgradeability in mind
• Why protocols need to consider customer acquisition cost 

This episode is brought to you by our sponsors Tron, Ledn

About Tron
Founded in 2013, Huobi Global is one of the largest virtual asset exchanges in the world. Huobi Global serves millions of users across international markets. Since its establishment, Huobi Global has committed to providing first class virtual asset investment services. Huobi Global’s robust infrastructure, product innovation and capital strength provides a truly customer-centric and secure trading environment to help our international users to achieve their investment objectives. Please refer to Huobi’s official website for more information: huobi.com.

About Ledn
Ledn was founded on the unshakeable conviction that digital assets have the power to democratize access to the global economy. We help you to experience the real life benefits of your Bitcoin without having to sell it. Start a savings account, take out a loan, or double your Bitcoin. For more information visit Ledn.io

© 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.

Australia’s financial regulator has sued Sydney-based Block Earner, citing concerns that the fintech company offered unlicensed crypto products.

Block Earner offers several tiers of products that offer yield on crypto holdings. The Australian Securities and Investment Commission, or ASIC, claims these products are unregistered managed investment schemes that should have been licensed. 

ASIC opened up a civil penalty file with the federal court seeking “declarations, injunctions, and pecuniary penalties,” according to a statement released by the regulator. The court has yet to schedule the first hearing date. 

“We are concerned that Block Earner offered financial products without appropriate registration or an Australian Financial Services license, leaving consumers without important protections,” ASIC Deputy Chair Sarah Court said in the statement. “Simply because a product hinges on a crypto-asset, does not mean it falls outside financial services law.”

Block Earner had launched its seed funding round in 2021 and secured $4.5 million, from investors including Aave CEO Stani Kulechov and Coinbase Ventures. The platform lends out client assets through Aave and Compound protocols.

The firm’s executive told Business News Australia that the civil penalty file is “disappointing”. 

“We welcome regulation in our space and have spent considerable resources building regulatory infrastructure to be able to deliver a whole suite of services to Australian users in a regulated and compliant manner under existing guidelines provided by ASIC,” CEO Charlie Karaboga said.

“As a case in point, for our upcoming products where the licensing requirements are clear, we have already filed for an application for an Australian Credit License and advised ASIC of our intention to apply for an AFSL,” he added.

© 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.

A committee within El Salvador’s Legislative Assembly is considering a long-awaited law aimed at regulating digital asset service providers and issuers in the country. 

The so-called “digital asset issuance law” would create a legal framework for companies offering digital assets in El Salvador, and create a national commission tasked with overseeing their certification and operations.

The proposed digital asset law is now with the Legislative Assembly’s economic committee, according to a document seen by The Block and corroborated by a broadcast of a Nov. 22 plenary session. 

The new law would have the “aim of promoting the efficient development of the digital asset market and protecting the interests of the acquirers,” according to the text. 

It is significant because it broadly references digital assets, instead of narrowly focusing on bitcoin, which El Salvador adopted as legal tender in September 2021. However, this latest proposal focuses on providing standards for offering digital assets to the public rather than making other cryptocurrencies legal tender. 

Digital asset service providers in El Salvador would have to complete a registration process and follow several rules under the proposed law. These entities would have to provide a list of digital assets they plan to offer, including their “benefits, restrictions and limits.” They would also have to demonstrate cybersecurity precautions and customer service capabilities, as well as providing the names and titles of company employees.

Issuers of digital assets would also have to follow certain rules, such as disclosing information about the jurisdictions or countries where they operate.

The proposal also mentions the creation of a so-called “bitcoin fund management agency” that would be in charge of “the administration, safekeeping and investment of funds from public offerings of digital assets carried out by the state of El Salvador and its autonomous institutions and the returns from said public offerings.”

Further laws focused on digital assets or securities could be in the works. El Salvador’s president Nayib Bukele said in February that the government was working on 52 reforms aimed at securities laws, tax incentives and other items.

The Block reported that El Salvador was developing a legal framework for digital asset service providers ahead of the planned launch of its so-called “bitcoin bond” in mid-March, which so far has not come to fruition.

At that time, Tether and Bitfinex Chief Technology Officer Paolo Ardoino said El Salvador’s government was working on a method to license companies offering digital assets. Bitfinex Securities had said it was planning to apply for a license so that the bitcoin bond issuer could raise funds through its platform, but was still waiting for the legal framework to be finalized.

“Digital securities law will enable El Salvador to be the financial center of central and south America,” Ardoino tweeted.

© 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.

New York Governor Kathy Hochul has signed a bill cracking down on crypto mining in the state.

The bill imposes a two-year moratorium on new permits for proof-of-work mining operations that rely on carbon-based fuel to power their activities.

The New York Senate already approved the bill in June, but Hochul had until now held off from signing it in the face of fierce industry lobbying, according to Bloomberg.

“I will ensure that New York continues to be the center of financial innovation, while also taking important steps to prioritize the protection of our environment,” Hochul said in a message on Nov. 22.

An earlier version of crypto mining bill, which called for a three-year moratorium on a broader scope of mining facilities, died in the Assembly in June of last year. Opponents of the current iteration of the moratorium, such as Republican Assemblyman Robert Smullen, had described it as “anti-tech.”

© 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.

As the market tightens for some of the biggest bitcoin mining companies, hosting provider Applied Digital is going after distressed assets with a new independent fund. It aims to raise $100 million.

The new fund, Highland Digital, is a joint venture with one of Applied Digital’s clients, GMR Limited. It will pool together funds from investors, who will have ownership of the mining machines and be charged a fee to be split by the two companies. Applied Digital potentially would benefit from an increase in revenue as it hosts those newly acquired machines.

“It feels like it’s more distressed by the day, but we see a lot of opportunities of equipment that is extraordinarily cheap,” Chairman and CEO Wes Cummins told The Block. “I’m looking at that distressed assets constantly. I get called multiple times a week because there are a lot of people in trouble. And we’re looking hard at that.”

 “We see a lot of opportunities of equipment that is extraordinarily cheap, especially versus what it was at this time last year. It’s like a 90% off sale on this equipment,” Cummins said.

Other companies have recently moved to take advantage of the space. Crypto asset management firm Grayscale partnered with Foundry and formed an entity that will invest in discounted hardware and deploy this equipment to mine bitcoin. Bitcoin mining firm Luxor, which runs a mining pool and a hardware trading desk, launched an over-the-counter derivative product based on bitcoin mining revenues.

Hardware prices have plummeted, and as companies like Core Scientific and Argo struggle to make debt payments more machines are bound to hit the market.

“I think you’ll probably see a few of the public miners go bankrupt in the next few months, and a lot of the privates,” Cummins said. “Lenders are taking equipment back and that equipment all has to go somewhere. And so I think you’re going to see those be liquidated at really attractive prices in the future.”

Power costs

Cummins said that Applied Digital’s energy cost — a pain point for many miners struggling with rising rates — is one of its strong suits.

While not disclosing exact values, he said its all-in hosting rate for clients is below $0.07 per kilowatt-hour.

“I think we’re about as fixed as you can get in the electricity business because it’s really impossible to get truly fixed-rate contracts,” he said. “Some of these guys, the ones that are really getting killed, their electricity price has gone from what they thought would be $0.02 or $0.03 to like $0.09, $0.10.”

That factor combined with the decline in bitcoin prices and higher mining difficulty has put miners in a tough spot. 

Applied Digital, formerly known as Applied Blockchain, currently has 100 megawatts operational in North Dakota and is developing a second 180-megawatt site in the same state and a 200-megawatt one in Texas.

Its recent name change reflects the company’s shift from from being completely crypto-focused to catering more broadly to digital infrastructure applications, like machine learning or artificial intelligence.

“Bitcoin mining was really the start for us,” Cummins said. “There’s been a massive amount of demand and we still have more demand than we have supply.”

© 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.

DCG’s Foundry Digital is buying two cryptocurrency mining facilities and other assets from Compute North. It has an option to acquire a third facility that is under development.

The deal comes as reports swirl that DCG’s Genesis, whose Global Capital suspended redemptions and new loan originations last week in the wake of FTX’s collapse, may be filing for bankruptcy. The New York Times reported that it had hired investment bank Moelis & Company to explore options. 

“It has been our mission to strengthen the infrastructure of digital assets by supporting mining companies through all market cycles,” Mike Colyer, CEO of Foundry, said. “Compute North has been our longtime partner and we are happy to have the opportunity to continue building upon the foundation they have laid over many years while growing the North American mining ecosystem.”

The deal includes:

• Two turnkey sites located in South Dakota and Texas;
• Rights to completely buildout and operate Compute North’s facility Nebraska;
• A fleet of mining machines;
• Intellectual property, including rights associated with MinerSentry, Compute North’s proprietary cloud-based management and monitoring software for data centers of scale.

Since filing for bankruptcy in September, Compute North has sold off a number of other assets, including two mining facilities valued at $5 million and $1.55 million in containers.

Other companies in the industry are also struggling to stay afloat after months of seeing their margins squeezed while having to meet hefty debt obligations. Giant Core Scientific today emphasized its “substantial doubt” over whether it might be able to keep operations going.

With reporting assistance from Catarina Moura.

© 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 BlockFi has put client loans into forbearance, according to a customer email viewed by The Block. 

“At this time, clients do not have the ability to post new funds to BlockFi,” the email states. “As a result, we are putting your loan into administrative forbearance. Any amounts due, including interest and maturity payments, are placed on hold until further notice.”

BlockFi, which said it has “significant exposure” to beleaguered crypto exchange FTX, announced it was suspending withdrawals on Nov. 10. FTX filed for Chapter 11 bankruptcy protection the next day. Earlier that week on Nov. 8, founder Flori Marquez tweeted that all of BlockFi’s products were “fully operational.” 

The customer email said that the interest rate on BlockFi loans will be set to 0% with a starting date of Nov. 11, the email said, adding that “margin call requirements and auto liquidations at predefined loan-to-value levels are currently paused.”

Clients do not have to make payments on loans that have matured, the email said, and loans will not be reported to credit bureaus as delinquent. Loan holders will not pay late fees on any payments, according to the message. It does not appear that borrowers requested forbearance on their loans.

BlockFi warned that its loan servicing provider, Scratch, will show the loans as delinquent in its system. “But given the 0% interest rate, your loan will not accrue any interest or late penalties,” BlockFi’s email 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.

More than half of the bitcoin mining stocks tracked by The Block increased, while others declined by double digits. 

TeraWulf’s stock declined by 16% and Core Scientific’s stock fell by 20% after an SEC filing showed that the latter has “substantial doubt” whether it could keep its operations going past November 2023.

“The ability to raise funds through financing and capital market transactions is subject to many risks and uncertainties,” the filing said. Last month, the miner had already warned that it might run out of cash by the end of the year and that it would not make payments in late October.

Bitcoin was trading at around $16,100 by market close, according to data from TradingView, up nearly 2% since yesterday’s close. Earlier in the day, however, bitcoin was trading at its lowest rate in months, reaching around $15,500.

BTCUSD Chart by TradingView

Digihost’s shares rose by 7.25%, followed by Bitfarms Canada (6.58%) and  CleanSpark (6.44%).

Here’s how crypto mining companies performed on Tuesday, Nov. 22:

© 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.