FTX goes up in flames and impacts broader crypto industry, causing regulators to respond: Hodler’s Digest, Nov. 6-12
Coming every Saturday, Hodler’s Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more — a week on Cointelegraph in one link.
Top Stories This Week
An earthquake rattled the crypto space this week, its impact felt in numerous related stories regarding FTX, Alameda Research and Binance. Although the bad news came rolling in this week, suspicions relating to FTX’s status appear to have started on Nov. 2. The concerns had to do with a large number of FTX Token (FTT) held by Alameda (Sam Bankman-Fried, aka SBF, founded Alameda and co-founded FTX). By Nov. 6, Binance had decided it would sell its sizable position in FTT. FTX withdrawal issues surfaced on Nov. 7, symptomatic of a bank run. Binance expressed interest in buying FTX but declined the purchase, citing concerns on Nov. 9.
Other developments throughout the week included SBF reportedly requesting $8 billion to cover exchange withdrawals and news of the situation affecting other big players such as Sequoia Capital, as well as related regulatory headlines.
Nov. 11 saw SBF’s resignation as well as FTX, Alameda and FTX US applying for Chapter 11 bankruptcy in the United States. About 130 entities under FTX Group are filing for bankruptcy.
On Nov. 10, FTX saw its assets frozen and its registration suspended by the Securities Commission of The Bahamas, based on suspicions of mishandled client funds. A provisional liquidator was elected by the Bahamian Supreme Court, meaning FTX must now obtain permission to touch any of its assets. FTX is primarily based in the Bahamas, falling under its jurisdiction. The situation regarding FTX user withdrawals has been touch and go, with some withdrawals seemingly approved and funds leaving the exchange. Additionally, FTX negotiated a deal with Tron to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX to external wallets without penalty.
Given the situation with FTX, talk has arisen around requiring crypto exchanges to come forward with proof-of-reserves, which would essentially give assurance that exchanges have enough assets to cover their liabilities. Chainlink Labs has developed a product that aims to ease that process for exchanges. Multiple crypto exchanges have come forward with intent to provide some kind of proof-of-reserves system (not necessarily Chainlink’s product, but some type of system in general), including Binance, which has already made headway on a proof-of-reserves system.
This week’s turmoil has driven United States President Joe Biden’s administration to keep an eye on the crypto space, with the help of U.S. regulatory bodies for enforcement. “The administration […] has consistently maintained that without proper oversight, cryptocurrencies risk harming everyday Americans,” White House Press Secretary Karine Jean-Pierre said during a press briefing on Nov. 10. “The most recent news further underscores these concerns and highlights why prudent regulation of cryptocurrencies is indeed needed.”
The U.S. Midterm elections occurred on Nov. 8. The crypto space had a presence in the elections, spanning a broad number of stances and positions on industry regulation held by involved politicians. Among the mix, J.D. Vance, a known Bitcoin owner, won an Ohio Senate seat. Tom Emmer and Patrick McHenry, two figures in favor of crypto, also retained their positions in Minnesota and North Carolina, respectively. Brad Sherman, who is less favorable toward the crypto space, achieved re-election in California, however.
Winners and Losers
Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are PAX Gold (PAXG) at 5.69%, Gemini Dollar (GUSD) at 0.71% and Dai (DAI) at 0.14%.
The top three altcoin losers of the week are FTX Token (FTT) at -89.18%, Solana (SOL) at -50.30% and Loopring (LRC) at -38.47%.
For more info on crypto prices, make sure to read Cointelegraph’s market analysis.
Most Memorable Quotations
“If the world economy is a circulatory system, it is stagnant. Parts are dying.”
Michel Khazzaka, cryptographer and founder of Valuechain
“If you look at it closely, fractional NFTs represent the very essence of the Web3 concept.”
Alexei Kulevets, co-founder and CEO of Walken
“I think what people often misunderstand is that Web3 is not an exclusive new internet. Inside Web3 we also find Web2, the same way we found the former World Wide Web within Web2.”
Max Kordek, president of Lisk
“With a global MiCA [Markets in Crypto-Assets regulatory framework], the FTX crash would not have happened.”
Stefan Berger, member of the European Parliament Committee on Economic and Monetary Affairs
“All crypto exchanges should do merkle-tree proof-of-reserves.”
Changpeng “CZ” Zhao, CEO of Binance
“FTX.com was an offshore exchange not regulated by the SEC. The problem is that the SEC failed to create regulatory clarity here in the US, so many American investors (and 95% of trading activity) went offshore. Punishing US companies for this makes no sense.”
Brian Armstrong, CEO of Coinbase
Prediction of the Week
Bitcoin started the week above $21,000, although the asset fell notably after the FTX news broke, dipping below $16,000 on Nov. 9, according to Cointelegraph’s BTC price index. BTC subsequently bounced back up to $18,000, but then declined once again.
Pseudonymous Decentrader co-founder Filbfilb explained why the FTX situation is such a big industry event. His explanation essentially stated that all was fine during the most recent crypto industry bull market, but players became overextended. Then the bear market came along and declining prices created holes in company balance sheets. He explained that a healthy recovery could be a multi-year effort.
FUD of the Week
Stablecoin issuer Tether Limited has seemingly frozen about $46 million worth of USDT held in FTX’s Tron blockchain wallet, based on blockchain observations from Whale Alert on Nov. 10. Tether has not previously frozen a company or exchange wallet, only privately-owned wallets in tandem with regulatory investigations. In comments to Cointelegraph, a Tether spokesperson did not confirm the suspected freeze but noted the firm’s regular communication with law enforcement.
Bear market casualties continued this week, as news surfaced of renewable energy Bitcoin mining operation Iris Energy’s financial struggles. According to a default notice issued by mining rig manufacturer Bitmain Technologies, the firm reportedly owes $103 million in total. Multiple factors have seemingly contributed to Iris Energy’s declining financial position, such as Bitcoin’s depressed price and electrical cost hikes.
Withdrawals and other features have been paused on BlockFi, with the digital asset lending platform explaining that it is waiting for clarity around the FTX ordeal. Additionally, BlockFi noted that customers should refrain from depositing on BlockFi wallets or its interest platform. BlockFi and FTX US previously struck a deal involving a $400 million line of credit given to BlockFi.
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