former FTX boss maintains innocence, Nexo’s woes, DCG and Gemini face-off

The last week in crypto was mixed with fresh updates and ongoing controversies. A new scandal emerged as new allegations were leveled against the crypto lender, Nexo, with reports accusing the regulated CeFi of criminal activities. The FTX case continued to unfold, with founder Sam Bankman-Fried maintaining his innocence. Additionally, the situation between DCG and Gemini has escalated. Despite the recent market recovery, the industry experienced another round of staff layoffs.

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Nexo embroiled in fresh scandals

 Nexo became the latest to be embroiled in a scandal. Reports from Jan. 12 showed that Bulgarian authorities had raided the company’s offices in Sofia, Bulgaria’s capital city. It was part of a full-scale investigation launched against the lending firm for alleged illegal activity.

The authorities suspect the company of money laundering, tax crimes, illegal banking operations, computer-related offenses, and the facilitation of transactions aimed at bypassing sanctions against Russia. Investigations from international authorities revealed that several transactions processed by Nexo violated Western sanctions against Russia, with others involving terror financing.

According to a spokesperson of the country’s chief prosecutor, Siika Mileva, Nexo has processed a staggering $94 billion over the past five years. However, Mileva also purported that one of Nexo’s clients is a high-profile individual known for financing terrorist organizations.

In a statement to Bloomberg, Antoni Trenchev, the co-Founder of Nexo, clarified that the recent raid involved a third-party entity with ties to the company. He emphasized that this firm has no direct interactions with Nexo’s customers. Further reports said four individuals had been apprehended as part of the investigation. Nexo negated these developments, saying the probe appeared to be politically motivated.

In the aftermath of these events, a significant outflow of funds from the platform was observed as investors and clients scrambled for the exits. Over $46 million, or 10% of total assets, were withdrawn from the platform in 24 hours.

Progress on FTX bankruptcy proceedings 

As FTX’s bankruptcy proceedings progressed, on Jan. 12, creditors were provided with positive developments. Reports said the company’s advisors had uncovered a substantial amount of its assets, totaling nearly $5 billion in crypto and fiat currencies. Andrew Dietderich, the bankruptcy attorney, said assets are currently being liquidated.

The funds will go towards settling the claims of aggrieved creditors, along with other assets already uncovered. It is worth noting that the Bahamian Securities Commission (BSC) had previously identified FTX assets worth $425 million that will also be utilized in the debt settlement process. Furthermore, on Jan. 13, the Delaware Bankruptcy Court granted FTX permission to liquidate four business units, which include LedgerX and FTX Japan, to raise additional funds for the benefit of creditors.

As the FTX saga continues, a new player entered the fray last week. SkyBridge Capital announced its intention to repurchase the 30% stake it sold to FTX in September of last year. SkyBridge Chief, Anthony Scaramucci, revealed these plans on Jan. 13, stating that they are awaiting approval from the bankruptcy lawyers. He acknowledged that the process could be lengthy, potentially extending into the latter half of 2023. 

On Jan. 12, a federal court ruling added to FTX’s troubles as a judge invalidated the naming rights agreement between the bankrupt exchange and Miami-Dade County. Due to a breach of contract, FTX is legally obligated to pay $17m in damages to Miami-Dade for three years. Miami Heat can now remove FTX branding from their NBA arena and other locations.

Sam Bankman-Fried insists he is innocent, but that’s a hard sell

Amidst these developments, Sam Bankman-Fried maintains his claim of innocence. With $8b in customer funds unaccounted for, the disgraced CEO insists he is innocent of crimes bordering allegations of funds misappropriation and fraud. Last week, the disgraced American entrepreneur pleaded not guilty to numerous charges leveled against him by the U.S. DoJ, SEC, and CFTC.

Sam Bankman-Fried maintains that he is innocent of allegations suggesting he stole or misappropriated customer funds, according to an article published on Substack on Jan. 12. The FTX founder also capitalized on circulating claims that Binance’s Changpeng Zhao (CZ) is behind FTX’s downfall. CZ had in the past refuted these rumors.

A day after the post surfaced, American billionaire and hedge fund manager Bill Ackman asserted that Sam Bankman-Fried might be telling the truth. Ackman had taken to Twitter on Jan. 13 to provide a hypothesis on how the former FTX chief might be innocent despite numerous accusations of fraud and corruption. 

However, the consensus within the crypto community contrasts Ackman’s assertions. Notably, Anthony Scaramucci, a close acquaintance of the former CEO, recently admitted that he thinks fraud was involved in the case after choosing not to give any opinion on the matter since the start of the issue.

Coinbase CEO Brian Armstrong also believes the FTX situation involved fraud and misappropriation of customer funds. Armstrong told Bloomberg on Jan. 11 that he thinks the cause of the fiasco goes beyond lousy accounting. Amid these claims, a wallet affiliated with Alameda Research, the trading wing of FTX, received another $30 million worth of assets on Jan. 12, drawing more questions.

The situation between DCG and Gemini develops 

While the crypto space is yet to see the end of the FTX woes, the situation between Digital Currency Group (DCG) and crypto exchange Gemini unfolded further in the past week.

Following his open letter to DCG CEO Barry Silbert on Jan. 2, Gemini’s co-founder Cameron Winklevoss penned another letter to the DCG Board on Jan. 10, calling for the removal of Silbert as CEO. Winklevoss cited bad managerial decisions under Silbert.

Earlier, Winklevoss had accused Silbert of using funds from its subsidiary lending firm, Genesis, on “kamikaze Grayscale NAV trades”, which led to losses in creditors’ assets, including Gemini’s $900M loan to Genesis. Winklevoss, along with other creditors, is demanding repayment of pending loans. Reports from Jan. 12 suggested that DCG might consider selling off some of its assets to pay back the debt.

Grayscale has become entangled in the situation, being a sister firm to Genesis and a main subsidiary of DCG. The contributed might be contributing to the underperformance of Grayscale’s Trusts, especially the Grayscale Bitcoin Trust (GBTC) and the Grayscale Ethereum Trust (ETHE). Both have been trading at record discount rates. Consequently, about 20% of GBTC shareholders voted last week to redeem their shares for BTC.

Charges emerge as the SEC steps in

Meanwhile, the U.S. SEC stepped into the scene last week as the saga progressed. On Jan. 12, the regulatory watchdog slammed charges on Gemini and Genesis for allegedly offering unregistered securities to the public through the Gemini Earn program. Even so, the entire crypto scene believes the agency needs to catch up to the party. 

Gemini co-founder Tyler Winklevoss expressed his disappointment over the SEC’s charges, noting that they are counterproductive to the firm’s efforts at realizing the $900m funds for Gemini Earn customers. Winklevoss explained that the SEC should have informed Gemini of additional regulatory requirements despite being in talks with the exchange for months. 

However, the SEC’s charges are not the only legal concerns of Gemini, as Rosen Law Firm, a New York-based investor rights law firm, filed a lawsuit against the exchange on Jan. 13 for failing to disclose necessary information on the risks associated with the Gemini Earn program. 

Another round of staff layoffs

The crypto markets began the new year on promising grounds, but the gradual gains have not made up for the losses incurred since the start of the bear market. In response to the harsh market conditions, some firms are still laying off staff to cut costs as revenue contracts. 

On Jan. 10, Coinbase announced a decision to let go of another batch of employees as it looks to weather the bearish storm during the bear market. The American exchange revealed that it would be laying off 950 employees this time after retrenching 1,100 others in June 2022.

Three days after Coinbase’s latest announcement, Kris Marszalek, CEO of Singapore-based exchange, disclosed that his company would be trimming its global workforce by 20% due to unpropitious market conditions and recent events. Last June, they cut off 5% of their staff, citing the unfavorable winter.

Binance remains unruffled

Amid this trend of layoffs, Binance is ramping up its Human Resource activities as it appears to be barely affected by the ravages of 2022. On Jan. 11, CZ said the exchange was looking to increase its workforce by 30% in 2022, notwithstanding the economic downturn. Two weeks ago, crypto journalist Jacob Silverman said the exchange has up to 700 open positions.

Additionally, Binance is outperforming competitors based on revenue, as evidenced in recent reports. CryptoQuant data from a Jan. 10 report revealed that Binance’s revenue increased by 10x over the past two years. 

Despite processing $12b in customer withdrawals in the past two months alone due to previously-introduced FUD that ensued immediately after the FTX collapse, Binance appears stable and is still making growth moves. The firm procured a license to operate in Sweden on Jan. 11.

An end to the bear market or a bull trap?

Meanwhile, the broader crypto market rallied, lifting asset valuations to the pre-FTX collapse era. The market-wide rally, which was more pronounced on Jan. 10, saw bitcoin (BTC) reclaim $21k. Meanwhile, ETH soared to print a high of $1,599 on Jan. 14. Most assets also surged to 2-month highs.

Two days after the rally gained momentum, BTC surged above 18%, leaving over 60% of its circulating supply in profit. The resurgence is despite a decline in its dominance. The asset printed seven consecutive bull bars last week, sparking demand across crypto.

Notably, as BTC soared above $19.5k, over $141m in BTC short positions were liquidated in the 24 hours leading to Jan. 14. While some proponents believe this could be the end of the bear run, others are more pessimistic about the recovery saying it is a dead cat bounce. 

The new week will provide helpful insight into which opinion is accurate.

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