Fahrenheit Buys Celsius, DCG May Be Bankrupt, Hong Kong Cracks Down, Binance Mixes Up, How Bitfinex Was Hacked – Amy Castor

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By Amy Castor and David Gerard Temperature Drop

Fahrenheit has officially won the bid for the bankrupt assets of Celsius Networks pending court approval, which is almost certain, and regulators, which is less certain. A $10 million deposit is due by Monday. [Doc 2713, PDF]

Fahrenheit is a consortium that includes venture capital firm Arrington Capital, US Bitcoin miner, investment firm Proof Group, former Algorand CEO Steven Kokinos, and Seasons Capital CEO Ravi Kaza.

The new agreement is an adaptation of NovaWulf’s previous proposal. A NewCo will be created to take ownership of the remaining Celsius DeFi tokens, loan portfolio, venture capital investments, bitcoin mining, and $500 million in liquid cryptocurrency (unspecified, but presumably Celsius remaining BTC and ETH). US Bitcoin will handle Celsius bitcoin mining.

Holders of Earn claims, certain holders of Convenience claims, Withhold and Borrow will receive equity in NewCo on a pro rata basis. NewCo will endeavor to obtain a stock exchange listing for the Shares. Revenue claimants will also receive a distribution of the liquid cryptocurrency and any litigation proceeds.

If you are a Celsius creditor, the plan contains many important details. Read it and discuss it with your fellow creditors.

As with NovaWulf’s original proposal, we believe this is a Hail Mary pass that can only work if numbers increase. On the other hand, he is doing something and not just liquidating what little is left. Additionally, Alex Mashinsky will not be involved.

DCG: When your left pocket can’t pay your right pocket

During Genesis’ bankruptcy, Genesis’ parent company, Digital Currency Group, missed a $630 million payment to Genesis due earlier this month. Note that this is a payment from themselves to themselves, and they still haven’t managed to make it.

This default was noted by Gemini, which has a huge interest in obtaining this money so that Gemini Earn investors can be reimbursed. Gemini Earns’ retail customers are Genesis’ largest creditor. [Gemini, archive of May 25, 2023]

Gemini Earn was an investment product where Gemini customers invested their money in Genesis to earn unlikely interest rates. Geminis customers weren’t so happy about their money being tied up in the Genesis bankruptcy for months or years.

So in February the creditors reached an agreement in principle and not, mind you, an actual agreement by which they would recover money from DCG, as owners of Genesis. [press release]

In April, creditors got fed up with DCG messing around and increased their demands. This led to a bizarre statement from DCG on May 9 that they were in talks with capital providers for growth capital and to refinance its outstanding intercompany obligations with Genesis. They didn’t have the money to pay themselves. [CoinTelegraph]

Gemini is also considering filing its own reorganization plan. This is likely why Genesis requested that its exclusive right to make reorganization proposals be extended until August 27. The court will hear this motion on June 5. [Doc 329, PDF]

Either DCG is trying extremely hard to screw Genesis customers…or, despite all the millions and billions with dollar signs in front of their accounts, and $200 million a year in grayscale management fees, DCG is broke at the less in real money and was pretending not to be broke. And we were pretty sure that Gemini is pushing this point so hard because they can’t cover their customers either. Imaginary assets are great until you have to pay.

Binance is outraged that Reuters surprises them again

Reuters surprised Binance again. This time, Binance was mixing customer funds and company revenue in the range of billions of (real) dollars in their Silvergate accounts in 2020 and 2021. Controls? What are controls? [Reuters]

Binance told Reuters it was money used to buy BUSD and it was exactly the same as buying a product from Amazon, according to Brad Jaffe, vice president of communications at Binances since August 2022.

This explanation contradicts Binances’ previous claims to customers that the dollars they sent to Silvergate were deposits they could withdraw in dollars. Jaffe said term deposit is a communication term, it is not an indication of the technical treatment of funds. Oh, a communication term you mean like when words mean things in context?

Reuters found no embezzlement of client funds in the documents they saw. But the mix is ​​a massive red flag for incompetence (as it turned out to be with FTX) and fraud like moving money to evade regulatory scrutiny. Reuters includes a complex diagram of Binances’ international cash flows in the report.

Binance public relations manager Patrick Hillmann called the 1,000-word story conspiracy theories and said Reuters was making things up. Although Hillmann never stated at any time that Binance did not mix funds with Silvergate. Hillmann also called out the xenophobia behind the constant mention of @cz_binances ethnicity without noting that he’s been Canadian since he was 12… something the Reuters story didn’t do at all. [Twitter, archive]

Hong Kong brings some regulatory clarity

The Hong Kong Securities And Futures Commission (SFC) has completed its consultation on virtual asset trading platforms open to retail investors. The rules allow licensed exchanges to offer highly liquid token trading, not securities, to the public.

The rules are strict: no titles, no loans, no earning schedules, no stakes, no professional trading and no custody. Unlicensed crypto exchanges are not allowed to advertise. Hong Kong really wants to avoid the kind of embarrassment that comes with the failure of a big exchange like FTX.

Exchanges will be required to assess the risk of failure of all tokens they offer for trading. Tokens must have a 12 month history. Exchanges will need to obtain smart contract audits where appropriate. 98% of client assets must be in cold wallets (offline); hot wallets should not contain more than 2%.

Margin trading is not yet permitted, even for professional investors, but the SFC will issue guidance on derivatives in the future.

The guidelines take effect June 1, when exchanges can begin applying for a license. [SFC; Consultation Conclusions, PDF]

Regulatory clarity around the world

Japan will apply FATF rules on crypto from June. This passed without objection because Japan learned its lesson from Mt. Gox and regulated crypto exchanges early. [Japan Today]

The FATF tells CoinDesk that it did not ask Pakistan not to legalize crypto. Countries are allowed, but not required, to ban virtual assets and virtual asset service providers. [CoinDesk]

The International Organization of Securities Commissions develops recommendations on cryptography. Service providers need to manage conflicts of interest, segregation of duties and accounting for client assets, and it needs to work across borders. Submit your comments by July 31. [IOSCO, PDF; recommendations, PDF]

Huobi is expelled from Malaysia for not registering. Failure to register is a violation of the Malaysian Capital Markets and Services Act 2007. The Securities Commission Malaysia said that Huobi must disable its website and mobile applications on platforms such as the Apple Store and Google Play. [Securities Commission Malaysia]

The CFTC talks about all crypto scams, says it is on good terms working with the SEC on these issues, and warns the crypto industry that this will not be a soft approach. [Reuters]

The SEC changed the disclaimer that commissioners say before speeches, likely in response to comments by William Hinmans that ether was not a security cited in the Ripple case. [blog post]

Molly White posed questions to Rep. Sean Casten (D-IL) on May 18, 2023, stablecoin audience, and it’s a nice five minutes. This guy understands precisely how Web3 was basically a venture capital-backed securities fraud. [YouTube]

Bitfinex: oops, apocalypse

The Organized Crime and Corruption Reporting Project obtained an internal report on the August 2016 hack of crypto exchange Bitfinex, the hack that led to the Tether printer craze and the crypto bubble of 2017 .

The report was commissioned by iFinex and prepared by Ledger Labs. It was never published, but OCCRP got a draft.

Bitfinex has kept the transaction limits secured by three keys. It looks like someone made the mistake of putting two of the three keys on the same device. This is how the hacker was able to increase the global daily limit and empty the accounts.

One key was associated with a generic admin email address and another linked to giancarlo, which belonged to Bitfinex CFO Giancarlo Devasini. The report does not blame Devasini for the hack.

Ledger Labs believes the hacker came from an IP address in Poland. [OCCRP]

The issuance of tethers is on the rise but its use is through the ground. Trading volume is at its lowest in four years. Most peg trading occurs on Binance, where the majority of all trading volume occurs, and where USDT is accepted as worth one dollar. We mentioned last time that the volume was down, but Kaiko has the numbers. [Kaiko]

More good news for bitcoin

Do Kwons’ bond has been removed. He is back in jail in Montenegro, awaiting his local trial for forged documents, particularly those he used to try to get out of Montenegro to his next asshole. [Reuters]

Glassnode tells us that hodling has never been so popular! 68.1% of BTC hasn’t budged in the past year! Now you might think that’s because most people who bought during the bubble are still underwater. But baghodler is not yet a word. [Glassnode]

Shaquille ONeal was finally served in the FTX class action lawsuit against celebrity promoters from the exchanges at the former FTX Arena. [Washington Post]

Openfort gets latest money from gaming company Web3, they just got $3 million to create an online crypto wallet for blockchain gaming. You know, this current gigantic market that everyone is interested in. Openfort doesn’t seem to have a client yet. [VentureBeat]

Coinbase has a new TV ad! We know you’ve lost all your money, but crypto is really like the early days of the internet. [Youtube]

Solana is so out of ideas that they add a ChatGPT plugin. Presumably he can write tweets for them. [The Block]

Crypto fans are constantly coming up with new justifications for the importance of their magic beans. David Rosenthal presents some of them to us. [DSHR Blog]

Video: Problems with Crypto Currency. Max Silverman wanted to do an animation, so he asked David for 90 seconds of audio. It came out great! [YouTube]

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