Crypto collapse: Bitcoin goes up, Nexo charged, GBTC still wants to be an ETF, crypto exchanges struggle, FTX, Voyager

By Amy Castor and David Gerard

“Weaseling out of things is important to learn. It’s what separates us from the animals … except the weasel.” — Homer Simpson



Number go up

Why is the bitcoin price over $20,000? The answer is always, always “shenanigans.” It is never macroeconomic actions, regulatory announcements, or the strength of the dollar.

The bitcoin market is tiny, easily manipulated, and utterly unregulated. Internal manipulations swamp all external indicators. [SSRN, PDF]

Bad news is the usual reason for pumps. If holders see the number go up, they’re less likely to be spooked and start heading for the exits. And this past week has seen a flood of bad news — Genesis is likely insolvent, DCG was hit hard trying to cover them, Gemini and Genesis are being sued by the SEC, and Nexo is going down hard.

Someone trying to wreck a long or short margin trader is another reason for a pump. It often costs less to rig the price of bitcoin than you could win on a margin bet. This is when you get a chart with “Bart” formations on it.

The bitcoin price is kept where the large players need it to be. The market is thin and trivially manipulable with the billions of pseudo-dollars in unbacked stablecoins on unregulated offshore exchanges.

The bitcoin price needs to be high enough so the big boys’ loans don’t get liquidated, but low enough so bagholders don’t attempt to cash out and crash the price. It’s a tightrope.

Press and commentator narratives about wider market forces are part of the general delusion that well-behaved markets are natural. They are not. We’ve had nearly a century of a properly regulated US stock market, for example. It’s not a wilderness, it’s a carefully-tended garden.

But people, even finance journalists who should absolutely know better, assume that well-behaved markets are normal, and that you can talk about all markets like you can those few markets.

Bitcoin is utterly not the same sort of creature — it’s a pile of manipulated trash where price discovery happens in unregulated offshore casinos that are under literally no rules except “don’t spook the suckers.”

FTX was a good worked example. These exchanges mess with prices and front-run their own customers whenever they can get away with it. Binance has been caught doing this a whole lot too.

Organic interest in bitcoin is still minimal. It’s not the dollar, it’s not interest rates — it’s shenanigans.

We’re pretty sure the number will go back down again — if you bought in below $21,000, you may want to cash out while you can. You can already see bobbles in the chart where bagholders tried to cash out where they could.


Coinbase BTC-USD. Note the dip around 09:00 UTC 14 January, as someone tries to cash out.


Nexo bust: charges laid

Following a raid on their office in Sofia, Bulgaria, four people from London-based crypto lender Nexo — including founders Antoni Trenchev and Kosta Kanchev — have been charged.

Nexo is alleged to have operated as an organized crime group since 2018, working out of Bulgaria, the UK, Switzerland, and the Cayman Islands.

Allegations include money laundering, providing banking services without the required licensing, tax crimes, computer crimes, and breaking international sanctions. [Capital, in Bulgarian; Bloomberg]

Two of those charged are not in Bulgaria — those would be Trenchev and Kanchev, who were last sighted in Dubai.

Investigators looked at four million transactions and found sanctions violations — transactions for Hamas, transactions for the Russian crypto exchange Hydra, and transactions with the Iranian crypto exchange Nobitex.

Customers still can access Nexo — 7% of all assets were withdrawn in the 24 hours after the raids, according to Nexo’s daily Armanino attestation. Either that or it’s just the insiders draining the exchange and exit-scamming, of course. [Armanino]

Nexo really doesn’t have that much in liquid assets. If you don’t count Nexo’s internal loyalty points $NEXO as assets, then they’re just insolvent. We expect withdrawals will be cut off soon.

There are also allegations of political corruption involving Nexo. Trenchev used to be a Member of Parliament and still has lots of contacts.

Nexo denies everything. They claim they’re the target of a politically motivated campaign ahead of the early elections in Bulgaria and are threatening to sue the Bulgarian government. According to Nexo, the authorities just wanted to “destroy and loot a prosperous business.” [Bulgarian Telegraph Agency, in Bulgarian]

Container drivers

Digital Currency Group’s Grayscale is still pushing for GBTC to become a proper two-way ETF.

GBTC is one-way — you put in money or bitcoins, you get GBTC shares, and you can’t change those back into bitcoins.

The SEC rejected Grayscale’s ETF application in June 2022, as Grayscale had failed to address concerns around market manipulation (as we describe above) — the same reason the SEC has rejected every bitcoin ETF proposal so far.

Grayscale petitioned to challenge the SEC’s decision with the U.S. Court of Appeals for the District of Columbia Circuit. In December, the SEC filed a response.

Grayscale filed a reply to the SEC on January 13. Grayscale spends 41 pages saying that if the CME futures got an ETF, then bitcoins at spot market price should get an ETF — the same arguments it made the first time. This brief is pounding the table, rather than the facts or the law. [Grayscale, PDF]

Grayscale has long promised GBTC holders that GBTC would convert to an ETF. Suing the SEC was a way to redirect their customers’ ire toward the regulator.

GBTC is currently trading at a 36% discount on its underlying bitcoins. In December, it was trading at a 48% discount. GBTC should always have been worthless, but now it’s glaringly obviously worthless.

Converting GBTC into an ETF would help bring the GBTC price in line with the price of bitcoin. And DCG could profit from all those GBTC shares they’ve accumulated in buybacks.

Grayscale could also liquidate GBTC and give everyone back the bitcoins. But they aren’t required to — and they collect a whopping 2% annual management fee on the 635,000 BTC in their trust — that’s over $200 million a year.

Of course, if DCG subsidiaries go broke enough, then DCG may be forced to liquidate GBTC anyway.


The US Trustee is deeply displeased with FTX wanting to retain Sullivan & Cromwell as lead counsel in the bankruptcy. One of S&C’s duties would be to lead investigations into FTX, and the Trustee wants that handled by an examiner, who would be a disinterested party. John Jay Ray III himself called FTX a “crime scene”! And Sections 1106 and 1107 of the Bankruptcy Code specifically preclude debtors from investigating themselves. The Trustee also worries about conflicts of interest, and it’s not entirely clear how S&C got the job. [Objection, PDF]

S&C’s appointment has also been questioned by four US Senators, who sent a letter to Judge Michael Dorsey. “Significant questions about the firm’s involvement in the operations of FTX remain unanswered,” they wrote. In a hearing last week, Judge Dorsey called the letter “inappropriate” and said it would have no bearing on the case. [FT]

In Sam Bankman-Fried’s rambling blog post on the collapse of FTX, S&C was one of the many groups that Sam blames. He also said that S&C was FTX US’s primary law firm prior to the bankruptcy.

S&C deny this. In a January 10 statement, the firm said it “never served as primary outside counsel to any FTX entity. The firm had a limited and largely transactional relationship with FTX and certain affiliates prior to the bankruptcy, as is common, and is disinterested as required by the bankruptcy code.” [WSJ]

Brett Harrison, former president of FTX US, confesses all! Specifically, that he did nothing wrong. In 49 tweets, he talks about how his September 2022 departure from FTX US wasn’t sudden but had been coming for months. He calls Sam Bankman-Fried “insecure” and “prideful.” He says that the “multi-billion dollar fraud” was “held closely” by the FTX inner circle — and not by anyone at FTX US. Particularly not him. [Twitter, archive]

Harrison was not so keen on engaging with anyone who asked the extremely obvious questions. He blocked anyone who asked about that time last year when Harrison falsely claimed that customers with dollars at FTX US were protected by FDIC and SIPC insurance. The FDIC named Harrison personally in their cease and desist order. “I’ve learned it’s impossible to have a good faith or fact-based discussion about that on this app,” Harrison tweeted. [Twitter]

Since December, Harrison has been trying to drum up funds for a crypto software company. After Harrison’s lengthy tweet thread, Anthony Scaramucci announced he was investing in Harrison’s company. [Bloomberg]

Voyager and Binance: life in Chapter 11

Here’s the order allowing the Asset Purchase Agreement for Binance US to buy out Voyager Digital to proceed. [Doc 860, PDF; Reuters]

Binance is buying Voyager assets for $1.022 billion, the fair market value of the crypto — Binance pays $20 million in actual cash, and the rest is taken on as liabilities to customers. Creditors get credit at Binance US for 51% of what Voyager owed them pre-bankruptcy. The deal has to pass creditor and regulatory muster first. If the Binance sale doesn’t go through, Voyager’s only remaining option is Chapter 7 liquidation.

Looking at the numbers, they don’t add up — there’s no way that Binance US could cover liabilities to all the Voyager account holders, even at a discount. Several of the US regulators who objected to the sale also pointed out that Binance US obviously couldn’t afford this.

Binance US is notorious for taking people’s crypto and not giving it back. We know multiple people who’ve been sent through an endless Know-Your-Customer loop — where Binance repeatedly demands identification it already has when you try to withdraw — and never managed to get their crypto back out.

The Binance plan for Voyager customers can’t possibly involve letting them get their cryptos out afterward, even six months down the line.

Exchanges are having a bad time

Huobi Korea is separating from the troubled Huobi Global. Huobi Korea Chairman Jo Guk-Bong will be buying out Huobi founder Leon Lin. The Korean operation will also change its name. [News1, in Korean]

Coinbase is laying  off another 950 staff after an expected up to $500 million loss for Q4 2022. Some teams will be cut entirely. They don’t say which ones, though. [8-K; Coinbase] has laid off another 20% of staff, in completely “unforeseeable” circumstances. If they really didn’t see this coming, they should probably sign up to get our emails. [] has laid off 28% of staff — 110 employees. “The crypto ecosystem is facing significant headwinds” — there’s no fresh money coming in. [CoinDesk]

Binance is bleeding assets. Customers withdrew $12 billion in crypto in the 60 days up to the end of December — a quarter of their claimed holding. [Fortune]

The collapse of FTX took out Australian exchange Digital Surge, “which had marketed itself to retirees through platforms such as ESuperFund.” Ouch. [Financial Review]

Distressed Indian exchange Vauld got screwed over when Terra-Luna and 3AC collapsed — because they’d been trading with customer funds. They had a buyout offer from Nexo. Vauld refused the offer — they correctly thought Nexo was not solvent and wouldn’t be good for the money. Even if they didn’t figure on Nexo getting busted. [The Block]

Two of the AAX exchange exit scammers were arrested in Hong Kong — an allegedly-former employee and a consultant. Police believe the “mastermind” skipped the country with the keys to $30 million in cryptos. [SCMP]

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3 Comments on “Crypto collapse: Bitcoin goes up, Nexo charged, GBTC still wants to be an ETF, crypto exchanges struggle, FTX, Voyager”

  1. “which had marketed itself to retirees through platforms such as ESuperFund.” – interestingly this line is in the linked AFR article as well, although to be more accurate they were marketing themselves for retirement savings through Australia’s mandatory superannuation savings system. Thus rather than advertising to retirees, they were trying to gather peoples pre-retirement savings through a self managed super account like ESuperFund, rather than retirees, who don’t use super accounts.

    Still predatory crypto rubbish, but just of a slightly different form.

  2. You misspelled DCG as DGC in the paragraph “Converting GBTC into an ETF would help bring the GBTC price in line with the price of bitcoin. And DGC could profit from all those GBTC shares they’ve accumulated in buybacks.”

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