Crypto collapse: The Great Unbanking continues, Bitcoin pumps, FTX, Voyager, Tether

By Amy Castor and David Gerard

“We’re still early to the party. The kind of early where most guests have left, all that’s left of the good alcohol is empty bottles all over the floor, there’s a hint of dawn and you hope if you keep drinking and pass out you’ll sleep through the hangover. That kind of early.” — Doctor Orrery



How things are going

The 2021 crypto bubble popped in May 2022, with the collapse of Terra-Luna. We started collaborating on a newsletter series about the ongoing collapse.

Everything that’s happened since then and is happening now — Celsius, Voyager, FTX, and their victims — followed directly from Terra-Luna. The collapse is still ongoing.

Binance is looking more and more like FTX did in the months before its collapse — “money” created out of nowhere, reserves largely made of their own internal token, worse and worse excuses, and the regulators sniffing around.

Bitcoin and its descendants failed hard as payment systems. There is no separate crypto economy. Crypto is a dollar derivative — you get into crypto because you want dollars. The only consistent ideologies are “number go up” and “don’t subject me to laws.”

Crypto’s biggest challenge now is that it’s increasingly being cut off from the precious dollars. US banking rails are disappearing as regulators finally do the things they should have been doing years ago.

If “Operation Chokepoint 2.0” is real, then it’s the best program US regulators have ever put forward for crypto.

The bitcoin price is going up again! At press time, it was $27,020. Someone is pumping it hard. A major factor is BUSD holders who can’t pass KYC at Paxos and need to dump their pseudo-dollars, so they buy BTC with them — most bitcoin trade happens at Binance, and it’s where price discovery happens. The Tether printer is also going nuts again.

There isn’t evidence of any fresh retail dollars coming into crypto. The general public still seems pretty sure this is all scammy nonsense.

What we expect to see going forward:

  • Crypto companies trying to go through every dodgy community bank in the US.
  • More claims of government and regulatory conspiracy.
  • More hopefulness, wishful thinking and just made-up claims about crypto.
  • More hopium in the crypto press, because the actual news is bad.
  • Floods of stablecoin printing to pump the price.
  • No evidence of new retail interest — and, in fact, evidence against it, such as Coinbase’s SEC filings.

This is, of course, good news for bitcoin.

Sign your name

Bids to buy the carcass of Signature Bank were due on Friday, March 17. Regulators are trying to sell the bank in its entirety as a going concern. If that doesn’t work out, they’ll cut it up for parts. Any prospective Signature buyer may have to give up on the crypto business. [Reuters]

When Signature was abruptly taken out and shot on March 12, Department of Justice investigators in Washington and Manhattan were already looking into its crypto clients — and specifically into Signature’s anti-money-laundering compliance. The SEC had also been looking into Signature. [Bloomberg]

Barney Frank, a former member of Signature’s board of directors and one of the guys behind Dodd-Frank, defended Signature: “I wonder, are we the first bank to be closed, totally, without being insolvent? And if so, why? I think the DFS, the state of New York people should have to answer that. That’s why I speculate that using us as a poster child to say ‘stay away from crypto’ was the reason.” Well done NYDFS, then. [New York, archive]

But if your loan book is bad enough, being technically solvent may not be enough. Signature’s real estate loans in particular turn out to have been trash. [The Real Deal]

Signature was into Paycheck Protection Program loans during the pandemic — it gave out dozens more PPP loans to cryptocurrency companies than were previously reported in public documents. “DePaolo said the bank’s crypto PPP loan volume was due to other banks serving crypto not having the resources to offer the same kind of program.” [CoinDesk]

Unbanking the unbankable

Silicon Valley Bank didn’t have a lot of crypto customers — other than Circle for part of its USDC reserve — but SVB’s UK unit had a few. HSBC bought SVB UK and all its assets and liabilities for £1 (one pound) — and HSBC is not fond of crypto. “The crypto stuff will probably leave, either of their own accords or being politely off-boarded,” said one of the people involved in the purchase. “They will realise that life would be too hard as a customer of HSBC.” [FT]

The Federal Home Loan Bank of San Francisco did not call in its $4.3 billion loan to Silvergate Bank, an FHLB spokesperson told CoinDesk. “Silvergate made their determination to prepay their outstanding advances based on their own assessment of their position.” We’re pretty sure that if FHLB-SF didn’t pressure them, then someone else did. [CoinDesk]

Circle has put all the cash reserves for USDC into one bank: BNY Mellon. This happens to have left “crypto-friendly” Customers Bank with $1 billion of its total $18 billion customer deposits suddenly being removed. [Circle]

Customers Bank (NYSE:CUBI) is not that big and has been having shaky times. CUBI’s 10-K mentions their “digital currency” customers, though not in any detail. They also run their own version of Signature’s Signet, CBIT, which they too licensed from Tassat, who built Signet. [SEC]

Cross River Bank, a tiny community bank in New Jersey, is Circle’s new payment processor for USDC. It’s the sort of bank that gets into crypto, and that immediately tells you everything about them. Cryptadamus dug into Cross River and found all manner of interesting tidbits. [Twitter]

Cross River was also into PPP loans — it somehow managed to crank out more than 106,000 PPP loans during the pandemic, making it the fourth-biggest issuer of PPP loans. The $4.7 billion in PPP loans amounted to nearly twice the bank’s assets. Cross River issued 15 of the 97 loans involved in the Justice Department’s first 56 prosecutions of fraudulent PPP loans. [NYT; POGO]

Crypto bank Anchorage Digital started as a crypto custody business, joined Facebook’s Libra project in 2019, and got itself a national trust charter for digital assets from the Office of the Comptroller of the Currency in January 2021 — in fact, it was one of the last digital bank charters that Brian Brooks, later of Binance US, approved in his time as comptroller.

Anchorage just laid off 20% of its staff. The San Francisco bank blames regulatory uncertainty and “broad macroeconomic challenges and crypto market volatility” for the downturn in business. The main regulatory uncertainty seems to be that the OCC was unhappy with Anchorage’s money-laundering controls and its lack of sufficient compliance staff or processes. [Bloomberg]

Elsewhere, the OCC says that Washington crypto bank Protego can’t convert itself to a national trust bank. Protego failed to meet the capital requirements until the last moment. It can now try for some other form of charter, e.g., as a state bank, or apply again. [Fortune]


Sam Bankman-Fried wants the bankruptcy court to force FTX to ask their insurers to cover up to $10 million of his legal bills under FTX’s Directors & Officers Liability insurance. Sam wants this for the civil cases against him for stealing everyone’s money, but also for his criminal case — though D&O insurance generally does not cover criminal cases. Sam’s lawyer also attached the part of FTX’s insurance policy that says that intentional criminal actions in the US are not covered. [Doc 964, PDF]

FTX published its Schedules and Statements of Financial Affairs (SOFAs) — detailed documents about payments the company made before bankruptcy. Sam took out $2.2 billion, other executives took out millions. But other dollar transfers have been hidden for confidentiality. [press release]

Effective Altruism movement leaders were warned about Sam’s unprofessional and fraudulent behavior in 2018 and did nothing. Star EA philosopher William MacAskill reportedly threatened one person who attempted to blow the whistle on Sam. Alameda management had actually tried to buy Bankman-Fried out of Alameda around this time because he was so clearly a time bomb. Effective Altruism Forum posters are deeply disillusioned. [Time; Effective Altruism Forum]

Tether go up

Tether is now at 75 billion tethers, up 9 billion from the beginning of the year. We suspect it’s because BUSD is a zombie, and pumpers gotta pump.

We’re shocked to hear that Russian sanctions evasion is using tethers. You buy tethers in Russia with rubles and sell them in London for pounds. [CoinDesk]

Tether/Bitfinex money mule Reggie Fowler has a gambling addiction. Who knew? Fowler has been blowing hundreds of thousands of dollars at an Arizona casino. This is while he’s failed to pay his previous lawyers. Federal prosecutors want Judge Andrew Carter to amend Fowler’s bail restrictions — even this late in proceedings. Fowler will be sentenced next month. [Letter, PDF]

More good news for bitcoin

The DoJ and the US Trustee have filed their appeal against the sale of Voyager to Binance US. Their main dispute is with the claims of immunity from prosecution. “Nothing in the Bankruptcy Code permits courts to exculpate parties from liability to the Government for past and future conduct.” The government wants the provision struck or the whole deal to be withdrawn and has asked to stay the sale in the meantime. Judge Michael Wiles has told them, fairly acerbically, that he is not staying the sale while the appeal proceeds — particularly as he told them to bring specific claims of crimes, and they just didn’t. [Doc 1182, PDF; Doc 1190, PDF]

Coinbase is thinking of setting up a non-US trading platform, as the US environment for crypto continues to sour. Well, it worked for Binance and FTX!  [Bloomberg]

Brian Quintenz, former CFTC commissioner and now a16z’s head of crypto policy, complains at the Futures Industry Association conference that “The SEC is completely out of control. They’re going rogue!” Oh no, how sad. “The United States has to make a decision about whether or not it will embrace and support innovators in this country,” he said, with exquisite timing. [CoinDesk]

Crypto blogger Ignacio de Gregorio wrote a Medium post arguing Ethereum is decentralized, because he’s fretting over the New York Attorney General’s claims that ETH is a security. David S. H. Rosenthal points out all the flaws in his arguments: [DSHR]

de Gregorio and others base their case on fact that back in 2018 the SEC’s Director of the SEC’s Division of Corporation Finance William Hinman asserted that ETH was not a security because the Ethereum blockchain was “sufficiently decentralized”. But Hinman’s assertion was false then and is false now. And Hinman now works for A16Z, the “Softbank of crypto”.


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2 Comments on “Crypto collapse: The Great Unbanking continues, Bitcoin pumps, FTX, Voyager, Tether”

  1. This Crypto thing is a time bomb! Unless it’s regulated, individuals will lose a lot of their money eventually! Most Crypto businesses are just scams that’s why the want to remain unregulated! I remain a victim of a Chinese platform known us Bycoin, which refused to pay out unless I paid some cash upfront!

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