By Amy Castor and David Gerard
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“lots of ppl like to think they are above being tricked or scammed, but that is just arrogance and privilege speaking loudly. you can be the smartest person around, just living your life, and *wham* your moms face disappears completely behind her hands”
Professor Doctor Doctor Craig Wright by Phneep
From Genesis to Apocalypse
The bankruptcy court has given crypto lender Genesis the go-ahead to dump its trust assets, including $1.6 billion worth of GBTC (31.2 million shares) — despite vociferous objections from its parent company, Digital Currency Group. [Doc 1314; PDF]
Now is a good time for Genesis to sell. GBTC converted to an ETF earlier this year, so the shares are close to the face value of the bitcoins they represent. Before the ETFs, GBTC was selling way below net asset value.
The outflow from GBTC will result in a sell-off of bitcoins. Those bitcoins are going to be sold even if it is out the back door via Coinbase custody. And they will be sold for actual dollars — not tethers. The market is sure to take a hit. We fully expect Tether to issue more tethers to fill the hole.
DCG objects to the sale — that is, to the actions of its own subsidiary! DCG argued to Judge Sean Lane that the “sheer quantity of the Trust Assets at issue will pose a serious risk of value destruction.” LOL. [Doc 1285, PDF]
DCG told Judge Lane that if Genesis wants to sell GBTC, DCG should have the right to be consulted. DCG is probably “the most knowledgeable party with respect to these assets” because DCG created GBTC. Judge Lane pointed out the very obvious “inherent conflict.” [WSJ]
Earlier this month, Genesis reached a tentative settlement agreement in New York’s fraud case against Genesis, DCG, and the Gemini crypto exchange over Gemini Earn. The settlement has to be approved by the bankruptcy court. DCG has filed an objection to Genesis’ settlement. DCG is concerned that Genesis is overpaying its creditors. They argue that the settlement violates the bankruptcy code because the payments are tied to the asset prices as of the distribution date, not the petition date. [CoinDesk; Doc 1341, PDF]
Meanwhile, New York is expanding the claims in the Gemini Earn case from $1 billion to $3 billion, because so many previously unknown victims came forward after the original filing. This is notwithstanding the agreement with Genesis to settle. [Press release; amended complaint, PDF]
Genesis also settled a separate case with New York in January over anti-money-laundering compliance failures. Genesis will pay a $8 million fine and surrender its BitLicense, meaning it can’t operate in New York anymore. [Press release; consent order, PDF]
Absolute zero
Celsius Network is paying out creditors with what cash and liquid crypto is left — about $3 billion total. Crypto distributions to holders in the US are through PayPal/Venmo while overseas holders are mainly managed by Coinbase. [BusinessWire; Doc 4319, PDF]
Things aren’t going so smoothly. Coinbase has been flagging Celsius creditors for anti-money laundering issues. Several creditors are complaining that Coinbase has sent them notices with “your claim distribution cannot be serviced through Coinbase.” [Twitter, archive; Twitter, archive; Twitter, archive]
We’re told by aggrieved Celsius creditors that the company is sending dollar payments out as US checks, which can’t be cashed at all in many foreign countries. It’s not clear what will be done about the Coinbase and US check issues. Celsius asks affected creditors to email them to arrange a wire transfer instead — though the company’s autoresponder says that they’re flooded with requests and are trying to get through the pile. [Medium]
The collapse: Su and Kyle’s bogus journey
Zhu Su and Kyle Davies, founders of crypto-market-crashing hedge fund Three Arrows Capital, have so far evaded criminal charges on 3AC’s foolishness that in June 2022 killed the parts of the crypto market that hadn’t been killed by Terra-Luna in May. But 3AC’s creditors are now bringing billion-dollar claims against Zhu and Davies personally. And those creditors think some of the pair’s statements in 3AC’s last days look very like fraud. In the meantime, Zhu and Davies want to start a new exchange, OX.Fun, trading its own in-house meme tokens. [Intelligencer, archive]
Do Kwon, cofounder of Terraform Labs, is set to be extradited from Montenegro to the US, where he will face criminal charges over the Terra-Luna collapse. South Korea’s application was rejected. Kwon had agreed to extradition but wanted to go to South Korea first. [Pobjeda, in Montenegrin]
Han Jang-Choon, the former CEO of Terraform Labs, who was also in custody in Montenegro, has been extradited to South Korea. Han was traveling with Do Kwon when they were both arrested last March. [CoinDesk]
Consumer fraud could lead to a life sentence in South Korea for offenses over 5 billion won, or USD$3.8 million. Better not do any DeFi frauds that touch South Koreans, hey. [CoinDesk]
Crypto trading and custody platform Bakkt is broke. The company filed a significant new risk factor with the SEC: “We might not be able to continue as a going concern.” They need significant new revenue not to die within 12 months. Baakt also noted that the NYSE may delist its stock (BKKT). The stock was at $42.52 in October 2021; it’s now around $0.96. [10-Q/A]
Coinbase’s 10-K for 2023 is in! There’s no real news since their Q3 2023 filings. Retail trading is through the floor — so if anyone claims the crypto market is definitely coming back any moment now, that’s just incorrect. But Coinbase’s total revenue is up over 2022 because their share of the USDC stablecoin backing reserve generates interest income now. And they’re looking forward to ETF custody income. [10-K, PDF]
Craigness
Thankfully Craig Wright isn’t really on-topic for the crypto collapse, so we don’t have to think about him too much. But he’s currently in court in the UK — the Crypto Open Patent Alliance, backed by wealthy coiners including Twitter cofounder Jack Dorsey, seeks to prove that Wright’s claims to be Satoshi Nakamoto are lies backed only by forged documents. They’re heartily sick of him suing people.
The trial is bringing the comedy gold. The latest is that Wright has dismissed his own expert witnesses. We recommend CoinDesk’s coverage. [CoinDesk]
Rory Cellan-Jones, in his time at the BBC, was one of the three journalists who suffered the Craig as Satoshi public relations offensive in 2016. He has a nice blog post on that wacky day. Rory also did an interview last year with the Dr. Bitcoin podcast which has been made available free. [blog post; podcast]
More good news for bitcoin
Shan Hanes, the former CEO of the collapsed Heartland Tri-State Bank, has been charged with embezzlement. Hanes allegedly took $47.1 million from the accounts of a local church and a local investment club and gambled it on a crypto pig-butchering scam. This is the CEO of a bank falling for a cheap crypto scam. [American Banker, archive]
Google decided to allow ads for bitcoin ETFs — so the ETF promoters are frantically spending on Google ads. [FT, archive]
Tether use case: illegal gambling. Billions of “dollars” in USDT are flowing around Southeast Asia-based illegal betting operations. [Asian Racing]
The SEC has a new rule: almost any intermediaries in movements of securities who “take on significant liquidity-providing roles in the markets” have to register as dealers. This is likely to also affect any DeFi operations that are effectively market makers for unregistered crypto securities — such as pretty much all DeFi tokens. Crypto traders asked for a special carveout; the SEC suggested they stop doing securities trading without registering. “The commission is not excluding any particular type of securities, including crypto asset securities, from the application of the final rules.” [press release; fact sheet, PDF; rule; comments; CoinDesk]
Circle is dropping support for USDC on the Tron blockchain immediately. No reason was given — but we’re not surprised, given the SEC charged Justin Sun, the owner of Tron, with fraud last year, and Circle is hoping to go public sometime soon. Tron remains a favorite of Tether, which still relies on Tron to carry more than half of its USDT. [Circle]
The European Central Bank says bitcoin is still trash. Its fair value is still zero, it hurts the environment, it’s a market for fraud, and the ETF rally is just a dead cat bounce. [ECB]
Freelance fun
David’s crypto book review for Foreign Policy is finally out — covering Going Infinite by Michael Lewis, Number Go Up by Zeke Faux, and Let Them Eat Crypto by Peter Howson. [Foreign Policy, archive]
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What do you think about Google stealing the word “Gemini” from the Winklevosses?
Well, as long as they don’t sell bitcoins with it …
EXACTLY!!!