This is Mark DeCambre, Editor in Chief at MarketWatch. Welcome to week No. 2 of 2023 and a fresh installment of Distributed Ledger. It has been another week of chockablock activity in crypto: digital-asset focused bank Silvergate revealed heavy withdrawals as the FTX implosion roiled the industry.
And there appears to be a public spat between the Winklevoss twins, who founded Gemini, and Barry Silbert, another influential player in crypto.
And of course, Sam Bankman-Fried pleaded NOT guilty earlier this week, setting the stage for an October court case if a deal isn’t struck between the 30-year-old founder of FTX and federal prosecutors. Our white-collar attorney contacts advise to watch this space closely over the ensuing weeks and months.
In any case, holler at me on Twitter at @mdecambre and at MarketWatch at email@example.com.
Quote of the week
“‘Is it a gold mine? Does it make a lot of money quickly? No, definitely not.” ”
Crypto-centric bank Silvergate Capital Corp.
was forced to sell assets at a steep loss to cover some $8.1 billion in withdrawals amid the chaos following FTX’s collapse in November. The bank published an update on Thursday stating that it had lost $718 million from selling assets at losses.
“We took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits,” said Alan Lane, chief executive officer of Silvergate, wrote in a note.
Silvergate is also reducing its head count by around 200 employees, or 40% of staff, “in order to account for the economic realities facing the business and industry today.”
The outlook and the ‘halvening’
Tim Draper is betting (once again) that bitcoin prices will hit $250,000 a coin by the end of 2023. Of course, he made a similar bet in 2022, as his T-shirt in the following tweet indicates.
Despite his relentlessly bullish view on bitcoin prices, it is worth noting that the most recent “halving” or “halvening,” that occurs every four years in bitcoin, was ultimately followed by bitcoin surging to a new high at around $65,000 in 2021. The last such event was 2020.
The halvening means that rewards for those who support bitcoin by verifying transactions will be, quite literally, cut in half. This halving will bring the reward to 6.25 bitcoins and will fall to 3.125 in March of 2024.
William Cai, co-founder and managing partner at Wilshire Phoenix, an asset management firm, said that his outlook is fairly constructive for bitcoin.
“Crypto has shown to be very resilient in 2022, and we lean toward a positive and exciting year as the space moves forward in 2023,” he wrote in emailed comments.
“We are likely to see continued price volatility in 2023, with several battling factors such as the uncertain overall economic environment, technical rather than fundamental driven pressures, and continued institutional adoption but with possible FTX-like events and related regulatory actions,” said.
Luke Dashjr is having a tough start to 2023. The bitcoin developer says, via Twitter, that he “basically” lost all of his stash of bitcoin due to a hack.
Dashjr doesn’t understand how is crypto wallet was compromised. He had only noticed the hack when crypto exchanges Coinbase and Kraken informed him of attempts login to his accounts.
The developer is recognized as having made significant contributions to bitcoin mining technology and code. Perhaps, ironically, he has described himself as radical on cybersecurity and has long held the view that bitcoin isn’t as secure as its proponents would like to think.
Genesis Global Trading is laying off 30% of its employees, according to MarketWatch sister publication, The Wall Street Journal.
“As we continue to navigate unprecedented industry challenges, Genesis has made the difficult decision to reduce our head count globally. These measures are part of our ongoing efforts to move our business forward,” a spokeswoman was quoted as saying.
The company, part of Barry Silbert’s Digital Currency Group consortium, has been embattled since crypto prices began to unravel this summer with the collapse of hedge funds Three Arrows and trading platform Celsius.
The collapse of FTX exacerbated its problems.
Land of confusion
Meanwhile, Cameron Winklevoss, the co-founder of crypto exchange Gemini Trust, accused Silbert’s DCG of bad-faith tactics in a dispute over $900 million of frozen funds.
In an open letter posted on Twitter, Winklevoss alleged that DCG and its crypto-brokerage unit Genesis owes more than $900 million to users of Gemini’s Earn program.
Under Gemini Earn, investors lent Gemini crypto assets in exchange for high interest payments. Gemini then lent the digital assets to Genesis. But Genesis halted all withdrawals and transactions in early November because of its exposure to bankrupt crypto platform FTX, causing a liquidity crisis for Gemini.
MarketWatch’s Mike Murphy reports that last week, investors sued Gemini, as well as Winklevoss and his twin brother, Tyler, accusing them of fraud and of selling interest-bearing accounts without registering them as securities.
Silbert and the Winklevoss twins have been going back and forth:
In too deep?
Genesis has informed clients that it needs more time to come up with a solution for the troubles at its lending unit. It has previously warned that it may have to file for bankruptcy protection if solutions aren’t forthcoming.
MarketWatch’s Steve Goldstein, citing research firm Messari, notes that there are a lot of questions about Genesis’s debt and loans extended to other entities within DCG, including Grayscale Bitcoin Trust
Does DCG or Genesis own $700 million worth of Grayscale Bitcoin Trust? Has DCG extended a $1.1 billion note to Genesis.
It may soon be time to pay the piper.
Crypto in a snap
Bitcoin prices rose 1.7% during the past week, and was trading at around $16,337on Thursday, according t FactSet.
Ether was up 4.7% over the same stretch to around $1,250.70, FactSet data show.
Meanwhile, FTX native coins, known as FTT tokens, were up 5.8% over the past seven days, trading at $0.930835, according to data provider CoinGecko.
|Biggest Gainers||Price||7-day return %|
|Source: CoinGecko as of Jan. 5|
|Biggest Losers||Price||7-day return %|
Crypto companies, funds
Crypto mining company Riot Blockchain Inc.
surged to 26.5%, to $4.25, as of Thursday. Shares of rival Marathon Digital Holdings Inc.
were up nearly 30%, at $4.15, over the past week. Ebang International Holdings Inc.
popped up 34.5% over the past week and was trading at $3.51.
Overstock.com Inc. shares
were trading down 3.3%, to $17.96, over the week.
Advanced Micro Devices Inc. shares
were virtually unchanged at $63.40 for the week.
Among crypto funds, ProShares Bitcoin Strategy
rose 2.6% to $10.63 Thursday, while counterpart Short Bitcoin Strategy ETF
was down 2.5% to $39.07. Valkyrie Bitcoin Strategy ETF
rose 2.3 % to $6.69, while VanEck Bitcoin Strategy ETF
advanced 2.5 % to $17.15.
Grayscale Bitcoin Trust gained over 8% to $8.40.