This year has seen a recovery in cryptocurrency prices and while there may have been less obviously bad news than 2022, the crypto world has not been short of drama. In case you haven't been glued to Crypto Twitter all year like us, here are some highlights.
DCG Drama
When the Winklevoss brothers launched Earn, which offered customers 8% interest on the crypto they lent, they turned to Digital Currency Group subsidiary Genesis. But when Genesis went bankrupt, Earn's customers were left in the cold. Soon, the Winklevoss brothers' crypto exchange, Gemini, was embroiled in a dispute with Digital Currency Group CEO Barry Silbert. Through a series of open letters, Cameron and Tyler accused Silbert of corporate misconduct and said Genesis owed Gemini more than $1 billion. In September, DCG's lawyers proposed a new bankruptcy plan that would have paid Earn's customers 95% to 110% of the amount owed after Genesis declared bankruptcy. In October, New York Attorney General Letitia James sued Gemini and DCG for misleading investors.
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Banks go bust
In March, Silicon Valley Bank became one of the largest US financial institutions to fail since 2008, and the collapse caused instability and repercussions in the industry. Five other banks also failed, including the crypto-friendly Silvergate Bank, which has a growing number of large clients, such as Coinbase and FTX. With the majority of its deposits tied to the crypto industry, Silvergate Bank was forced into bankruptcy by a run when crypto prices fell and FTX collapsed. A few days later, Signature Bank, another crypto-friendly bank, was closed by New York state regulators. Other financial institutions, such as First Republic Bank and Citizens Bank, also failed in 2023.
Do Kwon
Do Kwon, the former CEO of Terraform Labs, who had been on the run for months following the $40 billion collapse of algorithmic stablecoin TerraUSD, was arrested in March along with the company's former CFO. “poor” X/Twitter: Kwon was arrested in possession of multiple fake passports while attempting to flee Montenegro to Dubai. He pleaded not guilty to a charge of attempting to use a false travel document. A higher court subsequently annulled his bail offer of 400,000 euros (roughly $435,000 at the time), leaving Kwon behind bars. In June he was sentenced to four months in prison and remains in custody while Montenegro's top judicial officer considers extradition requests from the United States and Kwon's native South Korea. Kwon has appealed a Montenegrin court ruling allowing his extradition, but The Wall Street Journal It was reported that Kwon is likely to be extradited to the United States.
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NFTs Hit Bottom—Despite the Emergence of Ordinals
NFTs were one of the biggest winners in the last bull market that propelled cryptocurrency prices to all-time highs. This year, things have been different. By the third quarter, NFT trading volume had fallen to $1.39 billion, down from more than $12 billion in the first quarter of 2022, according to data from DappRadar. In January, a new type of NFT called Ordinals on the Bitcoin network sparked a trading frenzy. More than 49 million have been created since then, according to Dune. Many new players, including NFT marketplace Blur, have also transformed the NFT business by introducing incentives and lowering fees, threatening the once-dominant leader OpenSea. To compete, OpenSea stopped enforcing creator royalties, sparking a major backlash among NFT artists. As of November, Blur and competitor OKX accounted for just over two-thirds of NFT trading activity, while OpenSea only accounted for about 10%, but still led by number of active traders. In November, OpenSea laid off half of its staff and then hosted a company retreat at a luxury mansion.
easy come easy go
Billions of dollars have flowed into digital assets this year, but at the same time, many once-mighty industry leaders have fallen by the wayside. luck Wormhole reportedly raised $225 million in the largest crypto-related funding round of the year from investors including Arrington Capital and Jump Crypto. All investors received token warrants instead of shares. The raise, which was the first for the company after years of being nurtured by Jump Crypto, puts Wormhole at a valuation of $2.5 billion. (Notable among them is Worldcoin, an eye-scanning, identity-based blockchain company co-founded by OpenAI CEO Sam Altman, which raised $115 million in May.) Meanwhile, according to TRM Labs, the total amount stolen from crypto projects this year is about $1.7 billion, which is a big amount but still less than the estimated $4 billion taken by hackers last year. Among the biggest hacks were exploits that affected cross-chain bridge Multichain, lending app Euler Finance, and crypto exchange Poloniex, each worth about $100 million.
Legal Victory
After years of legal battles with the U.S. Securities and Exchange Commission, crypto companies Ripple and Grayscale both won victories against the regulator this summer. In July, a federal judge ruled that Ripple's closely tied XRP token is not a security when sold on the public market through crypto exchanges. The judge also ruled that Ripple's institutional sales constituted unregistered securities offerings, giving the SEC a partial victory, but some experts and many on crypto Twitter hailed the ruling as a win for the industry as a whole. In October, a federal judge ruled that the SEC could not appeal the ruling, after which the SEC dropped charges against two of the company's executives. Grayscale was also buoyed by the federal court's decision, which said the SEC's refusal to approve its application to create a spot Bitcoin ETF was “arbitrary and unfounded,” opening the door to the possibility of approval of a similar financial product next year. The judge overseeing the case pointed to the SEC's approval of a futures-based Bitcoin ETF as evidence of the SEC's inconsistency. The regulator chose not to appeal the ruling.
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SBF
In November, Sam Bankman-Fried, once known as the cryptocurrency world's white knight, was found guilty of seven charges related to the collapse of crypto exchange FTX and its sister company Alameda Research. At its peak, FTX was valued at around $32 billion, but as the trial, which lasted more than a month, revealed, SBF and its top executives (several of whom testified against him) misappropriated billions of dollars in client assets, including risky trading in Alameda and the purchase of luxury real estate. SBF, whose sentencing is scheduled for March, is currently awaiting a second trial on whether he tried to bribe Chinese government officials with client funds.
CZ and Binance
Binance, the world's largest cryptocurrency exchange, and its founder, Chanpeng “CZ” Zhao, have been under the scrutiny of U.S. regulators and law enforcement for more than a year. In November, the company reached an agreement with the Department of Justice and two other federal agencies to pay a $4.3 billion fine and plead guilty to violating U.S. anti-money laundering laws and economic sanctions. Zhao stepped down as CEO and also pleaded guilty to money laundering violations. He must remain in the U.S. until his sentencing. In a separate agreement with prosecutors, Binance's former CEO agreed to pay a $50 million fine. The company's former chief compliance officer agreed to pay a $1.5 million fine. As part of Binance's agreement, the company must accept two court-appointed monitors who will oversee its business and determine whether it complies with U.S. laws.
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Bitcoin ETFs from major companies
Spot Bitcoin ETFs already exist in Europe and Canada, but the SEC has been hesitant to approve them for years, rejecting dozens of applications due to potential market manipulation. (Cameron and Tyler Winklevoss, 2017) Social Network (The first well-known ETF was attempted in 2013.) Still, as more TradFi companies have filed their own applications over the past few months, the going has started to turn against regulators. Grayscale, which runs the world's largest bitcoin trust, is fighting the SEC in court to turn GBTC into a spot bitcoin ETF, while companies like BlackRock and Fidelity have also jumped in with their own applications. After Grayscale's court victory against the SEC, some analysts predict the first spot bitcoin ETF could be approved by early January, which could pump hundreds of billions of dollars into the cryptocurrency market.
Is the crypto winter over?
Bitcoin started the year at just over $16,000. As 2023 draws to a close, the most popular cryptocurrency is trading at a 20-month high, up 157% since the start of the year. Starting in mid-October, Bitcoin surged from the $26,000 range where it had been stagnant for months, breaching the $40,000 level in December before a sell-off. (It’s still a long way from its all-time high of around $69,000 in the fall of 2021.) Highlights that have boosted Bitcoin over the past few months include the election of a pro-cryptocurrency president in Argentina, Grayscale and Ripple’s court victory against the SEC, and crypto-friendly comments from BlackRock CEO Larry Fink. Still, the most important driver of Bitcoin’s recent rise is investor speculation that the SEC may soon approve a wave of spot Bitcoin ETFs.
