Bitcoin Rises, Nexo Charges Up, GBTC Still Wants to Be an ETF, Crypto Exchanges Struggle, FTX, Voyager – 50 Foot Blockchain Attack

Per Amy Castor and David Gerard

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

Increase the number

Why is the price of bitcoin higher than $20,000? The answer is always, always “tricks”. It’s never macroeconomic actions, regulatory announcements or dollar strength.

The bitcoin market is small, easily manipulated and completely unregulated. Internal manipulations destroy all external indicators. [SSRN, PDF]

Bad news is a common reason for pumps. If owners see the number going up, they are less likely to panic and head for the exits. And last week we saw a deluge of bad news — Genesis likely insolvent, DCG getting hit hard trying to cover them, SEC suing Gemini and Genesis, and Nexo going under heavy.

Someone trying to destroy a long or short margin trader is another reason to pump. It often costs less to fix the price of bitcoin than you might get from a margin bet. Then you get a chart with “Bart” formations on it.

The price of bitcoin is maintained where the big players need it. The market is thin and trivially manipulable with billions of pseudo dollars in uncovered stablecoins on unregulated offshore exchanges.

The price of bitcoin has to be high enough so that the big guys’ loans don’t get liquidated, but low enough that the bag holders don’t try to cash in and crash the price. It’s a rope.

Press and commentator narratives about broader market forces are part of the general misconception that well-behaving markets are natural. They didn’t. For example, we’ve had almost a century of properly regulated stock markets in the US. It’s not a wilderness, it’s a carefully tended garden.

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

Bitcoin isn’t the same kind of creature at all – it’s a bunch of manipulated garbage where price discovery happens in unregulated offshore casinos subject to literally no rules other than “don’t scare the naive”.

FTX was a good example. These exchanges manipulate prices and put their own clients first whenever they can get away. Binance is also often caught in this.

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

We’re pretty sure the number will drop again — if you’ve invested under $21,000, you might want to cash out while you can. You can already see the bubbles on the chart where the bag holders tried to cash in where they could.

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

Arrest of Nexo: indictments filed

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

Nexo has reportedly operated as an organized crime group since 2018, operating out of Bulgaria, the United Kingdom, Switzerland and the Cayman Islands.

The charges include money laundering, providing banking services without the necessary license, tax crimes, computer crimes and violations of international sanctions. [Capital, in Bulgarian; Bloomberg]

Two of the accused are not in Bulgaria — they would be Trenchev and Kanchev, who were last seen in Dubai.

Investigators reviewed 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 can still access Nex — 7% of all funds were withdrawn in the 24 hours after the raids, according to Nex’s daily Armani confirmation. Either that or it’s just insiders draining the exchange and scams coming out, of course. [Armanino]

Nexo doesn’t really have that much liquid assets. If you don’t count Nexo’s internal $NEXO loyalty points as an asset, then they are simply insolvent. We expect the withdrawals to stop soon.

There are also allegations of political corruption involving Nexo. Trenchev was a member of parliament and still has many contacts.

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

Container drivers

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

GBTC is one-way — invest money or bitcoins, you will receive GBTC shares and cannot change them back to bitcoins.

The SEC rejected Grayscale’s ETF application in June 2022, because Grayscale did not address market manipulation concerns (as we described above) — the same reason the SEC has rejected every bitcoin ETF proposal to date.

Grayscale filed a petition to challenge the SEC’s decision in the US Court of Appeals for the District of Columbia Circuit. In December, the SEC filed a response.

Grayscale filed a response with the SEC on January 13. Grayscale spends 41 pages saying that if CME futures has an ETF, then bitcoins at the spot market price should get an ETF — the same arguments he made the first time. This submission is pounding on the table, not facts or law. [Grayscale, PDF]

Grayscale has long promised GBTC holders that they would turn GBTC into an ETF. The SEC lawsuit was a way of redirecting customer anger toward the regulator.

GBTC is currently trading at a 36% discount to its underlying bitcoins. In December, it was traded at a discount of 48%. GBTC was always meant to be worthless, but now it is clearly worthless.

Converting GBTC to an ETF would help align the price of GBTC with the price of bitcoin. And DGC could profit from all those GBTC shares they accumulated through buybacks.

Grayscale could also liquidate GBTC and return everyone’s 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 enough DCG subsidiaries go bankrupt, DCG could still be forced to liquidate GBTC.


The US bankruptcy trustee is deeply unhappy with FTX, which wants to retain Sullivan & Cromwell as lead counsel in the bankruptcy. One of S&C’s duties would be to conduct investigations into FTX, and the trustee wants an examiner, who would be a disinterested party, to conduct this. John Jay Ray III himself called FTX a “crime scene”! And sections 1106 and 1107 of the Bankruptcy Code expressly prevent debtors from investigating themselves. The commissioner also worries about a conflict of interest, and it’s not entirely clear how S&C got the job. [Objection, PDF]

The S&C appointment was also questioned by four US senators, who sent a letter to Judge Michael Dorsey. “Significant questions about the company’s involvement in FTX remain unanswered,” they wrote. At 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 about the collapse of FTX, S&C was one of the many groups Sam blamed. He also said S&C was FTX US’s primary law firm before the bankruptcy.

S&C denies this. In a Jan. 10 statement, the company said it “has never served as a primary outside advisor to any FTX entity. The Company had a limited and largely transactional relationship with FTX and certain affiliates prior to bankruptcy, as is customary, and is disinterested under bankruptcy law.” [WSJ]

Brett Harrison, former president of FTX US, admitted everything! More precisely, that he didn’t do anything wrong. In 49 tweets, he talks about how his departure from FTX US in September 2022 was not sudden, but months in the making. She calls Bankman-Frieda herself “insecure” and “proud”. He says the “multi-billion dollar fraud” was “closely monitored” by FTX’s inner circle – not by anyone at FTX US. Especially not him. [Twitter, archive]

Harrison wasn’t all that interested in contacting anyone who asked the most obvious questions. He blocked anyone who asked about that time last year when Harrison falsely claimed that clients with dollars on FTX US were protected by FDIC and SIPC insurance. The FDIC named Harrison personally in its cease and desist order. “I have learned that it is impossible to have a good faith or factual discussion of this on this app,” Harrison wrote on Twitter. [Twitter]

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

Voyager and Binance: Life in Chapter 11

This is an order enabling the continuation of the Asset Purchase Agreement for Binance US to acquire Voyager Digital. [Doc 860, PDF; Reuters]

Binance is buying Voyager’s assets for $1.022 billion, which is the fair market value of the cryptocurrency — Binance is paying $20 million in real cash and assuming the rest as liabilities to customers. Creditors are getting a loan on Binance US for 51% of what Voyager owed them before the bankruptcy. The business must first pass creditor and regulator vetting. If the Binance sale does not go through, Voyager’s only remaining option is a Chapter 7 liquidation.

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

Binance US is notorious for taking people’s cryptocurrencies and not giving them back. We know multiple people who have gone through the endless Know-Your-Customer loop — where Binance repeatedly asks for identification it already has when you try to withdraw — and have never been able to get their cryptocurrency back.

Binance’s plan for Voyager customers cannot possibly include letting them receive their cryptocurrencies after that, even six months later.

Stock markets are doing badly

Huobi Korea is being spun off from troubled Huobi Global. Huobi Korea Chairman Jo Guk-Bong will buy out Huobi founder Leon Lin. The Korean operation will also change its name. [News1, in Korean]

Coinbase is laying off another 950 employees after an expected loss of up to $500 million for the fourth quarter of 2022. Some teams will be completely laid off. However, they don’t say which ones. [8-K; Coinbase] has laid off another 20% of its staff, under completely “unforeseen” circumstances. If they really didn’t see this coming, they should probably sign up to receive our emails. [] has laid off 28% of its staff — 110 employees. “Cryptoecosystem faces significant headwinds” — no fresh money coming in. [CoinDesk]

Binance is bleeding assets. Buyers withdrew $12 billion in cryptocurrencies in the 60 days to the end of December — a quarter of their holdings. [Fortune]

The collapse of FTX destroyed Australia’s Digital Surge exchange, “which marketed itself to retirees through platforms such as ESuperFund.” ouch [Financial Review]

India’s troubled Vauld Exchange was screwed when Terra-Luna and 3AC collapsed — because they were trading client funds. They had a buyout offer from Nex. Vauld rejected the offer — they correctly thought that Nexo was not solvent and would not be good for the money. Even if they didn’t think Nexo would be arrested. [The Block]

In Hong Kong, two fraudsters were arrested at the exit of the AAX exchange — allegedly a former employee and a consultant. Police believe a “mastermind” skipped the country with the keys to $30 million in cryptocurrencies. [SCMP]

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