👀 Is Silvergate Bank in Free Fall? ⛔
Weekly News Recap: 🎙️ New pod with Stack's Muneeb Ali, 📉 Silvergate is in trouble, 😰 FTX director gets charged, Coinbase 🚫 BUSD, and more!
Bitcoin Ordinal NFTs Are Hot and Getting Hotter. What's the Hype About?
Bitcoin ordinal NFTs are taking off — filling up block space, pushing up bitcoin fees, and even getting blue chip NFT firms like Yuga Labs to dive in. In Friday’s Unchained, Muneeb Ali, co-creator of Stacks, explains why Bitcoin ordinals have taken off, how they are different from NFTs on Ethereum, and why they’ve also caused the price of the Stacks token to climb.
We dive into the controversy that initially erupted around ordinals, with some Bitcoiners wanting to “censor the crap,” meaning the ordinal NFTs. Ali says that for the last several years, more non-technical Bitcoiners were dominant. “Their voices became more magnified in the Bitcoin community. And they're usually sort of naysayers, right? They're saying all of these use cases don't make any sense. Money is the only use case.” But, Ali says, the advent of ordinals has brought out more of the technical Bitcoiners.
And it turns out ordinals are even helping to solve the Bitcoin security dilemma that the network will likely face in the next 10-15 years. Tune into the full episode to find out how ordinals could potentially resolve that issue.
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Weekly News Recap
Silvergate Misses 10-K 2022 Report
On Wednesday, cryptocurrency-friendly bank Silvergate announced it would delay the filing of its annual report. It said that it is reviewing its financial controls and viability following the collapse of FTX.
Silvergate confirmed that it sold additional debt securities in January and February, and that losses related to its securities portfolio, among other factors, could impair its ability to operate as a going concern.
The fact that Silvergate has been so intertwined with crypto companies has raised concerns among the crypto community.
The bank's shares fell by over 50% following the news, reaching all time lows of $6.91. In addition, JPMorgan downgraded Silvergate's rating from "neutral" to "underweight" and removed its $14 per share target.
Only hours after the company disclosed they were not filing its 10-K form, Coinbase announced it had stopped using Silvergate to handle dollar payments for its prime customers citing an "abundance of caution.” Instead, the exchange has shifted to Signature Bank. Coinbase said that it has only had minimal exposure to Silvergate.
While the company did not disclose the reason behind the switch, it may have been driven by a desire to avoid any potential fallout if Silvergate goes under.
Following Coinbase's move, many other companies, including Circle, Paxos, Crypto.com (disclosure: sponsor of Unchained), Bitstamp, Cboe Digital Markets, and Gemini, also decided to stop doing business with Silvergate.
FTX's Former Director of Engineering Faces Fraud Charges
Former FTX Director of Engineering Nishad Singh was charged with fraud by both the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) after entering a guilty plea in federal court. The charges allege that Singh conspired to defraud FTX's investors and users.
The CFTC claimed that Singh created features in FTX's code that allowed Alameda Research to gain an unfair advantage on the exchange, including an unlimited line of credit and exemption from the exchange's auto-liquidation function. Singh also allegedly moved Alameda's $8 billion in liabilities to a fake customer account on FTX's systems, effectively hiding Alameda's negative balance.
The SEC's complaint adds that Singh falsely characterized $50 million transferred from another entity as revenue. Singh allegedly withdrew hundreds of millions of dollars for personal use from FTX despite knowing about the commingled funds between Alameda and FTX.
In light of his charges, Singh has decided to collaborate with prosecutors investigating former CEO Sam Bankman-Fried.
In related news, SBF’s lawyers asked for more time to negotiate his bail terms and find a technical expert to educate the court on his use of a VPN.
Coinbase to Suspend Trading of BUSD
Coinbase has decided to halt trading of Binance USD (BUSD) due to the stablecoin not meeting the exchange's listing standards. The suspension is set to take effect from March 13. While users will still be able to withdraw BUSD, trading will be suspended across all Coinbase platforms, including Coinbase Prime and Coinbase Pro.
The move comes after the New York State Department of Financial Services ordered Paxos to stop minting BUSD and the SEC launched an investigation into Paxos over the stablecoin offering. It also comes months after Binance decided to delist USDC, a stablecoin operated by Coinbase in a consortium with Circle.
While other exchanges like Kraken are being scrutinized, Brian Armstrong, CEO of Coinbase, stated that the interests of his exchange align with those of the SEC and that the company has maintained a positive relationship with the agency, including meetings with its Chair Gary Gensler. That is a turnaround from September 2021 when Armstrong called the agency’s actions “really sketchy.”
This week, Coinbase also revealed poll results showing that 20% of Americans own crypto, and that 80% of Americans “think the global financial system unfairly favors powerful interests.”
Binance Denies Allegations From Forbes
Forbes reported that Binance moved $1.8 billion in collateral backing its customers’ stablecoins to other undisclosed uses without informing them. A significant majority of these customer funds, $1.1 billion, was reportedly transferred to Cumberland, the crypto trading arm of Don Wilson's DRW. Other recipients allegedly included Alameda Research, Amber Group, and Tron founder Justin Sun.
According to blockchain data, the disbursement consisted entirely of USDC.
Binance denied the report, arguing that the transfers were related to internal wallet management and not a misuse of customer collateral. Binance chief strategy officer, Patrick Hillman, told Forbes that there was no commingling of user assets.
The Wall Street Journal reported that three US Senators, Elizabeth Warren, Chris Van Hollen, and Roger Marshall, sent a bipartisan letter to Binance CEO Changpeng Zhao asking for details on the crypto exchange's money laundering controls. The senators accused Binance of being a "hotbed of illegal financial activity" and requested information on the company's balance sheets, internal procedures, and any communication about alleged efforts by Zhao to limit compliance. The letter also claimed that Binance and its affiliates "have purposefully evaded regulators, moved assets to criminals and sanctions evaders and hidden basic financial information from its customers and the public."
SEC Issues Subpoenas for Robinhood
In its latest SEC filing, popular trading platform Robinhood revealed that it was subpoenaed by the agency regarding its "supported cryptocurrencies, custody of cryptocurrencies, and platform operations."
Robinhood is worried that if the regulator fails to properly classify cryptocurrencies, it could be subject to fines, and other enforcement actions.
The subpoenas come as US regulators continue to scrutinize the crypto industry, particularly with regard to its compliance with securities laws.
The SEC, which in recent weeks has been quite active, is reportedly increasing its focus on cracking down on crypto firms by expanding its digital assets enforcement team.
DCG Loses More Than $1 Billion
Digital Currency Group incurred a loss of $1.1 billion in the past year as a result of declining crypto values and the reorganization of its lending platform, Genesis.
In Q4 of 2022, DCG generated $143 million in revenue but incurred $24 million in losses. Its equity valuation stood at $2.2 billion or a price of $27.93 per share, consistent with the 75%-85% sector-wide decline in equity values over the same period.
Solana Suffers Major Outage
Over the weekend, the Solana blockchain experienced a nearly 20-hour outage due to a bug in a new version of its code.
Validators downgraded to a previous version of the network and coordinated a synchronized chain restart, but the first attempt was abandoned. After the second attempted restart, Solana was back online around 8:30 pm ET on Saturday.
Solana has experienced a series of outages in the past. While critics argue that the platform's frequent disruptions reflect a lack of stability and robustness, advocates defend the blockchain's fast-moving development strategy.
Voyager and Binance.US Get One Step Closer to a Deal
According to bankruptcy administration company Stretto, 97% of bankrupt crypto lender Voyager Digital’s account holder claims customers approved its proposed restructuring plan for Binance.US to acquire the firm's assets for $1.02 billion.
The deal between the companies has been previously questioned by the SEC and the CFTC, with the SEC wanting to stop it because the Voyager token may be an unregistered security, to which U.S. Bankruptcy Court Judge Michael Wiles said it was ”kind of a weird objection.” He said the SEC was asking Voyager to prove a negative with little guidance from the regulator on how to do so. “I get the feeling that this objection has been made as a kind of cover, so you can say later that we'll see we raised these issues,” he said.
Voyager has also agreed to set aside $445 million after being sued by Alameda Research for loan repayment, with both parties agreeing to participate in non-binding mediation to resolve remaining disputes.
Furthermore, crypto analytics firm Arkham Intelligence noted that Voyager transferred $154.4 million worth of USDC from Coinbase to its "Voyager 1" Ethereum wallet, and that it appears to have been selling off assets at a rate of $100 million per week.
Blockchain wallet tracker Lookonchain also revealed that Voyager has transferred assets to Coinbase almost daily since February 14, with nearly $100 million worth of USDC received by Voyager from Coinbase between February 24-26.
Kraken Cuts Ties With Signature
Crypto exchange Kraken is ending its relationship with crypto-focused bank Signature Bank for dollar transactions for non-corporate clients according to an email sent to customers. The deposits will end on March 15 while withdrawals will be stopped on March 30.
The news comes weeks after the exchange founded by Jesse Powell settled with the SEC for providing staking services.
Shanghai Upgrade Is Around the Corner
In a week full of excitement around Ethereum due to one of its main yearly events, ETH Denver, developers continued toiling towards the network’s next big step.
The network reached another milestone with the Shanghai-Capella upgrade, which will enable full withdrawals of staked ether, as developers upgraded the Sepolia testnet to Shapella.
Developers have also set March 14 as the date to test the upgrade on the Goerli testnet, which will be the last step before going to mainnet.
Moreover, the blockchain enabled easier recovery of crypto in the event of lost private keys through the activation of “account abstraction,” implemented through a secure smart contract called EntryPoint, formally known as ERC-4337.
Fun Bits
The FTX drama is certainly the gift that keeps giving … this week, Ginny Hogan, Unchained’s social media manager, gives us her take on Nishad’s cooperation with prosecutors.
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