In this podcast episode, Lorraine discusses the current state of the crypto market and the impact of recent events on the crypto industry. She highlights the negative consequences of incomplete reporting on the industry and suggests the need for more balanced reporting. She also touches on the crypto market, which is showing signs of recovery, the FTX collapse, the bankruptcy of crypto lenders Genesis Global Capital and BlockFi, and the need for regulation of crypto exchanges and lenders. Finally, she highlights the different approaches to crypto regulation in Japan, Uganda, and South Africa.
SBF is awaiting trial after being indicted on eight counts, including securities fraud.
The prices of cryptocurrencies seem to be recovering from their 2022 lows. Tokens and coins associated with layer 2 solutions have outperformed Bitcoin and Ether over the last two months
There have been louder calls for crypto regulation. Japan’s stringent crypto regulation prevented the collapse of FTX Japan; as a result, FTX Japan’s users will be able to withdraw their crypto assets, unlike those of FTX.com
Crypto regulation should be thoughtful and not stifle innovation.
Additional reading
Link to newsletter
FTX, Genesis, and Gemini
Crypto Regulation
Crypto-specific news websites
Welcome to the first episode of the 2023!
I hope you've had a great start to the new year!
I am OK. I am looking forward to what the new year has in store but also optimistic and hopeful about life in general and the crypto space.
I read a lot about the crypto space and I think I've done more reading in the last three months than ever. What I realized was that if were new to crypto I would stay as far away from it as possible. The scams, fraudsters, and con artists, implosions, bankruptcies, and protocol exploits, would leave me with a negative perception of this space now I think that bad events and bad happenings in the space. I believe wholeheartedly that the misdeeds of bad actors should be aired out in the sun But I also believe in balanced reporting about the crypto space, which I feel is in such short supply these days.
If my news sources only write about crypto when Bitcoin hits 69,000 dollars and when a crypto lender or crypto exchange collapses, I would probably be extremely hesitant to engage with this space. How then would someone who is hopeful about this space, who is enthusiastic about the space, reach someone who has written it off because of incomplete reporting. I don't know, but if you have any suggestions I'll be happy to hear them. Feel free to share them on Twitter @ decen_podcast.
What I would like to focus on today is the state of affairs. The crypto market, and the crypto space post FTX and the implosions and collapses of last year. I will start with the crypto market.
There are signs of recovery although generally the market is still down considerably from its 2021 highs. The price of Bitcoin as of the time of this recording is about 24,500. At the beginning of year, Bitcoin was about $16,500. Ether is exchanging hands at about 1690, and at the beginning of the year, one ether was worth $ 1190. This is considerably lower than the 4500 it was worth in 2021. Other crypto assets have appreciated in value as well. Out of the top 200 crypto assets on coinmarketcap, which is a lovely resource for all things crypto, several crypto assets have gone up by more than double, such as MATIC, METIS, AND OPT. Most of these are associated with Layer 2 Solutions, which aim to increase the scalability of Ethereum, i.e., the number of transactions it can handle per second and transaction speeds, while lowering the transaction costs.
During periods of high activity, the Ethereum blockchain tends to get really congested, imagine bumper to bumper slow-moving traffic. During these periods, transaction costs are pretty high and in some cases the blockchain is completely unusable by anyone except those who have deep pockets. By offloading some of these transactions to closely associated chains or to different layers, congestion is reduced. I touch on these solutions a bit more in issue two of our newsletter.
Even when you are used to the volatility of the crypto market, after the unrelenting winter that we’ve had, it is nice to see charts with more green than red bars. A green bar means that an asset is trading higher than it did the day before and a red bar means its trading lower than it did the day, month before, depending on the time scale of the chart. Anything of course can happen, but I remain optimistic.
What about FTX? SBF was extradited to the US, where he was indicted on eight counts, including securities fraud and money laundering, to which he pleaded not guilty, and is currently awaiting trial. Those who had their crypto assets on FTX.com still cannot access them and it is unlikely they will be made whole. The lending unit of Genesis Global Capital, a large crypto lender which has been around since 2013, filed for bankruptcy, as did BlockFi, another crypto lender.
The lending unit of Genesis made the mistake, like so many other companies, of lending Three Arrows Capital, the failed hedge fund, billions of dollars, that it will probably never see, and trusting FTX with custody of some of its crypto assets. Just as Genesis cannot access more than $175 million that is stuck on FTX’s platform, companies that were holding their crypto with Genesis on behalf of their users cannot access it, either. Gemini, the exchange founded by the Winklevoss twins, is owed $900 million by Genesis.
There have been louder calls for the regulation of crypto, though I think crypto exchanges and lenders rather than crypto assets, like Bitcoin and Ether, should be the focus of this regulation, and maybe regulators should look to Japan for inspiration.
While the users of FTX. com cannot withdraw their crypto assets from the platform, users of FTX Japan, a subsidiary of the FTX group, will be able to, thanks to Japan’s stringent regulation of crypto firms, which, for example, requires an exchange to separate user funds from its own (FTX commingled funds); confirm the identities of exchange users to prevent money laundering; keep 95% of users deposits offline in cold-storage wallets (if 95% of users deposits are offline in cold storage, they cannot be loaned out or stolen, and users should be able to access them). Because FTX Japan was compliant, it sidestepped the issues that led to FTX.com’s collapse.
There is a lot to unpack when it comes to regulation. Although Japan’s regulation prevented a catastrophic event, it is also quite stringent, and has limited innovation in the space, and chasing investors away. Here, in Uganda, crypto is not banned and can still be purchased, held, and traded, but banks or fintech business found to be facilitating the trade of cryptocurrencies will have their financial license revoked. In South Africa, however, crypto currencies have been classified as financial products, crypto businesses have been added to the country's list of accountable institutions, banks and financial institutions have been allowed to serve crypto clients. In fact the South Africa Reserve Bank stated that the “wholesale termination of crypto clients” poses a threat to financial integrity.
Regulation deserves its own episode, and I’ll unpack it even further in a later episode.
That’s all I have for you this week. Feel free to reach out on Twitter @decen_podcast. A link to Issue 2 of our newsletter has been shared in the podcast notes and will be shared in Twitter as well. Until next time, take care of yourselves.