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

By Amy Castor and David Gerard

“It’s important to learn to walk away from things. That’s what separates us from the animals…except for the leech.” – Homer Simpson

The number is rising

Why Is Bitcoin Price Above $20,000? The answer is always, always “dawns.” It’s never macroeconomic moves, regulatory announcements, or the strength of the dollar.

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

The usual reason for pumps is bad news. If owners see the numbers increase, they will be less likely to panic and head for the exits. And this past week has seen a flood of bad news – Genesis is likely bankrupt, DCG has been hit hard trying to cover them, Gemini and Genesis are being sued by the SEC, and Nexo is going under difficult.

Another reason to pump is someone trying to destroy a long or short margin trader. Fixing the price of Bitcoin is often cheaper than what you can earn on margin betting. This is when you get a table with “Bart” combinations on it.

The price of Bitcoin is kept where the big players need it. With billions of pseudo-dollars in unbacked stablecoins on unregulated offshore exchanges, the market can be subtly and senselessly manipulated.

The price of bitcoin needs to be high enough so that the big boys don’t get their loans cancelled, but low enough that wallet holders don’t try to cash out and hit the price. It’s a tightrope.

The narratives of the press and commentators about broader market forces are part of the general delusion that well-behaved markets are natural. They are not. For example, we have a properly regulated US stock market for nearly a century. This is not a desert, but a carefully tended garden.

But people, even financial journalists who should know better, assume that well-managed markets are normal and that you can talk about all markets like these few.

Bitcoin isn’t quite the same kind of creature – it’s a manipulated pile of junk where price discovery takes place in unregulated offshore casinos that obey no rules other than “not to scare the suckers”.

FTX was a well-made example. These exchanges mess with prices and outbid their customers whenever they can get rid of them. Binance also does this a lot.

Organic interest in Bitcoin is still minimal. It’s not the dollar, it’s not the interest rates – it’s the trick.

We’re sure that number will drop again – if you bought for less than $21,000, you might want to cash out while you can. You can already see the bobbles on the chart where bag owners are trying to cash out wherever they can.

Coinbase BTC-USD. On January 14th around 09:00 UTC, watch out for someone trying to cash out.

Nexo bust: charges laid

Four people, including Antoni Trenchev and Kosta Kanchev, founders of London-based cryptocurrency lender Nexo, have been charged following a raid on their office in Sofia, Bulgaria.

Nexo is alleged to have operated as an organized crime group operating in Bulgaria, Great Britain, Switzerland and the Cayman Islands since 2018.

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

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

Investigators looked at four million transactions and found sanctions violations – transactions for Hamas, transactions for Russian cryptocurrency Hydra, and transactions with Iranian cryptocurrency Nobitex.

Clients can still access Nexo – 7% of all assets were taken within 24 hours of the raids, according to Nexo’s daily Armanino certificate. Either that or it’s just insiders getting away with exchange and exit scams. [Armanino]

Nexo is not really that much in liquid assets. If you don’t count Nexo’s $NEXO built-in loyalty points as assets, they’re just bankrupt. We expect withdrawals to stop soon.

There are also allegations of political corruption related to Nexo. Trenchev used to be a member of parliament and still has many connections.

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 Nexo, the authorities simply wanted to “destroy and loot a thriving business.” [Bulgarian Telegraph Agency, in Bulgarian]

Container drivers

Digital Currency Group’s Grayscale is still pushing for GBTC to be a proper bilateral ETF.

GBTC is one-way – you deposit money or bitcoins, you receive shares of GBTC, and you cannot exchange them back to bitcoins.

The SEC rejected Grayscale’s ETF application in June 2022 because Grayscale failed to address market manipulation concerns (as we described above) — the same reason the SEC has rejected every bitcoin ETF proposal so far.

Grayscale appealed the SEC’s decision to the US Court of Appeals for the District of Columbia Circuit. In December, the SEC responded.

Grayscale filed a response with the SEC on January 13. Grayscale spends 41 pages saying that if CME futures gets an ETF, spot market bitcoins should get an ETF — the same arguments it made the first time. This brief beats the table, not the facts or the law. [Grayscale, PDF]

Grayscale has long promised GBTC holders that GBTC will be converted into an ETF. Suing the SEC was a way to channel his clients’ anger at the regulator.

GBTC is currently trading at a 36% discount to its underlying bitcoin. It was trading at a 48% discount in December. GBTC was always supposed to be worthless, but now it clearly is.

Converting GBTC to an ETF would help align the price of GBTC with the price of bitcoin. And DGC can profit from all the GBTC shares they collect in buybacks.

Gray can also cancel GBTC and give back bitcoins to everyone. But they don’t have to – and they collect a huge 2% annual management fee on the 635,000 BTC they trust – that’s over $200 million a year.

Of course, if enough DCG subsidiaries fail, DCG may be forced to liquidate GBTC anyway.


The US Attorney is deeply dissatisfied with the FTX’s desire to retain Sullivan & Cromwell as lead counsel in the bankruptcy. One of the duties of the S&C would be to lead investigations into the FTX, and the Trustee wants this to be led by a disinterested party examiner. John Jay Ray III himself called FTX a “crime scene”! Sections 1106 and 1107 of the Bankruptcy Code specifically prohibit debtors from investigating themselves. The trustee is also concerned 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. “Important questions about the firm’s involvement in FTX operations remain unanswered,” they wrote. At a court hearing last week, Judge Dorsey called the letter “inappropriate” and said it would have no relevance to 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 January 10 statement, the firm said it had “never served as a primary outside consultant to any FTX organization. The firm’s pre-bankruptcy relationship with FTX and certain of its affiliates was limited and primarily operational, common and disinterested as required by the bankruptcy code. [WSJ]

Brett Harrison, the former president of FTX USA, admits everything! Specifically, he did nothing wrong. In his 49 tweets, he talks about the fact that the FTX’s departure from the United States in September 2022 is not sudden, but has been coming for months. He calls Sam Bankman-Friede “insecure” and “arrogant”. He says the “multi-billion dollar fraud” was “kept close” by the FTX’s inner circle, not by anyone in the US. Especially not him. [Twitter, archive]

Harrison did not want to interact with anyone who asked extremely open questions. He blocked anyone who asked about that time last year when Harrison claimed that clients with dollars in FTX were protected by FDIC and SIPC insurance in the US. The FDIC personally named Harrison in a cease-and-desist order. “I’ve learned that good faith or fact-based discussion is impossible on this show,” Harrison tweeted. [Twitter]

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

Voyager and Binance: Life in Chapter 11

This is the order that allows Binance to purchase Voyager Digital in order for the US Asset Purchase Agreement to proceed. [Doc 860, PDF; Reuters]

Binance buys Voyager assets for $1.022 billion, the fair market value of the cryptocurrency – Binance pays $20 million in actual cash and the rest is taken as a liability to customers. Creditors are taking a loan on Binance US for 51% of Voyager’s pre-bankruptcy debt. The deal must first go through lenders and regulators. If the Binance sale does not go through, Voyager’s only option will be a Chapter 7 liquidation.

Looking at the numbers, they don’t add up – there’s no way Binance US can pay off all Voyager account holders even with the discount. Several US regulators who objected to the sale also pointed out that Binance US clearly could not afford it.

Binance US is notorious for people buying their cryptocurrency and not giving it back. We know many people who have been sent through an endless Know Your Customer loop – where Binance repeatedly asks for identification when you try to withdraw – and never got their crypto back.

Binance’s plan for Voyager customers may not include allowing them to withdraw their cryptocurrencies later, even after six months.

Stock markets are having a bad time

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

Coinbase is cutting another 950 jobs after an expected loss of up to $500 million for Q4 2022. Some teams will be cut completely. They don’t say which one. [8-K; Coinbase] has laid off another 20% of employees in completely “unexpected” circumstances. If they really didn’t see this coming, they should probably sign up to receive our emails. [] has laid off 28% of its workforce – 110 employees. “Crypto ecosystem faces significant headwinds” – no fresh money coming in. [CoinDesk]

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

The collapse of FTX took out Australian exchange Digital Surge, which “marketed itself to retirees through platforms such as ESuperFund”. oh [Financial Review]

The risky Indian stock market failed when Vauld, Terra-Luna and 3AC collapsed – because they were trading with client funds. They had a buyout offer from Nexo. Vauld rejected the offer – they correctly reasoned that Nexo was insolvent and would not be good for the money. Even if they didn’t think Nexo would be arrested. [The Block]

Two of the AAX exit fraudsters have been arrested in Hong Kong – an alleged former employee and a consultant. Police believe the “mastermind” hijacked the country with the keys to $30 million worth of cryptocurrency. [SCMP]

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