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FTX legal process, GBTC discount & a tough month for crypto fundraising
The Web Three Newsletter | Dec 14, 2022
We curate and summarize three key opinion pieces from the world of crypto, weekly
This week, we take a look at:
1️⃣ Why the legal process for the FTX saga could take a while | Episode on Unchained Podcast
2️⃣ The massive discount on GBTC - and whether it’s a good or bad thing | Post on Market Meditations newsletter
📻 Why the FTX Legal Process Could Take Years
In this podcast episode, host Laura Shin picks the brain of TuongVy Le (Partner and Head of Regulatory & Policy at Bain Capital Crypto) on various aspects related to the FTX collapse, and why the legal process could potentially take years. Here is a summary of some of the topics discussed (full episode here)
🕵️ Are investigations ongoing? The US DoJ, SEC and possible other authorities are currently investigating the case. Enough facts have come to light to suggest that fraud was possibly committed, and that at the least, there was misuse/misappropriation of customer funds.
🤔 Why is SBF speaking on so many public platforms? This is uncharacteristic for someone getting investigated for crimes. TuongVy suggests it may be because he is trying to pre-empt the narrative and trying to brush off the events as being caused due to a “mistake”, “taking up too much risk”, “lack of enough oversight”, or a “bank run” - basically something he had no control over, rather than outright fraud or misuse of customer funds.
Update : Shortly before this post was published, SBF was arrested in the Bahamas after the US filed criminal charges (source). However the discussion points remain valid - why was there a delay in the arrest in any case ?
👮♂️ Why the delay in SBF’s arrest ? a) An arrest warrant has to be based on probable cause. Maybe the DoJ is trying to establish a probable cause, or maybe they have and we don’t know yet. Arrest warrants are not made public. b) Though the US does has an extradition treaty with the Bahamas (where SBF is based), the country may have a provision to challenge the extradition. c) Investigation by the DoJ involves a lot of steps - getting search warrants, trying to find data, parsing the data, interviewing witnesses etc. This is more complicated as the entity is overseas. d) DoJ is also investigating the role that govt officials in Bahamas may have played in this.
🚨 The Madoff case - People are comparing this case with the Madoff fraud case, where an arrest was made soon. But - Bernie Madoff had admitted his crimes to his kids who had alerted the DoJ, and hence he was arrested soon. SBF never admitted to his crimes publicly, leading to the delay.
💬 The episode also discusses the potential role of SBF in the Terra/Luna collapse, his high profile lawyer, what the “legal bar” would be for fraud to be proven, the potential outcomes for this case and the kinds of punishment that may be administered.
📙 Check out the full episode here by Unchained Podcast
🏷️ The Massive GBTC Discount - Yay or Nay ?
💰 What is GBTC ? GBTC (Grayscale Bitcoin Trust) is a way through which investors can gain exposure to Bitcoin via a traditional investment vehicle.
🗨️ What is the “Discount” ? GBTC was trading at a discount of nearly ~50% to Bitcoin as of 9th Dec. The chart below shows the gradual deepening of the “discount” for GBTC over BTC, in the last few months.
🤔 Isn’t a discount a good thing ? That’s usually the case, but in this case investors are not happy with the difference in price between GBTC and BTC. They are unsure of the health of Grayscale’s reserves (whether it has enough BTC to service withdrawals).
🐻 Bearish sentiment for Grayscale : Over the last few weeks, rumors were floating around that Genesis Global Trading may file for bankruptcy. Grayscale refused to share proof of reserves citing “security concerns” - which did not do any good for people’s trust in GBTC.
📉 Tough Month for Crypto Fundraising
📉 Toughest November in years : The total fundraising for crypto this November was $850M, compared to $5.25Bln in Nov 2019 (ref. DefiLlama), making it the toughest November in years. Also - the number of public raises this month was reportedly 65, less than half compared to Nov 2021.
🥇 ATH was just last year ! In fact - the all-time-high(ATH) for crypto fundraising (on record) was in Nov 2021, totaling around $7B
🤔 Fundraising vs BTC price : An interesting point noted is that fundraising generally correlates to the BTC price. Having said that - an anomaly is the huge EOS raise in June 2018 (with BTC well below its ATH), which made the month the second largest for crypto fundraising in history.
💸 Top raises destroying value vs ETH ICO : Since 2014, a total of ~$84B has been raised. The top 5 raises which ended up destroying value were
EOS - $4.2B
FTX - $2.1B
Terra's LFG - $1B
Celsius - $814M
BlockFi - $949M
It’s interesting to note as a contrast, that the Ethereum ICO raised only $17M.
Here’s an interesting chart showing the sizes of various crypto fund raises over the years (Chart credit @CharlieXYZ on Twitter)
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