The Great Unbanking Continues, Bitcoin Bombs, FTX, Voyager, Tether: 50-foot Blockchain Attack

For Amy Castor i David Gerard

“We are still early in the party. The kind of time where most of the guests have left, all that’s left of the good booze is empty bottles all over the floor, it’s just about dawn and you hope that if you keep drinking and pass out you’ll sleep off the hangover . So early.” — Doctor Orrery

how are things going

The 2021 crypto bubble burst in May 2022, with the Earth-Moon collapse. We began collaborating on a series of newsletters about the ongoing collapse.

Everything that has happened since then and is happening now – Celsius, Voyager, FTX and their victims – was followed directly from Earth-Moon. The collapse still continues.

Binance is looking more and more like FTX in the months leading up to its collapse: “money” created out of thin air, reserves made largely of its own internal token, excuses getting worse and worse, and regulators sniffing around.

Bitcoin and its descendants failed miserably as payment systems. There is no separate crypto economy. Crypto is a derivative of the dollar – you get into crypto because you want dollars. The only consistent ideologies are “the number goes up” and “don’t subject me to laws”.

Crypto’s biggest challenge now is that it is being cut off more and more from precious dollars. America’s banking rails are disappearing as regulators finally do the things they should have done years ago.

If “Operation Chokepoint 2.0” is real, then it’s the best program US regulators have ever proposed for crypto.

The price of bitcoin is rising again! At press time, it was $27,020. Someone is doing it hard. A big factor is BUSD holders who can’t pass KYC to Paxos and need to dump their pseudo-dollars, so they buy BTC with them – most bitcoin trading is done on Binance and that’s where the discovery of prices. The Tether printer also goes crazy.

No evidence of new retail dollars coming to crypto. The general public still seems pretty sure that this is all scam nonsense.

What we hope to see in the future:

  • Crypto companies trying to get through all the untrustworthy community banks in the US.
  • More claims of government and regulatory conspiracy.
  • More hope, excitement and made-up claims about crypto.
  • More hype in the crypto press, because the real news is bad.
  • Printing floods of stablecoins to increase the price.
  • There is no evidence of new retail interest, and indeed evidence to the contrary, such as Coinbase’s filings with the SEC.

This is of course good news for bitcoin.

Sign your name

Bids to buy the Signature Bank shell were filed on Friday, March 17. Regulators are trying to sell the bank in its entirety as a going concern. If that doesn’t work, they will cut it into pieces. Any potential buyer of Signatures may have to divest from the crypto business. (Reuters)

When Signature was abruptly pulled and fired on March 12, Justice Department investigators in Washington and Manhattan were already looking into its crypto clients, and specifically Signature’s anti-money laundering compliance. The SEC had also been investigating Signature. (Bloomberg)

Barney Frank, a former member of Signature’s board of directors and one of the guys behind Dodd-Frank, defended Signature: “I wonder, are we the first bank to shut down, totally, without going insolvent? And if so, why? I think the DFS, the people of New York State should answer that. That’s why I’m speculating that using us as a poster boy to say ‘stay away from crypto’ was the reason” . Well done NYDFS, then. (New York, archive)

But if your loan book is bad enough, being technically solvent may not be enough. In particular, Signature’s real estate loans turn out to be garbage. (The real deal)

Signature participated in Paycheck Protection Program lending during the pandemic — making dozens more PPP loans to cryptocurrency companies than previously reported in public filings. “DePaolo said the bank’s volume of crypto PPP loans was because other crypto-serving banks didn’t have the resources to offer the same type of program.” (CoinDesk)

Unbank the unbankable

Silicon Valley Bank didn’t have many crypto clients, apart from Circle for some of its USDC reserve, but SVB’s UK unit had a few. HSBC bought SVB UK and all its assets and liabilities for £1 (one pound), and HSBC doesn’t like crypto. “Crypto stuff will probably go away, either of its own volition or without being politely overboard,” said one of the people involved in the purchase. “They will realize that life would be too hard as an HSBC customer.” (FT)

The Federal Home Loan Bank of San Francisco he didn’t calls its $4.3 billion loan to Silvergate Bank, an FHLB spokesperson told CoinDesk. “Silvergate decided to prepay its outstanding advances based on its own assessment of its position.” We’re pretty sure if FHLB-SF didn’t pressure them, someone else did. (CoinDesk)

The circle has put all the cash reserves for USDC in a single bank: BNY Mellon. This happens to have left the “crypto-friendly” Customers Bank with $1 billion of its total customer deposits of $18 billion suddenly wiped out. (circle)

Customers Bank (NYSE: CUBI ) isn’t that big and has seen shaky times. CUBI’s 10-K mentions its “digital currency” customers, though without any specifics. They also run their own version of Signature’s Signet, CBIT, which they also licensed from Tassat, which built Signet. (SEC)

Cross River Bank, a small community bank in New Jersey, is Circle’s new payment processor for USDC. It’s the kind of bank that dives into crypto and immediately tells you all about them. Cryptadamus dug in Cross River and found all sorts of interesting things. (Twitter)

Cross River was also interested in PPP loans: it somehow managed to get more than 106,000 PPP loans during the pandemic, making it the fourth largest issuer of PPP loans. The $4.7 billion in PPP loans nearly doubled the bank’s assets. Cross River issued 15 of the 97 loans involved in the first 56 Justice Department prosecutions for fraudulent PPP loans. (NOW; POGO)

Crypto bank Anchorage Digital started as a crypto custody business, joined Facebook’s Libra project in 2019, and obtained a National Letter of Trust for Digital Assets from the Office of the Comptroller of the Currency in January 2021 ; in fact, it was one of the last. digital bank letters that Brian Brooks, later of Binance US, approved in his time as comptroller.

Anchorage just laid off 20% of its workforce. The San Francisco-based bank blames regulatory uncertainty and “broad macroeconomic challenges and crypto market volatility” for the drop in business. The main regulatory uncertainty appears to be that the OCC was not satisfied with Anchorage’s money laundering controls and its lack of sufficient compliance staff or processes. (Bloomberg)

Elsewhere, the OCC says Washington crypto bank Protego cannot become a national trust bank. Protego did not meet the capital requirements until the last moment. Now you can try some other form of charter, for example., as a state bank, or apply again. (the fortune)


Sam Bankman-Fried wants the bankruptcy court to force FTX to ask its insurers to cover up to $10 million of its legal bills under FTX’s directors and officers liability insurance. Sam wants this for the civil cases against him for stealing everyone’s money, but also for his criminal case, even though D&O insurance generally doesn’t cover criminal cases. Sam’s lawyer also attached the part of FTX’s insurance policy that says intentional criminal actions in the US are not covered. (Doc 964PDF)

FTX released its Schedules and Statements of Financial Affairs (SOFA) – documents detailing the payments the company made before bankruptcy. Sam took out $2.2 billion, other executives took out millions. But other dollar transfers have been shrouded in secrecy. (Press release)

The effective leaders of the altruism movement were warned about Sam’s unprofessional and fraudulent behavior in 2018 and did nothing. EA’s star philosopher William MacAskill allegedly threatened a person who tried to blow the whistle on Sam. Alameda management had tried to buy Bankman-Fried out of Alameda around this time because it was clearly a ticking time bomb. Effective Altruism Forum posters are deeply disillusioned. (time; Effective Altruism Forum)

Tether goes up

Tether now has 75 billion tethers, 9 billion more than at the beginning of the year. We suspect it’s because BUSD is a zombie and the fire department has to pump.

We are surprised to learn that Russian sanctions evasion is using laces. You buy laces in Russia for rubles and sell them in London for pounds. (CoinDesk)

Tether/Bitfinex money mule Reggie Fowler has a gambling addiction. Who knew? Fowler has been blowing hundreds of thousands of dollars at a casino in Arizona. That is while he has not paid his previous lawyers. Federal prosecutors want Judge Andrew Carter to modify Fowler’s bail restrictions, even at the end of the proceedings. Fowler will be sentenced next month. (Letter, PDF)

More good news for bitcoin

The US DoJ and Trustee have filed their appeal against the sale of Voyager to Binance US. His main conflict is with immunity from prosecution claims. “Nothing in the bankruptcy code allows courts to absolve parties from liability to the government for past and future conduct.” The government wants the provision to end or the entire deal withdrawn and has asked to suspend the sale in the meantime. Judge Michael Wiles has told them, rather acerbically, that he is not staying the sale pending the appeal, mainly because he told them to come up with specific claims of wrongdoing, and they simply didn’t. (Doc 1182PDF; Doc 1190PDF)

Coinbase is considering establishing a non-US trading platform as the US environment for crypto continues to deteriorate. Well, it worked for Binance and FTX! (Bloomberg)

Brian Quintenz, former CFTC commissioner and now head of crypto policy at a16z, complains at the Futures Industry Association conference that “The SEC is completely out of control. They’re going rogue!” Oh no, how sad. “America has to make a decision about whether they’re going to accept and support the innovators in this country,” he said, with exquisite timing. (CoinDesk)

Crypto blogger Ignacio de Gregorio wrote a Medium post arguing that Ethereum is decentralized, because he is concerned about the New York Attorney General’s claims that ETH is a security. David SH Rosenthal points out all the flaws in his arguments: (DSHR)

de Gregorio and others base their case on the fact that in 2018, the SEC Director of the SEC’s Division of Corporate Finance, William Hinman, stated that ETH was not a security because the Ethereum blockchain was “sufficiently decentralized”. But Hinman’s claim was false then and is false now. And Hinman now works for A16Z, the “Softbank of crypto.”

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