First Mover Asia: Bitcoin Drifts Lower as Crypto Winter Continues

Good morning. Here’s what’s happening:

Prices: Bitcoin drifted lower in Tuesday trading, albeit not by much as crypto prices remained largely frozen near levels they've held for a week.

Insights: In this last week of 2022, First Mover Asia is revisiting a few of CoinDesk's (CD) best, most impactful stories from the past year. Less than a month after a CD story led to the implosion of crypto exchange giant FTX in November, Chief Insights Columnist David Z. Morris zeroed in on the seriousness of CEO Sam Bankman-Fried's offenses. The U.S. Department of Justice subsequently charged Bankman-Fried with wire fraud and other alleged crimes. After posting bail, he is confined to his parents California home except to exercise, and must wear a tracking device.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Prices

Frozen Markets, a Bitcoin Drift

By James Rubin

Bitcoin drifted lower in Tuesday trading, albeit not by much as investors continued their historical, year-end hibernation. Crypto prices remain frozen near the levels they've held for much of the past two weeks.

The largest cryptocurrency by market capitalization was recently changing hands at $16,700, off 1.3% over the past 24 hours but near its most recent support just under $17,000. BTC's price has remained resilient over the past two months, despite the widening fallout from the implosion of crypto exchange FTX.

In a CoinDesk TV First Mover interview, Martin Leinweber, digital asset product strategist at Market Vector Indexes, noted bitcoin's strength relative to other cryptos. "If you look at the coins that demonstrate relative strength, which means coins that fell the least amount from the all-time high, you will notice names that nearly no one would have imagined, especially when you consider the ranking," Leinweber said. "So bitcoin was not the most defensive coin, one might expect from a store of value."

Ether was recently trading just over $1,200, also down 1.3% from Monday, same time. Most other major cryptos were slightly in the red with LINK, the token of software platform Chainlink, and CRO, the native cryptocurrency of exchange Crypto.com, each sinking more than 2%. The CoinDesk Market Index (CDI), an index measuring cryptos' performance, fell 1.15%.

Major equity indexes closed mixed after a good news, bad news day in which China announced it would allow international travelers to enter the country again but Russia said it would ban oil sales to countries that had placed a $60 per barrel price cap on it – the latest fallout from Russia's unprovoked invasion of Ukraine. How the moves will affect prices worldwide is uncertain. Brent crude oil, a widely watched measure of global energy markets, was recently selling at $85 per barrel, an 11% gain over the past three weeks. The tech-heavy Nasdaq slipped 1.4%, but the Dow Jones Industrial Average ticked up slightly.

Meanwhile, FTX's sad, unsavory saga continued with documents filed in Caribbean court showing that former CEO Sam Bankman-Fried borrowed hundreds of millions of dollars from Alameda Research to purchase his stake in trading app Robinhood Markets (HOOD).

In an affidavit before his arrest, Bankman-Fried said he and FTX co-founder Gary Wang together borrowed over $546 million from Alameda via promissory notes in April and May. They used that money to capitalize Emergent Fidelity Technologies Ltd., the shell corporation that in May bought a 7.6% stake of Robinhood.

The FTX crisis has renewed calls for stronger regulation some seven months after the TerraUSD (UST) stablecoin lost its dollar peg. The consequent collapse of the Terra ecosystem during the spring jolted lawmakers who had been hesitating to create stricter guidelines targeting digital assets to ratchet up their efforts. As yet, little concrete has resulted, although many crypto insiders expect changes in the year ahead and beyond to protect investors.

Market Vector Indexes' Leinweber said he would embrace stablecoin regulation. "I welcome those regulations," he said. "It will lead to more dollars in that space. There are some unregulated, poorer constructed ones. But they're also good stablecoins."

Insights

FTX’s Collapse Was a Crime, Not an Accident

By David Z. Morris, CoinDesk Chief Insights Columnist

In the weeks since Sam Bankman-Fried’s cryptocurrency empire was revealed to be a house of lies, mainstream news organizations and commentators have often failed to give their readers a straightforward assessment of exactly what happened. August institutions including the New York Times and Wall Street Journal have uncovered many key facts about the scandal, but they have also repeatedly seemed to downplay the facts in ways that soft-pedaled Bankman-Fried’s intent and culpability.

It is now clear that what happened at the FTX crypto exchange and the hedge fund Alameda Research involved a variety of conscious and intentional fraud intended to steal money from both users and investors. That’s why a recent New York Times interview was widely derided for seeming to frame FTX’s collapse as the result of mismanagement rather than malfeasance. A Wall Street Journal article bemoaned the loss of charitable donations from FTX, arguably propping up Bankman-Fried’s strategic philanthropic pose. Vox co-founder Matthew Yglesias, court chronicler of the neoliberal status quo, seemed to whitewash his own entanglements by crediting Bankman-Fried’s money with helping Democrats in the 2020 elections – sidestepping the likelihood that the money was effectively embezzled.

Perhaps most perniciously, many outlets have described what happened to FTX as a “bank run” or a “run on deposits,” while Bankman-Fried has repeatedly insisted the company was simply overleveraged and disorganized. Both of these attempts to frame the fallout obfuscate the core issue: the misuse of customer funds.

Banks can be hit by “bank runs” because they are explicitly in the business of lending customer funds out to generate returns. They can experience a short-term cash crunch if everyone withdraws at the same time, without there being any long-term problem.

But FTX and other crypto exchanges are not banks. They do not (or should not) do bank-style lending, so even a very acute surge of withdrawals should not create a liquidity strain. FTX had specifically promised customers it would never lend out or otherwise use the crypto they entrusted to the exchange.

CoinDesk's Chief Insights Columnist David Z. Morris unpacks his latest opinion piece that argues Sam Bankman-Fried, former CEO of troubled crypto exchange FTX, is a fraud.

See also: Divisions in Sam Bankman-Fried's Crypto Empire Blur on Alameda's Balance Sheet

In reality, the funds were sent to the intimately linked trading firm Alameda Research, where they were, it seems, simply gambled away. This is, in the simplest terms, theft at a nearly unprecedented scale. While the total losses have yet to be quantified, up to one million customers could be impacted, according to a bankruptcy document.

Read the full story here

Important events.

11 p.m. HKT/SGT(3 p.m. UTC): U.S. Pending Home Sales (Nov. MoM/YoY)

8 p.m. HKT/SGT(12 p.m. UTC): U.S. Mortgage Bankers Association mortgage applications (Dec. 23)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Bitcoin Miners Powered Off as Winter Storm Battered North America; Bitcoin Holds Near $17K

Miners across the U.S. powered down over the weekend as a powerful storm swept across North America. MarketVector Indexes Digital Asset Product Strategist Martin Leinweber shared his crypto markets analysis. Also, Akin Gump Partner Ian McGinley shared his thoughts on the latest legal developments for former FTX CEO Sam Bankman-Fried.

Headlines

Crypto Investment Firm Midas Shutting Down Platform Following Losses: The collapse of Celsius and FTX led to more than 60% of Midas’ assets under management being withdrawn.

Mango Markets Exploiter Eisenberg Arrested in Puerto Rico: Federal agents were not a fan of Avraham Eisenberg’s “highly profitable trading strategy.”

Pudgy Penguins NFTs Break All-Time Highs With Holiday Rally: A fast-rising floor price caps the once written-off collection’s banner year.

Ellison and Wang Will Be ‘Game Changers' in Bankman-Fried's Trial, Lawyer Says: The testimony of the two FTX insiders could be damning for Bankman-Fried as he fights criminal charges, according to Ian McGinley, a partner at Akin Group.

Justice Department Launches Criminal Probe Into $400M FTX Hack: Bloomberg: Experts have suggested the digital fingerprints left by the alleged hacker points to an inside job.