collapse

89% still trust centralized custodians despite 2022’s collapses: Survey

A January survey from Paxos found that 89% of respondents still trusted “intermediaries” to hold their crypto, despite the collapses and bankruptcies last year.

American crypto users haven’t lost their trust in “intermediaries” to hold their crypto, with a January survey from Paxos suggesting a majority of United States crypto hodlers still trust banks, exchanges and mobile payment apps to custody their assets.

An annual online survey published on March 7 by the stablecoin issuer conducted on Jan. 5 and Jan. 6 sought to understand how the crypto winter and “large industry fallouts” in 2022 — including the bankruptcies of FTX and Alameda Research — impacted consumer behavior and confidence in the crypto ecosystem. Paxos noted:

“2022 was a rollercoaster year for the crypto industry.”

“Ranging from some of the highest Bitcoin prices ever to some of the lowest, largescale industry fallouts from companies like Terra, FTX, Alameda Research, and more — it was a volatile and potentially confidence-testing year for the ecosystem,” Paxos added.

After a turbulent end to 2022, crypto consumers have remained confident for 2023. We conducted a consumer survey and found many reasons why crypto is still viewed as a primary staple for financial livelihoods. Read our full survey here: https://t.co/AwFrGMuX0r pic.twitter.com/TZcmct0O5L

— Paxos (@PaxosGlobal) March 7, 2023

However, the survey found that of those that heard and followed the FTX saga, more than half (57%) of respondents either planned to buy more crypto or simply do nothing as a result of the news.

It also found that 89% of respondents still trusted “intermediaries” such as “banks, crypto exchanges and/or mobile payment apps” to hold their crypto, stating:

“In fact, despite the high-profile collapses and underlying poor risk management practices seen in several crypto companies, crypto owners still trust intermediaries to hold crypto on their behalf.”

The survey also found more desire from consumers to be able to buy Bitcoin (BTC), Ether (ETH) and other digital assets from household or traditional banks, with 75% of respondents indicating they were “likely or very likely” to purchase crypto from their “primary bank” if it were offered, a 12 percentage point increase from the year before.

*Graph showing respondents who indicated they were likely to purchase crypto from their primary bank. Source: Paxos*

“Additionally, 45% of respondents reported they would be encouraged to invest more in crypto if there was more mainstream adoption by banks and other financial institutions,” Paxos added.

It said a “significant untapped opportunity” existed for banks if they expanded offerings to digital assets. “Not only would these services satisfy increasing demand, but they would also result in higher engagement,” Paxos claimed.

Respondents qualified for the survey if they lived in the United States, were over 18 years of age, had a total household income greater than $50,000 and purchased cryptocurrency sometime within the last three years. The survey recruited 5,000 participants.

*75% of respondents continued to be confident in the future of crypto. Source: Paxos*

“Despite the volatile 2022 crypto landscape, consumers didn’t lose faith in their crypto investments. This number was unchanged from the previous year’s report, underlining the long-term confidence of those participating in crypto markets,” wrote Paxos.

The timing of the survey, however, means that the gleaned results did not take into account more recent crypto headwinds, such as the bankruptcy of crypto lender Genesis, the crackdown on Binance USD (BUSD) involving Paxos and the financial uncertainty of crypto bank Silvergate Capital.

Crypto exchange Digital Surge emerges as a rare survivor of FTX fallout

The Australian crypto exchange lost access to $23.4 million of digital assets when FTX collapsed and FTX’s Australian subsidiary went into administration.

Australian cryptocurrency exchange Digital Surge appears to have narrowly avoided collapse, despite having millions of dollars in digital assets tied up in the now-bankrupt FTX crypto exchange.

On Jan. 24 local time, Digital Surge creditors approved a five-year bailout plan, which aims to eventually refund its 22,545 customers who had their digital assets frozen on the platform since Nov. 16, while allowing the exchange to continue operating.

The rescue plan was first floated to customers by the exchanges’ directors via email on Dec. 8, the same day the company fell into administration.

As per the “Deed of Company Arrangement,” the Australian crypto exchange will receive a 1.25 million Australian dollar ($884,543) loan from an associated business, Digico — allowing the exchange to continue trading and operating.

In a statement, administrators at KordaMentha stated that creditors would be paid over the next five years out of the exchange’s quarterly net profits.

“Customers will be repaid in cryptocurrency and fiat currency, depending on the asset composition of their individual claims,” KordaMentha said, according to a Jan. 24 report from Business News Australia.

Cointelegraph reached out to Digital Surge, which confirmed that creditors voted in favor of the rescue plan at their second meeting, on Jan. 24.

“We expect further communication will be provided to all customers as the administration process with KordaMentha progresses,” it added.

The Brisbane-based crypto exchange had been in operation since 2017 but became one of the casualties of FTX’s collapse in November, freezing withdrawals and deposits only days after FTX filed for bankruptcy and FTX Australia was placed into administration.

At the time, Digital Surge explained they had “some limited exposure to FTX” and would update customers in two weeks’ time — though that exposure was later revealed to be to the tune of around $23.4 million, according to KordaMentha.

The exchange has been one of the few crypto firms to form a solid plan to restart operations and avoid liquidation despite sizeable exposure to FTX.

Since November, several crypto firms, including crypto lending firms BlockFi and Genesis, have filed for Chapter 11 bankruptcy protection as a result of exposure to the fallout of FTX and market turmoil.

‘There will be many more zeros’ — Kevin O’Leary on FTX-like collapses to come

The Shark Tank star said all unregulated exchanges are seeing “massive outflows” right now, and rightly so.

Unregulated crypto exchanges will continue to fall like dominoes post-FTX, with plenty more “meltdowns” to come, warns Shark Tank star and investor Kevin O’Leary.

O’Leary, a former spokesperson and proponent for the now-bankrupt FTX exchange, told Kitco anchor David Lin in a Jan. 17 interview that the collapse was just one in a long line of “unregulated exchanges” likely to fail:

“If you’re asking me if there’s going to be another meltdown to zero? Absolutely. 100% it’ll happen, and it’ll keep happening over, and over and over again.”

Unregulated exchanges are those that aren’t subject to regular auditing, aren’t registered and regulated by a securities commission, and don’t operate under rules similar to traditional stock exchanges and brokerages.

“Well, all of these exchanges, all the unregulated exchanges are having massive outflows right now. Smart money has got the joke. They saw what happened at FTX and they’re not sitting around for an explanation,” he said.

Kevin O’Leary interview with Kitco News. Source: YouTube

The Shark Tank star then made a stark warning to so-called “unregulated” crypto exchanges.

“If you’re not willing to be audited, […] you don’t have an audit, you don’t want to be transparent, you don’t want to disclose ownership, why should institutional capital stay? Of course, it’s not going to.”

The collapse of FTX in November prompted fierce calls from the community for greater transparency from crypto exchanges. Within weeks, five centralized exchanges completed their proof-of-reserve audits, while plenty more announced plans to do the same.

However, some observers, including a senior official from the United States Securities and Exchange Commission (SEC), warned that proof of reserves don’t paint a true picture of a company’s financial position and asked investors to be “very wary” of the claims being made.

Some of the auditors, such as Mazars have seemingly back-flipped on their support for crypto companies. In December, the company removed its audit for crypto exchange Binance and reportedly stopped doing proof-of-reserve audits for crypto companies altogether.

Other auditing firms such as FTX’s auditor Armanino have also reportedly stopped working with crypto exchanges like OKX and Gate.io. O’Leary commented:

“Frankly, you know, it’s very hard to find an auditor that wants to touch this stuff right now because of the unregulated cowboy environment. It’s all going to end and yes, there’ll be many more zeros.”

Earlier this month, O’Leary’s fellow Shark Tank host Mark Cuban told The Street that crypto wash trading on centralized exchanges will be the cause of the next crypto “implosion.”

As much as 70% of the volume on unregulated exchanges is wash trading according to a December report by the National Bureau of Economic Research (NBER).

Despite the noise, O’Leary says he’s doubling down on his crypto investments, particularly in Bitcoin (BTC).

“I have been going back into crypto markets lately. Any time Bitcoin drops below $17,000 I add to our positions there.”

“Crypto is getting very interesting because we’re finally starting to see the bearer of regulation coming into play and I think long-term that’s a good thing,” he added.

‘There will be many more zeros’ — Kevin O’Leary on FTX-like collapses to come

The Shark Tank star said all unregulated exchanges are seeing “massive outflows” right now, and rightly so.

Unregulated crypto exchanges will continue to fall like dominoes post-FTX, with plenty more “meltdowns” to come, warns Shark Tank star and investor Kevin O’Leary.

The former spokesperson and proponent for the now-bankrupt FTX exchange told Kitco anchor David Lin in a Jan. 17 interview that FTX was just one in a long line of “unregulated exchanges” likely to fail:

“If you’re asking me if there’s going to be another meltdown to zero? Absolutely. One hundred percent it’ll happen, and it’ll keep happening over, and over and over again.”

*Kevin O’Leary (right) tells David Lin there’ll be more crypto meltdowns. Source: YouTube*

The Shark Tank star then made a stark warning to so-called “unregulated” crypto exchanges.

“If you’re not willing to be audited, […] you don’t have an audit, you don’t want to be transparent, you don’t want to disclose ownership, why should institutional capital stay? Of course, it’s not going to.”

However, some observers, including a senior official from the United States Securities and Exchange Commission, warned that proof-of-reserves don’t paint a true picture of a company’s financial position and asked investors to be “very wary” of the claims being made.

Some of the auditors, such as Mazars, have seemingly back-flipped on their support for crypto companies. In December, the company removed its audit for crypto exchange Binance and reportedly stopped doing proof-of-reserve audits for crypto companies altogether.

Other auditing firms such as FTX’s auditor Armanino have also reportedly stopped working with crypto exchanges like OKX and Gate.io. O’Leary commented:

“Frankly, you know, it’s very hard to find an auditor that wants to touch this stuff right now because of the unregulated cowboy environment. It’s all going to end and yes, there’ll be many more zeros.”

Earlier this month, O’Leary’s fellow Shark Tank host Mark Cuban told The Street that crypto wash trading on centralized exchanges will be the cause of the next crypto “implosion.”

As much as 70% of the volume on unregulated exchanges is wash trading, according to a December report by the National Bureau of Economic Research.

Despite the noise, O’Leary says he’s doubling down on his crypto investments, particularly in Bitcoin (BTC).

“I have been going back into crypto markets lately. Any time Bitcoin drops below $17,000 I add to our positions there.”

“Crypto is getting very interesting because we’re finally starting to see the bearer of regulation coming into play and I think long-term that’s a good thing,” he added.

FTX collapse won’t impact everyday use of crypto in Brazil: Transfero CEO

The fall of FTX undoubtedly hurt investor sentiment toward crypto, but it won’t change its popularity as a means for cross-border transactions.

The crumbling of the FTX crypto empire may have damaged Brazilian retail and institutional sentiment toward crypto. However, its impact won’t affect everyday citizens — who will still use crypto for cross-border transactions.

Reflecting on the recent fall of FTX, Thiago César, the CEO of fiat on-ramp provider Transfero Group said that the exchange’s fall, like in many countries around the world, has hurt confidence around centralized crypto exchanges and crypto in general.

Transfero Group is tied in closely with the Brazilian crypto ecosystem and FTX as it was the fiat on-and-off-ramp provider for the exchange and is also the issuer of Brazilian Stablecoin BRZ, which was listed on the now-defunct exchange.

César told Cointelegraph that the collapse of the exchange had removed a “big liquidity source” from the market, as FTX was ranked within the top three in terms of trading volume.

He also noted that uncertainty surrounding centralized crypto exchanges caused a “big outflow of funds” from exchanges in Brazil, with many looking into self-custody — estimating at least 20% of trading volume has been lost on exchanges so far.

“A lot of people are trying to even liquidate whatever positions they have in crypto and we just hold money in the bank account.”

César noted the FTX saga will make crypto investment a “harder sell” for new investors and traders.

“For the crypto investor/trader of course. It’s a harder sell now. If you go to a person who is not crypto savvy and you try to convince him to invest, especially in Brazil — the population has always been very skeptical of crypto. Now it’s harder,” he said.

However, he notes that for people that use crypto as a means for cross-border payments or the “internationalization of money,” there will unlikely be any impact from the FTX collapse.

“A lot of the crypto volume in Brazil derives from players that are willing to exchange their local currency into an internationally liquid asset denominated in dollars. So in that sense, the market will not die down because crypto is just rails for that.”

In October, a report from Chainalysis found that remittance payments and battling inflation were two of the most significant drivers of crypto adoption in Latin America.

César said the FTX collapse will likely be used by local exchanges “as a lobbying tool” to push for regulations aimed at bringing international exchanges in line.

César added that these crypto exchanges had been pushing for regulation in Brazil that would “segregate” local and international exchanges by taking away international exchange’s access to their global liquidity books.

“They were proposing that regulation would enforce for example, that liquidity on the books in Brazilian reais be segregated from international books.”

César explained that such regulation would hurt international exchanges as their main advantage comes from liquid, international global books.

In a Nov. 18 report from Reuters, Roberto Dagnoni, the executive chairman and CEO of Mercado Bitcoin said crypto laws in Brazil have been “kind of dormant” during the election period but now needed priority.

“The rules that currently exist have not been applicable to some players, so they can do whatever you want,” he said.

FTX collapse won’t impact everyday use of crypto in Brazil: Transfero CEO

The fall of FTX undoubtedly hurt investor sentiment toward crypto, but it won’t change its popularity as a means for cross-border transactions.

Reflecting on the recent fall of FTX, Thiago César, the CEO of fiat on-ramp provider Transfero Group, said that the exchange’s fall, like in many countries around the world, has hurt confidence around centralized crypto exchanges and crypto in general.

César told Cointelegraph that the collapse of the exchange had removed a “big liquidity source” from the market, as FTX was ranked within the top three in terms of trading volume.

“A lot of people are trying to even liquidate whatever positions they have in crypto and we just hold money in the bank account.”

César noted the FTX saga will make crypto investment a “harder sell” for new investors and traders.

However, he notes that for people that use crypto as a means for cross-border payments or the “internationalization of money,” there will unlikely be any impact from the FTX collapse.

In October, a report from Chainalysis found that remittance payments and battling inflation were two of the most significant drivers of crypto adoption in Latin America.

César said the FTX collapse will likely be used by local exchanges “as a lobbying tool” to push for regulations aimed at bringing international exchanges in line.

“They were proposing that regulation would enforce for example, that liquidity on the books in Brazilian reais be segregated from international books.”

César explained that such regulation would hurt international exchanges as their main advantage comes from liquid, international global books.

In a Nov. 18 report from Reuters, Roberto Dagnoni, the executive chairman and CEO of Mercado Bitcoin, said crypto laws in Brazil have been “kind of dormant” during the election period but now needed priority.

“The rules that currently exist have not been applicable to some players, so they can do whatever you want,” he said.

FTX will be the last giant to fall this cycle: Hedge fund co-founder

This bear market has seen the collapse of Celsius, Three Arrows Capital, Voyager, and now FTX, but the worst is likely over, a hedge fund executive suggests.

While the FTX crisis is continuing to unfold, the former head of risk at Credit Suisse believes the exchange’s fall from grace should be the last catastrophic event — at least in this market cycle.

CK Zheng, the former head of valuation risk at Credit Suisse and now co-founder of crypto hedge fund ZX Squared Capital said that FTX’s fall was part of a “deleveraging process” that began after the COVID-19 pandemic and further accelerated after the fall of Terra Luna Classic (LUNC), formerly Terra (LUNA).

“When LUNA blew up a few months ago, I expected a huge amount of deleveraging process to kick in,” said Zheng, who then speculated that FTX should be last of the “bigger” players to get “cleaned up” during this cycle.

Before its collapse, FTX was the third largest crypto exchange by volume after Binance and Coinbase.

“I’m sure there are multiple players that will probably get impacted […] in the following weeks, you know, small, large — but I would say this one in terms of magnitude will be one of the larger ones before the whole cycle really ends.”

On Nov. 14, crypto exchange BlockFi admitted to having “significant exposure” to FTX and its affiliated companies. A day later, a Wall Street Journal report suggested it was preparing for a potential bankruptcy filing.

A number of exchanges have also halted withdrawals and deposits this week, citing exposure to FTX, including crypto lending platform SALT and Japanese crypto exchange Liquid.

On Nov. 16, institutional crypto lender Genesis Global said it would temporarily suspend withdrawals citing ‘unprecedented market turmoil.’

The fate of these businesses are yet to be determined.

Zheng noted that moments like this are all normal signs of a lengthy, stressful crypto winter which “basically wipes out many of the weak players.”

On a positive note, however, Zheng said that the FTX collapse is unlikely to shake institutional investor confidence, at least for those investing in blockchain technology and certain cryptocurrencies such as Bitcoin and Ethereum.

“For many of the institutional investors […] as long as they think about the longer term, they think about how blockchain technology is going to advance in the future to help the financial industry […] that’s still in place.”

CoinShares’ head of research James Butterfilll in a Nov. 14 note revealed that inflows into cryptocurrency investment products rose sharply last week after institutional investors bought the dip triggered by FTX’s collapse.

Investors see the #FTX collapse as an opportunity with crypto inflows totalling US$42mhttps://t.co/neDkmnr6ae

— James Butterfill (@jbutterfill) November 14, 2022

Digital asset investment products saw inflows totaling $42 million in the week ending Nov. 13, the largest increase in 14 weeks.

On the other hand, their outlook wasn’t so optimistic for blockchain equities, which registered $32 million in weekly outflows.

Zheng said it was “mind-boggling” how much damage an MIT-educated, 30-year-old young person can do to the crypto ecosystem — referring to FTX former CEO Sam Bankman-Fried.

He believes the fall of FTX was the result of a lack of clear rules and regulations governing crypto exchanges. Zheng said it may also have been the result of a top-heavy management structure that may not have had the necessary know-how to run a business of such a size.

“Obviously, they’re smart in one aspect, but they’re running a $32 billion company is very different than, you know, when you manage a small company.”

Visa terminates debit card program with FTX

A Visa spokesperson confirmed to Cointelegraph the company has terminated its global agreements with FTX.

Only a month after payments giant Visa announced a partnership with FTX to roll out a debit card program in 40 countries worldwide, Visa abruptly ended the program due to FTX‘s recent insolvency and bankruptcy issues.

FTX’s liquidity issues were triggered last week when Binance CEO Changpeng “CZ” Zhao announced that Binance would liquidate the entirety of its FTX Token (FTT) holdings, which inadvertently led to a bank run that brought on FTX liquidity issues.

In October, when the news of FTX and Visa’s partnership circulated online, the native cryptocurrency of the FTX trading platform, FTT, spiked by about 7%, reaching a high of $25.62. After the recent turn of events, FTT is currently trading at $1.89.

Things have quickly spiraled for the once reputable cryptocurrency exchange FTX, and it comes as no surprise that companies like Visa are working to distance themselves from the disgraced platform.

“The situation with FTX is unfortunate and we are monitoring developments closely. In all our undertakings—in digital currency and beyond—our focus on security and trust remains paramount. We have terminated our global agreements with FTX and their US debit card program is being wound down by their issuer,” a Visa spokesperson told Cointelegraph.

Visa is not the only company severing ties with FTX. On Nov 11, Cointelegraph shared that The Securities and Exchange Commission of Cyprus, or CySEC, reportedly issued a statement amid FTX’s filing for Chapter 11 bankruptcy in the United States requesting the exchange halt operations for its Europe arm.

In another instance, Plaid, the fintech company which facilitates communication between financial services apps, and users’ banks and credit card providers, suspended FTX US access to its products, citing “concerning public reports” of fraudulent activity.

Anchor dev claims he warned Do Kwon over unsustainable 20% interest rate

Mr. B alleges that the platform was designed only to offer an interest rate of 3.6%, but that changed at the last minute.

Anchor Protocol was originally designed to offer an interest rate of 3.6%, but this was dialed up to 20% just a week before release to attract more investors, a core developer alleged in an interview with Korean media outlet JTBC.

“I did not know that this would go out with such a high-interest rate. Set to 20% just a week before the release,” said the employee, referred to only as Mr. B in the Korean report:

“I thought it was going to collapse from the beginning (I designed it), but it collapsed 100%.”

Mr. B said that the platform was designed only to offer an interest rate of 3.6%, and this was a key component of keeping the Terra ecosystem stable as it took into account the available funds in Anchor’s war chest.

Mr. B revealed, however, that a week before launch, the developers found out that the plans had been changed, giving investors access to a very high 20% interest for locking up their TerraUSD Classic (USTC) stablecoins in the Anchor Protocol instead.

The JTBC also claimed that it had obtained internal design documents made by Terraform Labs, which wrote about attracting investors with high-interest rates.

The developer said he attempted to take this issue up with Terra Luna founder Kwon Do-Hyung (Do Kwon) just ahead of the launch in April 2019:

“Just before the release, I suggested to CEO Kwon Do-Hyung that the interest rate should be lowered, but it was not accepted.”

The dramatic fall of Luna Classic (LUNC) and the algorithmic stablecoin USTC has led to plans by the South Korean government to launch a new Digital Asset Committee in June to serve as a watchdog over the country’s crypto industry responsible for policy preparation and supervision.

Do Kwon has been summoned to attend a parliamentary hearing on the matter in South Korea in mid-May.

He has also found himself in hot water after court documents revealed he dissolved Terraform Labs Korea just days before the Terra crash.

In May, South Korean authorities also reportedly issued subpoenas to employees of Terraform Labs, looking into whether there was intentional price manipulation and whether the tokens went through proper listing procedures.

Despite this, the Terra co-founder has managed to relaunch the collapsed network on May 28 with a new chain called Terra 2.0, also known as Pheonix-1, aimed at reviving the fallen LUNA.