Investments

Korean crypto startup Uprise to compensate investors after disastrous LUNC short trade

The investment startup made a short bet on LUNC in May using client funds. The trade blew up and wiped out 99% of its assets.

South Korean crypto investment company Uprise plans to compensate investors for damages incurred during its futures bet on Luna Classic (LUNC) — a token that was built on the ruins of the failed Terra ecosystem. 

Uprise is making arrangements to compensate 40% of the loss incurred by customers tied to its disastrous short bet on the token, according to the Korean newspaper Soul Economic Daily. The short position was placed in May using client funds that were deposited in a $20.3 million (26.7 billion won) discretionary investment vehicle. As reported by Cointelegraph, Uprise lost 99% of its assets on the trade when it got liquidated.

“After obtaining the consent of the existing shareholders, the compensation process will be implemented,” reads a translated version of the Soul Economic Daily report. Most of Uprise’s clients are high-net-worth individuals and corporations.

The compensation plan involves issuing Uprise stock to investors based on the company’s valuation following its Series C funding round last year. That puts Uprise at a valuation of roughly $213.2 million (280 billion won). “The issuance of new shares is expected to be around 3% of the stake,” the report said. Uprise will increase the number of shares through a stock split.

Related: Crypto Biz: Luna’s meltdown will live on in infamy

Uprise said it is moving ahead with its compensation plan despite not being legally obligated to do so. “Although the company has no legal obligation to compensate, it is a measure to continue growing the business while restoring trust through amicable agreements with customers,” the report clarified.

The value of LUNC has been prone to extreme fluctuations since the relaunch of Terra 2.0 in late May. The token is currently valued at 0.0000997, according to CoinMarketCap.

Breaking: Zipmex suspends withdrawals as CEO denies financial trouble rumors

The CEO of Thai crypto exchange Zipmex denied rumors of financial trouble just moments before the group announced it would pause withdrawals on the platform.

Thai cryptocurrency exchange Zipmex has paused withdrawals on its platform following a “combination of circumstances” beyond its control. Cointelegraph reports that Zipmex could be in trouble were dismissed as “rumors” by CEO and co-founder Marcus Lim following the failed acquisition of the Thai exchange by Coinbase.

Coinbase made an offer to acquire the Thai cryptocurrency exchange Zipmex early in quarter one 2022. On June 9, the acquisition fell through. Instead, Coinbase made a “strategic investment” into the company — the amount has not been disclosed.

Lim told Cointelegraph that while Coinbase is an interesting partner, “an investor makes more sense at this stage.” He explained that the group speaks to a number of different parties at any point in time, citing the bear market as the reason why Coinbase opted out of the acquisition:

“The acquisition fell through due to market conditions. They’ve pulled out in many countries around the world such as Turkey and in Latin America. Coinbase is a great strategic partner to the business.”

According to the Block, Zipmex is working on a Series B+ raise that could value it at $400 million. Cointelegraph reported that Zipmex has compliant operations in Thailand, Indonesia, Singapore and Australia. In August 2021, Zipmex’s user base reached 200,000 while it has reported over $1 billion in gross transaction volume since its launch in late 2019.

According to Zipmex press releases, the company’s Thai subsidiary has a digital assets Exchange license and brokerage license issued by the Ministry of Finance of Thailand, while the group is regulated by the Securities and Exchange Commission.

However, a source close to the exchange explained that Zipmex could be in trouble prior to freezing customers’ funds. According to the source, who chose to remain anonymous, Zipmex “has a Thai exchange license and an exempt status in Singapore.”

“Under the Thai License, they are strictly not allowed to touch customer funds. However, Zipmex has a product on the exchange called zip-up that effectively lets users move funds under the Singapore entity to earn yield.”

The source explained that the “funds were given to Babel to generate the yield. About $100m was lent to Babel, which is now at risk of default.” In June, Hong Kong-based asset manager Babel Finance halted withdrawals, due to “unusual liquidity pressures.”

South East Asia has not been shielded from the bear market crypto contagion, as in Singapore, Vauld exchange recently froze customers’ funds. Nexo has reportedly offered a buyout but the group also offered to buy out Celsius.

Related: Half of Asia’s affluent investors have crypto in their portfolio: Report

When pressed on whether Zipmex could face the same consequences as Celsius, the source commented that “it’s possible. Babel hasn’t settled their default yet, and it’s a 100 million dollar hole.” Celsius froze users’ funds on June 13 and many fear the exchange could suffer the same fate as Mt. Gox.

In response to the allegations, Lim told Cointelegraph that it was “business as usual.” Lim emphasized that the group “doesn’t comment on rumors.”

Source: @Drumiskl Twitter

However, as per reports from customers of Zipmex and the official Zipmex Twitter account, the firm has since frozen customer withdrawals. 

21Shares launches S&P risk-controlled Bitcoin and Ether ETPs

Despite crypto markets tanking this year, the Swiss crypto ETP firm 21Shares has seen its new crypto inflows hitting new all-time highs YTD.

With cryptocurrency markets shrinking over 50% this year, 21Shares is working to replicate S&P Dow Jones Indices’ benchmarks with its new risk-adjusted crypto investment products.

The Swiss crypto investment firm 21Shares has launched two new exchange-traded products (ETP) offering investors exposure to the largest cryptocurrencies — Bitcoin (BTC) and Ether (ETH) — while aiming to soften volatility via rebalancing assets to the United States dollar.

The new products, the 21Shares S&P Risk Controlled Bitcoin Index ETP and 21Shares S&P Risk Controlled Ethereum Index ETP, will start trading on the Swiss SIX Exchange on July 20. The ETPs will trade under tickers SPBTC and SPETH, the firm announced on Wednesday.

Both ETPs target a volatility level of 40%, which is achieved through dynamically rebalancing or allocating more assets to USD when volatility rises. The products seek to replicate S&P indexes’ benchmarks that control risk by adjusting the exposure to the underlying index and dynamically allocating to U.S. dollars.

21Shares’ director of ETP, Arthur Krause, emphasized that the 40% target refers to volatility rather than investment performance. In a statement to Cointelegraph, Krause noted that large-cap equities in the United States demonstrated annual historical volatility of 20%. For Bitcoin, this figure stood at 70%, while Ether’s volatility amounted to 80%, he said, adding:

“The 21Shares S&P Risk Controlled Index ETPs combine exposure to a volatile cryptocurrency with cash — which has zero volatility — to attempt to achieve the overall target of moderate volatility.”

Sharon Liebowitz, senior director of innovation at S&P Dow Jones Indices, mentioned that the firm has been actively involved in crypto in recent years. Last year, S&P launched a cryptocurrency index tracking crypto market performance. SPBTC and SPETH are examples of indexes aiming to address volatility associated with underlying cryptocurrencies, Liebowitz noted.

The new ETPs join the 21Shares’ bear market-focused offering known as Crypto Winter Suite. 21Shares launched the investment offering in June, aiming to provide investment products specifically designed for low-cost exposure to crypto amid the market sell-off.

Just like the other crypto ETPs by 21Shares, the Crypto Winter Suite targets both retail and institutional investors in countries like France, Germany, Switzerland, Austria, Sweden, Netherlands and Australia.

Related: SEC extends window to decide on ARK 21Shares spot Bitcoin ETF to August

Despite the ongoing bear market, 21Shares has seen an influx in inflows on its platform, recently hitting $100 billion in new assets under management (AUM) year-to-date. “While our AUM is down now due to the market conditions, our inflows are at an all-time high,” Krause said, adding that 21Shares currently has $1 billion in AUM. He added:

“Investors are holding strong and still creating inflows for the long game. Investors who believe in crypto are ‘buying-the-dip’ — and particularly via ETPs as a transparent, convenient and safe way to enter the asset class.”

According to Grayscale Investments, the current bear market could last another 250 days from July 2022 if the duration of previous cycles repeats itself.

Skybridge announces suspension of withdrawals from one of its crypto-exposed funds

Skybridge joins the crowd that has frozen crypto investors’ funds, although head Anthony Scaramucci says the suspension is a temporary measure with no fear of liquidation.

Skybridge Capital has suspended withdrawals from its Legion Strategies fund – one of the firm’s funds with crypto exposure. Founder Anthony Scaramucci confirmed the move on Tuesday in an interview on CNBC after Bloomberg reported it a day earlier, citing anonymous sources. 

“Our board made the decision to temporarily suspend until we can raise capital inside the fund,” Scaramucci told CNBC. “The fund is unlevered, so there’s definitely no fear of any liquidation whatsoever and about 18% of the fund is in what we would call crypto exposure.” An independent board also took part in the decision, Scaramucci said.

Scaramucci mentioned Bitcoin (BTC) and FTX stock as examples of the fund’s crypto exposure. Among other crypto-related companies listed as investments on the Skybridge website, not specifically linked to Legion Strategies, are Kraken, NYDIG, Helium, Lightning and Genesis Digital Assets. Scaramucci said the Legion Strategies fund was down 30% year-to-date but up 5% in July.

Legion Strategies is an offshore fund based in the Cayman Islands that has about $250 million in it, according to Scaramucci. It is one of the smaller funds run by the company. This was the first time the fund had been suspended since its founding in 1994. Skybridge itself was founded in 2005.

Scaramucci told CNBC:

“Everybody signed an investor agreement, this type of flexibility, so I don’t think there are any surprises here given what’s going on in the overall market.”

Skybridge is among the financial services companies that have applied to list a Bitcoin exchange-traded fund (ETF) and has been rejected by the United States Securities and Exchange Commission (SEC).

Related: Scaramucci sees bright future for crypto but ‘very worried’ about US politicians

Skybridge made its first investments in Bitcoin in late 2020 and announced in April that it was repositioning itself to “eventually be a leading cryptocurrency asset manager and adviser.”

Source claims 3AC’s Deribit exposure is worth much less than reported

The creditors of Three Arrows Capital may be left holding the bag, according to a source who claims the hedge fund’s exposure to Deribit is only worth $25 million.

Court documents that describe the insolvency of failed crypto hedge fund Three Arrows Capital, also known as 3AC, may be overestimating the value of the firm’s remaining assets — specifically, its exposure to crypto options exchange Deribit. 

In a 1,100-page affidavit composed by liquidator Russell Crumpler and filed in a British Virgin Islands court, 3AC was described as “insolvent” and in need of being completely “wound up” because “Its management cannot be trusted to retain any remaining assets for the benefit of creditors.” The documents also detailed 3AC’s remaining assets, which included shares of Grayscale Bitcoin Trust (GBTC), cryptocurrencies Bitcoin (BTC), Avalanche (AVAX) and Near (NEAR), and shares of Deribit. Liquidators want access to these assets in order to facilitate creditors’ claims, which are worth at least $2.8 billion.

According to the affidavit, the Deribit shares are believed to be worth $500 million, or half of 3AC’s remaining assets. However, a source with knowledge of the matter told Cointelegraph that the value of 3AC’s Deribit shares is closer to $25 million rather than $500 million, suggesting that creditors will be left holding the bag on their loans to the failed hedge fund.

According to the source, who chose to remain anonymous, the discrepancy between the two amounts is due to the type of exposure 3AC has to Deribit. They claim that 3AC does not directly own shares in Deribit but instead owns shares in a Singapore Special Purpose Vehicle (SPV) called 3AC QCP Deribit SPV. The largest shareholders of the SPV are 3AC and QCP Soteria Node, a holding company whose portfolio includes Algorand and PundiX, according to its website. The SPV’s directors include QCP Soteria Node founder Sherwin Lee, QCP Capital co-founder Darius Sit and Three Arrows Capital co-founder Su Zhu.

Related: Crypto Biz: 3AC’s founders are nowhere to be found

The source further explained that the SPV owns over 23% of Deribit, making it the largest external shareholder. Of that total, 3AC owns 16%, making it the largest shareholder in the SPV.

“The SPV shares are worth significantly less than direct Deribit shares due to several material encumbrances,” the source said, adding:

“The owner of the SPV shares cannot sell or transfer the underlying Deribit shares without unanimous consent […] This means that the owner of the shares will be stuck with the SPV. These are entrenched in SPV constitution.”

The source claimed that QCP Soteria Node also has certain contractual powers, including the right of first refusal and tag-along rights, on 3AC’s SPV shares based on a side letter agreement between the two parties.

Over the course of several years, 3AC had been selling portions of its 16% stake through “binding side letters to numerous parties who are now claiming that they have an ownership on the 3AC SPV shares,” they said. “There are at least four known parties who have these side letters and have put in their claims to ownership of the 3AC shares in the SPV. Some of them are on the liquidator’s official list of creditors.”

Related: Liquidators can subpoena 3AC founders despite ‘tricky issues’ with crypto assets

The source claimed that a “significant discount” would need to be placed on the value of their shares due to these underlying encumbrances:

“A significant discount needs to be placed on the value of the 3AC SPV shares because any buyer of these shares would be subject to these encumbrances and would have significant difficulty monetizing the shares in the future and would also have to deal with the entire SPV which has close to 30 members.”

Three Arrows Capital represents one of crypto’s most significant falls from grace. Once the most revered hedge fund in the industry, holding over $10 billion in assets under management, 3AC began to implode in the wake of the Terra ecosystem collapse. Among its missteps was placing a series of large directional bets on GBTC, LUNA (now LUNC) and Lido’s Staked ETH during the worst macroeconomic backdrop since the 2008 financial crisis. 

Cointelegraph attempted to reach out to Three Arrows Capital on the matter, but did not receive a response prior to publication.

Author Joseph Hall contributed to this story.

Why is there so much uncertainty in the crypto market right now? | Market Talks with Crypto Jebb and Crypto Wendy O

Why is there so much uncertainty in the crypto market right now? Join us as we try to figure it out with Tim Warren, co-host of Coffee N Crypto, and Crypto Wendy O.

In the fourth episode of Market Talks, we welcome YouTube media creator and crypto educator Crypto Wendy O.

Wendy became interested in cryptocurrency and blockchain technology in November 2017. She has been into crypto full-time since the summer of 2018 and focuses on providing transparent marketing and media solutions for blockchain companies globally. Wendy also offers free education via YouTube and Twitter to her growing audience of over 170,000, giving her the largest following of any female crypto influencer in the world.

Some of the topics up for discussion with Wendy are the new consumer price index numbers and how they might impact the crypto market going forward, and why there is so much uncertainty in the market right now.

As everyone tries to figure out where the Bitcoin (BTC) bottom might lie, we ask Wendy her thoughts on the matter. We also discuss whether Ether (ETH) has outperformed BTC during this current bear market and what that might mean for the second-largest cryptocurrency.

With more and more crypto platforms filing for bankruptcy, we talk about how much longer the crypto contagion will continue and the best way to safeguard your assets so that you don’t lose your hard-earned money. Are hardware wallets a better option than keeping your crypto on online exchanges?

Have you been wondering what makes a good investor and trader, and when to get in the market if you haven’t already? We ask Wendy for her insights and tips on how you can up your trading game and figure out when might be the best time to get in the market. 

Lastly, we discussed whether having diamond hands is always a good strategy or if it’s better to constantly take profits as well? We had an insightful conversation about this and also let you in on which altcoins might be a good bet in the current market conditions.

Tune in to have your voice heard. We’ll be taking your questions and comments throughout the show, so be sure to have them ready to go.

Market Talks with Crypto Jebb streams live every Thursday at 12 pm ET (4:00 pm UTC). Each week, we feature interviews with some of the most influential and inspiring people from the crypto and blockchain industry. So, be sure to head on over to Cointelegraph’s YouTube page and smash those like and subscribe buttons for all our future videos and updates.

SEC extends window to decide on ARK 21Shares spot Bitcoin ETF to August

J. Matthew DeLesDernier, assistant secretary for the SEC, said it had extended to allow for “sufficient time to consider the proposed rule change and the issues raised therein.”

The United States Securities and Exchange Commission (SEC) has pushed the deadline to approve or disapprove ARK 21Shares’ Bitcoin exchange-traded fund (ETF) to August 30.

According to a Tuesday filing from the SEC, the regulatory body extended the deadline for approving or disapproving the ARK 21Shares spot Bitcoin (BTC) ETF from July 16 for an additional 45 days to August 30. The application, originally filed with the SEC in May and published for comment in the Federal Register on June 1, includes a proposed rule change from the Chicago Board Options Exchange BZX Exchange.

Ark Invest partnered with Europe-based ETF issuer 21Shares to file for a spot Bitcoin ETF listed on Cboe BZX Exchange in 2021, but the SEC rejected its application in April. Under current rules, the regulatory body is able to delay its decision and open the investment offering to public comment for up to 180 days, suggesting that the SEC could provide a final answer by January 2023.

In the notice of the designation of a longer period, SEC assistant secretary J. Matthew DeLesDernier said it had chosen an extension to allow for “sufficient time to consider the proposed rule change and the issues raised therein.” The SEC has never approved an ETF with direct exposure to crypto but gave the green light to investment vehicles linked to BTC futures, including funds from Valkyrie and ProShares.

Related: Grayscale legal officer says Bitcoin ETF litigation could take two years

In June, when the SEC denied Grayscale’s application to convert its Grayscale Bitcoin Trust (GBTC) into a spot BTC ETF, the investment manager filed a petition for courts to review the regulatory body’s decision. Grayscale senior legal strategist Donald Verrilli alleged in the filing that the SEC had acted “arbitrarily and capriciously” by “failing to apply consistent treatment to similar investment vehicles.”

Virginia county Fairfax commits $35M to Van Eck crypto lending fund

Fairfax County continues its cryptocurrency investment endeavors through VanEck crypto lending fund, exploring the world of yield farming through the asset manager.

Virginia county Fairfax has begun investing a portion of a $35 million allotment into a cryptocurrency lending fund managed by global asset managers VanEck.

The firm announced that it had received an initial tranche of the investment commitment from Fairfax County, which is allocating funds from two retirement systems into a variety of cryptocurrency-focused investment avenues.

Fairfax County had previously hinted at delving into the world of decentralized finance (DeFi) yield farming as part of its progressive attitude toward the cryptocurrency space. The county began investing a small portion of holdings from its employees’ retirement system and the police officers’ retirement into various cryptocurrency companies and ventures from 2018 onwards.

Related: Amid crypto bear market, institutional investors scoop up Bitcoin: CoinShares

As Fairfax continues to diversify its cryptocurrency investment strategy, its foray into the world of DeFi has officially begun with its investment in VanEck’s New Finance Income Fund. The fund offers short-term lending arrangements with cryptocurrency companies, platforms and businesses.

According to the VanEck website, the fund lends out fiat currency and stablecoins to borrowers in the cryptocurrency space. Targeting accredited investors, the fund offers high-yield income exposure to cryptocurrencies and requires a $1 million initial investment. The investment manager touts “a simplified approach that alleviates the operational burden of direct digital assets lending.”

Fairfax County has slowly increased its financing into the space, committing funds to seven cryptocurrency-focused allocations. One of these allocations looks to profit from volatility in the space, with a hedge fund intending to leverage yield farming, basis trading and exchange arbitrage opportunities.

The County previously issued an update on its investments into the cryptocurrency and blockchain space, with the employees’ and police retirement systems investing $10 million and $11 million, respectively, into Morgan Creek’s Blockchain Opportunities Fund.

The capital allotment from both funds is less than 1% of their total assets under management — as the county slowly gauges the investment potential in the alternative asset class.

With the bear market in full throttle, crypto derivatives retain their popularity

“Derivatives provide opportunities to protect their portfolios during times of heightened market volatility,” says Emerson Li, brand lead at BingX.

The 2022 cryptocurrency bear market has been the worst on record as most Bitcoin traders are underwater and continue to sell at a loss. In response to the rapid decline of token prices, some investors have fled to safe-haven assets; some have exited the market completely and others have perplexingly turned to the enigmatic market of crypto derivatives. 

With regards to this, Cointelegraph spoke to BingX’s brand lead Emerson Li. BingX is a Singaporean social-based cryptocurrency exchange known for its leaderboards where users can compete with others for returns on investments as well as share ideas among their followers. The exchange processed around $319 million in trading volume within the past 24 hours, mainly consisting of derivates. Regarding the recent market downturn, here’s what Li had to say:

“BingX’s users are also proliferating; compared with Q1 2022, Users number increased by 70% in the second quarter, and transaction volumes doubling since this round of slumps. We believe that its demand for derivatives is still increasing because it allows users to profit from falling prices, a feature that other products do not have.”

During bear markets, traders can purchase derivatives known as put options to either hedge their positions or speculate that the value of underlying tokens will fall. While this can be done by simply shorting the coin, violent and periodic bear market rallies can lead to theoretically infinite losses on one’s short position. In addition, a lack of liquidity for borrowing coins to short may lead to exchanges charging high-interest rates on one’s positions. On the other hand, the put buyer’s losses are theoretically limited to the premium they paid for the derivative, and there are no additional interest fees. 

Li went on to explain that BingX is also seeing a sharp increase in deposits as of late. “Since high market volatility is suitable for the derivatives market, we see more users participating in such transactions and stimulating more demand for deposits.”

Money also appears to be flowing back to CeFi products from DeFi protocols. “For high-risk products such as DeFi staking, we believe traders have panicked under the recent market, affected by the Terra (LUNA) — since renamed Terra Classic (LUNC) — affair and the problems with many DeFi protocols. Users’ risk appetite has decreased, and demand has declined,” said Li. 

Indeed, dYdX, a decentralized crypto exchange known for its margin and perpetual contract products, saw its weekly trading volume fall approximately 90% from the $12.5 billion witnessed from Oct 24 to Oct 30 last year. However, the trading volume is still several magnitudes higher than one year ago, partly due to the aforementioned risk-hedging tailwind. 

Risk-wise, it would appear that the worst is over as a spike in liquidations on dYdX, mainly in the Ethereum and Bitcoin markets, has dissipated since mid-June. Experts from Glassnode noted tokens held in wallet addresses by both new investors and crypto whales had been increasing meaningfully amid the sell-off. 

Crypto investor Sequoia Capital China reportedly raises $9 billion

Sequoia China is known for backing many crypto firms, including the troubled crypto lender Babel Finance, which halted withdrawals in mid-June.

Sequoia Capital China, the Chinese affiliate of cryptocurrency-friendly venture capital firm Sequoia Capital, is about to raise $9 billion for its four new funds focused on Chinese startups.

In raising the capital, Sequoia China has already exceeded its initial target of roughly $8 billion, The Information news agency reported on Monday, citing two people familiar with the matter.

The report notes that the final amount of the raise is supposed to be the biggest pool of capital ever raised by a single VC firm focused on Chinese technology startups.

The funding round signals the growing investor appetite for tech investment in China coming despite a major decline in the stock market as well as China’s crackdown on tech companies, which triggered a slowdown in investments by Sequoia’s global competitors.

Sequoia China reportedly plans to close the round sometime this week, with 50% of the raise being oversubscribed.

According to some local investors, major VC firms like Sequoia China and Hillhouse were still raising money despite many American wealth and pension funds halting China investments in 2022.

“Only Sequoia and Hillhouse can raise money from international investors right now, they see it as lower risk, like making an index fund investment,” one Beijing-based investor reportedly said.

Founded in 2005, Sequoia China is one of the world’s biggest tech VC firms, known for investing in TikTok operator ByteDance.

Related: Crypto lending platform Babel Finance reaches counterparty debt agreement

Sequoia China has also backed a number of crypto and blockchain-related firms, including the troubled Asian crypto lender Babel Finance, which halted withdrawals in mid-June amid the ongoing crypto lending crisis. As previously reported, Sequoia Capital China was among lead investors in a $40 million Series A funding round in Babel Finance in May 2022.

Sequoia China also previously led funding rounds for other industry platforms like the cryptocurrency wallet DeBank in 2021.