Crypto Billionaire's Dire Warning | Web3 Enthusiasm Abounds At MIT Summit

GRAYSCALE GOES TO COURT

Grayscale Investments launched a lawsuit against the U.S. Securities and Exchange Commission Wednesday after the regulator rejected the firm’s application to convert its flagship Grayscale Bitcoin Trust, the world’s largest crypto investment vehicle, into an exchange-traded fund (ETF). The SEC said the trust failed to meet consumer protection requirements. These included measures “designed to prevent fraudulent and manipulative acts and practices.”

According to Grayscale, the company is filing a “petition for review” with the United States Court of Appeals for the District of Columbia to challenge the agency’s decision. Earlier this month, the company announced it had hired legal counsel, including Donald B. Verrilli, Jr., former Solicitor General of the United States, and law firm Davis Polk & Wardwell. ”

APPETITE FOR SHORT BITCOIN ETF DOUBLES

Meanwhile, the ProShares Short Bitcoin Strategy ETF (BITI), the first inverse exchange-traded fund in the U.S. designed to give investors a way to profit from declines in the price of the cryptocurrency, saw a daily net inflow of 1,684 BTC on Wednesday, essentially doubling the vehicle’s holdings to 3,086.2 BTC (approximately $59 million), according to Norway-based crypto analytics firm Arcane Research. Launched less than two weeks ago, it is already the second-largest bitcoin-focused ETF listed in the U.S.

Notably, the ProShares Bitcoin Strategy ETF (BITO), which conversely offers exposure to bitcoin returns and is far bigger than its competitors with $647 million in assets under management, saw its largest daily net outflow since May 20 and fifth largest this year, suggesting that short demand is currently outpacing long demand for the cryptocurrency.

Source: Forbes Digital Assets, powered by Nomics. Prices as of 4:00 p.m. on June 30, 2022.

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ORDERED TO LIQUIDATE

On Monday, crypto broker Voyager Digital issued a notice of default to beleaguered Singapore-based crypto hedge fund Three Arrows Capital (3AC), which had borrowed $675 million from Voyager in the form of 15,250 bitcoin and $350 million in stablecoin USDC. Two days later, a British Virgin Islands court ordered the liquidation of the firm after creditors sued 3AC for failure to repay debts. Sky News, citing unnamed sources, reported that British Virgin Islands-based Teneo Restructuring is handling the insolvency proceedings. On Thursday, the Monetary Authority of Singapore (MAS) said it had "reprimanded" 3AC and accused it of exceeding its assets threshold and providing false information.

CONTAGION SPREADS TO CRYPTO EXCHANGES

After throwing lifelines to 3AC’s embattled lenders BlockFi and Voyager Digital, Sam Bankman-Fried, the 30-year-old billionaire founder of FTX, has warned that some crypto exchanges will soon fail. “There are some third-tier exchanges that are already secretly insolvent,” says Bankman-Fried.

Fried’s FTX, along with Coinbase, Kraken and Binance, are giants among digital asset exchanges. But outside of these whales, there are more than 600 crypto exchanges around the world operating in a largely unregulated frontier. As Forbes reported in its analysis of the world’s best 60 crypto exchanges, the digital asset exchange business generally lacks standards to certify a new entity before or after they start soliciting client funds.

Bankman-Fried is worried about continued failures because during the euphoria of rising crypto prices, exchanges kept upping the ante to attract customers with generous yields for deposits. That worked fine when crypto was going nowhere but up. It looks disastrous now. Click here to read the full story.

FROM $5 BILLION TO $25 MILLION

Behind the scenes, FTX was nearing a deal to buy embattled cryptocurrency lender BlockFi for about $25 million, CNBC reported Thursday citing three sources. The price tag is a tiny fraction of BlockFi’s prior valuations: a $350 million Series D funding round last March valued the company at $3 billion and The Information reported last June BlockFi sought new funding at a $5 billion valuation. According to CNBC’s source, the acquisition could take multiple months to close, and the price tag could shift between now and Friday. The fire sale came after FTX extended a $250 million credit line to BlockFi last week.

MIT WEB3 SUMMIT

Despite the chilly winter storm depressing crypto prices, more than 580 industry leaders gathered in Cambridge, Massachusetts Thursday for Link Venture’s Imagination in Action Web3 Summit at MIT’s Media Lab to discuss the future of Web3 technology. The list of speakers was brimming, including John Wu of Ava Labs, Bill Barhdyt of Abra, Yat Siu of Animoca, MIT Media Lab’s Ramesh Raskar, Kleiner Perkins’ Bing Gordon and Mike Federle, CEO of Forbes.

While most of the talks had an upbeat tone there were some words of concern over the current state of the crypto market. As the Web3 enthusiasts gathered, bitcoin dipped below $20,000 to $18,000 for the second time in June. The cryptocurrency lost around 58% of its value in the second quarter of 2022, its worst quarterly loss in more than a decade.

BLOCKCHAIN 50 SPOTLIGHT

Digital Currency Group: Think of DCG as a crypto conglomerate. The firm owns five major crypto companies: trading platform Genesis, news site Coindesk, digital asset exchange and wallet Luno, bitcoin mining firm Foundry and Grayscale, the largest digital asset manager in the world, with more than 150 portfolio companies and $39.6 billion under management. In November, DCG raised $700 million in a private stock sale led by Softbank at a $10 billion valuation, bumping founder Barry Silbert’s net worth to $3.2 billion. DCG’s newest startup, Foundry, has taken advantage of crypto miners being banned from China in May to create the world’s largest bitcoin mining pool, providing 19% of the network’s total processing power.

ELSEWHERE

FTX Walked Away From A Deal With Celsius After Seeing State Of Its Finances [The Block]

Genesis Faces ‘Hundreds of Millions’ In Losses As 3AC Exposure Swamps Crypto Lenders [CoinDesk]

JPMorgan Says Crypto’s Deleveraging Cycle Won’t Last Much Longer [Bloomberg]