Daily Digest - 17 November 2022

Headlines

▌Binance’s Role in the FTX Incident Has Been Scrutinized by the U.S. Congress

Patrick McHenry, a senior Republican in the U.S. House of Representatives, confirmed to The Block that Binance’s role in the sudden collapse of FTX has been reviewed by the U.S. Congress because the FTX incident caused a shock in the cryptocurrency market. He said, “This is very serious... I think it's a big deal." McHenry, who may become the next chairman of the House Financial Services Committee, also said that Binance's role in this incident will be one of the focuses of the FTX hearing in December.

Policy

▌U.S. Treasury Secretary Yellen: The Failure of Encrypted Exchanges Shows the Need for Regulation

U.S. Treasury Secretary Yellen said that the failure of encrypted exchanges shows the need for regulation. Where existing regulations apply, (encryption) regulatory measures must be strictly enforced. Crypto markets should also be protected in the same way. The government needs to act quickly to fill the regulatory gap. The spillover effects of crypto market events are limited. A recent report by the U.S. Financial Stability Board has warned of interconnected risks between the traditional financial system and crypto markets.

▌Prime Minister of the Bahamas: No “Flaws” in Bahamian Encryption Regulation Have Been Found

Prime Minister Philip Davis of the Bahamas told the parliament on Wednesday that the Bahamas could not prevent the collapse of FTX and has not found any "flaws" in the country's cryptocurrency regulation. The Bahamas is not the only country that regulates FTX's global operations, and investigating the FTX debacle is very important to the Bahamas. In his speech, Davis stated that based on the analysis and understanding of the FTX liquidity crisis so far, no flaws in the regulatory framework of the Bahamas have been found that may lead to this crisis. He added that the Bahamian securities regulator was able to "immediately take steps" because the country already had a regulatory framework for digital assets. According to previous news, the Supreme Court of the Bahamas has approved two bankruptcy experts from PricewaterhouseCoopers (PwC) as provisional liquidators to oversee the assets of FTX.

▌Member of the American Council: FTX’s Actions Were Illegal Even 100 Years Ago

Jake Auchincloss, a member of the Financial Services Committee of the U.S. House of Representatives and a Democrat from Massachusetts, said that no matter what the new technology is, FTX’s behavior may violate existing rules in the United States. "The FTX disaster is just another reminder of the need for clear and consistent predictable legislation in the US. The crimes committed by FTX are not some tech-specific, over-the-top, 2022-era crimes that would have been illegal even 100 years ago. You can't do that."

Cryptocurrency

▌Some Gemini System Services Are Interrupted, the Official Said That Customer Funds Are Safe

Encrypted KOLAutismCapital tweeted that some users reported that the encrypted exchange Gemini had problems logging in to their accounts. The announcement shows that Gemini is investigating the potential service interruption, and all customer accounts and funds are safe. AutismCapital added that this situation may be caused by a large number of users logging in to the Gemini platform to check or withdraw their personal assets after the announcement of the suspension of redemption of its wealth management product GeminiEarn, resulting in an overload of the server. According to previous reports, Gemini stated that it noticed that GenesisGlobalCapital, the lending partner of the Earn program, has suspended withdrawals and will not be able to meet customers' redemption requests within 5 working days stipulated in the service level agreement (SLA). This does not affect any other Gemini products and services. Gemini is working with the Genesis team to help customers redeem funds from the Earn program as quickly as possible. Gemini is a full reserve exchange and custodian. All customer funds of Gemini Exchange are held at 1:1 and can be withdrawn at any time.

▌FTXCEO: SBF No Longer Speaks on Behalf of FTX Exchange and Affiliated Companies

FTX’s official Twitter released a statement from CEO John Ray, which stated, “As previously announced, SBF resigned from FTX, FTXUS, AlamedaResearch and its directly and indirectly owned subsidiaries on November 11. SBF does not currently hold a position with, and does not speak on behalf of, FTX, FTXUS or Alameda Research Ltd." As previously reported, SBF has frequently tweeted his thoughts on the bankruptcy of FTX recently, and accepted an interview with the New York Times.

▌SBF: Leverage Before Bankruptcy Was Not About $5 Billion, but About $13 Billion

FTX founder SBF tweeted, “A month ago FTX was a valuable business. FTX’s daily trading volume is about 1 billion to 15 billion US dollars, and its annual revenue is about 1 billion US dollars (equity value). We're known as a model for running an efficient company, I've been on the cover of every magazine, and FTX is the darling of Silicon Valley. We've become overconfident and careless. Problems are brewing. Bigger than I realized .Again, as far as I know, these numbers are approximate.” SBF writes, "Leverage builds - about $5 billion in leverage, backed by about $20 billion in assets (they have value, FTT has expected value!) But they there is risk, and that risk is correlated — with other collateral and with the platform. Then came the crash. Within a few days, there was a historic crash — more than 50% of most related assets had no bid party liquidity. At the same time, there was a run on the banks. About 25% of client assets, or $4 billion, are withdrawn every day. As it turns out, I was wrong, the leverage wasn't about $5 billion, it was about $13 billion. $13 billion of leverage, a bank run, a total collapse of asset values, all of a sudden, all at the same time.”

▌SBF Denies the Allegation That "FTX and Alameda Defeated Three Arrows"

Kyle Davies, the co-founder of Three Arrows Capital, told CNBC on Wednesday that FTX and Alameda “colluded” with each other to defeat Three Arrows. Client, Sanjian was 'hunted', our positions were liquidated, and the closest FTX employee threatened to hunt and liquidate our positions." CNBC said it received a statement from FTX founder SBF, who responded, "I am shocked. Disagree 100%, their allegations are not true."

▌Celebrities Who Promoted FTX Are Hit With a Class Action Lawsuit

Celebrities who promoted cryptocurrency exchange FTX are facing a class-action lawsuit. Tom Brady, Gisele Bundchen, Steph Curry, and Larry David are among the stars named in the lawsuit, which was filed by Florida attorneys David Boies and Adam Moskowitz. Former CEO SBF, who resigned from the company last week, is also named in the lawsuit. The suit alleges that Brady, Bundchen and others "actively participated" in "the offering and sale of unregistered securities in income accounts." It is reported that Boies and Moskowitz are also filing a similar class action lawsuit against the Dallas Mavericks and their owner Mark Cuban, accusing him of promoting the now bankrupt cryptocurrency lending company Voyager.