The Great Unbanking continues, Bitcoin pumps, FTX, Voyager, Tether – Attack of the 50 Foot Blockchain

By Amy Castor and David Gerard

“We’re still early to the party. The kind of early where most of the guests have left, all that’s left of the good alcohol is empty bottles all over the floor, there’s a hint of dawn, and you hope that if you keep drinking and pass out, you’ll sleep through the hangover. That early.” — Doctor Orrery

How are you

The 2021 crypto bubble popped in May 2022 with the collapse of Terra-Luna. We began collaborating on a newsletter series about the ongoing collapse.

Everything that has happened since then and is happening now – Celsius, Voyager, FTX and their victims – followed directly from Terra-Luna. The collapse is still ongoing.

Binance is looking more and more like FTX did in the months before its collapse – “money” created out of thin air, reserves largely made of their own internal token, worse and worse excuses, and regulators sniffing around.

Bitcoin and its descendants failed miserably as payment systems. There is no separate crypto economy. Crypto is a dollar derivative – you get into crypto because you want dollars. The only consistent ideologies are “numbers add up” and “do not submit to laws.”

Crypto’s biggest challenge now is that it is increasingly cut off from the precious dollars. American banking lanes are disappearing as regulators finally do the things they should have done years ago.

If “Operation Chokepoint 2.0” is real, then it is the best program US regulators have ever put forward for crypto.

Bitcoin Price Rises Again! At press time, it was $27,020. Someone is pumping it hard. An important factor is BUSD holders who cannot pass KYC at Paxos and need to dump their pseudo-dollars so they buy BTC with them – most bitcoin trading happens at Binance and this is where the price discovery occurs. The Tether printer is also going crazy again.

There is no sign of fresh retail dollars coming into crypto. The general public still seems pretty sure it’s all scam nonsense.

What we expect to see going forward:

  • Crypto companies are trying to go through every risky community bank in the US.
  • More allegations of government and regulatory collusion.
  • More hope, wishful thinking and just made up claims about crypto.
  • More hopium in the crypto press because the actual news is bad.
  • Floods of stablecoin printing to pump the price.
  • No evidence of new retail interest – and indeed evidence against it, such as Coinbase’s SEC filing.

This is obviously good news for bitcoin.

Write your name

Bids to buy the carcass by Signature Bank expired on Friday, March 17. Regulators are trying to sell the bank in its entirety as a going concern. Failing that, they cut it up for parts. Any potential Signature buyer may have to abandon the crypto business. (Reuters)

When Signature was suddenly taken out and shot on March 12, Justice Department investigators in Washington and Manhattan were already looking into its crypto clients – and specifically Signature’s anti-money laundering compliance. The SEC had also investigated Signature. (Bloomberg)

Barney Frank, a former member of Signature’s board and one of the guys behind Dodd-Frank, defended Signature: “I wonder, are we the first bank to close completely without being insolvent? And if so, why? I think , that the DFS, the New York State people should answer that. That’s why I’m speculating that using us as a poster child to say ‘stay away from crypto’ was the reason.” Well done NYDFS, then. (New York, Archives)

However, if your loan book is bad enough, being technically solvent may not be enough. Signature’s real estate loans in particular turn out to have been garbage. (The real deal)

The signature was in Paycheck Protection Program loans during the pandemic — it made dozens more PPP loans to cryptocurrency companies than previously reported in public documents. “DePaolo said the bank’s crypto PPP loan volume was because other banks serving crypto didn’t have the resources to offer the same kind of program.” (CoinDesk)

Abolish the banks for the unbankable

Silicon Valley Bank didn’t have many crypto clients – apart from Circle for part of its USDC reserve – but SVB’s UK unit had a few. HSBC bought SVB UK and all its assets and liabilities for £1 (one pound) – and HSBC is not happy about crypto. “The crypto thing will probably leave, either by itself or by being politely abandoned,” said one of those involved in the purchase. “They will realize that life would be too hard as a customer of HSBC.” (FT)

Federal Home Loan Bank of San Francisco did not do call in its $4.3 billion loan to Silvergate Bank, an FHLB spokesperson told CoinDesk. “Silvergate decided to prepay their outstanding advances based on their own assessment of their position.” We’re pretty sure if the FHLB-SF didn’t push them, someone else did. (CoinDesk)

Circle has set all the liquidity reserve for USDC in one bank: BNY Mellon. This has coincidentally left “crypto-friendly” Customers Bank with $1 billion of its total $18 billion customer deposits suddenly removed. (Circle)

Customers Bank (NYSE:CUBI) isn’t that big and has had some shaky times. CUBI’s 10-K mentions its “digital currency” clients, though not in any detail. They also run their own version of Signatures Signet, CBIT, which they also licensed from Tassat, who built Signet. (SEC)

Cross River Bank, a small community bank in New Jersey, is Circle’s new payment processor for USDC. It’s the kind of bank that gets into crypto and immediately tells you all about them. Cryptadamus dug in Cross River and found all sorts of interesting things. (Twitter)

Cross River was also interested in PPP loans – it somehow managed to issue more than 106,000 PPP loans during the pandemic, making it the fourth largest issuer of PPP loans. The $4.7 billion in PPP loans almost doubled the bank’s assets. Cross River issued 15 of the 97 loans involved in the Justice Department’s first 56 prosecutions of fraudulent PPP loans. (NOW; POGO)

Kryptobank Anchorage Digital started as a crypto custodian, joined Facebook’s Libra project in 2019, and earned a national trust charter for digital assets from the Office of the Comptroller of the Currency in January 2021 — in fact, it was one of the last digital bank charters, as Brian Brooks, later from Binance US, approved in his time as comptroller.

Anchorage just laid off 20% of its staff. The San Francisco bank blamed regulatory uncertainty and “broad macroeconomic challenges and crypto market volatility” for the slowdown in business. The biggest regulatory uncertainty appears to be that the OCC was unhappy with Anchorage’s anti-money laundering controls and its lack of adequate compliance staff or processes. (Bloomberg)

Elsewhere, the OCC says Washington crypto bank Protego cannot convert itself into a national trust bank. Protego failed to meet capital requirements until the last minute. It can now try another form of charter, eg., as a state bank, or apply again. (Assets)


Sam Bankman-Fried wants the bankruptcy court to force FTX to ask its insurers to cover up to $10 million of his legal bills under FTX’s Directors & Officers Liability insurance. Sam wants this for the civil cases against him for stealing everyone’s money, but also for his criminal case – even though D&O insurance generally doesn’t cover criminal cases. Sam’s attorney also attached the portion of FTX’s insurance policy that states that intentional criminal acts in the United States are not covered. (Dock. 964PDF)

FTX published its Schedules and Statements of Financial Affairs (SOFAs) – documents detailing payments the company made before bankruptcy. Sam took in $2.2 billion, other managers took out millions. But other dollar transfers have been shrouded in secrecy. (Press release)

Effective leaders of the altruism movement were alerted to Sam’s unprofessional and fraudulent behavior in 2018 and did nothing. Star EA philosopher William MacAskill allegedly threatened someone who tried to blow the whistle on Sam. Alameda management had actually tried to buy Bankman-Fried out of Alameda around this time because he was so clearly a ticking time bomb. Effective Altruism Forum posters are deeply disillusioned. (Time; Effective altruism forum)

Tether go up

Tether is now at 75 billion tethers, an increase of 9 billion from the beginning of the year. We suspect it’s because BUSD is a zombie and the pumps have to pump.

We are shocked to learn that Russian sanctions evasion is using tethers. You buy bridles in Russia with rubles and sell them in London for pounds. (CoinDesk)

Tether/Bitfinex money mule Reggie Fowler has a gambling addiction. There you can just see? Fowler has blown hundreds of thousands of dollars at a casino in Arizona. This is while he has not paid his previous lawyers. Federal prosecutors want Judge Andrew Carter to change Fowler’s bail restrictions — even this late in the case. Fowler will be sentenced next month. (Letter, PDF)

More good news for bitcoin

The DoJ and the US Trustee have filed their appeal against the sale of Voyager to Binance US. Their main dispute is with the claims of immunity from prosecution. “Nothing in the Bankruptcy Code allows courts to relieve parties from liability to the government for past and future conduct.” The government wants the provision entered into or the entire agreement withdrawn and has asked to postpone the sale in the meantime. Judge Michael Wiles has told them quite pointedly that he is not staying the sale while the appeal continues – especially since he told them to make specific allegations of crimes and they just didn’t. (Dock. 1182PDF; Dock. 1190PDF)

Coinbase is thinking about creating a non-US trading platform as the US environment for crypto continues to sour. Well, it worked for Binance and FTX! (Bloomberg)

Brian Quintenz, former CFTC commissioner and now a16z’s head of crypto policy, complains at the Futures Industry Association conference that “The SEC is completely out of control. They’re going rogue!” Oh no, how sad. “The United States has to make a decision about whether to embrace and support innovators in this country,” he said with exquisite timing. (CoinDesk)

Crypto blogger Ignacio de Gregorio wrote a Medium post arguing that Ethereum is decentralized because he worries about the New York Attorney General’s claims that ETH is a security. David SH Rosenthal points out all the flaws in his arguments: (DSHR)

de Gregorio and others base their case on the fact that back in 2018, SEC Director of the SEC’s Division of Corporation Finance William Hinman argued that ETH was not a security because the Ethereum blockchain was “sufficiently decentralized.” But Hinman’s claim was false then and is false now. And Hinman now works for A16Z, the “Softbank of crypto”.

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