The Fly

Here’s What You Missed in Crypto This Week

Silvergate faces DOJ fraud investigation as FTX sues Voyager to recover loan repayments

As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week’s top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.

SILVERGATE FACES DOJ FRAUD INVESTIGATION: The Justice Department’s fraud unit is looking into Silvergate Capital’s (SI) dealings with FTX and Alameda Research, Bloomberg’s Tom Schoenberg reported Thursday, citing people familiar with the matter. The criminal investigation is examining Silvergate’s hosting of accounts tied to Sam Bankman-Fried’s businesses, however the bank hasn’t been accused of any wrongdoing and the inquiry, which is in its early phases, could end without charges being brought.

Additionally, Bloomberg’s Allyson Versprille reported Tuesday that a bipartisan group of senators, including Democrat Elizabeth Warren and Republican Roger Marshall, sent a letter to Silvergate Capital Monday asking questions about its ties to cryptocurrency exchange FTX. In a copy of the letter obtained by Bloomberg, the senators said Silvergate in December had declined to fully answer related questions.

"Both Congress and the public need and deserve the information necessary to understand Silvergate’s role in FTX’s fraudulent collapse, particularly given the fact that Silvergate turned to the Federal Home Loan Bank as its lender of last resort in 2022," they wrote.

A representative for Silvergate said that the company has a comprehensive compliance and risk management program and did significant due diligence on FTX and Alameda Research.

FTX SUES VOYAGER OVER LOAN REPAYMENTS: Bankrupt cryptocurrency exchange FTX is suing lender Voyager Digital (VYGVQ) in an effort to recover $446M in loan repayments, according to a lawsuit filed on Monday. FTX alleges Voyager demanded the company and sister trading division Alameda Research pay all outstanding loans after the lender filed for bankruptcy in July. However, FTX claims the loan payments were made so near to its November bankruptcy filing that it is entitled to recover the funds.

"Largely lost in the (justified) attention paid to the alleged misconduct of Alameda and its now-indicted former leadership has been the role played by Voyager and other cryptocurrency "lenders" who funded Alameda and fueled that alleged misconduct, either knowingly or recklessly. Voyager’s business model was that of a feeder fund," the lawsuit said.

COINBASE WINS DISMISSAL OF UNREGISTERED SECURITIES SUIT: U.S. District Judge Paul Engelmayer dismissed a proposed class action lawsuit against Coinbase (COIN) claiming the company sold unregistered securities and failed to register as a broker dealer, Reuters’ Jonathan Stempel reported Wednesday, citing the ruling. The judge said users did not show Coinbase actually sold or held title to the tokens, despite allegedly promoting their sale via descriptions of their “purported value proposition” and participating in “airdrops” of free tokens to raise trading volume.

“These activities of an exchange are of a piece with the marketing efforts, materials and services that courts … have held insufficient” to qualify defendants as sellers, Engelmayer wrote.

BINANCE INVESTS IN GOPAX: Binance announced Friday it has invested in GOPAX, a South Korean cryptocurrency exchange licensed to provide fiat-to-crypto services to customers, as part of its Industry Recovery Initiative. In November 2022, GOPAX halted the withdrawal of principal and interest payments in its decentralized finance service GoFi because of the upstream challenges experienced by Genesis Global Capital. Since then, GOPAX has been working closely with local regulators and industry partners to raise funds to make affected users whole.

The company said, “Binance recognizes GOPAX’s commitment to its users and shares its goal of raising user protection standards by fostering a sustainable and responsible environment for cryptocurrency investments and trading in South Korea. As part of this transaction, Binance will inject capital into GOPAX with the objective of securing in full any potential GoFi users’ withdrawal requests against all staked deposits, including interest. Binance will also work closely with GOPAX to improve user education and blockchain awareness through Binance Academy, an open access blockchain and crypto learning portal that provides free educational resources to users. Binance is committed  to collaborating with the South Korean regulators and virtual asset stakeholders to explore how Binance can leverage its technology and liquidity to support the local ecosystem.”

MICROSTRATEGY EARNINGS: On Thursday, MicroStrategy (MSTR) reported fourth quarter loss per share of $21.93 on a revenue of $132.55, which compared to analyst consensus of a loss per share of 13c and revenue of $131.33M.

“I am pleased to report we again increased our bitcoin holdings this past quarter to a total of 132,500 bitcoins. Our corporate strategy and conviction in acquiring, holding, and growing our bitcoin position for the long term remains unchanged. And while we encountered macroeconomic and foreign currency headwinds in 2022, we continue to shift to higher quality, recurring revenues as we grow and scale our cloud business. We remain intentional and precise in prioritizing costs, focusing on areas that drive revenue growth while preserving margins,” said Andrew Kang, CFO.

Following the report, Canaccord analyst Joseph Vafi raised the firm’s price target on MicroStrategy to $400 from $372 on Friday and kept a Buy rating on the shares. The analyst said the company continues to innovate in its dual strategy of being both an operating company and a modestly leveraged investment play in digital assets.

CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Ideanomics (IDEX), Riot Blockchain (RIOT), Overstock (OSTK), and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.

PRICE ACTION: As of time of writing, bitcoin rose roughly 2% this week to $23,512 in U.S. dollars, according to TradeBlock.

Keywords: bitcoin, ethereum, dogecoin, litecoin, crypto, cryptocurrency, cryptocurrencies, token, stocks, blockchain, stablecoin, regulation

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