Here’s What You Missed in Crypto This Week

SEC charges former FTX CEO with fraud as ConsenSys, PayPal partner for crypto purchases

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.

SEC CHARGES FORMER FTX CEO WITH FRAUD: The Securities and Exchange Commission on Tuesday charged Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors in FTX Trading, the crypto trading platform of which he was the CEO and co-founder. Investigations as to other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing. According to the SEC’s complaint, since at least May 2019, FTX, based in The Bahamas, raised more than $1.8B from equity investors, including approximately $1.1B from approximately 90 U.S.-based investors. In his representations to investors, Bankman-Fried promoted FTX as a safe, responsible crypto asset trading platform, specifically touting FTX’s sophisticated, automated risk measures to protect customer assets. The complaint alleges that, in reality, Bankman-Fried orchestrated a years-long fraud to conceal from FTX’s investors the undisclosed diversion of FTX customers’ funds to Alameda Research LLC, his privately-held crypto hedge fund; the undisclosed special treatment afforded to Alameda on the FTX platform, including providing Alameda with a virtually unlimited “line of credit” funded by the platform’s customers and exempting Alameda from certain key FTX risk mitigation measures; and undisclosed risk stemming from FTX’s exposure to Alameda’s significant holdings of overvalued, illiquid assets such as FTX-affiliated tokens. The complaint further alleges that Bankman-Fried used commingled FTX customers’ funds at Alameda to make undisclosed venture investments, lavish real estate purchases, and large political donations.

"We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto," said SEC Chair Gary Gensler. "The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws. Compliance protects both those who invest on and those who invest in crypto platforms with time-tested safeguards, such as properly protecting customer funds and separating conflicting lines of business. It also shines a light into trading platform conduct for both investors through disclosure and regulators through examination authority. To those platforms that don’t comply with our securities laws, the SEC’s Enforcement Division is ready to take action."

The SEC’s complaint charges Bankman-Fried with violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC’s complaint seeks injunctions against future securities law violations; an injunction that prohibits Bankman-Fried from participating in the issuance, purchase, offer, or sale of any securities, except for his own personal account; disgorgement of his ill-gotten gains; a civil penalty; and an officer and director bar. In parallel actions, the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission announced charges against Bankman-Fried.

CONSENSYS, PAYPAL PARTNER FOR CRYPTO PURCHASES: ConsenSys, a Web3 company, announced Wednesday that MetaMask users will be able to purchase crypto $ETH from within the app using PayPal (PYPL). "MetaMask will be the first Web3 wallet to leverage PayPal to drive more successful on-ramp transactions," said the statement. Initially available to select PayPal users in the U.S., this integration enables the seamless purchase and transfer of ETH from PayPal to MetaMask. "MetaMask is the world’s leading self-custodial wallet, the U.S. being among the top markets in terms of users. The MetaMask wallet is the primary way millions of users interact with applications that include NFT marketplaces, play and earn games, decentralized autonomous organizations, DAOs, decentralized finance, DeFi, applications, and metaverse worlds. The MetaMask and PayPal integration is the latest in a series of announcements that aims to improve and diversify payment options for users within the MetaMask mobile.

CLEANSPARK REPORTS Q4 EARNINGS: On Wednesday, CleanSpark (CLSK) reported fourth quarter revenue of $26.2M, which compared to analyst estimates of $25.1M. The company also reported Q4 net loss of $42.3M, which compared to net loss of $5.4M for the same period last year.

"Our business model and capital strategy continue to be standouts in our industry," said Zach Bradford, CEO. "Despite macro headwinds in the economy and bitcoin mining industry, our infrastructure first approach and financial discipline have allowed us to grow in this bear market. We continue to execute our business plans with best-in-class efficient mining operations and by identifying potential accretive acquisitions while maintaining very little leverage on our balance sheet.”

On Thursday, H.C. Wainwright analyst Mike Colonnese said 2022 was a "transformational year" for CleanSpark and that the shares remain in his top picks in crypto mining post the Q4 results. While the company’s operations are not impervious to the current headwinds facing the industry, it is one of the best positioned miners to navigate "this prolonged crypto winter based on its scale, operating efficiency, solid balance sheet, and relatively tame electricity costs," Colonnese said. He believes the stock is "significantly undervalued" at current levels and reiterates a Buy rating on CleanSpark with a Street-high $12 price target. Near-term catalysts for shares include continued strong execution and the potential to negotiate fixed-price, long term power contracts at owned facilities in Georgia, wrote Colonnese.

BITFARMS SELLS DE LA POINTE PROPERTY: Bitfarms announced Friday it had completed the sale of its de la Pointe property, receiving $3.6M in net proceeds.

"Today we closed on the sale of our de la Pointe location and received net cash proceeds of $3.6M, as expected," said Geoff Morphy, President and COO. "After an extensive due diligence and competitive process, Societe de transport de Sherbrooke emerged as the successful bidder to acquire this facility, and it’s gratifying that Sherbrooke’s transportation agency can utilize our electrical infrastructure with green power generated by Hydro Quebec and supplied by Hydro Sherbrooke to meet the needs of the community. We are also pleased that we could close our de la Pointe facility and build-out our new locations ahead of schedule, important milestones to us and Sherbrooke’s local residents."

Additionally on Wednesday, Bitfarms announced that on December 13, it received a written notification from the Nasdaq Stock Market indicating that, for the last thirty consecutive business days, the bid price for the company’s common shares had closed below the minimum $1.00 per share requirement for continued listing. The company has been provided an initial period of 180 calendar days, or until June 12, 2023, to regain compliance. The company intends to continually monitor the bid price of its shares and, to the extent necessary, evaluate available options to regain compliance with Nasdaq’s minimum bid price rule within the compliance period.

SILVERGATE, SIGNATURE BANK PRICE TARGETS LOWERED: Wedbush analyst David Chiaverini lowered the firm’s price target on Silvergate Capital (SI) on Monday to $30 from $45 and kept an Outperform rating on the shares after hosting an advisor call with Steve Gannon, former general counsel of Citizens Financial Group, for an update on Silvergate’s risk of potential liability, damages, and/or enforcement action related to its dealings with FTX and Alameda Research. There were both positive and negative takeaways from the call. On the positive side, the speaker noted that because Silvergate is heavily regulated, it’s likely that it has a robust compliance function and he believes that an enforcement action or legal penalty, if any, stemming from this situation would be manageable and not crippling. On the negative side, the speaker noted it’s unlikely Silvergate would be an acquisition target in the near-term until the issue of potential legal liability receives closure; and if regulators determine that Silvergate’s compliance function was lacking, it could potentially lead to millions of increased expenses to further build out Silvergate’s compliance infrastructure, Chiaverini wrote.

Additionally on Tuesday, JPMorgan analyst Steven Alexopoulos lowered the firm’s price target on Silvergate Capital to $30 from $50 and kept an Overweight rating on the shares. Heading into 2023, the analyst remains bearish on regional bank stocks and sees the sector as being "particularly vulnerable" to significant negative earnings revisions over the next several quarters. With the two earnings "needle movers" for regional banks being net interest margins and credit quality, Alexopoulos sees each of these risk factors as being skewed to the downside in terms of earnings impacts.  Alexopoulos also lowered the firm’s price target on Signature Bank (SBNY) to $135 from $200 and kept an Overweight rating on the shares.

Meanwhile on Thursday, Morgan Stanley analyst Manan Gosalia lowered the firm’s price target on Signature Bank to $132 from $152 and kept an Equal Weight rating on the shares. Gosalia and fellow analyst Betsy Graseck said bank management comments last week show that their thesis for accelerating deposit costs is playing out, but even faster than they’d anticipated, leading them to take down EPS estimates by a median 2% for Q4. The 2023 EPS forecast is decreasing the most for Signature Bank as crypto-related deposit runoff pressures NIM, Gosalia noted.

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), Pareteum (TEUM) 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 dropped roughly 1% this week to $17,021 in U.S. dollars, according to TradeBlock.

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