Israel-Hamas escalation; Revelations from SBF’s trial; Ferrari embraces crypto | Weekly Recap

This week, industry leaders evaluated the impact of the Israel-Hamas war; FTX founder Sam Bankman-Fried’s trial progressed; and Ferrari confirmed plans to accept crypto payments.

Bankman-Fried’s political ambitions

On the fifth day of Sam Bankman-Fried’s trial, former Alameda CEO Caroline Ellison revealed that Bankman-Fried utilized customer funds for political lobbying and engaged in substantial financial transactions, including significant contributions to political parties. 

This includes a $10 billion donation to the Biden administration and a $35 million contribution to the Republicans. Bankman-Fried also aspired to become President of the United States. His financial maneuvers included extensive loans, with Alameda accessing $14 billion from FTX’s customer funds.

FTX and Alameda 

On day six, Ellison disclosed that Alameda engaged in imprudent handling of loans. When lenders exhibited concern, they hastily called back these loans. This triggered a scramble to settle debts, with FTX’s customer deposits serving as the primary source. Approximately $10 billion in customer funds were depleted as a result.

Ellison revealed that Alameda presented seven distinct balance sheets, tailored to their specific audience. Furthermore, Alameda utilized $100 million in cryptocurrency to bribe Chinese officials, aiming to release $1 billion held in China.

During the seventh day, Ellison noted that she assumed a multifaceted role at Alameda, encompassing HR, accounting, and liaising with lenders. According to her, FTX incurred substantial losses, approximately $100 million, during the Terra collapse.

Efforts to secure funding from Saudi royalty were unfruitful, shifting their focus to substantial investments and potentially competing with Modulo Capital. According to Ellison, FTX’s collapse was triggered by a $10 million loan taken by Alameda which the firm failed to repay. 

FTX blamed for BlockFi’s collapse

Zac Prince, the CEO of bankrupt lender BlockFi, testified on day eight of the trial. He attributed BlockFi’s challenges to FTX and Alameda. BlockFi had extended a considerable $1.1 billion to Alameda, which resulted in losses due to Terra’s implosion and 3AC’s default.

BlockFi intended to align with FTX for a potential acquisition in July, supported by a $400 million credit offer. However, BlockFi had extended an additional $850 million to Alameda from July to November last year.

When FTT tokens plummeted, BlockFi had to take the painful step of recalling loans. As a result, the firm found itself ensnared in financial turmoil, with Prince implicitly placing responsibility on FTX and Alameda.

France, G20 nations and California

The FTX implosion unarguably exposed the need for clear regulations in the crypto market, and financial agencies across the globe have continued to ramp up efforts. 

This week, France’s regulatory agency the Autorité de contrôle prudentiel et de résolution (ACPR) provided guidance regarding the regulatory framework for crypto in the country following industry interviews and assessments.

A research paper from April ignited the discourse on DeFi regulation. It delved into the inherent risks associated with DeFi and explored potential avenues to incorporate it within the regulatory framework.

G20 finance leaders also unveiled a strategic plan to bolster crypto regulations, aiming to ensure global financial stability. The plan draws from the expertise of the International Monetary Fund and the Financial Stability Board, with a focus on enhancing anti-money laundering efforts within the crypto scene.

Moreover, California Governor Gavin Newsom signed a bill to regulate cryptocurrencies into law. Under the legislation, crypto companies operating in the state will have to obtain licenses. The law establishes a robust regulatory framework for crypto firms and enhances data privacy safeguards for residents of California.

SEC fails to appeal verdict on Grayscale ETF 

The U.S. SEC also made headlines this week, with reports related to the agency rekindling hopes of a Bitcoin spot ETF. The SEC had until this week to appeal a previous verdict from a U.S. panel that called on the regulatory agency to re-evaluate Grayscale’s application for a spot BTC ETF.

The agency failed to appeal the court decision upon the deadline. As a result, the SEC will have to review the earlier rejection of Grayscale’s application. As reported, the NFT market unexpectedly recorded a rally following this development. 

Potential impact of Israel-Palestine conflict

This week saw an escalation of tension between Israel and Palestine, drawing the attention of market analysts, who anticipate a potentially turbulent course for the crypto industry amid the conflict. A report from Bitfinex Alpha asserted heightened volatility in Bitcoin (BTC) due to the conflict.

Periods of geopolitical unrest often result in jittery financial markets, with crypto assets perceived as riskier assets that investors may abandon. However, according to notable analyst Mike Deutscher, markets typically rebound after such events. Analyst EllioTrades also echoed similar sentiments.

The effects on the market were felt when Bitcoin breached the $27,000 psychological support on Oct. 11. This marked the first time BTC traded below $27,000 in over a week. The asset registered five consecutive daily losing candles, from Oct. 8 to Oct. 12. A subsequent comeback was not sufficient to take it back above the $27,000 level.

The IMF also expressed apprehension regarding global economic stability in light of the conflict, emphasizing the necessity for financial reforms, especially in crypto. The ongoing conflict poses economic risks to the Middle East.

The IMF underscored the importance of establishing internationally synchronized standards and regulations in areas such as crypto assets, data protection, cybersecurity, and artificial intelligence. 

Israel moves to close Hamas-linked accounts

Amid the conflict, Israel took measures to freeze crypto accounts associated with Hamas. This action followed Hamas’s attempts to raise funds in crypto. Israel engaged crypto exchange Binance in tracking and closing these accounts, while cooperating with U.K. authorities to freeze a Hamas-linked account at Barclays Bank.

Adoption: Ferrari, Mastercard and Bitstamp make headlines 

This week, institutional adoption and interest remained prevalent. Luxury auto manufacturer Ferrari heeded market demands and unveiled cryptocurrency as a payment choice, commencing in the United States and broadening into Europe in the first quarter of 2024. 

Enrico Galliera, Ferrari’s Chief Marketing and Commercial Officer, clarified that a substantial portion of their clientele comprises cryptocurrency investors.. Ferrari’s cryptocurrency payment option includes Bitcoin and Ethereum, with Bitpay as their initial U.S. partner.

This week, Mastercard introduced a novel solution for enhancing the interoperability of CBDCs across diverse blockchains. 

The solution was developed in collaboration as part of a pilot initiative led by the Reserve Bank of Australia to explore CBDC applications in Australia. It enables CBDC tokenization on different blockchains, including Ethereum, while maintaining central bank oversight. 

Reports from Oct. 9 indicated that Bitstamp is in talks with three leading European banks to assist them in offering crypto services. The discussions stem from the optimistic prospects associated with the forthcoming MiCA regulations, which seek to incorporate crypto iinto traditional financial frameworks.