Category: Crypto

By Elizabeth Howcroft

LONDON (Reuters) – At least $24.2 billion worth of crypto was sent to illicit crypto wallet addresses in 2023, including addresses identified as sanctioned or linked to terrorist financing and scams, crypto research firm Chainalysis said on Thursday.

Cryptocurrencies enable people to send money around the world without using the mainstream financial system. The underlying blockchain technology creates a record of transactions where senders and receivers are identified only by their wallet addresses, which are a string of letters and numbers.

Chainalysis said the $24.2 billion number is almost certainly an underestimation and will rise as it identifies more illicit addresses. It also said it had doubled its 2022 estimate to $39.6 billion from $20.6 billion.

Chainalysis’ data only includes crypto-related crime. It said it was impossible to determine from blockchain data alone the volume of cryptocurrency that is the proceeds of non-crypto-related crime, for example when cryptocurrency is the means of payment in drug trafficking.

Instead, the firm counted crypto sent to wallet addresses identified as illicit, plus the volume of funds stolen in crypto hacks.

Chainalysis said sanctioned entities and jurisdictions together accounted for a combined $14.9 billion worth of illicit transaction volume in 2023, which represents 61.5% of all illicit transaction volume it measured on the year.

Of this total, most came from crypto services sanctioned by the U.S. or located in U.S.-sanctioned jurisdictions where U.S. sanctions are not enforced.

Revenue from crypto scamming and hacking fell in 2023, Chainalysis said, but ransomware and darknet markets saw revenues rise.

Various other types of illicit addresses were identified in the report, including those linked to terrorist financing, cybercrime and child abuse material.

The U.S. has said it will crack down on crypto firms which fail to block and report illicit money flows. Last year, the founder of crypto exchange Binance pleaded guilty to breaking U.S. anti-money laundering laws.

A United Nations report on Monday said that unregulated cryptocurrency exchanges have become “foundational pieces” of financial architecture used by organised crime in Southeast Asia.

Bitcoin was the top cryptocurrency used by cybercriminals in 2021, but stablecoins have become more dominant in the last two years, now accounting for the majority of all illicit transaction volume, Chainalysis said.

(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes and Jane Merriman)

By Suzanne McGee

(Reuters) – Crypto enthusiasts hailed the approval of U.S. bitcoin exchange-traded funds as the birth of a new asset class, but broadening acceptance of the famously turbulent cryptocurrency beyond its true believers could prove challenging.

A decade in the making, the ETFs offer investors access to spot bitcoin prices, avoiding the risks associated with holding bitcoin directly in a digital wallet, ranging from hacking to fraudulent behavior by crypto exchanges.

Estimates of likely first-year inflows vary widely, from $5 billion to $100 billion. Some market participants have compared the products to the SPDR Gold Shares ETF, which gave a much broader range of investors access to the precious metal when it launched in 2004 and pulled in more than $1 billion in its first three trading days.

Many of the 11 approved ETFs are expected to start trading on Thursday morning.

Cathie Wood, founder of Ark Investments, called it “a truly new asset class.”

One of the ETFs approved by the Securities and Exchange Commission was designed by Ark in tandem with 21Shares, a digital assets investment firm that already operates a crypto ETF in Britain.

“We’re not thinking about profit maximization as much as enabling more and more people to access what we think is a new asset class,” said Wood, who made her name creating actively managed ETFs that bet on so-called disruptive technologies ranging from electric vehicles to bitcoin trading.

Whether the new ETFs earn bitcoin a place at the table alongside more traditional asset classes such as stocks, bonds and commodities could well depend on how successful Wood and other issuers – including BlackRock, Fidelity and Van Eck – are in helping the broader investment community overcome its wariness about the risk factors that take up dozens of pages in each ETF’s regulatory filings.

Bitcoin’s short history has seen several dizzying rallies followed by wrenching drops amid periods of decline sometimes dubbed “crypto winter.” Scandals such as the implosion of crypto exchange FTX in 2022 have also added to investors’ wariness, though proponents have said some of the risk could be mitigated through ETFs, which are listed on tightly-regulated stock exchanges.

That volatility has heightened their appeal as primarily speculative investments, although they were originally created as an alternative to fiat currencies established by and backed by a governments.

Bitcoin, which came into existence in 2008, has a far shorter track record than other asset classes that have spawned wildly successful ETFs, such as gold. That makes it difficult for investors to determine how it will trade over multiple economic cycles.

Jeff Schwartz, president of Markov Processes International, a fintech firm that advises wealth and asset managers, drew a parallel between bitcoin and emerging markets and commodities, two asset classes that gained traction in investors’ portfolios in the 1990s and early 2000s.

Those “were asset classes far better understood by most investors than bitcoin is,” Schwartz said. Nevertheless, “allocations were capped at a very low level (at the time), out of prudence.”

Many expect the bulk of the investment community to follow suit and make only tentative forays into bitcoin ETFs. But even small allocations among a wide pool of investors could add up to billions in inflows: Standard Chartered analysts this week said the ETFs could draw $50 billion to $100 billion this year alone, potentially driving the price of bitcoin as high as $100,000.

“Despite the interest in the crypto market, investors won’t allocate a significant share of their portfolio in cryptos,” said Ruslan Lienkha, chief of markets at fintech platform YouHodler. But “even a small percentage of a portfolio specifically of institutional investors can boost crypto market capitalization.”

Allocating 1% or 2% of a portfolio to spot bitcoin ETFs “shouldn’t create too many issues or too much risk” for many investors, said Sandy Kaul, head of digital assets and industry advisory services at Franklin Templeton. She added investors are hungry for something new as “they’re worried about real estate, unsure about bonds and stocks.”

Proponents of bitcoin as an asset class also point to another much-touted property: its finite supply. The supply of 21 million bitcoins is expected to be fully mined by 2140, in theory making bitcoin resistant to inflation, a property that some investors also attribute to gold.

“Bitcoin is a truly non-inflationary asset,” analysts at Invesco, one of the firms that received ETF approval on Wednesday, said in a report last year. Investment views about Bitcoin are often centered around this idea of scarcity.

Still, it might take a lot of convincing to change the mind of skeptics such as Robert Arnott, founder and chairman of asset manager and consultancy Research Affiliates.

“Bitcoin isn’t an asset; it’s not even like currency,” said Arnott, who has studied the evolution of asset allocation and views bitcoin as closer to investments such as art and fine wine rather than stocks and bonds.

“I view it as a speculative vehicle,” he said. “There’s nothing wrong with speculative vehicles” as long as investors understand what they are getting into, Arnott added.

(Reporting by Suzanne McGee; Editing by Ira Iosebashvili and Jamie Freed)

By Hannah Lang and Suzanne McGee

WASHINGTON/NEW YORK (Reuters) -The U.S. securities regulator on Wednesday approved the first U.S.-listed exchange traded funds (ETFs) to track bitcoin, in a watershed for the world’s largest cryptocurrency and the broader crypto industry.

The Securities and Exchange Commission said it approved 11 applications, including from BlackRock, Ark Investments/21Shares, Fidelity, Invesco and VanEck, despite warnings from some officials and investor advocates that the products carried risks.

Most of the products are expected to begin trading Thursday, issuers said, kicking off a fierce competition for market share.

A decade in the making, the ETFs are a game-changer for bitcoin, offering investors exposure to the world’s largest cryptocurrency without directly holding it. They provide a major boost for a crypto industry beset by scandals.

“It’s a huge positive for the institutionalization of bitcoin as an asset class,” said Andrew Bond, managing director and senior fintech analyst at Rosenblatt Securities.

Standard Chartered analysts this week said the ETFs could draw $50 billion to $100 billion this year alone. Other analysts have said inflows will be closer to $55 billion over five years.

The market capitalization of bitcoin stood at more than $913 billion as of Wednesday, according to CoinGecko. As of December 2022, total net assets of U.S. ETFs stood at $6.5 trillion, according to the Investment Company Institute.

Bitcoin was last up 3% at $47,300. The cryptocurrency has soared more than 70% in recent months in anticipation of an ETF, and hit its highest level since March 2022 this week.

Success in the battle for inflows will mostly depend on fees and liquidity, analysts say. Some issuers slashed their proposed fees in new filings this week, including BlackRock and Ark/21Shares. Those fees range from 0.2% to 1.5%, with many firms offering to waive fees entirely for a certain period of time. For short-term speculators looking to buy in and out of the products, liquidity could be more important.

Companies expect a flurry of online advertising and other marketing. Some issuers, including Bitwise and VanEck, have already released ads touting bitcoin as an investment.

“It is pretty unprecedented, so we’ll see how it works. I’ve never been in a situation where 10 of the same ETF was launched on the same day,” said Steven McClurg, chief investment officer at Valkyrie, whose ETF was among those approved on Wednesday.

The approvals come a day after an unauthorized person published a fake post on the SEC’s account on social media platform X, saying the agency had approved the products for trading. The agency quickly disavowed and deleted the post.

On Wednesday it said it is coordinating with law enforcement and the SEC’s own internal watchdog to investigate the incident.

That incident, and a confused announcement on Wednesday afternoon in which the SEC appeared to publish the formal regulatory approval and then remove it from its website, did not dampen the crypto industry celebrations.

“We believed that bitcoin could change the world, and we were and remain excited at the prospect of democratizing access to this asset,” said Grayscale CEO Michael Sonnenshein.

Douglas Yones, head of exchange traded products at the New York Stock Exchange, where some products will be listed, said the approval was also a “milestone” for the ETF industry.

Cynthia Lo Bessette, head of digital asset management at Fidelity, said the new products should provide “increased choice for investors who want to engage with” crypto.

Some regulatory experts believe the bitcoin ETFs could also pave the way for other innovative crypto products. Several issuers, for example, have filed for ETFs tracking either, the second-largest cryptocurrency.

“Once the dam has been breached, it’s going to be really hard for the SEC to continue its ‘just say no to crypto’ approach,” said Jim Angel, associate professor at Georgetown’s McDonough School of Business.

‘SPECULATIVE, VOLATILE’

Cryptocurrencies were created as an alternative to fiat currencies — currencies established by and backed by a government such as the U.S. dollar and the euro — but cryptocurrencies are largely used as speculative investments due to their volatility.

The green light marks a U-turn for the SEC, which had rejected bitcoin ETFs due to worries they could be easily manipulated. SEC Chair Gary Gensler is a fierce crypto skeptic.

In a highly unusual move, however, Gensler, a Democrat, joined the SEC’s two Republican commissioners in voting to approve the products, while the agency’s two Democratic commissioners voted against. One, Caroline Crenshaw, cited investor protection worries.

Hopes the SEC would finally approve bitcoin ETFs surged last year after a federal appeals court ruled that the agency was wrong to reject an application from Grayscale Investments to convert its existing Grayscale Bitcoin Trust into an ETF.

In a statement on Wednesday, Gensler said that in light of the court ruling, approving the products was “the most sustainable path forward,” but added the agency did not endorse bitcoin, calling it a “speculative, volatile asset” also used to fund crime.

Gensler also repeated his long-held position that bitcoin is a commodity not a security, and as such, Wednesday’s approval was in “no way” a signal that the SEC would be easing up on its crackdown on crypto players it says are flouting its laws.

To meet the SEC’s investor protection bar, several exchanges had proposed working with Coinbase, the largest U.S. crypto exchange, to police trading in the underlying bitcoin market. But the issuers scrapped that partnership this week in favor of an existing arrangement with the Chicago Mercantile Exchange, which was at the core of Grayscale’s court victory.

The SEC is currently suing Coinbase for allegedly breaching U.S. securities laws, which the company denies.

Dennis Kelleher, CEO of investor advocacy think tank Better Markets, warned that bitcoin was still vulnerable to crypto fraudsters and said approving the ETFs was a “historic mistake.”

“The SEC’s action today has changed nothing about this worthless financial product: bitcoin and crypto still have no legitimate use,” he said.

(Reporting by Hannah Lang in Washington and Suzanne McGeeAdditional reporting Chris Prentice, Douglas Gillison in Washington and Laura Matthews in New York;Editing by Michelle Price, David Evans, Jonathan Oatis, Matthew Lewis and Leslie Adler)

(Reuters) -Cryptocurrency miner Core Scientific said on Thursday it was expecting to emerge from bankruptcy in mid-to-late January, a year after it became a casualty of high-profile collapses that led to a rout in crypto tokens.

The Austin, Texas-based company said it has reached an in-principle agreement with all key stakeholders on the terms of a global settlement.

“The global settlement removes key hurdles to our anticipated emergence from Chapter 11 in January,” said CEO Adam Sullivan in a statement.

Core Scientific had filed for bankruptcy protection in December last year, citing slumping bitcoin prices, rising energy costs for bitcoin mining and unpaid debt from U.S. crypto lender Celsius Network, one of its biggest customers.

More than a trillion dollars in value were wiped out from the crypto sector last year with rising interest rates exacerbating worries of an economic downturn.

The crash eliminated key industry players such as crypto hedge fund Three Arrows Capital and Celsius.

The biggest blow came after major crypto exchange FTX filed for bankruptcy protection in November 2022. Its swift fall sparked tough regulatory scrutiny of how crypto firms hold funds and conduct business operations.

Core Scientific said it has rescheduled the confirmation hearing to Jan. 10 and intends to file a motion to modify certain dates, including an extension of the deadlines to vote or file an objection.

Processing bitcoin transactions and “mining” new tokens is done by powerful computers, hooked to a global network, that compete against others to solve complex mathematical puzzles. The business became less profitable as the price of bitcoin fell, while energy costs soared.

Core Scientific was delisted after the bankruptcy proceedings began. It had gone public in mid-2021 through a merger with a blank-check company in a deal that at the time valued the miner at $4.3 billion.

(Reporting by Manya Saini in Bengaluru; Editing by Anil D’Silva and Arun Koyyur)

By Dietrich Knauth

(Reuters) -Bankrupt crypto exchange FTX Trading on Tuesday announced a settlement with liquidators for FTX’s Bahamas unit, resolving a long-simmering dispute over whether the company’s U.S. bankruptcy proceedings should take precedence over the Bahamian liquidation.

FTX and FTX Digital Markets have agreed to pool their assets and harmonize their approach to valuing customer claims to ensure equal treatment for customers in either country’s insolvency process. The settlement will allow most customers of FTX.com’s international crypto exchange to choose whether to seek repayment from either the U.S. bankruptcy or the Bahamian liquidation, according to FTX.

FTX’s CEO John Ray, who took control of the company from convicted FTX founder Sam Bankman-Fried, said that the agreement is a critical milestone in the company’s effort to repay customers.

“The unique challenges raised by the conflicting filings of the FTX Debtors and FTX Digital Markets have been some of the toughest the team has faced,” Ray said in a statement. “But we recognized at the beginning that we have an overlapping constituency: FTX.com customers.”

The Bahamian liquidators, Brian Simms and Peter Greaves, said in a statement that the agreement will avoid “years of protracted litigation and expense” and “accelerate the return of funds to customers.”

FTX had been at odds with Bahamian officials ever since filing for bankruptcy protection on Nov. 11, with a hole in its balance sheet that left its 9 million customers facing billions in potential losses. FTX had sued the Bahamian liquidators in March, seeking a ruling that the liquidators had wrongly claimed ownership of the exchange’s assets.

Under the agreement, FTX’s U.S. based bankruptcy team will take the lead on asset recovery efforts, including any potential sale of the FTX.com exchange or its intellectual property. The Bahamian liquidators will be in charge of selling real estate assets in the Bahamas and pursuing certain litigation claims.

The settlement also includes an agreement to FTX’s proprietary crypto token FTT as equity in FTX, which would be wiped out in the company’s bankruptcy. The value of FTT tokens had been a point of contention between the two sides last year, when FTX’s U.S. team alleged that most of the assets seized by the Bahamian liquidators were valueless FTT tokens.

FTX, which collapsed in November 2022, has committed to using at least 90% of its assets to repay customers. The company plans to pay customers back in U.S. dollars, rather than in cryptocurrency.

(Reporting by Manya Saini in Bengaluru and Dietrich Knauth in New York; Editing by Emelia Sithole-Matarise and Louise Heavens)

By Chris Prentice, Michelle Price and Mike Scarcella

WASHINGTON (Reuters) -The U.S. Securities and Exchange Commission on Friday denied a petition by Coinbase Global seeking new rules from the agency for the digital asset sector, which the country’s largest crypto exchange then sought to challenge in court.

The five-member commission, in a 3-2 vote, said it would not propose new rules because it fundamentally disagreed that current regulations are “unworkable” for the crypto sphere, as Coinbase has argued. Coinbase later said it had filed a petition for review of the SEC’s decision in court.

The dispute was the latest in a broader tug-of-war between the crypto sector and the top U.S. markets regulator, which has repeatedly said most crypto tokens are securities and subject to its jurisdiction. The agency has sued several crypto companies, including Coinbase, for listing and trading crypto tokens which it says should be registered as securities.

“Existing laws and regulations apply to the crypto securities markets,” SEC Chair Gary Gensler said in a separate statement supporting the decision.

Coinbase disputed that assertion.

“No one looking fairly at our industry thinks the law is clear or that there isn’t more work to do,” chief legal officer Paul Grewal said in a statement. “We should be working together to create laws and rules that will benefit consumers and US innovation”.

Shortly thereafter, Coinbase notified a federal court of appeals in Philadelphia of its plans to seek review of the SEC’s denial.

The SEC’s decision was “arbitrary and capricious” and an “abuse of discretion”, Coinbase said in a court filing that Grewal shared on social media platform X.

In 2022, the company pressed the SEC to create a bespoke set of rules for the crypto sector, arguing that existing U.S. securities laws are inadequate. In April, Coinbase appealed to a judge to force the SEC to respond to the petition.

The court said it would not force the agency to act, given the SEC had said it would respond to Coinbase’s petition.

Crypto firms have said they want a clearer idea of when the SEC views a digital asset to be a security.

In his statement on Friday, Gensler argued that in asking the SEC to write rules, Coinbase had acknowledged the SEC’s authority over the crypto sector, something the crypto exchange has refuted in the past.

Republican SEC Commissioners Hester Peirce and Mark Uyeda said in a joint statement that they disagreed with the decision.

“In our view, the Petition raises issues presented by new technologies and other innovations, and addressing these important issues is a core part of being a responsible regulator,” they said.

(Reporting by Michelle Price and Mike Scarcella in Washington and Chris Prentice in New York; Editing by Chizu Nomiyama, Paul Simao and Diane Craft, Kirsten Donovan)