Crypto Price Check: Bullishness Is Back but Scandal Impact Lingers

While crypto prices have shown some life recently, investors are still contending with a series of scandals and bankruptcies.

Cryptocurrency prices were showing signs of life as investors sorted through the wreckage of bankruptcies and scandal in the sector.

Bitcoin  (~BTCUSD)  was off 1% to $18,120.31 on Jan. 12, according to data firm CoinGecko but up 7.2% for the week.

Ether, the native currency of the ethereum blockchain, was down 1.2% at $1,383.85, but up 10% for the week, while dogecoin was down 1.8% to $0.077114 and up 5.3% for the past seven days.

“Bullish sentiment seems to be back in full swing this week,” said James Edwards, a crypto specialist with Finder. “This week saw the biggest price pump since the FTX crash, all arguably led by a dog-themed coin called Bonk.”

Crypto investors have suffered in light of the FTX collapse and other high-profile failures, including Celsius Network, which declared bankruptcy in July.

David Lesperance, managing partner of immigration and tax adviser Lesperance & Associates, said crypto investors in bankrupt firms such as Celsius got some bad news recently. 

Judge Martin Glenn, the chief U.S. bankruptcy judge in the Southern District of New York, ruled that Celsius, not the investors, owned the assets in their accounts.

“The judge, found that Celsius’s terms of use — the lengthy contracts that many websites publish but few consumers read — meant ‘the cryptocurrency assets became Celsius’s property,’” Lesperance said. 

“Many other platforms feature terms of use that are similar to Celsius, so this precedent is an indication of how other failed crypto firms’ assets will be designated.”

Crypto Bankruptcies Costing Investors’ Privacy

Celsius had about 600,000 accounts in its Earn program, and the accounts held a collective value of approximately $4.2 billion as of July 10, 2022, according to Glenn’s ruling.

New York State Attorney General Letitia James filed a lawsuit against Celsius Network Co-Founder and CEO Alex Mashinsky on Jan. 5, charging that he “repeatedly made false and misleading statements about Celsius’s safety to encourage investors to deposit billions of dollars in digital assets onto the platform.”

Winston Ma, adjunct professor at New York University Law School, said the FTX case had triggered a new unintended consequence: Crypto bankruptcies are chipping away at investors’ anonymity.

“Anonymity is widely referred to as one of the holy grails of Web3, but the collapse of several cryptocurrency platforms starting last year is testing the industry’s promise of user privacy,” said Ma, author of Blockchain and Web3: Building the Cryptocurrency, Privacy, and Security Foundations of the Metaverse.

Ma said hundreds of thousands of Celsius customers lost their anonymity because of its Chapter 11 filing after a court ruling in September forced it to disclose its account holders’ names and coin balances.

Using Delaware bankruptcy court filings, CNBC has compiled a more expansive set of celebrity investors and big-name financiers than was previously disclosed, including Alibaba’s co-founder, Joe Tsai, New England Patriots owner Robert Kraft, and billionaire hedge fund manager Paul Tudor Jones, among others.

Ma said the public spat among stakeholders in crypto bankruptcies are revealing more details. In the past, only the less sophisticated creditors — small depositors — were the most public. 

Dutch Crypto Investor Owed $297M by Genesis

“They are talking to the press, signing on to Zoom hearings with their video on, or interrupting court recess to play music,” he said. “Their names are getting out there, while plenty of other domestic and global creditors remain anonymous.”

In the new year, however, even the biggest players are speaking up on Twitter and other public channels, Ma said. He cited Cameron Winklevoss, co-founder of the Gemini cryptocurrency exchange, who accused billionaire Barry Silbert, CEO of Digital Currency Group, of accounting fraud.

Edwards from Finder said that FTX is old news and DCG “is the new multibillion-dollar elephant in the room.”

“The macro outlook for crypto markets completely hinges on how the company navigates its indebted subsidiaries, including lender Genesis, which owes $1.1 billion to crypto exchange Gemini,” he said. 

“Gemini Earn was using Genesis to create up to 8% yield on crypto for its users, and on Tuesday Gemini formally recalled its loan to Genesis in the hopes it will force repayment of the debt.”

The catch, Edwards added, “is that it’s an open secret that Genesis will struggle to pay on time, given the current market conditions and fragility of the crypto banking landscape.

“Gemini is also feeling the heat, with a class-action launched by its own users over the Earn program,” he said. 

In response, Edwards said, Winklevoss is publishing open letters and tweets aimed at Silbert, encouraging the board to dismiss him, and blaming him for mismanagement of Genesis and, ultimately, Gemini users’ woes. 

“Dutch exchange Bitvao is also out for blood, owed $297 million by Genesis,” he said. “It says the payback plan suggested by DCG is unacceptable and accuses it of being fully solvent and capable of paying Genesis creditors back.” 

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