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The big SBF trial👩🏻⚖️
Circle October 3rd - the FTX courtroom blockbuster. Is Michael Lewis ruining his reputation? Did CZ actually hurt FTX? $685.5 million poofed in Q3 and Bitcoin moonwalking past $28k.
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Our calendar's marked red on Oct 3rd.
The much-anticipated trial of ex-FTX CEO Sam Bankman-Fried (SBF) is upon us.
It has great potential to be the biggest courtroon drama in the crypto world.
The Rise and the Fall
Founded in 2019 by Sam Bankman-Fried and Gary Wang, FTX experienced a soaring ascent to become a household name in the US cryptocurrency scene, thanks to a slew of high-profile sponsorships and campaigns.
However, the cracks started to show in 2022, exacerbated by issues between FTX and Bankman-Fried’s quantitative trading firm, Alameda Research.
The situation reached a boiling point when Binance announced the sale of its FTT token holdings, triggering a liquidity crisis for FTX.
The charges against Bankman-Fried
7 Counts. SBF isn't just on trial for a minor hiccup. The US Department of Justice is coming at him with seven counts of conspiracy and fraud.
wire fraud on FTX customers
conspiracy to commit wire fraud on FTX customers
wire fraud on Alameda Research lenders
conspiracy to commit wire fraud on Alameda Research lenders
conspiracy to commit securities fraud on FTX investors
conspiracy to commit commodities fraud on FTX customers
conspiracy to commit money laundering
Notably, the US Department of Justice dropped the campaign contributions charge in July 2023, following an extradition agreement with the Bahamas.
The Key Witnesses
The DOJ has a lineup of key witnesses that includes former FTX clients, investors, and staff.
Caroline Ellison: A former colleague and romantic partner of Bankman-Fried. She was involved with FTX and Alameda Research and is expected to provide crucial testimony about the internal workings of the companies.
Nishad Singh: Another former colleague with roles at FTX and Alameda Research. He has pleaded guilty to related charges.
Gary Wang: A long-time friend of Bankman-Fried and co-founder of both FTX and Alameda Research. He also pleaded guilty to charges related to FTX’s collapse.
Financial experts and forensic investigators: Expert witnesses are expected to be called during the trial. These experts are expected to provide insights into the operations, financials, and alleged wrongdoings associated with FTX and Alameda Research.
The defense team wants clarity from the judge on which arguments they can use during the trial. Specifically, they are seeking guidance on:
Whether they can argue that FTX was not regulated in the US but its US counterpart, FTX.US, did follow applicable rules.
If they can bring up the potential that creditors of FTX might be able to secure significant recoveries in the ongoing bankruptcy case.
The possibility of discussing Bankman-Fried's charitable giving and philanthropy.
They are also concerned about the Department of Justice's (DOJ) intent to admit evidence related to an alleged illegal campaign finance scheme.
Bankman-Fried’s lawyers aim to prevent a Ukrainian customer of FTX from testifying at the trial.
They believe this testimony would be designed to elicit sympathy and outrage from the jury.
The Department of Justice (DOJ) had previously requested permission for this Ukrainian customer to testify remotely.
The lawyers argued that the testimony would potentially involve details about the hardships this individual faced due to the Russian invasion of Ukraine.
The witness is described as a young male from Ukraine.
He reportedly lost a significant portion of his life savings, which he had invested in FTX, during the Russian invasion of Ukraine in 2022.
The DOJ stresses that the testimony of such FTX customers is relevant to show the global influence and reach of FTX and its founder.
The Potential Consequences
With the weight of the allegations against him, Bankman-Fried is looking at a hefty prison term if convicted. Some charges carry a maximum sentence of 20 years, while others could see him incarcerated for 5 years.
All told, the former CEO could face over a century behind bars.
Experts suggest that this trial could rank among the most significant fraud cases in US history. Although the Bernie Madoff case remains unparalleled in terms of financial loss, the magnitude of Bankman-Fried’s case and his visible stature in the crypto community push this into the limelight.
The drama is amplified by the CEO's considerable political donations and speculative dealings with figures like Donald Trump.
Michael Lewis, author
FTX was a “great real business”
Distinguished author Michael Lewis found himself swarmed by angry crypto bees on Twitter after he dared to suggest on CBS’ 60 Minutes that FTX, the fallen crypto giant, was not a Ponzi scheme but actually a solid business. For many, it was like pouring honey on a bear.
In his defense, Lewis was trying to highlight a difference between FTX and notorious scams like the Bernie Madoff scandal.
“This isn’t a Ponzi scheme,” Lewis said. “The problem is, there’s no real business there. In this case, they actually had a great real business.”
Lewis believes that if only "aspersions" weren't thrown on FTX's operations, causing a mass exodus of traders, the company would still be raking in the moolah. Why? Because being an exchange, especially in crypto, is lucrative.
Crypto Twitter obviously doesn't agree:
Yeah. Lewis's PR team might not be so happy.
According to Lewis, SBF considered throwing billions at former President Donald Trump to convince him to step away from another presidential bid.
“He saw Trump trying to undermine the democracy, and he thought, “Trump is– belongs on the list of existential risks.”
He added: “He got one answer, yes. The question Sam had was not just, “Is $5 billion enough to pay Trump not to run,” but “Was it legal?”
SBF reportedly pitched in a cool $5.2 million for Joe Biden's campaign.
SBF's trial starts on Tuesday. On the same day, a book by Michael Lewis, "Going Infinite," detailing Bankman-Fried's journey will be published.
Lewis had deep access to Bankman-Fried, meeting him over 100 times in two years. Lewis’ book provides insights but leaves it to readers to decide if Bankman-Fried was a fraudster or merely inept at running a business.
Now who hurt FTX?
Imagine watching your investments crash and wanting to find someone to blame.
That's what seems to have happened with an investor rattled by the downfall of FTX.
And yes, they're pointing fingers at Binance and its CEO, Changpeng ‘CZ’ Zhao, suggesting that CZ's tweets sent FTX spiraling.
A group of investors, led by a certain Nir Lahav, have taken the matter to court, alleging that CZ's tweets significantly contributed to the dramatic collapse of FTX.
How impactful? A startling 14% drop in FTX’s native token, FTT, within just one day.
The lawsuit revolves around allegations of unfair competition.
The plaintiffs claim Binance and CZ were trying to monopolise the crypto platform market by undermining FTX.
They believe that CZ's tweets were intentionally damaging to FTX, leading to its rapid and unforeseen downfall.
The freefall: To put things into perspective, after the controversial tweets, FTT's value nosedived from $25 to a shocking $3.
As of now, it's barely hanging on at $1.15. With such a rapid decline, FTX didn't even have a chance to install safety nets, leading them straight into bankruptcy.
Several Ethereum futures exchange-traded funds (ETFs) have started trading in the US for the first time👇🏻
The past quarter was not so kind to crypto investors.
They saw a whopping $685.5 million vanish courtesy of hacks and frauds.
Numbers Breakdown 📊
Losses in Q3 2023: $685.5 million
Comparison with Last Year: Up 59% from $428 million
Recovery in Q1 2023: 40.5% of stolen amounts
Recovery in Q3 2023: Dropped to 8.9% with just $61.1 million recovered
Lazarus Group's Heist: $208.6 million, 30% of total Q3 losses
DeFi vs. CeFi Losses: DeFi bore 72.9%, CeFi was 27.1%
Incidents in Last Quarter: 63
Incidents in Q3 2023: 76, a 153% jump year-over-year
The Main Culprits
Mixin Network and Multichain have come under the limelight as two of the primary culprits.
Together, they have gobbled up almost half the stolen amount, contributing to losses of $326 million.
While Q1 2023 saw a promising recovery rate of 40.5%, thanks to specific interventions like Euler Finance and SperaxUSD, the ride didn't last long.
The Q3 2023 recovery rate was a meager 8.9%, with only $61.1 million recouped.
North Korea's notorious hacker cell, Lazarus Group, played a significant role in the Q3 debacle.
Being accountable for a hefty $208.6 million theft, they constituted 30% of the total Q3 losses.
Their targets? High-profile exchanges like CoinEx, Alphapo, Stake, and CoinsPaid.
The crypto venture space just got a little frosty, and here's a quick snapshot of what's been happening:
Overall Q3 Drop: Funding fell by 33% in the last three months, settling just over $1 billion.
September Blues: Funding was $352 million in September, a steep 77% dip from the same month in 2022.
The latest stats mark the most challenging quarter since 2020 for crypto firms and DeFi projects.
From July to September, the sector roped in a bit more than $1 billion across 144 deals, says DeFiLlama.
Venture funding is 50% down from Q1 2023. Back then, 228 projects hoarded a collective $2 billion.
Q2 wasn't too shabby either, with $1.5 billion across 171 blockchain ventures.
TTD BTC 🅱️
On Sunday, Bitcoin did a little moonwalk past $28,000, its first since August 17.
Spiked by $800 around 6:30 pm ET, starting from a resistance at $27,200.
By Monday, Bitcoin was chillin' at $28,271, up 4.4% from the day before.
$47.4 million worth of positions got liquidated in the futures market.
A massive 90% ($42.9 million) of these were short orders.
The price surge matched up with these short liquidations, hinting at a classic short squeeze.
Ethereum shimmied past the $1,700 line, first time in five weeks.
This dance caused futures orders of $28 million to be liquidated.
Total crypto market cap buffed up by 3.3%, an addition of nearly $37 billion in a day.
Total now sits at a cool $1.16 trillion.
Solana (SOL) was the top gainer among the big 100 cryptos, with a 13.5% overnight increase.
Now, Rekt Capital, the ever-vigilant trader and analyst, dropped some wisdom about Bitcoin's recent performance.
He noted that, despite the current price being 5% more than the September close, it's wise to keep your cool. Why? Because in his eyes, Bitcoin has a knack for those "upside wick" fakeouts.
TTD Surfer 🏄
Coinbase has obtained a payment institution license from the Monetary Authority of Singapore, allowing it to expand its digital payment services in the country.
A parliamentary committee in Kenya has called for the shutdown of Worldcoin in the country.
FCA has fined ADM Investor Services International $7.8 million for failing to implement sufficient anti-money laundering (AML) policies.
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