Crypto Faces Bankruptcy Question – Minutes | Vette Leader

Good morning and welcome to Protocol Fintech. This Friday: Crypto bankruptcy issues, Revolut’s new readers and layoffs at OpenSea.

From the chain

Revolut isn’t content with being a consumer super app. It also wants to be a business super app. That’s the obvious reason for the launch of Revolut Reader, a competitor to Square’s card-reading hardware. Apple’s Tap-to-Pay promises to make such hardware obsolete, but it’ll take a while to roll out, and in the meantime money needs to be made from payment processing. I wonder if Block will take the threat seriously and double down on its international expansion, or just continue to succumb to its CEO’s bitcoin fixation.

– Owen Thomas (E-mail | chirp)

Liquidation requires coordination

The first day of bankruptcy court for crypto lender Voyager Digital came with a warning from the company’s own attorney that doing so could be difficult. “I think this is new territory for a lot of us,” said Joshua Sussberg, attorney at Kirkland & Ellis. “There will be a lot of potential first impression legal issues.”

The US bankruptcy courts have never dealt with a bankruptcy case for a crypto company the size of Voyager Digital or Celsius. Both lending companies are filing for Chapter 11 with billions of dollars in assets and liabilities. The filings came just a week apart: Voyager on July 6 and Celsius on July 13.

The process is being closely monitored. Politicians, industry executives, and customers eager to get their crypto back will all have questions.

  • There are established rules and insurance for client funds if a broker dealer or bank goes under. Crypto doesn’t have anything like that.
  • The only real precedent came almost a decade ago on another continent. Mt. Gox customers are preparing to get some of their crypto back, eight years after the exchange went bankrupt and lost a total of 850,000 bitcoins, worth $500 million at the time. While the bitcoin customers they get back are worth significantly more than when they were stolen, creditors only get a fraction of what they were originally owed.
  • Bankruptcies can be years-long procedures, said Nizan Geslevich Packin, a law professor at Baruch College’s Zicklin School of Business. A big question, Packin said, is the priority of creditors: who gets repaid, how much, and in what order.

Crypto customers do not enjoy any special protection. That’s becoming clearer and clearer.

  • Coinbase sent a scare into the crypto world in May by warning in an SEC filing that customers could be considered unsecured creditors if the exchange goes bankrupt. CEO Brian Armstrong was quick to reassure customers that Coinbase was not at risk of bankruptcy and that the company was only following new federal guidelines with the disclosure. But he accepted that a court could pool client funds as part of the bankruptcy estate, whereas in a stockbroker bankruptcy client accounts would have to be kept separate.
  • In a minor crypto bankruptcy case, lending platform Cred classified its customers as unsecured creditors in its November 2020 Chapter 11 filing, where it reported over $160 million in liabilities. The court approved a liquidation plan for the company formed last year.

Regulation is coming. But it probably won’t arrive soon enough to remedy the Voyager or Celsius cases.

  • Sens. Cynthia Lummis and Kirsten Gillibrand’s draft crypto regulation includes a section aimed at protecting customer assets in the event of crypto bankruptcy and treating digital assets in procedures similar to commodities.
  • SEC Chairman Gary Gensler indicated in an interview with Yahoo Finance on Thursday that the agency has the power to amend parts of securities law to help crypto companies comply, potentially increasing investor protection in the process.

The current crash should leave more crypto companies open to accepting increased oversight and regulation, said Diogo Mónica, co-founder and president of Anchorage Digital, the first government-chartered crypto bank. “People will remember: what happens if the company fails? How do you manage the risk?” said Monika. “Suddenly, questions that are sometimes forgotten in bull markets are being asked again.”

– Ryan Deffenbaugh (E-mail | chirp)

A version of this story first appeared on Protocol.com. Read it here.

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On the money

On record: The crypto market lost $2 trillion in seven months. Here’s everything you need to know about the crypto market crash, from layoffs to bankruptcies, and its impact on consumers, investors, employees and regulators.

The CFTC has 34 companies on its registration deficiencies list. The number of firms on the RED list is just over 200. 34 unregistered foreign companies, many of them crypto firms, have been added to the list of firms that operate in a capacity that requires registration with the CFTC and do not .

Also in the log: OpenSea announced on Thursday that it was laying off 20% of its workforce due to “an unprecedented combination of crypto winter and widespread macroeconomic instability” in preparation for the “possibility of a prolonged downturn.”

Celsius admitted a $1.2 billion gap on its balance sheet. The ailing crypto lender holds $4.3 billion in assets and $5.5 billion in liabilities, according to a recent court filing. FTX had reportedly passed on a deal to acquire Celsius due to the loophole.

Coinbase’s global market share fell to 2.9%. The crypto exchange had peaked at around 8-9% in November of last year and is now reportedly 14th in average trading volume by dollar, compared to 4th last year.

overheard

That Bank of England Deputy Governor John Cunliffe wants to make sure everyone understands the urgency of crypto regulation, so he found an analogy. “To be successful and sustainable, innovation must take place in a framework where risk is managed: people don’t fly long in unsafe airplanes,” he said in a speech.

Daniela Brozoni started working as a bitcoin developer right out of high school and landed an internship block stream. Why bitcoin? It’s different from other types of crypto, she says. “With other coins, you have a rich CEO who just wants to get richer. Bitcoin doesn’t have a CEO and I really like that.” she told CoinDesk.

The chief executive of The UK Financial Conduct Authority, Nikhil Rathi, believes that global cooperation on crypto regulation is needed and stands ready to ally with US regulators across the Atlantic. “I don’t think there’s any fundamental disagreement or approach.” he said.

The graphic

Yuga Labs, the creator of Bored Ape Yacht Club, has a ban on top NFT collections after acquiring the properties from Larva Labs. In the last 30 days, four of the top five collections by trading volume have been managed by Yuga.

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Thanks for reading – see you Monday!

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