Developments in Future of Money

Our survey of recent notable happenings in the world of digital assets

Sad man observing on the various devices the declining value on the candlestick charts

Compiled by the Oliver Wyman Forum

The collapse of cryptocurrency exchange FTX continued to dominate the industry as another crypto firm filed for bankruptcy protection, the US government requested an independent investigation of what happened at FTX, and the exchange’s founder and former CEO, Sam Bankman-Fried, gave a string of interviews but provided few new details about the firm’s collapse. These are some of the highlights of our latest review of significant developments in the future of money.

Crypto in Crisis

BlockFi Follows FTX Into Bankruptcy

Distressed crypto firm BlockFi filed for Chapter 11 bankruptcy protection on November 28, the latest in a seven-month series of failures in cryptocurrency markets.

BlockFi, which provides wallets, trading services, and crypto-backed lending, raised money at a $3 billion valuation in March 2021. It ran into liquidity trouble after the collapse of stablecoin TerraUSD in May 2022 sparked a string of bankruptcies, starting with hedge fund Three Arrows Capital in July. The firm arranged a $400 million line of credit from FTX but suspended withdrawals hours before that exchange firm filed for bankruptcy on November 11.

BlockFi’s bankruptcy filing said the firm had more than 100,000 creditors, and liabilities and assets ranging from $1 billion to $10 billion. It also said the firm held $355 million in crypto on FTX, and that FTX’s related trading firm, Alameda Research, had defaulted on $680 million worth of collateralized loan obligations to BlockFi.

US Requests Independent Examination at FTX

In a filing in federal bankruptcy court in Delaware, the US Department of Justice has requested the appointment of an independent examiner to look into “substantial and serious allegations” of fraud, dishonesty, and incompetence at the FTX exchange group, CNBC reported on December 2. Andrew Vara, a US bankruptcy trustee, said there is a substantial basis to believe that founder Sam Bankman-Fried and other managers mismanaged FTX or engaged in fraudulent conduct.

Bankman-Fried Tries to Explain Himself

In a series of media interviews, the founder and former chief executive of bankrupt exchange group FTX acknowledged major lapses in oversight but denied any intentional wrongdoing and said he was sorry for the losses suffered by investors as a result of the firm’s collapse.

In a 70-minute video interview at the New York Times’ Dealbook Summit on December 1, Bankman-Fried said he “didn’t knowingly commingle funds” between FTX and Alameda Research, the trading firm he controls, and “did not ever try to commit fraud on anyone.” He provided few details about the reasons for FTX’s failure, saying he had limited access to data, but did acknowledge “a massive failure of oversight of risk management and of diffusion of responsibility from myself running FTX.”

Bankman-Fried also gave a string of other interviews, including telling ABC’s “Good Morning America” that he had focused on revenue and “wasn’t spending any time or effort trying to manage risk on FTX,” and telling the Financial Times that Alameda had larger borrowing limits at FTX than other clients.

Next stop Washington? Maxine Waters, the chair of the House Financial Services Committee, invited Bankman-Fried to testify, in person or by video, before the committee on December 13.

Genesis Global Hires Restructuring Adviser

Genesis Global Trading, the prime brokerage arm of New York-based Digital Currency Group, hired investment bank Moelis & Co. to explore restructuring options including a potential bankruptcy, the New York Times reported on November 22.

Genesis previously announced it was halting new loan originations and redemptions because of “abnormal withdrawal requests” in the wake of FTX’s collapse.

Genesis and Digital Currency Group owe $900 million to customers of Gemini, the crypto exchange run by Tyler and Cameron Winklevoss, the Financial Times reported on December 3. Gemini has formed a creditors’ committee to try to recoup the funds, it reported. Genesis is the main partner of Gemini’s interest-earning crypto accounts.

Policy and Regulation

CFTC Chair Urges Congress to Take Action

Rostin Benham, the chair of the US Commodities Futures Trading Commission (CFTC), urged Congress to enact legislation to regulate cryptocurrency markets during a hearing of the Senate Agriculture Committee on December 1.

Benham said he continued to support a proposal drafted by senators Debbie Stabenow and John Boozman that would give the CFTC authority to regulate trading in Bitcoin, Ether, and other digital assets classified as commodities, which FTX and its former CEO, Sam Bankman-Fried, had lobbied for prior to the firm’s collapse. Policymakers shouldn’t try to regulate crypto activity out of existence because “it would still exist elsewhere, and that risk would inevitably come back to us,” he said.

France and Luxembourg Test New Form of CBDC

The central banks of France and Luxembourg used a tokenized representation of euro central bank money to settle a 100 million euro bond issue by the European Investment Bank, the Banque de France announced on November 29. The bonds were issued on a private blockchain-based platform of Goldman Sachs.

Kraken Settles US Sanctions Case

Crypto exchange Kraken agreed to settle US allegations that it violated sanctions by serving customers in Iran, the US Treasury’s Office of Foreign Assets Control announced on November 29. Under the agreement, Kraken will pay $362,159 to settle potential civil liability and invest $100,000 in sanctions compliance controls.

Market Moves

Galaxy Digital Wins Auction for Celsius Arm

Galaxy Digital, the cryptocurrency vehicle of investor Michael Novogratz, announced on December 2 that it won an auction to acquire the GK8 self-custody platform of failed crypto lender Celsius Network. The acquisition, terms of which were not disclosed, would expand Galaxy’s prime brokerage offering and give it an office in Tel Aviv, the firm said.

IBM and A.P. Moller - Maersk End Blockchain Venture

The computing and shipping companies will wind down their four-year-old venture to improve global trade by connecting supply chains on a permissioned blockchain, A.P. Moller – Maersk announced on November 29. The TradeLens platform “has not reached the level of commercial viability necessary to continue work,” said Rotem Hershko, Maersk’s head of Business Platforms.

Notable Views

Bitcoin’s Last Stand

The recent stability in the price of Bitcoin is more likely to be “an artificially induced last gasp before the road to irrelevance” than a base for a new rebound, two senior European Central Bank officials contended in a blog post on November 30.

The seminal cryptocurrency is rarely used for legal transactions and is not suitable for investment because it does not generate cash flows and dividends, according to Ulrich Bindseil, director general of the central bank’s Market Infrastructure and Payments division and Juergen Schaaf, an advisor to senior management of the division. Policymakers should not treat Bitcoin as either a payment or investment vehicle, they said, contending that “regulation can be misunderstood as approval.”