In this issue
- Bitcoin: What crisis?
- Arbitrum: Network effects
- Guo Wengui: Hammer time
From the Editor’s Desk
It’s not without a quiet sense of irony that we have been watching recent events unfold in the traditional banking sector.
After a year in which the cryptocurrency industry has suffered unprecedented pain, it now seems to be TradFi’s turn, with the collapses of U.S. lenders Silvergate Bank, Silicon Valley Bank and Signature Bank to be followed by that of Credit Suisse, once a bastion of Big Finance and one of only 30 systemically important global lenders.
The Swiss heavyweight’s problems triggered a worldwide banking market rout that has wiped around US$1 trillion off the value of finance sector shares in recent days.
Nobody is suggesting for a moment that this makes the US$60 billion implosion of Terra or the US$8 billion hole that FTX’s crash left behind look small — and keep in mind that these sums were proportionally a much larger chunk of the crypto market than the latest share rout represents for TradFi. But it does put the 48% rise in crypto market cap over the past 14 days — particularly, perhaps, Bitcoin’s 71% gain since the beginning of the year — into perspective.
So once again it has come to pass that a number of investors seem to be feeling at least as safe putting money into crypto as they do putting it into traditional banks. The crowing and “told you so” sneering by some in the TradFi space during crypto’s annus horribilis, in light of this, has the feel of rather ill-advised schadenfreude.
We should emphasize that any such gloating among the crypto community would be equally ill-advised — not only given the industry’s woes of the past year but also the fact that turmoil in any part of the financial system, from Main Street banks to memecoins, heaps misery on investors large and (especially) small.
Yet the irony remains. And with it persists one of the driving forces of the crypto phenomenon and the financial revolution that it has given the world.
Crypto may have been down lately, but it’s far from out.
Until the next time,
Founder and Editor-in-Chief
By the numbers: Bitcoin — over 5,000% increase in Google search volume.
The banking crisis in the U.S. and Europe that has roiled markets recently may be adding to investors’ appetite for crypto assets as Bitcoin powers a rally in cryptocurrencies.
- Bitcoin has gained over 14% in the past seven days, and briefly breached the US$28,000 mark on Monday for the first time since June 2022, according to data from CoinMarketCap. The world’s largest cryptocurrency has soared more than 70% since the start of the year. Alongside Bitcoin, the market capitalization of all cryptocurrencies rebounded from around US$914 billion on March 10 to top US$1.18 trillion at press time, a jump of more than 29%.
- At the same time, worries about systematic risks in the banking system are putting pressure on equity markets and prompting authorities to take action. The Federal Deposit Insurance Corporation, which has taken over failed lenders Silicon Valley Bank (SVB) and Signature Bank, has announced that most Signature Bank deposits would be handed over to a unit of Hicksville, NY-headquartered New York Community Bancorp.
- In Europe, Swiss authorities have initiated an emergency takeover of global investment bank Credit Suisse by UBS after the former’s imperiled financial status sent its share price to record lows last week.
- Concerns are increasing that the list of failed banks will grow longer. Last Friday, Moody’s Investor Service downgraded embattled U.S. lender First Republic Bank, whose stock closed 32.8% lower on the day, despite a US$30 billion rescue plan to backstop it. Last Sunday, S&P Global downgraded First Republic for a second time in five days, according to a Reuters report.
- The bank failures may add to liquidity issues in the crypto space as SVB and Signature Bank’s crypto-related clients include Circle Internet Financial, Ripple Labs and Coinbase Global, with the collapse of SVB triggering a temporary loss of stablecoin USD Coin’s peg to the U.S. dollar.
- However, fears over fragility of the banking system are also driving the prices of cryptocurrencies higher, Kadan Stadelmann, chief technical officer of blockchain infrastructure development firm Komodo, told Forkast.
- “The Federal Reserve embarked upon a many-trillion dollar quantitative easing program, cut the minimum bank reserves from 10% to 0% on March 26, 2020, and led us into the current bout with inflation, which has led people to seek alternative ways to preserve wealth. Bitcoin has become a prominent option,“ Stadelmann wrote.
- The troubles in the banking industry may even prompt a monetary policy shift by the Federal Reserve, which last weekend announced a coordinated move with other central banks to make more U.S. dollars available to improve market liquidity. Analysts at CME Group are now divided on whether the Fed will further raise interest rates at its meeting on March 22 as policymakers weigh financial and price stability.
- The U.S. consumer price index rose 6% year on year last month, a level still well above the Fed’s goal of keeping annual inflation below 2%. Stubborn inflation, accompanied by the Fed’s dovish monetary policy tendencies, is contributing to Bitcoin’s price gains, according to a Bloomberg report.
Forkast.Insights | What does it mean?
Bitcoin’s surge has been explained in two ways. The first, and arguably the most popular, is that the banking system has lied to investors, and that the breakdown in trust has sent investors looking for something with better credentials.
The second has more to do with U.S. regulators’ desire to backstop the banking industry, as they did early on in the Covid-19 pandemic.
When lockdowns and other pandemic controls were announced in 2020, stock and crypto prices nosedived. What helped them bounce back were the extraordinary measures taken by central banks and other regulators around the world to economies running. The reassurance their actions provided led to surges in the values of stocks and digital assets alike.
In recent days, crypto prices have sunk on news that crypto-friendly banks were failing, but they have recovered since U.S. regulators stepped in. The first week of March, which saw the highest level of capital flight from crypto since the collapse of FTX last September, provided the backdrop and was the fifth consecutive week of money leaving the industry. While some Bitcoin boosters may be gleeful amid TradFi’s troubles, crypto is just as reliant on the rest of the finance sector and the world’s central banks as any other industry.
2. Ready to drop
By the numbers: Arbitrum — over 5,000% increase in Google search volume.
Arbitrum, an Ethereum layer-2 scaling solution, is set to launch its new native governance token, ARB, and a decentralized autonomous organization (DAO) governance model for the Arbitrum One and Arbitrum Nova networks on Thursday, March 23.
- Around 56% of Arbitrum tokens will be community-owned and 12.75% of the community allocation will be distributed in Thursday’s airdrop. The remainder of the supply will be distributed by the DAO over time.
- The ARB token will have an initial supply of 10 billion and will allow holders to vote on community proposals through the DAO.
- Airdropped tokens will be tradable within a week, while tokens held by early investors and team members will be subject to a four-year lock-up. The first unlock will take place a year from the date of issuance, followed by subsequent yearly unlocks.
- More than 625,000 wallets are eligible for the airdrop, according to blockchain analytics firm Nansen, which provided on-chain data to help develop the token’s distribution.
- Several large exchanges, including Binance and Bybit, said they would list the new token from its launch date.
- Futures markets for the Arbitrum token have already opened. The Arbitrum IOU token is down 27% since Friday, trading at US$7.32 at 04:25 p.m. in Hong Kong, according to CoinMarketCap.
Forkast.Insights | What does it mean?
Arbitrum’s token launch is this month’s answer to the Blur token’s airdrop in February. The excitement around a governance token is less about holders being able to vote on community proposals and DAO participation than it is about capitalizing on a surge in popularity.
The Arbitrum IOU placeholder token has racked up a trading volume of US$4 million over the past day on Hotbit, and a token for Solana’s ARB Protocol is up 890% in the past week, perhaps because they bear names similar to that of the forthcoming Ethereum layer-2 token. There are also copycats looking to capitalize on the launch frenzy and investor gullibility.
CoinGecko has accused ArbiSwap of “minting 1 billion fake tokens” and committing a rug-pull. In a Twitter post last Sunday, Arbitrum News DAO said it had identified more than 273 phishing sites related to Arbitrum since the protocol announced the airdrop. Meanwhile, crypto security startup Redefine drew attention to a website that it said was impersonating Arbitrum’s airdrop site.
Where there’s excitement and hype in crypto, keep a cool head and be on the lookout for scams.
3. Guoing to jail?
Exiled Chinese billionaire Guo Wengui was arrested in New York last week for allegedly orchestrating a fraud worth more than US$1 billion that included cryptocurrency, according to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).
- Guo — known variously as Miles Guo, Ho Wan Kwok and “Brother Seven” — has been charged by the DOJ with multiple counts of wire fraud, securities fraud, bank fraud and money laundering on suspicion he solicited investments in various entities through false statements and representations to “hundreds of thousands of [his] online followers,” the DOJ said in a statement.
- Guo and other defendants stand accused of obtaining more than US$262 million in victims’ funds through the Himalaya Exchange, a purported cryptocurrency ecosystem, the DOJ said, adding that it had seized approximately US$634 million from 21 bank accounts linked to the alleged fraud.
- The DOJ alleges that Guo lied, promising his victims outsized returns if they backed a number of his ventures, including GTV Media Group Inc., a media company he formed in 2020 with Steve Bannon, an ex-adviser to former U.S. President Donald Trump.
- Guo was also charged by the SEC for his alleged involvement in unregistered and fraudulent offerings that raised more than US$850 million.
- The SEC said one of the offerings raised hundreds of millions of dollars from investors through a crypto asset security referred to as “H-Coin,” or “Himalaya Coin,” by falsely stating that 20% of its value was backed by gold and that Guo “would personally compensate investors for any potential losses.”
- “In reality, Guo took advantage of the hype and allure surrounding crypto and other investments to victimize thousands and fund his and his family’s lavish lifestyle,” Gurbir S. Grewal, director of the SEC’s enforcement division, said in a statement. CNN reported that Guo had been denied bail in a hearing the same day.
- “Kwok is charged with lining his pockets with the money he stole, including buying himself, and his close relatives, a 50,000 square foot mansion in New Jersey, a US$3.5 million Ferrari, and even two US$36,000 mattresses, and financing a US$37 million luxury yacht,” U.S. Attorney Damian Williams said in the DOJ statement.
- The International Criminal Police Organization (Interpol) issued a “red notice” in 2017 for Guo’s arrest at the request of Chinese authorities over suspected bribery of Chinese officials and other crimes, according to a report by the South China Morning Post.
Forkast.Insights | What does it mean?
Guo Wengui has long been a controversial figure, known for his criticism of the Chinese Communist Party (CCP) and his business ties with former Trump adviser Steve Bannon. His strong, self-styled “dissident exile” character has helped him to amass a huge online following, which prosecutors alleged he took advantage of in order to orchestrate a billion-dollar scam.
Guo, a Chinese business tycoon and real estate developer, fled China in 2014 after receiving a tip about an imminent arrest of a state official to whom he was close, according to a 2017 report by The Wall Street Journal. He has since lived in the U.S. and become a strident critic of the CCP, while Beijing has smeared him as an attention-seeking criminal and accused him of bribery, kidnapping, fraud and other wrongdoing, according to another Journal report published last week.
Guo’s alleged activities reflect the growing scale of crypto-related fraud in the U.S. The Federal Bureau of Investigation’s Internet Crime Complaint Center said in its annual report last week that losses due to crypto investment fraud rose by 183%, to US$2.57 billion last year, from US$907 million in 2021.
As Guo faces multiple counts of criminal conduct, he may face considerable jail time, as the most serious charges include fraud and money laundering, which carry maximum sentences of 20 years in prison. Guo, who has fought dozens of court battles as he has sued a wide range of real and perceived adversaries, including business partners and reporters, may find his combative nature tested and his flair for controversy curbed if he winds up in a cell.