News
11
Jan
crypto-market-review-5

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News review 1/10: SBF, Silvergate, Bitcoin, Solana, Institutions

Sam Bankman-Fried appeared in court for the first time and pleaded not guilty. Crypto bank Silvergate is in big trouble. Bitcoin turned 14 years old. Solana rose from the dead with the help of a meme coin. Institutions abandoned Cryptos in 2022.

Sam Bankman-Fried’s trial is postponed to October

Let’s start the news review with topics related to Sam Bankman-Fried. Before the new year, we reported on the transfer of SBF from the Bahamas to the United States. He was then bailed at a record-breaking $250 million. Bankman-Fried is currently living with his parents in California.

SBF appeared in court for the first time a week ago. The tweet below has a video of his emotional trip to the courthouse.

SBF pleaded not guilty in court to all the charges brought against him. The case will therefore proceed to trial if the lawyers won’t reach an agreement on a sentence in the coming months. The judge set the first day of the trial for October 2023.

Bankman-Fried’s choice is not surprising, even though two of his key colleagues have pleaded guilty and are cooperating with authorities. These are Alameda Research CEO Caroline Ellison and FTX founding member Gary Wang. If the case goes to trial, they will testify against Bankman-Fried.

A third FTX key person joined Wang and Ellison last week. Nishad Singh was transferring millions of dollars to the US Democratic Party. He has offered authorities inside information in exchange for a smaller sentence. The US Attorney’s Office is investigating possible wrongdoing between Sam Bankman-Fried and politicians.

It appears that all of Sam Bankman-Fried’s key colleagues are cooperating with authorities. This will undoubtedly cause gray hairs for SBF’s defense attorneys, as the prosecutor’s office receives a tremendous amount of inside information directly from key personnel at FTX and Alameda Research.

A battle is also going on for a pot worth $450 million in Robinhood shares. SBF bought the shares through a company that had borrowed the money for the purchase from Alameda Research. Bankman-Fried wants the shares for himself to cover legal expenses, but the US Attorney’s Office appears to be taking them over.

Cryptobank Silvergate is in big trouble

The eyes of crypto investors have lately been focused on Digital Currency Group and its subsidiary Genesis. Genesis is possibly the last big domino that will fall in the aftermath of the collapse of FTX. It could cause a lot of pain to the market.

In recent weeks, a new name has also emerged: Silvergate. It is a company unknown to the average investor, but Silvergate is a critical part of the crypto infrastructure in the United States. It has provided banking services to all major players in the industry, such as Coinbase, Paxos, and Kraken. Unfortunately, FTX is also included.

Silvergate’s operation with FTX has alarmed many of its customers and caused a bank run of more than eight billion dollars. This corresponded to more than 60 percent of the bank’s deposits. Silvergate had to sell billions of dollars worth of assets at huge losses to cover customer withdrawals.

According to the Wall Street Journal, the bank run was an order of magnitude worse than what was seen in the Great Depression of the 1930s. You don’t see something like this every day.

Various rumors related to Silvergate have started to circulate on social media. So far it seems that the bank is not about to collapse.

However, Silvergate’s stock price has plunged to new lows. Silvergate Capital Corporation (SI) fell 40 percent in one day last week after the bank reported the flight of customer deposits. Silvergate also stated that it would lay off 40 percent of its employees. The bank’s stock has fallen by almost 95 percent from the peak of November 2021.

When it comes to the previously mentioned Digital Currency Group and Genesis, the situation is still unresolved. It seems more and more likely that Genesis will go bankrupt. The fall of this domino could bring more pain to the crypto market. We will cover this topic again when there is fresh news to report.

Bitcoin turned 14 years old!

The world’s most famous cryptocurrency Bitcoin turned 14 a week ago! Bitcoin’s birthday is celebrated on January 3rd when Satoshi Nakamoto launched the Bitcoin blockchain. Another option would be the release date of the white paper on October 31st, but the launch of the Bitcoin blockchain is considered by many to be a more logical choice.

Bitcoin’s birthday was celebrated this time with low spirits. The entire crypto market has been in a downward spiral for almost 14 months, and now we are very close to the bottom of the bear market. However, Bitcoin continues to operate day after day without interruption.

Bitcoin historian Pete Rizzo shared a thread on Twitter with some interesting facts about the early days of Bitcoin.

The first block of the Bitcoin blockchain is called the Genesis block. The block reward (50 BTC) is unique in the genesis block because it cannot be moved even by Satoshi. These bitcoins are also not counted in the Bitcoin supply.

A lot of bitcoins have been sent to the genesis block since its inception. Some Bitcoin millionaires have sent coins as a thank-you to Satoshi. We don’t know for certain if these bitcoins can be moved because Satoshi has never moved them. The Genesis block also contains the famous message “The Times 03/Jan/2009 Chancellor on Brink of second bailout for banks”. With this Satoshi refers to the front page of The Times magazine on January 3rd, 2009.

Satoshi Nakamoto did not donate bitcoins to himself meaning there was no so-called pre-mine. Satoshi owns an estimated million bitcoins, but he acquired them by mining in the early years just like everyone else. Satoshi has never transferred any of the bitcoins he mined.

We have published a comprehensive article about Satoshi Nakamoto and the early years of Bitcoin for those interested in the subject.

At the moment, a little over 19.25 million bitcoins have been mined, which means there are about 1.75 million bitcoins left to be mined. The last Bitcoin will be mined around the year 2140.

New bitcoins enter the market when mining rewards are distributed to miners. The mining reward is currently 6.25 bitcoins. This means 6.25 bitcoins enter the market every 10 minutes on average. The amount is halved every 210,000 blocks or about four years. The next Bitcoin halving will take place in the spring of 2024. You can read more about it in the Bitcoin halving 2024 article.

A meme coin has given Solana a boost

The smart contract platform Solana was one of the best performers in 2021. However, in 2022, the SOL token caused huge losses to investors. Its price fell to almost eight dollars on December 29, which is about 97 percent below the November 2021 ATH.

Solana’s price was around 35 dollars at the beginning of November. The collapse of the FTX exchange dropped the price by more than 60 percent in a couple of days. After this, the SOL token slowly drifted lower, reaching its bottom just before the new year.

The Solana price is over 16 dollars today, which is almost double from two weeks ago! What on earth has happened? The answer is: Bonk happened.

bonk

Bonk is a dog-themed meme coin. I guess you could call it a distant cousin of Dogecoin in that regard. Half of all Bonk tokens were airdropped to Solana developers and owners of certain NFT tokens released on the Solana platform.

Bonk quickly became a viral hit on social media. Many Twitter influencers tweeted about Bonk and helped drive the meme coin price up. Bonk rose hundreds of percent in the first days of the year, but the price has already fallen almost 70 percent from ATH.

Solana got a boost from Bonk’s popularity because the coin was mainly traded on Solana in decentralized exchanges. Many investors jumped in because of pure speculation. The price of Solana had fallen by 97 percent from its peak, so the risk/return ratio started to look attractive.

Solana’s situation is still difficult. It lost two major NFT projects DeGods & y00ts to competing platforms a couple of weeks ago. The liquidity of Solana DeFi apps has also collapsed from the peaks of 2021.

The biggest problem may be the reputational damage brought by the FTX exchange. Solana will always be known as a project funded by Sam Bankman-Fried and Alameda. It has a long way to go before it becomes popular with investors, as there are so many other coins without similar history.

Cryptos were abandoned by institutions in 2022

Institutions are coming! This was the big talking point of the market in 2020 as Michael Saylor, Paul Tudor Jones and many others led the entry of institutional investors into cryptos. Investments from the institutions did increase almost 10-fold from 2019 to as much as 6.6 billion dollars in 2020.

The year 2021 saw a new record of $9.1 billion. Institutions invested more money in crypto in 2021 than in all previous years combined. Investments in Grayscale funds, ETF products, and similar derivatives are calculated into this pot.

The year 2022 saw a huge collapse. Investments from institutions fell by 95 percent to just 433 million dollars. We haven’t seen such low levels since the year 2018. The source is a recent report by Coinshares.

coinshares report

Have institutions left the crypto market for good? Not at all. The numbers for 2022 are of course worrying, but they are well explained by the exceptional investment environment. The year 2022 was the most challenging investment year since the 2008 financial crisis and one of the worst in the previous hundred years.

As an investment category, cryptocurrencies are a high-risk target. It’s no wonder that institutions weren’t interested in shoveling money into such a market, which plunged to new lows month after month. And it’s not only institutions that left the crypto market in 2022. Even retail has been mostly out of crypto since the summer of 2021.

Institutions will return to the market as soon as the trend reverses. No investment company wants to miss out on a rally similar to what we saw in 2020–2021. The regulation coming to Europe and the United States will certainly help as well. The clarity brought by the regulation makes it easier for institutional money to enter the crypto market.