The Great Unbanking Continues, Bitcoin Pumps, FTX, Voyager, Tether – Attack of the 50 Foot Blockchain

By means of Amy Kaster And David Gerard

“We’re still early to the party. The kind of early where most of the guests have left, all that’s left of the good alcohol are empty bottles all over the floor, there’s a hint of dawn and you hope that if you keep drinking and pass out you’ll sleep through the hangover. As early as.” — Doctor Orry

How are you

The crypto bubble of 2021 burst in May 2022, with the collapse of Terra-Luna. We began collaborating on a series of newsletters about the ongoing collapse.

Everything that has happened since then and is happening now – Celsius, Voyager, FTX and their victims – followed directly from Terra-Luna. The collapse is still ongoing.

Binance is looking more and more like FTX in the months leading up to the collapse – “money” created out of thin air, reserves largely made from their own internal token, ever-worse excuses and the regulators prowling.

Bitcoin and its descendants failed badly as payment systems. There is no separate crypto economy. Crypto is a dollar derivative – you get into crypto because you want dollars. The only consistent ideologies are “the numbers are rising” and “don’t subject me to laws”.

Crypto’s biggest challenge now is that it is increasingly cut off from the precious dollars. US bank rails are disappearing as regulators finally do the things they should have done years ago.

If “Operation Chokepoint 2.0” is real, then this is the best program US regulators have ever proposed for crypto.

The Bitcoin price is going up again! At the time of writing, it was $27,020. Someone is pumping it hard. A major factor is BUSD holders who cannot pass KYC at Paxos and have to dump their pseudo-dollars, so they co-buy BTC – most bitcoin trading takes place at Binance, which is where price discovery takes place. The Tether printer also goes completely loose again.

There is no evidence of new retail dollars coming into crypto. The general public still seems pretty sure that this is all scam nonsense.

What we expect in the future:

  • Crypto companies try to go through every dodgy community bank in the US.
  • More claims of government and regulatory collusion.
  • More hope, wishful thinking and just made up claims about crypto.
  • More hopium in the crypto press, because the actual news is bad.
  • Flooding stablecoin prints to inflate price.
  • No evidence of new retail interest – and in fact evidence against it, such as Coinbase’s SEC filings.

This is of course good news for bitcoin.

Sign with your name

Bids to purchase Signature Bank’s carcass were due Friday, March 17. Regulators are trying to sell the bank as a whole as a going concern. Failing that, they cut it into pieces. Any potential Signature buyer may need to specify the crypto business. [Reuters]

When Signature was abruptly shut down and shot down on March 12, Justice Department investigators in Washington and Manhattan were already investigating its crypto clients — and Signature’s anti-money laundering efforts in particular. The SEC had also investigated Signature. [Bloomberg]

Barney Frank, a former member of Signature’s board of directors and one of the men behind Dodd-Frank, defended Signature: “I wonder if we are the first bank to close completely without going insolvent? And if so, why? I think the DFS, the people of New York State should answer that. That’s why I speculate that using us as a poster child to say ‘stay away from crypto’ was the reason.” Well done NYDFS then. [New York, archive]

But if your loan portfolio is bad enough, being technically solvent may not be enough. Signature’s real estate loans in particular turn out to be rubbish. [The Real Deal]

Signing was in Paycheck Protection Program loans during the pandemic – it issued dozens more PPP loans to cryptocurrency companies than previously disclosed in public documents. “DePaolo said the bank’s crypto PPP lending volume was due to other banks serving crypto not having the resources to offer the same kind of program.” [CoinDesk]

Unbanking the unbankable

Silicon Valley Bank didn’t have many crypto clients — except Circle for a portion of its USDC reserve — but SVB’s UK unit had a few. HSBC bought SVB UK and all of its assets and liabilities for £1 (one pound) – and HSBC is not fond of crypto. “The crypto stuff is likely to leave, either of its own accord or by politely disembarking,” said one of the people involved in the purchase. “They will realize that life as a customer of HSBC would be too hard.” [FT]

The Federal Home Loan Bank of San Francisco didn’t request its $4.3 billion loan from Silvergate Bank, an FHLB spokesperson told CoinDesk. “Silvergate has decided to prepay their outstanding advances based on their own assessment of their position.” We’re pretty sure if FHLB-SF wasn’t pressuring them, someone else was. [CoinDesk]

Circle has set all the cash reserves for USDC in one bank: BNY Mellon. This has left the “crypto-friendly” Customers Bank with $1 billion of the total $18 billion customer deposits suddenly removed. [Circle]

Customers Bank (NYSE:CUBI) is not that big and has had some shaky times. CUBI’s 10-K lists their “digital currency” customers, but not in detail. They also have their own version of Signature’s Signet, CBIT, which they also license from Tassat, who built Signet. [SEC]

Cross River Bank, a small community bank in New Jersey, is Circle’s new payment processor for USDC. It’s the kind of bank that gets into crypto, and that immediately tells you all about them. Cryptadamus dove into Cross River and found all sorts of interesting tidbits. [Twitter]

Cross River also loved PPP lending – it somehow managed to pull in more than 106,000 PPP loans during the pandemic, making it the fourth largest provider of PPP loans. The $4.7 billion in PPP loans nearly doubled the bank’s assets. Cross River made 15 of the 97 loans involved in the Justice Department’s first 56 fraudulent PPP lending prosecutions. [NYT; POGO]

Cryptobank Anchorage Digital started out as a crypto custody company, joined Facebook’s Libra project in 2019 and was awarded a national digital asset trust charter from the Office of the Comptroller of the Currency in January 2021 – in fact, it was one of the last digital bank charters approved by Brian Brooks, later of Binance US, in his time as auditor.

Anchorage just laid off 20% of its staff. The San Francisco bank blames regulatory uncertainty and “broad macroeconomic challenges and crypto market volatility” for the downturn in business. The main regulatory uncertainty appears to be that the OCC was unhappy with Anchorage’s money laundering controls and lack of adequate compliance personnel or processes. [Bloomberg]

Elsewhere, the OCC says Washington crypto bank Protego cannot convert itself into a national trust bank. Protego did not meet the capital requirements until the last minute. It can now try another form of charter, e.g. as a state bank, or reapply. [Fortune]


Sam Bankman-Fried wants bankruptcy court to force FTX to ask their insurers to cover up to $10 million of his legal bills under FTX’s directors and liability insurance. Sam wants this for the civil cases against him for stealing everyone’s money, as well as for his criminal case – although D&O insurance generally doesn’t cover criminal cases. Sam’s attorney also attached the portion of FTX’s insurance policy that states willful criminal action in the US is not covered. [Doc 964, PDF]

FTX published its Schedules and Statements of Financial Affairs (SOFAs) – detailed documents about payments the company made before bankruptcy. Sam took out $2.2 billion, other executives took out millions. But other dollar transfers have been kept secret for confidentiality reasons. [press release]

Effective leaders of the Altruism movement were warned in 2018 about Sam’s unprofessional and fraudulent behavior and did nothing. Star EA philosopher William MacAskill reportedly threatened a person who tried to whistle Sam. Alameda management had actually tried to buy Bankman-Fried out of Alameda around this time because he was so clearly a time bomb. Effective Altruism Forum posters are deeply disillusioned. [Time; Effective Altruism Forum]

Tether up

Tether now sits at 75 billion tethers, up 9 billion from the beginning of the year. We suspect it’s because BUSD is a zombie and pumpers need to pump.

We are shocked to learn that Russian sanctions evasion is using chains. You buy chains in Russia with rubles and sell them in London for pounds. [CoinDesk]

Tether/Bitfinex money mule Reggie Fowler has a gambling addiction. Who knows? Fowler lost hundreds of thousands of dollars in an Arizona casino. This while he has not paid his previous lawyers. Federal prosecutors want Judge Andrew Carter to change Fowler’s bail restrictions — even this late in the proceedings. Fowler will be sentenced next month. [Letter, PDF]

More good news for bitcoin

The DoJ and US Trustee have appealed the sale of Voyager to Binance US. Their main dispute concerns the claims of immunity from prosecution. “Nothing in the Bankruptcy Act allows courts to absolve parties from liability to the government for past and future conduct.” The government wants the provision removed or the whole deal withdrawn and has asked for the sale to be suspended in the meantime. Judge Michael Wiles has told them, rather wryly, that he’s not delaying the sale while the appeal is pending — mainly because he told them to make specific claims of crimes, and they just didn’t. [Doc 1182, PDF; Doc 1190, PDF]

Coinbase is considering setting up a non-US trading platform as the US environment for crypto continues to sour. Well, it worked for Binance and FTX! [Bloomberg]

Brian Quintenz, former CFTC commissioner and now a16z chief of crypto policy, laments at the Futures Industry Association conference: “The SEC is completely out of control. They’re going rogue!” Oh no, how sad. “The United States needs to make a decision about whether or not to embrace and support innovators in this country,” he said, with excellent timing. [CoinDesk]

Cryptoblogger Ignacio de Gregorio wrote a post on Medium arguing that Ethereum is decentralized, as he is concerned about the New York Attorney General’s claims that ETH is a security. David SH Rosenthal points out all the flaws in his arguments: [DSHR]

de Gregorio and others base their case on the fact that William Hinman, director of the SEC’s Corporation Finance division, claimed in 2018 that ETH was not a security because the Ethereum blockchain was “adequately decentralized.” But Hinman’s claim was false then and is false now. And Hinman now works for A16Z, the “Softbank of crypto”.

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