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Hong Kong Says It’s Exploring Whether to Legalise Crypto Trading by Retail Investors

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By Agence France-Presse | Updated: 31 October 2022

Hong Kong is “back in business” and exploring whether to legalise crypto trading by retail investors, the city’s finance chief announced Monday, kicking off a week of conferences aimed at resuscitating the Chinese hub’s image.

In contrast to mainland China where crypto has been all but banned, Hong Kong is looking to relax regulations and claw back some of the business that has left.

Years of strict pandemic controls and a political crackdown have hammered the Asian finance hub’s economy and sparked an exodus of talent that authorities say they now want to reverse.

A fintech conference opened on Monday and will be followed on Wednesday by a finance summit attended by some of the world’s top bankers.

“Hong Kong is open and inclusive towards the global community of innovators engaging in virtual asset businesses,” finance secretary Paul Chan told delegates at the fintech conference.

“In a great many ways, we are telling the world that we are back in business,” he added, in a speech that had to be delivered remotely after he caught Covid last week during an overseas trip.

In a new policy statement, the government said it would launch a consultation to explore how the retail segment “may be given a suitable degree of access”. It added that Hong Kong was willing to review “property rights for tokenised assets and the legality of smart contracts”.

Currently, Hong Kong restricts exchanges to clients with portfolios of at least $1 million (roughly Rs. 8 crore).

Expanding permission to retail investors would allow far more regular residents to invest in cryptocurrencies and virtual assets. But that carries its own risks.

There has been a global push to regulate the crypto market and protect investors following wild swings and a string of high-profile collapses.

Critics say crypto is an ideal tool to generate investment bubbles, hide illicit wealth and enable scams.

China, once one of the world’s largest crypto markets, banned transactions of digital currencies in 2021.

Singapore recently strengthened regulations around retail transactions after a number of crypto exchanges imploded, including in the city state.

Meanwhile, Japan has recently relaxed some of its more conservative rules on listing tokens.

Given its position as a gateway for China to the international markets, Hong Kong was initially something of a crypto hub.

The city then introduced a voluntary licensing regime in 2018 for big exchanges but only two were approved for permits — BC Technology and HashKey.

One of the biggest exchanges that used to be in the city, FTX, moved to the Bahamas last year.

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Goldman Sachs Looking at Buying, Investing in Bargain Crypto Firms Impacted by FTX Collapse

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Goldman is doing due diligence on a number of different crypto firms, according to Goldman Sachs' head of digital assets.
By Reuters | Updated: 6 December 2022

Goldman Sachs plans to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX exchange hit valuations and dampened investor interest.

FTX’s implosion has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is doing due diligence on a number of different crypto firms, he added, without giving details.

“We do see some really interesting opportunities, priced much more sensibly,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States on November 11 after its dramatic collapse, sparking fears of contagion and amplifying calls for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”

While the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion (roughly Rs. 1,78,129 crore) last year, its willingness to keep investing amid the sector shakeout shows it senses a long term opportunity.

Its CEO David Solomon told CNBC on November 10, as the FTX drama was unfolding, that while he views cryptocurrencies as “highly speculative”, he sees much potential in the underlying technology as its infrastructure becomes more formalised.

Rivals are more sceptical.

“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley CEO James Gorman said at the Reuters NEXT conference on December 1.

HSBC CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital assets business after serving as head of cross asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also together with MSCI and Coin Metrics launched data service datonomy, aimed at classifying digital assets based on how they are used.

The firm is also building its own private distributed ledger technology, McDermott said.

‘Trusted’ players

The global cryptocurrency market peaked at $2.9 trillion (roughly Rs. 2,39,07,000 crore) in late 2021, according to data site CoinMarketCap, but has shed about $2 trillion (roughly Rs. 1,64,96,900 crore) this year as central banks tightened credit and a string of high-profile corporate failures hit. It last stood at $865 billion (roughly Rs. 7,100 crore) on December 5.

The ripple effects from FTX’s collapse have boosted Goldman’s trading volumes, McDermott said, as investors sought to trade with regulated and well capitalised counterparties.

“What’s increased is the number of financial institutions wanting to trade with us,” he said. “I suspect a number of them traded with FTX, but I can’t say that with cast iron certainty.”

Goldman also sees recruitment opportunities as crypto and tech companies shed staff, McDermott said, although the bank is happy with the size of its team for now.

Others also see the crypto meltdown as a chance to build their businesses.

Britannia Financial Group is building its cryptocurrency-related services, its chief executive Mark Bruce told Reuters.

The London-based company aims to serve customers who are eager to diversify into digital currencies, but who have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets, but have become nervous about storing funds at crypto exchanges since FTX’s collapse.

Britannia is applying for more licenses to provide crypto services, such as doing deals for wealthy individuals, he said

“We have seen more client interest since the demise of FTX,” he said. “Customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties.”

© Thomson Reuters 2022

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US FTC Investigating Several Crypto Firms Over ‘Possible Misconduct’ Concerning Digital Assets

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The FTC has also pursued companies that presented themselves as cryptocurrency-related firms but which were allegedly nothing more than scams.
By Reuters | Updated: 6 December 2022

A US agency that probes allegations of deceptive conduct confirmed on Monday that it had investigations open into several cryptocurrency firms for “possible misconduct.” The Federal Trade Commission spokesperson declined to name the firms or say precisely what actions prompted the investigations.

“While we can’t comment on current events in the crypto markets or the details of any ongoing investigations, we are investigating several firms for possible misconduct concerning digital assets,” the spokesperson said in a statement.

Bloomberg said in a report that the investigation was linked to misleading advertising but the FTC spokesperson declined to confirm this.

The spectacular implosion of FTX recently sent fresh shock waves through the cryptocurrency industry, with the value of Bitcoin down sharply this year.

The Securities and Exchange Commission, which also has regulations mandating disclosures from individuals promoting securities, has cracked down on celebrity endorsements, including reality TV star Kim Kardashian on allegations of promoting a crypto token on her Instagram account without proper disclosure that she had been paid.

The FTC has also pursued companies that presented themselves as cryptocurrency-related firms but which were allegedly nothing more than scams.

Back in June, the FTC said in a report that more than 46,000 people reported losing over $1 billion (roughly Rs. 8,233 crore) in cryptocurrency scams since the start of 2021.

Nearly half the people who reported losing digital currencies in a scam said it started with an ad, post or a message on a social media platform, according to the FTC.

The craze for cryptocurrencies was at a fever pitch last year with Bitcoin hitting a record high of $69,000 (roughly Rs. 56 lakh) in November 2021.

Nearly four out of every ten dollars lost in a fraud originating on social media was lost in crypto, far more than any other payment method, with Instagram, Facebook, WhatsApp and Telegram being the top social media platforms in such cases, according to the FTC’s report.

© Thomson Reuters 2022

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FTX Collapse: US Authorities Reportedly Approach Investors for Information on FTX, Sam Bankman-Fried

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By Reuters | Updated: 2 December 2022

US authorities are asking crypto investors and trading firms who worked closely with FTX to hand over information on the company and its key figures including Sam Bankman-Fried and Caroline Ellison, Bloomberg News reported on Thursday.

The US Attorney’s Office for the Southern District of New York recently sent out a series of requests, asking recipients to hand over information on a list of FTX employees and associates, the report said, citing people familiar with the case.

Attorneys from the US Securities and Exchange Commission’s enforcement division also sent similar requests for information to companies that invested in or traded on FTX, the report added.

The regulator is trying to get a better sense of what FTX representatives told investors and whether any misrepresentations were made that would violate securities laws, according to the report.

The US Department of Justice’s bankruptcy watchdog earlier on Thursday called for an independent investigation into the collapse of crypto exchange FTX.

Sam Bankman-Fried, 30, founded FTX in 2019 and rode cryptocurrency boom to a net worth that Forbes pegged a year ago at $26.5 billion (roughly Rs. 2,16,560 crore). Bankman-Fried resigned as FTX’s chief executive officer the same day as the firm’s bankruptcy filing.

The liquidity crunch came after Bankman-Fried secretly moved $10 billion (roughly Rs. 81,700 crore) of FTX customer funds to his proprietary trading firm, Alameda Research, Reuters reported, citing two people familiar with the matter.

FTX’s downfall will be examined in several more congressional hearings this month, with the House Financial Services Committee set to hold the first in a series of meetings on December 13.

Last month, newly-appointed FTX CEO John Ray had said in a US court filing that there was flawed regulatory oversight and a lack of corporate control of the bankrupt crypto exchange founded by Sam Bankman-Fried.

US Attorney’s Office for SDNY, SEC, FTX and Caroline Ellison did not immediately respond to Reuters requests for comment. Bankman-Fried could not be immediately reached.

© Thomson Reuters 2022

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Kraken Crypto Exchange to Cut Global Workforce by 30 Percent Amid Crypto Winter

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By Reuters | Updated: 1 December 2022

Cryptocurrency exchange Kraken said on Wednesday it would cut its global workforce by 30 percent, or about 1,100 employees, citing tough market conditions that have crippled demand for digital assets this year. Higher interest rates and worries of an economic downturn have roiled cryptocurrencies as investors fled risky assets, with recent bankruptcies adding to the uncertainty.

“Since the start of this year, macroeconomic and geopolitical factors have weighed on financial markets,” the company said.

Kraken said it has seen a drop in trading volumes and fewer client sign-ups, adding that the layoffs will take total headcount to where it was 12 months ago.

Earlier this month, crypto exchange Coinbase slashed jobs in its recruiting and institutional onboarding teams.

Kraken, which earlier slowed hiring and pulled back marketing spending, said it was forced to cut jobs as it had exhausted other measures to bring expenses in line with current demand.

Meanwhile, the implosion of crypto exchange FTX, the highest-profile casualty of the year’s market turmoil, continues to ripple across the industry, with BlockFi filing for bankruptcy earlier this week.

The meltdown has dragged the price of the largest cryptocurrency, Bitcoin, to around a two-year low.

Global regulators have since been circling crypto firms with many seeking to set tough rules to govern the largely unregulated sector.

On Monday, the US Treasury Department’s Office of Foreign Assets Control said that Kraken had agreed to pay a fine to settle civil liability related to apparent violations of sanctions on Iran.

As part of the settlement with OFAC, Kraken will pay about $362,000 (roughly Rs. 3 crore), and “invest an additional $100,000 (roughly Rs. 81,18,000) in certain sanctions compliance controls.”

According to the OFAC statement, Kraken’s platform processed 826 transactions for users located in Iran between roughly October 2015 to June 2019.

At the time, Kraken maintained controls intended to prevent users from initially opening an account while in a jurisdiction subject to sanctions, but did not implement IP address blocking based on geolocation across its platform, the statement added.

In October, the Treasury Department had also fined crypto exchange Bittrex Inc $29 million (roughly Rs. 235 crore) in fines for “apparent violations” of sanctions on certain countries and anti-money laundering law.

© Thomson Reuters 2022

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Binance Marks Entry into Japanese Market With Acquisition of Sakura Exchange BitCoin

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By Agence France-Presse | Updated: 30 November 2022

The world’s largest cryptocurrency platform Binance on Wednesday announced its first licence in East Asia with the acquisition of Japan’s officially regulated Sakura Exchange BitCoin.

Binance has been in the spotlight since the dramatic collapse of rival platform FTX this month.

Changpeng Zhao, the Chinese-Canadian head of Binance, pledged last week to release an audit into his firm while rejecting claims he sparked the demise of FTX.

The terms of Binance’s 100-percent purchase of the Tokyo-based Sakura Exchange BitCoin were not disclosed in a joint statement on Wednesday.

But Binance said it “aims to support a responsible global environment for cryptocurrencies” by offering Japanese-regulated services.

“The Japanese market will play a key role in the future of cryptocurrency adoption,” Takeshi Chino, general manager of Binance Japan, said in a statement.

“We will actively work with regulators to develop our combined exchange in a compliant way for local users.”

Japan has worked to strengthen its regulation of virtual currencies following the collapse of the Tokyo-based MtGox Bitcoin exchange in 2014.

Binance was operating in Japan some years ago, but had to withdraw operations due to lack of relevant licences in 2018. Japan’s Financial Services Agency (FSA) had earlier insisted Binance to apply for an operational licence. Japan has, in recent years, emerged among the group of crypto friendly nations ready to harness the power of blockchain to finetune its financial sectors.

Other major players in the space, Crypto.com and FTX crypto exchanges are already functional in Japan. As of the end of 2021, the number of crypto asset accounts set up in Japan reached around 5.48 million, data by Statista claimed.

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Genesis Crypto Brokerage Working to Avoid Bankruptcy Filing, Resolve Lending Business Issues

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By Reuters | Updated: 30 November 2022

US cryptocurrency brokerage Genesis said it was seeking to avoid bankruptcy after Bloomberg news reported on Tuesday that creditors to the firm are organizing with restructuring lawyers to prevent insolvency.

Citing people with knowledge of the situation, the report said law firms Proskauer Rose and Kirkland & Ellis are being consulted by creditor groups, who are seeking to avoid a situation similar to crypto exchange FTX’s rapid descent into bankruptcy.

“Our goal is to resolve the current situation in the lending business without the need for any bankruptcy filing,” a Genesis spokesperson said.

Representatives for Proskauer and K&E did not immediately respond to requests for comment.

“We’ve begun discussions with potential investors and our largest creditors and borrowers, including Gemini and DCG, to agree on a solution that shores up our lending business’ overall liquidity and addresses clients’ needs,” Genesis’ interim chief executive Derar Islim told clients in a letter seen by Reuters.

The report comes as US state securities regulators are investigating Genesis Global Capital as part of a wide-ranging inquiry into the interconnectedness of crypto firms, Barron’s reported last week, citing a comment from the Alabama Securities Commission director.

Genesis has hired investment bank Moelis & Company “to evaluate the best possible asset preservation strategy and effectuate a roadmap,” the firm said in the letter.

The crypto lending arm of US digital asset broker Genesis Trading suspended customer redemptions earlier this month, citing the sudden failure of FTX, where its derivatives business has approximately $175 million in locked funds, the company had said.

Venture capital company Digital Currency Group, which owns Genesis Trading and cryptocurrency asset manager Grayscale, owes $575 million (roughly Rs. 4,692 crore) to Genesis’ crypto lending arm, Digital Currency Chief Executive Barry Silbert told shareholders this month.

© Thomson Reuters 2022

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