Hedge Funds Battle to Survive After FTX Exchange Collapse

Some hedge funds were able to weather the storm and remain solvent despite being adversely affected by the failure of the FTX exchange, while others were forced to make the decision to liquidate their holdings and cease operations as a result of the financial crisis.

CoinShares, an institutional crypto fund manager, underlined the fact that the company remained “financially solid” in its fourth-quarter report for 2022. This was despite the fact that the company had to cope with the FTX crash at the end of the year. The fund also showed its successes, including its graduation to the principal market of Nasdaq Stockholm and its high levels of inflow into CoinShares physical exchange traded goods.

Following the filing of its bankruptcy petition, CoinShares said that assets worth more than $31 million were frozen on the FTX exchange. The management of the fund does not know for certain if they will ever be able to retrieve the monies or how much of the assets can be retrieved at this time.

During the course of the quarter, the company came to the conclusion that it would no longer maintain its CoinShares consumer platform. The company explained its decision in writing, stating that “Market circumstances gave birth to a scenario that did not enable us, with our present financial structure, to sustain a consumer activity that needed large upfront expenditure in marketing.”

The Chief Executive Officer of CoinShares, Jean-Marie Mognetti, said in a letter to investors that the failure of FTX “had a substantial effect” on the company’s ability to implement its algorithmic trading platform, HAL, in European markets. In spite of this, Mognetti also noted that the company will continue into 2023 with defined objectives, such as concentrating on increasing its digital asset management business and the institutional products it provides.

Galois Capital, a hedge fund, did not have the same level of success as CoinShares when it came to weathering the FTX storm. The fund announced to its investors on February 20 that it would be winding down its operations due to the losses that it sustained as a result of the collapse of FTX. The company made the executive decision to return the remainder of its cash to its investors and to sell its claims to purchasers who were better equipped to pursue bankruptcy claims.


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The UK is a step closer to launching a central bank digital currency

After the publication of a consultation document that explains the planned digital pound, which the general public has dubbed “Britcoin,” the United Kingdom is one step closer to creating a central bank digital currency (CBDC).

The Bank of England (BoE) and the United Kingdom Treasury both contributed to the publication of the 116-page consultation document on February 7th. In addition to that, a technology working paper that delves into the technical as well as economic design issues was published.

CBDCs such as the digital pound may co-exist in what the authors of the article believe to be a “mixed payments economy,” despite the increase of privately-issued stablecoins over the last few years, according to the findings of the paper.

“The digital pound does not need to be the predominate form of money in order to accomplish its public policy aims in the same way that cash coexists alongside private money. It is possible that the digital pound will coexist with other types of currency, such as stablecoins.

Although the Bank of England (BoE) and the Treasury Department (Treasury) have expressed optimism that a digital version of the pound would be introduced by 2025 “at the earliest,” they are not yet one hundred percent positive that this will really occur.

According to the report, “The Bank and HM Treasury assess it is likely to be necessary in the UK to have a digital pound,” however there is currently no decision that can be made to adopt such a currency.

According to the paper, the primary objective behind the launch of the digital pound is to “promote innovation, choice, and efficiency in domestic payments” and to ensure that the money issued by the central bank of the United Kingdom continues to serve as “an anchor for confidence and safety” in the monetary system of the country.

“For the digital pound to play the role that cash plays in anchoring the monetary system, it needs to be usable and sufficient adopted by households and businesses,” this quote from the Financial Times reads. “For the digital pound to play the role that cash plays in anchoring the monetary system, it needs to be usable and sufficient adopted by households and businesses.”

Users will have access to e-GBP after they have established a connection to an API that is managed by the private sector and that, in turn, links to the core ledger.

Additional programmability capabilities, including as smart contracts and atomic swaps, which make it possible for assets to be moved across networks, will be made available.


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Silvergate Bank Suspends Dividend Payments to Preserve Liquidity

Silvergate, a cryptocurrency bank located in California, has temporarily halted dividend distributions in order to protect its “very liquid balance sheet.”

The company declared on January 27 that it would stop “the payment of dividends on its 5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, in order to conserve capital.” This information was provided in a statement made on that day.

The business said that it came to the conclusion that it needed to weather the storm of crypto winter in order to survive, but it emphasised that it still retains a “cash position in excess of its digital asset customer-related deposits.”

As the company navigates the current turbulence in the digital asset business, “This move underlines the Company’s aim on keeping a highly liquid balance sheet with a solid capital position.”

According to another statement made by the company, “The Company’s Board of Directors will re-evaluate the payment of quarterly dividends as market circumstances develop.”

The statement comes only 11 days after the corporation reported a significant net loss of one billion dollars in its quarterly report for the fourth quarter of 2022 on January 17. The negative market attitude as a whole, which has led investors to take a “risk-off” strategy over the course of the last year, was what Silvergate said was to blame for the company’s dismal performance.

Alan Lane, the CEO of Silvegate, noted in the Q4 report that the company is still bullish on the cryptocurrency sector but is working to maintain “a highly liquid balance sheet with a strong capital position.” This language is very similar to the language that was used in the most recent announcement.

Prices of both the company’s preferred (SI-PA) and regular (SI) stocks dropped significantly after the announcement that dividend payments would be halted on Friday.

The price of SI-PA fell by 22.71% to $8.85 by the time the market closed, while the price of SI fell by 3.76% to settle at $13.58. These figures are from data provided by Yahoo Finance.

When looking at the big picture, SI-PA and SI offer a bleak image as well since their share prices have dropped by 60 and 87.46% respectively over the course of the last year.

After announcing on January 5 that it has let off 200 people, which represents 40% of its employment, in an effort to stay afloat, the company has not taken this as the sole step it has done this month to shore up its coffers. Instead, it has also taken this measure.


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El Salvador Lags Behind as Spain Overtakes to Become Third Largest Crypto ATM Hub

With a total of 215 crypto ATMs hosted in Spain, the country has now outpaced El Salvador, which is home to 212 crypto ATMs, down to the fourth position, following Spain’s third position. 


According to data from CoinATMRadar, the European country of Spain is home to 0.6% of the global crypto ATM installations, making it home to the third most extensive network of Bitcoin and cryptocurrency ATMs after the United States and Canada.

Crypto ATM distribution by continents and countries. Source: CoinATMRadar

In addition, the data also proves that Spain is the highest contributor to crypto ATMs in Europe, which represents 14.65% of total installations in the continent, followed by Switzerland (144 ATMs), Poland (142 ATMs), and Romania (135 ATMs).

Crypto ATM installation growth in Spain. Source: CoinATMRadar

Spain installed 43 crypto ATMs in 2020 and recently shared its intent to install an additional 100 ATMs by the end of the year, which will total the number of crypto ATMs the country hosts to 300 once completed.

Greece has the sixth spot in cryptocurrency ATMs, and with the invasion of tourists in the country, Bitcoin ATM operator BCash shared insights on the usage statistics in the country.

BCash managing director and co-founder Dimitrios Tsangalidis unveiled that regardless of the installation of crypto ATMs in tourist hotspots, most usage comes from the main city area.

Tsangalidis added that a combination of crypto winter and tourist seasons has brought about a slowdown in regular traffic in crypto ATM usage.

Although not all countries in the globe have installations of crypto ATMs at the moment, however, it’s worth noting that crypto ATMs play a significant role in crypto adoption. As time passes by, we might begin to see more countries begin to host them. 

Last year, the meme-based cryptocurrency, Dogecoin was made accessible at 1,800 ATMs across the United States. Individuals could purchase directly from Coinflip ATMs in 45 of the 50 US states.

Image source: Shutterstock


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Blockchain-based Games Rallied Up 2,000% in One Year, DappRadar’s Latest Report Shows

DappRadar, a major online platform that offers information and insights about all the existing blockchain-based decentralized applications (DApps), Wednesday disclosed through its Blockchain Games Report that interest in blockchain-based games has risen by 2,000% since Q1 of 2021.

The study shows that blockchain games are leading in decentralized applications, which put them at 52% of all blockchain activities.

The report further reveals that blockchain games attracted 1.22 million unique active wallets (UAW) in March of this year. According to the report, Axie Infinity, a platform that offers decentralized games, was responsible for 22,000 such unique active wallets despite Ronin Network, a sidechain tied to Axie Infinity, being hacked that led to a loss of $615 million in stolen funds.

The study also indicated that an increase in popularity of play-to-earn (P2E) non-fungible token (NFT) games on Ethereum sidechains have been a big factor that significantly contributed to the growth of the blockchain games. As per the report, popular crypto games platforms on Polygon’s MATIC blockchain such as Crazy Defense Heroes, Pegaxy, Arc8, and Aavegotchi have spurred a 219% rise in Polygon’s gaming activities since the beginning of 2022.

Besides that, the report indicated that blockchain-based games raised $2.5 billion in Q1, 2022 from investors. If such a trend is maintained, then the total investments by the end of the year will be 150% higher than in 2021, the report said. Animoca Brands, a developer of blockchain-based video games that allow gamers to buy and sell NFTs, was among the major investors. In January, the Metaverse gaming company raised almost $360 million that giving it a valuation of$5 a billion before the addition of the new capital.

The impressive growth in the blockchain gaming sector comes amid certain challenges (such as historical hacks that have resulted in huge losses and plummeted players’ interest) witnessed in the few months.  

Bringing DApps to the Mass Market

In January, DappRadar produced a similar report that showed that four out of five DeFi apps (80% of DeFi apps) could disappear if the crypto bear runs for a year.

Founded in 2018 and based in Lithuania, DappRadar provides a global app store for decentralized applications. The platform enables users to track, analyze, and discover DApps (decentralized applications). It tracks more than 3,000 DApps across 10+ blockchains, including EOS, ONT, Ethereum, EOS, and TRON, with plans to expand to others.

DappRadar is funded by some of the world’s major internet and blockchain firms including Naspers, Blockchain.com, and Angel Invest Berlin. 


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Chainalysis report finds most NFT wash traders unprofitable

Nonfungible tokens (NFT) have taken the world by storm, resulting in mainstream interest and greater adoption of cryptocurrency. According to blockchain analysis firm Chainalysis, NFT popularity skyrocketed in 2021. Chainalysis’ “NFT Market Report” shows a minimum of $44.2 billion worth of cryptocurrency sent to Ethereum smart contracts associated with NFT marketplaces and collections last year. The report notes that this number was $106 million in 2020.

While impressive, increasing scams and fraudulent activities have infiltrated the NFT space. For instance, major NFT marketplace OpenSea recently announced that its free minting tool was prone to misuse. As a result, OpenSea shared that 80% of NFTs created using this tool were either plagiarized, fake or spam. If that wasn’t bad enough, Chainalysis’ latest blog post highlighting its “2022 Crypto Crime Report” found that the NFT sector is vulnerable to wash trading and money laundering.

Wash trading in the NFT sector grows

According to the blog post, wash trading refers to a transaction in which a seller is on both sides of the trade in order to paint a misleading picture of an asset’s value and liquidity. 

Unsurprisingly, wash trading has become a major concern within the NFT sector. Most recently, data generated from the LooksRare NFT marketplace found the platform to be very prone to wash trading.

Yet as wash trading becomes more common across NFT marketplaces, new solutions are being developed to detect fraudulent activity. Kim Grauer, head of research at Chainalysis, told Cointelegraph that the firm has created a potential tool capable of detecting individuals who are self-funding their own crypto wallets to conduct misleading transactions:

“By using Chainalysis software, we can see when a person buys a token using funds from the same person who sold them that very token. This is the definition of wash trading.”

The Chainalysis blog post further explains that by using blockchain analysis, the firm is capable of tracking NFT wash trading by analyzing sales of NFTs to addresses that were self-financed, meaning they were funded either by the selling address or by the address that initially funded the selling address.

Interestingly enough, while Chainalysis found that some NFT sellers have conducted hundreds of wash trades, Grauer pointed out that most NFT wash traders are in fact unprofitable. She said:

“Overall, we found that it’s not profitable to wash trade NFTs because you end up paying a lot in gas fees. Many wash traders came out negative due to the amount spent on gas versus the amount generated from their sales.”

More specifically, Chainalysis’ findings indicate that 152 Ethereum addresses associated with wash traders resulted in losses of $416,984. On the other hand, Grauer pointed out that some wash traders have been successful. Data from Chainalysis shows that 110 Ethereum addresses received $8.9 million in profits from wash trading.

According to Grauer, successful wash traders tend to be individuals conducting multiple NFT trades across a number of platforms. However, she noted that overall, it’s not a good idea to wash trade due to the high costs of gas fees coupled with the fact that all transactions can be seen across the Ethereum blockchain network. “This is a risky type of crime to carry out, and even riskier given that people have to pay large gas fees. Those who do this at scale have to be experienced,” remarked Grauer.

How NFT platforms can keep users safe

Although wash trading NFTs have proven to be risky and unprofitable for most, Grauer believes this activity will become more common as the NFT space continues to grow. “Anyone can easily engage in wash trading — if you can download an ETH wallet and purchase an NFT, you can do it,” she remarked. With this in mind, it’s becoming increasingly important for NFT platforms to enforce initiatives to help keep users safe from fraudulent activities.

Alex Salnikov, co-founder and head of product at NFT marketplace Rarible, told Cointelegraph that in terms of what the platform has seen in the broader NFT ecosystem, there tends to be a pattern of users wash trading on platforms that provide incentive rewards for trading. To Salnikov’s point, the LooksRare platform planned to offer user rewards in the form of the platform’s native token, which could have added to the amount of wash trading on the platform.

Salnikov explained that after realizing this vulnerability, the Rarible decentralized autonomous organization voted to stop RARI token distribution to Rarible users. As a result, “the issue is no longer relevant for our marketplace,” he said, adding that in order to further protect Rarible users, the platform has released a verification system that allows the Rarible team to manually review a creator’s profile. Salnikov elaborated:

“If this process is successful, the user will earn a yellow checkmark on their Rarible marketplace profile. It is important to note that collectibles from unverified creators do not appear in our search results or the explore feed. Users are also warned if they are about to purchase a collectible by an unverified creator or collection.”

While Rarible has taken a number of steps to ensure user safety across the platform, Grauer mentioned that Dapper Labs, a blockchain platform that offers NFT-based products and decentralized apps, is working closely with Chainalysis to monitor wash trading and other illicit activities. 

Additionally, OpenSea published a blog post on Jan. 17 introducing its new “NFT Security Group.” According to the post, members will be expected to share and learn about vulnerability reports that have not been publicly announced in order to fix problems before users are impacted. Members will also focus on creating solutions to ensure greater security around blockchain consensus, smart contacts, wallets and metadata, along with awareness for interoperability implications.

Will regulations keep users safe?

In addition to these measures, discussions around NFTs and compliance are coming to fruition. Joseph Weinberg, co-founder of Shyft Network — a compliance-focused blockchain network — told Cointelegraph that while it’s hard to say if NFTs should be regulated, he believes that the space needs oversight:

“I think trading platforms that accept funds — like an OpenSea, for example — will inevitably become regulated as VASPs, as they are in the business of matching to counterparties and they accept fees. As far as how NFTs could be regulated, you can do things like multi-address hop detection and address screening to cluster and determine if there’s a likelihood that people are wash trading.”

However, Weinberg remarked that NFTs are still a grey area when it comes to regulations. “Regulators haven’t even been able to give us clear guidance on DeFi [decentralized finance], so I think they’re waiting to see how it plays out,” he said, adding that the biggest challenge currently facing regulators is the fact that art is not a regulated environment:

“Historically, it’s known that art markets are not subject to KYC [Know Your Customer] and AML [Anti-Money Laundering] requirements. It’s also widely known that the art world is where a lot of money laundering takes place — and has for a long time. The question that needs to be asked is if the ‘form’ is different from the ‘function’ because a token has a different set of use cases than a piece of paper.”

As such, Weinberg believes that regulators first need to focus on how NFTs should be approached before coming up with guidance. In the meantime, some industry experts believe that the NFT community will take its own set of actions. Jack O’Holleran, chief operating officer of Skale Labs — a platform developing solutions for Ethereum scalability — told Cointelegraph that he believes free markets will ultimately prevail. “End users will not want to purchase NFTs from sites that don’t clearly remove or call out overt wash trading numbers. NFT traders and purchasers will move their business to exchanges and data aggregation sites that give them real views of market data.”

NFT scams will continue to rise, even with solutions

Unfortunately, even with compliance solutions, initiatives from NFT platforms and possible regulations, Grauer predicts that there will be a rise in criminal activity in the NFT space before there is a decline.

Moreover, while Chainalysis found money laundering associated with NFT addresses to be relatively low in 2021, Grauer expressed concerns that the space will only continue to worsen. “My prediction is that the sector will get worse in many ways before it gets better with industry solutions. It’s possible that some NFT platforms will adopt compliance to help things progress.”