This week in crypto was dominated by new witness testimonies that shed light on the events leading up to and surrounding the FTX collapse. Revelations around the alleged fraudulent balance sheets former Alameda Research (Alameda) CEO Caroline Ellison prepared at the request of Sam Bankman-Fried (SBF), as well as allusions to fabricated FTX insurance, have put SBF’s defense on high alert.
Slightly hotter-than-expected Producer (PPI) and Consumer Price (CPI) Indices and expected energy pressures from the Israel-Hamas war mean that economists expect, at most, one more interest rate hike from the Federal Reserve (Fed). This data, coupled with the US cancellation of student debt and the expected drop in Bitcoin (BTC)hashrate after the halving, could make Bitcoin more lucrative for investors and efficient miners.
How SBF Allegedly Cooked Alameda’s Books
Undoubtedly, this week’s biggest attention-grabber in the crypto space was the ongoing criminal trial of disgraced FTX founder Sam Bankman-Fried. Star witnesses shone a light on FTX’s business practices that, on the surface, could dent Bankman-Fried’s hopes of absolution.
Read more: FTX Collapse Explained: How Sam Bankman-Fried’s Empire Fell
In her testimony, the former CEO of FTX’s market maker Alameda Research, Caroline Ellison, claimed Bankman-Fried asked her to prepare balance sheets for creditors that painted a fake picture of Alameda’s financial condition. Ellison also exposed an internal business communication in which Bankman-Fried revealed that lawmakers had promised him more investigations into Binance.
Ellison suggested that by inciting a probe into Binance, Bankman-Fried hoped to increase FTX’s market share. Bankman-Fried’s lawyers, who are defending their client from allegations he stole customer’s money to fund reckless spending on Alameda, are arguing that he acted according to FTX’s terms and conditions without breaking any laws.
Random FTX Insurance Numbers
Earlier in the week, FTX’s former Chief Technology Officer, Gary Wang, testified the published size of FTX’s insurance fund was inaccurate. BitMEX Research had previously suggested FTX’s insurance appeared derived from a random number generator, a tool used to create random figures for applications like gambling.
Wang said that the website insurance figure was multiplied by a random number close to 7500 and then divided by a billion to arrive at the publicly reported figure.
Wang had previously testified that Bankman-Fried had asked him to change FTX’s code to allow Alameda to have a negative balance. Bankman-Fried’s trial is expected to continue until mid-November.
Crypto – Socially Speaking
Bitcoin Halving Doubles Miner Headaches
As the SBF trial unfolded, multiple commentators fumed at the alleged role of FTX in causing the price of Bitcoin to tumble last year. Alameda Research had invested significantly in the TerraUSD ecosystem, the first big crypto project to fail in 2022.
The collapse of TerraUSD caused a ripple effect across markets, affecting confidence in other crypto assets like Bitcoin and Ether. The attendant price declines led to the unwinding of leveraged positions in other crypto companies, resulting in billions of dollars in losses.
But the crypto market’s beacon of hope is the upcoming Bitcoin halving that will reduce the rewards miners earn for solving blocks. Price action just before and after the halving has historically been bullish as the halving reduces the rate at which new Bitcoins are released into circulation.
Read more: What Is Bitcoin Halving?
JPMorgan fueled excitement ahead of the halving in a research report that predicted how the halving could flush out less efficient miners. The bank said that at least one-fifth of miners, who need efficient equipment to earn profits from securing the Bitcoin network, may find the process untenable after the halving, which effectively slashes their mining revenue by 50%.
As a result, around 20% of miners may drop off, making it less difficult for those remaining to earn Bitcoin rewards, at least until the prices of more efficient machines come down. That, coupled with a higher demand in the face of tough economic conditions, could be bullish for the asset in the short term.
Less Student Debt Could Boost Crypto
President Joe Biden promised this week to cancel $127 billion in student debt, a move that could free up disposable income for investments in crypto. During the pandemic, the government sent citizens stimulus checks that gave people extra income which they invested in crypto.
During this period, the popularity of online crypto platforms like Coinbase and Robinhood surged. Investments in stocks also rose.
Read more: Crypto vs. Stocks: Where To Invest Your Money in 2023
The market could also benefit from an unprecedented increase in institutional interest in Bitcoin. Several investment managers have shown interest in the asset by applying to launch a Bitcoin spot exchange-traded fund (ETF), a move that could see client demand increase and push the asset’s price up.
Binance Helps Police Seize Hamas Crypto Accounts
Bitcoin detractors may have been smiling this week after Israeli police body, Lahav 433, with help from Binance, seized accounts holding crypto and fiat belonging to the Hamas militant group. With the seizure, authorities cut off a vital supply of financing the UN-designated terrorist group solicited following its attack on Israel.
The seizure re-awakened the online discourse on Bitcoin’s potential in terrorist financing, which maximalists have previously argued was overblown. It has also refocused scrutiny on Binance, which, according to a June lawsuit from the US Commodity and Futures Trading Commission (CFTC), allegedly adopted a lax approach to crime on its platform.
In 2022, a Reuters report suggested that, in 2018, Binance had helped Iran, whose experiments with uranium had earlier attracted a battery of sanctions. Binance is the world’s largest cryptocurrency by trading volume, although its share of certain trading activities has diminished amid widespread regulatory scrutiny.
Read more: Binance Review 2023: Is It the Right Crypto Exchange for You?
This Week’s Crypto Top 10
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