Notes: 7/8: Voyager and Alameda, Celsius, and Grayscale ETF

Last month, as the crypto contagion was beginning to spread, FTX CEO Sam Bankman-Fried, who believes in “effective altruism”, talked about his “responsibility” to crypto with National Public Radio (NPR).

“I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion,” he said. He has rescued many companies that have fallen by the wayside during the current crypto crisis. One of them was Voyager Digital, which received a lifeline of sorts in the form of a $200 million infusion of cash  and USDC and 15,000 bitcoin.

As it turns out, there might have been more than altruism behind his good intentions. According to Voyager’s bankruptcy filing, Alameda Research, Bankman-Fried’s other company, owes $376,784 to the company at interest rates of between 1% and 11.5%. Alameda borrowed crypto from Voyager’s lending program for trading.

A Bloomberg report earlier this year stated that Alameda provides money to lenders like Voyager by borrowing cryptocurrencies staked or deposited on their platform. Back in February, its biggest borrowing was $750 million at TrueFi. Other borrowers from Voyager’s lending program are Genesis Global Capital and Galaxy Global Capital.  

With a loan of $75 million, Alameda is also Voyager’s biggest creditor and shareholder.

Voyager’s bankruptcy filing means that Alameda’s credit claim and stake are useless. But it will still owe $377 million to Voyager. The Three Arrows Capital (3AC) bankruptcy filing means that the wait for Voyager to become solvent once again has become longer.

On a related note, Frances Coppola has an excellent post about Voyager’s messy finances. To cut a long story short, the company was hemorrhaging money. Even during a massive downturn in crypto markets, it spent $82 million on marketing and customer acquisition and $182 million on customer rewards.

At a glance, one figure that struck me about Voyager’s press release its bankruptcy filing is the ridiculously low figure for total collateral in its loans. Per my calculations, the collateral on its books is roughly 15% of the total loan amount mentioned in the latest quarter. This makes a bankruptcy filing almost inevitable, if one of its debtors goes under.

Celsius Continues to Pay Off Loans

While Voyager struggles, Celsius has sprung back into action and paid off its loans to the Maker protocol. It was among the biggest, if not the biggest, holder of collateralized debt positions (CDP) on the platform. In simple terms, this means that it has access to its collateral of $450 million worth of WBTC (Wrapped Bitcoin) once again. The firm is reported to have immediately turned around and sent the collateral to FTX, suggesting that it might sell the tokens for “more liquid assets.” What will the move accomplish? Possibly restructuring. Possibly solvency. Possibly nothing.  

I say this because, as usual, we don’t have much information or updates about how Celsius managed to pay out its loans or analyses of its intentions with WBTC, except for a bunch of addresses that are supposed to belong to the lending firm. No further news about its attempts to restructure or sell itself to Goldman Sachs.

WSJ Charges SEC Chief with Bitcoin Regulation Grab

Grayscale has filed a case against the SEC for denying its application to convert GBTC to an ETF. The firm has found a supporter in the Wall Street Journal. An Op-Ed published by its board yesterday charged the SEC Commissioner with a “regulation grab” against the crypto industry.

Briefly, the WSJ board contends that the SEC is repeatedly denying applications for Bitcoin ETFs because it wants to bring cryptocurrency exchanges, which are only partially regulated by the agency currently, under its umbrella. The editorial uses curious logic. It admits that crypto markets “can resemble the Wild West”. “But this is no reason to reject the spot bitcoin ETPs, which would be tightly regulated by the SEC,” the board writes.

A closer reading of Grayscale’s application might shed some light on the agency’s reasons for rejecting the ETF. In its order rejecting Grayscale’s application, the agency has cited the prevalence of fraud and manipulation in calculating trading volumes as one of the main reasons for its decision.

An example of this might be the Index that Grayscale intends to use to calculate prices on its index.

The TradeBlock index is a carousel of crypto exchanges which are added and removed in brief periods. For example, Bittrex was added to the index in January 2019 and removed a year later. itBit was removed in April 2020 and LMAX Digital added in April 2020. Kraken, which had been removed earlier, was added back to January 2019.

The index’s current constituents follow a patchwork of rules and regulations in different jurisdictions. This means that their volumes may not accurately reflect the price of an asset class that trades 24X7 seven days a week. One of them – Coinbase Pro – is sunsetting operations. Another one – Bitstamp – has restrictions for U.S. users. Yet another one, Kraken, fled New York after the state introduced its BitLicense regime. LMAX Digital, the fourth constituent in the Index, is regulated in Gibraltar. The WSJ editorial also mentions the fact that asset management firm Bitwise Inc. produced documentation about crypto markets in 2019. What it doesn’t mention are the research’s conclusions. The San Francisco-based firm found that 95% of trading on Bitcoin is fake or uneconomic.

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