Finance

Binance’s rescue of FTX shows no crypto

Published

2 years ago

November 10, 2022

Binance’s agreement to salvage rival cryptocurrency exchange FTX from collapse shows how no one is safe from the chill of crypto winter, according to industry experts.

Before this week, FTX was the fourth-biggest exchange, processing billions of dollars in daily trading volumes, according to CoinMarketCap data. Its CEO, Sam Bankman-Fried, had a high profile in Washington, D.C., appearing in Congress to testify about the future of the crypto industry and committing millions in political donations.

Despite this, not even FTX was exempt from the downturn in digital assets. It’s something even Bankman-Fried had recognized, telling CNBC previously, “I don’t think we’re immune from it.”

And, sure enough, on Tuesday his firm signed an offer from Binance to be acquired by the company for an undisclosed amount after facing what it called a “liquidity crunch.”

“It shows that no one is too big to fail,” said Pascal Gauthier, CEO of crypto wallet firm Ledger. “FTX seemed untouchable.”

The expression “too big to fail” was used during the 2007-2008 financial crisis, and referred to regulators’ determination then that certain institutions could not be allowed to go bankrupt, because of the danger such an outcome would pose to the wider financial system.

Multiple financial institutions received taxpayer aid in the wake of the collapse of Lehman Brothers in 2008.

What just happened?

A lot can change in a day — especially in crypto.

On Monday, Bankman-Fried, took to Twitter in since-deleted tweets to play down concerns his crypto trading empire was at risk of collapsing.

FTX is “fine,” Bankman-Fried had said, and the exchange had enough assets to cover clients’ holdings should they look to take their funds off the platform.

His comments came after a report from CoinDesk said that Alameda Research, Bankman-Fried’s quant trading firm, had $14.6 billion of assets against $8 billion of liabilities. Most of its assets were reportedly in FTT, FTX’s native token. FTT subsequently plunged in value.

A day later, the 32-year-old entrepreneur, who had styled himself as a “lender of last resort” figure in the struggling crypto sector, announced he would sell the exchange he co-founded three years ago to Binance, the world’s largest crypto exchange.

The debacle highlights something economists have long cautioned about when it comes to crypto: While the industry may be worth billions of dollars — it was once valued at $3 trillion by CoinGecko — in reality, its size is not yet of a “systemic” scale where regulators would feel the need to intervene if a company fails.

And, unlike the banking industry which is heavily regulated, crypto is not yet subject to regulations in the U.S. or other major countries, although that’s expected to change soon as jurisdictions like the European Union bring in new rules.

Crypto’s ‘Lehman moment’?

Whereas in the 2008 financial crisis, countries felt compelled to intervene to prevent the collapse of the banking system, with crypto that duty has been left to private sector companies.

“Most of the activity in crypto continues to remain trading and speculation, hence, broadly the impact from any downside in crypto is also quite limited in a way, compared to banking and financial services in 2008 where the impact was much more entrenched and wide spread,” Vijay Ayyar, vice president of corporate development and strategy at crypto exchange Luno, told CNBC via email.

Asked whether this was crypto’s “Lehman moment,” Ledger’s Gauthier said this had played out previously with the collapse of players like Three Arrows Capital and Celsius: “I think what we’re witnessing right now is somewhat the ripple effects of what happened in [the first half] in our industry.”

The debacle highlights how the crypto industry is becoming more centralized and straying from its decentralized roots, according to Gauthier. Bitcoin and other digital coins are “designed to be decentralized and not rely on a middleman,” he said.

“FTX is a very big warning for everyone,” Gauthier said in an interview on CNBC’s “Squawk Box Europe” on Wednesday. “You can’t just wait for the next value proposition to fail.”

What might happen next?

FTX wasn’t the first company to come under financial stress, and it’s expected that it won’t be the last.

Earlier this year, Celsius, a crypto lending company, filed for bankruptcy after a plunge in the value of the tokens terra and luna rendered it unable to process customer withdrawals.

Crypto fund manager Three Arrows Capital and broker Voyager Digital also subsequently fell into bankruptcy, highlighting the interconnectedness of various players that owed one another money.

Some traders are worried Solana, a blockchain platform competing with Ethereum, might be the next crypto player to be tested by the market sell-off. Solana’s sol token sank more than 30% on Wednesday over fears about its connection with Alameda Research. Alameda owns more than $1 billion worth of sol, according to CoinDesk.

“Is this the end of [the crypto contagion] or will there be any further dominoes to fall? It’s anyone’s best guess,” said Gauthier. “People should not wait to find out.”

On whether Binance might itself be vulnerable to collapse one day, Gauthier said he thinks people should be “reasonably worried” but added the firm has a “relatively solid value proposition.”

Ayyar said the FTX situation will likely add greater impetus for the largely unregulated crypto to be regulated.

“Crypto has been growing in terms of usage and utility and regulators will continue to be forced to take a more active stance on ensuring that platforms play by some rules and structure,” he told CNBC.

Reports /TrainViral/

Crypto

Bitcoin’s Recovery – the Downturn Is Over

Published

5 months ago

July 16, 2024

The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.

Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.

In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.

“No Man’s Land”

Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.

Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.

While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.

Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.

First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.

“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.

A News-Driven Environment

Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.

Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.

Reports /Trainviral/

Crypto

Bitcoin ETFs Saw $300M in Daily Net Inflows

Published

5 months ago

July 16, 2024

BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.

The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.

None of the ETFs recorded outflows for the day.

Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan

According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.

Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.

A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.

What’s Next For Bitcoin?

Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.

But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.

Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.

“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”

Reports /Trainviral/

Crypto

LI.FI DeFi Platform Exploited, Over $8M Lost

Published

5 months ago

July 16, 2024

PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.

The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.

Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.

LI.FI Issues Warning After $8 Million Exploit

LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.

According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.

Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.

Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.

“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.

This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.

But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.

Recent Exploit Mirrors March 2022 Attack

Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.

The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.

“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.

Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.

LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.

Reports /Trainviral/