In what turned out to be a bounce-back year for crypto prices—and while there perhaps was less out-and-out bad news compared with 2022—the crypto world is never without its fair share of drama. If you weren’t glued to Crypto Twitter all year long like we were, here are some highlights.
DCG drama
When the Winklevoss twins launched Earn, to give customers 8% returns on lent crypto, they turned to Digital Currency Group subsidiary Genesis. But when Genesis went bankrupt, Earn customers were left high and dry. Soon the Winklevosses’ crypto exchange, Gemini, was entangled in a dispute with Digital Currency Group CEO Barry Silbert. Through a series of open letters, Cameron and Tyler accused Silbert of corporate malfeasance and said Genesis owed Gemini more than $1 billion. In September, lawyers for DCG proposed a new bankruptcy plan that would give Earn customers between 95% and 110% of what they were owed after Genesis declared bankruptcy. In October, New York Attorney General Letitia James sued Gemini and DCG for allegedly defrauding investors.
Banks blow up
In March, Silicon Valley Bank became one of the largest U.S.-based financial institutions to collapse since 2008, a failure that led to instability and contagion in the sector. Five other banks toppled, including the crypto-friendly Silvergate Bank, which served an increasing number of big-name clients such as Coinbase and FTX. With most of its deposits tied to the sector, when crypto prices dropped and FTX collapsed, Silvergate was killed by a bank run. Days later, another crypto-friendly bank, Signature, was closed by New York State regulators. Other institutions such as First Republic Bank and Citizens Bank also collapsed in 2023.
Do Kwon
After months on the run following the $40 billion implosion of his algorithmic stablecoin TerraUSD, former Terraform Labs CEO Do Kwon was arrested in March along with his company’s former CFO. The trash-talking 32-year-old crypto entrepreneur, who often railed against “the poor” on X/Twitter, was caught with several fake passports while trying to flee Montenegro for Dubai. He pleaded not guilty to accusations of trying to use fake travel documents. Later, a higher court reversed a proposed bail of 400,000 euros (about $435,000 at the time) that left Kwon stuck in jail. In June, he was sentenced to four months in prison and has remained in custody as Montenegro’s top justice official weighs extradition requests from both the U.S. and Kwon’s native South Korea. Kwon has appealed a ruling by a Montenegrin court that would allow him to be extradited, but the Wall Street Journal reported that Kwon will still likely be extradited to the U.S.
NFTs bottom out—even with emergence of Ordinals
NFTs were among the biggest winners of the previous bull market that pushed crypto prices to all-time highs. This year was a different story. By the third quarter, NFT trading volume had fallen to $1.39 billion, compared with more than $12 billion in the first quarter of 2022, according to data from DappRadar. In January, a new type of NFT on the Bitcoin network called Ordinals led to a trading frenzy. More than 49 million have been created since then, according to Dune. A number of new players, including NFT marketplace Blur, have also transformed the NFT business by introducing incentives and dropping fees to threaten the formerly dominant leader OpenSea. To compete, OpenSea stopped enforcing creator royalties, causing major backlash among NFT artists. As of November, Blur and competitor OKX were responsible for just over two-thirds of NFT trading activity, while OpenSea sat at about 10%—although it still has the highest number of active traders. In November, OpenSea laid off half its staff—and then held a company retreat in a mansion.
Easy come, easy go
This year, billions of dollars flowed into digital assets, but on the flip side several once-mighty industry leaders fell by the wayside. In November, Fortune reported that Wormhole raised $225 million in the biggest crypto-related funding round of the year, from investors such as Arrington Capital and Jump Crypto. All investors got token warrants in lieu of equity. The raise, which was technically its first although it has been incubated by Jump Crypto for years, valued Wormhole at $2.5 billion. (Special mention also goes to Worldcoin, an eye-scanning identity-based blockchain company cofounded by OpenAI CEO Sam Altman, which raised $115 million in May.) On the other side of that coin, about $1.7 billion was stolen from crypto projects in total this year, which was a large sum but still lower than the estimated $4 billion hackers took last year, according to TRM Labs. Some of the biggest hacks were exploits of about $100 million each that affected cross-chain bridge Multichain, lending app Euler Finance, and the Poloniex crypto exchange.
Legal wins
After yearslong court battles with the Securities and Exchange Commission, crypto companies Ripple and Grayscale both scored victories against the regulator this summer. In July, a federal judge ruled that the XRP token closely tied to Ripple was not a security when sold in the open market via crypto exchanges. The judge also gave the SEC a partial win by ruling that institutional sales of Ripple did constitute unregistered securities offerings, but some experts and many on Crypto Twitter touted the result as an overall win for the broader industry. A federal judge ruled in October that the SEC could not appeal the decision, and the agency later dropped charges against two of the company’s executives. Grayscale also got a boost after a federal court said that the SEC was “arbitrary and unfounded” in not granting the company’s application to create a spot Bitcoin ETF, opening the door to possible approval for similar financial instruments next year. The judge presiding over the case pointed to the SEC’s approval of futures-based Bitcoin ETFs as evidence of the agency’s inconsistency. The regulator chose not to appeal the ruling.
SBF
In November, Sam Bankman-Fried, the onetime white knight of crypto, was found guilty of seven counts related to the collapse of crypto exchange FTX and sister company Alameda Research. At its peak, FTX was valued at some $32 billion, but, as revealed during his more-than-month-long trial, SBF and his top executives (several of whom testified against him) misappropriated billions of dollars of customer assets to fund risky trades at Alameda and buy luxury real estate, among other things. SBF, whose sentencing is scheduled for March, is now awaiting a second trial over whether he used customer money to attempt to bribe Chinese government officials.
CZ and Binance
For more than a year, Binance, the world’s largest crypto exchange, and founder Changpeng “CZ” Zhao, have been under scrutiny from U.S. regulators and law enforcement. In November, the company reached a deal with the Justice Department and two other federal agencies in which it agreed to pay a $4.3 billion fine and plead guilty to violating U.S. anti-money-laundering laws and economic sanctions. Zhao stepped down as CEO and also pleaded guilty to money-laundering violations. He will have to stay in the U.S. until his sentencing date. In a separate deal with prosecutors, the former Binance CEO agreed to pay a $50 million fine. The company’s former chief compliance officer agreed to pay a $1.5 million fine. As part of Binance’s deal, the company will have to accommodate two court-appointed monitors who will supervise the business and determine whether it’s complying with U.S. law.
The big boys’ Bitcoin ETFs
Spot Bitcoin ETFs already exist in Europe and Canada, but for years the SEC has remained firm in not approving one, citing the possibility of market manipulation as one reason to reject dozens of applications. (Cameron and Tyler Winklevoss, of Social Network fame, first tried in 2013.) Still, over the past several months, momentum has started to swing against the regulator as more TradFi firms file their own applications. While Grayscale, which runs the world’s biggest Bitcoin trust, has been battling the SEC in court to push for converting GBTC to a spot Bitcoin ETF, firms such as BlackRock and Fidelity have swooped in with applications of their own. After Grayscale’s court victory over the SEC, some analysts are predicting the first spot Bitcoin ETFs could be approved by early January, which could inject hundreds of billions of dollars of inflows to the crypto market.
Is Crypto Winter over?
Bitcoin started the year at just over $16,000. As 2023 draws to a close, the most popular cryptocurrency is up 157% year to date, trading at a 20-month high. Starting in mid-October, Bitcoin took off from the $26,000 range, where it had been stagnant for months, breaking the $40,000 level in December before some selloffs. (It’s still a ways off from its all-time high of about $69,000 in the fall of 2021.) Among the highlights that pushed Bitcoin up over the past few months were the election of a pro-crypto president in Argentina, court victories against the SEC by Grayscale and Ripple, and crypto-friendly comments from BlackRock CEO Larry Fink. Still, the most significant cause of Bitcoin’s recent upswing is speculation by investors that the SEC could soon approve a flurry of spot Bitcoin ETFs.
