Do Kwon’s SEC Trial Kicks Off as Extradition Requests Loom

The Terra co-founder’s two-week trial began with a bang

By: André Beganski

March 26, 2024

GM! This week: Do Kwon gets released from prison as his SEC trial begins, Bitcoin stages a comeback after strong ETF outflows, the SEC’s scrutiny of Ethereum emerges, and Nigeria levies tax charges against Binance.

Listen to Coinage discuss these stories and more in our usual Live News Digest.

Do Kwon’s Trial

A civil fraud case brought by the SEC against Terraform Labs and the company’s co-founder, Do Kwon, kicked off in Manhattan Monday — setting the stage for the two-week trial. Six women and three men were picked to weigh charges, and each side’s opening arguments echoed those from Sam Bankman-Fried’s criminal trial in November, which just so happens to share the same courthouse.

Prosecutors did their best to dumb things down for the jury, assuring them the case does not rest on the technical complexities of crypto or stablecoins, but rather misrepresentations about a payments app called Chai and how TerraUSD maintained its dollar peg. Meanwhile, defense lawyers for Kwon and Terraform Labs said a failed attempt at innovation is not a crime, in and of itself.

As the trial began, Kwon experienced life outside of prison for the first time in nearly a year. He was released from custody in Montenegro on Saturday, as the country’s Supreme Court reconsiders competing extradition requests for Kwon from the U.S. and South Korea.

SBF’s Sentencing

FTX founder and former CEO Sam Bankman-Fried is set to be sentenced on Thursday. And in his decision, District Judge Lewis Kaplan will have to weigh competing suggestions from prosecutors and the defense: 40-to-50 and 6.5 years in prison, respectively.

As of now, traders on the crypto-based predictions market Polymarket see only a 3% chance the former crypto wunderkind is handed down a prison sentence of 5-to-10 years. The most likely outcome is a sentence between 20-to-30 or 40-to-50 years, per Polymarket’s website.

Bankman-Fried, who technically faces up to 110 years in prison, would be 72 or 82 years old when released from prison if prosecutors have their way. According to the U.S. prosecutor who took down Bernie Madoff, Bankman-Fried’s sentence will likely be 25-to-35 years.

SEC’s Scrutiny

America’s top Wall Street cop is probing companies as part of an investigation into Ethereum, Fortune reported last Wednesday. The development followed reports last week that a warrant canary icon from the Ethereum Foundation’s GitHub repository had been removed last month.

Fortune’s report states that the SEC is scrutinizing Ethereum concerning the so-called merge, potentially using the network’s transition to a proof-of-stake consensus model in 2022 as a “new pretext” to categorize crypto’s second-largest coin as a security versus a commodity.

As spot Ethereum ETF hopefuls continue to see applications delayed by the regulator, market watchers have grown increasingly pessimistic about the products’ potential approval in May. Despite the ruckus, however, Ethereum is up 7% over the past week to around $3,500.

BlackRock’s BUIDL

BlackRock’s crypto foray took a step forward last week as the company unveiled its new BUIDL fund, a tokenized fund on Ethereum that pays out U.S. dollar yield in the form of tokens. Alongside the announcement, the financial titan announced a “strategic investment” in Securitize, tapping the firm as its transfer agent and tokenization platform as well.

While the move speaks volumes about BlackRock’s willingness to experiment with crypto tech, the announcement shouldn’t be a surprise to anyone. Not long after FTX crashed in 2022, BlackRock CEO Larry Fink took the stage at a New York Times DealBook event and said, “The next generation for markets, the next generation for securities, will be tokenization of securities.”

Binance & Nigeria

After being detained by the Nigerian government in February, Binance’s regional manager for Africa, Nadeem Anjarwalla, reportedly escaped the country. Meanwhile, Anjarwalla’s U.S. colleague and a former federal agent, Tigran Gambaryan, remains in custody.

Anjarwalla’s escape represents the latest turn in tensions between crypto’s largest exchange and Nigeria, where the country claims Binance is responsible for $26 billion that flowed out of the country through its platform and a free-fall in the Nigerian naira. Over the past year, the nation’s currency has shed 70% of its value against the dollar.

Binance had not yet responded to new tax charges levied against the firm, but it did say that it is “working collaboratively with Nigerian authorities” to resolve the detainment of its employees.

ETF Flows

Not long after Bitcoin touched a new all-time high of close to $74,000, the crypto market’s momentum swung the other way, resulting in $888 million flowing out of the 10 spot Bitcoin ETFs that were approved by the SEC in January last week.

As far as outflows go, Grayscale’s Bitcoin Trust (GBTC) continued hemorrhaging cash, pushing net outflows for the fund to $2 billion since it launched. Since its Wall Street debut, the product hasn’t had a single day of positive flows, yet BlackRock’s ETF hasn’t seen any sellers yet.

Pulling in 238,000 Bitcoin since it was approved, analysts say it’s only a matter of time before BlackRock catches up to GBTC’s holdings of 350,000 Bitcoin. It’s worth noting that BlackRock’s ETF recently muscled its way past MicroStrategy’s Bitcoin holdings.

Other Headlines Around Crypto

  • Dogwifhat Outpacing Meme Coin Rivals Bonk, Pepe and Dogecoin With 20% Gains (Decrypt)

  • SEC Seeks $1.95B Fine in Final Judgment Against Ripple (CoinDesk)

  • Binance investors in Philippines dump USDT at 7% discount after regulator ban (DL News)

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