Terra and Do Kwon Found Liable for Fraud As Bitcoin Tops $72k

The Terraform Labs co-founder isn’t done with court yet

By: André Beganski

April 8, 2024

GM! This week: Do Kwon and Terraform Labs are found liable for fraud, the Bitcoin halving approaches, NFT sales slump, Genesis finishes dumping $GBTC, and JPMorgan calls spot Ethereum ETFs an eventuality.

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

SEC’s Win

The SEC notched a major win against Terraform Labs and Do Kwon on Friday when the Terra co-founder and his firm were found liable for fraud in a Manhattan court. The decision came nearly two years after the collapse of Terra’s UST and LUNA shredded $40 billion in value.

Regulators were able to convince a jury that Kwon and Terraform Labs made misrepresentations about the project, which made Terra appear more stable and successful than it ever was. That included a deal with Jump Crypto to restore UST’s dollar peg in 2021 and mirroring transactions from Chai to make it look like the payments app directly utilized Terra.

It only took a couple of hours for a jury of seven New Yorkers to agree, setting the stage for Judge Jed Rakoff to consider what penalties Terraform Labs and Kwon face. Meanwhile, Montenegro’s Supreme Court overturned a decision granting Kwon’s extradition to South Korea, where he could soon face criminal charges — or, potentially, in the U.S.

Bitcoin’s Halving

Bitcoin’s halving is slated to take place in less than two weeks. While history would suggest a bull run follows in the coming months, this moment for Bitcoin’s price is unlike any other before, Coinbase analysts David Duong and David Han told The Block.

This is the first time that Bitcoin’s price has hit all-time highs before halving, suggesting that any bullishness towards the event could already be priced in, the analysts said. In 2016 and 2020, for example, Bitcoin was 60% and 50% below ATHs, relative to this moment in time.

Pointing to spot Bitcoin ETFs, Duong said that Bitcoin’s market has been “irrevocably altered,” meaning that “Bitcoin's response to the upcoming halving may not necessarily mirror its performance in prior cycles.”

Meanwhile, digital asset investment products notched $646 million in inflows last week, according to data from CoinShares. While it pushed year-do-date inflows to a new record at $13.8 billion, CoinShares Head of Research James Butterfill said the are “signs of ETF hype moderating.”

Are NFTs Dead?

NFT sales declined for a fourth week in a row as centralized crypto exchanges posted record-setting numbers in March, per DL News. The trend captures headwinds for the NFT sector in crypto that have persisted despite growing interest in other areas, such as meme coins.

While NFT sales have totaled $1.1 trillion over the past 30 days, according to CryptoSlam, centralized crypto exchanges saw $9.1 trillion in volume during March, according to data from Nasdaq.com. Regarding networks, Bitcoin, Solana, and Ethereum are clear leaders based on projects with the most sales.

A growing preference among Web3 users for meme coins over NFTs could be reflected in the panoply of meme-coin-focussed events that took place last week at NFT.NYC, the annual JPEG conference held in New York. For example, a late-night event was held for dogwifhat, which is up 12% over the past day to $4.20.

$GBTC Flows

Since Grayscale’s Bitcoin Trust was up-listed into a full-fledged ETF in January, the asset manager’s flagship fund has hemorrhaged Bitcoin at a steep rate. On average, outflows from GBTC have averaged nearly 5,000 Bitcoin per day worth $365 million.

At GBTC’s current clip, the $22 billion fund could run out of Bitcoin by July. But, according to Bloomberg’s Seyffart, daily net outflows from GBTC should hover in the $100 million range as bankruptcy estates finally stop selling shares.

For example, the bankrupt crypto lender Genesis said it completed the sale of 36 million shares in GBTC on Friday, among other funds that Grayscale manages. Selling shares in GBTC to buy Bitcoin, Genesis parted ways with shares worth $1.4 billion.

JPMorgan’s View on ETH

Even if the SEC denies applications for spot Ethereum ETFs in May, the products for crypto’s second largest coin are somewhat inevitable, according to Nikolaos Panigirtzoglou, JPMorgan’s managing director and global market strategist.

While market watchers including Bloomberg’s Seyffart have lowered approval odds to just 25% from 70% at the start of this year, Panigirtzoglou has kept his odds steadfast at 50%, despite recent reports the SEC is investigating the Ethereum Investigation.

The SEC began soliciting public comments on applications for several spot Ethereum ETFs last week, including bids from Fidelity, Grayscale, and Bitwise. Still, analysts are looking for greater interaction between asset managers and the SEC — beyond what’s standard procedure — such as soliciting public comments.

"If there is no spot Ethereum ETF approval in May, then we assume there is going to be a litigation process after May," Panigirtzoglou said. "We believe that the most likely scenario is that the SEC eventually loses this litigation.”

Other Headlines Around Crypto

  • Solana Developers Rally to Combat Network Congestion (The Block)

  • Federal Watchdog Takes Aim at Crypto Gaming (Decrypt)

  • Staking or Not, ETH is No Security (Blockworks)

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