The 5 Crypto Stories You Need to Know This Week: SBF, Caroline Ellison, SEC and Crypto Auditors and more (#154 - 30 July 2023)

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1. New Insights on FTX Collapse From Former Alameda CEO's Diary

SBF’s trial is scheduled for October (if it is not delayed).

Caroline Ellison, Alameda’s former CEO and SBF’s former girlfriend, is the prosecutors' star witness. Some of their private messages are now public.?

The messages read like two teenagers having a breakup. The problem here is that a multi-billion dollar fraud was attached to it, which both parties (allegedly) knew for a long time.?

Interestingly, Ellison allegedly felt squeezed out after SBF gave $400 million to another crypto hedge fund, Modulo Capital, which was led by another former Jane Street trader, with whom SBF was also romantically involved.

2. Prosecutors Want SBF Jailed After Witness Diary Leak

Prosecutors are asking for SBF to be jailed before his upcoming trial.?

This is particularly important as SBF allegedly made over 100 calls to a New York Times journalist who recently leaked the diary of SBF’s former girlfriend and Alameda CEO, Caroline Ellison, who will testify against SBF in October.?

3. SEC Warns Accounting Firms About Crypto Auditing Risk

The SEC’s chief accountant warned accounting firms that work with crypto clients, saying auditors could be held legally liable for misleading public statements made by their clients.

That led to outrage in the crypto community that the agency is trying to dissuade accounting firms from auditing crypto companies.?

I don’t necessarily agree.?

As a former crypto leader and partner at a Big 4 accounting firm, I would argue that the SEC statement reiterates what every reputable accounting firm already does.?

Most follow these requirements, but their clients often misrepresent the work done (there are various types of “assurance” work, from financial audits to SOCs to AUPs) or use the name/logo of the Big 4 without prior approval.?

Yes, many of us believe in a decentralized and trustless world. But in the interim and on our journey there, we need these trusted intermediaries, and we will for a while.

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4. Canada Issues New Guidance on Crypto Exposure

Canada's financial regulator proposed strict new guidance for crypto exposure for banks and insurance companies, saying banks should have no more than 1% crypto exposure.?

This is not surprising as it is aligned with some of the more restrictive actions Canadian regulators have taken against crypto firms recently (which has caused many global crypto firms to leave the country and the few local ones to consolidate - not too dissimilar to the Canadian banking landscape).?

Canadian regulators have contributed a lot to the crypto ecosystem over the years.

The Ontario regulator’s (OSC) analysis of the collapse of the QuadrigaCX crypto exchange is an excellent post-mortem with many similarities with FTX. And the Canadian central bank has contributed a lot over the years to CBDC research.?

5. Israel Moves Towards DAO Regulation

The Israeli government has set up a special examination team to explore the regulation of decentralized governance organizations (DAOs) and will consult the public until September.?

Several jurisdictions have studied this topic, from the US state of Wyoming, which recognizes DAOs as a “legal entity,” and the Marshall Islands, which proposed doing the same, to Dubai, which officially mentions DAOs in their latest regulation.

We should expect others to follow in the coming months.?

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Henri Arslanian

*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with. This newsletter is for educational purposes only and none of its content should be construed as investment or financial advice of any kind.?

Who is Henri?

Henri Arslanian is the co-founder and managing partner of Nine Blocks Capital Management, an institutional-grade hedge fund focused exclusively on digital assets, with a market-neutral crypto fund focused on generating alpha from inefficiencies in crypto markets using relative value, arbitrage, and quantitative strategies.?

Henri was previously a partner and global crypto leader at PwC. In that role, he advised many of the world’s leading crypto exchanges, investors, financial institutions, and tech firms on their crypto initiatives and numerous governments, regulators, and central banks on crypto regulatory and policy matters.

With over 500,000 LinkedIn followers, Henri is a TEDx and global keynote speaker, a best-selling published author, and is regularly featured in global media, including Bloomberg, CNBC, CNN, BBC, The Wall Street Journal, The Economist, and the Financial Times.?

Henri was named by LinkedIn as one of the 2022 global Top Voices in Finance and is the host of the CryptoCapsules? social media video series as well as The Future of Money podcast and newsletter.