Five Things to Know in Crypto: The Middle East, Grayscale, and SBF in Focus

Key Insights

• The Middle East conflict and the US CPI Report leave the crypto market with heavy losses.
• Gary Wang, Caroline Ellison, and Zac Prince gave testimony for the prosecution in the Sam Bankman-Fried trial.
• Grayscale will get a second chance at a BTC-spot ETF after the SEC decision against appealing the court ruling.

Cryptos Tumble in Reaction to the Middle East Conflict and US Inflation

The crypto market has experienced a sharp decline since the October 7 Hamas attack on Israel. Significantly, the losses are in stark contrast to the Nasdaq Composite Index loss of just 0.18%.

The crypto market is down 3.55% to $1,032 billion for the current week. Notably, the crypto market cap had ended October 6 at $1,073 billion before a six-session selling streak.

While escalation in the Middle East conflict kickstarted the pullback, investors also responded to the US CPI Report. A hotter-than-expected US CPI Report sent the total crypto market cap to a week low of $1,015 billion. Bets on a Fed rate hike weighed on the appetite for cryptocurrencies.

SEC Decides Not to Appeal the Grayscale Victory on Appeal

On Friday (EST), reports of the SEC deciding against appealing the Grayscale Bitcoin-Spot ETF court ruling drove buyer appetite for BTC.

Grayscale won against the SEC on appeal in August, with the Court ruling the SEC must reconsider its stance on the Grayscale BTC-spot ETF application. The SEC previously disapproved the Grayscale application to convert the Grayscale Bitcoin Trust into a Bitcoin-spot ETF.

On Friday, BTC responded to the news, gaining 0.37%. While the gain was modest, BTC hit a session high of $27,138 before wrapping up the day at sub-$27,000. The SEC could find alternative reasons to decline the Grayscale application at the second time of asking. Uncertainty about the future of the BTC-spot ETF market contributed to the return to sub-$27,000.

US vs. Sam Bankman-Fried Trial Highlighted Fraudulent Activity

The US vs. Sam Bankman-Fried trial garnered plenty of market interest. Prosecution witnesses, including Gary Wang, Caroline Ellison, and Zac Prince, took the stand.

Gary Wang, co-founder of FTX, and Caroline Ellison, former CEO of Alameda Research, gave testimony as part of plea agreements with the US Department of Justice.

Gary Wang acknowledged committing crimes at FTX along with Nishad Singh, Caroline Ellison, and SBF. Significantly, Wang admitted FTX permitted Alameda to withdraw unlimited funds.

Caroline Ellison, former girlfriend of SBF, also delivered damning testimony. Under direct questioning, Ellison said SBF directed her to commit the crimes, adding he set up the systems and told her to take the money.

Former BlockFi CEO Zac Prince took the stand on Friday. Responding to questions from the prosecution, Prince stated BlockFi would not have approved loans to Alameda if they had known about FTX-Alameda loans or if they had known Alameda was accessing FTX customer funds.

UK Financial Conduct Authority Targeted Binance Access to UK Investors

On Tuesday, the UK Financial Conduct Authority (FCA) responded to news of a Binance partnership with rebuildingsociety.com.

The FCA announced restrictions on rebuildingsociety.com, preventing the company from approving crypto-asset financial promotions. As part of a newly formed partnership with Binance, rebuildingsociety.com intended to handle UK promotional materials and communications for Binance.

The FCA introduced the UK Financial Conduct Authority’s Financial Promotional Rules for Crypto Assets to protect UK retail investors.

SEC Finds Support in the Ongoing SEC v Coinbase Case

The North American Securities Administrators Association (NASAA) filed an Amicus Curiae brief supporting the SEC’s opposition to the Coinbase (COIN) motion to dismiss.

The NASAA argued,

“The SEC’s theory in this case is consistent with the agency’s longstanding public position, the position advanced by state securities regulators, and even the understanding of digital asset issuers. The Court should reject Coinbase’s attempt to narrow and misapply the established legal framework […].”

The NASAA is not alone in filing Amicus Curiae briefs in the ongoing SEC v Coinbase case. In August, Republican Senator Cynthia Lummis, among others, filed Amicus Curiae briefs supporting Coinbase, arguing,

“The SEC’s assertion of authority in this case is out of step with active legislative efforts.”