As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week's top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.
BLOCKFI FILES FOR BANKRUPTCY: Amid the troubles for Sam Bankman-Fried's embattled crypto exchange FTX, BlockFi, a cryptocurrency lender that serviced ordinary investors, filed for bankruptcy, The New York Times’ Lauren Hirsch, David Yaffe-Bellany and Ephrat Livni reported Monday. The company, which has reported roughly $257M in cash on hand, said in court filings it has over 100,000 creditors, as well as $10B in assets and liabilities. BlockFi, which employed 850 workers as of last year, also said it would reduce expenses considerably, including labor costs.
PIPER CALLS FOR ‘MORE AGGRESSIVE HEADCOUNT REDUCTION’ AT COINBASE: Despite an 18% workforce reduction in June, Coinbase's (COIN) headcount is still up 26% year-to-date thru Q3 and went down only 5% quarter-over-quarter, Piper Sandler analyst Richard Repetto said on Friday, The analyst, who believes the company has a "very strong cash position and may even capitalize on the FTX bankruptcy upheaval over the long term," thinks a "more aggressive headcount reduction is a prudent step in managing expenses and sustaining shareholder value in a potential extended 'crypto winter' that could result." He points out that Coinbase had almost double Robinhood's (HOOD) headcount at the end of Q3. Repetto kept an Overweight rating on Coinbase with a $100 price target.
Additionally, Coinbase said on Tuesday that it will delist XRP, Bitcoin Cash, and Ethereum Classic from its crypto wallet. Coinbase said that the cryptocurrencies would no longer be supported on Coinbase Wallet starting in January "due to low usage," but users still can withdraw any unsupported assets by using their wallet recovery phrase.
Coinbase also announced in a series of Thursday tweets from its Coinbase Wallet account, that users can no longer send NFTs on Coinbase Wallet iOS anymore. The company said, “This is because Apple (AAPL) blocked our last app release until we disabled the feature...Apple's claim is that the gas fees required to send NFTs need to be paid through their In-App Purchase system, so that they can collect 30% of the gas fee...For anyone who understands how NFTs and blockchains work, this is clearly not possible. Apple's proprietary In-App Purchase system does not support crypto so we couldn't comply even if we tried...Simply put, Apple has introduced new policies to protect their profits at the expense of consumer investment in NFTs and developer innovation across the crypto ecosystem...We hope this is an oversight on Apple's behalf and an inflection point for further conversations with the ecosystem.”
SILVERGATE CLARIFIES BLOCKFI RELATIONSHIP: Silvergate Capital (SI) announced Monday a business update, citing that its deposit relationship with BlockFi is limited to less than $20M of its total deposits from all digital asset customers as of November 28, 2022. BlockFi is not a custodian for Silvergate's bitcoin-collateralized SEN Leverage loans, which to date have continued to perform as expected with zero losses and no forced liquidations. Silvergate has no investments in BlockFi and maintains a first priority lien and security interest in a cash collateral account, which contains $10M for the benefit of Silvergate to support ACH services provided to BlockFi.
"As the digital asset industry continues to transform, I want to reiterate that Silvergate's platform was purpose-built to manage stress and volatility," said Alan Lane, CEO of Silvergate. "The SEN continues to operate as designed, and our support teams are available 24 hours a day, 7 days a week to help our customers during this period of adversity."
On Tuesday, Keefe Bruyette analyst Michael Perito kept an Outperform rating on Silvergate Capital with a $58 price target after BlockFi formally filed Chapter 11. While this was a larger relationship for Silvergate at some point in the past, the company's exposure to BlockFi today is "very modest" at about $12.4M of deposits with no lending exposure, Perito said.
BAKKT INITIATED WITH A BUY: Rosenblatt analyst Andrew Bond initiated coverage of Bakkt (BKKT) on Tuesday with a Buy rating and $2.20 price target. The analyst is a believer in the potential of digital assets and blockchain technology and sees a future in which decentralized finance looks similar to traditional finance. Bakkt is positioning itself to "win this evolution" and has the platform and technology to succeed, Bond said. He added the company has built a scalable infrastructure to help brands and financial institutions better monetize consumers across crypto and fiat.
KRAKEN SETTLES SANCTION VIOLATIONS: The U.S. Department of the Treasury’s Office of Foreign Assets Control announced Monday a settlement with Payward, Inc. d/b/a Kraken, a Delaware-incorporated virtual currency exchange with operations in the United States and elsewhere. Kraken agreed to remit $362,158.70 to settle its potential civil liability for apparent violations of sanctions against Iran. As part of its settlement with OFAC, Kraken also has agreed to invest an additional $100,000 in certain sanctions compliance controls. Due to Kraken’s failure to timely implement appropriate geolocation tools, including an automated internet protocol address blocking system, Kraken exported services to users who appeared to be in Iran when they engaged in virtual currency transactions on Kraken’s platform.
Additionally in a Wednesday blog post, Kraken CEO Jesse Powell announced a global workforce reduction by approximately 1,100 people, or 30 percent, in order to adapt to current market conditions. He said, “We are extremely grateful for the contributions of those impacted by today’s announcement and we’ll do our best to help them transition to their next opportunity…Since the start of this year, macroeconomic and geopolitical factors have weighed on financial markets. This resulted in significantly lower trading volumes and fewer client sign-ups. We responded by slowing hiring efforts and avoiding large marketing commitments. Unfortunately, negative influences on the financial markets have continued and we have exhausted preferable options for bringing costs in line with demand…Our mission to empower people with new ways to connect and transact is most important to us – it’s what keeps me going every day and it’s why we’re all here. I’m confident the steps we are taking today will ensure we can continue to deliver on our mission which the world needs now more than ever before. I remain extremely bullish on crypto and Kraken.”
CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Ideanomics (IDEX), Riot Blockchain (RIOT), Overstock (OSTK), Pareteum (TEUM) and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.
PRICE ACTION: As of time of writing, bitcoin rose roughly 2% this week to $16,907 in U.S. dollars, according to TradeBlock.