Crypto Kingpins Continue to Fall

After the fall and imprisonment of Sam Bankman-Fried (FTX) and Changpeng Zhao (founder of Binance the world’s largest cryptocurrency exchange), the founder of collapsed crypto asset platform Celsius Network LLC Alex Mashinsky pleading guilty to commodities fraud is a big deal.  Celsius had grown to become one of the largest crypto platforms in the world, at its peak holding $25 billion in assets, before spectacularly falling into bankruptcy.   Mashinsky as part of his plea has agreed to forfeit $48m.

Celsius founder and former CEO Alexander Mashinsky pleads guilty to multi-billion dollar fraud and market manipulation schemeshttps://t.co/ov1h5gpl8m

— US Attorney SDNY (@SDNYnews) December 3, 2024

Why is this a big deal?  

As it looks like Mashinsky will, as part of a plea bargain with USA prosecutors, reveal what goes on behind the closed doors of Tether, the largest cryptocurrency in terms of trading volumes (with 70% of market share in stablecoins).   It is the most trusted because it is, allegedly, a digital currency fully backed by US Dollars, a “USD Coin”.   One USDC is supposedly pegged to one US $ and its website currently states it has +$100 billion in reserves (with $5bn being “excess” reserves).   

Rumours of Tether being used to support drug trafficking

Rumours of Tether being used to support drug trafficking and other illicit activities are nothing new, but the US examiners report into Celsius reveal an intimate relationship with Tether, including Tether being the third largest investor in Celsius and providing a loan to Celsius of $2 billion USDT with Celsius issuing its own customer tokens as collateral as well as bitcoin (BTC). 

Celsius claim that Tether breached their agreement

Interestingly, that “loan” would appear to have been in direct breach of Tether’s own terms of service which stipulate USDT is only issued in exchange for US dollars.  In addition, in a lawsuit filed against Tether by the administrator of Celsius this summer, seeking to clawback 39,500 BTC (at the date of the lawsuit worth $2.3bn), Celsius claim that Tether breached their agreement by selling off the BTC collateral before it was entitled to tipping Celsius into bankruptcy. 

Mr. Mashinsky unlikely to holdback

So let’s just say Mr. Mashinsky is unlikely to holdback, if he genuinely gives prosecutors an inside track on Tether that verifies even half the rumours then I really do think it’s the beginning of the end for crypto as we know it.  USDT operates as a reserve currency in the crypto universe, its collapse would precipitate a huge market wide crash.   

The end of crypto? Almost certainly not

Whilst this might not result in the end of crypto full stop – there are too many vested interests for that to happen – it could go some way to finishing off the operation of so many de facto Ponzi schemes and mass marketed fraudulent investment schemes. Even a supportive White House with a crypto advocate, might struggle to pardon some of this away.

The crypto market has been built (and arguably succeeded) on the message that “the banks are not your friends” and whilst traditional financial institutions are by no means perfect, they are built on real foundations.    Yes, bailed out by governments from time to time but in part because of that reality.  If cryptocurrency has a real future, it will only be when this 1.0 version is truly consigned to the history books and judged to be, at best, a well-intentioned leap into the future exploited by bad actors.

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Martin Finnegan

Chief Commercial Officer

Martin Finnegan is Chief Commercial Officer of Punter Southall Law. Martin has spent his entire career advising corporate clients – both publicly listed and private owner-managed, from start-up to FTSE 250 – and was formerly a partner with Nabarro LLP (now part of international law firm CMS) where he co-chaired the Equity Capital Markets Group and prior to that was Head of Capital Markets at McGrigors (now part of international law firm Pinsent Masons). Martin founded and ran a corporate boutique which he successfully led for 9 years.

Martin joined Punter Southall Law in 2020 in its first wave of recruitment of partners from leading City firms to its uniquely positioned platform, the only platform law firm to have the backing of a large financial service group, driving opportunities for its lawyers and clients.

Martin is also a non-executive director of Tower Trading Group (TTG), a City based proprietary trading group supporting over 200 professional traders across the globe, trading multiple derivatives markets. Martin has overseen TTG’s legal function -in an outsourced general counsel capacity- since 2012 managing a range of complex legal issues and instructing law firms domestically and internationally in seeking to deliver the best legal outcomes for TTG.

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