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First Mover Asia: Here’s What Might Happen to Sino Global’s Liquid Value Fund During FTX’s Bankruptcy Protection Proceedings

Good morning. Here’s what’s happening:

Prices: Bitcoin and other cryptos sink some, but not enough to disturb the calm of the past 10 days.

Insights: How will the fallout from FTX affect Sino Global's Liquid Value Fund?

Prices

CoinDesk Market Index (CMI)

852.02

−13.5 1.6%

Bitcoin (BTC)

$16,855

−206.6 1.2%

Ethereum (ETH)

$1,234

−35.9 2.8%

S&P 500 daily close

3,933.92

−7.3 0.2%

Gold

$1,799

+30.0 1.7%

Treasury Yield 10 Years

3.41%

0.1

BTC/ETH prices per CoinDesk Indices; gold is COMEX spot price. Prices as of about 4 p.m. ET

Bitcoin Dips, Albeit Not by Much

By James Rubin

In soccer World Cup terms, bitcoin's performance the past 10 days would be the equivalent of a 0-0 draw.

The largest cryptocurrency by market capitalization isn't losing or gaining much ground. On Wednesday, BTC was recently trading at about $16,850. That was down more than 1% over the past 24 hours but didn't offer much variance from its perch since late November when bitcoin established support above $17,000.

In an interview with CoinDesk's "First Mover" TV program, Joe Orsini, vice president of research at digital asset management platform Eaglebrook Advisors, attributed bitcoin's toughness to an at least temporary slowdown in bad news stemming from the collapse of crypto exchange giant FTX and other crypto fiascos this year.

"When it comes to the unexpected, no news is good news," Orsini said. "We've had a few things play out since the FTX news, of course, the BlockFi bankruptcy that was relatively priced in knowing they kind of relied on that FTX-Alameda bailout, as well as now you have concerns with some of the lenders. But it's been slow to play out, and there hasn't been that second wave of shock."

Ether was recently changing hands at about $1,230, off 2.8% from Tuesday, same time. Other major cryptos spent much of the day in the red, albeit not by much, as investors continued to gnaw on recent economic indicators suggesting the U.S. Federal Reserve's hawkish monetary policy had not taken as big a bite out of inflation as was hoped. SUSHI, the token of the decentralized exchange SushiSwap was recently off more than 8%, while popular meme coin DOGE fell more than 3.5%.

The CoinDesk Market Index (CDI), an index measuring cryptos' performance, tumbled 1.59%.

Cryptos roughly tracked U.S. equity markets, which were most down, with the tech-heavy Nasdaq and S&P 500 dropping 0.5% and 0.1%, respectively, amid inflationary fears, although stocks performance improved over the steeper drops of the previous two days. Markets received an extra whiff of encouragement on Wednesday when China announced it was dropping its harshest Covid restrictions. China's measures to limit mortalities from the disease have been slowing the economic growth of the world's second largest economy by GDP.

Eaglebrook Advisors' Orsini said that additional contagion could unsettle markets. "The important thing to consider is if the news does come, and if there is real contagion, does it lead to forced selling or liquidations or stronger selling pressure?" he asked, although he remained upbeat about a crypto rebound.

"Price does have a knack for changing sentiment," he said. "When things are on sale, people want them less. We believe in the long run that these event-driven declines have very little meaning to underlying technology. Bitcoin has specific characteristics that it a really attractive form of money, and potentially to take market share away from fiat. And with Etherium, the ability to automate transactions, and the quality of entrepreneurs entering the ecosystem is not changing."

Orsini added: "Cycles happen, and so we've been in a bear market for about 13 months, and those (bear markets) were where the opportunities lie for long-term investors."

Biggest Gainers

There are no gainers in CoinDesk 20 today.

Biggest Losers

Asset

Ticker

Returns

DACS Sector

Cosmos

ATOM

−5.3%

Smart Contract Platform

Solana

SOL

−4.9%

Smart Contract Platform

Gala

GALA

−4.8%

Entertainment

Insights

How will FTX Contagion Affect Sino Global Capital?

By Sam Reynolds

Connections between Sino Global Capital’s Liquid Value Fund, its first fund for outside investment, and Sam Bankman-Fried as well as Alameda Research, might mean the venture capital fund is mentioned in FTX’s Chapter 11 bankruptcy protection proceedings, according to a Hong Kong lawyer who specializes in asset tracing.

According to Securities and Exchange Commission filings, Sino Global’s Liquid Value counts Sam Bankman-Fried and Alameda as general partners and co-owners of the fund.

In a prior comment to The Block, Matthew Graham, Sino Global’s founder, who has been historically closely aligned with SBF and FTX, said that a “substantial” portion of the Liquid Value fund’s $200 million had been committed by FTX and other partners.

According to a recent report by the Financial Times, which detailed all of Alameda’s investments, the Bankman-Fried-affiliated fund put $60 million into Sino Global’s Liquid Value Fund. An unknown amount was then contributed by SBF himself.

These events will complicate FTX and Alameda’s process in their bankruptcy hearings, says Stephen Chan, a partner at Hong Kong-based law firm Ince.

“If they are in a partnership, all partners share in the upside and the downside,” Chan said in an interview with CoinDesk. “The other partners may incur liability for the actions of SBF and Alameda.”

A material amount of Alameda’s balance sheet was made up of FTX’s FTT token, as CoinDesk previously reported, which it used for collateral on investments. If Alameda funded part, or all, of its contribution to Sino Global’s Liquid Value fund via FTT, then this pool of assets – and whatever they were invested in – would be a part of what’s available to creditors.

If it turns out that SBF and his cohorts were committing fraud and some of SBF’s partners were in knowing receipt of proceeds of fraud, Chan explained, there would be a slightly different route under Hong Kong common law (the fund is domiciled there, and FTX/Alameda had a significant presence in the territory).

“If SBF is a general partner, then the partnership may have liability,” Chan said.

In instances of fraud, liquidators working on the FTX-Alameda case may look to recipients of proceeds of fraud to see whether civil recovery is possible.

But all of this might be challenging, to say the least. Sino Global is heavily invested in Solana and its respective infrastructure.

CoinGecko data shows that Solana has suffered a 93% loss during the last year, and in the weeks following FTX’s collapse nearly $700 million in locked-in value has been wiped out from Solana decentralized finance protocols.

The token of Orca, a Solana-based decentralized exchange that is one of Sino Global’s leading portfolio companies, reached a high of $20 in October 2021; it is now worth just over 40 cents. Its total value locked went from $1.4 billion at its height to $43.15 million today, according to DeFiLlama.

FTX’s FTT token is currently trading at $1.51, up 14% during the last two weeks, but down 95% on the month. Recently, its contract deployer has dumped the entirety of the locked FTT tokens into circulation, effectively flooding the market with what is already a token of questionable value.

Important events

8:30 a.m. HKT/SGT(00:30 UTC) Australia Trade Balance (MoM/Oct)

8:00 p.m. HKT/SGT(12:00 UTC) European Central Bank's President Christine Lagarde Speech

9:30 p.m. HKT/SGT(13:30 UTC) Initial Jobless Claims

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Bitcoin Dips Under $17K; Sam Bankman-Fried Hires Attorney Mark Cohen: Report

Former FTX CEO Sam Bankman-Fried has hired high-profile defense attorney Mark Cohen, the same attorney who represented Ghislaine Maxwell in her sex-trafficking trial, according to Reuters. Plus, what's moving bitcoin (BTC) and other crypto markets? Joe Orsini of Eaglebrook Advisors shared his analysis. Art Blocks CEO Erick Calderon also joined the conversation. See for yourself why he is one of CoinDesk's Most Influential 2022.

Headlines

Be Patient, Sam Bankman-Fried Could Go to Prison for a Very, Very Long Time: The former wonder boy could be behind bars for life, according to U.S. federal sentencing guidelines.

Binance Generates 90% of Revenue From Transaction Fees, Changpeng Zhao Says: Reinstating ads on CoinMarketCap would add $40 million a year.

Genesis Client Letter Suggests No Imminent Solution to Withdrawal Freeze: The institutional crypto brokerage has been in talks with creditors and potential investors since the collapse of exchange FTX.

US Sen. Cynthia Lummis, Ether Is Now a Security; My Bill Might Have Stopped FTX: The Wyoming Republican says the second-largest cryptocurrency was transformed by the Ethereum Merge.

Bitcoin’s High Correlation to Copper Does Not Bode Well for Short-Term Investors: Bitcoin now more tightly aligns with the commodity than the S&P 500 or Nasdaq. For long-term accumulators, however, this is likely their season.