From the editor’s desk

Dear Reader,

Only when the tide goes out do you discover who’s been swimming naked. So said the Oracle of Omaha, otherwise known as Warren Buffett.

Buffet may be well known for his skeptical view of cryptocurrencies — a view that Forkast doesn’t share — but it’s hard to argue with his track record of wealth generation, overall wisdom, and the relevance of his maritime metaphor to the current moment in our industry.

Recent days have seen yet another player in the crypto space caught with his beach shorts around his ankles — Michael McCaffrey, the now-former chief executive of news outlet The Block. McCaffrey is one of the latest industry figures to have come unstuck as a result of the collapse of crypto exchange FTX, following revelations that he failed to disclose US$43 million in loans from FTX brokerage operation Alameda Research.

As McCaffrey cools his heels and ponders his repayment options, things have become even hotter and more uncomfortable for FTX’s founder, Sam Bankman-Fried — and not just thanks to the sunny climes of the Bahamas, where he resides. Bankman-Fried was picked up by Nassau police this week after New York prosecutors filed criminal charges against him, and his extradition to the U.S. looks all but inevitable.

Meanwhile, the town that Bankman-Fried left for the Bahamas — Hong Kong — is looking to learn the lessons of this year’s crypto busts by bringing in a system of regulation and licensing for digital assets.

Hong Kong has a history of reinventing itself as times and fortunes change. And despite the difficulties Hongkongers continue to endure as a result of a China-led crackdown on free speech and civil liberties, authorities in the territory — like their counterparts elsewhere in Asia — have clearly spotted a wave of opportunity they think they can surf to restore the city’s status as a digital asset hub.

As the tide goes out in the Caribbean, it may well be rising in our part of the world. Watch this space.

Until the next time,

Angie Lau,
Founder and Editor-in-Chief
Forkast

Forkast.Insights | What does it mean?

The speed at which Sam Bankman-Fried has seen criminal charges filed against him reveals a sea change in how regulators regard the crypto industry. U.S. law enforcement has been making more arrests in the sector than ever before, and Sam Bankman-Fried is on a lengthening list of founders destined for the dock. 

Before the latest charges, the U.S. Securities and Exchange Commission had already begun civil proceedings against the former FTX founder and chief executive, and he was due to appear this week before the House Financial Services Committee to explain what happened at his business.

The swift move to criminal proceedings demonstrates American authorities’ confidence in the prospects of a conviction and a determination not to allow Bankman-Fried to seek refuge in a country lacking an extradition treaty with the U.S., as appears to be the case with Terraform Labs cofounder Do Kwon. 

The South Korean cofounder of the collapsed Terra stablecoin has been engaged in a game of cat and mouse with Interpol, all the while continuing to use Twitter to claim his innocence. Bankman-Fried took Do Kwon’s lead, also using his Twitter account to make claims about how little he knew of misuses of funds. No longer. 

With the arrest of Tornado Cash developer Alexey Pertsev earlier this year, the takedown of two Estonians responsible for a US$500 million money laundering scheme, and the busts of a group of early Bitcoin pioneers for running an illegal business and tax evasion, U.S. authorities are trying to put crypto on trial like never before. 

Forkast.Insights | What does it mean?

The relationship between journalism and the industries its practitioners cover has always been a fraught issue. 

For years, powerful figures have bought or donated heavily to some of the world’s biggest media organizations. Some have acquired media outlets to support the work they do. Others have used the influence of their acquisitions to shape the news agenda.  

In crypto, the boundary between ethics and expediency is particularly indistinct. Investors in crypto start-ups haven’t discriminated between tech companies and media companies, and venture capital has often flowed into both within the same portfolios. 

Sam Bankman-Fried knew that better than most. He made investments not only in The Block but also Semafor and Trustless Media, two media companies covering the industry. 

He had also given — or was in the process of issuing grants to — ProPublica, Vox, The Intercept and the Law & Justice Journalism Project. Giving money to media organizations obviously isn’t illegal, but it does make it tougher for journalists to demonstrate their independence if their reporting reflects negatively on sponsors. 

The Block had, until recent revelations, been regarded as an example of solid, independent digital asset journalism. The fact that it secretly took loans from someone who is now facing criminal charges sadly calls much of its work into question. 

Although allegations of murky practices have become commonplace in crypto, moving beyond that becomes even harder when the media industry tasked with holding it to account falls into the same trap.

Forkast.Insights | What does it mean?

Hong Kong authorities appear determined to get cryptocurrency regulation into place as local industry players show greater interest in rolling out crypto-related financial products.

CSOP Asset Management, Samsung Asset Management and Mirae Asset Global Investments have been some of the first to submit the applications to the SFC for ETFs tracking Bitcoin and Ether futures, according to a report by Nikkei Asia last week, and CSOP has received approval.

Hong Kong public broadcaster RTHK reported this week that the SFC was drafting regulatory requirements for local licensed crypto exchanges in light of the collapse of FTX.

The crypto market’s volatility and risks appear to have prompted Hong Kong Securities Clearing Company, the clearing unit of Hong Kong Exchanges and Clearing (HKEX), to set higher margin rates for virtual asset futures ETFs at 30%, compared to a flat rate of 12% applied to other instruments, according to HKEX.

Rebuilding trust is something the crypto community needs to do right now following FTX’s meltdown, an issue that Hong Kong’s government is well aware of. The city’s financial secretary, Paul Chan, said last month that Hong Kong remains bullish on crypto assets and that regulations could underpin the operation of a robust, orderly market.

The moves by regulators, ETF issuers and HKEX show that they are bracing themselves for policymakers’ vision to reclaim Hong Kong’s position as an international crypto hub. As Chan has noted, corporate governance regulation, financial and operational disclosures, and investor protection are guard rails the crypto sector desperately needs, and they’re exactly what Hong Kong’s authorities are working toward.