Spot Bitcoin ETF’s Q1 Haul, Bankman-Fried’s Prison Sentence

Bitcoin (BTC) began the week trading in the red, below $70,000, after staying above that level most of the previous week. The cryptocurrency closed the first quarter of the year with gains of roughly 68%, driven in large part by spot bitcoin exchange-traded funds that amassed over $12 billion of net inflows since January.

Last week was a massive one for legal battles involving cryptocurrency companies. Former FTX CEO Sam Bankman-Fried has been sentenced to 25 years in prison roughly 18 months after the collapse of the defunct crypto exchange, while KuCoin is the latest exchange to face charges related to anti-money laundering laws. Additionally, Coinbase (COIN) failed in a bid to have a lawsuit by the U.S. Securities and Exchange Commission (SEC) against it dismissed.

Spot Bitcoin ETF Net Inflows Top $12 Billion

Eleven spot bitcoin ETFs approved by the SEC in January saw about $12.1 billion in net inflows by the end of the first quarter. Blackrock’s iShares Bitcoin Trust (IBIT) was the big winner of the spot bitcoin ETF inflows race with roughly $13.9 billion coming into the fund.

Higher fees led to a massive exodus from Grayscale’s Bitcoin Trust (GBTC) with investors pulling out almost $14.7 billion from the fund. GBTC is the oldest and the largest bitcoin fund, that was converted into an ETF in January. Grayscale has filed for a mini bitcoin ETF with a lower fee plan to stem some of those outflows.

Hashdex’s DEFI ETF, formerly a bitcoin futures ETF and one of the eleven approved by the SEC, finally converted to a spot bitcoin ETF and began trading on March 27.

Sam Bankman-Fried Sentenced for FTX Fraud

Bankman-Fried has been handed a 25-year prison term for his involvement in a monumental fraud scheme that led to the platform’s downfall in November 2022. Alongside the prison sentence, Bankman-Fried will undergo three years of monitored release and is ordered to surrender more than $11 billion. This massive forfeiture is intended to reimburse defrauded FTX customers.

The collapse of FTX was precipitated by a liquidity crisis in November 2022 and unveiled a tangled web of financial mismanagement, including the improper mingling of funds with its sister firm, Alameda Research. This misuse of funds led to the exchange’s inability to fulfill customer withdrawal requests, causing significant losses estimated at around $8 billion.

While a bankruptcy plan promises FTX users a return of up to 90% of their lost funds, the compensation will reflect the value of their assets at the time of the exchange’s collapse, not accounting for any potential increases in cryptocurrency values since then. Despite arguments from Bankman-Fried’s defense for a more lenient sentence based on the possibility of full restitution, the judge maintained that the focus should be on the severity of the fraud committed.

Crypto Exchange KuCoin Charged with Violations Of Anti-Money Laundering Rules

Crypto exchange KuCoin and its founding members face charges by the U.S. Attorney’s Office in the Southern District of New York for violating anti-money laundering rules and operating an unlicensed money transmission business. The charges bring to light the exchange’s significant role in the suspicious movement of funds, with more than $5 billion allegedly laundered through deposits and another $4 billion through withdrawals.

The platform was allegedly negligent in verifying customer identities and reporting potentially illicit activities. Such actions place KuCoin in a similar predicament to that previously experienced by other crypto exchanges such as BitMEX and Binance, which have also faced legal challenges for similar reasons. KuCoin founders Chun Gan and Ke Tang are specifically accused of disguising the platform’s engagement with American users, thereby facilitating an unchecked expansion and securing billions in daily transactions without adhering to U.S. financial laws.

The indictment underscores the deliberate efforts by KuCoin and its founders to evade global financial regulatory measures by concealing the significant involvement of U.S. traders on their platform. This strategy has purportedly enabled KuCoin to amass over 30 million customers worldwide and handle billions in daily trade volumes.

Coinbase Fails Bid to Have SEC Lawsuit Dismissed

In a big blow to Coinbase, a U.S. District Court judge denied the crypto exchange’s bid to have the SEC’s lawsuit against it dismissed. The SEC’s lawsuit alleges that Coinbase violated securities laws by offering unregistered securities through its exchange and staking services.

Coinbase Chief Legal Officer Paul Grewal expressed readiness for the court’s decision in a thread on X, indicating the crypto exchange’s intention to continue challenging the SEC’s claims. Grewal also called on Congress to continue making progress in crypto-specific legislation. Meanwhile, the SEC welcomed the decision, emphasizing the continuity of traditional securities regulatory frameworks in the face of new technological domains like cryptocurrency.

The lawsuit centers on the SEC’s accusation that Coinbase enabled the trading of crypto tokens, which should have been registered as securities, without proper authorization. This case represents a critical juncture in the SEC’s broader campaign to apply traditional securities law to digital asset companies, testing the boundaries of regulatory oversight in the crypto industry. The outcome of this legal battle could have far-reaching consequences for how crypto assets are classified and regulated in the United States.

What to Expect in the Markets This Week

All eyes will remain on spot bitcoin ETFs that investors seem to have found a renewed appetite for. Additionally, the potential for a spot ether ETF approval this year is still being tracked, with Bitwise’s chief investment officer, Matt Hougan, now revealing a preference for approval to take place in December, according to an interview with Forbes.

The odds of approval by the end of May have continued to drop, now sitting at 20%, according to prediction market Polymarket. While the SEC is reportedly looking into the legal classification of ether (ETH) as a security, Blackrock (BLK) CEO Larry Fink has said such a categorization would not prevent the approval of a spot ether ETF.

Elsewhere, it has been reported that FTX has started unloading its roughly $7.5 billion worth of Solana (SOL) as part of its bankruptcy process. Solana was trading sharply lower Monday.