Are Any Exchanges Safe?

The FTX collapse has sparked a lot of conversations. Conversations about self-custody, industry standards and regulations.

Another topic that has gained a lot of attention recently is exchange Proof of Reserves. Numerous exchanges have come out and tried to prove that they have the reserves they claim.

Of course, this isn’t really good enough. The only way that you can know that an exchange has enough assets to cover its withdrawals is to also get proof of the liabilities said exchange has. This is why there is a movement for exchanges to publish “Merkle Tree Proofs” of their reserves.

In my video today, I take a look at some of the latest statements and disclosures from global exchanges. I take you through the assets they hold and how “secure” these assets could be in various stress scenarios.

You can watch that video here.

📊 My Personal Portfolio 📊

I have sold out of some of my smaller altcoin positions and I will be holding the proceeds in USDC. We are in the depths of the bear market and when I do start accumulating again it will be in Bitcoin and ETH.

USDC 40.56% | ETH 26.19% | BTC 24.96% | ATOM 4.14% | DOT 1.66% | MATIC 1.26% | RUNE 1.21%

📈 Guy’s Forward Guidance 📈

It’s been interesting watching the correlation between the stock market and the crypto market over the last few weeks. In case you haven’t noticed, it’s been next to non-existent! The stock market keeps going up, yet crypto continues to drift ever lower. This just underscores how much damage the FTX-Alameda situation has done to crypto. Perhaps it also underscores just how much damage the debacle has yet to do.

The good news is that the stock market rally has seemingly dampened the decline in the crypto market. The bad news is that if the stock market goes lower, then chances are the crypto market will too. The next indicator I’m watching on that front is the PCE, the Federal Reserve’s favourite inflation measure. The next PCE reading comes out on Thursday, 1st December. If it comes in lower than expected, expect the stock market to keep rallying.

If the stock market does continue to rally, it’s likely it will be cut short sometime in early to mid December. If you watched last week’s crypto review, you’ll know this is because it looks like there will be lots of forced selling by pension funds in the first week of December. The Fed will also be announcing how high it will be raising interest rates on 13th December. I find it hard to see how these two factors will make it possible for the current rally to continue.

Not only that, but the winter weather is officially here. Germany’s gas reserves, which hit 100% capacity just 10 days ago, are now starting to be drained. The rest of Europe is likely looking the same. In Ukraine, around 80% of the country is already without power due to ongoing attacks by Russia. There are fears that this will cause another refugee wave in the coming weeks. This will further strain the energy grids of surrounding European countries.

Meanwhile in the crypto market, it looks like Genesis Trading could be the next domino to fall. The firm is reportedly working to avoid bankruptcy which could have huge repercussions elsewhere in the industry. The same is true of Grayscale’s Bitcoin Trust, which is also facing concerns around reserves.

These and other factors (to be covered next week) suggest the crypto market is headed lower. And if you’re not convinced, well, consider this…

🇺🇸 FTX, Alameda Research, and Tether 🇺🇸

If you’ve watched any of our recent videos about the FTX-Alameda situation, you’ll have heard me talking about the fact that Alameda was the largest recipient of all the USDT ever minted by Tether. Well, now we’re finding out that FTX invested in an American bank called the Farmington State Bank. FSB has just three employees. If the employee count didn’t raise a red flag, consider that one of those three employees is also the chairman of Deltec Bank and Trust.

For those unfamiliar, Deltec Bank and Trust is a bank in the Bahamas that is famous for custodying the assets backing Tether’s USDT. As I mentioned in a related video from earlier this year, Deltec is just one of the many banks that custodies Tether’s assets. However, this doesn't change the significance of its relationship to FSB. What’s strange is that FTX’s investment in FSB was double what the bank was worth at the time (11.5M USD).

What’s even more strange is that FTX only invested in FSB in March this year. This obviously begs the question of what the hell FTX was doing with FSB, and whether Deltec and Tether were in any way involved. There’s been no shortage of speculation on social media, but it’s assumed that FTX purchased FSB to get a banking licence. This is because buying a small bank is a loophole to getting a banking licence, which is otherwise very difficult to acquire.

There’s only one problem with this theory, and that’s that FTX probably had hundreds of other small banks to choose from. This brings me back to the peculiarity of FTX only investing in FSB in March this year. While this may simply be because FSB had somehow become a federally regulated bank in mid-2021, given Sam Bankman-Fried’s concerning connections to (and protection from) the establishment, I think there is more to this story.

I’m going to need my tin foil hat for this one, so bear with me…

I think it’s very possible that FTX purchased FSB to put it in the spotlight when the exchange and its sister company inevitably collapsed. This ties into a bigger conspiracy I’ve been considering, and that’s whether Alameda Research and FTX were established in part to get information about Tether and other big players in the crypto industry. To my mind, it’s the only thing that explains the lack of oversight and blind support from financial and political elites.

The closest thing I have to evidence for this conspiracy is that former Binance US CEO Brian Brooks was allegedly leaking information about Binance’s operations at the request of FTX. If this is true, then it stands to reason that FTX and Alameda would be leaking information they had about Binance and others as well. Another piece of potential evidence is the fact that SBF still isn’t in jail. To my knowledge, only those with valuable information avoid the big house in situations like his.

I’ll reiterate that this is just my personal conspiracy, but if it ends up being correct, the crypto market could be in for another step lower…

📱 Your Data in Defi 📱

Is there an incoming privacy crisis in the DeFi ecosystem?

That’s been a point of concern for many over the past week, especially as some popular DeFi dapps have announced changes to their privacy policies.

Privacy concerns surrounding user data collection have typically been a Web2 concern, with centralised companies often selling user data to the highest bidder. Marketing companies in particular buy batches of user data from your favourite social media companies to target users with personalised ads that increase sales.

Web3 has largely been regarded as being immune from such concerns, given how privacy and decentralisation are the core ethos of crypto and web3. However, it appears as if things might be changing.

Uniswap Labs, the company behind the popular Uniswap decentralised exchange, was the first to announce such a policy change. This came in the form of an updated privacy policy revealing that Uniswap will now collect both off-chain and on-chain user data (with the exception of personal data).

This user data includes your wallet address; the on-chain activity of your wallet address; device and browser info such as information from local storage; mobile deviceID; cookies; web beacons; browser type; referring/exit pages; operating system and device or browser language. It excludes personal data such as your name, address, email, IP address etc.

Uniswap Labs explained its decision by stating that, while protecting user data and privacy remains its first priority, it does feel the need to make data-driven decisions that improve the user experience for those who use the protocol and its interface. Put simply, Uniswap Labs is saying that the only reason it wants to collect data is to optimise development and DeFi functionality by focusing improvements on areas and features that are most widely used.

That sounds innocent enough, doesn’t it? It’s all for the users, right?

Well, critics on Crypto Twitter warned that this might actually set a dangerous precedent for the decentralised ecosystem. And sure enough, just a couple of days later, ConsenSys followed in Uniswap’s footsteps by introducing a similar, seemingly innocent privacy policy change.

This one came with a significant add-on however - the collection and storage of IP addresses. If you aren’t aware, ConsenSys is the company that owns both the non-custodial software wallet Metamask and its default RPC provider Infura.

This means that if you’re using Infura as the RPC provider for your Metamask wallet, Consensys gets to collect data relating to both your wallet address and the IP address of the user who owns that wallet address.

Now, IP addresses don’t reveal much except the general geo-location and internet service provider of the user, and they can be bypassed by using VPN services. However, think about how often you’ve forgotten to switch on that VPN and consider how data breaches are still a thing in 2022.

The possibility of a potential bad actor gaining access to all my wallet addresses, general location and possible on-chain activity doesn’t sit well with me. But that’s not the only concern: critics also warn that such policy changes could be an indication of regulators exerting a stronger grip on the DeFi landscape.

If you ask me, I don’t find this to be all that surprising. While the base protocols might be decentralised, the front-end interfaces that we use to gain access to the smart contract protocols are typically managed by centralised entities.

This could be an independent developer, or a registered software development company. As with other centralised entities, they too are subject to the laws of the jurisdiction in which they reside.

And we saw evidence of this just a few months ago when Uniswap announced it was working with blockchain analytics firm TRM Labs to block 253 crypto addresses in compliance with sanctions imposed by the US Treasury Department. So, there is definitely a growing trend of regulators indirectly regulating DeFi through the centralised entities that manage and develop the sector.

And if it isn’t already clear folks, it’s high time you either run your own Ethereum node or use a third-party RPC service with a more favourable privacy policy. I know I will. Though according to a recent tweet by Metamask co-founder Dan Finlay, there is a possibility this IP address collection policy might be rescinded.

Maybe all hope isn’t lost just yet.

📱 Black Friday Sale 📱

Nothing beats a hot discount - especially when it involves crypto merch. Fortunately, for you we are running a Black Friday sale with a discount up to 50% in the Coin Bureau merch store!

This gives you the perfect opportunity to treat yourself with some top-notch crypto merchandise - or indeed to buy that gift for that special someone.

But hurry, these discounts will be available for this weekend ONLY.

👉 Head to the Coin Bureau merch store now & get discounts of up to 50%!

🔮 Video Pipeline 🔮

  • Saudi Arabia’s trillion-dollar city
  • DCG & The “G Unit”: What Happens From Here
  • Bullish crypto catalysts: Is there still hope?
  • Why the crypto market bottom isn’t in yet?
  • Federal Reserve minutes summary: What does it mean?
  • Harvard study: Central banks should buy BTC

🏆 What's New At This Week? 🏆

OKX Trading Bots: Put Your Crypto Trading on Autopilot with OKX Crypto Bots

FTX Failure: A New Chance for Decentralization

Daedalus Wallet Review 2022: Top Cardano Wallet for Safe Storage

That's all for this one!

As always, I want to say a special thanks to everyone that has subscribed, commented or just took the time to watch any of our videos. You are what makes the Coin Bureau what it is!

Guy your crypto guy

Guy Turner

Guy is one of the founding members and face of the Coin Bureau. Like many of us, he is just an average joe who became “crypto curious” back in 2013. After recognising the potential of blockchain technology, Guy set off on a mission to create crypto educational content, working with others to start the Coin Bureau website and released our first video on YouTube in 2019. You can learn more about him in his Who is Guy? blogpost.

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