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The Wolf Den #620 - Crypto.com And Gate.io

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November 14 · Issue #620 · View online
The Wolf Den Crypto Newsletter
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In This Issue:
  1. Crypto.com And Gate.io
  2. Bitcoin Thoughts And Analysis
  3. Legacy Markets
  4. FTX Was Hacked
  5. Vitalik Speaks
  6. How To Build A Strong Crypto Community | CryptoWendyO, Crypto Birb, Peter Saddington
  7. My Recommended Platforms And Tools
Crypto.com And Gate.io
The fall of Alameda Research has predictably set off a chain reaction of negative events. We are slowly starting to discover some of the skeletons in the closet.
Here’s a fresh skeleton.
Strange things are afoot at Crypto.com and Gate.io.
*Readers be warned!* This is primarily based on speculation, and I am offering my best attempt at investigating some known facts. This is neither slander or a defense of these platforms. I am simply trying to make sense of all of the nonsense. Also, I have ZERO exposure to either exchange and never have.
I have always believed that people are “innocent until proven guilty,” which has not served me well of late. In crypto at this time, we have to behave with the opposite idea - that platforms are “guilty until proven innocent.” Skepticism is healthy.
So here’s the story.
After the fall of FTX, on-chain analysts began digging into exchanges. In an effort to determine solvency, they started looking for discrepancies in reserves and for questionable activity. News broke that Crypto.com sent 320,000 Ether to Gate.io on October 21st. Strange, especially when you consider that Crypto.com claims, “100% of user cryptocurrencies are held offline in cold storage.
The implication is that the exchanges are working together to falsify proof of reserves, although that is yet to be proven.
You can read Crypto.com’s security statement HERE.
The amount of Ether sent represented 82% of Crypto.com’s total Ether holdings. This percentage is easily deduced from the following tweet.
Kris | Crypto.com
While the Proof of Reserves audit preparation is underway, we are sharing our cold wallet addresses for some of the top assets on our platform.

This represents only a portion of our reserves: about 53,024 BTC, 391,564 ETH, and combined with other assets for a total of ~US$ 3.0b
As you can imagine, this turned the crypto community upside down. The CEO of Crypto.com did what crypto CEO’s do and went on a quick damage control mission in an effort to mitigate the risk of people showing up at his office with torches and pitchforks. Here is what he had to say.
Kris | Crypto.com
The ETH transfers that generated so much FUD & speculation on Twitter today were made over three weeks ago, on October 21st to https://t.co/pFc4Pz9nFR’s whitelisted corporate account at https://t.co/Mr9GCkL2gV.
“The ETH transfers were sent to a whitelisted corporate account at Gate.io.
The funds were sent back to Crypto.com over the following days. 
The entirety of ETH was successfully recovered.
In this particular case, the whitelisted address belonged to one of our corporate accounts in a 3rd party exchange instead of our cold wallet.”
Let’s review the timeline.
Crypto.com funds were sent to Gate.io on October 21st. At first glance, this seemingly negates the idea that the funds were sent to assist Gate.io in passing their reserve audit, unless there is deeper corruption behind the scenes. The audit took place on October 19th. You can verify this yourself on their site. The funds were not returned to Crypto.com immediately and they were not returned all at once. More importantly, only 285,000 of the 320,000 were sent in that spree to a known Crypto.com wallet.
What happened to the remaining Ether?
Those coins were reportedly sent to a different address that has yet to be confirmed by Crypto.com. According to Kris, “the entirety of the ETH was successfully withdrawn,” but looking at on-chain records, it is not entirely clear. I am far from an accomplished on-chain analyst, but did a bit of digging myself, looking at the interactions between Gate.io and Crypto.com. The records are a mess. 
Why were the funds returned in chunks over time rather than all at once?
Imagine accidentally leaving your wallet, which contains a huge chunk of your net worth, at a friend’s house. When you ask the friend to send it back, he mails the contents individually at different times to different home addresses. And not entirely.
CZ sums it up well here: “if an exchange has to move large amounts of crypto before or after they demonstrate their wallet addresses, it is a clear sign of problems. Stay away.
To further compound the issues, the mere mention of foul play sends customers running for the exit. We have seen it time and time again. Even if there is nothing wrong, a simple tweet or accusations can cause a bank run and compound the issues.
Rumors of Crypto.com experiencing a bank run are picking up steam.
As an eternal optimist, my natural instinct is to offer these exchanges the benefit of the doubt. Not this time. It’s getting harder and harder in the wake of so many lies, and I would rather be on the sidelines if something bad happens.
Crypto.com made headlines last year for sending an Australian woman $7m instead of $100. Perhaps they did something similar again, although this would be an indication of clear negligence and incompetence. But maybe something more sinister is going on.
It is impossible to discern their intent without more facts, so the interpretation is up to you.
Regardless of the outcome, I expect more carnage this week. The contagion from FTX has just begun to spread.
Bitcoin Thoughts And Analysis
WEEKLY CHART
You don’t need to look at a chart to know that last week’s candle was a disaster. Bitcoin had been ranging and dumped hard on the news of the FTX collapse. For now, price is holding support around $16,200. We still have a long series of lower highs and lower lows, with very little reason to believe that the bear market structure will be broken soon. All we can do is wait.
Legacy Markets
Stock Market Today: Dow, S&P Live Updates for Nov 14 - Bloomberg
“US stock futures declined Monday and Treasury yields rose as a cautious tone from a Fed speaker tempered some of the ebullience that inflation may have peaked.
The dollar turned higher after weekend comments from Federal Reserve Governor Christopher Waller that policymakers had “a ways to go” before ending interest-rate hikes. His comments also helped lift 10-year Treasury yields more than 8 basis points.
While signs of cooling in US inflation and the prospects of a dovish tilt by the Fed had propelled the S&P 500 to its best week since June, some of the world’s largest money managers are clinging to risk-off positioning against the threat of entrenched inflation. JPMorgan Asset Management has a record allocation in cash in at least one of its strategies while a hedge fund solutions team at UBS Group AG is staying defensive.
“Markets have been reading too much into one data print, US inflation has slowed but it’s not slow,” said Salman Ahmed, chief investment strategist at Fidelity International. “The Fed will need more data to reassess the end point for rates.”
Key events this week:
  • US President Joe Biden plans to meet Chinese President Xi Jinping on the sidelines of the G-20, Monday
  • Fed’s John Williams moderates panel, Monday
  • China retail sales, industrial production, surveyed jobless, Tuesday
  • Former US President Donald Trump plans to make an announcement, Tuesday
  • US empire manufacturing, PPI, Tuesday
  • US business inventories, cross-border investment, retail sales, industrial production, Wednesday
  • Fed’s John Williams, Lael Brainard and SEC Chair Gary Gensler speak, Wednesday
  • ECB President Christine Lagarde speaks, Wednesday
  • Eurozone CPI, Thursday
  • US housing starts, initial jobless claims, Thursday
  • Fed’s Neel Kashkari, Loretta Mester speak, Thursday
  • US Conference Board leading index, existing home sales, Friday
Some of the main moves in markets:
Stocks
  • The Stoxx Europe 600 rose 0.2% as of 10:24 a.m. London time
  • Futures on the S&P 500 fell 0.4%
  • Futures on the Nasdaq 100 fell 0.7%
  • Futures on the Dow Jones Industrial Average fell 0.3%
  • The MSCI Asia Pacific Index fell 0.3%
  • The MSCI Emerging Markets Index rose 0.4%
Currencies
  • The Bloomberg Dollar Spot Index rose 0.5%
  • The euro fell 0.4% to $1.0301
  • The Japanese yen fell 1.1% to 140.31 per dollar
  • The offshore yuan rose 0.4% to 7.0659 per dollar
  • The British pound fell 0.5% to $1.1776
Cryptocurrencies
  • Bitcoin rose 2.1% to $16,716.68
  • Ether rose 3.2% to $1,255.34
Bonds
  • The yield on 10-year Treasuries advanced seven basis points to 3.88%
  • Germany’s 10-year yield declined five basis points to 2.11%
  • Britain’s 10-year yield declined seven basis points to 3.29%
Commodities
  • Brent crude fell 0.8% to $95.18 a barrel
  • Spot gold fell 0.8% to $1,757.82 an ounce
FTX Was Hacked
'FTX Has Been Hacked': Crypto Disaster Worsens as Exchange Sees Mysterious Outflows Exceeding $600M
Was it a hack? Was it employees stealing the remaining funds? Was the system compromised by the executives? Who knows!? This story continues to become more insane by the day.
What we do know is that late Friday evening, hundreds of millions of dollars were siphoned off of FTX by unknown entities, just hours after the exchange filed for bankruptcy. In the official FTX telegram channel, an account administrator said, “FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don’t go on FTX site as it might download Trojans.
Not bad enough? Well then I have more for you! User account balances dropped to $0 on both FTX and FTX.us and the API crashed.
What a nightmare.
This makes it exponentially harder to assist in recovery of assets. You may have also heard stories of bad actors buying accounts off of others for pennies on the dollar and then bribing employees to unlock those accounts, allowing the bad actors to withdraw the balance in full.
I remain speechless.
Vitalik Speaks
vitalik.eth
@Kdenkss MtGox "looked" sketchy and never tried too hard to whitewash itself. Luna too. FTX was the opposite and did full-on compliance virtue signaling (not the same thing as compliance)

The second kind of fraud cuts deeper than the first.
FTX tried exceptionally hard to appear legitimate and to convince the world that they were compliant and trustworthy. This truly does make it more painful than previous events.
Vitalik also had this to say:
“SBF the public figure deserves what it’s getting and it’s even healthy to have a good dunking session to reaffirm important community values.
Sam the human being deserves love, and I hope he has friends and family that can give it to him.”
I am not sure I entirely agree with the latter sentiment at the moment, but it does raise an important point for each of us who are not the leaders of a criminal enterprise.
Whatever you do, don’t vilify friends and loved ones over investments that didn’t work out - it’s never worth it. Eventually, we will move past all of this. Nothing that has happened is worth destroying relationships and lives over. It is easy to be angry in hindsight, but almost nobody could see this coming.
How To Build A Strong Crypto Community | CryptoWendyO, Crypto Birb, Peter Saddington
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How To Build A Strong Crypto Community | CryptoWendyO, Crypto Birb, Peter Saddington
Crypto communities are large… and controversial. Learn about building communities from the most influential people in the crypto space.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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