CRYPTO MOVERS AND PRICES
Crypto is continuing its weekend sell-off today with bitcoin briefly dipping below USD 9,000. Spot volumes have remained marginal on the decline, just ~55% of the 30-day average.
CRYPTO STORY OF THE DAY
Last week, The Ontario Securities Commission (OSC) released their findings surrounding the investigation of defunct crypto trading platform Quadriga CX. The report concluded that the exchange was essentially a Ponzi scheme.
The Quadriga debacle began with the news that founder Gerald Cotten had died from complications of Crohn's disease while on a trip to India in 2018. As the story was unpacked it was initially said that Cotten was the sole person with access to the crypto held on Quadriga.
Fleets of lawyers, accountants and investigators were hired to try to recover the customer crypto that they could and second, allay investor suspicions of foul play. Victims were even more skeptical of the story when it became apparent that the particular location in India Cotten was traveling to was known for a black market industry of fugitives faking death certificates. A narrative began to emerge that Cotten may in fact remain at large.
The OSC's report, which doesn’t dispute that he is deceased, confirms what had begun to leak out from the investigation. That Cotten's death didn’t expose the firm to key-man risk around crypto storage but that the exchange in fact had a massive capital hole as a result of Cotten's illegal activities. The report notes that Cotten used customer funds for personal purchases but also created fake accounts where he consistently lost money trading. The findings are essentially summed up in one line, “What happened at Quadriga was an old-fashioned fraud wrapped in modern technology.” The OSC was careful to not paint the entire crypto industry with the same brush but pointed out that it had shown that users of crypto platforms may not have a proper understanding of custody methods where they are trading.
The tone of the OSC's conclusions are appreciated in emphasizing this was one person committing typical financial fraud as opposed to throwing the crypto industry out with it. The next question would be whether the OSC's conclusions embolden other agencies to further investigate the questions surrounding Cotten's death as victims continue to seek answers. Regardless of what happens from here, the Quadriga story is one of the most bizarre and ugly episodes in the history of any financial services context.