QuadrigaCX: Founder's Widow Claims He Mixed Personal Funds With Those of the Exchange

The widow of Gerald Cotten, the founder and CEO of Canadian cryptocurrency exchange QuadrigaCX, has recently revealed he told her he used his own money to process customers’ withdrawals during a legal battle with a bank.

According to CoinDesk, Cotten’s wife Jennifer Robertson claimed through a statement that Cotten told her he used his won funds while the exchange was battling with the Canadian Imperial Bank of Commerce (CIBC), which froze its bank account in 2018 while trying to determine the origin of its funds.

The statement sent by law firm Steward McKelvey stated:

While I had no direct knowledge of how Gerry operated the business, he told me that he had been putting his own money back into QCX to fund user withdrawals in 2018 while the CIBC money remained frozen. I believe Gerry had the best interests of the business in mind, and cared for his customers.

In her statement, Robertson also revealed the law firm would stop representing the cryptocurrency exchange over an unnamed conflict of interest, which was discovered by the court-appointed monitor Ernst & Young (EY).

Per the news outlet, the statement noted details of the conflict of interest weren’t shared with Robertson.

QuadrigACX’s Missing Funds

As CryptoGlobe has extensively covered, QuadrigaCX’s founder and CEO Gerald Cotten passed away unexpectedly last year, and was reportedly the only person with access to the exchange’s cold storage wallets, with $145 million worth of client funds in them.

The exchange has earlier this year been granted creditor protection while figuring out the situation, and reports have suggested Cotten could have been storing users’ funds in paper wallets.

EY was appointed by the Nova Scotia Supreme Court as a monitor for the exchange. It has been making progress securing some of QuadrigaCX’s fiat holding from third-party payment processors, but when it comes to the millions worth of crypto it found six empty cold storage wallets that hadn’t been used since April.

The case has seen many in the cryptocurrency space draw their own theories as to what’s going on. A researcher has claimed to have found $90 million of QuadrigaCX’s missing funds on various cryptocurrency exchanges, and various Reddit posts seem to show the Canadian trading platform’s co-founder used to take large positions on BitMEX.

What’s clear about the case 115,000 users are owed millions. One in particular, as covered, has lost his $420,000 life savings because of the exchange’s downfall.

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

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