The Binance suit coming so close on the heels of SVB and SBF really hammers home what a colossal waste of resources crypto is and was
— Lord Businessman (@BusinessmanLego) March 28, 2023
Binance was supposedly the 'good actor' in the SBF nonsense and their compliance officer was literally emailing things like 'guys could we do less crime' and 'please don't put in writing how much we're giving Hamas for AKs'
— Lord Businessman (@BusinessmanLego) March 28, 2023
Bloomberg‘s Matt Levine (whose newsletter is free! and well worth subscribing to!):
A decent rule of thumb is that all cryptocurrency exchanges are doing crimes, and if you’re lucky your exchange is doing only process crimes. Today the US Commodity Futures Trading Commission sued Binance Holdings Ltd., Changpeng Zhao’s big crypto derivatives exchange, for letting Americans trade crypto derivatives. There are no accusations that Binance is stealing customer money, or even taking big risks with it, which makes Binance look better than some other crypto exchanges I could name. There are … look, there are not no accusations that Binance is laundering money for terrorists or secretly trading against its customers, but there are relatively few accusations like that; again, as crypto exchanges go, that’s pretty good.
No, the CFTC’s case is mainly about letting US customers trade crypto derivatives. It is illegal to run a crypto derivatives exchange in the US without registering it with the CFTC, and it’s not exactly easy to do that either; if you have a crypto derivatives exchange abroad but have not registered it in the US, it is illegal to let US customers trade on it. So the basic rule is that US customers can’t trade crypto derivatives, and big international crypto derivatives exchanges (Binance, FTX before it blew up) sometimes have US-only platforms (Binance US, FTX.us) that let US customers trade a limited set of products, but not most derivatives.
For retail customers this is probably fine: A crypto exchange can make a bit more money from retail gamblers if it offers them high-leverage futures trading, but there are plenty of gamblers in the world, and also you can make decent money from US traders just by letting them trade crypto for cash.
But it is a problem for a big exchange, because a lot of the big high-frequency market-making firms in financial markets happen to be in the US. If you want to run a global crypto exchange, or a global crypto futures exchange, you will want the big New York and Chicago high-frequency trading firms to make markets on your exchange, because that will make your exchange more liquid and your prices more accurate. And they will want to make markets on your exchange, because they will make more money that way. And they are big institutional trading firms with offices around the world and plenty of Cayman Islands subsidiaries, so if you were to say to them “hey technically we can’t offer our products to Chicago residents” they would say “no no no we are residents of the world of global capital, not Chicago, it’s fine.”
But it is not fine! The CFTC complaint contains a certain amount of retail-focused subterfuge. (Binance has a website that helps people understand how to trade on Binance, and the website had an explanation of how to use a virtual private network to log into Binance without disclosing that you are in the US, and the CFTC doesn’t like that.) But what is striking about the complaint is that it is mostly about how Binance offered trading services to large New York and Chicago high-frequency trading firms through their offshore subsidiaries…
The last few weeks have seen a wide-ranging and aggressive US crackdown on crypto. In February, US banking regulators gently suggested that US banks should be careful about crypto deposits, and all of the crypto-friendly US banks vanished in a puff of smoke. Last week, the US Securities and Exchange Commission dropped a hint that Coinbase Global Inc., the largest US crypto exchange, might be illegal, because it lists a variety of crypto tokens and the SEC thinks that almost all of them (not Bitcoin) are securities. Various bits of the crypto financial system — lending, staking — have previously been declared more or less illegal by the SEC…
Anyway I said that there are only a few accusations of financing crimes or secretly trading against customers in the CFTC complaint, but there are not none, and I should quote them. Here’s this:
Internally, Binance officers, employees, and agents have acknowledged that the Binance platform has facilitated potentially illegal activities. For example, in February 2019, after receiving information “regarding HAMAS transactions” on Binance, Lim explained to a colleague that terrorists usually send “small sums” as “large sums constitute money laundering.” Lim’s colleague replied: “can barely buy an AK47 with 600 bucks.” And with regard to certain Binance customers, including customers from Russia, Lim acknowledged in a February 2020 chat: “Like come on. They are here for crime.”
…
Another ‘why now’ issue — there is no delicate way to express this, which may be why mentioning it was left to the British Financial Times — Binance Chief executive Changpeng Zhao (now living in Dubai) is a Canadian citizen who grew up in China:
Binance hid substantial links to China for several years, contradicting executives’ claims that the crypto exchange left the country after a clampdown on the industry in late 2017, according to internal company documents seen by the Financial Times.
Chief executive Changpeng Zhao and others holding senior positions repeatedly instructed Binance employees to hide the company’s Chinese presence. This included an office in use until at least the end of 2019, and one Chinese bank that was used to pay some employee salaries.
“We no longer publish our office addresses . . . people in China can directly say that our office is not in China,” Zhao said in a company messaging group in November 2017, seen by the FT.
The documents underscore the extent to which Binance, now the world’s largest crypto exchange, has sought to obscure the extent and location of its operations as regulators scrutinise crypto-related activity. Zhao has said most of Binance’s employees — other than “a small number of customer service agents” — left China after 2017 when the country intensified its crackdown on crypto…
“The original founding team members that were based in Shanghai left China just two months after the company was organised, before the company was even incorporated, following crackdowns on the crypto industry in China,” Binance said, adding that the exchange had “never been registered or incorporated in China”.
The CFTC’s lawsuit comes as Binance’s American affiliate, Binance US, faces scrutiny in Washington over its proposed $1bn purchase of assets belonging to Voyager Digital, a bankrupt crypto lender based in the US. The acquisition is being reviewed by the Committee on Foreign Investment in the United States (Cfius), a government agency that determines if overseas investments present national security risks…
A Binance employee onboarding document instructed newcomers based in China to install VPNs on their devices. The CFTC lawsuit on Monday also alleged Binance instructed US customers to use VPNs to obscure their location.
“We also have lots of non-Shanghai employees that come to Shanghai office frequently, and would be inconvenient to exclude that part of the team,” said one Binance employee in November 2019 when the company was considering opening a Shanghai office admin chat group.
The FT could not determine whether the offices cited in company communications until almost 2020 were still in use, but one former employee said many of the company’s key developers were still in China.
Binance added that it did not operate in China, nor did it have any technology including servers or data in the country.
Using a VPN (virtual private network) is not illegal, mostly — probably quite a few BJ readers have them — but both the U.S. and Chinese governments are very suspicious of using them for financial purposes at this moment. CZ (as he is known) may not have intended more than ‘standard’ grift business-related goals with his promotion of VPNs, but right now it’s a bad look, politically.
Binance crackdown reveals how rigged the crypto game is: https://t.co/ctO0300Q66
— Defector (@DefectorMedia) March 30, 2023
As a job-creating, economy-driving Small Business Owner, I come to you with two Business Advice tips. First, you should disclose where your business is headquartered, and, second, if you suspect that people are using your business to facilitate the doing of crimes, you should not write things like, “Like come on. They are here for crime” or “we see the bad, but we close 2 eyes” in work communications that could ever conceivably become public. Those precise communications became public on Monday when the U.S. Commodity Futures Trading Commission filed a sweeping civil suit against Binance for alleged violations of the Commodity Exchange Act. The specific violations, and the brazenness with which Binance honchos are alleged to have committed them, are certainly interesting, though not as interesting as what they reveal about the lies at the heart of the cryptocurrency industry.
Binance, the largest cryptocurrency exchange in the world by a considerable margin, has spent the past five or so years trying, occasionally succeeding, but mostly failing to crack open the United States, the largest cryptocurrency market in the world by a considerable margin. One insurmountable issue for Binance and founder Changpeng Zhao (known as CZ) is that they have never taken much interest in playing by the rules regulating the buying and selling of fake money in the United States, which is a marked contrast from their erstwhile competitor FTX. While Sam Bankman-Fried’s now-kaput exchange kept regulators at bay by pandering and donating to them, Binance chose to simply pretend those regulators didn’t exist, never registering with the CFTC.
The key sticking point here is crypto derivatives trading, essentially a turbocharged form of crypto trading where buyers place bets on the future prices of, in this case, profoundly unstable assets. It’s riskier, it makes up an estimated 70 percent of the crypto market, and it is not allowed in the United States. Binance oversaw $1.26 trillion worth of derivatives trading on its platform in January 2023. That mammoth figure could be significantly larger if U.S.-based traders were legally allowed into the casino, and the CFTC alleges Binance did everything they could to get their biggest customers in anyway, including publishing guide on their website walking users through the process of setting up a VPN. They were successful enough that 16 percent of derivatives volume came from the U.S…
All of that is bad for Binance and CZ, and will assuredly lead to a hefty fine and an order to cease U.S. operations. What is most intriguing, though, about the way Binance is alleged to have operated is the way it manipulated its own markets and stacked the deck for its biggest accounts. One central idea in the pitch for cryptocurrency is its supposedly decentralized nature. If all these digital assets are not hybrid gambling chips/unregulated securities, they must necessarily have some use case, and since advocates don’t want to have to make the logical yet morally reprehensible case that fake money’s most obvious uses are to facilitate the transfer of illegal goods and services, the rhetoric of decentralization comes to the fore. Participating in pump-and-dump schemes and accelerating the death of the planet is anti–big bank praxis, the logic goes…
More concerning is that the company is also accused of operating around 300 accounts “that have engaged in proprietary trading activity on the Binance trading platform.” This is definitional insider trading, though at a more dramatic scale, since it’s clear that the volume of “wash trades” was enough to manipulate the market. So even a crypto trader who is knowingly and willingly in the game for the gambling aspect, liberated from rationalizations about decentralization, is still being played. Markets whose prices seem to be the product of millions of traders buying and selling cryptocurrencies, derivatives, shitcoins, all that, are really just casinos with stacked decks, moving things around and ensuring that you lose and they win…
They've done econometric studies that show the majority, like 80-90% of crypto activity is wash sales, people taking low cost tranches of crypto, selling, and rebuying at a higher price point to pump apparent sales volume
— Lord Businessman (@BusinessmanLego) March 29, 2023
Couldn't find the higher one, this study reports rates of 70%https://t.co/Sp1GIRtdCk
— Lord Businessman (@BusinessmanLego) March 29, 2023
Oh yeah, whatever else is true here, the amount of effort used to hide the scam is like, bottom tier level boiler-room call center bullshit. Not even trying
— Lord Businessman (@BusinessmanLego) March 29, 2023
(its not, the IRS considers crypto to be a security and the rule is general for securities)
— Lord Businessman (@BusinessmanLego) March 29, 2023
Baud
Biden deserves three more terms for this alone.
Both excellent rotating tags.
Kathleen
GM, Baud and AL. AL, I hope you and your spouse are feeling better. And I want to thank you for keep us posted on what VP Kamala Harris is accomplishing. That is all.
NotMax
The Spreeswelled Follies. It’s all a shell game; vaporcoin vaudeville.
Enhanced Voting Techniques
Crypto is perhaps the lest surprising scandal of the last 200 years.
sab
I do love it when I see an activity and think “how is that even legal?” and then I learn years later that it wasn’t.
Cathie from Canada
On a side note, I don’t know if you have these commercials in America, but here in Canada, the tax preparer H & R Block is running ads featuring two crypto dude-bros talking about their income tax refunds.
One says “Hey, H & R Block got me a tax refund and I got paid in GovCoin!” The second guy says “GovCoin? What’s that?” and the first guy says “Its like crypto, but it’s issued by the government!” and he hands the guy a loonie (which is what we call our dollar coin now.) Second guy is amazed and says “Ooohhh! Is that the one with the loon on it?”
sab
@Baud: Are those tags really how we want casual visitors to perceive Balloon Juice?
YY_Sima Qian
I am glad that the Chinese government banned crypto trading & mining in 2021. The energy consumption associated w/ mining alone represented a huge waste, not to mention all of the energy and chemicals consumed to manufacture the GPUs that went into the mining farms. Of course, then the mining operations simply decamped to other parts of the world.
Part of the reason Binance might have tried obscure its connections to China was preventing scrutiny from Chinese regulators. Under current Chinese law, it is illegal for persons in China to even support trading/mining activities from w/in the country, even for anctivities outside of China. Therefore, it would be hard for crypto exchanges to explain why they have any operations in China at all. However, some crypto-exchanges hire employees through contracting firms, even though they are organized, evaluated & paid as if though they are the exchanges’ own employees. This way they have few formal employees in China & need not have a formal presence at all. I have a young relative who is working in one of the smaller exchanges in China.
A crypto-exchange can maintain this pretense if they grease the palms of certain regulators enough, but for how long is anyone’s guess, & certainly more difficult for the largest fish like Binance. The company my relative “works” for has been pivoting to non-currency block chain products since the ban in 2021.
As an aside, CZ is Canadian. I really dislike the tendency by western MSM that play up such people’s citizenship when they are perceived to be victims of the CCP regime, & play up their heritage when there is alleged nefarious activity involved.
montanareddog
@Enhanced Voting Techniques:
What surprises me is that, AFAIK, TFG has not got involved in such an obvious grift. Such scams are usually catnip to him.
sab
@Cathie from Canada: Yikes! I haven’t seen anything like that here in US. H&R Block is often in trouble with the IRS over various issues, so I think they tread more warily here. (Weird to say since they are a US company.)
IRS had problems with their privacy security a couple of years back. Before that they had problems with blatantly bad cheating tax advice in local offices. They know the IRS is always watching and doesn’t trust them at all.
Splitting Image
I’m optimistic that cryptocurrency will be treated with less deference by this time next year than it is now.
sab
@sab: We used to nip illegal activities in the bud. Now we let them slide if they seem to be profitable and then crash down when they have already hit a glitch. This seems backwards. Aren’t laws supposed to stop bad stuff before it blows up. Isn’t that the point of the laws?
After they blow up is just unfettered capitalism at work. Why even bother with laws at that point. Everyone has already been punished by the market.
Anne Laurie
Thank you — you’re correct about this. What I was trying to get across (not well) is that the U.S. government is currently very suspicious of ‘Chinese tech manipulation’… and, we’ve been told, the Chinese government is pretty suspicious about ‘American imperialists trying to game our systems for profit.’ CZ doesn’t have to be a nefarious foreign agent to have both countries giving him the hairy eyeball!
He may be, or at least seems to have been, an unusually successful garden-variety ‘financial manipulator’ whose shell game got caught between two massive legal entities. If I were him, I’d be hiding out in Dubai, too…
YY_Sima Qian
I understood what you were trying to say. I just took the opportunity to vent my frustration w/ MSM framing.
sab
@YY_Sima Qian: I share your concern.
kalakal
@sab: Between those and the “dildo of consequences” ones no one would think we’re dull. A tad strange perhaps, but dull, no.
lowtechcyclist
@montanareddog:
Trump wouldn’t have known enough to run a crypto scheme on his own, and also wouldn’t have known enough to tell whether he was being played in a scheme he was one of the players in.
But I think he was smart enough to know he wouldn’t be able to know these things. Gotta stick with grifts you understand.
sab
@kalakal: Huh
I don’t even want to be involved in this conversation that I started.
Life on the internet. Don’t do that!
NorthLeft
I consider myself an empathetic person, but honestly this whole crypto and related financial “investments” (HA!) absolutely screamed SCAM!!! from the get go. I have close to zero feelings for the greedy and ignorant fools who lost money in this.
Also, those celebrities who lent their names and reputations to this rip off should never be allowed to forget what they did, and should be donating five times whatever they were paid to a worthy charity.
prostratedragon
@sab: I think the financial oversight bodies are the police that the opposite side has been diligently defunding for the last few decades.
Shalimar
@montanareddog: You have to understand the scam to run the scam. Trump is never getting involved in crypto
edit: NFTs are different. Trump has been running that bullshit his whole life, long before they were invented.
sab
@prostratedragon: You are probably right. Police? What police.
sab
OT Getting old. when I was younger I used to bang myself and get a bruise, which healed.
I am older now Skin is much thinner. I bang myself and get a nerve injury which hurts for weeks or months or possibly forever.
OzarkHillbilly
@sab: I find myself looking down at wounds and thinking, “When did I do that?” Right now I have to 2nd degree burns on my hand and have no idea when it happened, tho I’m pretty sure it was when I was tending the fire for my smoker yesterday. (I did a ham… Mmmm, mmmm)
Sure Lurkalot
@sab:
Feel the same way about multi level marketing companies as crypto. The FTC ruling that Amway was not technically a pyramid scheme (while basically proving most people sucked in could not possibly make money) allowed the proliferation of such firms that currently stride the legality boundary. I know many people who waded into these waters and they all lost money, time and opportunity and most ended up with a lot of product they were basically forced to buy.
sab
@Sure Lurkalot: Agree. We need government, but it is a very long time since it did its job.
sab
@OzarkHillbilly: Yes. I have burns ( I cook a lot) and think when/how did that happen?
sab
@OzarkHillbilly: Stuff that used to not matter now does matter. Physical things that used to heal before you noticed now hang on for months.
YY_Sima Qian
@Sure Lurkalot: Amway was huge in China I. The late 90s to early 00s, following a wave of SOE reforms that threw 10s of millions out of jobs. Now they are known as practically cults, highly regulated but not quite banned.
lowtechcyclist
@sab:
I don’t have the nerve injury problem, but yeah, at 69 the skin dries up really easily and is really thin in some places. I rub skin cream into my hands every night before bed now, and periodically do the same with my forehead where the skin feels like crepe paper and I have a tendency to bang myself there. (Let’s see who takes advantage of that setup.) I don’t go caving anymore, but I still crawl under things a lot.
@OzarkHillbilly:
Now I’ve been doing that my entire life. Even when we were first married, I’d come in from doing yard work and my wife would ask me where I got that bruise. And I’d tell her I had no fucking clue.
Unless it’s bleeding enough to notice or really hurts right off the bat, I just figure I can worry about it later (if I even think about it to this extent), keep going with what I’m doing, and I’ve forgotten about it within seconds.
lowtechcyclist
@sab:
The GOP was hollering about the increase in IRS staffing, because that’s what they do. But boy howdy, was it ever needed.
And similar re-staffing efforts are probably needed in a bunch of places across our government. We can pass laws and flesh them out with regulations, but unless there are enough people whose jobs consist of checking up on companies to make sure they’re obeying those regulations, they don’t mean much. But the Reaganauts, and especially Gingrich & Co. in the 1990s, gutted all that staffing in a big way.
OzarkHillbilly
@sab: Yeah, I’m on blood thinners and working with power tools I need to keep battle dressings handy.
OzarkHillbilly
@lowtechcyclist: Happened to me all the time on job sites. Can’t count the times I’d ask, “Who’s bleeding?” after seeing a bunch of blood on the floor. Many times I’d have to ask the follow up question of, “Is it me?”
Betty
As to be expected, Dominica’s Prime Minister has managed to put the country in the middle of a crypto scam. This one involves a guy named Sun whose crypto coin, Tron, our PM made legal tender. Sun is now being charged for fraud by the SEC. We are always impressed by the reach of our PM when it comes to finding international criminals to cozy up with.
evodevo
@OzarkHillbilly: Yes…welcome to the club…I pulled off my right glove after cutting wood the other day and a third of my hand was swelled up and black…I vaguely remember something hitting it, but …? It took a week for the swelling to go down, and another week for the black to fade. Scary…and I’m not even on anticoagulants…
Frank Wilhoit
@sab: It is a manifestation of the general eclipse of accountability.
sdhays
@YY_Sima Qian: Earlier, there were ominous suggestions that China was looking to dominate crypto in a way that would make the Chinese government actually be able to control global crypto values by default – since they would control a majority of the “decentralized” nodes.
It sounded like a diabolical plan…and then China banned it. I was glad to see China do that (just because I hate, hate, hate crypto).
Agreed on the automatic bias when reporting on people of Chinese heritage.
YY_Sima Qian
@sdhays: For decades/centuries, Asian Americans have had to fight the stigma of not being “truly American”, even more foreign in the minds of racists than African & Hispanic Americans, not to mention the patronizing “honor” of being “model minorities” (because Asian American had not historically forcefully challenged the status quo, that is changing). My impressions is that we get asked “No, where are you really from?” much more often than African & Hispanic Americans. We are more often “complimented” for our perfect English, even if we are 2nd gen or more.
Sinophobia & anti-East Asian hate crimes have risen quickly since the start of the pandemic, & have not really dropped by that much in the past 2 years since Biden’s election. The emerging Sino-US Cold War is set to make it much worse.
YY_Sima Qian
@sdhays: If crypto-currency had any chance of being more than a medium for pure speculation & money laundering, I am sure China would have tried to dominate as much of it as possible at as many levels as possible (from mining to infrastructure to exchanges). Just like China has basically achieved dominance at every level associated w/ the ongoing energy transition (from raw materials extraction all the way to manufacturing & deployment at scale).
The way Chinese entities started to dominate in mining & to a lesser extent in exchanges, I don’t think it was entirely wrong to suggest that there was some kind of plan in action. However, I think the Chinese government always had suspicions about crypto. The party state bureaucracy is very conservative when it comes to financial “innovations”, & crypto’s supposedly anonymity of ownership is absolutely allergic to the CCP regime’s impulse to maintain control. The Central Bank Digital Currency that China is trying to roll out is the polar opposite, no anonymity w/ financial holdings & transactions at all. By 2017 it was already becoming clear what crypto truly is, so the Chinese government started try to suppress crypto activities. When those attempts failed, a ban was enacted in 2021.
Ruckus
@montanareddog:
TFG or SFB as I call him has a few other things on his mind at this time. Besides he would have to purchase crypto to play and he likely couldn’t get that off the McDs menu. Or at a price he could afford.
Ruckus
@OzarkHillbilly:
Worked mostly in machine shops.
Sharp edges, tools that cut metal (or wood!), metal/skin, not the least bloody concept on the planet. As I’m sure you understand, no matter how diligent one is, sooner or later, blood will appear. Once cut into my thumb with a razor knife, about 6 ft up on top of a machine. That was, what’s that word, it isn’t fun, and by the way did you know that when you sever an artery, the blood spurts out, about every 3/4 of a second? Good times…….