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In This Issue:
The USA Vs. Binance
Bitcoin Thoughts And Analysis
Legacy Markets
MicroStrategy Scored More Bitcoin
Bitcoin’s Hashrate Is On Fire
No Metaverse For Mickey Mouse
Voyager Creditors Screwed Again
The USA Vs. Binance
The Binance FUD (fear, uncertainty, and doubt) wave has returned, with substantial concerns about the world's largest exchange. Just a few days ago, CNBC leaked this article reporting on Binance's involvement in China. The company was founded in China but has been included in the country-wide ban for years. Despite this, Binance's employees have allegedly been helping Chinese citizens use the platform, subverting the country's efforts to eradicate cryptocurrencies. According to the article, Binance employees and Binance-trained volunteers known as "Angels" have been sharing techniques that can be used to evade Binance's KYC, residency, and verification systems. They have also been providing tutorials and techniques on how to falsify government documents to pass KYCs and approvals.
The article states that CNBC obtained, translated, and reviewed hundreds of messages from a Discord server and Telegram group that are controlled and operated by Binance. More than 220,000 users were registered across both groups, which were freely accessible to anyone who registered and joined. The messages reviewed come from accounts identified as Binance employees or Angels.
The more information that emerges about this issue, the more serious it appears to be.
Regarding the issue of Binance's involvement in China, I believe that while it may be admirable to help others access crypto, it is essential that exchanges play by the rules and make their best effort to do so if they wish to remain in business. Telegram group chats, even those "run" by exchanges, are notorious for being hotbeds of scams, misinformation, and headaches. This may explain some of the issues raised in the CNBC report. As a side note, I strongly discourage anyone from joining large Telegram groups as it is too risky, and there are better ways to solve problems.
The leaked story about Binance's shady involvement in China is just one part of the exchange's recent troubles. The new CFTC lawsuit against Binance in the U.S. is the bigger issue. However, it's important to note that the U.S. market only accounts for a small fraction of Binance's total user base. According to a quick Google search, "the Binance.US number of users was 2.5 million in August 2022. At the same time, there were ~ 90 million total platform users." This means that roughly 2.7% of Binance's customer base is in the U.S. If Binance were to leave the U.S. tomorrow or be kicked out, it wouldn't be that big of a deal for the exchange's bottom line. While the crypto world would likely react with shock and concern, not much would change in the grand scheme of things. Coinbase would likely pick up some new customers, and offshore exchanges would still be an option.
Despite the relatively small impact that a U.S. exit could have on Binance, it's clear that the CFTC is aggressively pursuing the exchange's operations in the country. The lawsuit is a serious matter, and it remains to be seen how it will play out. CZ himself was also named in the suit, and the list of allegations are quite eye opening.
For more information about the CFTC lawsuit and its implications, you can check out this link.
It is also worth noting that Binance has been preparing for legal action from the US Government. This article came out a month ago, saying that they are preparing their check book to pay fines. We also saw the recent attack on BUSD and Paxos, the opening salvo in this war.
Here is the crux of the new claims.
“Binance’s solicitation of customers located in the United States subjected Binance to registration and regulatory requirements under U.S. law. But Binance has chosen to ignore those requirements and undermined Binance’s ineffective compliance program by taking steps to help customers evade Binance’s access controls. Defendants have disregarded applicable federal laws while fostering Binance’s U.S. customer base because it has been profitable for them to do so.”
Blockworks did a great article, listing the "7 most damning quotes” from the lawsuit.
The evidence against Binance in the CFTC lawsuit is seemingly clear. In addition to the claims mentioned earlier, the CFTC has gathered direct messages between CZ and other executives discussing the alleged issues. The use of Signal, a specialized messaging platform with an auto-delete functionality, is particularly concerning. However, this evidence only scratches the surface of what the CFTC has to work with. The commission knows that Binance doesn't have an HQ to work around regulation, that there were 300 "house accounts" for trading (allegedly against customers), that Binance enlisted Angels to solicit customers, that 125x leverage was offered, that a blind eye was turned to terrorists, that KYC was ineffective… the list goes on and on. While I don't think that Binance is intentionally a hotbed for crime, it's clear that the exchange isn't doing enough to prevent it or was willing to turn a blind eye.
It is also important to note that all of this was likely in the past. My assumption is that Binance has been working hard for the past few years to clean things up and become compliant.
It's difficult to predict what the future holds for Binance.US, but the case doesn't look good for the exchange. After this, it's unlikely that banks in the U.S. will be eager to earn Binance's business. However, the lawsuit does have one potential upside: it further cements the CFTC's stance on Bitcoin, Ethereum, and other cryptocurrencies being digital commodities. This is an important point to keep in mind, as it may have broader implications for the future of cryptocurrency regulation.
It's important to note that this discussion is not meant to sound an alarm about Binance. However, it's always advisable to keep your assets on cold storage to ensure their safety. This suggestion is something I made yesterday, and I make it again today, and will continue to do so in the future, no matter what news emerges. It's best to use exchanges only for executing your orders and as on and off ramps - nothing else. The government is currently targeting cryptocurrency in many ways, so it's crucial to be careful and invest safely. There's no point in stepping into the gunfire, so it's best to take all necessary precautions to protect your assets.
If you are curious. CZ responded, denying all claims of wrongdoing. You can read that HERE.
It will be interesting to watch all of this play out.
Bitcoin Thoughts And Analysis
Nothing has changed since yesterday’s analysis - we are getting the small drop that was expected, especially alongside the Binance news.
Legacy Markets
Stocks have experienced gains as concerns about the banking sector's turmoil ease. European banks and commodity stocks led the increases, with US futures drifting and the dollar trading lower. Asian shares also rose, with financial firms among the top performers. This shift indicates that traders are cautiously adopting a risk-on posture as banking sector instability subsides.
This week, speeches by several Federal Reserve officials and US data, including the Fed's preferred inflation measure, will be in focus. The US 2-year Treasury yield continued to rise after surpassing 4% on Monday, while a gauge of dollar strength fell for a second day.
Swaps traders have priced in over a 50% probability that the Federal Reserve will raise rates by a quarter point at its next meeting. However, some experts, such as strategists at BlackRock Investment Institute, believe that central banks will soon adopt a more nuanced approach, moving away from aggressive rate hikes.
In other market news, the yen strengthened after Japan's cabinet approved using funds from the fiscal 2022 budget to mitigate inflation's impact. Bitcoin's value remained relatively stable after the US Commodity Futures Trading Commission sued Binance Holdings Ltd. for allegedly violating trading and derivatives rules. Additionally, oil prices rose after experiencing the most significant daily rally since October on Monday.
Key events this week:
US wholesale inventories, US Conf. Board consumer confidence, Tuesday
EIA Crude Oil Inventory Report, Wednesday
Eurozone economic confidence, consumer confidence, Thursday
US GDP, initial jobless claims, Thursday
Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
China PMI, Friday
Eurozone CPI, unemployment, Friday
US consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
ECB President Christine Lagarde speaks, Friday
New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.2% as of 9:49 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures fell 0.2%
Futures on the Dow Jones Industrial Average rose 0.1%
The MSCI Asia Pacific Index rose 0.6%
The MSCI Emerging Markets Index rose 0.5%
Currencies
The Bloomberg Dollar Spot Index fell 0.1%
The euro rose 0.2% to $1.0815
The Japanese yen rose 0.3% to 131.15 per dollar
The offshore yuan was little changed at 6.8878 per dollar
The British pound was little changed at $1.2294
Cryptocurrencies
Bitcoin fell 0.2% to $26,997.23
Ether rose 1.1% to $1,726.98
Bonds
The yield on 10-year Treasuries advanced two basis points to 3.55%
Germany’s 10-year yield advanced eight basis points to 2.30%
Britain’s 10-year yield advanced nine basis points to 3.46%
Commodities
Brent crude rose 0.7% to $78.63 a barrel
Spot gold fell 0.2% to $1,952.65 an ounce
MicroStrategy Scored More Bitcoin
Michael Saylor, the CEO of MicroStrategy, recently made a bold move that has been widely lauded as one of the most alpha moves in recent memory. MicroStrategy agreed to a deal with Silvergate Bank, which was experiencing financial difficulties. In the deal, MicroStrategy repaid the principal of a loan in advance for a discount of 22%. This allowed MicroStrategy to save a significant amount of money, which they promptly used to acquire more Bitcoin. They were able to purchase 6,455 Bitcoin for around $150 million, at an average price of approximately $23,238 per Bitcoin.
As of now, MicroStrategy's total holdings of Bitcoin stand at around 138,955 BTC, which were acquired for approximately $4.14 billion, at an average price of around $29,817 per Bitcoin. This is an impressive feat, and there is no other company in the world that comes close to doing what MicroStrategy is doing.
Watching MicroStrategy's moves in the cryptocurrency space is like watching a spectacle unfold. Michael Saylor and his team are truly innovating and paving the way for other companies to follow. It will be interesting to see what other moves they make in the future and how it will impact the overall cryptocurrency market.
Bitcoin’s Hashrate Is On Fire
Bitcoin's hash rate has long been considered a crucial indicator of the cryptocurrency's price movements. And if recent trends are anything to go by, we may be in for some exciting times ahead. Despite experiencing some significant corrections over the past couple of years, Bitcoin's hash rate is currently on fire. The metric is quickly approaching 400 million TH/s and could potentially reach the 1 billion mark by the end of this year or early next year if it continues at its current pace.
Some have suggested that the ascent of the hash rate may discredit the idea that Bitcoin's price follows the hash rate. However, if there is even a grain of truth in this theory, we could be in good shape for the future of Bitcoin. In any case, the rapid growth of Bitcoin's hash rate is an exciting development and one that many are watching closely. It will be interesting to see how this metric continues to evolve in the coming months and what it may mean for the cryptocurrency market as a whole.
No Metaverse For Mickey Mouse
Disney has recently disbanded its next-generation storytelling and consumer experiences unit, resulting in the loss of 50 jobs. This move is part of a broader company-wide staff reduction, with 7,000 layoffs in total, aimed at controlling costs and developing a more streamlined business, according to CEO Bob Iger. This includes disbanding Disney's metaverse team, which started developing its strategy in mid-2022 using Polygon as their blockchain of choice. The company's metaverse plans remained unclear a year after the initial announcement, and their direction in emerging technologies like NFTs, blockchain, and decentralized finance is uncertain.
In my opinion, Disney's decision to cut back on its metaverse team and next-generation projects seems short-sighted given the current trajectory of technology and consumer trends. Metaverse and NFTs are becoming increasingly popular, and other major companies, such as Electronic Arts and WWE, are expected to benefit from this emerging market. Disney's withdrawal from these initiatives might lead to missed opportunities and potential competitive disadvantages in the long run.
Voyager Creditors Screwed Again
A federal judge has halted Voyager's attempt to sell its assets to Binance.US following the U.S. government's request for an emergency stay. District Judge Jennifer Rearden granted the U.S. Department of Justice's application for a stay pending an appeal of the sale, which was previously approved by a bankruptcy judge. This decision delays the sale until the appeal can be processed through the U.S. court system. Voyager filed for bankruptcy in July last year, and Bankruptcy Judge Michael Wiles had previously approved the sale, aiming to expedite the bankruptcy process and ensure Voyager creditors were repaid as soon as possible.
Tthis situation further complicates matters for Voyager's customers and creditors, who feel frustrated and betrayed by the ongoing legal issues surrounding the company. The delay in the sale to Binance.US could potentially prolong the uncertainty and financial hardships faced by those affected. It is crucial for the court system to thoroughly review the case and make a decision that best serves the interests of Voyager's customers and creditors, preventing them from being negatively impacted once again.
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.