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21st November 2023 > > CEX!


Changpeng Zhao may finally get his rightful comeuppance. As might Jesse Powell.

Market Snap

Market Wrap

Just one day away now from the anniversary of the final capitulation of the last crypto winter and this mid-30s base looks ever stronger. Perhaps we will never see a 20-handle again?

Curious Cryptos’ Commentary – Binance

The CCC has long been critical of the immature approach taken by Changpeng Zhao, co-founder and CEO of Binance. Though matters have improved of late, not so many years ago this man-child used to proudly proclaim that as Binance did not have a head office, it could not be subject to any rules or regulations levied at a sovereign level.

Boy, was he wrong.

Binance has been under investigation for a collection of offences which should have its executives in a state of panic. These include money laundering, bank fraud, and violating U.S. sanctions laws, a combination of which would put Bankman-Fried’s expected 110-year jail sentence in the shade.

According to Bloomberg, the U.S. DOJ (Department of Justice) has offered a deal for Binance to pay $4bn as a fine and for Zhao to face criminal charges in the U.S. to settle the case. Matt Walsh at Castle Island Ventures explains what he believes is the thinking behind this approach:

“A settlement with a monitoring provision in place could be a compromise that protects investors and allows Binance the option to evolve into a more institutional and compliant future direction.”

Zhao lives in the UAE so cannot be extradited from there, but his future freedom to move around the world will be severely curtailed when the U.S. brings criminal charges, as it surely will regardless of the outcome of this settlement proposal.

It would be in everyone’s best interest if the deal was struck, and Zhao was no longer involved in Binance.

Curious Cryptos’ Commentary – More exchange problems

Kraken, another centralised cryptocurrency exchange headed by its own man-child Jesse Powell, is subject to a new lawsuit from the SEC:

Point number 1:

“Since 2013, Kraken has operated an online trading platform through which its customers can buy and sell crypto assets, many of which form the basis of investment contracts covered under U.S. securities laws. Without registering with the SEC in any capacity, Kraken has simultaneously acted as a broker, dealer, exchange, and clearing agency with respect to these crypto asset securities. In doing so, Kraken has created risk for investors and taken in billions of dollars in fees and trading revenue from investors without adhering to or even recognizing the requirements of the U.S. securities laws that are designed to protect investors.”

The SEC’s focus is on securities laws, but we have seen in past legal proceedings that they don’t always get their own way. This is a grey area, and is entirely subjective, for the rules and regulations around cryptos in the U.S. are not fit for purpose.

But what should scare the executives at Kraken is point number 2:

“Kraken’s business practices, deficient internal controls, and inadequate recordkeeping present a range of additional risks that would also be prohibited for any properly registered securities intermediary. For example, Kraken has at times held customer crypto assets valued at more than $33 billion, but it has commingled these crypto assets with its own, creating what its independent auditor had identified in its audit plan as “a significant risk of loss” to its customers. Similarly, Kraken has held at times more than $5 billion worth of its customers’ cash, and it also commingles some of its customers’ cash with some of its own. In fact, Kraken has at times paid operational expenses directly from bank accounts that hold customer cash.”

That’s the Bankman-Fried approach right there. These allegations can be proved using documentary evidence and are not subjective at all. A plea deal to save Powell prison time is the likely outcome.

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