FTX's Singh Admits, Binance's Reserves Are Hit, The Bitcoin Market Has Thinned, And Miners' Accounting Is Creative

‍Binance's shuffle

Several new documents have been released on Binance's "Tai Chi" subversion plan to subvert US regulations with the creation of Binance US and the new documents demonstrate the extent to which Binance US and Binance.com are closely intertwined and how they really aren't part at all. Although we all knew this, it's nice to have it laid out all in one place.

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Regulatory authorities are concerned that Binance is another FTX just waiting to burst, and that funds belonging to Binance US customers are commingled with Binance.com funds. There is no doubt that both of these statements are true.

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There is a possibility that U.S. regulators might conclude that these links indicate Binance has control over a U.S. company so that they could claim the power to oversee Binance's entire business, which has, to many investors, been a black box from the beginning.

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In November 2020, Forbes published an article describing the "Tai Chi" plan. Defamation charges were filed against Forbes by Binance before the suit was withdrawn. Forbes was later bought by Binance for a substantial amount of money.

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However, Forbes is not softening its stance on Binance at all. A total of 1.1 billion bridged USDC on Binance's BNB chain were unbacked from August 17, 2022, to early December 2022 - that is, the tokens on Binance were not backed by USDC but rather by BNB.

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DRW's cryptocurrency subsidiary, Cumberland, which is also one of Binance's main liquidity providers, channeled the missing reserve to Cumberland - the crypto subsidiary of Chicago-based trading firm DRW. There is a possibility that Cumberland has assisted Binance with converting the USDC collateral into its BUSD stablecoin. Aside from Amber Group, Alameda Research, and Justin Sun's Tron, Binance also shifted $100 million of collateral to them.

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Binance is a well-established company that has been trading the backing reserves for its bridged tokens for a long time, as detailed by Forbes. The chief strategy officer of Binance, Patrick Hillmann, says that this is fine - they are simply keeping a private set of books along with the public set of books as well.

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Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), and Roger Marshall (R-KS) are three of the senators who have sent a scathing letter to Binance in response to the scandal. The report describes Binance as a "hotbed of illegal financial activity," and extensively quotes Reuters' coverage of the exchange's various shenanigans over the past couple of months. Binance and Binance US have been requested to provide them with a pile of documents regarding the company's finances, compliance, and risk management practices. It is expected that the documents will be submitted by March 16.

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BUSD trading on Coinbase has been suspended as of March 13. There are apparently "liquidity concerns" behind this.

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Accounting for bitcoin miners

In August, we told you that bitcoin miners were tampering with their accounts to gain access to bitcoins. After receiving unhappy letters from the SEC, Marathon Digital Holdings and Riot Platforms have both decided to delay their 10-K filings for the year 2022. There is a good chance that both companies will have to restate portions of their audited 2021 results and their currently unaudited 2022 quarterly reports. 

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It is no secret that bitcoin miners need cash in order to fund their operations and pay their exorbitant executive salaries in order to remain profitable. Marathon sold nearly all of the bitcoins they mined during the month of February - 650 bitcoins out of the 683 bitcoins they mined in total. Marathon sold 1,500 Bitcoins in January, marking the first time that the company has sold any of its holdings since its inception.

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Last year, Riot began selling some of its mined bitcoin.

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Riot's 10-K has now been filed.

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Singh sings FTX

FTX and FTX US former engineer and director of engineering, Nishad Singh, has entered into a plea deal with prosecutors. A plea of guilty to six fraud and conspiracy charges was entered by Singh, including making unlawful campaign contributions as part of the conspiracy.

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Singh has also been charged civilly by the SEC and the CFTC.

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As a result of Singh's alleged work, FTX customers were able to divert funds from FTX to Alameda through a "back door.". It is also alleged that Singh withdrew $6 million from FTX for personal use, including the purchase of a multi-million dollar house, and for funneling money to Effective Altruism organizations as well.

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As of right now, there is no word on Sam Trabucco, former co-CEO of Alameda - he has not tweeted since November, and he escaped before the whole company collapsed - nor on Ryan Salame, former co-CEO of FTX Digital Markets and another passionate political donor. Hopefully, if they are able to explain everything to us, it should all be fine.

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In Sam Bankman-Fried's criminal case, Judge Lewis Kaplan threatened to throw Sam into jail unless he could come up with stronger bail restrictions for both sides in order to avoid Sam being thrown in jail. Almost the entire internet has been banned by the government and the defense as a result of a recent agreement.

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Sam is able to use a flip phone that does not have an internet connection. It appears that he is not able to contact any of the current or former FTX employees. In addition, his laptop will be restricted to certain sites, and his usage will be monitored at all times.

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In other words, this is a big step up from what you would find in a jail cell, which is a laptop that is isolated for discovery purposes. There will also be monitoring of Sam's parents' devices since he is at them and they are also at home.

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League of Legends is not on the approved sites list, but Sam is specifically allowed access to mlb.com and nfl.com, for all his Effective Sportsball needs. Substack and Twitter are not on the list, so he’ll need to write up more crimes on his Wikipedia user page or something. 

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The bankrupt FTX has finally been able to estimate how much of its customers' funds are missing - an estimated $8.9 billion. A total of $2.2 billion has been located in the assets of customers. Fiat, stablecoins, BTC, ETH, and stablecoins make up only $694 million of that total.

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FTX US also showed a shortfall of $116 million - it has $191 million in liquid assets but owes $335 million to its creditors.

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A number goes up!

Currently, the liquidity of BTC and ETH is at its lowest since the Terra Luna collapse - there is no volume due to a lack of actual dollars in the market. It is much easier to rig the price of a commodity now than it has been for a very long time. 

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Bitcoin's price dropped by $1,000 in five minutes around 02:00 UTC on March 3 because of a $1,000 drop in BTC/USD.

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There is a good chance that Ethereum's Shanghai Upgrade will happen in April, which will enable all the staked ether currently stuck in the validators to be unstaked and sold. However, it is unlikely that a successful validator would simply dump its stake if it is profitable.

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Bitcoins from Mt. Gox are about to be released ... any minute now! Most likely. Claims must be filed by March 10, 2023. Moreover, we are sure that every Mt. Gox holder who has been waiting for his or her bitcoins from the company since 2014 will continue hodling and not immediately dump his or her bitcoins. 

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The New Zealand government has issued a restraining order locking up NZD$140 million in bitcoins stolen by BTC-e operator Alexander Vinnik. It is possible that they will eventually be added to the Mt. Gox bankruptcy estate if they are recovered.

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According to a working paper published by the National Bureau of Economic Research in December 2022, cryptocurrency trading markets are a bunch of manipulated nonsense. There is a wide range of anomalies relating to first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges which suggest rampant manipulations which are unlikely to be a result of exchange heterogeneity or strategy. The wash trading volume on unregulated exchanges averaged over 70% of the reported volume, and we quantified it for each exchange." 

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Matt Binder: Don't be fooled: Crypto is going up because of market manipulation - whenever cryptocurrency prices rise suddenly, it's most likely due to market manipulation. 

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Bitcoin continues to gain traction

Institutional money can say goodbye to Bitcoin once and for all. The notion of cryptocurrency is "practically nonexistent" for the biggest institutions in the world, according to Jared Gross, the head of the institutional strategy at JPMorgan. “The volatility is too high, and there is no intrinsic return that you can point to because of the lack of an intrinsic return that can be demonstrated.”

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Like the New York BitLicense, Illinois wants to implement strict regulations for crypto businesses. “Consumers are too often hurt by scams or collapse that directly affect their pocketbooks,” said regulator David DeCarlo.

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The Ohio Division of Securities has joined the multi-state settlement against Nexo that was reached between a number of states. We have yet to hear anything from Bulgaria regarding what is going on with the raids on Nexo's office and the charges that are being filed against the company. 

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FTX's former auditor Armanino has set up shop as The Network Firm, specializing in serving crypto firms.

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Grayscale is proceeding to court in order to try to get GBTC converted to an ETF, after the SEC's 73-page response brief that was submitted in December 2022 prompted Grayscale to go to court. There will be an oral argument on March 7 as part of the case. 

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It has been reported by Reuters that Visa and Mastercard have paused all new crypto partnerships. They sure did take their time. In response to the report, Visa denies it. The MasterCard company stated in a statement that its efforts "continued to be focused on the underlying blockchain technology," which has the advantage of working worse than the existing alternatives, so it is unlikely to have a ripple effect on the economy.

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There were almost a hundred tokens launched on UniSwap that ended up being rug pulls in the end. It's a simple and obvious heuristic that can be applied here: if you assume that all DeFi scams are scams, you'll be right 97.7% of the time.