Bloomberg: Binance Sued by CFTC | Bloomberg Crypto 03/28/2023

“Bloomberg Crypto” covers the people, transactions, and technology shaping the world of decentralized finance. Sheila Warren, CEO of Crypto Council for Innovation, describes what she sees as a systematic pushing out of the crypto industry. Samir “Sam” Tabar, CEO of Bitcoin mining company Bit Digital, says Bitcoin will eventually be seen by a lot of people as digital gold.

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Transcript

We are live from Bloomberg’s world headquarters in Midtown Manhattan I’m Matt Miller and from our studios in Washington DC I’m Kaylee Lyons welcome to Bloomberg crypto a look at the people transactions and Technology shaping the world of decentralized Finance coming up as U.S lawmakers assess the regulatory response

To recent bank failures Regulators make their most forceful move yet to crack down on the world’s biggest crypto Exchange and finance Defiance CZ shoots back at the cftc calling its lawsuit unexpected and disappointing we’ll discuss with Sheila Warren of the crypto Council for innovation and top Executives warned that an

Environment of harsh penalties could force them to look overseas the CEO of Bitcoin miner bit digital tells us where he’s looking for opportunity so all of that is ahead but first let’s get a snapshot of the market the best way to do that on your Bloomberg Terminal C r y

P go that is your function what you will find is it is a bit of a mixed picture when it comes to digital assets today Bitcoin is down on the day by about 16 uh six tenths of one percent we are trading just south of 27 000 ether

Though is on the up to the tune of about one and a half percent it’s 17.35 at the moment and binance coin B and B mat also on the rise up about 1.3 percent as we’re continuing to digest the potential ramifications of that cftc lawsuit for the world’s largest crypto exchange yeah

In fact Melton dimirs uh Kaylee of coin shares weighed in as news of the cftc’s case against Finance rippled through markets yesterday let’s listen in thank you Finance is a key pillar in this industry one of the things you know I sort of said this morning to myself was okay the

The last shoe has finally dropped this was really what I think the whole industry was waiting waiting to see you know will something happen about Finance um and so I don’t think anyone is necessarily surprised by this morning’s announcement I think there were certainly things in the announcement

That were surprising but not surprised that that binance is now you know formally being investigated now for more on the claims and the Striking evidence laid out in the cftc’s lawsuit were joined by Ava Benny Morrison Bloomberg legal reporter so Ava tell us first off what the core

Allegations are against binance the cftc has sued binance alleging that it allowed U.S customers to trade on its offshore exchange also alleging that it encouraged U.S based trading firms to use offshore shell companies to trade through binance to try and get around some of those AML and kyc protocols and

The regulations and it’s also alleged that their anti-money laundering programs and they know your customer programs were completely ineffective if we could just talk about the significance of this particular cftc lawsuit against binance can you just give us some color around that considering it has repeatedly faced scrutiny from several Regulatory

Agencies here absolutely and you’re right binance has been under scrutiny from several agencies from the IRS to the SEC and to the doj this is sort of the first blow against binance that we’ve seen from a regulatory or a law enforcement agency this isn’t about criminal enforcement there are no

Criminal charges here but the consequences could be pretty dire for binance the cftc wants to ban The Exchange from trading in derivatives what is the jurisdiction what are the jurisdictional issues here I mean if people were acting in the U.S through vpns through a virtual private networks and through shell companies in the

Cayman Islands in Jersey does that make does the cftc have to prove that they were actually doing the work in Chicago or New York for example um the the burden sort of falls on finance um for not for sorry allowing U.S space entities and customers to trade on the

Exchange as opposed to the owners falling on those trading firms so it’s not um illegal from what I’ve been told for those firms to be using offshore entities to trade in the US but if binance is advising them to do that then that’s what’s going to land them in hot water

And finally if we can talk about someone else who already has landed in hot water FTX co-founder Sam bankman freed already has been charged with plenty but he was hit with a new charge yesterday accusing of bribing a Chinese official or being accused of that can you talk us through

It this adds a whole new element to the FTX case um a new charge was added to his indictment yesterday and it was unsealed today Bateman freed is accused of bribing Chinese government officials to the tune of at least 40 million dollars in 2021 and he was trying to as

Prosecutors say to unfreeze about a billion dollars worth of crypto assets that was held in Alameda trading accounts all right Ava thanks so much for joining us Bloomberg’s Ava Benny Morrison walking us through the cftc suit and talking also about the uh the new indictment against Sam bankman freed

Joining us now from San Francisco is Sheila Warren she’s CEO of the crypto Council for Innovation uh trade group and we’ll put aside the SPF concerns and and talk really about the cftc suit what do you think about this kind of enforcement as uh CZ has said it was a

Surprise to binance he says they’ve been working with the cftc really closely for the past couple of years why now well there’s a lot in there Matt I think first of all they have been CZ responded they’ve been working with this Agency for two years but of course the

Allegations here go back to 2017 so they predate any kind of Engagement that binance is claiming to have made which is probably a fair recording of what actually happened here the other thing is that these are a variety of different kinds of allegations and they’re they’re not foot faults they’re pretty really

Serious stuff here and the kind of evidence that the cftc seems to have uh text messages presumably pulled off somebody’s phone that really talked through coaching people on how to evade known law this is different from other important actions we’ve seen from the CFT from the SEC excuse me for example

Which basically is citing failure to come into the regulatory perimeter right but here they’re actually saying these are really well established rules and laws around how to conduct uh anti-terrorist surveillance and the flaunting of them is is is a pretty deep and problematically station here in terms of what could happen because

These are just because these are just civil claims and not criminal claims what do you expect the Fallout to be for binance and for the broader crypto industry yeah well I think we should first note that they’re not criminal charges yet we’ve yet to see action from the doj but

Some folks in Industry have been anticipating that there might be some of that coming down I saw you had meltamonte earlier and you know we’ve been waiting to see who was going to go first really in against this particular exchange uh I think the Fallout is something as multimoded again it’s been

Expected we’ve kind of been waiting for a little while to see which agency which body in the US government was going to kind of go first here turns out it was the cftc that got the evidence together first presumably uh it’s it’s something that I think people have been you know

Back of the Mind prepared for but this is the largest global exchange that exists in this ecosystem and so I think we’re going to have to see how all this plays out a lot will depend on what what binance chooses to do are they going to

Go to court and fight it are they going to settle we have to kind of figure that out and see where it goes well we know what binance has not chosen to do today Sheila is joined this program I do just want to State for the

Record that we did reach out to binance I directly reached out to CZ uh on Twitter via direct message he did respond he said no thank you to joining he said that their response is public and they won’t be commenting further on it uh so we look forward hopefully to

Speaking with CZ one day in the future just not today on this matter Sheila you were just discussing how this is such a big player in the industry this is the world’s largest exchange which begs the question of what you think Regulators are trying to accomplish here is it

About putting a stop to bad behavior or is it about choking binance out of the U.S well I think it’s probably both but I think in the minds of some of these agencies those things are somewhat equated right they they certainly don’t see binance as a good actor based on the

Allegations in this in this action and so I think that they’re very interested in ensuring that anybody who is trying to exploit the lack of regulatory Clarity uh realizes that the US is not open to that now the challenge of course is a lot of good actors are getting

Swept up in some of this there’s no question this industry is composed of some Bad actors and some good actors and we’re going to have to just hope and cross our fingers that the good actors do not get overly punished we’re already seeing some of that happening Kaylee so

The challenge is going to be does this desire to go after those are perceived as acting in bad faith sweep out everybody and mean that this entire industry gets offshored out of the U.S which I think would be the worst possible outcome well there’s also the question of

Whether they have to go offshore for banking I was just spent my morning on Capitol Hill at the Senate Banking Committee hearing regarding the failures of Silicon Valley Bank and Signature Bank and we know that both of those Banks catered to crypto depositors the question has been raised whether this is

Another operation choke point what do you think I think that we are seeing the discouraging of banks to engage with crypto companies and what I find really really problematic about that is we’re not distinguishing between a corporate account which is doing something like anybody else is doing it’s making

Payroll it’s paying taxes it’s dealing in Fiat in a very traditional startup kind of way and the idea that a well-funded crypto startup is more risky at the corporate level than any other kind of company or startup that is similarly funded is discriminatory and really problematic uh now I think that

There are some reasons and some conversations to be had about the custody of crypto assets which is a different thing but that’s not what we’re talking about here so look I think that the systematic uh pushing out that’s happening across a variety of different actors I think agencies are

Taking this differently some are kind of taking an overtly hostile stance and some are trying to say look we’re trying to lay out some rules here we’re trying to figure out what good actors can indicate that they should be doing but I think you have to look at what happened

With the SEC and this wealth notice against coinbase as indicative of overt hostility from at least that agency towards the entire crypto industry I don’t know what else you could ask of a company apart from trying to come in multiple times document and documented in writing asking questions about what

Needs to be registered and what the process is to do that and getting no response that doesn’t seem like the actions of a government that’s really trying to encourage Innovation on Shore well what is happening to Innovation Sheila because at the same time as we see you know crypto essentially being

Choked out and it really does look like that from the one-two punch of uh the collapse of svb and uh and and the the suit against now binance we do see the price of Bitcoin for example and a number of other coins Rising dramatically why do you think we uh we

Have those two kind of conflicting signals well here’s the irony at the same time as you’re having an encouragement of monopolistic behavior in Banks right as Regional banks are under a threat and Community Banks as well you’re seeing more and more flocking to big giant Banks g-subs uh that are that are

Considered too big to fail the those banks that were allocated as such right that is kind of creating a monopoly in the banking system which is something folks have learned about for a while going back to 2008 the origin story of Bitcoin lies in 2008 financial crisis so

At the same time as you’re seeing this kind of certain people I don’t think this is consistent across the government which is not monolithic but some folks are looking to blame crypto for this you’re seeing others who are saying this is a validation of the very reason

Crypto exists in the first place so that juxtaposition is it’s kind of mind-blowing when you really think about it Matt but I think that’s what you’re you’re seeing in the market all right Sheila we have to leave it there but thank you so much for your time and insight today really appreciate

It that is Sheila Warren of the crypto Council for Innovation and still coming up we’ll speak with Sam tabar he is the incoming CEO of Bitcoin mining company bit digital yeah and to access all the latest data and the news on crypto go on your

Bloomberg terminal and type c r y p go this is Bloomberg foreign Side we’re looking at a much higher Reserve required for crypto assets so I think people need to be assured that in some ways the safety and soundness of crypto is going to be higher if it’s regulated the problem thus far is that it’s not been regulated it is the wild west of cryptocurrency

That was Senator Cynthia lemus of Wyoming speaking with me earlier on Capitol Hill in hearing surrounding the collapse of Silicon Valley Bank and Signature Bank both banks that did cater to crypto clients joining us now is Sam tabar he is incoming CEO of Bitcoin mining company bit digital Sam it speaks

To the broader question out there right now and thank you so much for joining us about after these collapses where crypto companies go to bank is that still possible in the U.S well look Regulators have certainly made it more difficult for crypto native companies to get access to banking there

Are other Regional banks that are stepping in selectively to fill the void but the system is much less supportive than it used to be and many are on the sidelines just wait and see what happens the fears around binance are also not helping and many users are likely moving

Coins off the exchange and into Cold Storage which probably explains the lower volume these days well speaking of things moving is the end result of this just moving offshore is that something that digital is pursuing well it’s funny you ask we actually that our entire fleet used to be in China and

And we decided to move our entire fleet from China to the United States because we felt that it was just too much jurisdictional risk to stay in China and as we’re moving our Fleet Midway through China announced a ban on Bitcoin mining so we just accelerated that entire

Movement of the fleet into the United States into the United States which we felt was a safer Place uh so we continue to see that the pattern continues you know China had to go on bitcoin nothing happened Bitcoin is not something you can destroy it’s a decentralized asset

Uh Banning an entire industry does nothing to bitcoin uh it has no effect I mean but we are looking at other jurisdictions now other countries and and we have to part of our jurisdictional diversification to diversify our risk forces us to look at other countries is it possible to get to

Know jurisdiction because it seems like that’s what my is trying to do and it feels like that’s where Bitcoin really belongs but it doesn’t seem possible with all of these governments working together look we’re pro-regulation but we want regulation to be well communicated and it can’t just be simply carried out via

Enforcement on ambiguous rules Bitcoin mining for example comprises of 0.2 percent of global energy use and over 60 percent of that is sustainable but politicians are unfairly you painting the entire industry as some sort of dirty energy and and are threatening these unwieldy taxes and outright Bans

Forcing Bitcoin mining out of the United States would simply transport the industry elsewhere and it would just decrease the US’s ability to put to be a Powerhouse in this new industry that’s not going away well you know a lot of times people are terrified of things

They can’t understand Sam let me ask you about the price action we’ve seen because it’s been pretty impressive you know even after the collapse of FTX even with uh the threat right now although it’s only a civil threat we want to remind our viewers to finance not a

Criminal threat uh nonetheless it’s not a great look we still have Bitcoin trading at twenty seven thousand dollars is that because of low liquidity I mean somebody still has to lift the offer how do you explain the price action yeah well the loss of silvergates exchange Network and signature Signet

Has certainly reduced the liquidity as market makers use these banks for 24 7 settlements so there is a technical reason for the volume however there is also a logical reason why Bitcoin is going up and it’s because satoshi’s thesis about the financial system having too much control and just can censor

Transactions and just having um as you could see banks are falling apart again that happened in 2008 that is exactly when Satoshi invented Bitcoin because you saw that the financial system had way too many holes and there he wanted to create a system where it was completely decentralized and fail-proof

Bitcoin is a fail-proof system and so he invented that in the last banking crisis and here we are again another banking crisis you’ll see Bitcoin going up eventually Bitcoin will be seen by a lot of people as digital gold it’s the ultimate way to hedge against macro bets

Inflation and this sort of thing that’s happening today well and just like gold it has to be mined so one final question on bitcoin miners many of which we have seen come into pretty serious financial trouble are is the Bitcoin mining uh industry through the worst of it what challenges

Do you still face you know I agree with you a lot of our peers unfortunately drank their uh their own Kool-Aid and and levered up and took on debt on their balance sheet while Bitcoin was going up through the roof I think past 50 000 people were really

Getting greedy we didn’t know we did no such thing we have a very healthy pristine balance sheet we have over 65 dollars on the balance sheet we have absolutely no debt but digital has no leverage no Capital commitment so we ran a pretty conservative and tight ship

Um and we’re even in the business of potentially even lending to to people in the industry who need the money because we have such a great balance sheet having said that this is a lesson to be learned in the future for there will be another Bull Run and you know our the

Industry needs to to run a business and run a business means you can’t just hope on the direction of Bitcoin you’ve got to run your business regardless of the direction of where Bitcoin is going all right that’s what we do all right Sam thank well thanks so much for

Joining us really appreciate your time today I know it’s an incredibly busy uh even even with low liquidity and Incredibly uh busy time for the crypto industry Sam tabar there of bit digital as they move to diversify their operations he’s got a heck of a lot to

Do be sure by the way to check out our Bloomberg crypto podcast which Dives deeper than the daily Market Buzz to explore the stories and people shaping the ever evolving digital landscape look for that every weekday wherever you get your podcasts this is Bloomberg This is Bloomberg crypto I’m Matt Miller in New York with Kaylee Lyons in Washington let’s get to some crypto stories that caught our attention this week first off terraform Labs co-founder doe Kwan is being held in quarantine in Montenegro that’s after he was caught trying to fly to Dubai using fake

Passports he’s wanted in the U.S and South Korea over a cryptocurrency alleged cryptocurrency fraud that wiped out at least 40 billion dollars in market value he and CFO Han Chang Jun can be held under investigative detention for up to 30 days there meanwhile Galaxy digital posted a fourth

Quarter net loss totaling nearly 288 million dollars that compares to a net income of 521 million dollars in the same period a year earlier the crypto Financial Services firm founded by Mike Nova grass attributed it primarily to unrealized losses on investments during the slump and token prices at the end of last year

And speaking of slumps Kraken is teaming up with Formula One the crypto exchange signed a multi-year global pact with Williams Racing for their logo to be placed on the Williams cars and team uniforms this is their first major sponsorship deal even as Sports tie-ups digital asset firms have really

Decreased in popularity I have to say Kaylee this is a sport that eats money and you do see sponsors coming and going in Formula One however a lot of people put the viewership at 500 million per weekend so that money does buy a really broad exposure and if that’s what you’re

After maybe that’s what they’re going to get yeah I mean I can’t say that I’m one of those viewers but clearly there are plenty of people out there doing it Matt and I just think the numbers the change from 2022 to this year uh in our Bloomberg story is really astounding in

2022 all 10 teams had at least one crypto sponsor that has almost that presence of crypto sponsors has almost hacked at the start of this season which just goes to show you how many of these companies are pulling back on their big spending in the hundreds of millions of

Dollars they put out there to sponsor Sports and stadiums and the like yeah exactly uh the point I think of the story coming up next week by the way Paul Brody Global blockchain leader for ey blockchain this is Bloomberg Thank you

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