While [Open]AI runs amok, crypto is also having a crazy week. In this week’s edition of The Context, we look at the blockbuster Binance news, Kraken’s regulatory headaches, and CoinDesk’s new owner.
[Bye-Nance 👋]
Binance CEO Changpeng Zhao (CZ) agreed to step down and pay a $50 million fine after pleading guilty to money laundering charges brought by the US Department of Justice as part of a multi-year investigation. 🦹 Binance also pleaded guilty and agreed to a $4.3 billion fine, which Attorney General Merrick Garland, standing beside Treasury Secretary Janet Yellen, said was “one of the largest corporate penalties in U.S. history.” 💸 Richard Teng, a former Singaporean regulator who has been serving as Binance’s head of regional markets, is taking over as CEO.
What Journalists Said 🧑💻:
Binance’s “apparently nonchalant attitude” toward anti-money-laundering measures proved its undoing, reported Allyson Versprille (Bloomberg). The exchange “failed to report suspicious transactions with terrorists,” including members of Hamas, because it believed the sums involved to be too small.
This “latest blow to the embattled crypto industry” might just “spell the end of Binance’s presence in the U.S.,” wrote Leo Schwartz (Fortune). Despite a “public push to come into compliance…the exchange has not been able to shed its reputation for skirting the rules.”
Actually, the exchange can survive, suggested Daniel Kuhn (CoinDesk). “Binance, no stranger to regulatory action, appears to have had a contingency plan in the works for a while, and reacted quickly to its decapitation.” And it has enough on the books to handle a bank run.
Why It Matters ⁉️:
Binance became the largest crypto exchange by a wide margin— controlling over half of trading volume worldwide—in part by ignoring regulations. If this settlement hobbles the exchange, customers may be looking to trade elsewhere. Will Binance be able to retain market share or will competitors step up to fill a vacuum?
[SEC Wraps Tentacles Around Kraken 🐙]
Binance isn’t the only exchange under fire. 🧑🚒 On Monday, the Securities and Exchange Commission (SEC) sued Kraken for acting simultaneously as an exchange, broker-dealer, and clearinghouse—services that are typically separated—all without registering with the agency.
What Journalists Said 🧑💻:
Déjà vu, said Nikhilesh De (CoinDesk). The SEC lobbed similar complaints this year against Binance, Coinbase, and Bittrex—with Bittrex filing for bankruptcy after settling with the regulator in August this year.
The unregistered exchange bit is same-ol’, same-ol’, but the SEC also accuses Kraken of commingling customer and corporate funds, wrote Jack Denton (Barron’s): “This accusation cuts deep in crypto, 🔪 as allegations over commingling stood at the heart of the market-moving collapse of another exchange, FTX, just more than a year ago.”
Exchanges are renewing their calls for regulation that more clearly map to the crypto space, wrote Taylor Giorno (The Hill). 🗺️ And they’re not being shy about pressing sympathetic politicians such as Senator Cynthia Lummis. Like Coinbase, Kraken is among “the top five industry spenders on federal lobbying,” which hit $22.2 million in 2022.
Why It Matters ⁉️:
The SEC’s compliance efforts have sent a consistent message to consumers to not trust centralized exchanges. This regulatory emphasis could lead to the maturation of decentralized exchanges which distribute control more broadly, contributing to the growth and acceptance of the crypto industry.
[Bullish on CoinDesk 🐂]
Speaking of FTX, its collapse spread financial contagion through the industry, leaving Digital Currency Group (DCG) shopping some of its holdings for cash. This week, DCG sold news site CoinDesk to Bullish, a global crypto exchange helmed by former New York Stock Exchange president Tom Farley.
What Journalists Said🧑💻:
Can’t remember why DCG needed the cash? Emma Roth (The Verge) recapped: Another DCG subsidiary, Genesis, held funds in FTX. When FTX defaulted, Genesis went bankrupt. It didn’t go quietly, however, instead suing its parent company to recover $620 million in alleged unpaid loans. Then, in October, the New York Attorney General sued both DCG and Genesis for fraud.
Never mind the reason. This sale “crushes the editorial integrity of the brand,” wrote Blockworks founder Jason Yanowitz. It’s like “BlackRock buying Bloomberg” or “Nasdaq buying the WSJ.” Bankless co-founder Ryan Sean Adams concurred: “I'm deeply skeptical of exchanges and crypto projects owning crypto media.”
There’s no sign of editorial collusion yet. CoinDesk’s own article on the acquisition, a breezy post by reporter Jamie Crowley, instead cites the Wall Street Journal as its source. If Crowley had inside knowledge of the deal, he didn’t let on, leading to sentences like this one: ”CoinDesk will operate as an independent subsidiary of Bullish, Farley said, according to the report.”
Why It Matters ⁉️:
CoinDesk is the oldest and most recognized crypto media company and is frequently cited by mainstream outlets. Its reporting on FTX has won its reporters multiple journalism awards. While recent editorial layoffs demonstrate the outlet’s precarious financial position, even competitors recognize a healthy CoinDesk is good for the industry. They also recognize opportunities to take its place.
[Meme Of The Week]
Credit: @d_argunov
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: “Hardware Wallet” by Imogen Searra.
A hardware wallet is a physical device, that looks like a USB, designed to store digital currencies.
The device is punted as the most secure way for users to store their digital currencies, as it keeps private keys offline.
The device enables users to store their private keys that then enable access to their holdings. When a user needs to authorize a transaction, the device is connected to a laptop or computer to process it securely.
Hardware wallets provide peace of mind, as they provide an added layer of protection against scams, hacks, and malware. They typically include advanced security protection in the form of a PIN code, an optional password, or a phrase.
If a wallet is stolen, keys can’t be extracted, as these are never exposed to the internet. However, if a person loses their device, the stored digital assets are backed up by a recovery phrase.
As is famously known in the crypto community, James Howells accidentally discarded his hard drive back in 2013. The drive, believed to be in a landfill in Newport, south Wales, contains around 8,000 Bitcoin (currently worth approx. $300M) which he has been unable to recover despite his continued efforts.
Remember, keep track of your hardware wallet!
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.