Over the past year three huge crypto firms have failed: Genesis, FTX, and Three Arrows. At least two of them came to ruin because they were fundamentally corrupt and misused customer funds.
But none of these three is the biggest crypto firm. Binance is. A few months ago I noted this and asked, "When Binance cracks up I wonder what we'll think then?"
Well, the other shoe dropped today in a landmark SEC lawsuit against Binance and its founder, Changpeng Zhao:
The SEC said that Binance and Zhao misused customers’ funds and diverted them to a trading entity that Zhao controlled. That trading firm, Sigma Chain, engaged in manipulative trading that made Binance’s volume appear larger than it actually was, the SEC said.
Binance also concealed that it commingled billions of dollars in customer assets and sent them to a third-party, Merit Peak, which was owned by Zhao, the SEC alleged.
Even if you think that crypto is inherently a scam, as I do, it's not the case that crypto trading has to be a scam. You can be a true believer and run an honest platform that allows people to buy and sell products that I happen to think are worthless.
And yet crypto seems to attract Ponzi-like corruption the way shit attracts flies. The problem, I assume, is that an honest crypto platform isn't very profitable. You can make some money, but worthless products just don't generate large fees or commissions. To make serious money, you need to convince people that crypto isn't just real, but an unstoppable juggernaut that only the select few truly understand. And the only way to do that is by running a corrupt platform that's designed to look much bigger and richer than it really is. Reality on its own is just too drab to keep the marks on the hook.
Well said!
I'm not sure if the only way to make a lot of money in crypto is by running a corrupt platform that's designed to look much bigger and richer than it really is. But I do think the people who do run these platforms are savvy enough to know crypto is worthless and will lose the vast majority of their customers a ton of money, but also don't care. The kind of people happy to build a business around a scam asset are the same kind of people who would run that business curruptly as well.
+1
Didn't read it all, but a quote from the WSJ: “The SEC appears to be very concerned about the commingling of customer funds.”
You would think that the SEC would be concerned because commingling customer assets is outright fraud. In 2008, Lehman Brother's broker/dealer customers were made whole because that business was rightly separate from the rest of their I-bank operations. Customers can make all the stupid trades they want using their brokerage account but its there assets to gamble with or use as margin collateral.
And crypto is different from any other form of unregulated capitalism how?
Crypto has no real actual economic utility, and of course Crypto is hardly "capitalism" in any real sense. It's pure gambling.
This pose of simplistic cynicism is so easy to adopt. And it sounds wise but it really is not.
Also, most forms of capitalism are heavily regulated.
If someone actually was a believer in crypto as something other than an opportunity to gamble/speculate, then this should be a good thing. Centralized crypto exchanges always seemed at odds with crypto's ostensible value as a decentralized medium of exchange, but of course most of the money in crypto is there for speculation rather than using it as a medium of exchange.
In any case, no shocker there. The "wash trading" element always amused me the most - it's not just that the asset itself is bogus, but they have to fabricate even the degree of interest in the asset to make it seem important with fake trades.
"If someone actually was a believer in crypto as something other than an opportunity to gamble/speculate"
It is something else: it is a way for organized crime to launder money.
I've always found fascinating in cryptocurrency how the anarcho-capitalistic ideology that dominates much of the scene seems so wedded to a magical belief in wealth creation out of thin air. This Binance scandal is just one more example of how that incongruity expresses itself.
"Anarcho Capitalist" really is a poor description of the Crypto ideology which is really more in line with US Libertarianism with a strong mix of that weirdo Sovereign Citizen movement that arose out of the USA to contaminate anglophone world with its magical thinking, magic words.
It is rather more it seems an expression of a use of magic to get out of the frustration of a large percent of participants arising from their sense they have no chance in the 'game' of life they are playing, locked out of access to opportunity. But insteads of channeling to rational protest (or even irrational but not magical), they turn to magical thinking as protest
What is really funny is that these guys used to really hate "fiat" currencies. It's interesting that when Neal Stephenson wrote the Cryptonominicon back in the 90s, when he wanted his libertarian hero to create his own currency to finally free the world from all the evil governments, he felt the need to make sure the guy had a massive cache of gold to peg it to. Little did he know . . .
Yeah, it's really telling when some of the most successful crypto currencies have been stable coins pegged to the US dollar.
“Commingling” and “sent to an entity controlled by” etc etc sure sounds to me like $10 words for stealing.
+10!