Market Watch | Bitcoin | $13,467 | 7 day: +4.9% | | Ethereum | $384 | 7 day: -5.9% | | All crypto | $394b | 7 day: +0.7% | | Bitcoin dominance | 63.4% | 7 day: +1.3% | Prices as of 3:30 p.m. EDT
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Today's issue will focus exclusively on one of the most important investigations of the year. Enjoy! | |  Aaron |  | | |
Forbes staff claim Binance has used an "elaborate scheme" to evade U.S. regulations. A leaked presentation unearths history. - A 2018 strategy document analyzed by a Forbes reporter outlines alleged plans to set up a U.S-based entity under the code name "Tai-Chi" to sidestep U.S. regulations and form a complex, misleading corporate structure to profit from U.S. cryptocurrency investors.
- According to Bitwise, U.S. investors are responsible for approximately one-third of global spot bitcoin volume.
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 "Tai Chi" is a common phrase, making internet searches difficult Project code name Tai-Chi: - Forbes' 2018 document alleges that Binance's stealthy entity code-named Tai Chi would not act as a subsidiary but would, instead, have opaque contractual relationships with the parent company to shield Binance from U.S. enforcement actions.
- Forbes speculates that Binance's M&A manager Jared Gross, a Singapore-based attorney acting as the general counsel to Binance, presented the 2018 document to CEO Changpeng Zhao in Q4 2018.
- The current structure of Binance Holdings Limited reveals that the company has already implemented many strategies outlined in that 2018 document, such as opening Binance.US and joining various Washington DC organizations to distract regulators from Binance Coin (BNB).
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 CZ (left) CEO Changpeng Zhao: - Changpeng Zhao ("CZ"), Binance's CEO, is one of the industry's few billionaires. Within one year of launching Binance, Forbes verified CZ's personal wealth.
- CZ worked at OKCoin between June 2014 and February 2015, as Chief Technology Officer. In August 2014, Zhao launched OKCoin's futures trading platform. Zhao left OKCoin with a verbal resignation.
- On Oct. 30, 2017, OKCoin discontinued standalone operations and fully merged into OKEx, headquartered in Seychelles to avoid Chinese regulators while still deriving most of its revenue from China.
- Today, OKEx is one of the 10 largest cryptocurrency exchanges.
- Since Oct. 16, 2020, and still today, OKEx has frozen billions of dollars worth of its customers' assets.
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Denials: - CZ called Forbes' report FUD in a series of tweets.
- CZ denied that the alleged author, Harry Zhao, was an employee of Binance.
- Forbes staff reiterated that they possessed an email from Binance's Chief Compliance Officer, confirming that the document's author was previous part of Binance's team.
- The distinction is likely of semantics. Whether Zhao was an employee or just a substantial contractor or team member through his relationship with Koi (more on Koi later) is largely irrelevant to the contents of the 2018 document.
- Binance.US CEO Catherine Coley did not comment about Zhao but shared a YouTube video, clarifying that Binance.US is not a Binance Holdings subsidiary and has not (yet) made any payments to Binance Holdings.
- In the video, Coley confirmed that Binance.US does have "arms-length" contracts for software and IP licensing from Binance Holdings.
- Whether there is now any substantial commercial relationship between Binance and Binance.US is inconsequential to the extraordinary amount of money that CZ has made from Binance Coin (BNB).
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 Chart of Binance Coin (BNB) Binance Coin (BNB): - The current market cap of BNB is $4b.
- CZ and Binance acquired hundreds of millions of dollars worth of Binance Coin (BNB) from 2017 to 2018 with their original promise of using corporate operating profits to buyback BNB and reward investors, all while stating that BNB was somehow not a security.
- Binance does not disclose how many of today's $4b worth of BNB are owned by U.S. residents. (For context, U.S. investors purchased 25% of Telegram's $1.7b Gram Token, TON.)
- In 2019, after U.S. investors had already purchased hundreds of millions of dollars of BNB, Binance.com began limiting access to U.S. customers amid concerns of regulatory actions and removed references to its BNB buyback from its whitepaper.
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 Where is Binance, exactly? - Binance's offices move frequently.
- Binance started in China, then moved to Japan, then Malta, and then Singapore, among other relocations.
- CZ refuses to locate himself and his company's headquarters.
- He also will not enter the U.S.
- In February 2020, when Binance was advertising that it was operating from Malta, the Malta Financial Services Authority stated otherwise and ordered Binance to cease operations in the country.
- During a notable interview, CZ said that Binance does not have headquarters for the "same reason" that bitcoin lacks headquarters.
- Today, Binance operates various country-specific operations, including the island of Jersey (binance.je, closing momentarily), Singapore (binance.sg), USA (binance.us), U.K. (binance.co.uk), Australia (binancelite.com), Uganda (binance.co.ug), and Turkey.
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More than a year after its launch, daily transactions at Binance.US are less than $20m, "perhaps just enough to be a distraction to regulators," according to Forbes. In contrast, Binance claims to process over $9.4b in daily transactions. - In 2019, Binance announced its plans to establish a U.S. domicile specifically for U.S. resident crypto traders.
- On Jun. 13, 2019, Binance formed a partnership with California-based BAM Trading Services to launch Binance.US.
- Its blog post claimed that BAM would operate the U.S-based exchange as a local partner with full U.S. compliance.
- Binance licensed its matching engine and wallet technologies to BAM.
- BAM registered as a Money Services Business with the U.S. Financial Crimes Enforcement Network (FinCEN) to do business only in California.
- Although FinCEN did not verify the information, BAM provided its mailing address as "c/o Koi" (c/o means "care of") on FinCEN's registration document.
- Harry Zhou co-founded Koi Trading, a trading platform based in San Francisco.
- (Binance's chief compliance officer said Zhou is "no longer with our firm.")
- Koi Trading offers crypto liquidity to institutional and high net-worth individuals.
- Binance partially owns Koi. According to CrunchBase data, Binance Labs was the only lead investor during Koi Trading's Oct. 12, 2018 seed financing of $3m.
- Forbes reporters allege that Zhou created the 2018 document that describes some of Binance's evasive tactics.
- BAM Trading Services remains a mysterious entity with few named representatives. Coley shared that Zhao is one of its board members but did not comment on who owns BAM Trading services, when asked during a Forbes interview.
- Binance's U.S. arm, unlike its parent company, does not support leveraged cryptocurrency derivatives trading due to regulatory implications.
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 Binance.US' Catherine Coley leaves many unanswered questions A CEO from Ripple: - Coming back to BAM, in July 2020, it onboarded Catherine Coley as CEO of Binance.US.
- Before joining BAM, Coley served as the Head of XRP Institutional Liquidity at Ripple, another troubled cryptocurrency company that is being sued for conducting an unregistered sale of XRP in violation of federal and California laws.
- For more on Ripple (XRP), see past editions of Inside Cryptocurrency here and here.
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SEC: - CipherTrace, a blockchain analytics intelligence company funded by the U.S. Dept. of Homeland Security, operates the only blockchain forensics tool with support for Binance Coin (BNB) and tokens on Binance's network.
- In July 2020, the SEC hired CipherTrace for forensic analysis tools and visibility into Binance's ecosystem.
- The SEC's contract with CipherTrace does not specify how much if any, attention will be paid to the BNB coin itself versus other participants in Binance's ecosystem.
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Binance versus Coinbase: - In August 2020, Binance.US joined the Blockchain Association, a prestigious Washington DC nonprofit. The next day, founding member Coinbase resigned.
- A Coinbase spokesperson commented on the resignation, saying that "recent steps" could harm the association's credibility irreparably.
- Binance.US has also joined the Chamber of Digital Commerce and the Chicago Defi Alliance recently, following the "distraction" playbook outlined in Forbes' 2018 document.
- On the cover of Forbes magazine, Binance was named Coinbase's "archrival" with Forbes staff pointing to Binance's claim that it processes cryptocurrency transactions "that annualizes to $1 trillion" versus Coinbase's $80b.
- The Binance-Coinbase rivalry is well-publicized. We covered their competition in Inside Cryptocurrency issues Aug. 12 and Aug. 17.
- Coinbase has 30m customers and has raised over $550m in financing. Through the years, the San Francisco-based crypto exchange secured finance from renowned investors such as Andreessen Horowitz, Y Combinator, and Tiger Global Management. Its valuation is $8b.
- Privately-held Binance does not report its valuation. The market capitalization of BNB alone is $4b.
- Binance reports over 10X the trading volumes of Coinbase.
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 |  | Written and curated by wide-eyed bitcoin watcher since $1, Aaron Wise. Streaming headline junkie, Associated Press fanboy, eye-strained news terminal watcher, 2017 founder of Cryptocurrency Newsfeed. Temporarily based in Florida while awaiting the construction of cryptopia. | | | | Editor | Edited by Eduardo Garcia in New York. Eduardo is writing an illustrated book about climate change that will be published by Ten Speed Press, an imprint of Penguin Random House. Bylines in The New York Times, The Guardian, Slate, Scientific American, and others. In one of his previous lives, Eduardo worked as a Reuters correspondent in Latin America for nearly a decade. | |
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