Binance deserves some criticism, but it is not a “Ponzi scheme”; Bitcoin is falling
Good morning. Here’s what happens:
Prices: Bitcoin suffers through another day of decline; ether falls.
Insight: Binance deserves some criticism, but it is not a Ponzi scheme.
●Bitcoin (BTC): $21,234 -1.8%
●Ether (ETH): $1440 -2.0%
●S&P 500 daily close: 3,921.05 -1.2%
●Gold: $1,716 per troy ounce -0.2%
●Ten-year Treasury yield daily close: 2.79% -0.03
Bitcoin, Ether and Gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the spot price for COMEX. Information on CoinDesk indices can be found at coindesk.com/indices.
Bitcoin, Ether Drop on Difficult Day for Cryptos
Cryptocurrencies on Tuesday drifted further away from recent highs as investors dealt with the latest spike in macroeconomic uncertainty and braced for aftershocks from the US Federal Reserve’s expected 75 basis point interest rate hike.
Bitcoin was recently trading at around $21,200, slightly lower in the last 24 hours, although it was down more than 5% earlier in the day. The largest cryptocurrency by market capitalization changed hands above $24,000 as recently as last Wednesday, amid renewed investor optimism that inflation may have peaked and the global economy was contracting at a reasonable pace. But the rally proved short-lived as BTC returned to the $18,000 to $22,000 range it has occupied since the first part of June, at one point falling below $21,000 on Tuesday.
“We’re really stuck in this space,” Paul Eisma, head of trading at crypto finance firm XBTO Group, told CoinDesk TV’s “First Mover” program. “And we’re waiting to see what the data is and what the Fed actually what their guidance is … what they’re anticipating.”
Ether recently traded just above $1,440, down less than a percentage point from the previous day, but well off its recent peak above $1,600. The second-largest crypto by market capitalization after bitcoin surged last week on optimism about the merger, which would shift Ethereum- the blockchain from a more energy-intensive proof-of-work model to proof-of-stake, and investors’ increased risk appetite. An increased level of open interest in options, relative to BTC, underlined this trend.
But ether’s 10% drop on Monday represented the biggest decline in more than a month, as the crypto broke from a six-day trading range of $1,460 to $1,660. Focus has shifted to ethereum’s 50-day moving average of $1,293, CoinDesk Senior Markets Reporter Omkar Godbole wrote, although Fairlead Strategies founder and managing partner Katie Stockton wrote in a research note published Monday that support could dip lower, highlighting short-term signs of investor fatigue. “A pullback in Ether may find initial support at the 50-day MA (~$1,293), but we expect an eventual retest of temporary support ($1,000) on the next leg,” Stockton wrote.
Most other major cryptos fell deep into the red with UNI and SUSHI down more than 11% and 10%, respectively, at one point, and SAND down more than 6%.
Stock indexes suffered through a dismal day with the tech-focused Nasdaq down nearly 2% and the S&P 500, which has a tech-heavy component, and the Dow Jones Industrial Average down 1.2% and 0.7%, respectively, as investors digested a Tuesday wave of disappointing earnings and other news. Among the lows, retail giant Walmart said demand shrank due to rising energy and fuel prices, and automaker GM missed its estimates for profitability. And Google parent Alphabet reported its slowest quarterly sales growth in two years.
Meanwhile, the fallout from Russia’s unprovoked invasion of Ukraine took a new but hardly unexpected turn with Russia’s announcement on Monday that it would cut the flow of gas through the pipeline serving Western Europe. Rising energy prices have played a major role in inflation across the continent and put European economies on edge. Brent crude, a widely watched measure of energy prices, rose near $100 a barrel and is up nearly 40% since the start of the year.
Eisma noted the US central bank’s difficult position in fighting inflation without plunging the economy into a deep, rapid recession and investors’ understandable caution.
“The reality is the Fed is in a bind,” Eisma said. “They have to have a balanced approach, but they don’t want inflation expectations to be put in because that’s more dangerous than putting the economy into a mild recession.”
He added: “This is a difficult week. If, with so much event risk this week, and volatility, it’s kind of smart to either take some short-term profits to see if kind of the dynamics have changed. It’s always smart to reduce risk to go into the events to come this week.
Binance Deserves Some Criticism, But It’s Not a “Ponzi Scheme”
Binance’s CEO is once again suing the media, and this time he may have a case.
In the Chinese edition of Bloomberg Businessweek, published by Hong Kong-based firm Modern Media Cl, Bloomberg’s profile article on Changpeng Zhao originally used the term “Ponzi scheme” in its headline.
The heading has since been changed, but court documents captured the original, which included the direct transliterated term for the Ponzi scheme (龐氏騙局) and not a less direct term that would leave room for interpretation and debate.
This is strange because for all Binance’s faults, being a Ponzi is not something even its fiercest critics would say.
Binance responded by highlighting dozens of new hires in its KYC/AML department, including a number of heavy-hitters from the law enforcement community. What might have been possible in Binance’s early days isn’t going to happen under their watch, is the mantra.
But for Chinese readers, “Ponzi scheme”, when we talk about crypto, would be familiar territory. In China, state media often refer to it that way when they mention crypto.
As Bloomberg Businessweek’s Chinese edition is widely available within mainland China, it may be that editors at Modern Media Cl chose to use aggressive but familiar language about crypto that would please the Chinese authorities and censors. After all, Binance began operations in China before he left when the regulatory environment became hostile. Zhao, a Canadian citizen, is said to be unwanted person in the country.
Zhao is no stranger to suing the media over claims of defamation. In 2020, Binance sued Forbes for publishing language describing an alleged “Tai Chi” strategy that involved setting up a web of companies to divert regulatory scrutiny of Binance’s US operations to its offshore counterparties.
Binance denied the veracity of the document, saying its origin involved a pitch from a third-party enterprise services firm that was never implemented.
If the Chinese version of Bloomberg Businessweek’s headline were about money laundering or the “Tai Chi” document, it would have an effective defense available to it in the form of qualified privilege, a defamation defense created by UK courts (as a common law jurisdiction, Hong Kong -the courts cite UK case law and this defense has been tried before) which protects journalists from being found guilty of defamation even if they are wrong but have exercised a “responsible” amount of diligence in their reporting.
In matters of public interest, there is a “right to be wrong … not entirely wrong, of course, but the defense will defeat a libel claim if, despite the journalist’s best efforts, some facts or allegations turn out to be wrong or untrue, ” as one legal academic put it.
“Tai Chi” and Binance’s ownership network are matters of public interest, and even if Forbes’ sources were wrong, a defense is still available.
Eventually, Binance dropped the case. But the firm still has no declared headquarters and, for all that can be determined, exists as an intricate web of offshore entities.
But that doesn’t mean it’s a Ponzi scheme.
“First Mover” appeared in top stories affecting crypto markets, particularly the Federal Reserve’s two-day meeting starting Tuesday and news that the Securities and Exchange Commission will investigate Coinbase (COIN) for allegedly listing securities. Host Christine Lee discussed the crypto markets with Paul Eisma, XBTO Group’s Head of Trading. Tom Dunleavy of Messari also discussed data analysis on the past, present and future of dogecoin (DOGE).
“Digital asset investment products had inflows totaling US$30 million last week, while late trade reporting from last week saw inflows corrected from US$12 million to US$343 million, marking the largest single week of inflows since November 2021.” (CoinShares Blog) … “On a more serious note, our security team just discovered an incident at another major exchange. Not directly fund related. Information leak related, but could easily lead to loss of funds. We have informed them.” (Binance CEO Changpeng Zhao/Twitter)
