China’s Bitcoin-Funded Intelligence Operation in US Likely About Chips; Bitcoin surges past $20,000
Good morning. Here’s what happens:
Prices: Bitcoin has a rare day to celebrate, surging past $20K; ether surpasses $1.5K. Axie’s AXS tokens are being swept up in short squeeze despite the risk that some recipients of an “unlock” may soon move to dump their holdings.
Insight: Chinese intelligence officers attempted to use bitcoin to bribe an undercover FBI agent.
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Prices
Bitcoin is having a rare upward swing
By James Rubin
After several weeks of dormancy, bitcoin finally swung higher on Tuesday.
The largest cryptocurrency by market capitalization recently traded at around $20,300, up nearly 5% in the past 24 hours as chronically risk-averse investors took encouragement from a number of major brands’ third-quarter earnings reports. BTC topped $20,000 last October 5th.
“Volatility returned to crypto markets,” research group Fundstrat wrote in its daily crypto report.
Ether (ETH) was even more bullish, sprinting past $1,500, up more than 11%, to its highest level since the underlying Ethereum blockchain’s merger last month. The technological overhaul on 15 September changed the protocol from proof-of-work to more energy-efficient proof-of-stake.
Other major altcoins were solidly in the green, with ADA and SOL recently rising more than 13% and 11% respectively. UNI, the original token of the decentralized exchange Uniswap, recently rose more than 8%.
Axie Infinity, a crypto gaming project, unlocked millions of previously restricted AXS tokens for sale, and the early indication from blockchain data was that some recipients were preparing to dump their holdings. But AXS price rose instead of falling because today’s crypto rally triggered a short squeeze.
The CoinDesk Market Index (CMI), a broad-based market index that measures the performance of a basket of cryptocurrencies, climbed 5.59% in the past 24 hours.
BTC’s rise can be attributed to “limited volatility over the past month” and “a market looking for signs of life,” wrote Riyad Carey, a research analyst at crypto data firm Kaiko.
In traditional markets, US stocks continued their recent winning ways, rising for a third straight day as investors enjoyed positive third-quarter earnings reports from the likes of Coca-Cola and auto giant GM. The technology-focused Nasdaq jumped 2.2%, while the S&P 500, which has a strong technology component, and the Dow Jones Industrial Average (DJIA) climbed 1.6% and 1.1%, respectively.
Earnings season continues, with struggling social media monolith Meta reporting its latest quarterly results on Wednesday. Technology companies have been among the hardest hit in this year’s share carnage.
After two consecutive monthly gains, the widely watched Conference Board Consumer Confidence Index fell. “Consumer expectations about the near-term outlook remained bleak,” said Lynn Franco, senior director of economic indicators at the Conference Board. Investors will scrutinize housing starts and durable goods orders on Wednesday and the University of Michigan’s monthly Consumer Sentiment Index on Friday.
Insight
China’s Bitcoin-funded intelligence operation is all about the chips
By Sam Reynolds
Crypto seems to be at the center of many espionage and counterintelligence operations, and a recent case involving two intelligence officers from the People’s Republic of China caught on American soil trying to bribe an undercover FBI agent with bitcoin only continues the trend.
The unsealed deposition presented Monday by the U.S. Department of Justice shows that the two spies likely operated out of Huawei as the timeline correlates with Huawei’s case in the U.S. a few years ago. Using non-specific language, it shows that the intelligence officers were trying to obtain non-public information about the US government’s investigation into Huawei.
So what exactly were these spies after?
Chip supply on everyone’s mind
At the time, of particular concern to Huawei was how potential costs could affect the supply of high-end semiconductors, which are largely American designed and manufactured on US-made equipment.
Huawei and officials in Beijing knew that US officials had already banned the export of Intel’s supercomputer-grade Xeon chips, used in data centers, to some of China’s biggest universities, under the pretext that they were used to aid nuclear weapons research in 2015.
Were officials also planning to create a scheme that would invoke an export ban on chips for companies found guilty of criminal activity? How about a general chip ban to China due to national security? These were questions that an FBI source would probably have answers to.
Eventually, Beijing’s worst fears were realized. Huawei was included in revised guidelines covered by the US Department of Commerce Bureau of Industry and Security (BIS) in 2019, which has seriously complicated their ability to participate in the global semiconductor supply chain. BIS is responsible for protecting US national security and foreign policy interests related to export licensing policies and procedures.
In 2020, the world’s leading semiconductor manufacturing company, Taiwan Semiconductor, stopped accepting Huawei orders, cutting the company off from the ability to manufacture its chips with the latest technology.
The US government’s case against Huawei was put on hold when the company’s CFO entered into a deferred prosecution agreement from September 24, 2021. With the DPA, the CFO admitted to doing something criminal (but not guilty) in exchange for the charges being stayed.
A DPA does not mean that the legal case has ended. Think of it as a trial period, which expires next December. Charges can be reissued – and admissions used as evidence – if the company or someone named breaks the agreed terms. If everyone behaves, the charges will be dismissed when the DPA expires.
As such, the intelligence officers kept their communications with the FBI agent active through late 2021 and into 2022. Among China watchers and industry analysts, it was well known that the DOJ’s investigation remained ongoing. The officers could also have been looking for an early warning of future export bans.
Other fees?
We do not yet know if the DOJ will announce a new series of charges against Huawei. What we do know, however, is that over the past year the Chinese semiconductor industry has been hit hard by yet another round of sanctions.
New export restrictions prohibit US citizens from working at Chinese semiconductor companies. Nvidia’s fastest chips, which can be used to run the latest artificial intelligence (AI) and deep learning algorithms, have been banned from being exported to China (affecting Huawei’s high-performance computing division). Even domestically made-in-China competitors to Nvidia’s chips cannot be manufactured because TSMC’s compliance department is too intimidated to allow it in their factories.
These are all things that Huawei and its counterparts in China’s state security would have loved to get a heads-up on, especially since they are all pieces of a larger puzzle in a lawsuit against the company that could happen in the coming months.
But it seems like all they got for their bitcoin was a lot of disinfo, designed to disrupt their intelligence-gathering efforts and hide true intentions. And once again, bitcoin played a central role in all of this.
Important events
08:30 HKT/SGT(00:30 UTC) Australia Consumer Price Index (QoQ) (Sept)
22:00 HKT/SGT (14:00 UTC) New Home Sales (MoM) in the US (Sept)
22:00 HKT/SGT (14:00 UTC) Bank of Canada Monetary Policy Report
CoinDesk TV
In case you missed it, here’s the latest episode of “First Mover” on CoinDesk TV:
Rishi Sunak becomes UK Prime Minister; Bitcoin and Ether remain in a tight price range
Millicent Labs co-founder Kene Ezeji-Okoye weighed in on Rishi Sunak becoming Britain’s third Prime Minister in less than two months. What could it mean for the future of UK crypto regulation? Additionally, TradeStation Crypto’s Anthony Rousseau weighed in on the latest market action, and Matrixport discussed the future of Ethereum post-merger.
Headings
The Central Bank of Turkey plans to launch a CBDC in 2023: The proposal was discussed in the executive board’s annual plan, which was presented on Monday.
British lawmakers vote to recognize crypto as regulated financial instruments: The lower house of parliament voted to add crypto to the scope of activities to be regulated via the proposed Financial Services and Markets Bill – which already seeks to extend payment rules to stablecoins.
Chinese ‘spies’ used Wasabi wallet to try to hide Bitcoin bribes, Elliptic says: Analysis by the crypto analysis firm showed that all bitcoin bribes originated from the coin mixing wallet.
Fan signs from Peruvian, Spanish and Brazilian football teams gather as the FIFA World Cup approaches: Although the tokens do not represent ownership of national teams, they give holders access to several fan-specific benefits.
Bloomberg’s Matt Levine writes a 40,000 word article on Crypto: It is the only article this week in Businessweek, only the second time the magazine has been filled with a single piece.
Polygon’s MATIC Approaches $1 Level After Recent Breakout, Chart Analysts: The token has cleared daily cloud resistance and its 200-day moving average in a short-term bullish trend, an observer said.
