In this issue
- Binance and GOPAX: Seoul mates
- Jobs and inflation: Crypto conundrum
- Chinese liquor NFTs: Bottoms up
From the editor’s desk
Dear Reader,
In Chinese culture, one never cleans house during the Lunar New Year holiday, lest the process of sweeping up sees all of the good fortune for the upcoming year accidentally swept into the trash, too.
But now that the Year of the Rabbit is well under way, if house cleaning is what one must do, the time is now. And that’s what China-founded Binance, the world’s biggest cryptocurrency exchange, appears — once more — to be doing.
Binance’s move to cut what appears to be its last remaining ties with troubled Indian crypto exchange WazirX, which was last year accused of violating foreign exchange rules, comes as it moves back into South Korea, taking a major stake in distressed local exchange GOPAX.
Binance’s new South Korean acquisition isn’t its first rodeo in the country, where it had operated until 2021, when it pulled out as authorities beefed up digital asset licensing requirements.
Neither is it Binance’s first rapprochement with a stricter regulatory regime, the exchange having courted authorities in Europe and elsewhere after learning the hard way that compliance and transparency go a long way toward engendering trust and facilitating smooth business operations.
Binance nevertheless still has work to do when it comes to cleaning up its act — as suggested by the fact that it was named last month as a counterparty in an order against crypto exchange Bitzlato, which U.S. authorities have accused of laundering US$700 million.
The fact that Binance is re-establishing a presence in South Korea — a country whose crypto regulatory regime is well developed and increasingly respected — feels like a move in the right direction, as does the fact that it is deploying funds from its US$1 billion crypto industry recovery fund to aid a cash-strapped exchange.
Now, if Binance can maintain that momentum, dispel any suspicions that it is embarking on a Sam Bankman-Fried-style, market-monopolizing acquisition spree, and keep a firm grip on compliance, it may yet benefit from an auspicious post-Lunar New Year spring clean.
Until the next time,
Angie Lau,
Founder and Editor-in-Chief
Forkast
1. K-moves
By the numbers: Binance— over 5,000% increase in Google search volume.
Binance, the world’s largest cryptocurrency exchange, has re-entered South Korea after a two-year hiatus by acquiring a majority stake in local cryptocurrency exchange GOPAX.
- Binance Chief Business Officer Yibo Ling said the company had taken a “meaningful” equity position in GOPAX, although the details of the terms weren’t disclosed, according to a Bloomberg report.
- As part of the acquisition, Binance plans to inject capital into the South Korean exchange to re-enable customer withdrawals and interest payments for GOPAX’s yield product, GoFi. GOPAX halted withdrawals in November 2022 amid the liquidity crisis at Genesis Global, which led to its bankruptcy last month. The funding reportedly came from Binance’s US$1 billion crypto industry recovery fund, set up to help crypto companies that suffered fallout from the collapse of FTX.
- This week, Binance announced that effective Feb. 8, it would suspend all withdrawals and deposits of U.S. dollars on its exchange for non-U.S. customers. Binance said the suspension would affect only 0.01% of its customers and did not involve Binance US, but the company neither explained the reason for the suspension nor when its international dollar services would restart.
- In November, Binance Chief Executive Changpeng Zhao announced the company’s plans to re-enter the South Korean market, which it exited in 2021, citing tighter local regulatory conditions.
- News of Binance’s acquisition came the same day as the exchange announced it would cease offering wallet services to Indian crypto exchange WazirX, asking it to remove any remaining assets held in Binance wallets by 11:59 p.m. UTC on Feb. 3.
- In a blog post, Binance said it was stopping its wallet services due to misleading statements about the two companies’ relationship made by Zanmai Labs, the entity that operates the Indian exchange.
- At the end of January, CoinDesk reported that Binance had demanded that WazirX post a statement saying Binance was not the owner of the Indian exchange. But WazirX co-founder Nischal Shetty has said that he had legal documents to prove otherwise. Zanmai reportedly called the private request “unethical.”
- Binance’s decision is part of an ongoing feud between the two exchanges. In November 2019, Binance announced that it had acquired WazirX.
- In August last year, after WazirX’s Mumbai headquarters was raided by Indian authorities amid suspicions of money laundering, Binance attempted to distance itself from the exchange, saying that their deal was “limited to an agreement to buy specific assets and intellectual property.”
Forkast.Insights | What does it mean?
Binance’s announcement that it has re-entered the South Korean market is at risk of being overshadowed by its shambolic exit from India.
Binance’s acquisition of WazirX, as stated in its own blog post, was part of a strategy to enter a country that at the time was becoming one of Asia’s largest crypto markets. But a slew of subsequent legislative decisions in New Delhi has withered the country’s prospects of becoming a crypto powerhouse.
WazirX’s run-ins with Indian law enforcement put Binance in a tricky position, as it had a partnership with an exchange that had fallen foul of regulators in a country whose authorities were showing decreasing tolerance of digital assets.
What followed has been a slow withdrawal by Binance from WazirX and its users. Last summer, Binance CEO Changpeng Zhao promised to not remove wallet access from WazirX’s users, but Binance reneged on that pledge last week.
In some ways, WazirX shares uncomfortable similarities with Binance’s track record in other jurisdictions, including the U.S., Britain, Italy, Malaysia, Singapore, Japan and Germany, where Binance has faced storms of regulatory consternation in various forms, including fines and outright bans.
By distancing itself from a regulatory pariah, Binance is trying to improve its own image and reputation among authorities around the world — even if it means kicking aside a former business partner that’s already down.
2. Rate hike blues
By the numbers: unemployment — over 5,000% increase in Google search volume.
The U.S. Bureau of Labor Statistics revealed in its latest non-farm payroll report that jobs outside of the agricultural sector jumped to 517,000 in January, much higher than the 185,000 that had been expected. The U.S. unemployment rate is now 3.4%, its lowest level since 1969.
- Despite the surge in jobs and strong U.S. services industry data signaling a robust economy, crypto investors appear to remain spooked by high inflation that could lead to more interest rate increases by the U.S. Federal Reserve.
- The rate increase cycle that began last year seems to be curbing inflation, as the U.S.’s December consumer price index rose 6.5% in the year through December, down from 7.1% in November, as prices eased slightly on a monthly basis to yield the lowest annual inflation rate since October 2021.
- Following another increase last week, U.S. interest rates are now at 4.5% to 4.75%, the highest level in 15 years, and the Fed has repeatedly indicated that it could raise rates to 5% to bring inflation down to a target 2% range.
- Hours after the U.S. Fed’s hike, the Hong Kong Monetary Authority raised the territory’s interest rates by 25 basis points to 5% in lockstep, due to the Hong Kong dollar’s peg to the greenback.
- The European Central Bank also last week confirmed expectations of a 50-basis-point hike, taking its key interest rate to 2.5%, and stated its intention to raise rates by another 50 basis points in March.
- Eurozone inflation fell for a third consecutive month, to 8.5% in January, down from 9.2% in December.
- The Bank of England also raised interest rates last week by 50 basis points, taking its key borrowing rate to 4%, the highest level since 2008. U.K. inflation fell slightly to 10.5% in December, from 10.7% in November.
- Bitcoin, which rose to a three-month high of US$24.030 on Feb. 2, slumped to US$22,799 in the days following the U.S. data release and now stands at US$23,199 as of mid-week in Asia.
Forkast.Insights | What does it mean?
The recent crypto surge has been brought back down to earth by old-fashioned economics. Inflation has refused to budge, thanks to tight labor markets, confounding earlier expectations of a cooling global economy.
That has been compounded by geopolitical issues. The U.S. is pondering the imposition of a 200% tariff on Russian aluminum, and U.S.-listed Chinese company shares tumbled after Washington decided to shoot down a suspected Chinese surveillance balloon flying over U.S. airspace.
Share prices among the likes of Apple, Amazon and Google parent Alphabet are down after reported results fell short of expectations. The talk in crypto circles now seems to be focused on whether the recent run of good fortune was little more than a bear trap, with short sellers forced to liquidate by a rapidly improving economic outlook.
Although crypto markets have increasingly mirrored developments in the global economy, the industry has more troubles of its own. The FTX saga continues to erode confidence in the sector, and investors are looking elsewhere for alternatives to redlining balance sheets.
The managers of the world’s biggest economies have levers they can pull to help jump-start their industries, but crypto’s decentralized dynamics may make the industry’s path to recovery more elusive.
3. Non-fungible tipples
Chinese liquor giant Kweichow Moutai, one of the country’s biggest companies by market capitalization, has announced the launch of a non-fungible token (NFT) collection that offers owners the right to purchase limited-edition liquor in the real world.
- Moutai has begun selling 113,960 Lichun-themed NFTs, known by the Chinese euphemism of “digital collectibles,” with their physical liquor counterparts. Each bottle is linked to an NFT.
- Lichun is the first of 24 solar terms in China’s traditional calendar. Kweichow Moutai said it intends to sell NFTs and corresponding physical products for each solar term.
- The NFT-linked liquor costs 2,899 yuan (US$427) per 500-milliliter bottle or 569 yuan for a 100-milliliter bottle. The entire range has a total value of 139 million yuan.
- Customers can acquire the rights to purchase liquor using fiat currency by earning NFTs through the completion of in-game tasks on Xunfeng Digital World, a mobile app that features a digital replica of Moutai’s distillery.
- Although the NFTs cannot be traded in the game, liquor fans can generate digital collectibles by conducting player-to-player trades using in-game tokens. The process can cost around 1,600 yuan, according to Xunfeng.
- Launched on Jan. 1 by Kweichow Moutai and NetEase, Xunfeng had more than 2.4 million registered users by the end of January, according to Kweichow Moutai.
Forkast.Insights | What does it mean?
Kweichow Moutai fans now have a digital version of their preferred liquor that they can collect to show off to friends or impress business associates with as gifts, but they better make sure they don’t buy or sell Moutai digital collectibles directly. The expensive liquor, a favorite tipple of revolutionary leader Mao Zedong and a staple at high-profile state or business events, has long been a symbol of power and wealth in China.
The high value of Moutai liquor has made it an ideal tool for money laundering, and a way of handing over bribes without passing hard cash. In December, a businesswoman in the gambling hub of Macau was arrested after being accused of laundering 180 million patacas (US$22.27 million) worth of Maotai and casino chips, according to the Macau News Agency.
It comes as no surprise that Moutai is making a foray into the NFT space. The spirit has already made its way into the international auction market, with 24 bottles of 1974 Moutai auctioned off for US$1.4 million at Sotheby’s in London in 2021.
Moutai has already caught Chinese authorities’ attention as part of the country’s anti-corruption campaign, and a former executive at the liquor brand was sentenced to life in prison in 2021 for accepting US$17.5 million of bribes to help distributors secure deals.
Chinese authorities are not necessarily happy with NFT trading, and many state media outlets have criticized its speculative nature. Kweichow Moutai will likely have to keep trading restrictions in place for its NFTs until China comes up with clearer rules on how they can change hands.