In this issue
- WazirX: Corpus non grata
- Coinbase: Friends in high places
- China’s crypto influencers: Under siege
From the Editor’s Desk
Dear Reader,
“He said, she said” doesn’t get much more bitter, nor high-stakes, than the blame game being played out between cryptocurrency exchanges WazirX and Binance in recent days.
WazirX, reckoned to be India’s largest exchange, and Binance, the world’s largest crypto exchange, have been embroiled in a war of words over the ownership of the Mumbai-headquartered business that has seen the latter vociferously deny owning the former.
Since such tussles typically involve positive ownership claims rather than “it’s not mine and I’m not responsible,” this case is an outlier, but Binance is keen to put clear blue water between itself and WazirX as the Indian business faces allegations of violating foreign exchange rules — read: money laundering.
Whether the allegations hold up is, of course, a matter for the courts to decide, but Binance has a long history of scrapes with authorities around the world, so its determination not to blot its copybook is understandable. All the more so given its efforts to get on agencies’ good side in the past year, which have included beefing up compliance and making high-profile hires of former regulatory folks from Britain and the U.S.
It shows ultimately what a firm like Binance may value more — publicly cutting ties to a once-beloved partner and insisting on a corporate annulment that’s way past its celebrated union many moons before. But it also reveals something inherently true in any challenged market environment: every man for himself. There’s no loyalty when the stakes involve survival.
Until the next time,
Angie Lau,
Founder and Editor-in-Chief
Forkast
1. From asset to liability
By the numbers: WazirX — over 5,000% in Google search volume.
Binance, the world’s biggest cryptocurrency exchange, announced this week that it had ceased off-chain fund transfers between itself and Indian crypto exchange WazirX in an escalation of the two companies’ public spat over WazirX’s ownership.
- Binance said on Monday that it would remove its off-chain fund transfer channel to WazirX starting Thursday in order to “provide clarity and protection for users.” Binance said that due to recent regulatory action taken against Zanmai Labs, the founder and operator of WazirX Exchange, “some users were given to believe that funds deposited in WazirX were managed by Binance. This is not the case.”
- Binance’s ownership dispute with WazirX began last week when the Enforcement Directorate, an Indian financial investigation agency, revealed that it had raided properties connected to WazirX director and cofounder Shameer Mhatre and frozen WazirX bank accounts containing US$8.1 million. The action was part of an investigation of alleged instant loan app fraud that the exchange was said to have actively assisted.
- In November 2019, Binance announced it had acquired WazirX. But since this past weekend, Binance Chief Executive Changpeng Zhao, also known as CZ, and WazirX cofounder Nischal Shetty have been arguing on social media over WazirX’s ownership.
- According to Zhao, the 2019 acquisition was never completed and Binance offered only technical support for the platform without owning any shares of Zanmai Labs. But Shetty insists that Binance acquired WazirX, owns the WazirX domain name, held all of WazirX’s crypto assets and profits, and had root access to the platform’s Amazon Web Services servers.
- Zhao is now urging crypto users to transfer their funds from WazirX to Binance. He added that Binance “could disable WazirX wallets on a tech level, but we can’t/won’t do that” as Binance “can’t/won’t hurt users” — prompting panicked customers to withdraw their holdings from the Indian exchange. The price of WazirX’s utility token, WRX, has dropped by more than 13% since the weekend and is now trading at US$0.23, according to CoinMarketCap.
- WazirX, founded in 2017 and headquartered in Mumbai, is one of the largest Indian crypto exchanges by volume, with about 15 million registered users earlier this year.
Forkast.Insights | What does it mean?
Binance’s elusive corporate structure strikes again. The world’s largest exchange by trading volume has a history of being coy about exactly where it is based and what it owns. Its labyrinthine corporate structure also has allowed it to sidestep regulators on multiple occasions.
Binance currently has no official headquarters. Founded in China before pulling out in 2017, it has since set up shop at various times in Japan, Malta, the Cayman Islands, Seychelles and more recently, the United Arab Emirates. Its internal structure is fragmented, allowing legal entities to close down and move on if regulators start paying too much attention to them.
In India, a similar situation has arisen. An obfuscated business deal involving the apparent acquisition of WazirX has allowed Binance to step back from any legal issues by claiming it never fully acquired the exchange and that it offers merely technical support to it. Yet a year ago, Binance Chief Executive Changpeng Zhao retweeted a post saying Binance owned WazirX.
But now that WazirX is caught between its legal troubles and being in a country with an increasingly hardening stance toward cryptocurrency, Binance is distancing itself from the company.
For any chief executive whose company is currently in Binance’s portfolio, this should be a cause for worry. The giant has shown little appetite to fight legal battles for itself, and now, it seems, for companies with which it is affiliated.
2. Vote of confidence
By the numbers: BlackRock — over 5,000% in Google search volume.
Asset management giant BlackRock has partnered with crypto exchange Coinbase to provide its clients with cryptocurrency exposure, despite stagnant prices and skittish sentiment in the crypto market.
- According to Coinbase, the partnership will provide institutional clients of Aladdin, BlackRock’s end-to-end investment management platform, with direct access to crypto assets through connectivity with Coinbase Prime, starting with Bitcoin.
- BlackRock’s entry into the crypto space comes amid the ongoing crypto winter and increasing scrutiny by regulators, with almost US$1 trillion of the total crypto market capitalization wiped out over the past four months, according to CoinMarketCap.
- BlackRock, founded in 1988 and based in New York City, is the world’s largest asset manager. Its Aladdin system is also one of the most widely used pieces of software in the financial services industry. The company had more than US$10 trillion of assets under management as of January, according to Bloomberg.
- “Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets,” said Joseph Chalom, BlackRock’s global head of strategic ecosystem partnerships, in a statement last week.
- Coinbase Prime, launched in 2021, is a tool for institutional clients that integrates crypto trading, custody, prime brokerage and other services.
- The partnership’s announcement offered a brief respite for Coinbase, whose share price is down by more than 70% since its April 2021 initial public offering. Coinbase’s stock price, which had fallen to US$49.04 on July 1, climbed to US$106.20 on Aug. 4, the day of its BlackRock partnership announcement, before sinking again to under US$88 as of midweek Asia trading hours.
Forkast.Insights | What does it mean?
BlackRock has not had a good 2022. The world’s largest asset manager, with its record-breaking US$10 trillion-plus of assets under management, set a different record this year: In the first half, it lost US$1.7 trillion of its clients’ cash. The company’s move into crypto during the second crypto winter is part of a broader change in its strategy for managing people’s money.
When BlackRock launched, it prided itself on its actively managed portfolios. But during this year’s market rout, BlackRock’s clients have moved huge sums of money into passive funds that track markets without intervention as trust in actively run funds has dwindled. The partnership with Coinbase is another passive facility for investors.
During what is expected to be a rough period for asset markets in the near future, crypto has been faring surprisingly well. Its correlation with broader financial markets has been loosening and institutional money has been pouring in.
Although the news is being viewed as a big win for Coinbase, it’s also positive PR for BlackRock.
3. Silenced
China’s crackdown on the cryptocurrency sector is intensifying again. This time, Chinese crypto influencers are bearing the brunt as authorities moved to shut down more than 12,000 of their social media accounts.
- The Cyberspace Administration of China (CAC), the country’s central internet regulator, is taking a series of actions against social media accounts and websites that promote cryptocurrency speculation, according to a WeChat post.
- At the CAC’s bidding, microblogging website Weibo and search engine Baidu have closed more than 12,000 cryptocurrency-related accounts and removed over 51,000 posts promoting cryptocurrency investment.
- The CAC has also shut down 989 social media accounts on Weibo, Baidu Tieba and WeChat that apparently induce people to speculate in cryptocurrencies under the guise of “financial innovation” and “blockchain technology,” and it has closed 105 websites that feature promotions and instructions relating to cryptocurrency mining and investment.
- The CAC has announced that it will continue to crack down on illegal financial activity related to cryptocurrencies in cooperation with other authorities.
- Amid China’s ramped-up clampdown on crypto-related activities, from mining to trading, investors and miners in the country have been getting creative to get around it, by moving overseas and going underground, a dodge in which social media and websites have played a major part.
Forkast.Insights | What does it mean?
Another day, another crackdown on crypto in China. The latest move by Chinese authorities is further indication of their determination to dissuade its people from getting involved with crypto. A key target of the latest battle in China’s war on crypto is people teaching others how to trade crypto beyond the reach of authorities.
Many crypto exchanges claim that they ban customers from China, but that doesn’t mean Chinese people are dissuaded by such restrictions. They can easily find online tutorials via virtual private networks to help them set up overseas internet protocol addresses that allow them to circumvent China’s internet firewalls and gain access to trading platforms that serve other countries.
Another approach Chinese investors have taken to flout the country’s ban on crypto has been to register a company overseas in jurisdictions such as the British Virgin Islands or the Marshall Islands.
Crypto trading has long been frowned upon by Beijing, with money laundering being a primary concern. The way in which crypto exists independent of the banking system and therefore state control, alongside its international nature, also adds to authorities’ worries over capital outflows as well as competition with the e–CNY, China’s new central bank digital currency that is currently being market-tested across the nation.
As Chinese authorities step up efforts to shut down social media accounts and video channels helping people trade crypto abroad, Chinese crypto investors — no matter how much they have successfully evaded crackdowns in the past — might wish to follow suit and lie low for a while.
