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BTCâs recent fiat price pump has less to do with its perceived institutional adoption than with the likes of Binance and Tether flooding the market with unbacked stablecoins to grease their wash trading.
BTCâs fiat value sank below US$25,000 on June 15 in the wake of the U.S. Securities and Exchange Commission (SEC) filing civil charges against Binance and U.S. rival Coinbase (NASDAQ: COIN) in quick succession. Less than a week later, BTC topped $30,000âa height not seen since early Aprilâdespite ever-louder rumblings that the U.S. Department of Justice (DOJ) is preparing criminal charges against the worldâs largest exchange (Binance) and its founder Changpeng âCZâ Zhao.
BTC maximalists point to recent news of a number of traditional finance giants such as BlackRock (NASDAQ: BLK) and Fidelity Investments applying for BTC-focused exchange-traded fund (ETF) licenses in the U.S., or Deutsche Bank (NASDAQ: DB) seeking digital asset custody license in Germany. To the BTC maxis, this is a sign that institutional investors are clamoring to dive into this pool, and thus BTCâs long-running âdestination moonâ target is finally within reach.
Sorry, but no. Forget landing on the moon; BTC is more like Capricorn One, an intricately faked Mars landing where you find yourself trapped on a studio set with O.J. Simpson. (RUN!!!) âA fantastic $30 billion hoaxâ was how the movie was sold, and âcryptoâ easily outpaces that sum, what with inflation and all. But as the filmâs trailer teased: âDig deep enough, you might uncover the truth.â
With retail traders still showing zero signs of tossing more of their perfectly good fiat cash onto the raging crypto bonfire, the arsonists behind this dumpster fire are doing what they always do: pretend that somebody somewhere is sending perfectly good fiat cash to the issuers of stablecoins, then sending these stablecoins to exchanges like Binance and Huobi and wash-trading the hell out of them with tokens like BTC. Somehow, people keep falling for it.
You never forget your first pump
This is the fiction that has underpinned the BTC market ever since the first truly serious bull run began in 2017 before crashing hard the following year. Over the same period, Tetherâs market cap grew from $10 million to $2.8 billion, much of which was traded on Bitfinex, the exchange owned by Tetherâs parent company, iFinex.
Bitfinex and Tether played key roles in artificially inflating BTCâs price during the 2017 boom, during which BTCâs price leaped from $1,000 to nearly $20,000. A widely read report by University of Texas finance professor John Griffin later concluded that Tether was used to prop up BTC on Bitfinex whenever it showed signs of flagging during this so-called âboom.â
Bitfinex had the ability to effectively conjure Tether out of thin air, then used these tokens to place massive buy orders for BTC on the exchange, creating the illusion of consumer demand. Unanswered questions regarding the dubious status of the reserves allegedly backing Tether 1:1 with the U.S. dollar suggested to Griffin a scenario of âunbacked digital money inflating cryptocurrency prices.â
The Tether/Bitfinex response to Griffinâs report set the pattern for years to come. They claimed Griffinâs claims were misleading, that his data set was incomplete, and that he hadnât conclusively proved Tether was insufficiently backed. But they never provided any specific information that might have proven Griffin wrong.
They also never submitted Tetherâs reserves to a professional third-party auditing firm. Half a decade later, they still havenât done that audit, despite constant assurances that it was only âmonthsâ away.
Tetherâs market cap has risen by one-quarter since the start of 2023 to a staggering $83.1 billion. How? Who on earth is sending billions of actual U.S. dollars to Tether when they could just as easily send those dollars directly to an exchange? Who would send cash to Tether, which has been caught engaging in U.S. bank fraud and facilitating terrorist financing, if they themselves werenât engaged in criminality?
The recent release of Tetherâs reserve statements from its 2021 dust-up with the New York Attorney Generalâs office showed the companyâs prior reliance on commercial paper (CP) of dubious origin. Among the more interesting CP issuers on Tetherâs balance sheet was AKCB Falcon Limited, a subsidiary of the Qatar-based Masraf Al Rayan (MAR) bank.
MAR has been the subject of lawsuits in the U.S. based on the bankâs alleged facilitation of funding of terror groups Hamas and Islamic Jihad. This January, the U.K.âs Financial Conduct Authority imposed a ÂŁ4 million ($5.1 million) penalty on a Birmingham-based MAR subsidiary for failing to have âappropriate internal controls in order to prevent activities related to money laundering and terrorist financing.â
The closest Binance gets to true anything
Binance is one of the largest recipients of Tether, and the exchange received another $750 million worth of USDT stablecoins last week. CZ was so happy to have so many new Crypto FunBucks that he seems to have gotten a little overenthusiastic when feeding them into the 300-odd âhouse accountsâ he personally controls on his exchanges and firing up the laundromat.
This led to a somewhat embarrassing moment on Binance.US, which briefly showed a BTC price of $138,070 in USDT. While the uncertainty around the future of Binance.US in the wake of the SECâs civil charges has lowered liquidity on the exchange, we sorta suspect that some Binance worker bee just fell asleep at the controls and neglected to switch on the other side of the trading bot army.
Meanwhile, Binance recently added another $1 billion worth of TrueUSDâs TUSD, the stablecoin with ties to Justin Sun, founder of TRON and owner/not-owner of the Huobi exchange. Binance wallets now hold 90% of all TUSD out there in the wild.
That minting boosted TUSDâs market cap to over $3.1 billion, up from just $750 million or so when the year began. It helps that CZ has given TUSD the zero-fee trading privileges that Binance used to reserve for BUSD, the stablecoin on which Binance had partnered with Paxos Trust until New York regulators ordered a halt to further BUSD issuance this February.
Coincidentally (or not), Binanceâs $1 billion TUSD buy occurred shortly after TrueUSD âpausedâ minting and redemptions of TUSD via Prime Trust, the struggling Nevada-based custodian/processor that is currently the subject of an acquisition by rival BitGo Holdings.
In a further coincidence (or not), The Network Firm, a Florida-based outfit that performs automated âattestationsâ of TUSDâs reserves, recently paused its due diligence of the stablecoin. The âripcordâ notification that was activated refers to issues including âthe sum total of [TUSD] liabilities being greater than the sum total of the relevant assets.â
Said âripcordâ has since been disabled, and Singapore-based Techteryx Ltdâthe shadowy firm that acquired TrueUSD in December 2020 and took control of the private keys to TUSDâs wallets earlier this yearâhappily assured everyone that there are more TUSD assets than liabilities.
However, a caveat was added to this report by The Network Firm (which consists of accounting firm Armaninoâs former crypto crew that provided attestations for fiduciary stalwarts, including Binance and FTX.US). This caveat noted that a Techteryx agent had opened an account with âa Swiss depository institutionâ on April 21 and started using this account on June 13âtwo days before that billion-plus in new TUSD was minted.
Alarmingly, the terms of this Swiss account âdo not explicitly specify that the related funds are escrowed on behalf of TUSD token holders or that Techteryx and the agents are not entitled to any funds at any time and no amounts deposited into the accounts shall become the property of Techteryx, the agents, or any other entity, or be subject to any debts, liens or encumbrances of any kind of Techteryx, the agents, or any other entity.â
The Network Firm stated that Techteryx has âinitiated deliberationsâ with the Swiss institution to âmodify the accountâs Terms to explicitly adhereâ to Techteryxâs promises not to dip into TUSDâs reserves in the event of a crisis, like Justin seeing a pricey painting he fancies. And given the absolutely ironclad nature of an initiation of deliberations, well, weâre sure theyâll plug that loophole real soon.
At any rate, weâre totally convinced that Binanceâs billion dollars in U.S. cash arrived safe and sound and that TUSD is as solid as, you know, Tether. In the meantime, with Binanceâs zero-fee trading on TUSD, CZ can wash-trade to his heartâs content in a fee-free (and so far consequence-free) universe!
Look for the silver lining
Crypto wash trading is endemic, with everyone from Coinbase and Gemini to exchanges in Canada, South Korea, and Thailand, not to mention Justin Sun himself and, of course, the defunct FTX having been caught doing it at some point.
Why? Because exchanges are casinos and tokens are their chips. Thereâs simply no practical purpose behind the overwhelming majority of tokens out there, leaving reckless speculation the only thing theyâre good for. And the only way to lure the retail suckers into your casino is to make it look like theyâre missing out on a sure thing.
On the plus side, itâs comforting to remember that market manipulators like Binance and Tether have traditionally attempted to front-run bad news they know is just around the corner. The current artificial inflation of BTCâs fiat value could be a sign that the DOJâs long-awaited criminal charges against both Binance and Tether are closer than we think. Time to wash up, boys.
Follow CoinGeekâs Crypto Crime Cartel series, which delves into the stream of groupsâfrom BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tetherâwho have co-opted the digital asset revolution and turned the industry into a minefield for naĂŻve (and even experienced) players in the market.
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