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๐จBINANCE VS FTX | Binance US Withdrawals HALTED | DOJ #CryptoTownHall
Recorded: June 9, 2023 Duration: 1:49:42Space Recording
Short Summary
The discussion covers BitGo's strategic acquisition of Prime Trust, highlighting the importance of partnerships in strengthening market resilience. Concerns about Binance's regulatory compliance and potential DOJ actions indicate a decline in user confidence and market stability. The conversation emphasizes the need for industry collaboration to address regulatory challenges and ensure the crypto market's long-term viability.
Full Transcription
All right, we're good to go. Scott, how are you?
Good, buddy. Bring me up as co-host so we can get some of these guys up.
I already sent you an invite.
Bill, I've sent you an invite.
Dave, all of you have an invite via DM.
Dave's already up.
Bill, it's in your DMs, and Rand will be joining us 30 minutes after the show ends, as usual.
Yeah, perfect.
So sometime in seven hours.
Cool, man, so I heard that we're going to be doing a series on what's happening in crypto
because it's just getting more and more interesting.
Yeah.
Is it a sitcom or a documentary?
No, no, it's similar to billions.
It's just going to be called thousands because, you know, there's no billions anymore in the market.
It's going to be called hundreds.
I have to say.
Hundreds.
I was just a joke.
I used to joke that we were a community of thousandaires.
Very impressive.
But I have to say, man, listen, you kind of warned me in advance.
that once you start covering news and going down the breaking news rabbit hole and you're on spaces and committed every day,
that it would become all-consuming.
But I don't know how you do what you do, man.
I had no absolute idea.
We obviously had this conversation yesterday, and I would say that I've spent.
20 of the 21 last hours, not sleeping, having conversations in the background about all the things that we've been talking about this week.
It's insane. It's crazy the amount of connections and people reaching out to you from the spaces and the amount of an, and then you're in a position where you get all this information, but you just don't know what you can and cannot share.
I share nothing.
It's very deep for me.
Loose lips sink ships, right?
But more importantly, I think it's just very...
difficult and a weighty responsibility to carry it with you and decide how to proceed obviously.
So pretty crazy.
Man, you should have seen FTCS is everything we're going through now on steroids.
FTCS was mental.
Obviously, we've covered, we've done a lot of shit since.
Like from Trump's indictment, we're covering that live to the first indictment to a Silicon Valley Bank, Twitter files.
The list goes on, like all this crazy shit we've done.
To this day, still nothing compares to FTX because it was the intent,
because I've never done it before either.
So that was like the first time I'm acting like a pretend journalist.
And then you get all the shit,
you don't know what to share in like things you say could impact the market very heavily.
I still got people pissed off at me because of the things that we mentioned in those spaces,
even though it ended up being accurate.
And you'll go through this again.
Like I didn't expect for us to go through this shit again.
Like this is...
This is everything we're going through this week is maybe the SEC action.
Okay, that makes sense.
The DOJ and Binance call me by surprise to an extent because people have been talking about it for a long time.
But then the story of yesterday to have another U.S. regulated entity get bailed out.
is unexpected and not sure what you can or cannot share Scott.
But also I want to mention one thing is there's a story I've mentioned before.
I had, there's a gentleman I know well, he's an ex-regulator, a very well-respected guy,
and we met a couple of times to bring him in as an advisor at IBC and get his advice.
And then he was telling me that he got offered a few times for over a year, a year and a half,
offered to be, I think, chairman of Binance.
And he's rejected constantly.
And I'll go to him.
I'm like, man, you're, you're, you're, it just doesn't make sense.
What, you're rejecting an offer from Binance to be chairman.
I understand if some random exchange, et cetera, but we're talking about Binance here.
He's like, Mario, look, all people in the traditional world are telling me to stay away.
Regulators are eyeing Bynast and expect to see things soon.
And I'm like, yeah, I'm sure they are.
And Bynast, you know, did something wrong a few years ago.
And he's like, I'll look into it again.
We met again six months later, same discussion and then we met again after FTCS.
Again, I gave him the same advice.
I'm like, hey, this is Bynast, we're not talking about FTX here.
And I don't want to meet him again.
He can sit down this time.
So I don't want to meet him.
I'm like, bro.
He's like, Mario, you're free for a meeting?
No, man, look, I'm busy.
Yeah, I mean, we all know, obviously that Brian, you know, first of all, I was friendly with Catherine Coley.
I've said she was the first person I ever interviewed on the podcast, literally.
And I was sad to see her go at that time.
And then obviously she somewhat disappeared, and it became this grand mystery.
And then Brian Brooks only lasted about two months there.
Right. And both of them have somewhat, you know, if anyone's dug through their commentary,
it's been basically that they just didn't feel like they had transparency that they needed
and that obviously they just weren't comfortable that they weren't really in charge and seemingly kind of both exited.
And so I'm not surprised that somebody reputable that you know would have stayed away from that situation even after just seeing that.
Yeah, I mean, if you think about it, guys, if you think about it from that position,
you think to yourself, look, we always knew there's a risk that a lot of these tokens are unregulated securities.
We always knew that there was regulatory and clarity.
So what is the upside for someone coming on board?
Like the risk is so big.
You know, you think about the risk is you're associating yourself with an industry that you know hasn't been clean and hasn't been cleaned from the start.
And that side is maybe a couple of extra bucks.
You know what I mean?
It is quite a big tradeoff.
I must say that I spoke to our research team.
earlier this year when B&B was like a 330 bucks or something.
And I said, you know, we're just, we're speaking.
And I said, guys, I think we should sell all our B&B.
And we actually did.
And the reason why we sold, I actually did it in one of my shows.
I said,
I said,
I love Binance.
I love B&B.
I think it's a great token.
I think the exchange is unbelievable.
But when you have exchange, it's the market leader and has 80% market share.
And you know that the only way from there is actually down because you knew that the regulatory attacks were going to come.
You knew that the regulators were going to have a field down on finance.
And so your upside was very, very, very limited.
and your downside was all the way down to wherever it goes if there's criminal if there's
DOJ charges and whatever else so i kind of get it the risk return profile wasn't wasn't wasn't aligned
Yeah, true, but then it can only go down relative to the rest of the market, but if the entire market goes up, still, like, you could, the argument you've made, you can make it for Ethereum or Solano or other, Ethereum, a protocol that has a big market share as well.
No, not really. I'll explain to you. I'll explain to you. And actually, I asked this to see the honest spaces. And actually, I remember very clearly when I did the show. And the whole show was, I sold my B&B and I bought Coinbase.
The whole, I think BNB was like 300, 330 and Coinbase was in the 40s.
And I did a show around selling BNB and buying Coinbase.
And this is exactly the thesis that I used on the show.
I said,
I'm selling B&B because I think the upside is very limited.
It's the biggest in the world.
And when you're the biggest in the world, chances are you're probably going to lose market share.
If you don't lose market share naturally, you're going to lose market share out of regulation,
regulatory tax.
And then I thought who would be the biggest custodian?
Who would be the biggest winner in this legal battle?
And I think that long term, Brian Armstrong, because he's run such a clean show, he, you know,
He's run a cleaner show than probably any other, I'm not going to say any, but most other exchanges in the world.
And so, you know, if this industry is going to survive, and I have no doubt that it will,
then I think that he's got the highest chance of winning the biggest prize.
And when I looked at the two market caps, for me, it was kind of like a no-brain.
I'd say, look, if I do believe in crypto, and I do believe in crypto exchanges,
then my bet's going to be Coinbase.
I asked Ciz the same question.
I said, Tim Ciz, aren't you worried that, you know, is the biggest one you're going to get attacked?
And...
you know, aren't you worried that you're not going to continue to grow? And he came and he said,
well, exchanges are about liquidity and network effects, and we have the network effect at finance.
And I remember thinking to myself, it's a good answer, but it doesn't satisfy what, it doesn't satisfy me.
And I mean, at the time, we got completely out of B&B.
We got completely out of B&B.
And I mean, I'm not saying, by the way, I'm not saying that it's the end of the race at all.
And maybe I'll be proven wrong, but I'm just saying from a risk return profile that just doesn't make sense.
Ryan, let me ask you another question, something before we open it up, get a market update and open it up to the panel.
There's something you said yesterday.
We're talking about.
which is something I said in 2018, at least internally,
and that's, we're never going to see the same thing we saw in 2020, 2021.
We're never going to see it again now that regulation is finally here.
But then the narrative was the same back in 2018.
Do you still stand by those words and what makes it different this time?
Yes, I definitely stand by that.
We'll never see another bull market like the one we saw in 2017, 2018,
and certainly we're not going to see it.
We've got another bull market in 2021.
I'm not saying we'll never get another crypto bull market
because I actually think we're going to have many, many crypto bull markets,
but I just think that they're going to be very different.
It's going to be...
Different how?
I think the moves are not going to be as big.
I don't think that we're going to have 10 X's and 100 X's.
I don't think that we're going to have VCs buying in.
I mean, just, let's just, Mario, let's just between us, and I'm sure we can talk, we
can talk pretty openly here.
I'm sure that no one's going to.
I'm very open.
I'm very transparent of it too much.
It doesn't make sense.
I definitely believe that VCs should make outsized returns for taking outsize risk.
And I definitely believe that the smartest VCs should be allowed to buy into early rounds.
And, you know, when the company becomes liquid, they should be allowed to sell some of their tokens and at huge premiums.
But what I don't believe is that the time from investment to realizing the return should be one week.
And that's, I mean, right.
Yeah.
I mean, we were...
I'm glad you're bringing it.
Like, sorry to interrupt, but this is one of the things...
I got a lot of slack for saying this.
I was on stage with Simon Dixon, prior to FTCS, prior to everything in the early days.
I said the same thing.
The incentives are so misaligned.
The way that VCs and then the VC lockup is so anyone doesn't know anyone new to crypto. Let me just give the basics and I'll let you continue
But what happens in in the traditional VC world is VCs invest early. Okay, so they get the opportunity to make outsized returns
You got a bit of feedback sound around and but then there's a lockup period. There's no liquidity
There may never be a liquidity event so the company could boost boom in valuation, but then never less and then collapse afterwards. I
So that's how the traditional VC world works.
You invest in you wait years before you possibly get a liquidity event.
In crypto, what happened is that you'd invest as a VC
and you get a liquidity event within days or weeks
because the token lists immediately.
And there's an immediate unlock that.
for most of these VCs, for most of the projects.
And I don't blame the projects and I don't blame the VCs.
I think it's more systemic.
The reason I say this is when projects that don't offer that immediate lockup,
they just struggle to raise the money as quickly or they get the same valuation.
So then some projects don't want to offer that luck up,
but they see everyone else doing it and they do it as well.
really good projects didn't.
And so I respect them.
And then VCs, a lot of VCs, just one last thing,
a lot of VCs resisted from having that unlock,
but then when they see all other VCs get that unlock
and sell it and cover their principles,
so you put in, let's say, put in half a million dollars
in a project, then they unlock,
they give you 10% of the tokens,
and there's a 10x, you make that 500K back.
And then the rest of it is all pure profit.
That's the model that was significantly flawed and led to her mentality.
No, that's one of the models that was significantly flawed in this market.
And that's why we need some kind of regulation legislation.
And listen, we're guilty of it.
We'll be blunt.
We...
We bought into many...
Everyone is.
We bought into many projects because we had access,
because we have a research team,
because we have...
You know, because of...
Because-because-because.
And we got lots of these liquidity opportunities.
We really did.
But I think what I'm trying to say is that...
We will see a bull market, but we won't see a bull market with tokens do 10x and 100x.
And I don't think we're ever going to see another bull market where meme coins that knowingly go out into the market and say,
we have no use case.
This is a casino.
We'll go to $5, $700 million market caps over a weekend or over a week period.
I think that those days in the next bull market will be finished.
And to be honest.
it's great. Let's get down to business. Let's get down to actually making sure this technology is going to be used as opposed to getting people to use ERC 20 tokens that anybody can mint with no use case and have money flowing in and out of there and wreck anybody that comes into the space.
Let's just get down to business, guys. Honestly, let's just get down to business.
Go ahead, Scott.
We're done with our rant.
Maybe give a market update and the news update and go to panel.
I'm going to give a market update.
But we should come back to that later because I think you wildly are underestimating human greed.
I agree with you.
I'm not as optimistic as Ryan.
Pepe is literally happening like this month and we're talking about it's not going to happen again while regulators are scrutinizing.
I think that...
I do agree that it will not be the same, whereas if you remember in 2017, 18, everything went up 50 or 100 X at the same time in the bull market or in waves.
I think that what we'll see in the future is these sort of pockets like we've seen with Metaverse Summers or NFT Summers and DFI.
Right.
Where things and AI summer, where we have very select groups that go up.
But anyways.
The market update is boring, but I would say that boring is probably good considering the news cycle that we're in Bitcoin at 26-631 flat, Ethereum 1847 stocks.
I mean, literally everything is just flat, boring.
And that's fine because, listen, I think we should just go ahead and set the table and get into this because we have everybody that we need to continue this conversation.
Okay.
David Bailey is here. We dug in very deep yesterday and largely based on his tweet, which I'm going to go ahead and pin up in the top of the nest right now, which said major custodian about to declare bankruptcy without last minute bailout. Take your Bitcoin off exchanges, even Bitcoin only platforms, right?
And then obviously, as we discussed that death, getting a million calls, as we talked about in the background, the news eventually broke that afternoon.
Mike, welcome. Mike Belchie's here, the CEO of Bitco, that Bitco was buying prime trust.
Now, listen, everybody was sort of positive.
positing that prime trust was the custodian being discussed. Everybody danced around it and nobody gave the
name. Well, now we obviously, now we can discuss whether it was actually at risk of bankruptcy or whether
they're going to be insolvent or what the story was there, why Bitco decided to buy them, whether this is
simply a maneuver, you know, to improve Bitco's business, Mike, or whether it was actually a bailout.
We can get all those things.
But clearly, there was some resolution, I think, to this story.
Mike, you there?
I'm here. Hi. Hi, man. I think last time we spoke was a consensus, but not this year. I think we sat down. And so lots happened since then. I think that the market has dramatically changed. I think we should start to just dig in to the basics. I mean, maybe even just set the table. What is the role of the custodian? What is prime trust core business? What is your core business and why does it matter?
Sure. So, yeah, let me describe what Bicko does a little bit. Then I'll try to describe a little bit what Prime Trust has been doing a little bit. And then we can talk about the events. You know, it's funny. I get into this Twitter spaces here, which I don't do very often. And, you know, this Prime Trust bailout. And I kind of.
hear those words and it makes me cringe a little bit.
It's not quite how I see things.
But obviously it's been a strained time for our industry.
And what matters most is that like we're able to keep stability and, you know,
make sure people have their money.
So let's talk about what a, what a custodian is.
A custodian is a guy that does safekeeping.
It's actually a pretty simple job.
I give you the money.
You give it back.
Qualified custody, which is what Bicco does.
Okay.
is the idea that we do that in a regulated context where,
you know,
we never commingle assets between clients.
We do some reporting around it.
And then from a legal perspective, you know,
no matter what happens to the custodian,
your assets are your assets and never get tied up in bankruptcy.
And, you know,
there's probably some people on this call that are,
you know,
still feeling the sting of the Mount Gawks bankruptcy,
which is now nine years ago and still not,
settled. FTX will see how long it takes to get assets back to clients, but it's going to be years, right? Bankruptcy is a really painful, painful process. So the role of the custodian is to kind of help with all this. It's an independent party. It's part of, you know, a critical mitigation of risk in trading in markets. And you find custodians in a number of roles in traditional asset classes.
Quite a bit. So Bitco's got four trust companies around the globe. We have Bitco Trust, New York. That's a New York State Charter Trust, by the way, DTC, which holds all of the equities of the U.S. trading system is also a state chartered New York trust company. We have South Dakota Trust in Sioux Falls. We have a Switzerland trust company and a German trust company regulated in Bofan, coming soon in Singapore and Dubai.
Okay.
So in regards to what we do, we tend to hit institutional players.
And I've been in this space now over 10 years, and you know, you hear this not your keys, not your coins.
I totally agree with that.
And, you know, for the retail folks that are on this call,
You know, you should be figuring out a little bit about how to manage your money and how to take ownership of it.
And if you don't need it on an exchange and if you don't need it in a wrapped form and you're not using it on defy, you should absolutely pull it back to safety when you can.
And then there's still a real need for institutional side.
And this is where all of us want to have trading, markets and businesses participate in crypto and digital assets.
And when you're talking about businesses,
well,
you've got to have business continuity,
right?
Businesses are interacting with people
and whether it's,
you know,
somebody that's just,
a t-shirt vendor that takes payments in crypto they've got a bank account right and traditionally
they would have a bank account where they receive money that they they get from the products that
they sell if they're doing that in crypto they're receiving money again from the products that they
sell and typically a business would have an ability for multiple people to be on the account
you know if something happens to the CEO the cFO can step in there's controllers and auditors and things so
When you're looking at institutional finance, whether it's at a small business level or a major financial institution, you always have a need for like this custody component.
You don't just give it to the IT guy to put a ledger in his desk drawer.
By the way, there's far too much of it that does happen even to this day at edge funds across America.
Yeah.
But this is the product line that Bicco has been pushing.
So we tend to hit businesses.
We've got about 1,500 clients around the globe.
And, uh,
A lot of times those are kind of B to B to C context.
So we work with other businesses.
They are the front lines to their clients for whatever business they're carrying out.
It could be a payment system.
It could be a broker-dealer.
It could be an exchange.
We provide hot wallets where they can hold direct custody themselves, where we hold one key and they hold two.
And then we do a lot of custody these days as well where we hold all the keys for business contexts.
So that's what this goes, Jam.
Mike, sorry, it's Ryan speaking.
Just a question about regulation of custodians in the United States,
where I take it that you guys are domiciled.
Are you guys regulated?
And if you're regulated, like what regulations actually apply to you?
How do they bring in crypto regulations or how do they bring in old world regulations into crypto?
Yeah.
Yeah, we're heavily regulated.
So here in the U.S., we have state charter trust licenses, like I said, in both New York and in South Dakota.
So these are two different companies, or two subsidiaries.
Sometimes we take clients into New York.
As you know, New York has some special rules around crypto that started with their bit license.
The New York trust entity that we have allows us to provide products and services to New York residents.
most of our work we do through South Dakota.
And sometimes people ask, like, why South Dakota?
And you may know that, like,
in general, companies incorporate their businesses in Delaware, because Delaware has the best
laws for corporations in the U.S. and South Dakota happens to have the best laws for trust
companies in the U.S. So there's a ton of trust companies in the U.S. out of South Dakota.
So who regulates you? Is it the SEC? Is it OFAC? Is it the CFTC? Who is the regulator that
you guys are speaking of?
or speaking with.
So we are regulated in New York under New York DFS.
We are regulated in South Dakota under the South Dakota Division of Banking.
We have a bunch of money transmission licenses across the U.S.
We're regulated, of course, by FinCEN.
All of us are, and BSA applies to all of us individually and as businesses.
Let me ask the tough questions if you don't mind.
First, Mike, appreciate you coming on spaces.
I know you rarely do this.
So why acquire prime trust?
Right. So Prime Trust has been, in some ways, a competitor to BITCO. They've built up a business. They do a slightly different business model. And they've got a number of clients that we can add into BITCO's team.
We're going to obviously apply the BITCO platform and carry that forward for clients.
A couple things we wanted to do here.
First off, for the people that are clients of prime trust,
we want to make sure that they have a strong go-forward platform.
Bickgo can provide that.
As a custodian already, we can kind of consolidate these and run them very efficiently
between each other.
And I mentioned this B2B2C.
So...
The features that we offer are clients for how they can go to market as a B2C firm are many.
And then Prime Trust offers some slightly different ones.
They've got more direct kind of ability to take retail, you know, onramping of Fiat and crypto at small numbers.
That's something that we haven't done.
So we're not a retail company.
We don't want to be a retail company.
But we want to make sure that we're providing good companies.
service to those that are building B2C companies and we can add some add some real important pieces to our
To our platform with Mike I'll ask you another question. So so based on block works
This piece they needed
25 million dollars and what can you share in terms of how prime got to this position and that's the first question and then the second question
They lost most of their customers we're talking about it yesterday. So
Why acquire them rather than just let him, to be honest, and I'm going to be brutal, but just let him die out?
Yeah.
Well, first off, I haven't seen the Blockworks article.
They basically spent too much money.
And, you know, we're still in process with prime trust.
So as, you know, we're going to obviously go do an exhaustive look.
And our intention is to make.
you know, a safe landing for kind of everybody through this process.
I'm not sure I'm, I'm able to say yet exactly what things we're going to find.
I'm hoping that it's not, it's not going to be anything unexpected, but, you know, we will deal with it as it comes.
And then why buy it?
You're right.
They've lost some clients.
And obviously, so the, the price is cheaper as a result of that.
But they still have a healthy business.
And actually, we think we can grow it.
And, um,
using the combination of what BitGo has with the pieces that they have and the client base they have, we actually think it makes business sense.
So, yeah, they ran out of money.
They spent too much.
You know, it's actually a pretty common thing.
Bitco has been, you know, in the crypto space for 10 years.
We've been through four crypto winters, kind of ups and downs.
This is a lot of up and downs.
This is one of the most treacherous business climates to survive through.
You got to be ready for the biggest highs.
You got to be ready for the lowest lows.
And they kind of keep going in alternating fashion.
So there's been a lot of management that hasn't survived that.
I wouldn't say that just because you've done it a few times,
you're always out of the woods for the future.
But not everybody's navigated it super well.
I think you know from the investment side,
you know, this latest crypto winter, macro winter, whatever you want to call it, you know,
there's hundreds of companies in the crypto space that are running out of money right now.
And they've got about six to 12 months of roadmap left.
So like Prime Trust was one of the bigger ones that ended up running out of money.
But, you know, hopefully other than that, it's actually not actually a really serious problem.
And we think we can turn this around.
And Mike, they raised nine figures 11 months ago or 12 months ago, correct?
Yeah.
It's a lot of money to run out of.
They were spending at a ridiculous rate.
Spending, but by spending on what?
Advertising?
Expansions?
Just blowing the money.
I mean, the biggest cost that goes into any business is people, and they just way, way
overhired.
So, look, I don't want to get too much into detail of it, but they really did spend a lot
of money.
And I think.
I don't think the team there would mind my saying that the management team had not managed that well.
Right.
I mean, they fired their CEO in November, right.
So not altogether surprising that during that period there were some issues.
Yeah, that's right. Look, the things that I've seen so far are just surprising. I mean, I wouldn't have run the company that way. And, you know, Jor, who's come in, I think it's done an admirable job in the last six months of really turning that around. You know, they had to do a few different cuts of people to kind of get the ship back to a semi-righted place. And it's been admirable. So, you know, they're working through it.
It's really just like, yeah, you spend that kind of money and then you hit a big downturn.
And if your revenues are not solid because you tied them too much to just transactional revenue, you can find yourself in a very bad place.
So Mike, I'll ask you, and we'll move on right after this one or two more tough questions,
and we left the toughest ones to the end.
There's been rumors, and we tend not to mention rumors here unless we can verify that,
but is there holes in the balance sheets that you guys have found as you do your due diligence?
We're going to go through this and we won't take this thing if we can't have all clients be righted.
So, you know, if there's any holes that are there, like, you know, maybe there'll be a different outcome here.
But no, no, we don't have...
It doesn't make business sense for somebody else to come in and fill a hole if, you know,
that's just money down the drain, right?
So I wouldn't be talking here if there was some, you know, big insurmountable problem
that was going to make it not work.
So I don't know if I'm answering your question.
I actually don't.
I haven't done enough diligence to know that everything's perfect.
We do know that they were spending, you know, a lot of money.
There's some management issues that you're concerned about.
So the way you approach these is, you know, I've now got a team of legal, financial, regulatory auditors that come in.
It's going to be a heavier diligence than what you would normally do because, you know, you're picking something up that you've got to really understand.
what the risks are and what risks are we assuming as we go through it.
And that has to add up in a way that still makes business sense.
And the previous question you just asked me was like, well, why would you do this?
And it's because, well, wait, we do see the ability to do this.
Bicko's got a strong custodial team or compliance team is fantastic.
So we can absorb this in and start to make it really efficient.
But of course, that's only true if there's no like,
you know, big hole or gotcha.
The reason I ask this and beyond just rumors,
the reason I ask us is, you know,
having raised $100 million last year,
we're in a midst of a bear market,
for them to be, you know, a year later to be $25 million in the red,
just seems very surprising.
So I'm sure you guys will do proper due diligence and,
And, you know, wish you guys all the best with the outcome, Scott.
Yeah, just real quick, on the spend that they were doing, I mean, the monthly burn that was coming through like last summer, I mean, it's just, it's just shocking.
And it's just being spent on garbage on just way too many people that you didn't need and the market's collapsing around you.
Just mismanagement. I mean, really.
So you look at the number, you're like, who would do that?
It makes no sense.
It's why they had to make some management changes.
Hey, Mike, can you speak to the process of what happens if a custodian does go bankrupt?
Like, as I've tried to do a little bit of research into this, it seems like it's very complicated, much more complicated than you would think.
Would users have access to their funds of a custodian went bankrupt, or would it be encumbered or locked up in a bankruptcy process until its conclusion?
Yeah.
You know, I wish I were an expert on this.
So custodians don't really go bankrupt very often.
You know, this is a place where, I'm going to sidestep a little bit, but the regulators can really help.
Forget about crypto.
Like, people where...
If the custodians of size are allowed to participate in digital assets, you know, I'm not talking about, you know, oversized participation, but just a little bit.
Instead of having like a few, you know, relatively small and up and coming, you know, custodians, if we had just some good medium size and larger size able to participate with some of the load of the digital asset work that's happening in the United States.
And investors, retail investors, would be much better protected.
And, you know, none of this would happen.
All right.
So typically custodians don't take risks, right?
And because the traditional firms can't participate because the regulators are locking everybody out.
Instead, smaller firms are having to take on that job and the market structure doesn't exist.
So they're having to build the bridges for how to make that happen.
And building the bridges, it takes time to get the risk out, the counterparty risk, the market risk, all these pieces.
All right. So we don't usually see custodians go bankrupt, which is why, you know, you're asking a very good question of like, what's going to happen.
I think we're going to see a little bit of its variable based on, you know, kind of which state it is.
So this, you know, if prime trust were to fail, that would be Nevada, right?
If it were, you know, one of Bickgo's entities would be, you know, those.
And then what's the process?
I mean, I think it's going to be, there's going to be a significant kind of legal look at that.
Good news.
Look, the books and records will show whose assets are whose.
I think where the segregated assets are found, it'll take a little bit of time.
I think it'll be measured in months that those assets would be returned.
And then the creditors would only be fighting over the non-customer assets.
So the big difference here between a custodian and like an exchange is,
You know, when you deposit, and by the way, we talked about Coinbase, I also think Coinbase is a generally good actor.
You know, they've been building over 10 years.
There hasn't been market structure.
So this isn't intended to be a criticism.
But when you deposit at Coinbase, you know, it's not going into a trust company.
They do have a trust company, but it's not going into the trust company for general deposits.
It's going into Coinbase.
And, you know, if for whatever reason, the next day, Coinbase gets shut down, whether it's, you know, SEC stuff, whether it's a failure or a hack, who knows.
you know, all the assets that were deposited at the exchange will be tied up in the bankruptcy.
This, of course, exactly what's happening at FTX.
Now, FTCS was not a U.S. firm, but, you know, the same principles apply.
So anyway, I wish I had a perfect legal answer.
I think it's going to be complex.
With a qualified custodian, it's much faster for...
the segregated accounts to get returned back to the proper owner.
But of course, there's going to be a little bit of a look at it.
The thing about a qualified custodian is the regulator has a regular look at these companies.
So, you know, we have an ongoing dialogue with our regulators.
They know how we do our books and records.
If they had to come in and take over, they know roughly what they would see
and what the quality of that of what they would see is,
which allows them to be able to quickly...
split like, okay, here's the client assets that are separate.
And, you know, there's never been, by the way, a custodian fail in the U.S. ever,
where segregated customer assets didn't go back to the customer.
It just doesn't happen.
So it just doesn't happen that they get tied up with the custodian's assets.
So the good news is that whatever failures there are at a custodian
will be completely penalized just on the investors.
of the custodian.
Hey Mike, when you started, you sort of pointed out that you didn't like the term bailout,
which is fair.
Blockworks obviously used it in their article as well, just referencing it.
Why do you take issue with that being the terminology?
Was this more, as I kind of hinted at the beginning, a strategic business decision, were
they actually not at risk of being bankrupt as was reported by next week?
I mean, look, their business model wasn't working and they were running out of money for sure.
But, you know, we're able to, and if they were healthy, would we have done this deal?
No, we probably wouldn't.
They probably would have been looking for a much bigger valuation and, you know, probably it wouldn't make sense for us to do it.
But with where it's at, you know, kind of we're able to do that.
The thing I don't like about the bailout is, I don't know, it puts a negative,
shadow across everything.
And what I hope that people are going to hear out of what's happening now is like,
look, we're going to make this thing work.
And if you're using prime trust, it's going to be purely an upgrade on the other side of it.
So maybe this is me reacting from a business side of like, I want to make sure the business
goes well, which is not going to.
It's not intended to be entirely selfish, but I recognize this as if at least partially selfish.
I mean, that's why we're doing it is to go make a business.
You don't buy a business for charity, obviously.
Yeah.
So anyway, that's, look, and the other part of this, which I think is good, is that if the industry is able to kind of capture these things and not have financial institutions go down, it actually signals a lot of strength in spite of, you know,
the bombs exploding around Binance and Coinbase and Ripple and all that other lawsuit stuff.
You know, look, there's a lot going on. I think, you know, several of you have been here all the
way for the last 10 years. You know, back 10 years ago was, you know, primarily just Bitcoin.
We were all talking about what happens when you finally run into the battle between the government
and digital assets. And, you know, if there's one message I get out to like all the Twitter folks
that are listening, like,
We are all on one team.
The team,
you know,
versus alt corners.
Like,
they're coming after Bitcoin too.
And it's about money
and it's about power
and it's about freedom.
And,
you know,
so right now there's some cases
that are around,
you know,
a number of these,
you know,
in the secondary chains.
And I'm not trying to comment
on the strength or weakness of it.
I think there's some legitimacy
you know,
what you guys were talking about earlier.
But,
you know,
we as an industry,
I have to pull together
and make sure that we keep
all this stuff going
and we want,
anybody that's on the digital asset side to be winning these cases with the SEC, because you might think you're safe with Bitcoin, but you're not.
You know, that's just the next step.
Can we dig into that a bit more?
Because that is definitely a very, very, very clear belief in this space and one that I also refute, but I would love to hear your take on that.
Yeah.
what my take is again money and power kind of overlap and we have a we have a brand new model here
and there's a lot of people making money on the traditional financial system and it's got its strengths
of weaknesses the good news is that software is invaded you know into the financial system for the
first time we've crossed the modes the regulatory modes which kept software out now we've got innovation
It's a global scale, so it's no longer partitioned neatly by nation's borders.
These are problems that have never been solved before.
And so now there's a new way to do it.
And there's a fight going on for who gets control.
And it's not so much about is it a digital asset, is a Bitcoin, is a store of value, is a smart contract.
No, it's about power.
So we have to have these fights.
It's great.
that the fights are happening now because it happens sooner or later.
And if they're going to happen, I'd rather be in the fight and go figure out what happens next than not be.
But this is a big shakeout that's going to happen in terms of figuring out what the rules of the road are going to be.
And although Bitcoin has so far been unscathed through this, it will be the next step because we're talking about a major financial upheaval.
And that's a major shift of power.
And of course, people that are in power don't give up power without a fight.
So anyway, I think kind of bringing it back like,
The ability for our industry to, you know, bail out or, you know, merge together with other small firms to make sure that clients and investors are safe is awesome.
If we can continue to do that, you know, regardless of where your own personal financial net worth may be tied, whether you're part of the ex-RP army or the chain link Marines or whoever else, you know, um,
We can be fighting together actually to help make change in digitalistic space.
And yeah, I think it's important.
Yeah, my only question, Mike, first off, I'm very glad you're stepping into this deal and kudos.
Yeah.
Kudos for picking up the torch here.
Like I think a three month lockup, you know,
or some period of time where users couldn't access
their funds would be a major black eye for the entire industry.
And so, you know, thank you for taking the chance here.
The one question I have and concern is like, let's say,
for whatever reason, BitGo decides to step away from this.
And there is that lockup period.
Is there also a clawback risk?
Like could a custodian be subject to a clawback risk similar to how FTX users are?
And could you see basically people who have no idea that their funds are connected to this and seem several hoops away still be affected?
Yeah.
I mean, look, you're getting into a really complex legal question.
I don't know.
What I've seen from the legal procedures, I mean, as you know, like, Bicko didn't work with FTX prior to the collapse,
but the new management team, you know, they needed a custodian after the collapse,
and so they moved all the assets over to Bicco.
I get a little bit of look at what's going on and, of course, read the news like you do.
I don't know. The bankruptcy code appears to be maybe the one thing that's more antiquated than our financial markets, frankly.
The good news, it doesn't happen as often, so I think it's less pressing to have like a smooth transition on bankruptcy code.
It's really complicated.
So I'm just not expert enough to be able to give you actually any answer that wouldn't just be pretty wild speculation.
But, yeah, bankruptcy is, you know, it's a mess.
And it's also, you know, different in every state.
And, of course, it's federal.
It's a mess.
Yeah.
It's a very different picture though, right? Because in FTX, customer deposits were a claim on the company, whereas trust accounts are not property of the company. They're separate. And so I don't believe you're going to have that risk at all. The only risk is if there's a fraud, there's no allegation of fraud just to be clear.
then that's a different story.
But I have a question for you, Mike.
So you have a non-binding term sheet.
Prime Trust is losing money.
They've lost a lot of customers.
Who's providing the liquidity bridge to ensure they can continue operations?
And when do you expect the definitive docs to be signed so the deal is actually completed?
Yeah.
To some degree, I get into a, you know, I got a deal.
I got to kind of keep quiet a little bit.
I don't want to have, you know, this call be affecting any negotiations or things that we have to discuss later.
So I'm mostly going to sidestep it.
But as far as I know, they are able to operate right now just fine.
And we are obviously going to go into diligence and try to run through this process as quickly as possible,
because I think that's the thing that we do to get the best,
business on the other side of it.
So you were buying, was it customers or capability?
You alluded to the fact that they have the ability to access a retail account base.
Their largest customer was Binance and they provided a Fiat ramp to finance and
finance has issues.
So it doesn't look at as much revenue there.
So if you could be a little bit more precise on what exactly were you buying customers
or some kind of capability or some type of new market opportunity?
This is acquiring the whole thing.
So it's a full company purchase.
I mean the motivation, the central motivation that animated the deal.
It's a combination.
I mean, it's everything, right?
So look, there's people over there.
There's some good people in terms of the team.
There's some good clients.
There's some business.
There's some capability.
And we can take all of that and we can run it more efficiently than they can.
So that's the main thing.
And then how we navigate this path.
You know, look, we're just getting started on it.
So number one, want to make sure we shore up the business so that it can kind of continue.
And I think we'll get there pretty quickly.
And then there'll be some machinations to affect the combination.
And hopefully in the end we have just like a stronger product and service.
And like everybody forgets that we had this call.
And it's off the races.
Do you need regulatory approval on this transaction?
Yeah.
Yeah, of course. I mean, anytime that you're doing a change of control of a regulated financial institution, the regulators have to be part of it.
We don't anticipate any problems. We've already spoken to regulators.
Regulators are usually pretty sympathetic because they also, you know, they take a lot of pain if something failed.
Mike, let me ask so the reason you see me a bit hesitant, there's just one question.
I've been asking permission to be able to ask it to you, and I finally got permission.
So there's rumors, you know, those are rumors, but the sources give me enough confidence.
So at least ask the question is the rumors are that one custodian has lost the private keys to one of their wallets.
We don't know who it is.
We don't know more details and this is unconfirmed.
Have you heard those rumors and have you deep enough in the DD to know whether this could
apply to Prime Trust?
I've heard the rumors too, but I don't know where that is.
I can tell you it's not Bicco.
We spend a lot of time making sure that we got those things nailed down and figured out.
So look, we've got more diligence to do to make sure that we know everything that we need to know.
And...
I anticipate we'll be able to get through this all just fine.
And last question.
How deep are you in the DD?
That's the last question.
And by the way,
I again give you a massive shout-out for coming up and having these discussions.
This is the transparency we need in the ecosystem.
So hats off to you.
But last question, now that I've taken my hat off for you,
is how deep have you gone into the DD?
Well, we're just getting started, right?
So, I mean, it's early.
And as I alluded to before, you know, diligence is a complex topic.
And, you know, we're doing coordination meetings now of really getting
some pretty big teams involved yeah mike um i don't have any more questions i think it was a
a really interesting conversation and one that i appreciate so um you know you've got more
big gold fans here in the audience now any more questions from the yeah i i think there's a hundred
percent chance that everybody wants this to go through wants uh this industry to proceed with confidence and
in all of our, obviously, platforms.
And the best news is that this goes off without a hitch.
And this is far in the rear view and that BitGo continues to be the reputable, credible company they are, which I think we all expect.
Mike, I know you had one more thing to say.
But then also, then I want to jump to Bill Barheight after Mike, you finish up here because Bill, Abreh, obviously, is listed as one of the current clients of Prime Trust.
Yeah, I was going to ask Bill, like, are you feeling more or less comfortable after this discussion, including my last question?
And let me see if you've blocked me yet.
You have not.
Cool.
Go ahead.
By the way, you know, Bill and I have known each other since, I don't, 25 years, I guess, back to all the way to Netscape.
So, I don't know, we...
Didn't see each other for a very long time and suddenly we found ourselves in the crypto space on seven or eight years ago together
And but Mike if you guys didn't step in I'll ask the last question sorry, but if you guys didn't step in and prime trust if the rumors were true earlier rumors that prime trust would not survive next week
If prime was to fall and another this is a hypothetical that is behind us now assuming all the DD goes well. I
What does that mean for the ecosystem?
And I'm asking that question because I'm seeing it in the audience questions.
For the audience, there's bottom right corner, that purple circle.
That's where you put your questions.
But I've seen people confused.
Like, Mario, how major is this?
How large are they?
Because I know they've gotten a lot smaller over the last few months and years.
And what does that mean for the ecosystem if the deal does not go through?
And I'm talking about worst case scenario, which seems like it's behind us.
Well, look, I think the rumors are always, they get a little bit more dramatic and more worried than they need to be.
So first off, the rumors are probably worse than anything else.
And then in terms of how bad would it be?
Prime Trust is a significantly smaller.
custodian than Bicco pretty much by every measure.
Now, if you were at that company and it failed, you know,
hopefully it would be an orderly unwind.
So remember we had Silvergate Bank, which was the first bank to fail?
We, it didn't.
I don't.
them very well. We were the first ones. They came, one of the executives came on this show before
anyone was talking about Silvergate, went through questioning, and then that led to the fall of
the dominoes. So me and Silvergate go back and they don't like me.
All right. I mean, look, I've said it before. I mean, the problem that Silvergate had, you know, they were victims of their own success. We had 100% of the, the trillion dollar asset class running its banking through, you know, Silvergate Bank, a little tiny, you know, South San Diego state state bank. What we should have had is instead of 100% at one bank, we should have had,
1% of, you know, money flowing through 100 different banks.
And then this, that never would have happened.
But anyway, that was an orderly unwind, right?
And I suspect it's still ongoing.
I don't know.
I haven't heard of any, um, any significant, uh, problems there.
Um, and, uh, I would anticipate that if,
Prime trust were to fail or if anybody else failed, you know, it's probably an orderly unwind
process. The regulators would step in. Now, this is not FDIC insured assets, right? So if money's
missing, that's where you run into problems. But if you've got,
If your job has been done right and you have segregated assets,
then there's absolutely no reason why it should be anything other than orderly
and just taking a little bit more annoying time, but not too long.
Hey, Bill, we're not going to talk about the olden days at Netscape again, but
I would love to hear about your take on what's happening here, obviously, as we mentioned in the space yesterday, you know, a year ago on the website for Prime Trust, they had, you know, 16 named clients, huge names, strike, crack, and et cetera.
Well, now it was down to six and they put a big strike through Swan.
We had Corey here yesterday and said he no longer does business with them.
He was up earlier.
You do.
So I would love to get some context.
Yeah, sure.
So, yeah.
First of all, I think this is a great potential outcome.
And so I think it's great that Mike was in a position to come on and give the details.
So kudos, Mike.
Thank you for doing that.
Yeah, we used to use Prime Trust for custody going back over a year ago, I guess.
We don't do that anymore.
Prime Trust is not a in-house technology platform.
They outsource custody to our blocks, I believe, solely, I think.
Anyway, actually.
As we changed our product roadmap, we brought most of that in-house to manage ourselves.
So the extent of our relationship with Prime Trust right now is ACH wire processing, and so we don't leave any amount of money on the site.
And we have other...
providers that are able to process wires for us. So we wouldn't really miss a beat if they were to go offline.
We have redundancy there. So look, I also know Jor, the interim CEO. I think he did inherit a mess.
And to his credit, he's done what he can to write the ship within reason.
Yeah.
And like I said, it doesn't really impact ABRA one way or the other, given that we have redundancy on wire processing, except to say that I think it's better for the crypto space if there's a good outcome here for everyone involved.
And, you know, assuming there's no glaring holes in the balance sheet, it sounds like they're on a path to doing that.
So, so we should roll up.
I mean, I don't know.
I wasn't 100% aware.
Okay,
go ahead,
Rand,
sorry.
I'm struggling to see
who's actually affected yet
because if I look at the client list,
it was like Abra
and four others,
including Swan,
but if you're saying that
Abra's hardly a client,
then Swan's no longer a client.
Who is Prime Trust actually servicing to it?
Well,
I would speculate that a lot of clients
are trading shops,
hedge funds,
folks that were probably
difficult to bank in the crypto space
who probably don't want their names
on a website.
Yeah.
Speculation, but that would be my...
I lost the bill. Is that everyone or just me?
Oh, can you guys hear me now?
I can. Hello?
Yeah, so Twitter spaces and incoming phone calls, don't mix.
So, like I said, my pure speculation is it's probably a bunch of clients that don't want to be named in the hedge fund world or are probably difficult to bank otherwise.
But I really have no, no incited to that.
Bill, you said that they custody with fireblocks.
So Prime Trust was effectively a pass-through, and they were just a third party that was connecting their clients through to actually custody at fireblocks?
That's my understanding.
I don't think they had any in-house technology.
Mike may know better than I now that he's been digging in, but I was not aware that they had any in-house physical custody capabilities as it relates to crypto at all.
That is correct. So they were using wallet patterns. So Fireblocks often gets lumped in as a custodian. Remember, Fireblocks is not a regulated firm. So they provide wallet technology. I think sometimes they may take all the keys. I'm not entirely sure how they fully operate. But they're not a qualified custodian, but they are a wallet platform. And Fire, I'm sorry, Prime Trust is using them.
Yeah, that's my understanding as well.
Yeah.
Perfect. Mario, did you want to talk about Binance?
Yeah, man. For me, this is the story that worries me the most.
Hold on before we talk about Binance, I want to jump in here just before we finish on Prime Trust.
Mario, you mentioned that you heard rumors that a custodian lost keys...
In those rumors of the custodian losing keys,
do we know what the numbers are?
Is anybody thrown around number of dollar values
and stuff like that?
There's more to the rumor and it's a pretty concerning rumor,
but I can't share more, especially not on a public stage.
But if it's not prime, I'm feeling comfortable
because my only guess would be prime trust
and I'm sure Mike would do the proper due diligence.
But I'm sure, like all I can say is that if Mike spots this,
I'm pretty confident the deal won't go through.
but I'm also pretty comfortable that Mike knows the room already, as he said,
and even though it's early in the due diligence process,
these things don't take too long to spot,
and I'm sure they would have been discussed early.
So I'm pretty comfortable that this rumor is safe.
Yeah, look, again, on one side you can't spread FUD,
but on the other side you have a responsibility to talk about things,
because what I considered FUD prior to FTCS,
Almost all of it became true, including that, you know,
we had information about that media company
that turns out the CEO is getting paid by Sam.
Remember that?
I can't remember who it was.
Who was it?
The block.
Yeah, we knew about this months ago,
because someone gave us a whole data room,
which included this information,
but we couldn't verify, we didn't mention it
and then obviously it turned out to be true.
So either way, look, we know that Prime is not,
is not as big as it was.
You know, Mike came here transparently,
and I think it's, look,
for the for the market I don't think it will hit the market as some of some people might might be worried again prime is not as as big as it was
But at the same time from a reputational perspective if things don't go through the or the rumors are true
Reputationly
you know, it's just going to be such a big bruise on the eye, another bruise on the eye,
especially during the time when the SEC is doing what they're doing and the DOJ.
So I hope it's not true.
I'm sick of this shit happening.
This is a US regulated entity.
And, you know, I applaud Mike for stepping in.
And I hope the deal goes through and we move on and keep focusing on Binance.
Happy with the answer, Ann?
You know, press me more.
happy with the answer i think it's very answered very well uh yeah binance halting well not
halting withalls but i guess they lost their banking partner if you read the statement from
binance it sounds like their banking partner um has been warned either by their compliance or by
uh outside parties to say that you know given what you know now about the allegations of the cc against
binance
Possibly you should unwind your relationship with them.
And that comes on the hills of Paxos also saying that they've completely unwound their relationship with Binance.
And I think that Binance have now warned that they're going to become a crypto-only exchange in the US.
And that they won't have Fiat on-ramps and off-ramps within the next week.
And they told customers that they should...
act accordingly and if they're going to withdraw to just be patient because because the banks are
closed right right does he need to go to court in the u.s because some people said yes others said
no does it need to personally appear
Well, as far as I understand, no.
As far as I understand, it's procedural in this case.
And I think you can send your lawyers, I think.
That's what I understand.
I'm not a lawyer.
That's my understanding as well, too.
He does not have to physically show up.
And Travis, what do we know so far about the DOJ's investigation?
What has been leaked so far and what has been made public?
Oh, I mean, you know, I think as soon as the CFTC report, I mean, look, there's been rumors for, I think, years.
I mean, I think you can find DOJ Binance articles going back in multiple years.
But then, you know, I think that the rumor mill around that has cranked up.
over the last however many months, I think when people saw the CFTC complaint that was filed against Binance at the end of March, you sort of dive into the details of that and you go, okay, this is like definitely looking like OFAT violations, right?
And the CFTC complaint, if you remember, Binance senior compliance officers were making jokes about funding Hamas.
I remember that. That was one of the more concerning points that came out of it.
Yeah, right. So even with the CFTC complaint, people look at that and they go, okay, DOJ is definitely all over this because this is, you know, looking like serious OFAC violations that the United States just takes dead ass serious about this kind of stuff.
And then, you know, there's been Bloomberg articles.
You had the, another big piece of this was the Bits Lotto exchange.
If you remember that getting shut down by DOJ.
I think that was at the end of January.
I remember the DOJ did a press release, a press conference about Bits Lotto and
The crypto community was like poking fun at the DOJ because they did a press conference about a crypto exchange that none of us had ever heard of.
And then you find out like two weeks later through chain analysis,
blockchain forensics,
that the number one destination for assets from Bitslotto was Bynance.
I think there was,
I think the number was $700 million total that went from Bitslotto to Binance.
And so, you know, again, like a lot more evidence there.
And then the SEC, you know,
complaint comes out at the beginning of this week, and it's just incredibly damaged, right?
I mean, it's just stunningly damaged.
What does it mean if the DOJ takes action against Bynas?
How serious is this?
And obviously, it just depends on what the allegations are and what evidence they have.
But what does that mean for BINB's price and looking at the markets?
It seems that this is either it hasn't been factored in or it has and it's been expected for a long time
and it's not really as serious as some people make it out to be.
Yeah, so you can't look at B&B price action to try and gauge what's going on here because B&B is a completely manipulated token that does not have real price discovery. You can't trade B&B anywhere in real size other than on Binance.
which is a very crucial difference between B&B token and FTT token.
FTT was liquid on Binance.
You didn't have, when you just think through the concept of like, you know, I'm worried about
an exchange's solvency.
I'm holding that exchanges, exchange token.
I want to sell it, but I have to go to the potentially insolvent exchange to sell or short
said token, you can see how that just doesn't make any sense, right?
And that's a big difference between B&B and FTT.
But B and B and B does not have real price discovery.
It does not at all.
And so I think the likelihood that you see a B&B price collapse is really going to be a
function of how hard the DOJ goes.
And I think that's anybody's guess.
You know, folks that I've talked to that are pretty familiar with, you know, the kind of regulatory criminal, the way these sorts of things work in the United States have already been very surprised that a DOJ action has not already been brought.
People don't really understand what they were waiting for when CFTC came out at the end of March.
You look at the details of that complaint.
You get, okay, looks like.
There's a big DOJ OFAC problem here.
SEC comes out, okay, now they really have them dead to rights on OFAC violations, really, really dead to rights guilty.
And then so now everybody's just kind of waiting on DOJ.
And it's like, you know, I think you just sort of think through goalposts.
And I think at one end of the goalposts you have a slap on the wrist.
It would look something like Arthur Hayes and Bitmex.
You know, it would be $100 million fine, you know, this sort of thing.
I think that would be the most lenient part of the goalpost.
I think that's very unlikely to happen.
And then on the most punitive end of the goalpost, it would be you log into Binance.com
and you get the DOJ seizure logo, right?
You get the American flag and the bald eagles or whatever.
They've seized Binance.com.
They issue an arrest warrant for CZ.
CZ's in Dubai.
Dubai does an extradite.
You know, CZ can't ever go to any country again
that has extradition to the United States
because he's like a wanted man, basically.
And then TBD on, you know,
I think that's kind of the far right end of the spectrum.
And I don't know how to wait the likelihood.
And then obviously you've got everything in between.
It does, it.
One more thing I'll add in it.
No, no.
Yeah, one thing.
that I think is seeming increasingly more likely.
And you saw, I think, a week or so ago,
an article that came out about the potential for CZ to step down.
Looking into the SEC complaint, in my opinion, it is a done deal that CZ is not going to be running Binance.com a year from now.
That looks like a done deal to me.
And I think one of the reasons why that article came out talking about the rumors of him stepping down is because he has probably already offered that as part of the
part of some settlement with the Department of Justice and TBD on whether or not they're going to take it or whether or not they're going to say that's not enough.
We want to shut this whole exchange down.
I don't know.
But, you know, it's too damning.
It's just it's too egregious when you look into the details of it.
And Travis, those Richard Tang taking over rumors emerged before.
the SEC move against Biden.
Yeah, but we've had, we've had, we've had whispers about, um,
Bynas expecting, uh, the SEC investigation or the allegations or the charges,
the SEC charges.
And, yeah, forever, but like they knew it was imminent according to some sources,
even though CZ tweeted that they surprised and they didn't see the charges, etc.
Um, but just going back to the, you know, it's worth mention,
I just want to say, you know, Cheng Ping was lying.
in that tweet and you know he lies incessantly publicly that's important to point out this man
lies incessantly publicly bruce you disagree or you agree with the thumbs down what lies
well he lied about that the fact that the fact that he didn't know that the SEC complaint was coming
i mean i mean lies about all kinds of things he he said he said he said we haven't read the complaint
yet it's been posted and we haven't seen it yet you think he was lying about that
Oh, I mean, he's obviously been in discussions for a long.
No, but you just said he lied about that tweet.
Do you think he lied about that tweet?
I would need to go back and look at the exact wording.
Well, then you should have looked at the exact wording before you say that.
You don't accuse somebody lying before you know your facts, dude.
You should have looked at the thing first.
Are we going to do a thing?
No, no, no.
Here's how it works, Travis.
When you accuse somebody of lying and you say that tweet is a lie,
and then I say, do you think it's a lie?
You don't say, I'm going to go back and look at the tweet.
You need to, you need to already substantiate that.
When you accuse somebody of lying...
You need to have it substantiated already, and you didn't.
So don't accuse people of lying.
Let me ask, Travis, another thing you mentioned about the BNB, and this is, so we've had a lot of, a lot of rumors about Bynast back on FTCS was collapsing, and I'm sure everyone heard a bunch of these rumors.
We tended to be hesitant of even talking about those rumors back then, and we mentioned some of them.
But you talked about BNB's price action and not having any price discovery.
Can you elaborate more on this?
And do you think that the price, the BNB's price could be superficial?
And I'm starting to look into those allegations just because we're deep down into that rabbit
hole now and after seeing the CFTC complaint and SEC's charges.
Well, I mean, the number one factor for B&B is that you cannot trade it in size
Not on Binance.
What size?
So what size is, you know, what size you're talking about?
Well, just go to, just go to coin market cap, pull up Binance, B&B token, go to the markets tab, and have a look for yourself.
And I think it trades, I think 2% of the daily volume trades on Ku-coin.
So you can get like 2% of it, you can trade, you know, not on finance basically.
Right.
I had no idea.
And so it's just, it's just not real price discovery.
And another thing I mentioned...
And that's over a 24-hour period, not in a single trade, right?
That's right.
That's right.
Having that for 24 hours is 2%.
You're not saying you can pull 2% in a single trade.
That's exactly right.
Yeah.
And without getting into too much detail, I mean, I've traded this market...
You know, full time for five, you have traded many, many billions of dollars of cryptocurrency
in my life from a quantitative perspective as well, too, lots of proprietary statistical models,
automated execution, all this kind of fun stuff.
I also talk to guys all day that have, you know, are multi-cycle crypto investors with a quantitative,
you know, bend or perspective to the way they approach the markets.
There is consensus that B&B trades very strangely.
Very, very strangely.
When you dig into looking at the open interest profiles
versus the funding rate profiles versus the CVD profiles,
it is a very unnatural...
set of quantitative data around B&B token.
And, you know, if you just think about, like, how much two-way flow do you think B&B token
has had over the last six, seven months?
It's been very one way.
There's been a lot of guys that don't want to hold B&B or don't want to hold nearly as
much as they have held.
And it's been my base case that Chang-Ping has been catching that.
And it's also my base case.
that he's been bidding B&B with customer funds.
I do not think he has all the customer funds on Binance.com.
There's too much smoke around this whole thing
for there to not be any fire.
And he knows that by any means necessary,
he has to protect B&B's price action
because if that token collapses, this is all over.
So he is willing to dig himself into a whole Sam Bankman-Fried style
Because if he doesn't, it's all over anyways.
So the walls are definitely closing in around
Changping right now.
And I think it's probably going to come down to what happens with the DOJ.
Okay, so Travis, before Dave,
you jump in.
One thing I promised myself to never do again is to be worried about speaking
about the big guys in a negative light
just because it could impact our business.
So I learned that after FTX.
You know, remember the days FTX was sacred.
And even though everyone saw red flags,
no one really talked about them because, you know,
we're talking about SBF, the Jesus of crypto in Washington.
Yeah.
And I don't want to do that again, but at the same time, I do want to stick to what we know.
I've had, we know, we've done spaces on Bynast and we have our concerns and we've had
reputable people come up and just mentioned very valid concerns.
But I'm still, you know, I've always had confidence in CZ and Bynast.
Two questions I have.
Number one, you're talking about the trading activity of B&B.
Can you just dig into it a bit further what you're referring to and who you've spoken to
and who else has been concerned about this?
And number two is, does anyone know how long since he's been in Dubai?
I know he's been here for a long time.
Bruce, you probably know.
But has he left Dubai?
Has he traveled outside of Dubai?
When was the last time he was in the US, for example, Canada or Europe?
Does anyone have any idea?
And obviously, I'm not implying anything, just me being curious.
Yeah, I'm referring to other people that are active traders that take a quantitative
approach to this market that, like me, have spent, you know, a number of years looking
at esoteric quantitative data associated with specific crypto assets to try and glean, you know,
actionable insights from that quantitative data.
I've taken that approach to this market for multiple years.
I've traded many billions of dollars of crypto from that approach.
I talked to other guys.
exact same seat, and there's consensus among that group, that the quantitative data is just strange on B&B.
There's a number of different things around that.
I mean, one simplistic thing to look at is look at trading volume, look at market cap divided by trading volume, and look at that for B&B versus other tokens.
I mean, B&B is an enormous market cap.
What is it, number three, number four, whatever it is, right?
I mean, it's enormous market cap.
It trades very little volume relative to the other size cryptos around that amount.
So when you look at it on a multiplier effect, something looks weird.
And then if you just dig further, like I said, into the open interest profiles, into the funding rate profiles, into the CVD profiles, you know, and without getting into too much minutia around quantitative trading of crypto assets.
but it's just it's it's it's completely unnatural and everybody else that looks at the data
feels the exact same way and does anyone have i've got more questions for you Travis but does
anyone have any clarity on on z having left to buy bruce do you know
I'm friends with them
I've seen him in Dubai many times
I know he lives in Dubai
I don't get into where people are
or what their personal stuff is
but I think he's been public about being
in Dubai
Yeah no we know that one yes
Which is which makes sense by the way
There's thousands of people that are
There are, you know, there's thousands of entrepreneurs that are moving to Dubai.
Bruce, I'm in Dubai person.
I never knew Dubai had no extradition laws.
That one, that's, call me stupid by now.
I doubt it's about, I think the appealing thing about Dubai is that, you know, it's a regulatory and friendly environment.
You can actually talk to the regulators.
They're clear.
They want to work with business.
They want to welcome business.
They view business and investors as...
you know, their,
let me go back to Binance, if you don't mind.
And Travis, and Dave, I'm going to give you the mic as all.
Feel free to interrupt me, Dave, as well.
But the question to the panel, and obviously, I'm going back and forth with Travis, is
about, I always look at the inflows and outflows as an indicator of the health of an
exchange.
Because we obviously said we can't look at the BNB token for valid reasons.
I had no ID 98, just under 98% of the trading volume of B&B is on BINUS.
Again, call me ignorant, but I had no idea was that large.
So the next question, that's pretty crazy.
But the next question is the in-laws and outflows out of binos.
How do they look? Anyone?
Yeah, go ahead.
I think Dave, you were jumping in.
Yeah, I mean, it's really, that statistic is...
Really misleading.
The 98%?
Okay, please elaborate.
Yeah, and the reason, well, for two reasons, actually.
First, and look, it's significant.
But remember, Binance allows you to trade B&B as a base currency against all the other assets on their platform.
So it's just like when you look at Bitcoin volume.
Bitcoin volume is not what coin market cap says because you can trade a lot of other
tokens on many exchanges with Bitcoin as a denominator.
You really need to look at the numerator trades and I don't think anybody breaks that out.
So that's thing number one.
It's really important to understand that because in crypto, in digital assets and frankly
what assets will trade like in as we approach 20 years from now, I don't know when in
the next 20 years, but I think all assets will trade in pairs. And so you need to look at the
target currency or the target of the asset that you're looking at. So if you look at B&B, I was just
doing some math. Right now, Binance on the order books, if you'd compare the order book on Kucoin,
buy bit, O'Kex, and Binance, both on the buy and the sell side of the market for a couple million
dollars of B&B, finance is about two-thirds.
of the liquidity, which is incredibly significant. Don't get me wrong. Travis is not wrong about that.
Most of the bids and offers are there. The other thing that's interesting about the order book for
a million or two million dollars is it's reasonably symmetrical, not indicative of someone needing
to, you know, push up the price. You know, it's not like an underwriting situation. Now, that said,
obviously, you know, in size, I think you'll find that the only bid in size is probably
on finance. I think Travis may very well be right there, but I have absolutely no data about the
data and the order books are pretty consistent and there's a fairly healthy data.
As far as Travis's point about it being strange, I think there's probably truth to that, but the thing he cited is totally, is just a terrible fact for that argument.
And that's because the vast majority of B&B is being used by people to hold BNB so they get the cheapest tier rates on finance where all the institutions are trading.
Well, Dave, Dave, my point was that there's not price discovery in B&B token outside of finance.
That was my point.
So when I wake up in the morning and B&B token is whatever B&B's tokens prices, and you go, how fair is that price?
How do I, how real is that price relative to the price of Bitcoin, relative to the price of Ethereum?
Can I agree with you violently, but explain it in data just for the audience might actually find it because you're not wrong.
I'm not disagreeing with you, but I want to make it really clear.
If you look at.
The important point to me is, finance's market cap is very high.
Relative to its market cap, the amount you could trade before you punch through the top of book liquidity is dramatically lower than other tokens.
Dramatically.
So one to two million dollars you can do within half a percent or so.
You get to $10 million, it's 5%.
To put that in perspective in Bitcoin, I mean, we have clients at CoinRoutes who trade Bitcoin all day long.
You want to trade $10, $20, $30 million.
You're talking basis points if you're smart about it, if you use the right algorithms.
And even the order book is only, you know, at $10 million is basically, you know, well less than a percent.
Ether is slightly less liquid than Bitcoin, but still, finance is an entire order of magnitude less liquid.
and considering it where it is.
So Travis is not wrong,
but I think that you need to understand
that part of that is because of the dominance of finance.
Now, I personally think,
just like in March of 2020,
before March of 2020,
BitMax had 80% of the derivative volume.
And then that is no longer true.
And then FTX was becoming a reasonably large percentage derivative volume.
And that's no longer true.
I suspect that volumes will migrate to where people feel safer with their assets and with better technologies.
But...
The truth is that the B&B token right now, a huge percentage of it is being used basically to get discounts on your Binance trading.
And that is however you want to look at that, there's value there.
Now, the only question that I have for you, Travis, because I think it's a really important question is where's the data that suggests that CZ has a hole in his balance sheet that he needs?
Right.
BNB to pledge as collateral elsewhere.
Yeah, that was my next question as well.
The biggest difference is in the FTX world, Sam and company stole, lost, gambled away,
whatever, $8 to $10 billion of dollar collateral and then plugged to the whole with
manufactured FTT that wasn't being used by anybody that was from treasury.
And that's why when FTT collapsed, FTC collapsed, because it was accepted as good collateral.
There is no version of the reality where any firm, including Binance's own, or CZ's own
trading firms, should be able to post B&B without a massive haircut because of what you said,
Travis, to dollars.
So if, in fact, B&B is being used as collateral, then that is a very, very large red flag.
But the point that I'm making is it's if.
And I'm not.
And I don't know that answer.
And I know you and Mike Alfred both believe that that's happening.
And frankly, it's a serious accusation.
And I am not saying you're wrong once again.
I'm just curious, what do you know in terms of B&B's use as collateral?
Because that's really the essence of the issue.
Yeah, no.
The, the, the, the, I think most people on this space know this.
The, the point of, my point of reference for this is as the 18th largest creditor in the FTX bankruptcy.
had the large majority of our funds assets that were on FTX at the time of collapse.
Never in my wildest dreams would I would have thought that Sam Bankman-Fried would do what he did.
The collapse happened, the way it happened.
We were right in the middle of it.
And a few weeks later, I started looking at the setup with Chengping.
and with B&B token, and with Binance Smart Chain,
all the weird stuff going on with Binance Smart Chain,
inexplicable wallet movements, token creations.
Nobody can get none of the,
none of the blockchain forensics guys can get much of a handle on BSC.
You look at Binance pegged, BUSD,
the weirdness that was going on there.
And on December 9th,
I wrote a tweet thread, got pretty good traction, said not trying to fearmonger, but it has to be said.
If you have assets on Binance or Binance U.S., take them all off now.
Don't wait.
Also, if you're holding BUSD, you should sell that immediately.
This is coming from a guy that lost a ton on FTX because I misjudged the exact same setup.
And I said, I don't know how much hard evidence there is against Binance at this point, but I don't know how much hard evidence there was against FTX six days before it's collapsed either, which that's my point.
I can't put together some rock solid blockchain forensics wallet movement proof.
that Chengping is using customer assets and that there's a hole in a balance sheet.
I cannot do that right now.
But nobody could have done that prior to the FTX collapse.
So you just look at the magnitude of the smoke around this whole thing over the last six, seven months.
The allegations that have come out, oh, as it turns out BUSD did have a billion dollar plus whole in its collateral multiple times over a multi-year period to the point that Paxos fucking pieced out.
Paxos is out.
It's like more than half their business was that.
And we can't do this anymore.
Right.
Well, the regulator had something to do with that, Travis.
Maybe you know or have more context just to be clear because obviously, I mean,
they came after Paxos for BUSD, coincidentally, not for USDP, which was Paxos' own
stable coin.
But I'm not clear that Paxos decided to back out or whether they were forced out.
Okay. All right. Well, but it's not,
Binance admitted to a billion plus dollar collateral hole in Binance Pegg BUSD.
They admitted that. It's in a Bloomberg article with commentary from,
what does that?
What does that?
Yeah, I was going to.
Well, it just, if you can expect, Travis, I'll let you.
You start, you start to paint a picture. You start to paint a picture.
with all of this, then you include the CFTC complaint, you include the SEC complaint,
and you paint a picture of wildly commingled funds.
Like it's just a big fucking slush fund back there,
the exact same way that Sam Bankman-Fried was doing it at FTX.
The exact same way.
There's just not good books and records and segregation,
and there's a mountain of evidence that is piling up that that is the case.
A lot of smoke for no fire.
Yeah, I mean, look, Travis, I want to be really clear.
I am not defending Binance here.
I am not attacking them either.
I'm just trying to understand.
And so it's, there's a big difference.
There are two big differences.
First of all, Alameda lost a shit ton of money.
and it was pretty clear that they lost a shit ton of money.
We all understand it.
And what you didn't know, what we didn't know.
And look, I didn't lose money in anything seriously because our company doesn't trade, but I personally was fooled too.
So I am not going to complain or second guess anybody saying this.
I want to be really clear.
I feel horrendous for all the people that Sam screwed.
But the real question here is the ultimate cause of FTCS going
Kaboom was there was a massive hole, multiple billions of dollars,
relative which way outstrip their revenues.
and they plugged it or tried to with a shit coin that had no liquidity.
Now, if finance is incredibly, massively profitable, which they are, the question is,
have they spent or lost money well in excess of that profitability, and are they plugging
that hole with B&B?
And, you know, look, the best thing for everybody would be an orderly,
transition of Binance, probably with much less market share, with much more disclosure,
et cetera. We're not going to lie about it. But it's really important to understand those
things. And frankly, the point that I take away from what you're saying, and it is really
critical what you're saying, is these are the questions that have to get answered. And
And if they don't get answered, just arm waving around regulators being bad, actors, ma-ma, doesn't answer those questions.
And I think that's your point more than anything else.
Dave, the question after you're seeing what you've seen now with the SEC, with the CFTC and the leaks with the DOJ.
And obviously we've all heard the rumors during FTX's collapse.
How concerned are you, Dave?
Very.
Very.
But my concern is not for the health of digital asset industry, which I think is...
I'm talking about just by now.
Yeah, I'm very concerned.
Look, you know, Scott and I talk all the time, you know, and there are two things in the
in the crypto world that I absolutely can't stand.
Both are real problems and we agree.
One is hero worship for...
for the people who got there and people getting too big for their britches and doing things.
And I really equate that to the opacity, which is what Travis and Mike, Alfred, and others
are really focused on.
That opacity is incredibly troubling when you're the market leading, you know, the highest volume,
of course, whether or not your volume is real or not is a question.
But it's very, very troubling.
But there are a lot of people who are trading there.
A lot of our clients are trading there.
A lot of other people are trading there.
And so the concern is obviously real.
And I think based on the comment Travis made about smoke, I mean, yeah, you know, you have to be concerned.
It's also very concerning that people like CZ become the face of the industry so that it gives regulators who are acting in bad faith and, you know,
politicians who have an agenda to, you know, basically as Mike Belchie so eloquently said, you know, the anti-freedom agenda, they get to personify freedom in such a bad light. So that that's actually my biggest single concern here. So and the other thing is on meme coins. And we could talk about that ad nauseum, but but as long as finance is concerned. Yeah, there's serious concern because of the reputational risk of the industry.
And do you remember guys the discussion about the proof of funds after FTX and the whole Merkel tree concept?
And Bynes was leading the charge.
Bynes, I think Cracken, Jesse was on the stage and was talking about it as well.
What has Bynas offered since?
Because the discussion about the proof of funds kind of died down over the last few months.
Yeah.
That's because people pointed out that we really have not gotten proof of liabilities in any exchange and a proof of funds, which, by the way, you can't even go with these rabbit holes as effectively impossible on its own.
But then when you try to add liabilities or what they view as assets and liabilities, it becomes literally effectively impossible.
And has anyone looked at the inflows and outflows at Binance?
Does anyone have any clarity there?
I remember the numbers back in FTX, but have we seen any outflows in the last few days since the SEC announcement?
Okay.
They have the data.
They have not been significant, yeah, relative to what the proof of reserves number is.
Right.
Were you asking about outflows, Mario?
I have the data right here.
The news broke on June 5th, a $1.2 billion out of finance.
June 6th, $701 million.
June 7th, $7883 million.
June 8th, $224 million.
Today, so far, $176 million.
So about $3 billion.
total, and that's from 63 billion down to, you know, mid-59 billions total. So not a dramatic
percentage of their assets and seems to be that the tap is slowing, but there definitely, I mean,
was about $3 billion total this week in outflows from banks. And for memory back in FDX, we saw
inflows into Binance because everyone kind of initial outflows and then kind of started moving to
inflows because everyone started trusting Binance as the only exchange rather than having self-custody. Does
Does I remember the numbers then and how it compares?
Yeah, there was like $3 billion in one day, I think, because CZ tweeted about it.
I was having dinner with him at the time with a group of other people, and he mentioned it,
and he said, like, hey, we're just having dinner, a bunch of crypto people, Bitcoiners,
and we had $3 billion in assets or something like that over, like, I think a couple day period.
So, I mean, I think it's important to note that they have had stress test.
And the accusation that they're the same as FTX is a super, super serious accusation,
because you're basically saying that it's,
It's not just paperwork violations, as are alleged, but outright theft and fraud.
You know, in FTX's case, Sam stole...
six billion or so of customer money.
He stole it.
He took it right out of the customer money
and he put it in his own account,
which he called out of it.
I mean, Bruce,
some of it was literally being deposited
directly into Alameda
when customers thought they were deposited.
Yeah, that Alameda is Sam
and the customer money went to Sam.
You know, Alameda is Sam.
He stole customer money.
It doesn't matter if he, like,
made a bad trade or bought Lambo's with it
or bought his parents' houses or all three.
Right.
He stole it.
So the allegation that CZ is doing the same, he's just stealing money out of the customer accounts and putting his own is a serious accusation.
I think you'd need proof for.
Well, hold on, Bruce.
I want to just say that, I mean, I think you're right.
And I want to just say, you know, I don't believe that CZ is doing it there.
But it wasn't the SEC's allegations against him that they moved money to an entity owned by Jal.
Yeah, but was it customer money?
I mean, that's merit peak, correct?
Yeah, we're trying to read through that, and it doesn't say it's customer funds.
You know, the regulators do this.
You know, I think Travis said where there's smoke, there's fire.
You know, there's been smoke around Tether for years.
You know, regulators do FUD.
Remember the huge, huge announcement that the New York Attorney General said, they said,
Tether does not have the funds under, you know, that they said they had.
It's not back to the dollar one-to-one.
It's not back.
It's fake.
Right.
And there was this huge news and there was all this fud, a big market drop.
And then the actual suit came out was like $153 on a $9 billion asset.
I mean, it was like, it was like 10 minutes interest or something because of how they moved the account out.
It was prorated.
Some absurd nonsense.
So, you know, I don't know.
It's thrown around like this idea that everything's a scam, everything's fraud.
I think we have to differentiate between...
you know, these kind of paperwork violations where it's, well, I mean, Eric Voories was just saying the other day, somebody said, you know, unregistered securities are fraud.
That's not necessarily true. That's not necessarily true. It's a paperwork violation. They may not be lying to anybody.
Just because something's illegal doesn't mean it's immoral, you know, used to be illegal to harbor runaway slaves. You know, the law is not morality.
Right.
But it's also not clear.
You know, so, you know, if somebody gets a bunch of a bunch of paperwork violations,
oh, you didn't fill out this and you didn't fill out that, I think it's a mistake to just lump them all together and say,
oh, it's all scams.
They're all fraud.
They're all crooks.
They're all Sam.
Because there is differences.
There is big, big, big differences.
Yeah, yeah.
There's differences between Coinbase and Binance.
And there's certainly differences between all of these companies and FTX and everything else.
I think I agree with you.
We're just making the point that we don't know.
We don't know.
Obviously, we know that FTCS was a real, you know,
Sam literally took the money and tried to invest the money for his own personal gain
and had big losses.
But I just want to do to make the point that that is a case.
And usually when you have these things, by the way,
where you typically when you have these situations,
and they've happened many times,
they happen with the chairman of the,
largest regulator Bernie Madoff, who was a massive
famous fraudster.
There's an HBO documentary about him.
He was a head regulator, head of the largest regulator
in America, the security regulator in America.
He was the chairman of it, and he defrauded people
out of billions.
He had all kinds of fraudulent stuff.
But when you're doing these fake statements
and fake assets, pumping them up,
that's a common trick that predates crypto by decades.
That's been done in a long, long time by a lot of people.
But typically when that happens,
And you have anything resembling a bank run on those assets or, you know, Bernie Madoff's thing fell apart when a couple, you know, wealthy people.
He used to handle people like Stephen Spielberg, famous wealthy people.
They started saying, hey, I hear this is shaky.
Can I get my money back?
And then he's robbing new depositors to give old depositors their money that they think they have.
You know, and in this industry, that would be like the equivalent of fake Bitcoin.
But.
You know, Binance has been through stress tests like that.
If the $3 billion withdrawal and the things like that,
if the money just wasn't there, if it was all stolen or fake,
there's a much, much, much, much higher chance that it would have collapsed just like...
it's happened with FDX.
So, Travis, that's the point I wanted to make.
I don't get,
me and you would kind of wrap it up your final thoughts on Binance and the market
conditions and wrap up the space with that.
But Travis, like last question that I have,
not sure about Ryan and Scott, is Bruce's point is,
is the point that I've been making for a while,
is that Bynas has gone through the stress tests.
And it survived and it came out stronger than prior to FTX.
Yeah.
So doesn't that make it a lot less likely that they did even close to what Sam did?
And obviously if they did what Sam did, they wouldn't be here today.
But if they did at least maybe in the old days they did some of it or they used customer funds,
then we would see Binance of trouble back when the outflows kicked in during FTCS.
Yeah, look, I hate to make this point, but I'll make it anyway.
In reading the SEC complaint, right, like a large part of the problem with FTX was that it was basically Lord of the Flies over there.
There was no controls.
There was basically a bunch of kids running around with ledgers, doing whatever they want, putting everything into like a Google Sheet.
That was that was the state of affairs and how FTX ran the business.
One thing that we've learned from looking through the SEC and the CFTC complaint about Binance is that this is a very tightly controlled operation.
The people at Binance US basically could do nothing.
Everything was being controlled by Binance Global.
And, you know, say what you will about, okay, this is illegitimate and they're breaking the rules and they're watch rating and all this stuff.
But very, very clearly, these guys know how to fucking run a business.
Now, are they breaking rules?
100%.
Are they misrepresenting things to their customers about
how much trading volume is on Binance US?
1,000%.
And clearly, they're going to have to face up to the things that they fucked up.
But the question of, is Binance FTX?
They could not be more different.
I agree.
Travis, would you agree with Hasib's assessment?
No, no, no, of course not.
No, no, I think...
there's orders of magnitude more smoke around Binance at this point than there was around
FTX immediately preceding its collapse. Isn't that because of FTX though, Travis? I mean,
we wouldn't be having this conversation without the context of FTX and seeing what happened there. I'm not,
I'm not necessarily disagreeing, but like, I think.
I think that ever since FTX, the spotlight and scrutiny on this industry is dramatically higher.
So that would actually happen.
The chatter of Binance being under investigation by this SEC, the CFTC, and the DOJ, those are multi-year rumors.
And when you look at the allegations, they've got accusations of violations in those complaints that go from 2018 all the way up through this year.
You just go to the SEC compliant and control F 2022.
And I think there's 150 mentions of 2020.
And you can go in there and you can read all of the different things that they were doing in 2022 that are also looking like they weren't like that they were a problem in violation.
Travis, let me ask you this.
You're a sophisticated player.
You've been in this market for a while.
What in the Biden's complaint surprised you?
Well, nothing, but I think very, very poorly of Cheng Ping.
So nothing.
Okay, because you basically knew.
You knew they were in their own market maker.
You knew that they were watch trading on finance US.
You knew that, you know, blah, blah, blah.
They were moving money around.
I did a podcast.
The US people were puppets.
I did a podcast with pop in 2018 where I was talking about this stuff.
Right.
So that's kind of my point is that we sort of knew what we were getting with Binance.
Anybody who was looking at Binance and being like, well, I can't believe that the U.S. employees didn't have control over stuff.
It's like, are you paying any attention at all to how this company runs?
People, by and large, understand what they're getting with Binance.
So these, you know, oh, B&B is a security.
Everybody kind of understands what they're getting.
My point is that it's a very different story with FDX.
I think I agree with
SACBIA.
I think we all knew
that what finance was doing
and we just,
I think we just...
thought we wrote it off to the fact that it was, you know, probably a young business which
was going to fix up its controls. And I think we all took comfort in the fact that later on in
Binance's life they actually did fix up their controls. And I think certainly the, the perception
that I got is that the market was like, okay, you know, maybe in the beginning you listed old
coins too quickly. Maybe you ran, you know, market making or whatever else. But hey, you've now
cleaned up your act. And I think there was a point in time where CZ actually, you know,
you know, you could feel the pivoted, right?
You could feel that he pivoted to being more,
we want to become the most regulated exchange in the world,
with the most licenses in the world, you know,
that was like the narrative.
So I think I agree with Acevia that, you know,
I think we're all in you exactly.
Yeah, but that, that outward state,
that outward facing stance was completely disingenuous.
Read that, did you see the Tai Chi document?
Did you see that fucking thing?
Yeah, we learned about that in 2020.
That's insane.
So, Travis.
They put together a PowerPoint presentation on how to be shady as fuck.
Can you tell us more about it, Travis, for anyone that's not aware?
Somebody just drop a link.
I mean, somebody, I don't know how to do that.
Somebody just put a link to the slides.
I'll do that now, but just tell us what in the slides did you find most concerning?
I mean, just the, the...
I can summarize it very briefly.
I got to drop in a sec, but I'll summarize a Tai Chi document.
So basically, this was a proposal for a regulatory strategy to finance back to 2020.
It basically said, create a U.S. subsidiary...
basically created as a fig leaf and claim that all of your U.S. trading is going to be congregated there
and use that as a way to deter the SEC, the DOJ, whatever, from going after you,
instead they're going to go after the U.S. entity, but then you can still go through the back door and try to serve U.S. client.
This is a very intentional strategy that was proposed to Binance.
According to the SEC, they did not actually adopt this strategy formally.
So the person who made this proposal, Binance said, that's interesting, but no, we're going to do something else.
But then they kind of did it anyway, according to the SEC.
So that's known as the Tai Chi strategy.
So essentially they used a separate entity to the US entity to go around US regulations and still serve US customers.
Is that correct, I see?
Yes, which is finance global.
That's the main exchange that has, you know, vast majority of the liquidity.
And that's obviously illegal.
That's breaking multiple laws, correct?
Yes, that's circumventing, basically circumventing U.S. regulations and U.S. laws.
Right.
under the very intentional pretense of if we have this U.S. sort of puppet entity standing in between,
they're going to go after that and not go after us.
And your thoughts on that, Hasib?
I mean, again, we knew about this in 2020.
This all leaked, I think, through CNBC three years ago.
So in every single exchange has done.
I mean, OKX has OKC coin, FOB has some US thing.
Anybody who's looking at this and is surprised,
isn't very deep in this industry.
It doesn't really understand how these companies think.
You know, it's the exact same counterpart of what U.S. companies would do when they try to go into China is they would try to create some kind of Chinese subsidiary that can directly face the Chinese government.
It's not an uncommon strategy in principle.
Now, did they do it the right way? No.
And were they, you know, to be clear, there's a lot of stuff in there that we learned that
Binance is doing that is super, super illegal, like sanctions violations and, you know, banking Hamas or whatever.
That kind of stuff, no question they're going to face the music on that.
And they should.
But also, 100%, 100%.
But also, anybody who is surprised that Hamas is in there under their, you know, no KYC2 Bitcoin program,
is just out of their minds if they don't think that they're also terrorists and bad actors who are using a non-KYC exchange.
And for a long time, finance was the largest non-KYC exchange.
Yeah, I would agree.
I'd say, would you agree, and as we wrap this up and get final thoughts from Corey on this,
would you agree, Haseeb, and Travis, that the most concerning aspect of all this?
of the CFTC investigation and the SECC, I think the SEC documents is Binance core mingling funds,
but we just don't know when, how much, we just don't have enough clarity to know how concerning it is.
Is that a fair statement?
Maybe Travis, you could take that one.
Yeah, I mean, the OFAC stuff is super serious because of the implications as to the severity of the enforcement actions that go along with that, right?
It's like this is the kind of thing that the U.S. government will potentially shut down Binance.com for.
And I don't know exactly what that's going to look like.
I have no idea what the timing is.
I don't know how to wait the likelihood of that.
I mean, I think, you know, not to get like, like, any,
anytime you start trying to drill down into this,
that like kind of the tinfoil hat, like conspiracy theory type of thing,
like I think naturally comes pretty quickly because if you're being honest with yourself,
How much gray and black market Russian and Chinese money do you think is on Binance.com?
Like, what's the over under on that amount of money?
It's not $10 million.
It's not $100 million.
It would be my base case.
It would be billions of dollars.
So this is...
the size of an issue here that reaches up into geopolitical ramifications that go to the highest level, right?
Like, I mean, you think about the U.S.'s relationship with Russia right now.
You think about the U.S.'s relationship with China right now.
And if there's billions of dollars of gray and black market money from Russia and China on Binance.com,
that makes what happens with Binance.com like...
a big deal.
Like this is a big deal
with serious geopolitical ramifications.
And I don't know,
I don't know how else you,
you can think about that.
So Travis, Travis, what do you think?
How do you think this plays out?
And I mean, you sound pretty negative and you sound like you've been signing a longbells on Binance for a while.
Just walk me through the next two years or three years and how this plays out in the next two, two, three years.
I don't know whether or not the DOJ wants to shut down Binance.com or not.
I don't know.
And it's really just pure conjecture on my part.
And this is what I'm about to say is complete conjecture.
But if I was going to read into the actions of U.S. regulators towards Binance, let's say
over the last couple months, starting with the CFTC investigation, and then the lag in the
time period between the CFTC and then the SEC.
and then looking at how dead rights it appears that the U.S. has Binance.com on OFAC violations,
you know, completely dead to rights on OFAC stuff, which means the DOJ case should be open and shut, right?
With the Bits Lotto and with everything that's come to light there.
And then you go, well, why haven't they brought action yet?
And I just, I don't know the answer to that.
And I don't, and, and, and,
Are they trying to, are U.S. regulars trying to incite
a bank run on Binance.com so that they can go see where all the bodies are buried, so to speak.
They can watch billions of dollars of money flow out of Binance.com.
And then with blockchain forensics, they can get a sense of like, okay, this is where this money went,
this is where that money went.
Then they can connect those wallets to, you know, potentially, you know, whatever, bad actors
or just gray and black market money in different parts all around the world.
That's just so much speculation.
Of course it's speculation.
And also the U.S. isn't the center of the world.
I mean, they may just leave the U.S. and do there.
It's not baseless speculation.
But like your Russian claims, for example, you know, there's a whole other world outside of this weird American-centric thing that says, okay, whatever.
There's a whole bunch of the world that does do business with Russia and China.
Right.
And they may just do what a lot of sensible companies are and just say, we're going to shut down in this authoritarian crap hole that used to be a free country.
And we'll go where their opportunities are.
And they'll just wall off the U.S. and shut it off.
And you're saying, binaance.com.
You know, Binance.com already, if you go to the website, it already says this isn't available for you if you're American.
You know, it's Binance U.S. is where they may have more hooks, but.
I don't know. I mean, I think that they...
Well, that's not overback violations. That's just, like, that's just geo-fencing type of stuff.
But we know from the documents that Binance.com had an entire program around letting high value U.S. customers continue to trade on dot com.
It's all over the Tai Chi document. It's all in the complaints from the SEC.
Yeah.
Ryan, I'll kind of wrap it up with a question for you.
You've been pretty objective whenever you covered Binance.
I'm in a position where I don't think Binance,
I'm not going to say shouldn't be compared to FTX,
but I don't think we have enough to compare it to FTX and what Sam did.
Is there...
aspects of what Sam did that possibly
CZ did, it's possible
maybe in the old days, but I don't expect
us to see a big hole that hasn't been filled.
However, I do think
there's enough smoke for...
you know, for significant legal hurdles for Bynes.
And what will happen for Bynes in the next few years,
I think we'll continue to be here,
it'll be weaker and we'll have other players play a big role.
I think we'll have maybe a big exchange
from one of the Tradfy guys come in
and take a chunk of that market share.
But I tend to be more optimistic.
What do you think, Rand?
Yeah.
I agree. I think this plays out. I think there's lots of penalties. I think maybe Binance US becomes a casualty, a war casualty. But I think it's, I think Binance.com is going to continue as a great business. Scott, are you there or you got too much background? Nice to give us your final thoughts.
Sorry. I cut out momentarily there. Let me speak. Let me speak on your behalf. Look guys, Bynas is a scam. It's not going to be here anymore. I've been saying this for the last couple of years. Everything is a scam. Bitcoin will win. Pretty accurate. Yes, Scott?
Cool. All right. Well, I got it. This is for the record, so he doesn't get canceled. This is not what Scott would say. And his thoughts are going to be similar to what me and Rand said. He said he can't even hear me. So I could just cancel him right now. Otherwise, look, great show. Really appreciate everyone. Travis, Bruce, thanks for staying till the end. Travis, it's just such a pleasure to have you on stage.
and dig into, I know you have a position that not many shares.
Some people don't share it because they don't think it's accurate.
Others don't share it because they're just too worried to share it, to even imagine it,
or because they've got their own biases.
And, you know, I think it was a good discussion.
I think you and Bruce going back and forth and Haseeb and David was really interesting.
So it was a good discussion.
I really enjoyed the Prime Trust discussion earlier with Mike.
I know it was a boring discussion for some, but if you know the full story,
you know,
that's, you know, being able to speak to a company like BitGo about an acquisition that's in progress with rumors flowing around and being able to discuss the rumors with them is going to be, it's going to be like drugs for the press.
It's probably waiting for the space to end so they have the recording.
So I'll end the space.
I'll let the press enjoy the recording.
Thank you so much for everyone.
And we'll see you again to Monday because Rand and Scott, as I said, are too lazy to do weekends.
Thank you, everyone.
Thanks for Rand and Scott for making this happen.
Bye.
Oh, anyone that wants to work with us, hit us up.
You want to come on the shore, you want to work with the incubator, hit me, Scott, or ran up.
I forgot to shill it during the space.
Thanks, everyone.
