The Breakdown - Binance Says "Bye" To Canada

Episode Date: May 15, 2023

On today's episode, NLW looks at Binance's troubled history with the Great White North, and explores to what extent their exit from Canada is a story about Binance or a story about Canada. Also Quadriga CX is finally returning to creditors at 13c on the dollar.  Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Monday, May 15th, and today we are talking about regulatory action in the Great White North. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit. All right, friends, happy Monday. Well, let's not bury the lead. Binance has quit Canada, citing unsuitable regulatory conditions the world's largest exchange will no longer be available for

Canadian residents. In a tweet on Friday afternoon, Binance said, Unfortunately today, we are announcing that Binance will be joining other prominent crypto businesses in proactively withdrawing from the Canadian marketplace. We would like to thank those regulators who worked with us collaboratively to address the needs of Canadian users. albeit a small market, it held sentimental value for us as the home country of our founder. We had high hopes for the rest of the Canadian blockchain industry. Unfortunately, new guidance related to stable coins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time. We put off this decision as long as we could to

explore other reasonable avenues to protect our Canadian users, but it has become apparent that there are none. So I think at this stage, it's worth trying to get a little bit of the history and context for Binance in Canada. Obviously, they are identifying some recent limits and new guidance, but there is, of course, a history here and it's worth knowing. Luckily, Canadian crypto lawyer, Jacob Robinson, did a thread on exactly that. He writes, Binance was founded in 2017, at which time Canadian residents had access to the platform for crypto transactions. On March 29, 20th, 2021, the Ontario Securities Commission notified crypto asset trading platforms that they had until April 19th to contact OSC staff to discuss regulation. These discussions revolved around bringing

crypto asset platforms operations into compliance with Canadian securities laws. The collapse of Quadriga and an investigative report led to, quote, regulatory takeaways applicable to crypto asset platforms, which spurred these conversations. But this common and talk actually led somewhere. There are 10 registered crypto platforms in Canada. and many more gave pre-registration undertakings with plans to register. Regardless of whether you agree with them, there are rules. Shortly after the come-in-and-talk admonition, Binance decided to withdraw its services from Ontario.

On June 25th, Binance told Ontario users that it could no longer service them, and they would need to close out all active positions by December 31st, 2021. Yet on December 29, 2021, Binance notified Ontario users that it was allowed to continue its operations in Ontario. The OSC quickly published a release notifying investors that Binance was not registered under securities law in Ontario and that the firm had committed to no new transactions involving Ontario residents occurring after December 31st, 2021. The next day, Binance confirmed to the OSC that the trading restrictions were in place

for Ontario accounts and issued a press release announcing these restrictions. On January 1st, 2022, Ontario users received an email explaining the restrictions. Despite this, Ontario investors could continue to trade on Binance after the deadline, and their customer service team said that users could trade as normal if their account was open prior to the restrictions. A few months later, March 22, a public undertaking was published where Binance committed to cease trading and the opening of new accounts in Ontario, winding down certain products and making reports to the OSC, among others. So you get the point that there was a lot of back and forth and it was in this weird kind of in-between area for some time. Well, by the conclusion of last year, a dozen other securities regulators from other provinces and territories

join the OSC in calling for a more hardline stance towards the crypto industry. In December, the National Regulatory Federation, the Canadian Securities Administrators, or CSA, put in place a pre-registration undertaking regime and tightened restrictions on the activities of crypto exchanges. In February, we got these new rules that Binance was referring to when the CSA published new requirements from the exchanges which had provided the pre-registration undertaking. They were banned from selling stablecoins without permission. They were required to segregate customer assets, and they were prohibited from providing margin loans, leverage, or derivatives products to customers. Also earlier this year, Canadian regulators introduced investor limits, with retail investors able to purchase only

$30,000 worth of crypto per year, with the ability to upgrade to $100,000 if an investor could prove they were qualified and experienced. The major commodity cryptocurrencies in which they included Bitcoin, Ethereum, Bitcoin Cash, and Lightcoin were exempt from these limits. Among the casualties of this crackdown was the leading stablecoin tether, which is now unavailable on these registered exchanges. Stablecoin issuer Paxos and Defy D-D-S pulled out of the Canadian market in February, and other major centralized exchanges have been attempting to engage with Canadian regulators. Cracken signed a pre-registration undertaking on March 30th as a step towards compliance with national guidance, the firm acting as a

sub-custodian for many of the Canadian crypto-etefs, and Coinbase has also signed an undertaking and is actively investing in local jobs with 200 engineering hires and a national director based in Ottawa, the nation's capital. Crypto.com will also remain operational under the terms of the undertaking. So far, only a handful of firms have been successful in gaining full registration with regulators, including Fidelity and Bitfo. Earlier this year, Binance had been among the group of exchanges seeking to engage with regulators and obtain registration, but it seems that those plans went awry. In their statement, Binance said they were confident they would someday return to Canada once residents, quote, once again have the freedom to access a broader suite of digital assets.

as you might imagine, this generated quite a bit of chatter. Some focused on the Binance part of the story. Cryptot trader Nick Bodden 12 said, honestly, doesn't really matter. They have been out of Canada's largest market for going on two years now, and it's been fine without them. Not sure why they have such a hard time with it when everyone else seems to be okay. Both Coinbase and Crypto.com have no issues with the requirements. Dozens of Canadian-owned exchanges have no issue with it either. Crypto-sceptic and economics writer J. P. Coney writes, Canada has set a number of basic requirements that exchanges must meet to serve Canadians. Several offshore exchanges have committed to compliance, including Coinbase, Cracken, and Crypto.com.

Alas, Binance can't meet those requirements. It's beating a retreat. Investor Adam Cochran responded, saying, The requirements are majorly restricting in types of assets offered, but also OSC and other securities regulators are currently pushing that Stablecoin should be securities in Canada and not listed on exchanges. Binance's volume is against Stablecoin pairs, while the other three you listed all have strong Fiat pair books, which makes the compliance burden worthwhile for them. I'm one of the biggest anti-Binance people around, and even I think this isn't a fair comparison.

JP again responds to Adam, saying, I'm not a big fan either of the stablecoin thing, but as you say, they are not off limits, i.e. Bitbuy, coin square, and a number of others, still list USDC. As for Tether, it's been common knowledge that it was verboten in Canada. Finance can't plead that they didn't know about this. My point is that Binance's claimed to have been blindsided by the new CSA guidance, i.e. on investor limits, makes no sense. What I suspect happened is that Binance misjudged itself, believing it had the institutional capacity to comply with securities level regulation when it didn't. Now, for others, the real part of this story was that it was just sad for Canada. Eageral Capitals, Eva Baylon,

says it's pretty embarrassing for Canada that Ethereum was essentially founded by Canadians, and many crypto builders are Canadian, yet most of them have left Canada. Web3 Expo co-founder von Doom says Canada is down bad. Genia, the former VP of Spot Markets at Bitmex, writes, Canadian regulators are toxic to the growth of crypto, period, full stop. I've lost count of how many international giants have cut off Canada as a result of their misguided practices. Sad. Eva Baylon again also, kind of said that Canada is sort of why we need crypto right now.

Tweeting on May 12th, she writes, Canada is a shining example of why decentralization matters. Canada froze bank accounts of protesters. Canada limits annual purchase of non-Eath crypto at 30K. Canada prohibits crypto leverage trading. Canada is hostile to centralized exchanges. Thanks for being our proof of concept. There's also quite a bit of CBDC discussion.

Kirk Lubamoff says, Canada's reputation for red tape and suffocating innovation is being reinforced. This is protectionism to an archaic banking system in the Bank of Canada, who coincidentally is looking into central bank digital currency. So what to make of all this? Well, there is clearly a Binan side to this story. There is a Canada side, and there is a larger global regulatory side. Yes, there are three sides.

It's a triangle, okay? Anyway, the Binance side appears to be at least a little bit about business model, right? The things that are now prohibited in Canada are a lot of the things that Binance makes its bread and butter on. One would imagine that it's pulling out because those things aren't viable anymore. And ultimately, any business gets to make a decision about where it chooses to prioritize. There's also a Canada side to this and what its approach is. Canada is clearly in the midst of carving out one of the tougher regulatory regimes. And while it's true that there are some centralized exchanges that are willing to try to jump through those hoops, it's certainly not doing

any favors in terms of where innovation wants to be formed. But of course, there is a larger global side to this as well. One of the big theses held by people in the U.S. who want to see a broader crypto ban is that other governments will follow and basically make it safe for crypto nowhere. The more evidence we have of other regimes getting tighter on crypto, the more they're emboldened. I think the big question now for many people is when does Binance follow this same path in the U.S. Now, staying on Canada for a moment, there is one more story on that front. One of the big context for this crackdown is, of course, the Quadriga bankruptcy. At the time that it went under, Quadriga was the largest exchange in Canada.

It had locked around $190 million worth of customer funds. At the time, it was the second largest crypto bankruptcy behind Mount Gawks, although there have been many, many larger since. Well, after a number of years, the distribution of the Quadriga CX bankruptcy is set to begin shortly. According to a notice to creditors published late on Friday, users can expect to receive a check for 12% of their claims soon. This interim distribution will account for around 87% of the funds currently held by the Quadriga estate. Filing show that Quadriga's estate owes around

$22.3 million USD across 17,648 creditors. This includes claims lodged by Canada Post and the nation's tax authority. According to accounting firm Ernst & Young, Quadriga failed to report its income between 2016 and 2018 and currently owes around 11.7 million. in back taxes. Most shockingly for creditors, the claims will be paid out based on crypto prices on April 15th, 2019, around the time the firm entered bankruptcy. Bitcoin claims will be based on a price of Bitcoin at 5,000, while Ethereum will be priced around $220 per eth. This pricing of claims based on the asset value at the times of bankruptcy is the unusual procedure, particularly in situations where the assets were not preserved intact. Crypto creditors have been somewhat surprised by this

due to the bankruptcy of Mount Gox, which went through the Japanese bankruptcy system, and in that situation, creditors fought hard to have the Bitcoin held by the exchange preserved and distributed directly to creditors rather than liquidated. Even within the Japanese courts, this was viewed as a controversial exception case, which deviated from usual procedure. Now, a lot of folks are upset about this. D.Gen Spartan writes, 13 cents on the dollar, pegged to April 19th prices. Canadians can't stop winning.

Cryptotrater C.T. Butt says, Jesus Christ, a slap in the face. At 2019 prices when Bitcoin was around 5 to 6,000 USD, it's more like 2.4 cents on the dollar. Taylor Monaghan lamented how much of the estate went to lawyers saying, I don't need to look to know they build more than they recovered over the last four faking years. Now, whether this has any insight on what will happen with FTX or any of these other bankruptcies from this year remains to be seen. This specific question, however, of whether people will get digital assets back or the dollar

value of those digital assets is going to, you imagine, be more pertinent after this resolution. And just because you're probably not already in a sour enough mood after these two wonderful stories, well, disgraced Terraform Labs founder, Doe Kwan, will be released from Montenegrin prison after posting 400,000 euros as bail. Kwan and fellow Terraform executive, Han Chang-June, will be placed under surveillance and prohibited from leaving an apartment sourced in Montenegro. During the bail hearing, the two defendants told the court they have, quote, property worth several million and that the bail money would be posted by their wives.

The prosecution objected to the bail proposal, stating that there was no good. guarantee that Kwan was not still a flight risk. The defendants, quote, promised that if bail is set, they will not hide until the end of the criminal proceedings and that they will regularly respond to court summons and that they will be available at the address provided by their defense attorney. The pair are due back in court on June 16th on charges of traveling using forged documents. There is no update currently on extradition request to South Korea and the United States to face charges related to the collapse of the Terra Luna ecosystem. Now, closing on a little bit of market talk, markets ended a down week with a Friday

puk. Bitcoin saw two-month lows of 26,300 as Friday afternoon wore on, while Ethereum dived below 1800 during a jittery weekend. The trend had been down and to the right all week as crypto and broader macro risk warnings flashed everywhere. Unrelenting negative headlines from a U.S. mining tax to hostile congressional hearings put regulatory risk front of mind. News of the exit of two major market makers jumped trading in Jane Street last Monday thinned out liquidity on U.S. exchanges. Then over in the macro world, a looming debt ceiling debacle inched closer, cramming into extremely short-duration bonds. Ryan Rasmussen, an analyst for crypto fund manager Bitwise, told CoinDesk,

financial markets in general are driven by risk, by liquidity, and so not surprising right now, when people are fearing risk assets as a whole, we're seeing large swathes of selling. When there's less liquidity, you're going to have larger swings in price whenever an asset is sold. He noted that although the overriding macro is bearish for risk assets, the safe haven narrative for Bitcoin isn't likely to go anywhere in the medium term. Ryan said, any kind of mistrust in traditional financial systems plays into the hands of crypto.

I'm happy to see the correlation fall between traditional risk assets, traditional equities, and crypto. Still, it's rough out there. Paul Tudor Jones was back on CNBC's squawk box this morning and said, Bitcoin has a real problem because in the United States, you have the entire regulatory apparatus against it. So, my friends, that is where we are heading into this week. It is not blue skies and smooth sailing ahead. But you know what? It's what we're here for. It's certainly nothing we haven't been through before. So, you know, clear eyes, orange hearts, can't lose, let's go. Until next time, be safe and take care of each other. Peace.