The Breakdown - Do Kwon Will Face US Justice

Episode Date: December 8, 2023

Do Kwon is reportedly to be extradited to the United States. Plus a roundup of this week's other important crypto news. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to 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 Friday, December 8th, and today we are talking about Doe Kwan coming back to the U.S., CZ, staying in the U.S., and so much more. 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.ly slash breakdown pod.

Hello, friends. So as I said today, we are using this episode as a catch-up on lots of the stories that we've been following, as well as a bunch of interesting small things that have happened throughout the week. And first is a big one. According to reporting from the Wall Street Journal, Montenegro's top justice official has said privately that he plans to extradite Doquan, the disgraced founder of Terraform Labs, to the United States.

The report cited anonymous sources who said that the plans had been discussed in closed-door meetings. Now, earlier this month, a Montenegrin court found that both the U.S. and South Korea had satisfied legal requirements to extradite Kwan, who faces criminal charges related to the collapse of the Luna ecosystem in each jurisdiction. The final decision of destination was left up to the Justice Minister, who was set to make a determination by December 15th. Earlier this week, Kwan lodged a last-ditch appeal. He agreed to be extradited to South Korea, but pushed back on plans of sending him to the U.S. to face justice. The appeal is currently before the court and has the potential to slightly delay Kwan's extradition. Kwan has appealed court decisions every step of the way

over the past six months, but has been entirely unsuccessful at every turn. If Kwan again fails on appeal, it appears that the decision has already been made to turn him over to U.S. authorities. tweeted fat man, Tara, welcome to our side of the world, though. It's not going to be pretty for you. Meanwhile, a Seattle district court judge has ruled that former finance CEO, CZ, must remain in the U.S. until his sentencing in February. After pleading guilty last month, a magistrate had initially approved the former Binance CEO to return to his home in the UAE to await sentencing. CZ would have been required to return to the U.S. two weeks ahead of the hearing, and the magistrate acknowledged that the decision was a close call. The DOJ immediately appealed that decision, claiming that CZ was a flight

risk, and noting that they could ask for the 10-year maximum prison sentence. They said that the prospect of 10 years behind bars could dramatically change the math on whether CZ would return, or take his chances with life on the run. On Thursday, the judge hearing the appeal reversed the magistrate's decision, ordering CZ to stay put in the U.S. until his criminal charges are dealt with. The judge said, the defendant has enormous wealth and property abroad and no ties to the United States. He agreed with prosecutors who said they would, quote, not be able to secure his return

if CZ decided to remain in the UAE. The UAE has no formal extradition arrangement with the U.S., so there would be no legal mechanism to compel CZ to return. The judge added, his family resides in the U.A. and it appears that he has favorite status in the UAE. Under these circumstances, the court finds that the defendant has not established by clear and convincing evidence that he is not likely to flee if he returns to the UAE. CZ is currently out on a $175 million bond, which the judge noted, quote,

appears to be largely comprised of assets beyond the government's reach. He added that the current bond conditions allow free travel within the U.S. and do not prohibit CZ's family from visiting, noting that the conditions were, quote, hardly burdensome impositions on the defendant's freedom. Earlier this week, CZ's guilty plea had been accepted by the court. With this procedural measure out of the way, CZ will face sentencing on February 23rd. He has agreed to pay a $50 million fine in relation to criminal matters, alongside $150 million in civil regulatory penalties. Regarding jail time, CZ has agreed not to appeal any prison sentence up to 18 months.

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advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, BVI, DBA, Krakken. Now, another high profile, I guess, criminal case in crypto is also coming to a close with a guilty plea. That is, of course, the case of Bislato, which the DOJ famously made such a big deal out of. Anatolio Leg Kodomov, the founder of the crypto exchange, has pleaded guilty to operating an unlicensed money transmitter and agreed to shut down the platform. You'll remember that what happened was in January, the DOJ and Treasury announced that they would be holding a joint press release conference about a big crypto matter. Throughout that day, speculation ran wild

about what major exchange or company had been the subject of the law enforcement operation. The press conference was wildly anticlimactic, with officials announcing that they were a lot of they had charged Bitslotto, an exchange that basically no one had ever heard of, with money laundering because they claimed that it had been used for $700 million worth of illicit finance, largely servicing Russian ransomware attackers and dark web merchants. Now this chapter is closed with the founder agreeing to dissolve the platform and forfeit around $23 million in seized assets. Now, speaking of illicit finance and crypto, following her performance at Thursday's Senate banking hearing, Elizabeth Warren appeared on CNBC's squawk box to drive home her point

and comment on Jamie Diamond's response. She said, When Jamie Diamond and I are in exactly the same place, it's because we have a serious problem in this country. And that is, a part of the financial system is being used by terrorists, drug traffickers, and rogue nations in order to finance their illegal activities. Warren ensured that it wasn't overlooked that the other seven Wall Street executives appearing as witnesses had also agreed with her proposal to expand the Bank Secrecy Act to crypto, stating it wasn't just Jamie Diamond. Now, notably, Warren has moved on from citing Hamas as the number one example of illicit use of crypto after figures from the Wall Street Journal

were very publicly discredited. Instead, she has moved on to rogue nations stating, there is a new threat out there, it's crypto, and it's being used for terrorist financing. North Korea is using it to pay for about half of its nuclear weapons program. Now, where did this dubious statistic come from? It appears to have come from a recent report by cybersecurity firm recorded future, which had stated, North Korean threat actors were accused of stealing an estimated 1.7 billion worth of crypto in 2022 alone, a sum equivalent to approximately 5% of North Korea's economy or 45% of its military budget. The methodology of that report seemed to be simply tallying reporting around crypto hacks rather than using any sort of on-chain analytics.

Also, of course, the claim that Warren is making is that that money is being used for that purpose, whereas what the report is saying is that the amount of hacks that North Korea was theoretically involved in was equivalent to roughly half of the military budget. doesn't take an advanced degree to understand that those are two very separate things. Now, part of the reason that Elizabeth Warren is going on the offensive in renewed attempts to push your crypto-antimony bill is that the legislation was recently passed over. On Wednesday night, the final draft of the National Defense Authorization Act was released. The Omnibus Bill funds the government in its entirety and features a wide range of unrelated amendments

seeking to take a ride on a must-pass bill. Warren's proposal to expand the Bank Secrecy Act to cover a huge range of crypto firms and infrastructure was not included as an amendment. In fact, no crypto bills made the final cut for inclusion. Over the past week, there had been rumors that Patrick McHenry was pushing to include crypto bills dealing with stable coins in market structure as amendments, but his efforts appear to have failed. Now, interestingly, over in Europe, there are more positive signs when it comes to the industry.

This week, French Megabank Society General, I'm not pronouncing it with an accent, sorry, guys, has launched a Euroback stable coin called EUR convertible or EURCV. The bank has been pushing forward their crypto strategy at a rapid pace over the past year. Their crypto division, SG Forge, was granted registration last September and set to work building crypto products. Alongside the stable coin, SG Forge has built to tokenized bond service. Earlier this week, they issued $10 million worth of tokenized green bonds for the bank. Unlike the JPMorgan crypto ecosystem, which runs on a private blockchain, which is only

available to institutional customers, SocialGen has embraced open networks. Their tokens operate on Ethereum and are available to the general public through Luxembourg based exchange, BitStamp. This is the first time a euro-denominated stablecoin issued by a fully regulated bank has been available on a crypto exchange. It also means the stablecoin is able to be used outside of SOSGN's ecosystem with the potential to be adopted by D5 protocols. Now, when it was announced in April, the stablecoin was intended to be a permission token, but this white listing feature wasn't mentioned in this week's announcement. Jean-Marc Stengar, the CEO of SGForge, explained why a trustworthy euro stablecoin is needed, stating that the crypto ecosystem is highly

concentrated on a few existing stablecoins, 90% denominated in U.S. dollars. We definitely think there is a place for a bank in this field and there is a place for a Euro stable coin. The best way to channel interest is to grow in the usual route and venue which you use in the crypto industry, which is to have your product listed on a crypto exchange. The CEO of BitStamp echoed the sentiment stating that the listing of the stable coin, quote, is the next step in building markets beyond the current dominance of USD-backed stable coins. Now, the stable coin is designed to be compliant with upcoming European regulations. For that reason, it is not merely a liability of the bank, but is instead fully collateralized

with reserves held in a third-party trust. When the Stablecoin Project was announced in April, SGForge said it was intended to help institutional clients bridge between traditional capital markets and digital assets. Demonstrating this functionality, half of this week's tokenized bond issuance was settled by insurance giant AXA using the newly launched Sablecoin. Austin Campbell made an interesting point. I agree with the comment that there has not been much demand for EUR Stablecoins. But if the U.S. continues to cripple dollar stable coins, there will be.

Another region that's seeing a surge of interest in crypto is Brazil. On Monday, Brazil's largest bank, Italian Banco, announced the launch of a crypto trading service. Crypto will now be offered to clients as part of its regular investment platform. Trading will initially include Bitcoin and Ethereum, with plans to add additional tokens over time. The bank will custody the digital assets itself and will not allow transfers to or from external crypto wallets. Now, the buildout of digital asset infrastructure is widespread throughout the Brazilian banking system ahead of the eventual launch of the nation's CBDC. Rival banks, BTG Pactual,

and Santander, Brazil are reportedly increasing headcount and adding resources to be ready for the CBDC. Hittal Unabanko has reportedly launched crypto custody earlier this year and boasts that 85% of customers are choosing to hold their crypto with the bank. Stablecoins are also getting a boost in Brazil, with Circle announcing a partnership with domestic fintech firm NewBank. New Bank has over 85 million customers in Brazil. The partnership aims to give Brazilians greater access to buying and holding USC. Circle founder Jeremy Aller said in a statement, Brazil has emerged as a driving force for digital currency use and adoption. Our partnership with NewBank marks a significant moment in expanding the global reach of USDC. Now, let's close out the week with a little mini-ETF update.

For whatever Jamie Diamond thinks, one group of Wall Street firms that are convinced that Bitcoin shouldn't be closed down are the 13 asset managers gearing up to launch ETFs next year. The biggest name is, of course, BlackRock, the largest asset manager on the planet. Earlier this week, BlackRock disclosed that it had received 100,000 in seed funding from an outside investor. This functions as a presale of the yet-to-be-issued shares and was completed in late October. Bloomberg ETF analyst James Safart said, I suspect this is more for operational purposes and setting things up. It's meaningful because it shows they are doing everything needed to launch, but I don't think it means more than that. He also noted that 100,000 is an unusually

small amount, with more typical seating coming in at a few million dollars. Grayscale CEO Michael Sonnonshine, meanwhile, is also convinced the SEASE. will allow spot Bitcoin ETFs to begin trading soon. He said in an interview on Wednesday, we're feeling optimistic. We've been actively engaging with the SEC. The questions that we're getting from them signal to us that they want to engage on this issue, that they're eager to make progress on this issue. When asked about Jamie Diamond's comments from earlier in the day, he diplomatically responded that every executive is going to have their own opinions on new technologies. However, he added, if you take a big step back, there is no question that the

asset class is here to stay. That investor interest in this asset class is only growing, and it is these exact types of entities, these legacy institutions, these banks that are already well underway on evolving their business models to account for these new technologies. Indeed, Bitcoin hype is beginning to show up in public company filings, with Bitcoin mentions reaching record highs last month. In November, 174 SEC filings mentioned the word Bitcoin in some capacity. 40 of those filings were related to public statements made by Grayscale executives, presumably a large portion were also related to ETF applications, which had been repeatedly amended over the last month. November was also a quarterly earnings month, so the overall number of

filings has also spiked. Still, these explanations are not enough to explain the massive jump in Bitcoin being mentioned in regulatory filings all on their own. November mentions doubled from the previous month and came in 32% higher than the prior records set in May of this year. Now, of course, number of mentions in public filings is a bit of a contrived statistic. It's impossible to draw any real conclusions from this alone, but it's certainly not a bearish sign that a record number of public company filings mentioned Bitcoin. And so, friends, that is the story from here. That is the story heading into this weekend. I hope you are headed into an awesome early holiday celebration. Until next time, be safe and take care of each other. Peace.