The Breakdown - The Real Story of the UK Binance Ban

Episode Date: June 29, 2021

Today on the Brief: Indian investment in crypto soars The first Mexican bank to accept bitcoin?  Tether FUD from the FED?  In our main discussion, NLW looks at recent regulatory action from the U.K., Canada and Japan. He argues that we’re entering a new phase of global regulation, where we’re likely to see a particular focus on leverage and derivatives. -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at https://nexo.io/ -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

I think that we're hitting an inflection point where governments are recognizing the simple fact that crypto is here to stay. Despite all the economists and journalists who have cried bubble for so many years, it simply isn't going away on its own. Because of that, governments are now drawing their lines about what they will and what they won't tolerate. 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. The breakdown is sponsored by nexo.io and Circle and produced and distributed by CoinDes. What's going on, guys? It is Monday, June 29th, and today we are talking about the UK Binance Ban. First up, however, let's do the brief. First on the brief today, Indian investments in crypto are absolutely popping off.

Chain Alice has released a report saying that Indians have invested $40 billion in crypto markets this year. That's up from 200 million last year. Daily trading values are up about 900% in the last 12 months. The headline Bloomberg went with was even gold-obsessed Indians are pouring billions into crypto. One younger investor was quoted as saying, I'd rather put my money in crypto than gold. Crypto is more transparent than gold or property and returns are more in a short period of time. In total, there are now more than 15 million Indian crypto investors. India, meanwhile, still doesn't have legal clarity about,

crypto, but it does seem like the worst-case scenarios of outright bans are increasingly unlikely. Next up on the brief, the first Mexican bank to accept Bitcoin. Ricardo Salinas Pliego is the 166th richest person in the world and one of the richest men in Mexico. He tweeted this weekend to Michael Saylor saying, me and my bank, Bank Oesteca, are working to be the first bank in Mexico to accept Bitcoin. Saylor had commented on a video shared by Pomp where Salinas was seen discussing how he had witnessed hyperinflation firsthand and why he thinks all fiat currencies are fraud. Grouposelinas, his company owns telecom, media, financial services, retail, and more,

so not a bad ally to have. Third and finally on the brief today, Tether Fudd from the Fed? Last week, a senior U.S. Federal Reserve official, Eric Rosengren, gave a presentation where he talked about financial stability challenges. One of them was, quote, periodic disruptions to short-term credit markets, and in that he called Tether 1.5. of the risks. He elaborated his position on Yahoo, saying, the reason I talked about tether and stable coins is if you look at their portfolio, it basically looks like a portfolio of a prime money market fund, but maybe riskier. It has a number of assets that during the pandemic, the spread got quite wide on those assets. I do think we need to think more broadly about what could disrupt

short-term credit markets over time, and certainly stable coins are one element. I do worry that the stablecoin market that is currently pretty much unregulated as it grows and becomes a more important sector of our economy, that we need to take seriously what happens when people run from those type of investments very quickly. Caitlin Long called it an escalation of the rhetoric, saying, what's interesting is that Fed Governor Lail Brainerd and then Fed Chair Jerome Powell started talking stablecoins. But now Rosengren talks tether by name. That's an escalation. The Fed is so practiced at Fed speak, such carefully constructed statements so that multiple sides of an issue can see their side in what the Fed said. That was basically the case with previous statements about

stablecoins, but today the Fed escalated. Rarely are they so explicit like they were today. Tether's Pollo Arduino tried to add a bit of differentiation within the stablecoin space, saying, it is remarkable that the growing market share of such new financial innovations is being recognized by the like of the Boston Fed. However, it is also an important moment to educate consumers about the difference between stable coins such as Tether and the various experiments that are constantly taking place in decentralized finance. It is always a very important. is recommended that investors spend time researching these projects. Opportunities with outsized APYs are extremely risky. Nacent monetary experiments such as algorithmic stable coins should not be classified

in the same category as USDT. Doing so only demonstrates a lack of understanding on the ground floor of the cryptocurrency financial system. So this could probably be a whole episode, but no matter what we do, we cannot shake tether fud. It's like the U.S. government decided that environmental concerns were getting too far ahead as the fud of this cycle and wanted to give tether a little boost. All joking aside, as I've said before and I'll say again, it's stablecoins, not Bitcoin, that are most likely to show up as a place for U.S. regulatory action. And speaking of regulatory action, let's move now to our main discussion. One would be forgiven for thinking that there is an increase in regulatory scrutiny around

Binance, the world's biggest crypto exchange. On Friday, Japan's Financial Services Agency issued a warning about the company. The FSA said that the company is not registered to do business in Japan. Last month, the company issued a similar warning regarding by-bit. This also wasn't the first time the FSA has had something to say about Binance. In March 2018, they issued a similar notice. At that time, rumors swirled that Binance was subject to criminal charges by the FSA, which CZ said was absolutely untrue and that they were in, quote,

constructive dialogues with the regulator. Given that it's been three years, his version of the story seems likely closer to the truth. Regarding this FSA notice, a Binance spokesperson said, Binance does not currently hold exchange operations in Japan, nor do we actively solicit Japanese users. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 6.9% APR. Earn passive income, with yields of up to 12%,

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and generate returns up to 6% with 1 to 12-month terms. With Circle Yield built entirely on USDC, your funds are fully secured with Bitcoin collateral, giving you added protection and peace of mind as your interest grows. Visit circle.com, yield to learn more. That's circle.com slash yield. That wasn't the action that really caught people's attention, though. That was reserved for an outright ban by the UK, or at least that's how reporting made it seem.

Here's the first line of the fortune piece about it. Finance Markets Limited was banned by the UK's financial watchdog from doing any regulated business in the country, one of the most significant moves to date by a regulator amid a global crackdown in the crypto industry. Now, that name here is the significant part. Here's what Binance tweeted about it. We are aware of recent reports from an FCA UK notice in relation to Binance Markets Limited, BML. BML is a separate legal entity and does not offer any products or services via the Binance.com website. The Binance Group acquired BML May 2020 and has not yet launched its UK business or used its FCA regulatory permissions. The FCA UK notice

has no direct impact on the services provided on Binance.com. Our relationship with our users has not changed. We take a collaborative approach in working with regulators and we take our compliance obligations very seriously. We are actively keeping abreast of changing policies, rules, and laws in this new space. And let's actually read the FCA's notice specifically. Consumer Warning on Binance Markets Limited and the Binance Group. Finance Markets Limited is not permitted to undertake any regulated activity in the UK. This firm is part of a wider group, finance group. Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA. No other entity in the Binance Group holds any form of

UK authorization, registration, or license to conduct regulated activity in the UK. The Binance Group appears to be offering UK customers a range of products and services via a website, Binance.com. It then goes on to warn about crypto in general. One key line from that is, while we don't regulate crypto assets like Bitcoin and Ether, we do regulate certain crypto asset derivatives such as futures contracts, contracts for difference, and options, as well as those crypto assets we would consider securities. So let's talk now about different reactions to this news. Some had some things to say about the UK specifically. From what I gather, people have roughly the same perception about the FCA as they do about New York State when it comes to crypto regulation,

and to them, this confirms that the UK is going to be a comparatively hostile jurisdiction. Another dimension, though, to the story is increased regulatory scrutiny everywhere, and I actually have a theory about this. I think that we're hitting an inflection point where governments are recognizing the simple fact that crypto is here to stay. Despite all the economists and journalists who have cried bubble for so many years, it simply isn't going away on its own. Because of that, governments are now drawing their lines about what they will and what they won't tolerate. That's going to be different in different places. Here's what Kirol Souslov, the CEO of the trading app Tapp Trader, said about the UK. Quote, FCA is usually after leveraged high-risk trading, not crypto per se.

Binance apparently was targeted because of its futures in margin trading. Spot trading of Binance shouldn't be included in the ban, really. Now, if you listen to my show last week on McCaffy in the end of crypto's gonzo era, one of the things I mentioned is that it seems possible to me that in 10 years, there will be certain parts of today's crypto markets that still seem extremely gonzo based on the perspective that we've gained. The one that I referenced specifically was 100x leveraged trade. I think there are signs that leverage trading and derivatives are going to be one of those lines that

regulators start to draw. Take the example of Canada. Last week, the Ontario Securities Commission released a statement of allegations against Bybit. Here's the key line. Bybit is subject to Ontario Securities Law because crypto asset products offered by the Bybit platform are securities and derivatives. Bybit has nonetheless failed to comply with the registration and prospectus requirements under Ontario Securities Law. So this is an escalation from a March 29th action where the Ontario Commission issued notice to crypto trading platforms that were offering derivatives and securities, that they had to bring their operations into compliance with Ontario securities law, or, as they put it, faced potential regulatory action.

Finance, for its part, has actually made the decision to leave Ontario entirely because of this new shift. Canada is also not the only place with a growing focus on derivatives and leverage. This morning, Huobi put out a notice that it was discontinuing derivatives trading for Chinese users. It did the same for UK users. Now, this was somewhat expected. There's been an argument that part of why China is cracking down on crypto are their concerns about financial and social stability.

Others have rightly pointed out, however, that it seems that if stability were a primary motivation, trading, particularly leverage trading, would be more of a target than mining. For that reason, the industry has had its eyes on what moves the exchanges serving mainland Chinese users like Whoopi would do, and maybe we've got our answer now. As an aside, the oldest and longest running Bitcoin exchange in China, BTCC, has fully and finally closed its Bitcoin trading business following the latest anti-crypto actions in China. Given that this exchange started all the way back in 2011, it's clearly the end of an era. So what do you think? Are we at the beginning of a global crackdown on leverage on crypto derivatives? It's too early to call it, but there are certainly some signs.

What's most interesting to me is what the response of the industry will be. Will we see a deeper schism between above-board regulated KYC spot trading-based crypto and underground, decentralized, anonymous derivatives crypto? Certainly seems possible, but there's still a lot of history left to right. For now, I appreciate you listening, and until tomorrow, guys, be safe and take care of each other. Peace.