PRO Market Keys Of The Week: 3/27/2023
Binance faces CFTC lawsuit. MicroStrategy pays off loan from Silvergate Bank and buys more bitcoin. Hash rate is ripping with an improved fee market due to ordinals. What we’re watching this week.
Relevant Past Articles:
PRO Market Keys Of The Week: Market Anxiously Awaits Fed Meeting
State Of The Mining Industry: Public Miners Outperform Bitcoin
What We’re Watching
Upcoming Economic Calendar:
March 28, 2023
10:00 a.m. EST, Senate Hearing on Bank Failures
March 29, 2023
10:00 a.m. EST, House Hearing on Bank Failures
U.S. Wholesale Inventories
U.S. Conf. Board Consumer Confidence
March 30, 2023
Germany YoY Consumer Price Index, Forecast: 7.3%, Prior: 8.7%
EIA Crude Oil Inventory Report
March 31, 2023
France YoY Consumer Price Index, Forecast: 5.5%, Prior: 6.3%
Eurozone YoY Inflation Rate, Forecast: 7.1%, Prior: 8.5%
Eurozone Unemployment Rate, Forecast: 6.7%, Prior: 6.7%
Italy YoY Consumer Price Index, Forecast: 8.2%, Prior: 9.1%
U.S. Personal Income MoM, Forecast: 0.2%, Prior: 0.6%
U.S. Personal Spending MoM, Forecast: 0.3%, Prior: 1.8%
U.S. Core PCE Price Index MoM, Forecast: 0.4%, Prior: 0.6%
Eurozone Economic Confidence, Consumer Confidence
U.S. GDP, Initial Jobless Claims
Boston Fed President Susan Collins, Richmond Fed President Thomas Barkin, and Treasury Secretary Janet Yellen speak
April 1, 2023
China PMI
Eurozone CPI, Unemployment
U.S. Consumer Income, PCE Deflator, University of Michigan Consumer Sentiment
ECB President Christine Lagarde speaks
New York Fed President John Williams speaks
All Eyes On Binance
Binance, the largest exchange in the market, is now being sued by the U.S. Commodity Futures Trading Commission (CFTC). The CFTC claims that Binance violated U.S. regulations by failing to implement adequate customer identification and allowing U.S. customers to bypass restrictions on trading certain products.
Who’s the regulator? In a swift lawsuit drop without warning, the CFTC says that bitcoin and a few other assets are commodities and are under their purview, which is a direct challenge to the Securities and Exchange Commission’s (SEC) view of non-bitcoin tokens as securities. The CFTC was the lead regulator in the $100 million BitMex settlement in 2021.
Some of the quotes and evidence in the document are quite damning, and readers can find access to the full document here.
The CFTC raised several allegations against Binance in the suit. Below is a list of the notable claims:
Offering unregistered futures and options contracts to U.S. customers.
Allowing U.S. customers to bypass restrictions using VPNs.
Failing to implement proper Know Your Customer (KYC) and Anti-Money Laundering (AML) measures.
Creating a separate entity, Binance.US, to circumvent U.S. regulations.
Internal communications discussing efforts to evade U.S. regulations.
Employees being aware of U.S. customers trading on the platform.
Providing customer support to U.S. users despite restrictions.
Not registering with the CFTC as a futures commission merchant (FCM).
Conducting business with U.S. counterparties without required registration.
Lacking a designated contract market (DCM) or swap execution facility (SEF) in the U.S.
Not providing required disclosures and financial reports to the CFTC.
Failing to maintain required records for trading activity.
Inadequate customer identification procedures.
Insufficient supervision of employees and agents for compliance with U.S. regulations.
Ineffective AML policies and procedures.
Not reporting suspicious transactions to relevant U.S. authorities.
Absence of an adequate risk management program for futures and options trading.
Not having a chief compliance officer to oversee compliance with U.S. regulations.
Not adhering to large trader reporting requirements.
Not offering required position limits on futures and options contracts.
Uncooperative with the CFTC during its investigation.
Not disclosing risks associated with trading cryptocurrency derivatives.
Lacking a system to detect and prevent manipulative trading.
Inadequate financial resources to meet obligations.
Not providing fair access to all customers on its platform.
Absence of a dispute resolution mechanism for U.S. customers.
Not maintaining required recordkeeping of trades and customer data.
Failing to provide required trade and order data to the CFTC.
Not implementing required cybersecurity policies and procedures.
We have covered questions surrounding Binance in numerous issues in the past, including in the controversial issue “Not Binancial Advice.”
“While there is no doubt that Binance is an industry giant in the crypto derivatives industry, how do we know the firm isn’t doing similar things as past actors in regards to trading against clients using user funds and/or proprietary data. Things like the former Chief Legal Officer of Coinbase departing Binance U.S. last summer after just three months as the CEO leaves one with many questions.
“To add to our skepticism, the price of the Binance exchange token BNB is near all-time highs in bitcoin terms, appreciating an astounding 828% against bitcoin in the last 785 calendar days.
“Is BNB, a more centralized cousin to Ethereum, really worth approximately 14% of all bitcoin that will ever exist.”
Since the issue, the price of BNB denominated in bitcoin terms has fallen by an additional 25%, and is now worth approximately 8.5% of all bitcoin that will exist.
In our view, there is still far further to fall against bitcoin, regardless of where bitcoin trades over the short, intermediate, or long term.
In regards to the total assets on the Binance platform, there are currently over $35 billion of assets across bitcoin and ether assets alone.
This figure does not include other chains, which puts notional asset values at over $60 billion in USD terms at current market prices.
Source: Nansen
MicroStrategy Buys More Bitcoin
Many have critiqued MicroStrategy’s strategic decision to go on a bitcoin buying spree, especially with bitcoin-collateralized debt they took on from Silvergate Bank. Today, MicroStrategy announced that the company paid back the $205 million loan at a discount — for a total payoff of $161 million — thus getting a deal on the loan terms as Silvergate operations wind down. In addition to paying off the debt, MicroStrategy acquired another 6,455 bitcoin, bringing their total bitcoin holdings to 138,955 at an average cost basis of $29,817.
Hash Rate Is Booming
At nearly 350 EH/s when looking at a 7-day average, network hash rate has exploded this year — up approximately 55% since lows in December 2022. With the price rally over the last few months, hash rate has followed to new all-time highs as there’s been a rise in hash price and miner profitability. It’s never exactly clear on what drives these massive swings in hash rate but it comes at a time of sustained public miner expansion, increased replacements of inefficient machines with newer ones and less profitable machines coming online when it's profitable to do so.
The Ordinals Effect
A tailwind for miners has been the return of a robust fee market, particularly aided by ordinals and inscriptions.
The total number of inscriptions on the base-chain has surpassed 600,000, with 144 BTC in cumulative fees paid by the inscription market.
Source: Dune Analytics, Bitcoin Ordinals Analysis by @dgtl_assets
Source: Dune Analytics, Bitcoin Ordinals Analysis by @dgtl_assets
While the total amount in fees paid is far from large, the effect of a full mempool for transaction fees has helped fee revenue and incentivized extra hash rate to come online at the margin.
We will further address these evolving dynamics later this week in our state of the mining industry release.
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U.S. Treasury Yields Back On The Move
Yields across the curve soared upward today, reversing much of the violent move downward that occurred in recent weeks, following regional banking weakness in the United States coupled with the buyout of Credit Suisse.
With bond market volatility near historic highs, expect continued wild swings that have the chance to spill over into equity markets.
Following the release of our miner-focused issue, we will publish more commentary regarding crypto-specific news relating to Binance, as well as further update subscribers on the evolving macroeconomic picture with respects to new and important economic events and data releases.
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Nailed it