Bitcoin Shrugs off a Binance DOJ Settlement to Hold $36,000, BNB, BLUR, SEI, Nov. 27

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Binance’s Changpeng Zhao Clings To Multibillion-Dollar Fortune After Guilty Plea

On his way to the heights of crypto, Changpeng Zhao postured as though he couldn’t be bothered with the concept of his wealth. “I don’t really know what my net worth is. I’m not too bothered about it,” he told Forbes in the summer of 2021.

On Tuesday, U.S. prosecutors painted a different portrait of Binance’s chief. Zhao, who goes by CZ, pled guilty to federal money laundering charges, admitting to skirting U.S. regulations and evading sanctions laws on his quest for crypto market dominance, which in turn bolstered his fortune.

“The purpose of the conspiracy was to allow… to gain market share and profit as quickly as possible,” the U.S. complaint states. Zhao, in addition to stepping down as CEO, has agreed to pay $50 million in the Department of Justice case, while Binance is on the hook for $4.3 billion–one of the largest ever corporate penalties. Zhao also faces up to ten years in prison. (To resolve a separate case brought earlier this year by the Commodity Futures Trading Commission, Zhao must also pay a $150 million fine.)

Though Zhao is barred from involvement with Binance for three years, he gets to keep his majority stake in Binance, which means he may emerge from his plea deal as one of the richest convicted felons in the world–and still by far the wealthiest person in crypto.

Zhao’s estimated 90% stake in Binance, which accounts for the vast majority of his fortune, is now worth an estimated $15 billion, Forbes estimates. That’s up from $10.5 billion in April, when Forbes published the 2023 World’s Billionaires list. Binance has generated upward of $3 billion in revenue the last 12 months, Forbes estimates, based on an analysis of the exchange’s spot and derivatives trading volumes (as tracked by CoinGecko), while also accounting for Binance’s alleged spoof or wash trades, which create the appearance of more customer activity than actually exists. (Binance has denied this.)

A recovery in crypto markets has driven up Binance’s valuation. Bitcoin’s price, a barometer of the industry, has more than doubled this year to date to $36,500 as crypto markets rallied in the aftermath of FTX’s implosion. Shares of Coinbase, a Binance competitor, have more than tripled since early January. Collectively, the market value of major cryptocurrencies has grown by $600 billion this year.

Despite the tailwinds in crypto, Binance now faces its own unique reality, one in which an independent compliance monitor will supervise its activity for three years and report its findings to the U.S. government. Those constraints may hamper Binance’s revenues, threatening its position as the leading global crypto exchange.

“Their influence and market share is going to drop precipitously,” says Mike Alfred, a crypto investor and longtime critic of Zhao and Binance. “The world in which Binance was winning and gaining market share was a world in which anything could be done at any time if it suited CZ, [and] if there was a profit in it.”

Whether Binance is able to maintain its market share as a cryptocurrency exchange will determine the direction of Zhao’s fortune. Binance facilitated 32% of spot trades and 50% of derivatives trades in October, according to a report from CCData – though its share in spot markets has declined for eight consecutive months, per the report.

Alternatively, Tuesday’s plea deal could help Binance by removing the cloud that’s been hanging over its head, says Owen Lau, a crypto and financial exchange analyst at Oppenheimer & Co. “People concerned by the prosecutors have left [Binance] already. Today’s announcement gives them some comfort that they can come back,” Lau said on Tuesday. “To me, it could have some positive effect on Binance. The super downside – that Binance becomes a dead business – has not played out. They’re still operational.”

Richard Teng, Binance’s newly appointed CEO, insists the company is positioned for future growth. “The fundamentals of our business are VERY strong,” he said in a tweet.

Since the news of the plea deal came out, Binance has experienced a net outflow of about $956 million on Ethereum, though its total crypto holdings remain above $65 billion, according to tracking site Nansen. “At the time of writing, withdrawals are continuing, and we’re not seeing a mass exodus of funds,” Nansen tweeted this morning.

As part of the settlement with the DOJ, an independent compliance monitor will be surveying Binance. As a result, the exchange will bleed customers as it falls behind more agile competitors, predicts Alfred. “If you went down the list of things that need to be fixed at Binance, it’s literally thousands of bullet points long,” Alfred says. “Other ventures that are coming up that are more growth oriented will take share.”

Zhao, a programmer by training, founded Binance in 2017 with a $15 million crowdsale. From its early days, Binance was favored by crypto traders and developers for its speed of execution and new products. Zhao’s tolerance for risk and brash approach fueled the company’s growth, but also put Binance on the radar of financial cops and regulators. “Wherever I sit, is going to be the Binance office,” he infamously told Coindesk in 2020.

China, Singapore and Malta were all way stations for Zhao and a small group of loyal lieutenants, until regulatory pressures forced them to remain on the move. Binance attempted to set up a European homebase in London, only to be spurned by regulators and accused of fraud by partners. Zhao ultimately moved to the United Arab Emirates; he’s lived in Dubai since 2021.

The company’s growth fueled a lavish lifestyle for Zhao. Using offshore entities controlled by his longtime deputy Heina Chen, Zhao splashed out $55 million for a private jet, spent $11 million on a yacht, distributed $62.5 million to one of his personal bank accounts, and directed another $178 million to two Singapore companies controlled by Zhao and Chen, according to the Securities and Exchange Commission, which filed charges against Zhao and Binance in June. The SEC alleged that Binance sold unregistered securities to U.S. customers. (Zhao and Binance deny the allegations and continue to fight the SEC charges, which are separate from those settled this week.)

Forbes’ $15 billion net worth estimate for Zhao does not include a personal investment portfolio. But he could have one worth several billion dollars, depending on how much of Binance’s profits he squirreled away for himself over the years. He previously told Forbes that he owned about 1,400 Bitcoins – currently worth about $36 million.

Zhao could even stage a return to Binance’s leadership after the company’s three-year period of supervision by an independent compliance monitor, according to the plea agreement.

In the meantime, Zhao plans to “probably do some passive investing” in crypto, AI and biotech, he said in a tweet on Tuesday. Zhao previously told Forbes he intended to donate between 90% and 99% of his wealth to charitable causes. “Hopefully, sooner than later,” Zhao had said. There was no mention of charitable giving in his recent tweet.

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Bitcoin Turns Bearish as Risk Assets Dip on Middle East War, BNB, XRP, DOGE, Oct.9

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Bitcoin Loses 12% as Trading Volume Hits Lows, BNB, AKT, CFX, Aug. 21

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Crypto Billionaire Cameron Winklevoss Ups Ante In Bankruptcy Dispute With Barry Silbert

The Winklevoss twins doubled down on fraud allegations against Digital Currency Group founder Barry Silbert and threatened further legal action to recover over $1 billion in customer funds.

So much for a peaceful holiday.

On July 3, bitcoin billionaire Cameron Winklevoss, twin brother of Tyler Winklevoss, published a scathing letter addressed to Digital Currency Group founder Barry Silbert in a bid to force the embattled mogul to settle with his creditors.

“You have never had any intention of doing the right thing and taking responsibility for the mess that you, your companies, and your employees created with your reckless and fraudulent behavior,” writes Winklevoss in the letter, which he shared on Twitter, and which reiterates accusations of accounting fraud he first leveled in January.

DCG and Silbert did not respond to requests for comment. In January, a spokesperson for the firm denied the allegations and described Winklevoss’s initial letter as a “desperate and unconstructive publicity stunt.”

Genesis Global Capital, the lending arm of Silbert’s digital assets conglomerate, filed for bankruptcy in January after making bad loans, including to FTX’s sister company Alameda Research, which shut down in November following fraud allegations against its founder Sam Bankman-Fried (which he denies).

Genesis owes more than $3.5 billion to its largest 50 creditors, including $766 million earmarked for customers of Gemini, a crypto exchange run by the Winklevoss twins, according to Genesis’s Chapter 11 bankruptcy filing from January. Gemini had previously partnered with Genesis on its Gemini Earn program, which lent out customers’ crypto to generate yield.

Winklevoss vowed in his letter to sue Silbert personally if DCG does not agree to Gemini’s proposed “Final Offer” for Silbert’s company to pay a near $1.5 billion settlement to Gemini Earn customers by the end of this week, as outlined in a second Tweet. (The higher dollar price tag appears to account for crypto prices skyrocketing between the original Chapter 11 filing and now). Winklevoss also pledged to file a turnover motion, which could force DCG to turn over its assets to a third party to distribute them to creditors.

DCG had announced an initial restructuring term sheet in February that would involve the Winklevoss brothers chipping in $100 million of their personal funds, but that deal fell apart: DCG says that some creditors “reneged and raised new demands.”

“My speculation is that DCG floated a term sheet out there, and in fact did not have the alignment out there [among creditors],” says Ram Ahluwalia, CEO of crypto firm Lumida, who is not involved in the dispute but has been closely following the situation.

The parties moved to mediation in May after DCG failed to make a scheduled $630 million loan payment to Genesis. Winklevoss now says in his public letter that the move was a ploy for Silbert to obtain “infinite forbearance” on the loan payment.

Complicating the matter further is that Genesis is also now being sued by the bankrupt crypto exchange FTX (founded by former billionaire Sam Bankman-Fried), which filed a lawsuit in May seeking to reclaim about $3.9 billion in cash and crypto assets from Genesis. Lawyers for FTX alleged that Genesis “was one of the main feeder of funds for FTX and instrumental to its fraudulent business model.” Genesis denies wrongdoing and is contesting the legal action.

“Since this proceeding is mainly between two entities which have filed for Chapter 11 bankruptcy, ultimately the funds will be taken from one set of debtors to benefit another set of debtors,” Fatemeh Fannizadeh, chief of legal affairs and a board member at the Swarm Foundation, which is not involved in the litigation, previously told Forbes. “Which ones are more legitimate to be made whole is yet another question.”

Silbert’s 40% stake in DCG was once worth over $3 billion, after investors in the digital asset conglomerate sold $700 million of stock in a secondary sale at a $10 billion valuation in November 2021. Today Forbes estimates Silbert is worth around $450 million, thanks to an early bet on bitcoin. Luno, a crypto exchange owned by DCG, laid off about 35% of its employees earlier this year.

The Winklevoss twins, too, were also once worth over $4 billion each, per Forbes; Gemini was previously valued at $7 billion by outside investors. Today, each twin is worth an estimated $1.5 billion. Trading volumes on Gemini cratered after the Earn fiasco. In an apparent effort to reboot its business, Gemini recently announced it was seeking a crypto license in Dubai.

The Silbert-Winklevii relationship dates back to 2021, when Gemini launched its Gemini Earn program, an interest-bearing program for yield-hungry crypto investors. Serving as an agent, Gemini directed its Earn customer funds to Genesis, which lent out those assets to other investors, including Alameda Research, the hedge fund and sister company of FTX. In November last year, following FTX’s blowup, Genesis halted withdrawals by Gemini Earn customers, leaving 230,000 people without access to their crypto.

Winklevoss’s fraud allegations pertain to a $1.1 billion “promissory note” that DCG issued to Genesis last June, after one of its biggest borrowers, crypto hedge fund Three Arrows Capital, went bankrupt. Winklevoss alleged in January that the $1.1 billion note was “a complete gimmick that did nothing to improve Genesis’ immediate liquidity position or make its balance sheet solvent.” (Genesis has denied these allegations).

The U.S. Securities and Exchange Commission sued Genesis and Gemini in January, alleging that the two parties sold unregistered securities through the Gemini Earn program. The SEC lawsuit is one area where both Silbert and the Winklevii are in agreement, as both parties are moving to have the case dismissed, on the basis that Earn products were not investment securities.

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These Crypto Founders And Bitcoin Moguls Lost $116 Billion In 2022

The embattled cryptocurrency industry and its wealthy pioneers face a moment of reckoning after the collapse of crypto exchange FTX and hedge fund Alameda Research

In January 2022, Sam Bankman-Fried was riding high. His Bahamas-based FTX had just raised $400 million from prominent venture capitalists at a $32 billion valuation. A few weeks later, when Forbes published its annual World’s Billionaires list, SBF, as he’s known, was crypto’s second-wealthiest person, worth $24 billion.

Now, Bankman-Fried is likely broke, and awaiting trial. Before he was arrested in the Bahamas, SBF told several media outlets his bank account was down to $100,000, and that he was “not sure” how he’ll pay his lawyers. Gary Wang, FTX’s other cofounder and the company’s former chief technology officer–who entered a plea deal with the Securities and Exchange Commission–has also seen his fortune, once estimated at $5.9 billion, wiped.

FTX’s demise was a fitting end to a year of wealth destruction in the cryptocurrency and blockchain sector. The post-pandemic economic shock, which triggered inflation and rising interest rates, sucked capital out of the speculative crypto ecosystem. Prominent firms imploded, from the $40 billion collapse in May of algorithmic stablecoin TerraUSD, to the crypto hedge fund Three Arrows (which declared for bankruptcy in July), to the bankruptcies of interest-bearing lending businesses Voyager Digital, Celsius and BlockFi. Bitcoin, the largest cryptocurrency and an industry bellwether, is down 65% from its $69,000 peak in November 2021. Meanwhile some $2 trillion of market value has fled digital assets for safer pastures.

As a result, 17 of crypto’s wealthiest investors and founders have collectively lost an estimated $116 billion in personal wealth since March, according to Forbes’ estimates. Fifteen of them have lost more than half their fortune over the past nine months. Ten have lost their billionaire status altogether.

“We’re now at the breaking point in crypto where everyone will have to take a pause and say, ‘Okay, we’ve seen a ton of economic wealth destroyed in the last couple of months, we need to start taking this seriously,’” says Matt Cohen, founder of Ripple Ventures, a venture capital firm. “A lot of blockchain technologies and crypto companies built solutions for problems that didn’t need fixing, and I think we’re now going to have a hard reset.”

The man with the most to lose is Changpeng Zhao, CEO of Binance, crypto’s largest exchange, a sprawling global network of murky subsidiaries. CZ, as he’s known, has an estimated 70% stake in Binance, which Forbes’ values at $4.5 billion–down from $65 billion in March.

CZ helped set FTX’s demise in motion on November 6 when he tweeted that Binance would sell its remaining FTT, the native cryptocurrency of FTX. That triggered a run on FTX’s coffers as customers scrambled to withdraw their money, only to discover it was gone. FTX declared bankruptcy a few days later. Zhao prevailed over his rival, but now he must contend with the consequences. That could include the clawback in bankruptcy court of the over $2.1 billion that Binance made from selling its stake in FTX back to Bankman-Fried in the summer of 2021. (Zhao helped seed FTX in 2019.)

CZ also faces increased skepticism of centralized exchanges, particularly Binance, and ongoing investigations of him and his company by authorities in Europe and the United States over allegations of facilitating money laundering and other financial crimes. (Binance has denied wrongdoing.) In recent weeks, CZ has sought to reassure Binance users that their crypto deposits are fully backed, commissioning accounting firm Mazars to produce “proof of reserves” reports. These statements, which do not include liabilities, were widely criticized as insufficient for providing an incomplete snapshot of a company’s financial health. Mazars has since paused its work with crypto companies, adding to the uncertainty around Binance’s finances–and the exchange’s future.

“I don’t believe a business can persist, operating in this amorphous way, not governed by anyone or anywhere, especially when it’s run by a public individual,” says Lisa Ellis, an equity analyst at MoffettNathanson, a division of SVB Securities. Binance’s “dodgy operating model” would be a “non-starter for many investors, public or private,” adds Ellis.

CZ stated in a webinar on December 23 that Binance has zero liabilities: “We are quite a unique organization, we don’t have loans from any other organizations,” he said. “We will prove all the FUD [fear, uncertainty and doubt] is wrong.” A spokesperson for Binance said that Forbes’ estimate of CZ’s net worth “not an important metric for CZ. What’s more important is creating meaningful use cases for crypto.”

Barry Silbert, head of crypto conglomerate Digital Currency Group, is at the heart of crypto’s market contagion. One of DCG’s key assets, crypto lending unit Genesis Global Capital, owes creditors at least $1.8 billion, according to a source familiar with the matter (and as Reuters first reported). Additionally, DCG is saddled with debt. It assumed a $1.1 billion liability from Genesis, which stemmed from a bad loan Genesis had made to the now-bankrupt Three Arrows hedge fund. Separately, DCG owes Genesis another $575 million, which is due in May. DCG also owes $350 million to investment firm Elridge if Genesis goes under, the Financial Times reported.

To stay afloat, Silbert will likely have to raise outside capital or dismantle his DCG crypto empire, which includes some 200 investments in crypto firms and tokens, including crypto news site CoinDesk, bitcoin mining firm Foundry and Grayscale Investments, an asset management business that offers shares in a publicly traded Bitcoin trust. Forbes estimates the value of DCG’s outstanding liabilities are greater than the fair market value of its assets in the current market environment; DCG may also struggle to offload illiquid bets. For these reasons, Forbes estimates the current value of Silbert’s 40% stake in DCG to be approximately $0. Silbert’s personal investments could not be determined. A spokesperson for DCG declined to comment.

“They had a solvency issue at Genesis, which transformed into a liquidity issue. But those losses don’t disappear,” says Ram Ahluwalia, CEO of crypto-focused Lumida Wealth Management, who points out that Genesis creditors will have claims on DCG assets even if Genesis declares bankruptcy. “If DCG doesn’t raise fresh equity capital it will be perceived as a zombie business.”

Cameron and Tyler Winklevoss, the bitcoin billionaires immortalized in The Social Network for their role in Facebook’s founding, are also caught in Silbert’s lending web. Gemini, the twins’ privately held crypto exchange, offered their users returns as high as 8% during the bull market through their Gemini Earn product, which outsourced the loanmaking to Genesis; now Gemini customers are owed some $900 million by Genesis. On November 16, Genesis suspended withdrawals, leaving customers outraged. Gemini Dollar, the exchange’s stablecoin and a key component of Gemini Earn’s lending program, has experienced large outflows. The Winklevii have remained quiet, apart from sparsely worded Twitter updates about Gemini forming a creditor committee.

For Brian Armstrong, who is the CEO of publicly traded exchange Coinbase, FTX’s collapse presented an opportunity to strike. On November 8, in the chaotic hours after Binance announced its tentative takeover of FTX, Armstrong trumpeted his vision for crypto while dissing Binance’s Zhao. “Coinbase and Binance are following different approaches. We’re trying to follow a regulated, trusted approach,” Armstrong said on the Bankless podcast. “To look at it intellectually honestly, we’re choosing to follow the rules. It’s a more difficult path and sometimes your hands are tied, but I think that’s the right long-term strategy.” In a 13-tweet thread that same day, Armstrong reiterated those themes.

Investors don’t seem to care. Coinbase’s stock is down 64% since August and more than 95% from its $100 billion IPO in April 2021, wiping out much of Armstrong’s fortune.

Meanwhile, Coinbase’s other cofounder, Fred Ehrsam, got burned by Bankman-Fried. His crypto venture firm Paradigm invested $278 million in FTX equity. Ehrsam has not issued any public statements about the investment. Matt Huang, Ehrsam’s partner at Paradigm, said on Twitter: “We feel deep regret for having invested in a founder and company who ultimately did not align with crypto’s values and who have done enormous damage to the ecosystem,” adding that Paradigm’s equity investment in FTX “constituted a small part of our total assets” and that Paradigm had never entrusted FTX to hold any of its digital asset investments.

Private crypto firms that raised capital in 2021 or earlier this year at high valuations are being traded at significant markdowns on secondary markets and in over-the-counter deals, says Matt Cohen of Ripple Ventures, who expects to see larger markdowns for the fourth quarter as companies prepare year-end investor reports. “Q4 audit season is going to be the time when the rubber meets the road on what funds are going to be marked down properly,” he says.

For example, shares of NFT exchange OpenSea are trading at a 75% discount since January, when OpenSea hit a $13.3 billion valuation, according to data from private market data platforms ApeVue and Caplight. Daily trading volumes on OpenSea’s NFT exchange have been under $10 million in the last month, compared to over $200 million back in January, according to crypto site DappRadar. OpenSea’s 30-something cofounders, Devin Finzer and Alex Atallahh, are no longer billionaires.

Nikil Viswanathan and Joe Lau, the founders of Alchemy, a crypto software firm that powers other Web3 ventures, have also departed the three-comma club, based on estimated markdowns of their stakes in Alchemy, which last raised outside capital in February at a $10.2 billion valuation. According to Viswanathan, FTX’s collapse “hurts the consumer perception of the [crypto] space. We’ve seen this play out in the Lehman Brothers and Bernie Madoff collapses in 2008 — it takes time to recover.” Alchemy, however, has continued growing throughout the bear market, says Viswanathan. “The difference is in Web3 we’ve seen developer activity accelerate during even the most tumultuous times, which points to an incredibly strong, mission-driven community of builders.”

Jed McCaleb, cofounder of crypto firm Ripple, is believed to be the only person who made their fortune in crypto to have retained most of his fortune through the downturn. But that’s because he sold out almost entirely before the crash. McCaleb offloaded some $2.5 billion worth of XRP, Ripple’s native token, between December 2020 and July 2022, fulfilling the separation agreement he signed with Ripple’s other founders back in 2013. Today, XRP trades around $0.40 per coin, down around 50% from earlier this year, when McCaleb was dumping millions of dollars’ worth of XRP tokens each week.

Chris Larsen, Ripple’s other founder and its chairman, has lost over $2 billion this year, due to XRP’s declining price and Forbes’ estimated discount on Ripple’s equity valuation. Ripple, which last raised capital in 2019 at a $10 billion valuation, bought back shares from an investor last year at an inflated $15 billion valuation after that investor had sued Ripple in connection with a Securities and Exchange Commission lawsuit filed against Ripple in December 2020; that case is still working its way through courts.

Tim Draper, a venture capitalist who holds around 30,000 bitcoins, dropped from the billionaire ranks earlier this year, when Bitcoin hit $33,000. As ever though, Draper remains optimistic about bitcoin’s future, even though his oft-repeated $250,000 price target looks more fanciful by the day. “I suspect that this is the beginning of the end of the centralized tokens,” Draper tells Forbes. “If a token is centralized, you’re at the mercy of the person who controls the currency. And that was definitely the case with FTX.”

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