Rapture #263: China Opening up to Crypto and Binance Faces Scrutiny

Before I get into the meat of this newsletter, I would like to give a quick update on Rapture. I will be moving Rapture to a paid subscription modal and will be charging subscribers $100/month or $1,000/year for access. In addition to continuing to receive these newsletters, subscribers will also get access to an exclusive Discord group that will be comprised of other subscribers. I will grandfather in some subscribers who cannot afford the $100/month.

Finally, I will have time set aside to connect with subscribers 1 on 1 to further delve into crypto topics that they are interested in learning more about.

Now, let's get to the meat of this week's edition.

China opening up to crypto

One of the biggest geopolitical changes relating to crypto recently has been China warming up to asset class. While China has gone back and forth on crypto in the past, I think this more positive stance toward the asset class is now permanent. China's main geopolitical prerogative is to dethrone the USD as the preminent global reserve currency. While the BRICs reserve currency is one attack vector, China likely now views the advent of crypto as another.

In the past month, China officially decided to launch their first state-backed NFT marketplace. This marketplace will be controlled by SOEs and the celebrating of the launch occurred in Beijing.

Additionally, China has been shifting Hong Kong's stance on cryptocurrency. On October 31st, the Hong Kong government unveiled new policies aimed at developing the crypto industry. These policies include legalizing retail participating, introducing a new licensing regime, and allowing for ETFs to be traded with exposure to Bitcoin futures. While none of these policies are major, they do indicate a sentiment shift from the government.  

Finally, there are rumors circulating that many of the Chinese founders of large tech companies like Alibaba and Tencent are leaving to start crypto companies in Hong Kong and Singapore.

The stereotype is that Chinese traders tend to be far more risk tolerant compared to Western traders. Without a doubt, family office adoption of crypto in China/Singapore has dramatically outpaced the West. One of the major drivers of crypto adoption in the near future could come from China as their government looks to subtly back what they see as USD alternatives.

Binance under increased scrutiny

While China opens up more to crypto, founder of Binance CZ, originally a Chinese national who moved to Canada at age 12, continues to see increased scrutiny of his business practices, which many have concerns over.

Forbes recently did an exposé on the fact that people and institutions are pulling assets from Binance, with the exchange seeing $12 billion of outflows in less than 60 days. This issue is the latest of many for Binance as their auditing firm Mazars ceased their proof-of-reserves work for the company in December. Furthermore, some are now pointing to the fact that Binance's balance sheet remains a mystery and there are few reporting controls at the company.

Finally, Binance yesterday admitted that there have been past flaws in maintaining a full backing to the BUSD stablecoin. The stablecoin was often undercollateralized between 2020 and 2021 according to blockchain analytics company ChainArgos.

Despite all of these allegations, Binance announced that they plan to increase head count by 15% - 30% in 2023. The company increased from 3,000 people to 8,000 people in 2022.

It will be interesting to see if anything comes out of this increased scrutiny.

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