No Headquarters, No Regulations
Binance, the world’s largest crypto exchange has no headquarters.
When Bitcoin crashed on May 19, Binance froze and leveraged buyers were wiped out. Binance users say they were cheated and Demand Their Money Back.
Binance, the world’s largest cryptocurrency exchange, froze for over an hour just as the price of bitcoin and other cryptocurrencies plunged. people who had made leveraged bets, were locked out.
As losses steepened, the exchange seized their margin collateral and liquidated their holdings.
In an open letter published July 7, Binance founder Changpeng Zhao said the exchange was committed to being compliant with appropriate local rules. But he has dismissed the idea of having a headquarters, saying it is an antiquated concept.
The price of bitcoin and other digital assets soared earlier this year, sparking a world-wide frenzy in trading. A huge chunk of that business flowed through Binance, which handled nearly $2.5 trillion in derivatives trades in May, according to data provider CryptoCompare. The subsequent crash in prices exposed the exchange’s inability at times to handle massive trading volume and has led to a backlash from users.
Authorities in Japan and the Cayman Islands have said Binance doesn’t have licenses to operate in those jurisdictions. The U.K. said Binance’s local unit wasn’t permitted to conduct operations related to regulated financial activities. Several British banks have stopped customers from transferring money to Binance.
In the U.S., Binance doesn’t direct users to its main website. Instead, it has an affiliate, called Binance.US, which offers spot trading of cryptocurrencies. Because Binance.US doesn’t offer derivatives, it doesn’t need to be registered with the Commodity Futures Trading Commission.
Spotlight Three Cases
The journal listed the plight of some traders.
Kate Marie, a 59-year-old healthcare technology consultant in Sydney read “Trend Trading for Dummies,” and watched YouTube tutorials. Starting with $10,000, she built a nest egg of $450,000 losing a lot of that gain back. Then on May 19, lost the rest, about $170,000. “I feel cheated,” Ms. Marie said.
Anand Singhal built up $50,000 in savings from the time he was 13 doing freelance coding from his bedroom in New Delhi. He plunked it all down on Bitcoin making a modest $24,000 on his investment. His account value is now zero.
Toronto resident Fawaz Ahmed, age 33, amassed a huge fortune of 1,250 ether coins. On May 19, they were worth around $3 million. Well, guess what? His entire account was liquidated too.
There are 700 traders working with a lawyer in France hoping for restoration. It’s hopeless.
Fateful May 19
On April 14, Bitcoin hit an intraday high of $64,801.79 up from about $10,000 a year ago.
Leverage
Investors can get leverage of 125 to 1 for some futures contracts on Binance.
That is how one can turn peanuts into $3 million.
But a move of just $100 lower is all it takes to wipe out a position worth $12,500.
On May 19, Bitcoin ranged from a high of $43,604.57 to a low of $30,201.96. That’s an intraday decline of nearly 31%, and enough to wipe out most leveraged positions.
We Waz Wobbed
Those using leverage were wiped out. Those not using leverage weren’t.
Was anyone cheated or robbed? If Binance locked people out for the explicit purpose of fraud, then yes.
That’s arguably unlikely and also impossible to prove even if it did happen.
If the Binance exchange was unavailable because of volume or due to steps it took to protect itself in the May 19 plunge, then no.
Greed or Stupidity
If it was not Wobbery, then the only two remaining possibilities are greed and stupidity.
Bitcoin rose from under $10,000 to over $60,000 yet people reading Trend Trading for Dummies made huge bets with leverage, riding those bets to fortunes then zero.
Now they want their money back. Well it’s no longer their money.
Where Did the Money Go?
Unless there was deliberate fraud in which Binance somehow gained, the correct answer is nowhere. Some may prefer the term “money heaven”.
Unrealized paper profits vanish all the time. And the greedier people are, the more likely their money will vanish to money heaven.
Curmudgeon on Cryptocurrency, Bitcoin Supporters, and the Shoeshine Boy
15-year-olds are seeking or giving investment advice on cryptos. YOLO, you only live once, is the mantra investment advice of the day on Reddit.
For details, please see Curmudgeon on Cryptocurrency, Bitcoin Supporters, and the Shoeshine Boy.
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Was the brokerage responsible for the losses? No, it was my investment choices that led to that outcome.