China

Binance employees allegedly help customers in China bypass KYC controls

A new investigation claims that users around the world are manipulating Binance’s billion-dollar security protocols through inside help.

Update: Binance told Cointelegraph that it is launching an internal investigation into the matter.

Binance, the world’s largest cryptocurrency exchange, has made significant efforts to be a leader in transparency in the industry since the FTX scandal. However, a new report claims that Binance insiders are allegedly helping users bypass security protocols.

According to a CNBC investigation, employees and volunteers at Binance have allegedly been aiding customers in China to subvert the exchange’s Know Your Customer Controls (KYC).

The report points to Binance’s official Chinese-language chat rooms, in which more than 220,000 users were registered. There, users are reportedly able to access shared messages with techniques to bypass the exchange’s KYC, residency and verification protocols.

These messages allegedly stemmed from accounts that were identified as employees of Binance or trained volunteers who go by the title “Angels.”

Techniques shared included forging bank papers, attesting false addresses and other simple system manipulations. A Binance spokesperson is reported saying:

“We have taken action against employees who may have violated our internal policies, including wrongly soliciting or making recommendations that are not allowed or in line with our standards.”

The co-founder of Binance, Changpeng Zhao, who is usually active on social media, has made no comment at the time of writing. Zhao previously took to Twitter to denounce rumors spread on the Chinese WeChat platform.

A Binance spokesperson responded to Cointelegraph saying that the company is launching an internal investigation regarding the KYC rumors.

This development surfaces while China continues to implement a strict ban on cryptocurrencies, which began in 2021, with crypto exchanges outlawed in 2017. Chinese users evading KYC rules to access Binance could face repercussions if uncovered.

Some have called on the Chinese government to reconsider the crypto ban, though regulators have not budged.

Meanwhile, Chinese officials continue apace with plans for a central bank digital currency, the digital yuan. Recently, millions were spent on adoption efforts.

Taiwan watchdog FSC to assume authority on crypto regulation

Taiwanese lawmakers reportedly expect to finalize a crypto regulatory framework by the end of March or April at the earliest.

The Financial Supervisory Commission of Taiwan (FSC) will become the primary regulator of cryptocurrencies in the island country, according to the head of the authority.

FSC chairman Huang Tien-mu has announced that the regulator will assume supervisory authority over the crypto industry in Taiwan, the local United Daily News reported.

Huang addressed Taiwan’s parliament, the Legislative Yuan, on March 20 regarding the regulation of cryptocurrencies in the Republic of China (ROC). He pointed out that the FSC’s upcoming crypto regulatory framework will include major rules and policies, including the separation of customer assets from company funds and investor protection practices.

The official specified that the FSC is currently instructed by the nation’s highest administrative body — the Executive Yuan — to supervise payments and transactions in the crypto market. Huang stressed that other industry-related assets, like nonfungible tokens (NFTs), may not fall under FSC’s supervision.

*FSC chairman Huang Tien-mu. Source: United Daily News*

Huang also noted that the FSC would initially pay special attention to self-regulation principles in the cryptocurrency industry in Taiwan. The official added that the authority would follow the instructions of the Executive Yuan.

According to a report by Taiwan’s Central News Agency, Taiwanese lawmakers expect to develop and approve a relevant crypto regulatory framework by the end of March or April at the earliest. The current preliminary plan reportedly aims to put the regulation of NFTs under the supervision of the Ministry of Digital Affairs.

The news comes amid Taiwan facing ongoing tensions with China, with the Chinese government considering Taiwan as a breakaway province, which it vowed to place under its control. Unlike some crypto-friendly jurisdictions in the Asia-Pacific region, such as Hong Kong or Singapore, China has emerged as a major anti-crypto country, placing a blanket ban on crypto in 2021.

KuCoin leads $10M funding for Chinese yuan stablecoin issuer

Circle’s investment arm has joined a funding round for CNHC, the issuer of the eponymous stablecoin pegged to the offshore yuan.

The investment arm of major cryptocurrency exchange KuCoin is moving to support new stablecoin initiatives by backing a Chinese yuan-pegged stablecoin issuer.

KuCoin Ventures has led a $10 million investment in stablecoin issuer and blockchain-based payment service provider CNHC.

Announcing the news on March 16, KuCoin Ventures said that the funding round included some prominent industry investors, including KuCoin’s investor IDG Capital and Circle Ventures, the investment arm of the USD Coin (USDC) issuer, Circle.

KuCoin chief investment officer and KuCoin Ventures lead Justin Chou told Cointelegraph that the new investment in CNHC is the first time KuCoin Ventures has invested in a stablecoin-related project.

“KuCoin is always interested in building a stronger infrastructure for the financial system,” Chou said, adding that the world is likely to see more real-world asset-backed stablecoins in the near future. He continued:

“To ensure the stability of the financial market, stablecoin designers need to find a balance between overcollateralization and efficiency. We are happy to see more algorithm-based stablecoins but they need to prove their resiliency.“

The investment into CNHC reflects KuCoin Ventures’ strategy of backing Web3 infrastructure in the Asia-Pacific region, Chou said. According to the announcement, KuCoin Ventures also invested $10 million in China’s blockchain project, Conflux, in early 2022. Chou noted that Hong Kong has a well-established traditional finance ecosystem and a “real opportunity at becoming the new crypto center of the world” with new regulations and policies for digital assets.

CNHC co-founder Joy Cham told Cointelegraph that the platform launched its offshore yuan-pegged stablecoin, CNHC, about two years ago. He described the stablecoin as “more akin to a house settlement tool,” referring to CNHC’s limited exposure. According to data from CoinMarketCap, the CNHC stablecoin is only listed on one centralized exchange, TruBit Pro.

“It will be listed in more centralized and decentralized exchanges in the near future,” Cham added.

The executive also noted that CNHC currently supports settlement services in other major stablecoins, including Tether (USDT) and USDC. Cham also said that the firm had experienced some impact due to the recent banking crisis involving Silicon Valley Bank and Silvergate. “Some of the banks are our partners that help us to settle USD, but there’s other banking partners so service is still ongoing,” Cham said.

On the other hand, KuCoin has had no impact due to those issues, as it has no exposure to Silicon Valley Bank, Silvergate, or Signature Bank, KuCoin CEO Johnny Lyu told Cointelegraph.

“However, the whole market is exposed at varying degrees to USDC and USDT,” Lyu said, adding that removing crypto from traditional banking could cause “long-lasting implications on the industry.” The CEO stated:

“Bitcoin was born after ‘Lehman Brothers’ yet still grew to mass adoption with about 420 million global users. The recent shutdowns of financial institutions may be the opportunity for crypto to reach mass adoption.”

The news comes amid KuCoin facing a lawsuit in the United States due to alleged violations for offering crypto trading services in New York. In a complaint filed on March 9, New York state Attorney General Letitia James argued that KuCoin violated securities law due to offering to sell and purchase cryptocurrencies that are “commodities and securities” without registration.

Bitcoin derivatives suggest $26K resistance level won’t hold for long

BTC margin and option markets show no signs of discomfort or overconfidence despite 28% gains in two days.

The price of Bitcoin (BTC) increased by 28% between March 12-14, reaching $26,500, its highest level since June 2022. Some may attribute the gains to the consumer price index’s (CPI) 6% year-over-year increase in February, even though the figure was in line with expectations.

The inflation metric reached its lowest level since September 2021, which is a positive development, but it does not validate the Federal Reserve’s attempt to reduce the metric to 2%. Most likely, risk markets, such as stocks and cryptocurrencies, soared after regional bank stocks recovered from their March 13 lows.

At 10:30 a.m. Eastern Time, First Republic Bank (FRC) shares were trading 54% higher, followed by Western Alliance Bancorporation (WAL) gaining 46% and KeyCorp (KEY) gaining 15%. The 30-year average mortgage rate decreased to 6.6% from 7.1% on March 7. Consequently, reduced mortgage rates have the potential to improve the housing market, which partially explains the rally.

The unexpected decline in mortgage rates may present an opportunity for price-sensitive homebuyers and homeowners waiting for a chance to lock in a lower rate. According to data from Realtor.com, a buyer of a median-priced home still faced a monthly mortgage payment that was 49% higher than it was one year prior.

Despite the possibility of a recession in the United States due to high interest rates, China’s economic outlook remains positive. Li Qiang addressed reporters on March 14 for the first time since assuming the position that oversees the State Council, China’s highest executive body. According to Qiang, non-state-owned enterprises in China will have greater room for development.

Let’s look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Bitcoin margin markets signaling a market deficiency

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For example, one can increase exposure by borrowing stablecoins and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against the cryptocurrency.

*OKX stablecoin/BTC margin lending ratio. Source: OKX*

Since March 13, OKX traders’ margin lending ratio has been above 35, indicating a significant mismatch in favor of Bitcoin longs. Readings above 40 are uncommon and driven by a high stablecoin borrowing cost of 25% per year.

One should refer to the BTC option markets to confirm whether professional traders are effectively expecting further price increases.

Options traders are far from excited

Traders should also analyze options markets to understand whether the recent correction has caused investors to become less risk-averse. The 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the premium for protective put options is higher than the premium for risk call options.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 8%, and generalized excitement has a negative 8% skew.

*Bitcoin 60-day options 25% delta skew: Source: Laevitas*

On March 13, when Bitcoin broke above the $22,000 resistance level, the BTC options’ main risk gauge exited the fear zone that had been in place for three days. As options traders assigned the same risk assessment to bullish and bearish strategies, the 25% delta skew entered a neutral zone.

However, it would be incorrect to conclude that the negative 5% skew seen briefly on March 14 indicates excessive optimism or bullishness. Analysts and pundits frequently jump the gun and celebrate quick reversions, but anything between -8% and +8% remains in the neutral zone.

According to the pricing of options contracts, derivatives data indicates that professional traders maintained their long positions using margin markets and exited their bearish stance on March 13. Given the improvement in macroeconomic market conditions, Bitcoin bulls are well-positioned to drive the price above $26,000.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Bitcoin derivatives suggest $26K resistance level won’t hold for long

BTC margin and options markets show no signs of discomfort or overconfidence despite 28% gains in two days.

The price of Bitcoin (BTC) increased by 28% between March 12 and 14, reaching $26,500, its highest level since June 2022. Some may attribute the gains to the Consumer Price Index’s (CPI) 6% year-over-year increase in February, even though the figure was in line with expectations.

The inflation metric reached its lowest level since September 2021, which is a positive development, but it does not validate the United States Federal Reserve’s attempt to reduce the metric to 2%. Most likely, risk markets, such as stocks and cryptocurrencies, soared after regional bank stocks recovered from their March 13 lows.

At 10:30 am Eastern Time, First Republic Bank (FRC) shares were trading 54% higher, followed by Western Alliance Bancorporation (WAL) gaining 46% and KeyCorp (KEY) gaining 15%. The 30-year average mortgage rate decreased to 6.6% from 7.1% on March 7. Consequently, reduced mortgage rates have the potential to improve the housing market, which partially explains the rally.

Despite the possibility of a recession in the U.S. due to high interest rates, China’s economic outlook remains positive. Li Qiang addressed reporters on March 14 for the first time since assuming the position that oversees the State Council, China’s highest executive body. According to Qiang, non-state-owned enterprises in China will have greater room for development.

Let’s look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Bitcoin margin markets signaling a market deficiency

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For example, one can increase exposure by borrowing stablecoins and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against the cryptocurrency.

One should refer to the BTC option markets to confirm whether professional traders are effectively expecting further price increases.

Options traders are far from excited

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 8%, and generalized excitement has a negative 8% skew.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

CBDCs should protect privacy, not be a surveillance tool: Former CFTC chair

Former CFTC Chair Christopher Giancarlo says that Anti-Money Laundering and Know Your Customer measures are both outdated and constitutionally questionable and that crypto technology could do better.

The United States should lead the development of central bank digital currencies (CBDCs) away from being “surveillance coins” and toward being “freedom coins,” says the former chair of the Commodity Futures Trading Commission.

In a March 13 op-ed in The Hill, Christopher Giancarlo said that the U.S. “must influence” CBDC development toward protecting “democratic values like freedom of speech and the right to privacy,” leveraging current technology used by some cryptocurrency protocols.

My op-ed in @theHIll with @Jim Harper: the question is not whether #CBDCs can be stopped (they can’t), but whether sovereign AND non-sovereign #digitalcurrency will enslave or liberate citizens of free societies. https://t.co/h1oT14NalK

— Chris Giancarlo (@giancarloMKTS) March 13, 2023

Nicknamed “Crypto Dad” for his pro-crypto outlook, Giancarlo is co-founder of the Digital Dollar Project, which focuses on researching the implications of a U.S. CBDC. He elaborated on his concerns about privacy in a March 1 report for policy think tank the American Enterprise Institute that he co-authored with API fellow Jim Harper.

He said the U.S. must advocate for a “freedom coin” — a CBDC that guarantees a high level of privacy.

Giancarlo and Harper argued in the paper that CBDCs offer an opportunity “to reassess contemporary financial surveillance activities” and could possibly enhance constitutional protections.

To achieve this, a CBDC could take advantage of crypto technology, such as “zero-knowledge proofs, homomorphic encryption, and multiparty computation, that enable parties to prove an encrypted proposition is true without revealing the underlying information,” they said.

My report today w/@AEI’s @JimHarper: #CBDC & #stablecoins must preserve privacy & security, economic liberty, free speech & personal autonomy. https://t.co/pB8uaA3KIT

— Chris Giancarlo (@giancarloMKTS) February 28, 2023

These technologies would make “intelligent enforcement” of crime prevention possible, the authors argued.

First, the U.S. would have to reexamine current financial surveillance policies. The authors took issue specifically with one recent document published by the administration of U.S. President Joe Biden:

“The White House Office of Science and Technology Policy’s (OSTP) recent Technical Evaluation for a U.S. Central Bank Digital Currency System shows that financial surveillance in the West is more like China’s than many would like to admit.”

The OSTP paper showed an “unwillingness to evolve beyond today’s constitutionally suspect financial surveillance system,” they said.

Giancarlo and Harper pointed to the OSTP’s proposed Anti-Money Laundering (AML) and Know Your Customer (KYC) measures as problematic, saying they allowed too much surveillance without probable cause.

If a CBDC’s privacy is not guaranteed, there is a risk of it being used as it is in China, they argued.

There, the e-yuan “will allow the Chinese government to link political conformity to individual prosperity and relegate political dissenters to poverty” by making all transactions visible to the People’s Bank of China, they opined.

The authors’ thoughts have much in common with concerns expressed by U.S. Senator Tom Emmer, a vocal opponent of a U.S. CBDC who introduced the CBDC Anti-Surveillance Act in 2022.

Emmer has expressed concern over a CBDC that “tracks transaction level data down to the individual user” and can be programmed “to choke out politically unpopular activity.” Emmer is also co-chair of the U.S. Congressional Blockchain Caucus.

WeChat integrates digital yuan into its payment platform

Chinese social media platform WeChat has incorporated the digital yuan in its payment app to boost the CBDC’s popularity.

WeChat, China’s leading social networking and payment app, has added the country’s central bank digital currency (CBDC), to its payment services, according to reports in local media. The move aims to help broaden the appeal of the digital yuan.

WeChat now supports the fast payment function of the digital yuan wallet, making it the second payment platform to do so after Alipay.

This feature enables users to use the digital yuan for payments on certain WeChat mini-programs and other platforms. The pilot version of the digital yuan application’s “Wallet Quick Payment Management” page currently lists 94 merchant platforms that can be accessed, now including WeChat. WeChat Pay now allows digital yuan payments on certain apps, such as ordering food from McDonald’s and paying bills.

Users must authorize the digital yuan wallet operator to sync their WeChat-bound mobile phone number for successful activation of the WeChat payment wallet fast payment function. Once activated, payments to digital yuan-supporting merchants can be made through the WeChat app. Additional integrations are expected to become available gradually.

“Chinese consumers are so locked in WeChat Pay and Alipay, it’s not realistic to convince them to switch to a new mobile payment app,” said Linghao Bao, an analyst at Trivium China, a strategic advisory firm. “So it makes sense for the central bank to team up with WeChat Pay and Alipay as opposed to doing it on its own.”

The digital yuan, also known as the e-CNY, is being piloted in at least 26 Chinese provinces and cities. The token saw a jump in transaction volumes on Chinese e-commerce platforms during the 2023 Lunar New Year shopping season, helped by e-CNY handouts from authorities.

In December 2022, Alipay announced its access to the digital yuan acceptance network, allowing users to spend digital yuan consumption on platforms served by Alipay, including Taobao, Shanghai Bus, Ele.me, Youbao, Tmall Supermarket and Hema.

China announces plans for new national financial regulator

The new administration will replace the current banking and insurance watchdog, which coincides with a more extensive government overhaul.

The Chinese government has plans for a governmental overhaul, according to a new announcement. This includes introducing a new national financial regulator.

On Tuesday, March 7, the government announced that its current banking and insurance watchdog, the China Banking and Insurance Regulatory Commission (CBIRC), will be abolished.

The responsibilities of this commission will be moved to a brand new administration, as will particular functions of the central bank and securities regulator. The legislature will vote on a plan for institutional reform on Friday, March 10.

When in place, the new financial regulator will “strengthen institutional supervision, supervision of behaviors and supervision of functions,” according to the plan.

Currently, the financial industry in China is under the supervision of the People’s Bank of China (PBOC), the CBIRC mentioned above, and the China Securities Regulatory Commission.

This announcement follows a call for reforms for party and state institutions in China from the country’s president Xi Jinping. These reforms will also include a bureau for sharing and developing data resources, which will partly replace the duties of the current Office of the Central Cyberspace Affairs Commission.

Although the Chinese government announced new plans for its financial sector, there was no specific mention of reforms for the crypto industry. However, in February, an ex-adviser to the PBOC called upon regulators in Beijing to reconsider its harsh ban on crypto.

In 2021, China banned nearly all crypto transactions. Nonetheless, the government has been spending millions developing its own central bank digital currency (CBDC), the digital yuan.

One of the most recent updates on the digital yuan project was the incorporation of new smart contract functionality and new use cases, including buying securities and offline payments.

On Feb. 8, China announced a new state-supported institution, the National Blockchain Technology Innovation Center, to speed up the country’s industry via blockchain technology.

Hong Kong citizens not interested in digital yuan: Reports

Despite the 20% discount, the e-CNY hard wallets don’t attract much attention from Hong Kong residents.

The Chinese government’s central bank digital currency (CBDC) project has not sparked much enthusiasm among the citizens of Hong Kong. In the first four days since the “digital yuan” (also known as “e-CNY”) hard wallets became accessible to residents, only 625 Hongkongers had obtained them.

As reported by a local newspaper on Feb. 28, Shenzhen installed the machines, dispensing the hard wallets for digital yuan, the first of a kind in the country. Due to the city’s unique location as a gateway from Hong Kong to mainland China, the machines were programmed to serve the citizens of Hong Kong exclusively.

The goal of the initiative, launched by the Bank of China and smart card provider Octopus Card, was to issue 50,000 hard wallets by March 31. However, in the first four days after the machines’ installation, only 625 wallets were demanded by the customers.

Even the 20% discount on purchases from 1,400 local vendors — subsidized for the CBDC owners by the government — hasn’t been a decisive factor for adoption.

However, as the Shenzhen Securities Times highlights, the local authorities will continue to promote the digital yuan for Hong Kong citizens, including the SIM card hard wallet, which would combine financial and communicational functions. The reason lies in a greater political mission to integrate the recently independent island city in the Guangdong–Hong Kong–Macao Greater Bay Area.

The adoption of e-CNY in the country is still slow, despite the Bank of China’s efforts. In October 2022, two years after the CBDC’s introduction to the market, cumulative e-CNY transactions only crossed 100 billion yuan ($14 billion). In February 2023, during the Lunar New Year period, multiple cities reportedly gave away over 180 million yuan ($26.5 million) worth of the CBDC in programs such as subsidies and consumption coupons to boost the adoption.

Hong Kong’s crypto ambition gets subtle nod from Beijing: Report

While China has cracked down on cryptocurrencies in the mainland, it’s apparently taking a softer approach to Hong Kong’s crypto hub aspirations.

Hong Kong’s ambition of becoming a cryptocurrency hub is reportedly seeing subtle support from the Chinese government, in what could be seen as a contrast to the mainland’s hard-line anti-crypto stance.

In October last year, the government of Hong Kong floated the idea of introducing its own bill to regulate crypto and allow retail investors to “directly invest into virtual assets” that could possibly be in contrast to China’s widespread crypto ban.

According to people familiar with the matter, Beijing officials have not been brazenly opposed to the idea. According to a Feb. 20 Bloomberg report, it is understood that representatives from the China Liaison Office have been frequenting Hong Kong crypto gatherings seeking to understand what’s going on.

So far, their encounters with Beijing officials on the matter have been friendly, according to those familiar, which is being perceived by local crypto business operators that Beijing — albeit very subtly — may be open to using Hong Kong as a testbed for crypto.

New Bitcoin narrative brewing: Hong Kong is getting into crypto.

What makes it even more interesting is the People’s Bank of China is one of the only central banks in the world cutting rates & easing.

Asia is bidding [sources] pic.twitter.com/n5cwE7jI2l

— Luke Martin (@VentureCoinist) February 16, 2023

Hong Kong is a Special Administrative Region of China, allowing it to have its own laws and governance. The former British colony was transferred back to China in 1997 following a guarantee from Beijing there would be no Chinese interference with the region’s economic and political systems for 50 years, known as the “one country, two systems” principle.

National People’s Congress member and digital asset lawyer Nick Chan was quoted as saying that as long as there are no violations of “the bottom line, to not threaten financial stability in China,” then the city is free to undertake its own pursuits.

On Feb. 20, Hong Kong’s Securities and Futures Commission outlined a new crypto license regime that proposed that all centralized exchanges that operate in the region must be licensed with the regulator.

It also proposed allowing retail traders access to licensed cryptocurrency trading platforms, saying public feedback highlighted that denying access to crypto markets may push Hong Kongers to trade on unregulated overseas platforms.

The new regulatory push has spurred many crypto businesses to seek expansion into the city. Most recently the exchange Huobi Global said it would seek a local license and plans to open a new Hong Kong-only exchange with a focus on institutional and high-net-worth individuals.