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Exchange Updates – Binance, Coinbase, Zipmex, Gemini and More

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The crypto spot market has delivered returns for traders who capitalized on this week’s bright start that has catapulted prices across the board into uncharted grounds in over one month. The latest price surge has pushed Bitcoin above $18,230 setting the BTC/USD pair for a fifth successive daily positive close. These series of gains are part of a slightly blemished streak of green candles since the start of the year only tainted by losses recorded towards the end of last week. Beyond the market action, the wider industry has remained  in distress weathering unabating headwinds which have simultaneously left traders racked with pain.

In the latest developments, FTX exchange has lost its naming rights to the 21,000-seater home arena of NBA team Miami Heat as ruled by a federal court. The deal agreed in March 2021 was terminated in a Wednesday ruling set to Dec 31 upon request by acting FTX executives and Miami-Dade County which can now seek new sponsors. Here are other headlines pertaining troubled exchange, lawsuit progress, and other relevant institutional updates this week.

Binance.US to seal purchase of lender Voyager Digital

Defunct crypto lender Voyager Digital on Tuesday secured initial approval from the Southern District of New York to proceed with the $1 billion sale of its customer accounts and other assets to the US subsidiary of the world's largest crypto exchange Binance. The news of the purchase initiated by Binance.US last month brings closer to reality the plan of settling Voyager creditors, at least in part. New York bankruptcy court judge, Michael Wiles, approved the disclosure of statements outlining the details of the proposed plan to sell the Voyager assets.

The court further scheduled a confirmation hearing for March 14 and noted that the plan must be approved by a requisite number of impaired classes of creditors for it to stand. The bankrupt lender had initially reached a $1.4 billion sale agreement with FTX, but it fell through when concerns surfaced around the latter’s liquidity status. Binance.US wasted no time, winning the race once the bids were reopened. Voyager's attorney present at the hearing, Joshua Sussborg, told the court that acquisition by Binance.US presents the best possible outcome for Voyager creditors. He argued that the self-liquidation scenario wouldn't yield as much asset recovery for the affected customers.

Regulators to determine the outcome of the deal

Though Voyager Digital has well-nigh won an accelerated review of the deal by the US national security agencies, the regulatory agencies themselves could prove a hurdle. The Committee on Foreign Investments in the US (CFIUS) has previously asserted that it intends to review deals made by Voyager in the past. The inter-agency panel whose oversight scope encompasses foreign investment suggested that the outcome could have implications on the parties' ability to conclude the deal, the timing of closing, or the material terms of the transaction.  In addition, the Securities and Exchange Commission (SEC) is closely following, having filed a limited objection last Wednesday, casting doubt on Binance.US’s financial capability to realize the transaction.

The US market regulator highlighted the deficiencies in the details provided by the exchange pertaining to the measures it will put into place to safeguard customer assets. It also showed raised issues regarding the intended methodology of rebalancing of its crypto portfolio. Should the deal materialize, Voyager estimates that its customers will make back about 51% of the value of assets they held with the lender as of the time of bankruptcy. The agreement would be composite of a $20 million cash payment and an agreement to migrate Voyager's customers to the exchange. They would be able to withdraw funds, a functionality suspended since last July.

Coinbase to close shop in Japan amidst mass layoffs

In a Wednesday interview with BNN Bloomberg, Coinbase VP of Business Development Nana Murugesan revealed that the exchange will be bringing down the curtains on its exploits in Japan. The move comes a day after the company said it would reduce its employee count by a further 20% as it braces for more hardships. The business exec said the firm's decision to shut down most of its operations in the Asian country effectively meant employee positions would be reduced. Though he wasn’t specific in terms of a figure, Murugesan noted that only a small staff would retain their roles, to secure customer assets.

He also didn’t give away details of the possibility of a potential sale to sale or mergers of the Japanese division, clarifying that the firm is currently navigating through a transitionary period. The shutdown will only be undertaken post the conclusion of discussions ongoing between Coinbase Japan CEO Nao Kitazawa and the regulator Japanese Financial Services Agency (JFSA). Murugesan ingeminated that the exchange is ‘right-sizing’ operations to fit the available opportunities, adding similar comments as those from CEO on a dedication to global expansion.

NYSDF orders Coinbase to pay fine for substandard KYC checks

Worth noting, the exchange recently settled for a fine penalty of $50 million for a failure to comply with know-you-customer (KYC) requirements fully. It also agreed to commit another $50 million over the next two years to the company’s compliance program. The arrangement was arrived after the regulator found that Coinbase had permitted the creation of accounts for customers without adequately verifying their identities. The exchange also overlooked other due diligence requirements in regards to anti-money laundering.

The deficiencies in compliance controls facilitated “suspicious or unlawful conduct” on its platform as per the consent order issued by the authorities. One specific instance cited by regulators was a customer who had been charged with “crimes related to child sexual abuse material” and was not identified by Coinbase's customer due diligence process when opening an account on the exchange. The user reportedly conducted “suspicious transactions potentially associated with illicit activity without detection by Coinbase” for more than two years.  Eventually Coinbase detected the user and closed their account, reporting the activity to law enforcement. The exchange has since committed to addressing the issues and implementing clearer and more comprehensive regulations in the crypto industry.

Zipmex exchange under investigation in Thailand

The trend of troubled exchanges has similarly manifested in Asia where crypto exchange Zipmex is reportedly under investigation by Thailand’s Securities and Exchange Commission (SEC) for alleged illegal operation as fund manager. A Wednesday Bloomberg report breaking the news included a letter from the domestic market regulator the exchange. Zipmex is already in a financially depressed state which prompted a decision to halt withdrawals last year and was in September reported to police authorities for failing to submit its records to commission. The exchange has until the end of Jan 12 (Thursday) to give out a response.

DCG woes pile up from all fronts

In other developments on Tuesday, co-founder and president of crypto exchange Gemini Cameron Winklevoss demanded that Digital Currency Group (DCG) CEO Barry Silbert be removed from his position in an open letter sent to the conglomerate's board. Winklevoss said that the expulsion must happen before a resolution can be found regarding creditor settlement. Further accounts by Winklevoss showed how Genesis suffered a contagion effect from the downfall of the defunct hedge fund Three Arrows Capital. Having loaned about $2.36 billion to the fund, 3AC's bankruptcy meant the lending business had to swallow a loss of $1.2 billion.

In response to accusations laid against it, DCG said all Winklevoss was deflecting personal blame and the exchange's vision in the Earn program. Gemini announced winding down the latter flagship scheme this week. The intensifying turmoil drew attention of US prosecutors and the domestic market regulator who are reportedly looking into the matter. The VC firm has nonetheless indicated a willingness to continue discussions to reach a working solution eventually amid increasing setbacks.

Crypto trading platform Bitvavo, a creditor of DCG, informed in a Jan 11 update that it has turned down DCG’s proposal to repay 70% of an outstanding debt and wants full settlement. The Dutch-based exchange rejected the partial repayment plan representing a counter offer from the troubled firm, noting that it its debtor has ‘sufficient resources’ to pay the whole sum. The blog came shortly after the exchange resolved to pre-fund around $297 million in assets provided to the venture firm to avoid ending up in a messy situation. Bitvavo assured it has enough funds to stay afloat but insisted on a repayment that it is determined to secure.

“Like Gemini, we share the confidence that a solution can be found to the satisfaction of all involved.”

Remarking on the woes affecting DCG, Galaxy Digital chief Mike Novogratz opined in a Tuesday interview on CNBC’s Squawk Box that the digital asset investment firm won’t necessarily have to sell its assets to get to safety. DCG, last week, communicated the closure of its wealth management unit – HQ. A report by The Information estimated that HQ had approximately $3.5 billion in assets under management at the time of its closure last week. Last November, the asset management firm told shareholders that it owed a $575 million loan and a $1.1 billion promissory note to Genesis Global Capital, the lending division of Genesis Global Trading. The lender suspended new loan originations and redemptions in the same month due to “extreme market dislocation.”

Binance triumphs as other exchanges downsize

Binance was a clear winner in terms of performance and overall expansion in 2022 among centralized trading platforms. The exchange has started off the year with the same objective in mind, CEO Changpeng Zhao confirmed on Wednesday at the Crypto Finance Conference. The Binance chief reiterated in Switzerland that the company will progress with its hiring strategy, targeting a headcount increase of 15% to 30% this year.

The exchange’s employees list more than doubled last year from 3000 to nearly 8000 by the end. Delivering insight on the future of cryptocurrency in a Jan 8 interview, Algorand Foundation’s John Woods observed that recent concerning headlines around exchanges have tainted the sector’s image and impaired user confidence but fundamentals, most importantly, remain unaffected.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.