Why is the CCP Upset about Cryptocurrencies and “Lyingflatism”? 

Hello, everyone, welcome to “Inconvenient Truths”. I am your host Jennifer Zeng.  

Today I will talk about a recently very hot topic: cryptocurrency. I will mainly discuss issues surrounding the world’s largest crypto asset trading platform, Binance, and a little bit of why the Chinese Communist Party, the CCP, is upset about cryptocurrency and especially Bitcoin. Lastly, I will talk about a new trending term and phenomenon in China among young people, which is called Lying Flat, or LyingFlatism, and why the CCP is also very upset about this. So make sure you stick around till the end. 

 Binance Coin Loses Third Place in Cryptocurrency Ranking

 The Binance Coin recently dropped out of the top three in the cryptocurrency market ranking as Binance is being investigated by U.S. and German authorities.

As of today, May 26, the Binance Coin (BNB) ranked fourth in market value at $55.5 billion. As late as May 17, it still ranked third, with a market value of $90.5 billion.

Why this sudden change? Of course there have been a lot of market volatilities recently, but Binance has some problems of its own. 

International Investigations 

Bloomberg reported this month that Binance is under investigation by the U.S.  government for issues related to money laundering and tax offenses. This is the third time in the past two months that the company has been investigated internationally.

In March, the Commodity Futures Trading Commission (CFTC) began an investigation into whether Binance had violated U.S. regulations by allowing U.S. traders to purchase digital derivative products. Binance is still not registered with the CFTC and is not qualified to provide crypto derivative services to U.S. residents. 

Crypto derivatives include products such as crypto contracts, options, and security tokens.

On April 28, the German Financial Supervisory Authority (BaFin) issued a notice stating that the stock tokens launched by Binance may have violated European securities regulations because it used the services of a German broker. 

Binance is required to remove its tokens from the German market this month, otherwise it will have to pay a fine of up to $6 million, or 3 percent of its annual revenue. Binance would also be held responsible for any losses incurred by investors in its stock tokens.

In response to these investigations, Binance tweeted on May 13, “We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion.”

The company has recently hired some heavyweights to tackle regulatory compliance issues, and to improve public relations.

On March 11, Binance announced it has appointed Maxwell Baucus, a former U.S. Senator and ambassador to China, as its policy and government-relations adviser.

On April 11, Binance hired Brian Brooks, former Acting Comptroller of the Currency, as CEO of Binance.US. Brooks was previously the chief legal officer of Coinbase, the largest cryptocurrency trading platform in the US.

Brooks said his top priorities include making Binance a “a robust  competitor to Coinbase” and to strengthen its regulatory compliance.

According to a 2020 report by blockchain analysis company Chainalysis, in 2019, $2.8 billion in Bitcoin was moved from criminal entities to exchanges—over 50 percent went to Binance and Huobi, which is another Chinese trading platform.

Leaving China to Evade Regulations

Binance was founded in July 2017 in Shanghai, China, by Chinese-Canadian Zhao Changpeng. It grew rapidly in the Chinese market using Chinese capital, and became the world’s largest cryptocurrency trading platform in January 2018.

Only two months after its founding, and only one week before the CCP began to tighten control and clamp down on the cryptocurrency industry, Binance shut down its China operations and moved its staff and servers to Japan, and has spent the last two years primarily in the US, one of the world’s largest cryptocurrency markets.

Binance is now registered in the Cayman Islands.  It has no corporate headquarters and only an office in Singapore.

In 2019, it partnered with BAM Trade Services in the US and established Binance.US in San Francisco. BAM is registered with the U.S. Financial Crimes Enforcement Network (FinCEN) as a Money Service Business and can engage in the cryptocurrency business.

In an interview with Forbes China in April, Zhao  Changpeng  said Binance.US has so far obtained Money Transmitter Licensing in 37 U.S. states, 

but at the company’s website, there are only 32 states on its “Licenses” page.

Risky Business: Binance’s High Leverage

Binance is believed to offer trading in about 300 cryptocurrencies, including Bitcoin and Ethereum, as well as a variety of derivatives services. 

Currently, the derivatives trading listed on its website includes five major types of services, including contracts, futures, options, and leveraged tokens.

Binance also offers Bitcoin perpetual coin margined futures and USDT futures contracts, allowing leverage as high as 125 times the value of the contracts. These are highly risky derivatives, which are prohibited from being offered to U.S. residents.

The US is perhaps the most heavily regulated country in the world for cryptocurrencies and their derivatives, with four agencies jointly regulating the market: the U.S. Securities and Exchange Commission, and three others we’ve already mentioned. 

Finding a ‘Short Cut’ in the Gray Zone

As Binance was founded in China, and Zhao Chanpeng is a Chinese, Chinese language media are very interested in covering their stories. 

One Chinese language report says, choosing a market that is not regulated or partially regulated is a “short cut” for the rapid growth of Binance. That’s why after the CCP introduced regulations in September 2017, Binance moved its operations to Japan.

In the following six months, while China’s major cryptocurrency exchanges were shut down, Binance took the opportunity to add 10 million users and generated $350 million in profits, quickly becoming the world’s top cryptocurrency exchange.

In March this year, Zhao Changpeng said that the company strictly adheres to U.S. regulations and has strong controls in place to prevent customers from money laundering.

But he also admitted that even though Binance was blocking U.S. access, U.S. users did find viable ways to bypass the block.

Data shows that more than 40 percent of Binance’s trading volume comes from the U.S. market.

According to The Block, there was nothing to stop U.S. residents from using Binance’s services. A user “just had to click ‘I’m not [American]’ to set up an account on binance.com” and trade directly on Binance’s website without any problems.

It wasn’t until November 2020 that Binance officially notified U.S. resident users that they must complete their withdrawals within 90 days.

The Chainalysis report also suggested that OTC (Over The Counter) brokers could be driving illicit activities in cryptocurrency exchanges. 

Chainalysis assembled a list of corrupt OTC brokers, and called them “Rogue 100.”

The report says, “70 of the OTC brokers in the Rogue 100 are in the group of Huobi accounts receiving Bitcoin from illicit sources. … We think it’s extremely likely that some percentage of the other highly-active Binance and Huobi accounts taking in illicit funds also belong to corrupt OTC brokers we’ve yet to identify.” 

OTC transactions are considered the most likely means of cryptocurrency trading to be used to launder money or to transfer assets across borders.

The report says individuals who do not want to trade on public exchanges can exchange cryptocurrencies such as Bitcoin, for a stable currency (such as USDT), through a legitimate OTC broker, and then they can exchange it for a fiat currency such as the U.S. dollar.

It is estimated that OTC trading can contribute to the majority of all cryptocurrency trading volumes. As of today, (May 26), the total crypto market volume over the last 24 hours is $163.21 billion.

Binance’s banking partner Crypto Capital is also not regulated. Two people, allegedly linked to Crypto Capital, were charged with money laundering in April 2019.

In October 2019, Crypto Capital president Ivan Manuel Molina Lee was arrested in connection to money laundering charges.

Playing ‘Tai Chi’ With the US

An in-depth investigative report by Forbes last October revealed that Binance.US “conceived of an elaborate corporate structure designed to intentionally deceive regulators and surreptitiously profit from crypto investors in the United States.”

Forbes obtained an internal document from Binance.US, which outlined a strategic plan for an unnamed company, dubbed the “Tai Chi entity,” to set up operations in the US, distracting U.S. regulators by pretending to be interested in compliance and then transferring revenue to the parent company Binance in the form of licensing fees, etc.

“All the while, potential customers would be taught how to evade geographic restrictions while technological work-arounds were put in place.”

Forbes says the leaked document is currently circulating among law firms, accounting firms, and others associated with Binance, and believes that the FBI and the IRS may have initiated an investigation.

Well, that’s pretty much the information of Binance I know of up to now. 

Now, let’s move to our next topic: Why is the CCP upset about Bitcoin?

Three Reasons Why the CCP Cracks Down on Bitcoin and Other Cryptocurrencies

On May 21, the CCP’s Financial Stability and Development Committee held a meeting, which was chaired by CCP’s vice premier Liu He. Many people came to know him because of the trade talks between the US and China.

The meeting mainly emphasized two points, one is to crack down on Bitcoin mining and trading practices; the second is to maintain the smooth operation of the stock, bond and foreign exchange markets, crack down on securities violations, and severely punish financial crimes.

A while ago, in February this year,  Inner Mongolia already announced a complete halt to cryptocurrency mining in its territory, requiring all mining companies to withdraw by the end of April and encouraging the public to report those who haven’t. 

Remember I did a program about “The Secret Behind the Blackouts Across China”? In that show I mentioned that a lot of tech companies choose to set up data centers in Inner Mongolia because of its relatively cheap electricity price. 

As a matter of fact, more than 60% of the world’s Bitcoin mining activity is done in China for the same reason. That’s why the CCP’s policy about Bitcoin has a great impact on the global market. 

Recently a file is being circulated on the Internet, which says that as early as 2017, the CCP held a meeting led by the central bank and attended by ministries and agencies including the Ministry of Finance, the Ministry of Industry and Information Technology, as well as some scholars and experts in the monetary and IT field. They discussed issues related to Bitcoin, but couldn’t reach an agreement as to how to look at the issues. So in the end, they decided, as we don’t fully understand it, we should control it first.

But on the other hand, the CCP has also invested in companies that do Bitcoin mining. It is possible that the CCP also wants to benefit from it, without losing control.

So the three reasons for the CCP’s control are: 

{1} First of all, cryptocurrency is a mortal enemy of the totalitarian state. Its decentralized nature prevents the state from manipulating the exchange rate, currency issuance, or inflation and deflation to plunder the people. It is freely exchanged, out of the control of the government. This of course will cause the CCP to feel threatened. The CCP doesn’t want to lose control over the market. 

{2} The second reason is that the CCP wants to promote its own digital currency, and is planning to start using it in the 2022 Winter Olympics. It has already begun rolling it out to domestic financial institutions. So it of course wants to ensure that its own digital currency will be dominant.

By the way, I did a program about the CCP’s digital currency last August. Please go back to check it out if you haven’t watched it yet.

{3} The third reason is that the CCP doesn’t want Chinese people to move their assets out of China via cryptocurrencies. 

You know, in China, people cannot freely exchange their Chinese yuan into US dollars, or other foreign currencies. You need to have a quota to do so. Before the trade war with the US, people were allowed to exchange a maximum of 50K yuan per year. But since the trade war started, the CCP has been tightening its control. It is harder and harder for the Chinese people to move their money out of China.

So overall, the CCP won’t allow anything, including cryptocurrencies, to affect the so-called “stability” of the CCP’s regime. 

What is “LyingFaltism”?

Finally, I want to briefly share with you a very interesting term and phenomenon in China: Lying Flat, or LyingFlatism.

See this picture? This is what literally means by “Lying Flat”. You lie on the couch all the time without doing anything. 

And why can “Lying Flat” become LyingFlatism? Because this term, this concept, this philosophy is trending in China, especially among young people. 

Young people find that instead of studying hard, working hard and striving hard to advance themselves in society, they’d rather lower their living standards, and lying flat. They don’t want to work, earn money, buy a car , buy a house, get married, or have children, etc. 

As the opportunities are getting less and less in society, if you want to move forward and live well, you have to fight very hard and hurt your fellow men. All your efforts only end up driving up competition against peers. Your income rising is always slower than the rise of property prices. You cannot afford an apartment or being sick or having children, etc.

Also, if you do end up earning some money, the government will take it away somehow anyway. Chinese people call themselves “chives” that can be reaped by the authorities repeatedly. If you don’t grow, it is hard for the CCP to reap you again. 

So they’d rather lie flat and do nothing. 

Some people call this passive resistance, some even say this can also become a movement. 

However, if many young people start to lie flat, who will create wealth, and even children for the society? That’s why the CCP is very upset about this and started to criticize the so-called Lyingflatism too. Some say this is a great threat to the CCP’s regime. 

Well, it seems that so many things can become a threat to the CCP’s regime.  Maybe that’s why it won’t last long. Do you agree?

OK, that’s all for today’s Inconvenient Truths. Please make sure you subscribe to my channel and share my videos with your family and friends. 

Thank you very much for your support. See you next time!

5/26/2021 *

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