Empire Newsletter: Why CZ and SBF's sentencings were so different

CZ is no SBF

CZ was sentenced yesterday to four months in prison for violating the Bank Secrecy Act.

It’s not what the government wanted and it’s not what CZ wanted. But all things considered, we say he got a pretty damn good deal. I wonder what SBF is thinking.

Zhao pleaded guilty last November for failing to maintain an effective anti-money laundering program at Binance. He had to resign as CEO and hand over $50 million in fines, but his ownership of the exchange is intact and his net worth is still in the tens of billions (Forbes estimates $33 billion while Bloomberg says it’s closer to $36 billion, either way, $50 million is pocket change).

The prosecution asked the judge for three years. CZ’s team made a valiant attempt for house arrest or probation.

In the end, judge Richard Jones settled in the middle, citing the moving letters CZ’s supporters wrote to the court and the indifference the Binance founder displayed while breaking the law. After all, CZ’s apparent catch phrase was “ask for forgiveness not permission.”

Even if it wasn’t exactly what they wanted, CZ’s team seems pretty content. The New York Times reported that CZ’s son, a college student in the US, attended the hearing and “silently pumped his fist” when the judge said he would be ignoring the government’s request.

CZ’s co-founder seemed to be taking a victory lap on X hours after the sentencing was announced.

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The sentencing comes roughly a month after FTX’s founder SBF was sentenced to 25 years in prison. It’s a large discrepancy, but it should come as no surprise.

SBF famously avoided accepting responsibility for his actions, a point the judge held against him. It also didn’t help that SBF lied on the stand. CZ, on the other hand, pleaded guilty. He cooperated and took responsibility.

And then, of course, there is the difference in the type of crimes. The SEC does claim in its civil suit that Binance was commingling funds, but no one ever made any allegations of theft. Plus, the very nature of the crimes CZ admitted to make Binance an asset to the US government — the exchange itself is essentially a tool for tracking down money launderers and illicit actors.

They may both be exchange founders, and they both may be in prison for an overlapping 120 days, but the similarities stop there.

— Casey Wagner

Data Center

Daily net flows into Binance have mostly kept an even keel over the past month leading up to Zhao’s sentencing, ranging from -$613 million to $1.9 billion.
Ethereum is working through the validator queue, with 11,780 currently waiting, down from 22,300 earlier last month.
Arbitrum and Base are neck-and-neck for daily active addresses. The former has taken the lead with 373,500 to 369,600.
Futures traders have been liquidated for $420 million on centralized exchanges over the past day — more than 80% of it longs.
Tether’s supply is steady at about $110.5 million, currently on its longest sideways streak since January.

BTC memecoins take a breather

Runes are tipped to eventually replace the more experimental BRC-20 tokens. Let’s see how that process is going.

Ordinals creator Casey Rodarmor launched the Runes protocol at the same block height as the Bitcoin halving, now nearly two weeks ago.

Technically, Runes (and BRC-20 tokens) can be issued for purposes other than memecoins, but practically every one of the hundreds of thousands onchain are memecoins with silly names, like DOG•GO•TO•THE•MOON and ANARCHO•CATBUS.

Putting a dollar value on BRC-20 and Runes markets isn’t exactly feasible. Their markets are mostly illiquid and spread across multiple platforms with large price variations.

Still, the top 15 or so most liquid and widely held BRC-20 tokens are currently altogether worth around $2 billion, going by the most simple calculations, while the entire Runes market is currently valued at under $800 million, according to a GeniiData dashboard.

The most prominent BRC-20s have, however, been shedding market value ever since the halving, although it could be said they were trending downwards all year.

We’re still a ways away from Runes flipping BRC-20s for total market cap, but they’re making progress

Overall, Runes represented about 20% of all Bitcoin transactions over the past two days, with BTC transfers comprising the rest. Before the halving, BRC-20s often made up one third of Bitcoin activity.

Meanwhile, BRC-20 activity dried up almost immediately after the halving and has now dropped by upwards of 90%. It was common to see more than 100,000 BRC-20 mints and over 10,000 transfers per day in the weeks leading up to the halving — yesterday, there were only 825 mints and 6,300 transfers.

Runes traders are also taking a breather. Bitcoin processed more than 400,000 Runes transactions per day in the three days following the halving. Tuesday saw only about a quarter of that number.

Daily volumes for Runes are now looking to rebound and find equilibrium around $15 million per day, after notching almost $30 million daily in the beginning.

It could be that some of the biggest BRC-20s keep some staying power due to the Lindy effect, even if Runes continue to grow.

But considering how many new Runes debut and are minted each day, it seems like only a matter of time until capital flight really hits.

— David Canellis

Take a deep breath

Well, this week is certainly a lesson in patience.

With bitcoin under $60,000 and US bitcoin ETF inflows down to a trickle, it’s tempting to expect good news.

Unfortunately, you’re not going to find such news with the Hong Kong spot bitcoin and ether ETFs. At least, not with the expectations that many have thanks to the incredibly successful launch of their US cousins.

Bloomberg’s Eric Balchunas and James Seyffart have warned that the Hong Kong market won’t replicate the US demand, and they were right. Trading day volumes, according to K33 Research, came in around $12.4 million. That’s a bit shy from the launch day volume of $4.5 billion seen by the US products.

“Initial indications showed expected inflows to total close to $300 million, while real combined volumes amounted to little more than $11 million,” BitOoda wrote. The firm noted that the “disappointing” numbers led to the “dramatic selloff” that we saw Tuesday.

But the thing is: the two markets are not at all comparable.

“By market size, it’s more reasonable to compare the Hong Kong ETF market to the Brazilian and Australian ETF markets, which saw BTC ETF launch day volumes of $3.3 million and $1.1 million, respectively. The HK ETF launch is thus decent when assessed through more sober comparisons,” K33 said in its note.

The funds, in the next few months, could see 23,000 to 28,000 of bitcoin inflows as the segment matures in the Hong Kong market. Again, this will surely disappoint those looking for flashy numbers —- that figure represents about two days worth of inflows from BlackRock’s bitcoin ETF IBIT back in February.

All of this is to say that there should be a “check yourself before you wreck yourself” realignment of expectations when it comes to the Hong Kong ETFs.

It’s — quite literally — the earliest of days for the products, and there is still time for them to show impressive numbers. Traders just need to put aside their comparisons for a while.

— Katherine Ross

The Works

Rep. Patrick McHenry accused SEC Chair Gary Gensler of misrepresenting the regulator’s position on ETH.
BlackRock’s BUIDL hit $375 million in deposits, CoinDesk reports.
Coinbase integrated Bitcoin’s Lightning Network.
Standard Chartered warned that bitcoin could fall to $50,000, The Block reports.
Tether notched a net profit of $4.5 billion, according to its latest attestation report.

The Morning Riff

There are no crypto coincidences.

That fact surely includes yesterday’s indictment of longtime Bitcoin investor Roger Ver just as ex-Binance boss CZ was handed a meme-length prison sentence.

Ver, accused of tax fraud, is almost a picture-perfect “send a message” target for the US government’s crypto investigators.

Pile on last week’s arrests of the Samourai Wallet co-founders, and you’ve got a pretty convincing picture of a regulatory apparatus that wants to put the crypto industry on notice.

Maybe I’m being conspiratorial. Then again, it feels like crypto kind of snuck up on the US government. One day, it’s weird internet money, the next it’s a major driver of Wall Street activity and there’s billions of dollars worth of BTC on Uncle Sam’s balance sheet.

It’s easy to write of Ver’s indictment. But if you’ll pardon the tin-foil hat I’m sporting these days, I think things are just getting started.

4 indeed.

— Michael McSweeney

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