All eyes on Binance
When FTX fell in November, its top rival Binance became the undisputed giant of the crypto world. It was so strong that it could offer to bail out other companies, including the collapsed broker Voyager Digital, and scolded Sam Bankman-Fried, FTX’s founder, for shoddy business practices that jolted investor confidence in the sector and sank asset prices.
But Binance has increasingly found itself under tighter scrutiny by U.S. regulators. And now, according to a new report, they may seek to examine new evidence that the exchange’s U.S. and global arms were more interconnected than previously described. With negative headlines piling up, Binance Coin, the exchange’s digital token, has fallen nearly 7 percent in the past week.
Binance’s two divisions were supposed to be independent of each other, allowing the firm — which claims to have no actual headquarters — to shield its vast overseas operation from U.S. oversight. But that may not have been the case, according to The Wall Street Journal:
Binance and Binance.US, have been much more intertwined than the companies have disclosed, mixing staff and finances and sharing an affiliated entity that bought and sold cryptocurrencies, according to the interviews and the messages and documents reviewed by The Journal. Binance developers in China maintained the software code supporting Binance.US users’ digital wallets, potentially giving Binance access to U.S. customer data.
A spokeswoman for Binance acknowledged to The Journal that the company “did not have adequate compliance and controls in place during those early years” and operated differently now.
Binance considered several ways to minimize its exposure to U.S. oversight, beyond creating the Binance.US entity just for American customers. One internal presentation suggested that Binance roll out “major P.R. efforts” to show its willingness to cooperate with U.S. regulators.
And in 2019 executives asked Gary Gensler — then a former C.F.T.C. chair turned M.I.T. professor who taught a class on crypto — to advise the company, according to The Journal. (Binance executives believed that if a Democrat won the White House in 2020, Mr. Gensler would again be a regulator.) Gensler declined — and has since gone on to lead the S.E.C.
That agency is now one of several U.S. authorities to closely examine Binance. Beyond a yearslong inquiry into the relationship between Binance and Binance.US, the S.E.C. is also seeking to stop Binance from buying Voyager Digital. (Changpeng Zhao, Binance’s founder, briefly suggested on Friday that the company was thinking of walking away from the deal, before quickly affirming its commitment.)
Meanwhile, last week a bipartisan group of U.S. lawmakers demanded more information from Binance, citing potential evidence “that the exchange is a hotbed of illegal financial activity that has facilitated over $10 billion in payments to criminals and sanctions evaders.”
A Binance spokesman told DealBook that the company was “confident in the strength” of its internal compliance practices, and that it remained committed to dialogue with regulators and lawmakers.
Binance officials had fretted that such scrutiny was a risk hanging over the firm: One executive told colleagues in a 2019 message that a lawsuit by a U.S. regulator would lead to “nuclear fallout.”
HERE’S WHAT’S HAPPENING
Tesla cuts prices in the U.S. again. The electric vehicle maker announced a 4 percent discount for its Model S and a 9 percent cut for its more expensive Model X. The move, apparently driven by flagging demand, follows price cuts announced in January that appeared to revive sales.
Credit Suisse loses a longtime backer. Shares in the Swiss bank fell on Monday after the investment firm Harris Associates sold off its remaining stake, ending a decades-long investment in the beleaguered lender. “There is a question about the future of the franchise,” David Herro, Harris’s chief investment officer, told The Financial Times.
Altria officially ends its partnership with Juul. The Marlboro maker swapped its stake in the onetime vaping giant for the rights to the company’s global I.P. The move concludes a disastrous bet by Altria, which bought a third of Juul in 2018 for $12.8 billion; it now values that holding at just $250 million.
A bipartisan push to ban TikTok is set to gain momentum. Senators Mark Warner, Democrat of Virginia, and John Thune, Republican of South Dakota, plan to introduce new legislation this week that would give President Biden the power to outlaw foreign technology like TikTok. It would escalate efforts to block the video app over fears that it puts users’ data in the hands of the Chinese government.
China grows cautious
China unveiled a modest 5 percent growth target on Sunday at the annual meeting of its compliant legislature, the National People’s Congress. That underwhelming target — and the decision to not launch any economic stimulus measures — sent markets in two directions: Equities were up (following Friday’s Wall Street rally) but commodities slid (owing to China’s importance as a huge buyer of raw materials).
A post-Covid boost could be a blip. At 5 percent, the target is China’s lowest in decades and reflects the serious challenges the economy faces despite a recent rebound in consumer spending and factory activity after Beijing ended its tough zero-Covid policy. But all that good news could be short-lived if structural challenges aren’t addressed, economists say. These include an indebted property sector (a longtime growth engine), a crackdown on the tech sector that’s put a chill on investment, and the impact of punishing Western sanctions in sensitive industries, such as chip making.
Xi Jinping, China’s leader, is expected to cement his authority at the N.P.C., the most closely watched in years, with the appointment of loyalists to bolster his policies. “If the economy and radical reforms were seriously in focus, we’d know and hear a lot more about them,” George Magnus, an economist at Oxford University’s China Center, told DealBook. “And the fanfare of change would be louder. Instead, the economy is playing second fiddle to control, and Party primacy over state institutions,.”
Here’s what else happened:
China will increase military spending by 7.2 percent, the fastest pace in four years, amid growing tensions with the U.S.
The authorities want to double down on self-reliance, unveiling a “whole nation strategy” to produce more tech at home. China also wants to raise grain production and produce more food domestically to reduce its reliance on overseas supply.
SoftBank’s big I.P.O. moves ahead
Arm, the British chip designer that SoftBank bought for $32 billion in 2016, is taking additional steps to return to the public markets. And its impending initial public offering will carry weighty expectations about what it would bring for its majority owner — and, perhaps, for I.P.O.s more broadly.
Arm reportedly aims to raise about $8 billion in its offering, at a potential valuation exceeding $50 billion, according to Reuters. The company is also said to have appointed Goldman Sachs, JPMorgan Chase and Mizuho as lead underwriters. (Banks have eagerly courted Arm, pitching valuations for the business that range from $30 billion to $70 billion.)
Hopes for a blockbuster Arm debut are coming from many quarters. SoftBank is striving for a stellar I.P.O., as the Japanese tech investor suffers from paper losses across its huge investment portfolio. (So important is Arm to SoftBank’s fortunes that Masa Son, the Japanese company’s outspoken founder, stepped back from most daily management duties to focus on that business.)
The public markets are also hoping Arm succeeds. The I.P.O. business in the U.S. has been all but frozen since markets began to whipsaw last year. Arm’s debut, widely anticipated to come later this year, could help end those doldrums.
$ 7 trillion
According to Moody’s Analytics, closing the gender pay gap would boost the global economy by 7 percent, or $7 trillion. At the pace employers are moving, it will take 132 years to achieve pay equity.
The week ahead
Jobs, inflation and earnings — here’s what to watch this week.
Tomorrow: Jay Powell will deliver the Fed’s monetary policy report to the Senate, the first of two days of testimony on Capitol Hill. Expect questions about the state of the economy and interest rates.
Wednesday: It’s International Women’s Day. On the earnings calendar: Adidas.
Thursday: The White House is expected to release a budget proposal for the 2024 fiscal year. China is set to release inflation data. Oracle reports fiscal third quarter results.
Friday: It’s jobs day. Economists polled by Bloomberg forecast on average that an additional 215,000 jobs were created last month; another data point to watch is wage gains, an inflationary indicator. Apple holds its annual meeting: Usually a straightforward affair, this one will feature shareholder votes on executive pay and labor policies. The Bank of Japan wraps up its rate-setting meeting; it is expected to leave the principal borrowing rate untouched.
THE SPEED READ
Thomas Lee, the private equity pioneer who died last month, apparently of a self-inflicted gunshot wound, had struggled in recent years to match his earlier deal making successes. (WSJ)
GAM, the embattled Swiss asset management firm, is reportedly racing to sell itself within the next two months. (FT)
Stable Diffusion, a London-based rival to OpenAI, is reportedly seeking to raise new capital at a valuation of about $4 billion. (Bloomberg)
A bidding war has broken out over Telecom Italia’s fixed-line network, with contenders, which include KKR, valuing the grid at roughly $19 billion. (Reuters)
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