Cryptocurrencies became mainstream when Bitcoin prices exploded to nearly $20K in 2018. They crashed soon after, and are now at an all time high of nearly $40K (As of writing in January 2021).
For most people who jumped on the crypto bandwagon to make a quick buck, Bitcoins are seen similarly to stocks. You try to buy low and sell high. If you’re correct you make money, if you’re not, you lose money. Pretty straight forward.
But behind the scenes, cryptocurrencies are often seen as both the biggest necessity and threat to financial markets.
The how and why is far beyond the scope of this piece, but there is plenty of proof in the billions of dollars payment companies have thrown towards acquiring crypto projects or investing in their own crypto R&D. We’ll cover many of these topics in the future, but if you need to know about it today, look up Visa’s block chain acquisitions or Facebook’s Libra project.
Anyway, as cryptocurrencies became widely adopted, the transaction amounts significantly increased. And when the U.S. government saw there was a lot of money involved, they wanted a cut of the action through taxation, and passed laws to make that a reality.
The U.S. also decided its financial laws like the Bank Secrecy Act which requires financial institutions to report transactions larger than $10K to the government, would also apply to cryptocurrency companies.
So far so good. The U.S. can set whatever laws they please, and If you’re operating in the U.S. it’s only fair that companies abide by the law of the land. Also the laws seemed reasonable, because we all know that if converting assets into crypto currencies could reduce taxes or transparency, all of Wall Street is going to jump on that train.
So one Crypto trading company called BitMEX took the stance of: “No problem. We have no intention of paying U.S. taxes or abiding by your banking laws, so we won’t operate in the U.S.”
They incorporated in Seychelles and prevented people in the U.S. from using their platform. BitMEX was so strict about their no-U.S. policy that if they spotted an American IP Address trying to use their website, they would give that user a 24 hour notice to withdraw his/her funds, or risk their entire fund being permanently frozen.
They went even further to separate themselves from the U.S. financial system and refused to accept any payments or deposits on their platform using the U.S. Dollar or any other fiat currencies backed by the Dollar (like the Yen or Euro). They only accepted Cryptocurrency deposits, which users could use to exchange for other cryptocurrencies. It was kind of like Robinhood or any other stock trading app, but instead of exchanging U.S. Dollars for stocks you exchanged Cryptocurrencies for other types of Cryptocurrencies.
Fast forward to 2020 and BitMEX was riding high as one of the world’s largest Crypto trading platforms on the planet.
Unfortunately for them, despite doing everything by the book, their founders are currently either arrested by the U.S. government, or wanted for criminal charges. You can read the full indictment here.
The accusation is that BitMEX offered services to people in the U.S. despite claiming not to, and that said services were illegal.
Turns out Americans were using illicit methods to get around BitMEX’s U.S. bans: VPNs and other technologies that confuse a website on the whereabouts of the user’s location.
It’s like if the DOJ sued American Airlines for the September 11 attacks. Could the airlines have required invasive strip searches and background checks on every passenger immediately before boarding? Sure. But those airlines wouldn’t be in business very long, and terrorists would quickly find other means to kill people.
The airlines were 100% compliant with security measures set by world governments, and the attacks still happened. The people who need to be prosecuted are the terrorist organizations or Saudi Arabia for hosting radical indoctrination centers – not the airlines.
Same thing with BitMEX. They’ve done their best to follow the laws and prevent the wrong people from using their platform. If a criminal circumvents that, the blame is on the criminal – not the platform.
Most stories from major publications such as the New York Times focused on how BitMEX was used to launder money. Fucking stupid.
Criminals use fully legal platforms to launder money every single day. But we don’t see managers from Deutsche Bank, Credit Suisse, The Bellagio, or the Clinton/Trump Foundations put in jail.
OK. Now we’re going to end this with some speculation. Put your tin foil hats on and strap in.
For the sake of argument let’s assume that BitMEX was knowingly conducting illegal activities in the U.S. and trying to get away with it. First of all that would be improbably dumb for their founding team that includes a former Wall Street bankers who understand the U.S. financial system and the consequences of defying it.
But even if we put that aside, BitMEX isn’t the biggest crypto exchange in the U.S. A company call Binance holds that title. They also accept U.S. Dollar transfers and didn’t require any user verification. But no one at Binance has been prosecuted.
My wild speculation is that Binance allowed the U.S. government backdoor access to their users’ personal information to “verify” their users, while BitMEX said no.
Let us know what you think about this theory.