China’s risky Bitcoin court decision, is Huobi in trouble or not? Asia Express
Our weekly roundup of news from East Asia curates the industry’s most important developments.
Chinese man’s $10M loss as court says Bitcoin lending not protected by law
A man in China’s Jiangsu province, identified as Mr. Xu, appears to be out of luck after a court ruled that his 341 Bitcoin loan ($9.9 million) to counterparty Mr. Lin is not protected by law according to local news reports on August 3.
Some time ago, Mr. Xu lent 341 Bitcoins to Mr. Lin after the latter approached him for a peer-to-peer loan. At the time, Mr. Xu lacked fiat funds, and so the parties settled on using Bitcoin for the borrowing through a written agreement. Shortly afterward, however, Mr. Lin defaulted on the loan, prompting Mr. Xu to sue in the Changzhou Zhonglou People’s Court. The case was dismissed.
In supporting the judgment, Ming Wang, vice-magistrate of the Changzhou Zhonglou People’s Court, told reporters that Bitcoin is a digital commodity that does not hold the same legal status as fiat currencies. Therefore, the asset can neither be subject to a legal enforcement action, enter circulation, or be used to ” award compensation.”
“The lender bears ALL risks [when lending crypto],” Wang warned. That said, in another ruling dated Nov. 29, the Hangzhou Internet Court wrote that digital assets such as nonfungible tokens are “online virtual property” that should be protected under Chinese law.
Aside from outright ownership, all forms of cryptocurrencies and transactions are currently illegal in China. The country has been cracking down on private blockchain initiatives in favor of the Central Government’s efforts to promote centralized blockchain, such as via the digital yuan CBDC.
China’s disappearing Web3 founders
Just last month, Chinese cross-chain bridge Multichain was still one of the biggest in the DeFi sector. While its reputation took a hit due to the disappearance of its co-founder, Zhaojun He, the protocol still had around $1.5 billion in total value locked at the start of July.
Then on July 14, investors’ worst fears came true after Multichain developers revealed that Zhaojun had been arrested by Chinese police nearly two months prior. Because Zhaojun held discretionary control of Multichain’s entire server-based and private keys, they said the protocol had to be shut down.
But the question left many readers pondering, how does the arrest of a single individual lead to the shutdown of an entire enterprise and the disappearance of enterprise funds? One anonymous user in the Multichain Telegram chat claimed:
“It’s become a total supply chain. Third-party tracking companies will supply leads to the police to take them into custody as long as the [Web3] co-founder is in China and has money. Where do you think the police’s case came from? Third-party tracking companies make at up to 10 figures [CNY] from such tipoffs.”
While Zhaojun is currently detained without any revelation of the charges — or any news whatsoever — the Multichain funds supposedly “stuck” in the protocol are on the move. Blockchain security firms, such as Bitrace and PeckShield, have revealed that since Zhaojun’s arrest, assets stored on the Multichain bridge had been swapped for stablecoins and transferred out of the protocol. The move prompted stablecoin issuers such as Circle and Tether to freeze over $63 million of suspicious transactions linked to Multichain.
In a series of screenshots seen by Cointelegraph, exchanges such as Binance are also investigating stablecoin deposits to its platform linked to the Multichain incident. Meanwhile, whoever is making the transfers has appeared to smarten up as well, with swaps of users’ assets now being done through privacy coins as opposed to traceable assets.
Some observers theorize that the circumstantial evidence points to the Chinese police moving the coins. For starters, the In a similar incident, Wuwei Liang, brother of CoinXP co-founder Liang Liang, wrote in regard to the ongoing criminal proceedings against his brother and the firm:
“The virtual currency involved in the case [seized from CoinXP by police] was transferred to other wallet addresses by the Wuxi Public Security Bureau, and 20 Bitcoins disappeared during the transfer process and have not been recovered so far.”
Liang Liang’s trial is ongoing and the blockchain executive is currently charged with “illegal solicitation of public funds” and running a “multi-level marketing” scheme. The latter, by the way, carries the penalty of civil forfeiture of all personal and enterprise assets if convicted, and the trial is not going well.
The crackdown appears to have started with China’s own state-blockchain centralization efforts this year. On May 31, Cointelegraph reported that offices of the Chinese offshore-yuan stablecoin issuer CNHC had been raided by police. Its executive had been reportedly detained and like Multichain, no news has been heard from them since.
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Huobi in trouble once again Everything is just fine
If I could sum up with everything that goes on in blockchain from day to day using one phrase, it’d be “all is not, as it seems.”
On August 6, local news outlets in Hong Kong reported that senior executives of cryptocurrency exchange Huobi had been arrested by Chinese police. The exchange subsequently denied this as “fake news.” Chinese blockchain personality Justin Sun, the de-facto owner of the exchange, also labeled the news as fear, uncertainty, and doubt (FUD).
But as Adam Cochran, partner of Cinneamhain Ventures, claimed on Twitter that Sun allegedly withdrew $60 million from the exchange after the news broke out. Cochran also claimed that some Huobi staff “are currently under criminal investigation,” citing an insider at Tron (Sun’s blockchain project) who has “first hand knowledge of the investigation.”
However, according to Sun, Huobi is doing just fine. On August 1, Sun claimed that the exchange generated more than $85 million in profits in Q2 2023, with $100 million in profits projected for Q3 2023. Pretty impressive, considering that the exchange suffered an internal revolt just earlier this year after the firm allegedly slashed a vast majority of employment benefits.
But anyway swirling rumors around Huobi may be behind its USDT reserves declining to less than $100 million from $630 million last month, while its total assets have fallen to $2.5 billion compared to $3.1 billion in the same period.
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South Korean authorities are reportedly looking into blocking crypto exchange platforms that may have operated without adhering to the requirements set by the country’s financial regulator.
On March 21, local media Hankyung reported that the Financial Intelligence Unit (FIU) of the Financial Services Commission is considering sanctions against crypto exchanges for allegedly operating in the country without reporting as an operator to the appropriate regulators.
South Korean financial authorities require crypto exchanges to report to regulators as virtual asset service providers (VASPs) under the country’s Specified Financial Information Act.
The FIU is investigating a list of exchanges and is conducting consultations with related agencies. The regulator is also considering sanctions, such as blocking access to the exchanges, as they begin to prepare countermeasures.
Exchanges operated without VASP reports
The list of exchanges that have allegedly provided services to South Koreans without the appropriate VASP reports includes BitMEX, KuCoin, CoinW, Bitunix and KCEX. The exchanges reportedly provided marketing and customer support to Korean investors without going through the country’s compliance process.
Under the country’s laws, operators of crypto sales, storage, brokerage and management are required to report to the FIU. If exchanges don’t comply, their business will be considered illegal and subject to criminal penalties and administrative sanctions.
An FIU official said in the report that measures to block access to the exchanges included in the list are being reviewed. The official said the financial regulator is currently consulting with the Korea Communications Standards Commission, the regulator in charge of the internet, on how they can block access to the exchanges.
Related: Wemix denies cover-up amid delayed $6.2M bridge hack announcement
South Korean exchanges face scrutiny
Apart from foreign exchanges, South Korean crypto exchanges are also facing scrutiny over suspicions and rumors of financial misconduct.
On March 20, prosecutors raided Bithumb following suspicions that its former CEO, Kim Dae-sik, embezzled company funds to purchase an apartment. The authorities suspect that the exchange and its executive may have violated some financial laws during the apartment purchase. However, Bithumb responded that Kim had already taken a loan to repay the funds.
In addition, rumors of intermediaries getting paid to list projects on Bithumb and Upbit surfaced. Citing anonymous sources, Wu Blockchain said projects claimed to have paid intermediaries millions to get listed on the exchanges.
Upbit responded, demanding the media outlet to disclose the list of digital asset projects that paid brokerage fees.
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Australia’s government, under its ruling center-left Labor Party, has proposed a new crypto framework regulating exchanges under existing financial services laws and has promised to tackle debanking.
It comes ahead of a federal election slated to be held on or before May 17, which current polling shows is shaping up to a dead heat between Prime Minister Anthony Albanese’s Labor and the opposing Coalition led by Peter Dutton.
The Treasury Department said in a March 21 statement that crypto exchanges, custody services and some brokerage firms that trade or store crypto will come under the new laws.
The regime imposes similar compliance requirements as other financial services in the country, such as following rules safeguarding customer assets, obtaining an Australian Financial Services Licence and meeting minimum capital requirements.
Australia’s Treasury says its new crypto regulations have four priorities. Source: Australian Department of the Treasury
In August 2022, the government initiated a series of industry consultations to draft a crypto regulatory framework.
“Our legislative reforms will extend existing financial services laws to key digital asset platforms, but not to all of the digital asset ecosystem,” the Treasury said in its statement.
Small-scale and startup platforms that don’t meet specific size thresholds will be exempt, along with firms that develop blockchain-related software or create digital assets that aren’t financial products.
Payment stablecoins will be treated as a type of stored-value facility under the Government’s Payments Licensing Reforms; however, some stablecoins and wrapped tokens will be exempt.
“Dealing or secondary market trading in these products will be not treated as a dealing activity, and platforms where they are traded will not be treated as operating a market simply because of that trading activity,” the Treasury said.
As part of its crypto agenda, Albanese’s government has also promised to work with Australia’s four largest banks to better understand the extent and nature of de-banking.
There will also be a review into a central bank digital currency and an Enhanced Regulatory Sandbox in 2025, allowing businesses to test new financial products without needing a license.
Related: May election could open floodgates to institutional crypto: OKX Australia CEO
Albanese’s government intends to release a draft of the legislation for public consultation. However, a change of government could be on the horizon with a looming federal election, a date for which is yet to be called.
Dutton’s center-right Coalition had earlier promised to prioritize crypto regulation if it wins the election.
The latest YouGov poll published on March 20 shows the Coalition and Labor neck in neck for a two-party preferred vote.
The Coalition leads for topline voting intention, while Albanese continues to lead as preferred prime minister. Source: YouGov
Caroline Bowler, the CEO of local crypto exchange BTC Markets, said in a statement shared with Cointelegraph that the areas of reform are sensible and would keep Australia competitive with global peers.
However, she thinks there “will be additional detail required on capital adequacy and custody requirements.”
“We need to ensure that these requirements aren’t overly burdensome for business investment in Australia,” Bowler said.
Kraken Australia’s managing director, Jonathon Miller, said there is an “urgent need for bespoke crypto legislation” to address the existing confusion and uncertainty in the country’s industry.
“We believe that by establishing a clear crypto regulatory framework and mitigating problems like debanking, government can remove the barriers hampering growth in the Australian economy,” he said.
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