March 28, 2023

🥛 7 things to know: CFTC vs. Binance

GM. This is Milk Road. We’re like a long sip of water from the garden hose on a hot summer day: there’s nothing better than us.

Here's what we're serving up for you today:

  • CFTC sues Binance 👊

  • Microstrategy buys more Bitcoin 🤑

  • Gucci teams up with Yuga Labs 👜

Prices as of 9:30 AM ET

Today's edition is brought to you by Arthouse Spirits DAO, an exclusive NFT-gated community for investors.


It’s happening, folks. The U.S. government is coming after the world’s largest crypto exchange.

The Commodities Futures Trading Commission is suing Binance, CEO/cofounder Changpeng Zhao (AKA CZ,) and ex-chief compliance officer Samuel Lim for allegedly breaking U.S. laws and offering unregistered futures & options trading.

CZ called the suit “unexpected and disappointing” in a blog post late Monday.

We read through the entire 74-page lawsuit so you don’t have to. And there was more tea spilled on the crypto giant than at the Boston Tea Party…

Here are the top 7 piping hot allegations:

1/ Binance secretly let U.S. customers use its platform

The U.S. banned Americans from using Binance’s platform in July 2019. But apparently CZ pulled the ole sneak-a-roo…

Binance told U.S. users to use Virtual Private Networks (VPNs) as a loophole.

VPNs are the magic cloak of the internet. They keep a user’s true location hidden so even if customers are in the U.S., they can make it appear as though they’re in Europe. Plus, no AML or KYC verification needed.


2/ CZ’s been counter-trading his own customers

Binance traded for profit on its own platform via ~300 “house accounts” that were all owned by CZ and two other trading firms. And CZ has traded on Binance via two individual accounts.

CZ, you know that’s not exactly what “market maker” is supposed to mean, right?

He said that’s not true though in his post. Binance “does not trade for profit,” and he has a Binance Card account and then one for his own crypto holdings. But he and his employees aren’t allowed to make more than one trade every 90 days.

The CFTC says otherwise: that the house accounts were exempt from Binance’s insider trading policy.


3/ Binance faked a compliance audit

Binance employees allegedly created a fake, “half-assed” audit in the fall of 2020.

Around the same time, a Money Laundering Reporting Officer (MLRO) wrote, “I HAZ NO CONFIDENCE IN OUR GEOFENCING” when talking about the exchange’s ability to stop money laundering.


That’s like trusting your surgeon who “HAZ NO CONFIDENCE IN OUR OPEN-HEART SURGERY.”

5/ Binance alerted its VIP members if the cops asked about their account

If the law requested Binance to freeze a VIP member’s account for whatever reason, its VIP team would notify the user “through all available means.” The account would unfreeze after 24 hours.


Whatever happened to good ole unlimited spa access for VIP members…

6/ Binance knew criminals used its platform, but didn’t care

Lim said in a chat in early 2019 that terrorists usually send “small sums” since “large sums constitute money laundering.”

He made the comment after he got information “regarding HAMAS transactions,” referring to the militant org. Lim’s colleague replied, “Can barely buy an AK47 with 600 bucks.”

And Lim said “like come on. They are here for crime” in February 2020 while talking about Binance customers from Russia. The MLRO agreed and said, “We see the bad, but we close 2 eyes.”

7/ CZ made Binance’s corporate structure opaque to maintain control of everything

There are ~120 entities in Binance’s corporate structure. CZ has controlled all of them at one point, either directly or indirectly.

CZ’s like that partner in high school that won’t let you do any part of the science project.


So what does the CFTC want? Lots of fines, a ban on Binance from trading commodities in the U.S., and a special court appearance from CZ himself. They want all the smoke!

Here are the best reactions from Twitter:

The Milk Road Take: This is the biggest step the U.S. has made to crack down on Binance. And the exchange doesn’t have a clear, easy way out.

On trial, Binance will have to be super open with authorities about how it operates. That could open the closet to more of the company’s skeletons.

If it takes the settlement route, a hefty fine could knock it on its back. And if Binance loses the case, it’ll have to pay back all of its profits it made from U.S. users.

Either way, CZ doesn’t seem too bothered. He tweeted “4” right after the news came out for his followers to dismiss the lawsuit as simply creating fear, uncertainty, and doubt and nothing more.

He might have to do better than a cheeky tweet and a blog post if he wants to make it out of this unscathed.


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Microstrategy is back in the headlines. This time, the Bitcoin-loving business intelligence firm made two more major moves:

1/ Repaid a 9-figure loan to Silvergate

Microstrategy received a $205M loan from Silvergate Bank back in March 2022. It was scheduled to be paid off by March 23, 2025. Or else…

But then Silvergate shut down…

As a result, Microstrategy got a 22% discount and only had to pay $161M. (We call it the Broke Bank Discount Double Check™)

Microstrategy completed the loan payment over the weekend and to celebrate it…

2/ Bought more Bitcoin

Microstrategy bought another 6,455 BTC for $150M, bringing its total holdings to… *checks notes*138,955 BTC, worth a whopping $3.75B.

The crazy part? Microstrategy now owns 1 out of every 151 Bitcoin that will ever exist.

It also now owns 2x more BTC than the top 10 corporate crypto treasuries in the world, combined. That includes companies like Tesla, Coinbase, and all the big Bitcoin miners.

Check it out:

Microstrategy is still down ~$400M on its BTC investment (ouch) but they don’t seem phased. They are the HODLER of HODLERS, the ones who hold Bitcoin with an iron grip.

So although it was Microstrategy’s first big buy of the year, it probably won’t be the last.


Gucci is teaming up with Bored Apes creator Yuga Labs. The pair haven’t disclosed much, except that the “first chapter” of a multi-year partnership kicks off this week.

Kokomo Finance rugged a bunch of its users. The team exited the protocol and stole $4M of user funds. Ouch…

Peter Schiff, a long-time Bitcoin critic, said he might buy a few thousand Bitcoins “just for kicks” when he turns 70. He turned 60 last week.

A hotel inspired by the Wassies NFT project just opened in Singapore. It has 49 rooms, and Wassie NFT holders can get a discount of up to 20%.


That's a wrap for today. Meet us on Twitter to talk all about it. It’s kinda like a family BBQ but better – no screaming kids, awkward photos, or drunk uncles telling weird stories (@MilkRoadDaily)


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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.