Crypto suffers largest crash, DOJ makes largest BTC seizure

The digital asset community is still reeling from its largest-ever liquidation event, United States law enforcement made its biggest-ever token seizure, and Roger Ver finally paid his taxes.

The digital asset sector is trying to recover from this weekend’s abrupt ‘flash crash’ that resulted in the single largest liquidation in the sector’s history. The drama began Friday (October 10) when U.S. President Donald Trump issued a Truth Social post that threatened to impose 100% tariffs on China if they didn’t roll back plans to restrict exports of rare earth minerals.

While gold and silver prices increased, tokens and tech stocks plunged, resulting in ~$19 billion in liquidated positions on both centralized exchanges and decentralized finance (DeFi) platforms like Hyperliquid. An estimated 1.6 million traders were zeroed out during the carnage, as BTC, ETH, and other major tokens fell by double-digit percentages before individuals/entities stepped in to buy the dip (what some call organized ‘plunge protection’).

Complicating matters were exchange outages that prevented customers from shifting their positions, along with some less predictable events. Binance temporarily showed users the value of certain tokens hitting $0 (zero), which the exchange blamed on certain trading pairs having “recently reduced the number of decimal places allowed for minimum price movement, causing the displayed prices in the user interface to be zero.”

Binance also saw some supposedly stable tokens experience “de-pegging issues due to sharp market fluctuations.” This included USDe, the ‘synthetic dollar’ issued by Ethena Labs, that is one of the key instruments in customers’ leveraged bets on Binance. USDe plunged to just $0.65 on Binance at one point, but Binance says it has distributed “approximately 283 million USD” to compensate impacted customers.

Binance further pledged to compensate users impacted by internal delays in fulfilling top-up transfers. Also, Binance and the Four Meme token launchpad on its BNB Chain network announced a $45 million ‘reload airdrop’ for users who lost money during the chaos. And on Tuesday, Binance announced an additional “$400M recovery and confidence-rebuilding plan to support users and institutions during this volatile period.”

The day after the initial crash, Kris Marszalek, CEO of the Crypto.com exchange, tweeted that regulators “should look into the exchanges that had most liquidations in the last 24h and conduct a thorough review of fairness of practices.”

We won’t hold our breath awaiting that probe, but there should be lessons here regarding the potential pitfalls of leveraged bets, the scale of which had soared this year. It also points out the fallacy of referring to BTC as ‘digital gold,’ given the token’s sharp retreat while actual gold surged to yet another all-time high during the crypto rout.

And it should serve as a reminder to the ‘crypto’ community that, while Trump has been their best buddy by creating the conditions that have pumped their bags, he can also deflate this balloon simply by flexing his thumbs.

Not everyone suffered from the mayhem, as a single Hyperliquid trader made over $142 million in realized profit by aggressively shorting both BTC and ETH ahead of Trump’s tariff post. A blockchain sleuth linked the trader to Garrett Jin, founder of the BitForex exchange, which shut down in February 2024, taking over $56 million of its customers’ funds with it.

While other sleuths questioned these findings, Binance founder Changpeng ‘CZ’ Zhao tweeted a response to the initial allegations, saying he wasn’t sure about Jin’s involvement but hoped “someone can cross check.”

Jin responded to CZ’s tweet on October 13 with a since-deleted tweet that sarcastically thanked CZ “for sharing my personal and private information.” While Jin confirmed his involvement, he claimed that the funds backing the trades aren’t his but belonged to “my clients.” Jin went on to say, “I have no connection with the Trump family or [the president] – this isn’t insider trading.”

While the token crash was followed by a partial recovery, news that the same Hyperliquid account had opened up new short positions prompted another price decline. And while that plunge sparked another partial recovery, everyone is basically walking on eggshells while events beyond their control occur offstage.

DOJ slays the fatted pig

Another ‘crypto’ record was set on Tuesday as the U.S. Department of Justice (DOJ) announced the largest forfeiture action in the department’s history following the takedown of a ‘pig butchering’ kingpin.

An indictment dated October 8 was unsealed Tuesday in federal court in Brooklyn, New York, against British and Cambodian national Chen ‘Vincent’ Zhi. Chen is the founder and chairman of the Prince Holding Group, a multinational business conglomerate based in Cambodia. Chen is accused of wire fraud conspiracy and money laundering conspiracy for directing Prince Group’s operation of forced-labor scam compounds across Cambodia.

Pig butchering refers to online/phone scams in which the scammer develops a relationship with their victim over time, basically fattening a pig before slaughter. These generally involve fake romances or other means of connection, slowly building confidence and trust that eventually lead the scammer to convince their mark to invest money, often via crypto schemes that promise big rewards but never deliver.

The Prince Group allegedly operated several compounds that trafficked “hundreds of workers” forced to perpetuate the scams “under threat of violence.” Chen was “directly involved” in this violence and possessed “photographs depicting beatings and other methods of torture.”

The Prince Group relied on “professional money laundering operations” to help clean its ill-gotten gains, but also laundered via its “ostensibly legal business enterprises, including its online gambling and cryptocurrency mining operations.” (The mining operations include the Texas-based subsidiary of Warp Data Technology.)

Chen kept a significant number of BTC tokens in “unhosted cryptocurrency wallets whose private keys the defendant personally held.” It is from these wallets that the DOJ seized “127,271 Bitcoin, currently worth approximately $15 billion.” (Closer to $14.4 billion at $113,000 per token, but the price keeps moving.) Interestingly, the wallets in question were flagged by blockchain researchers as having weak security two years ago.

While the 38-year-old Chen remains at large, the U.S. Attorney’s Office for the Eastern District of New York and the Justice Department’s National Security Division have filed a civil forfeiture claim against his tokens.

The release offers no indication as to what the future might hold for these seized tokens, including whether victims of the Prince Group’s scams might be compensated down the road. Which brings us to the thorny question of the Strategic Bitcoin Reserve, the Trump-endorsed holding pen for all BTC tokens currently in the government’s possession.

While Trump’s executive order establishing the Reserve offered the possibility that the government could theoretically buy more tokens via ‘budget-neutral’ means, Treasury Secretary Scott Bessent has chosen to focus on using “confiscated assets” to expand the Reserve beyond its current 198,012 tokens.

Even here, there’s some confusion, as not all of those seized tokens have been officially forfeited to the government. Many are simply being held while the complicated claims to ownership by victims of fraud/theft are sorted out.

In recent years, Sen. Cynthia Lummis (R-WY) has introduced legislative efforts that would (a) bar the government from ever selling any of its BTC, and (b) buy an additional 1 million BTC tokens over five years using some accounting sleight of hand that revalues the nation’s gold certificates.

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Roger Ver pays that (tax)man his money

Speaking of profiting off the proceeds of crime, Roger Ver has reached a deal with U.S. prosecutors that will see them dismiss the mail fraud and tax evasion charges filed against him in February 2024. The New York Times initially reported on the proposed settlement on October 9.

On October 14, the U.S. Attorney’s Office for the Central District of California filed a motion to dismiss the charges, which stemmed from Ver’s alleged failure to pay the taxes he owed Uncle Sam when he renounced his U.S. citizenship nearly a decade ago. Ver was also accused of lying to the accountants who prepared his exit tax filing regarding the extent of his BTC holdings.

The DOJ’s motion says Ver has now admitted that when he signed those tax returns in 2016, he “did ‘not report ownership of all these bitcoins and did not report capital gains from the constructive sale of all of these bitcoins, causing a loss to the United States of $16,864,105.”

Ver, who was once known as ‘Bitcoin Jesus’ for his early advocacy of the technology, also admitted that his tax evasion was “willful” and has “paid the assessed tax, penalties, and interest.” Ver signed a closing agreement with the Internal Revenue Service allowing it to “collect the total sum of no more than $49,931,911.19.”

The motion sought dismissal of the charges without prejudice and bound Ver to a three-year tolling period that prevents him from filing a refund claim seeking the return of the sum he agreed to ante up. Should he file such a claim or otherwise violate the agreement, the DOJ could prosecute Ver “for any crimes related to the conduct described in the indictment.”

In May 2024, Ver was arrested in Spain, where he’s resided ever since after being released on bail. This January, shortly after Trump’s inauguration, Ver tweeted a lengthy video in which he claimed to be a victim of U.S. ‘lawfare’ in an attempt to play on Trump’s sympathies and perhaps secure a presidential pardon.

In May, the Wall Street Journal (WSJ) reported that Ver’s associates had been contacting “at least five lobbyists and lawyers in Trump’s orbit” to secure a pardon or dismissal. Ver was said to be offering up to $10 million for this service, although his lawyer denied these reports. Ver ended up paying Trump associate Roger Stone $600,000 for two months’ work on securing this pardon, but nothing ever came of it.

In August, Bloomberg reported that Ver had been the target of some other would-be pardon enablers, including Tether co-founder Brock Pierce. Again, nothing ever came of these efforts.

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CZ pardon imminent?

The odds on Ver securing a Trump pardon currently sit at 15% on the Polymarket prediction market site, 18 points below what they were before news of his settlement broke. But the odds on Binance’s CZ securing a Trump pardon have shot up to 55%, spurred by recent reports that a pardon is indeed in the works. (Similar odds can be obtained from Polymarket rival Kalshi.)

On October 10, Fox Business correspondent Charles Gasparino tweeted that “discussions inside the White House are heating up on the possibility of a pardon” for CZ. Gasparino claimed that “many Trump insiders believe the fraud case [against CZ] was pretty weak, and certainly not something that merited a felony charge and jail time.”

However, Gasparino said some White House staff “are worrying about the optics of a pardon given the president’s business interests in crypto, so the situation is obviously fluid. That said a decision is said to be soon.”

CZ replied to the tweet, calling it “great news if true.” But CZ corrected Gasparino, saying “there were no ‘fraud’ charges.” CZ said he believed the Biden-era DOJ “looked very hard for it, but didn’t find any.”

In November 2023, CZ pleaded guilty to violating the U.S. Bank Secrecy Act and was sentenced to four months in prison and paid a $50 million penalty. His company was required to pay $4.3 billion in penalties for operating an unlicensed money transmitting business and violating U.S. economic sanctions.

CZ was also required to step down from his role as Binance’s CEO, a position currently held by Richard Teng. In mid-September, CZ changed his X account bio from “ex-@binance” to “@binance” which some interpreted as him preparing to return to an active role at the exchange.

Around the same time, Bloomberg reported that Binance was “moving toward a potential deal” with the DOJ that would see the exchange rid itself of the outside transaction monitor it was required to accept as part of its 2023 settlement.

Bloomberg reported that Binance “would likely have to adopt enhanced compliance reporting requirements” in exchange for shedding the DOJ monitor, which was supposed to be observing Binance transactions for a period of three years (the monitor also didn’t start immediately, meaning the original timeline wouldn’t expire until 2027).

A separate monitor reporting to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) was given a five-year mandate at Binance. So far there’s been no report of a separate deal in the works.

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Ditto SBF?

Traders at both Kalshi and Polymarket can also bet on whether Trump will pardon Sam Bankman-Fried (SBF), the disgraced founder of the failed FTX exchange. FTX went under in November 2022 after improperly spending billions of dollars of its customers’ money on outside investments (both good and bad). SBF was later sentenced to 25 years in prison after being convicted on seven counts (fraud, money laundering, conspiracy, etc.) in November 2023.

Earlier this month, Mother Jones published a prison interview with SBF in which he revealed that he’ll be appealing his conviction in early November. SBF still shows little sign of contrition, at one point telling his interviewer, “you know, I never defrauded anyone.” (In between bouts of self-delusion, SBF has reportedly been working on a prison memoir.)

SBF’s appeal will reportedly focus on the investments he made with his customers’ money, and how some of the companies—Robinhood Markets (NASDAQ: HOOD), AI firm Anthropic, etc.—have dramatically increased in value since FTX imploded. SBF will argue that, had the bankruptcy administrators not sold these investments off so quickly to plug the ~$8 billion hole in FTX’s books, all would have been well.

But will an appeal be necessary? On Tuesday, MAGA personality/Trump confidante Laura Loomer tweeted that there was “a massive and well funded lobby effort to get this criminal [SBF] pardoned. He’s going to pretend like he was a victim of Joe Biden and the Democrats … don’t fall for it.”

So far, prediction market bettors aren’t falling for it. On Kalshi, SBF’s odds of being pardoned this year are a mere 4% and just 5% on Polymarket. And for the record, Loomer was equally critical of reports of CZ’s pardon, to which CZ himself responded to correct some of her claims.

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Watch: Culture of BSV and the ‘Crypto’ Economy

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