CEX Crypto Corruption Cases
The recent Celsius incident is indicative of the overwhelming corruption and manipulation in the cryptocurrency industry by the centralised exchanges in recent years.
A week or so has passed since the Celsius debacle and the most recent cryptocurrency crash in what is now being dubbed the “Mashinsky moment” - I will have the benefit of hindsight when analysing this and the past situations that fit under this particular topic, but I’m sure it will be indicative of many more incidents like this that will occur in the future, since that is the philosophy that the cryptocurrency industry themselves seem to adopt.
Alex Mashinsky is the CEO of what used to be a pretty respected cryptocurrency exchange & application called Celsius. As referenced on their own website:
1.7 million people call Celsius their home for crypto … Because we put our community first. Join us for military-grade security, next-level transparency, and a do-it-all app designed to help you reach your financial goals.
The irony. Of course, that “military-grade security” is actually akin to the military-grade security of Andorra, the “transparency” akin to the Saudis when discussing 9/11, and the “financial goals” akin to someone who wants to donate their earnings to charity. All of those “1.7 million” people’s “financial goals” have been severely affected and damaged by Celsius’ reckless actions last week, in which the “exchange” paused all withdrawals, swap, and transfers between accounts. In their statement posted on their blog and emailed to their (former) consumers [1], they said:
We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations … Acting in the interest of our community is our top priority.
This is blatantly a juxtaposition of course, and anyone with a functioning voice-box can point that out. Some choose not to however, they religiously believe that the cryptocurrency industry is all flowers, that it really is the next big thing, and that the industry really lives up to its ‘decentralised’ advertisement. You could probably count on two hands, or maybe even with just one, the amount of truly decentralised and significantly beneficial projects out there today, out of the 19,885 ‘projects’ at the time of writing [2].
Celsius’ interests do not, and never have, aligned with their consumers, and the same can be said for the rest of the centralised exchanges (CEXs). Binance, crypto.com, Bittrex, to name a few, are all guilty of this sort of corruption and manipulation, which brings an important question to mind; whose interests do they really serve?
Binance alone, have had countless suspensions and alike just this year, let alone in their entire history [3, 4, 5, 6, 7].
With little to no explanation, these CEXs can prevent people from trading, something that has become an all too common issue. Binance on Monday announced that users are not permitted to trade at this time “due to a stuck transaction causing a backlog”. Changpeng Zhao, Binance CEO, took to Twitter to say that the issue would be fixed in no more than 30 minutes:
… And then took to Twitter again later on to detail the issue being prolonged, something which would damage the Bitcoin network even more.
Coincidentally, this sudden ‘technical issue’ occurred after BTC saw double-digit losses to beneath $24,000 (£19,880), following Celsius’ implosion earlier in the day.
Additionally, a 2021 Reddit thread was published highlighting Binance’s potential involvement in market manipulation in the ETH/USD trading pair [8]. Upon showing their proof, the user concluded:
It's possible that Binance(:) shorts crypto, squeezes liquidity from customers after crunching them, and then, reinstates the trade option again if it is purchase or sell.
You be the judge, I have withdrawn my funds from there and will never return to trade there.
Furthermore, during the recent LUNA crash, Binance suspended the UST/BTC trading pair, a pair that bought many a profit for those who shorted [9]. Similarly, other CEXs like crypto.com, reversed profitable LUNA trades, but of course, did not reverse the trades that bought about losses [10, 11]. Say you played the situation smartly, and chucked some throwaway money, e.g, $1,000, into LUNA when it was worth $0.01, and LUNA jumped to $1, your investment would’ve been worth $10,000 - in a fair environment. Instead, if you were trading with crypto.com and this occurred, you would’ve seen your profit completely wiped, but, for a silver lining, they’d have given you $10 worth of CRO for your troubles.
In a very high profile incident in 2017, Bittrex suspended and eliminated numerous accounts with no explanation, until a few days later, when they published their ‘reasoning’ [12]. Bittrex claimed that the issue was merely a “compliance review”, since these exchanges and their diversity-hire PR teams can conjure up any laughable excuse that they please. Being based in the United States, it is understandable that Bittrex have vast amounts of regulations and laws to abide by, but the exchange never bothered to offer an explanation as to why the thousands of banned accounts had been terminated. As a user who emailed CoinTelegraph about the matter put it:
Please help me … I have about six Bitcoins in my account … I (will) lose my money … Please tell Bittrex to activate my account only for 10 minutes so that we can withdraw our money … Please.
In reaction to the lack of communication, many users on the initial CoinTelegraph article [13] and on social media, vowed to distance themselves from Bittrex - many complaints about Bittrex cited their support tickets going unread or ignored for multiple days before the shill PR statement was released.
Onto Coinbase, in 2017, a long Reddit thread was published accusing (and proving) that the exchange were either partaking, or turning a blind eye to spam trading and illegal price manipulation for the LTC/USD trading pair [14]. The main participant in the thread talked of hiring a lawyer and commencing cooperation with the Financial Crimes section of the SEC, and referenced their “25 year trading knowledge” to discuss the immorality of Coinbase’s actions at that time. The user, under the pseudonym “JRu007”, posted this set of updates in the thread:
Update: I have spoken to SEC agents and have provided the required proof that my claim against Coinbase is valid and just. Coinbase has closed their fraud hotline (number) in an attempt to deny that they ever received the phone calls. I have the logs to prove I called and several emails. Yet Coinbase is still allowing with full knowledge, these trades to happen. The site is being monitored as I type and it is openly allowing spam trades to manipulate the market. I firmly believe that the LTC market is being manipulated by Coinbase themselves in collusion with their former employee Charley Lee...the founder of LTC. Especially since Charley has made statements that he wants (the) LTC price (to be) "stable" in order to attract business to use LTC. Here is the SEC case no.TCR1509902069851. I have been involved in financial control and risk analysis for 20 years. Coinbase is involved by either aiding in this activity or the actual source of this illegal trading. Either/or are both ILLEGAL. I was also informed that the bot is not only bringing price down but staff at the SEC have noticed that the spam trades are also "buying" the price to a certain level.
They continued:
Coinbase has a new no. 1 888 908 7930. In all my professional career I never seen anything like this...this is supposed to be a 24/7 exchange - millions of dollars being exchanged (per) minute and no support. The robo trading has to be stopped as it is being used to manipulate the market to the benefit of the single individual or group that is running the bot. It’s illegal … Coinbase either blocks the API that is making these illegal trades or has to pay for their failure of "due diligence" to those be harmed by this illegal spam trading. Again I have filed with the SEC and Coinbase has not even called to respond to my attempts at "arbitration" to make me whole for not stopping the robo manipulation trades. That in itself is illegal. I have asked for arbitration by an exchange and they will not even respond!
As mentioned in the text, the SEC case number was TCR1509902069851. They conclude the thread by saying:
To all the idiots out there who said nothing could be done to Coinbase … You are wrong. I have unfrozen my client’s account with just one statement to one agency. Coinbase responded in one day and is hiring a new Head to fix outstanding problems. You can say thanks later. Now I am addressing the obvious bot trading designed to trigger stop losses and buy those who use stop loss holdings below market value. It is being done across all coins on Coinbase. I assure you that I will have this addressed as I have moved Coinbase to fix the "seized" funds problem.
I could go on and on, citing article after article, post after post, showing what these CEXs get up to, but you get the point. Outcry will never solve the problem - as long as the penalties don’t outpace their profits, then they’ll continue to conduct these types of manipulative manoeuvres.
The cryptocurrency industry can be very profitable for retail investors and companies, but never both simultaneously it seems. During these types of blood weeks, the average investor is taken advantage of, and the CEXs reap the rewards. This is supposed to be a ‘decentralised’ industry, but it behaves and is treated like the IRS’/US Government’s playground.
-=+=-
[1] https://blog.celsius.network/a-memo-to-the-celsius-community-59532a06ecc6
[2] https://coinmarketcap.com/
[3] https://currency.com/binance-withdrawals-suspended-ban-bitcoin-redemption-again
[4] https://www.reddit.com/r/Monero/comments/uiurnx/
[5] https://www.reddit.com/r/terraluna/comments/ulwwuw/binance_has_suspended_ust_withdrawal_temporally/
[6] https://www.reddit.com/r/solana/comments/ugnmog/binance_has_suspended_sol_withdrawal_for_the_last/
[7] https://www.reddit.com/r/harmony_one/comments/s1kk83/one_withdrawal_suspended_on_binance/
[8] https://www.reddit.com/r/CryptoCurrency/comments/n1esdl/binance_manipulating_markets_must_read/
[9] https://www.binance.com/en/support/announcement/c24b77f6b7f14f618676f416edfb07aa
[10] https://cryptonks.com/2022/05/lol-crypto-com-exchange-will-reverse-luna-trades/
[11] https://crypto.com/product-news/luna-trading-incident
[12] https://cointelegraph.com/news/bittrex-exchange-breaks-silence-on-banned-accounts-questions-remain
[13] https://cointelegraph.com/news/bitcoin-altcoin-exchange-bittrex-eyed-with-suspicion-due-to-thousands-of-mysterious-account-closings
[14] https://www.reddit.com/r/CoinBase/comments/77ruuq/coinbase_price_manipulation_spam_trading/