Missionaries vs. Mercenaries

Level 2 - Value Investor

Welcome Avatar!

Crypto has been the victim of long brutal bear markets, the likes of which few industries in a secular uptrend have experienced.

Every few years, there is a washout of participants who weren’t aligned with its mission.

We get it. The amount of short-term profit opportunities available in crypto are like no other. Instant access to liquidity makes it so that the traditional startup timeline from inception to exit is massively shortened.

The market dynamics present in crypto make it the stomping ground of mercenaries. However, crypto was built by missionaries. The determination, curiosity and capabilities of a relatively small group of people built the foundation of the decentralized empire.

Those who carried the water through the times where it was seemingly all over are the reason we are able to continue to push the edges of the industry further.

We joined this industry because we believe in the promise of crypto. Along the way we have learned that even if you are a missionary, you have to understand how the mercenaries think because they represent such a huge portion of the market demand.

You cannot have a functioning financial market without mercenaries.

The mercenaries seeking profit use DeFi as much as anyone. These profits are able to fuel the projects and desires of the missionaries.

Crypto has often found itself at the center of the tug of war between “speculators” and “builders.” Who creates the value? It’s both!

Missionaries can turn into mercenaries. Mercenaries can turn into missionaries.

Which of these represent Binance founder Changpeng Zhao (“CZ”)? We’d argue he’s a mercenary who turned into a missionary.

CZ was born in Jiangsu, China in 1977. His dad was a well-educated professor in China. His father was temporarily exiled to rural areas, a common practice at the time for those who were deemed to be part of the intellectual class.

When CZ turned 12, his family moved to Vancouver, Canada. He went to McGill University and studied CompSci. After working at various finance companies in tech he found his way to crypto in 2013 through a poker game.

Four years later he founded Binance. Binance experienced a meteoric rise, now boasting *150 million* users. CZ became a billionaire many times over. Our guess is that he is in the top 20-30 richest people in the world.

Today, Binance and CZ pleaded guilty to criminal charges as part of a Deferred Prosecution Agreement with United States agencies.

As part of the agreement, CZ will step down and Binance will pay fines totaling ~$7 billion to various US agencies. Binance will come under US monitorship for a period of three years and permanently exit the US market. The charges relate to gaps in KYC, failing to register, and violating sanctions, e.g. some $900 million in transactions with users in Iran. There are no allegations of misappropriation of customer funds.

We noticed an interesting omission - US regulators did not seem overly concerned about the unregistered securities (altcoins) being promoted and sold on Binance.

Which means it’s likely that CEX listings of non-compliant coins will continue on international exchanges without fears of reprisals from the US. Altcoins live on!

CZ is banned from any activity related to Binance for 3 years. What’s next for him?

After that, my current thinking is I will probably do some passive investing, being a minority token/shareholder in startups in areas of blockchain/Web3/DeFi, AI and biotech. I am happy that I will finally have more time to spend looking at DeFi.

CZ will be investing and advising in DeFi (if you’re reading this, welcome!)

These DoJ charges have been overshadowing the market for some time, and we think the clarity provided by the settlement is bullish for the industry. Our paid subscribers will be pleased to see that Coinbase shares closed up at $105.62 following the news.

As for Binance, the CEO seat has been handed over to Richard Teng, Binance’s Head of Regional Markets.

The mission lives on. Not without some oversight, however.

Under the terms of the settlement, court-appointed monitors from the Justice Department and FinCEN will be appointed for three- and five-year terms. They will oversee Binance’s operations and closely watch the flow of funds and customers. They’re required to be experts in AML and sanctions.

In essence, the party is over at Binance. Whatever bad stuff they were doing has to stop. They’ll have to pay over $4 billion in fines. However, they get to continue to operate. All in all, it feels like a win for Binance. CZ has to fork over $50 million in fines and put up a $175 million bond for his release, but that is a drop in the bucket for him. He’ll be sentenced and faces up to 18 months in prison.

Whether CZ found his way to crypto as an opportunist or an enthusiast, we’ll never know. Binance certainly did its best to profit from its customers, and its certainly likely that it was founded with the goal of capturing value from crypto trading. However, the sacrifice required to get Binance to the level CZ took it to cannot be the actions of a mercenary.

The successful mercenaries in crypto have already gotten rich and slowed down. CZ is a missionary. Binance’s contribution to the growth of the crypto industry is undeniable.

We’re not saying Binance didn’t do bad things under his watch — that would go against what he admitted to. Unlike FTX and SBF, CZ and Binance have unequivocally left the crypto industry better off than when they came (at least as far as we know today!).

CZ built Binance into the world’s largest crypto exchange in a few short years, achieving emperor-like wealth in the process.

This news should serve as a call to all builders, whether they are missionaries or mercenaries. Crypto remains the largest digital greenfield space of today. Even today, within 3-6 months you can start making an impact in the industry.

This transition marks a new chapter in Binance's history, one that could redefine its role in the crypto ecosystem.

The settlement with U.S. regulatory bodies, while imposing hefty fines and restrictions, paradoxically paves the way for a more compliant and possibly more resilient future for Binance.

The substantial fines and the mandated oversight are meant to be a clear signal to the entire crypto industry: the era of the Wild West is coming to an end. Is that how it will play out in practice? Crypto is an international industry. There are limits to the reach of U.S. regulatory oversight.

It seems that once again, the crypto industry stands at a crossroads. On one side is the path of unchecked innovation and risk-taking, which has led to remarkable breakthroughs but also significant pitfalls.

On the other side is a more regulated, structured, and perhaps less volatile future. This new phase could potentially attract a broader base of institutional investors and mainstream users who have been wary of the industry's earlier unpredictability. However, this would come at great cost to the ethos crypto is founded upon. More oversight. More monitoring. Less freedom of movement of your capital.

For now, the best we can do is get more, useful tech into the hands of more people over time and hold strong until the Regulatory Boomers phase out.

This is a free post so feel free to share it. Become a paid subscriber for ~2 additional posts per week on our market views and token research.

Until next time..

---

Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.

• Academy: Comprehensive course made by us and taken by hundreds (Click Here)

• Security: Our official views on how to store Crypto correctly (Click Here)