Binance, the world's largest crypto exchange, announced last month that it would be exiting Canada. At the time, it blamed "new guidance" issued by Canada's securities regulators. We now have an even more detailed explanation from Binance about the nature of this "new guidance."

First, Binance says that Canadian securities regulators refused to approve its BUSD stablecoin.

If you explore this claim more closely, it just doesn't hold water. Canadians use Canadian dollars for almost everything, but BUSD is a U.S. dollar stablecoin. There's no way that any exchange's strategy for attracting Canadian customers would depend to any significant degree on providing us with U.S. dollars. (And if this was a major part of Binance's Canadian strategy, what on earth were its executives thinking?)

The other reason this excuse is a flimsy one is that the BUSD stablecoin was already due to be retired by February 2024, on orders emanating from the New York Department of Financial Services. Surely Binance's entire Canadian strategy didn't rely on a stablecoin that was destined to become defunct anyway.

The second excuse Binance gave for its departure was new guidance that its token BNB (if approved) would be subject to "investment limits." What Binance is presumably referring to is the regulatory line that most Canadian securities regulators drawn between restricted crypto assets and specified crypto assets. If a crypto asset is a specified asset, exchanges can let their customers buy it without limit. But restricted crypto faces a $30,000 ceiling, waived only if you are an eligible or accredited crypto investor.

So long story short, Binance says it was blindsided by BNB being deemed a restricted crypto asset.

But surely this couldn't have come as a sudden surprise to Binance. Twenty-three crypto exchanges have sought Canadian regulatory approval over the last three years, and in each case the list of approved specified assets (i.e. those not subject to buying limits) has been consistently confined to bitcoin, ether, bitcoin cash, and litecoin. It seems very unlikely that Binance's entire strategy for entering Canada depended on trying to add BNB to what has always been a set-in-stone list.

If Binance didn't leave because of a prohibition on BUSD or limits on BNB, then why did it leave?

One possibility is that Binance may have got wind of a recently unveiled Ontario Securities Commission's investigation into Binance's practices, and decided to cut its losses.

Alternatively, Binance may have belatedly realized that it simply didn't have the institutional chops to comply with Canada's regulatory framework. For instance, in order to protect customers from malfeasance, exchanges that want to deal with Canadians must keep 80% of all crypto at a third-party custodian. Binance doesn't currently use a third-party custodian, so it would have had to build a new platform for Canadians.

Realizing only after it had launched itself on a path to regulated status that it couldn't comply, Binance needed a face-saving reason to cut & run. When Canadian regulators provided Binance with the first round of feedback this spring, the exchange seized on this "new guidance" as its pretext for leaving, thus allowing it to blame regulators rather than blaming itself.

Along with the trillion dollar platinum coin and premium/perpetual bonds, the gold trick lies in the genre of strange-accounting-tricks-to-evade-the-US-debt-ceiling.

With the debt ceiling getting closer every day, gold bugs like James Rickards are calling for the U.S. to trigger the gold trick with "just one simple phone call."

I've explained the gold trick three times before [ here | here | here ]. I don't really feel like rehashing the intricacies of it again, so reread my posts if you want to absorb all the complexities.

The idea, in brief, is that by increasing the U.S.'s official price of gold, which currently lies at $42.22, to the current market price of $2000 or so, the accounting value of the U.S. Treasury's stock of gold would suddenly be worth hundreds of billions more. The Treasury could then take the newly-realized extra value of its gold (known as "free gold") and submit it as collateral at the Fed, in the form of gold certificates. Once that collateral is submitted, the Fed can in turn instantiate a bunch of fresh dollars that the Treasury can spend.

Since none of these gold-related accounting changes qualifies as an increase in the official debt, voila, the Treasury can spend without running into the debt ceiling.

There's one big caveat. Rickards, for instance, goes off the rails when he writes: "one phone call from the Treasury to the Federal Reserve could reprice the Treasury’s gold from $42.22 per ounce."

It's just not that easy. All previous gold price increases, including the 1934 increase to $35, the 1972 increase to $38, and the 1973 increase to $42.22 required approval from Congress. Given that it is Congress that is the impediment to a straight debt ceiling increase, why would that very same Congress consent to a pseudo-increase via an change in the official gold price?

I suppose there may be enough gold-loving Republicans that the bill would pass. But as you can see, the gold trick is just not as effective as the premium bond/perpetual bond trick or the platinum coin trick, both of which avoid Congressional approval altogether.

The official price of gold illustrated:

The UK is wresting with how to regulate crypto. Should it be treated as a financial service or as gambling?

The Conservative government wants to regulate crypto as a financial service. That is, it wants to bring cryptoassets within the framework established by the Financial Services and Markets Act, which governs the regulation of a wide range of financial services.

But a Treasury Committee made up a cross-party group of MPs criticized this approach yesterday, calling for consumer trading in "unbacked crypto" to be regulated as gambling. They say that regulating unbacked crypto as a financial service will create a halo effect that leads consumers to believe that this activity is safer than it is.

I don't think this needs be an either/or thing. The UK should regulate crypto as both a gambling product and a financial service. Here's how and why:

First, the argument for regulating it as financial service. Take a crypto platform like Coinbase. Coinbase does what regular investment dealers and stock exchanges do. It provides a set of order books, much like a stock exchange, and holds customers' crypto, much like a broker. The UK's existing financial services regulatory framework will be best equipped for ensuring these activities are safe, including having rules for custody, market manipulation, appropriateness, insider trading, and more.

Sure, in an effort to protect consumers you could in theory task the UK's Gambling Commission with regulating these sorts of capital markets activities, but it has no experience doing so and will be far out of its depth. Best to go with the closest-fitting regulator.

Second, here's why crypto should also be regulated as gambling. The Treasury Committee is right; much of the activity occurring on a venue like Coinbase is really just gambling. Unbacked crypto like bitcoin, dogecoin, ether, shiba inu, and floki are fast, fun, and potentially addictive 24/7 recursive betting games. (Not all crypto falls in the unbacked category. For instance, MKR tokens are backed, much like an equity.)

As a facilitator of unbacked coin betting, Coinbase should be subject to some of the same regulations as a casino or poker site, including rules surrounding gambling addiction, advertising, and underage access. The UK's Gambling Commission will be the best-equipped body for applying these requirements, certainly better than the UK's financial regulator. Furthermore, recognition of unbacked crypto trading as gambling would diminish any 'halo effect' brought on by bringing venues like Coinbase under the ambit of financial regulation.

So crypto shouldn't be either gambling or a financial service, but a one-two punch of both, with the appropriate regulator taking responsibility for that facet of crypto for which they have the best expertise.