On Wednesday, crypto markets were teetering on edge of panic and were gearing up for bad news after an announcement from the DOJ.
The Department of Justice said that it would conduct a press conference related to major ‘international crypto action’ soon.
The response
It took minutes for Bitcoin to drop 4.6%, while ETH also dropped by 5% at the same time. Crypto Twitter was in a complete frenzy regarding the announcement.
Many speculated that it could be another implosion of a critical market player similar to FTX. But, it did not take long for the dust to settle.
The announcement
By mid-day, criminal charges were brought forward by federal prosecutors against Bitzlato, which is a crypto exchange based in Hong Kong.
Anatoly Legkodymov, a Russian national and founder of the crypto exchange, is known by the nickname ‘Gandalf’ and he had been arrested a day earlier in Miami.
According to the authorities, the crypto exchange did not establish any anti-money laundering requirements.
They said that illicit funds worth $700 million had been processed by the crypto exchange during its history, which had primarily been in the form of transactions related to Hydra, the marketplace on the dark web.
Legkodymov would face a prison sentence of five years in case of a conviction of operating an illegal money transmitting business.
Lisa Monaco, the Deputy Attorney General, touted the arrest rather proudly for delivering a major blow to the crypto ecosystem.
She said that it eliminated a prominent member of the crypto crime axis, but only a handful of people in the industry had even heard about the company.
The Community
As compared to the scale of most crypto exchanges, Bitzlato is rather miniscule in size. Analytics company Arkham said that even at its peak, the trading volume of the Chinese exchange was never more than $6 million.
Once the DOJ’s announcement came to light, some members of the crypto community took to Twitter for criticizing the agency for stoking mass hysteria unnecessarily.
A lot of Twitter users found the underwhelming reveal funny, but not everyone was amused by it. Before the announcement, many had speculated that Binance could be involved.
The largest crypto exchange in the world is currently under investigation by federal prosecutors and many thought the DOJ would file charges against it.
The investigation has been ongoing for four years now. But, more recently, Binance had become entangled in the downfall of FTX and also admitted to having some unorthodox business practices.
Minutes before the press conference of the DOJ, Changpeng Zhao, the CEO of Binance, also shared a cryptic message on Twitter.
He implied that he was preparing for fake news, which saw net outflows from the crypto exchange reach $60 million within an hour due to concerns.
Meanwhile, the crypto market was able to make a recovery, as did both Bitcoin and Ethereum. Bitcoin was able to reach $20,923 and ETH reached $1,546.
Both the leading cryptocurrencies were able to recover more than half of their losses in the day.